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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-16617
ALTERA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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CALIFORNIA 77-0016691
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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2610 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA 95134
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 894-7000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $2,850,114,976 as of February
29, 1996, based upon the closing sale price on Nasdaq for that date.
There were 43,679,923 shares of the registrant's Common Stock issued and
outstanding as of February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Items 5, 6, 7, and 8 of Part II incorporate information by reference from
the Annual Report to Shareholders for the fiscal year ended December 31, 1995.
Items 11, 12, and 13 of Part III incorporate information by reference from
the 1995 Proxy Statement for the Annual Meeting of Shareholders to be held May
8, 1996.
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PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward- looking statements as a result of the risk factors set
forth below.
ITEM 1. BUSINESS.
GENERAL
Founded in 1983, Altera is a leader in developing, marketing, and
selling high-performance, high-density CMOS (complementary-metal-oxide
semiconductor) programmable logic devices ("PLDs") and associated software tools
for logic development. Altera's semiconductor products are standard products
that are configured by the Company's customers for specific applications using
the Company's proprietary software. The Company offers a broad general purpose
integrated circuit product line, ranging in density from an estimated 150 to
50,000 useable gates, as well as design tools that interface with a large number
of industry-standard electronic design automation environments. The Company's
products offer customers the benefits of low development costs, short lead
times, and standard product inventories when compared to application-specific
integrated circuits ("ASICs").
BACKGROUND
The CMOS programmable logic market has developed as a result of two
primary factors: (i) the need for more logic functions on each integrated
circuit in order to achieve the performance and cost objectives of electronic
systems manufacturers; and (ii) shortened product life cycles for end products
which put an increased premium on time to market for the system manufacturer.
The desire of manufacturers for further differentiation and improvement
of their products has generated demand for higher density logic circuits. Higher
density (and thus more "integrated") circuits, which have more logic functions
on each chip, allow the electronic equipment manufacturer to make improvements
to the end product that reduce physical size, reduce cost, improve performance,
reduce power consumption, and add features for further differentiation. However,
the need for increased integration and greater product differentiation makes it
difficult for electronic system manufacturers to use standard, mass- produced
logic circuits.
In the 1980's, ASICs gained popularity as a solution to the integration
problems noted above. ASICs include a variety of custom and semi-custom
alternatives, such as gate arrays, cell libraries, and silicon compilers. Using
computer-aided engineering ("CAE") software tools, ASIC designers are able to
combine sections of standard logic and memory, and generate unique tooling which
can then be used to fabricate a unique custom chip in the manufacturing process.
Although ASICs achieve the goal of higher density and more integration by
combining a variety of low-density parts into a single chip, they do so by
introducing several compromises, resulting from the customized manufacturing
process, that are undesirable to many users of standard low-density chips. These
compromises can include longer lead time to the marketplace, non-recurring
engineering ("NRE") fees, dedicated custom product inventory, lack of control
over sources of supply, and inflexibility of design iteration.
Over the past decade, CMOS programmable logic has had a significant
impact on electronic design. PLDs help the Company's customers to meet their
performance and cost objectives while avoiding the significant development
costs, long development lead times, and dedicated custom product inventories
associated with ASICs. Using the Company's PLDs, engineers can complete numerous
iterations of a product design and test and verify the design until it meets
their expectations, while still delivering new products to market relatively
quickly. Since 1984, when the Company introduced the first CMOS PLD, the market
for such devices has grown to over one billion dollars in 1995.
CMOS programmable logic devices are currently offered to the market by
semiconductor vendors in various architectures, using EPROM
(erasable-programmable-read-only-memory), EEPROM (electronically-erasable-
programmable-read-
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only-memory), SRAM (static random access memory), FLASH (non-volatile) memory,
and anti-fuse configuration storage elements.
BUSINESS STRATEGY
The Company's strategy is to be a leading supplier of CMOS programmable
logic devices and related software development tools by developing and offering
products which provide its customers with effective solutions for quickly
bringing their own products to market. Key elements of the Company's strategy
include:
Standard Components. The Company's PLDs are manufactured as
standard products (i.e., shipped "blank" for programming by the user).
The chips use CMOS technology for low power and use an erasable
configuration element: EPROM, EEPROM, SRAM, or FLASH. This combination
allows designers using the Company's PLDs to shorten the design cycle
which is characteristic of ASIC custom chips by permitting multiple
design iterations without the need to have prototype custom designs
fabricated in silicon, redesigned, and refabricated. The end user
benefits because Altera's programmable chips are configured at the
desktop, rather than in the foundry, by means of Altera's proprietary
development software, dramatically shortening the time to market. Since
Altera's integrated circuits are standard products and have a wide
range of uses, inventory risks are minimized for customers,
distributors, and the Company. Altera also benefits from economies of
scale in the manufacturing process by minimizing logistics, inventory,
and overhead costs.
Proprietary Product Architecture. The Company holds patents on
various aspects of its chip architectures which combine speed and
density with the benefits of user programmability. The Altera CPLD
architectures make certain performance paths in the integrated circuits
easier to predict and simplify the task of designing with programmable
logic devices.
Software Development Tools. Altera has dedicated a significant
portion of its research and development staff to the development of its
proprietary software. This software permits designers to use their
desktop personal computers or workstations to develop and program
Altera chips to function as custom logic devices quickly and under the
designers' own control. The Company's strategy has been to offer its
development software systems at relatively modest prices (beginning at
under $1,000) in order to achieve an installed base of design sites
that may generate future chip orders.
Broad Product Line. The Company applies its basic technology
to a broad general purpose product line spanning a range of densities,
pin counts, and speeds. Products currently in production range in
density from an estimated 150 to 50,000 usable gates. During 1995,
the Company began shipping the first member of the FLEX 10K family,
which ultimately will be capable of addressing designs estimated to
be as large as 100,000 useable gates.
Customer Designs. The Company actively seeks to induce
designers to incorporate its PLDs into products early in their design
cycle. Such "design wins" can lead to use of the Company's PLDs in
prototyping and, ultimately, in volume production of a customer's
product, potentially for the life cycle of that product. In addition,
system designers who have become familiar with the Company's PLDs may
be more inclined to use them in future designs, potentially resulting
in additional sales for the Company. The Company's marketing efforts
include advertising, seminars, and demonstrations for potential
customers. The Company also provides applications engineers to assist
customers and potential customers in adapting existing or proposed
designs, including those using competitors' PLDs or gate arrays, to use
the Company's PLDs. The Company has observed that the length of
customers' design cycles -- even as they may be reduced through use of
the Company's products -- often results in a lag between the Company's
marketing efforts, particularly when introducing a new PLD product
family, and the commencement of significant product sales resulting
from those efforts.
Diversified Markets. The Company has sold its semiconductor
components to a broad base of customers worldwide in a range of market
segments, including communications, computer, and industrial
applications. International sales constituted 47% of the Company's
sales in 1995.
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Technology and Production Relationships. Altera has obtained
its CMOS silicon chips through supply arrangements with leading
semiconductor manufacturers. The Company has avoided the full capital
commitment and overhead burden of establishing its own wafer
fabrication facility, and has the flexibility to utilize new process
technologies as they become available.
TECHNOLOGY
Altera's chips incorporate several types of internal architectures
which, combined with advanced CMOS semiconductor technology, provide speed and
logic density for the customer. The Company holds a number of patents on various
parts of its chip architectures. Altera's chips are configured by the Company's
proprietary development software that translates a system logic designer's logic
schematics and hardware descriptions into logic functions on an Altera chip.
Altera Logic Chips
Architectures. Altera believes its architectures offer relatively high
performance across a broad range of user applications. At the same time they
provide simplicity to the system logic designer, making the task of designing
and using Altera's chips relatively easy.
The architectures used in the Company's Classic, MAX 5000, MAX 7000,
FLASHlogic, and MAX 9000 families are known as array-based architectures. These
architectures are very regular, comprised of elements called "macrocells," and
are optimized for combinatorial logic. The Company's FLEX 8000 and FLEX 10K
architectures are optimized for register-intensive logic applications. These
architectures consist of fine grained logic elements grouped into higher level
logic array blocks which are then connected together with a proprietary
programmable interconnect structure. The FLASHlogic family uses non-volatile
FLASH memory cells that can be configured as on-board memory or logic.
Process Technology. Through technology relationships, Altera has gained
access to CMOS process technologies from larger semiconductor manufacturers. The
Company's first generation PLD product line (known as the "Classic" family) is
manufactured using processes with 1.0 and 0.8 micron effective channel lengths.
MAX, FLEX, and FLASHlogic products are being produced using processes with
effective channel lengths of 0.8 and 0.6 microns and are expected to use more
advanced CMOS processes when available. The Company procures wafers from various
semiconductor manufacturers including Sharp, Intel, Cypress, and TSMC.
Compared to bipolar technology, CMOS provides lower power dissipation
and a cooler operating temperature. These attributes have allowed Altera to
design and manufacture its higher density programmable logic chips. Unlike
bipolar or antifuse devices, which are nonerasable, Altera's programmable chips
use EPROM, EEPROM, SRAM, and FLASH programming mechanisms, which make the chips
erasable and reconfigurable.
EPROM configuration elements, found on certain of the Company's older
Classic and MAX 5000 products, require ultraviolet light for erasure,
necessitating relatively expensive quartz-windowed packages. Devices in
quartz-windowed packages are primarily used by customers for prototyping and
low-volume production. Altera has mitigated this package cost to users by also
making its parts available in plastic one-time programmable packages to permit
reduced costs for volume production. As the name implies, one-time programmable
parts can only be programmed once and are not erasable once programmed. Altera
also offers chips incorporating EEPROM (MAX 7000 and MAX 9000) and SRAM (FLEX
8000 and FLEX 10K) configuration elements. The EEPROM ("E2") element permits
electrical erasure so that erasure can occur even when packaged in plastic
packages, providing further flexibility and cost advantage for customers. The
SRAM element provides low stand-by power consumption and in-circuit
reconfigurability. FLASH memory elements also offer these features.
The Company routinely evaluates existing and emerging types of
programmable elements. If Altera perceives that such programming methods provide
benefits that complement those of its current products, it will consider
incorporating them into its products.
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Development System Software
The Company's development system software and hardware is used to
implement logic designs in its chips. Altera's MAX+PLUS II software system
contains approximately two million lines of source code. The MAX+PLUS II
software runs under the Microsoft Windows operating environment on personal
computers and in the Motif environment on Unix workstations. By utilizing these
popular graphical user interfaces, the Company has designed the software for
portability to widely used personal computers and engineering workstations.
The Company provides interfaces to many industry standard third party
CAE tools via the industry standard EDIF net list format and hardware
description languages (Verilog and VHDL, for example). These connections allow
the Altera software to be used in conjunction with software packages including
those offered by Cadence Design Systems, Inc., Data I/O Corporation, Exemplar
Logic, Inc., Intergraph Corporation, Mentor Graphics Corporation, OrCAD Systems
Corporation, Synopsys, Inc., and Viewlogic Systems, Inc.
An Altera chip design for a particular end product application is
achieved in four steps: design entry, implementation, verification, and
programming. The Company's development software provides complete facilities for
each step so that customers can take advantage of a uniform and relatively easy
to learn design environment. Extensive on-line help is available in the software
to provide relevant information quickly.
Design entry is accomplished using either the proprietary integrated
editors or third party tools. Three basic entry formats are accepted: schematic,
where the logic is represented pictorially; hardware description language, where
textual logic equations define the circuit; and waveform design entry, where a
designer specifies only the input and output waveforms of a circuit. A
combination of the three methods may be used hierarchically in a design.
Implementation of the design is performed by Altera's proprietary logic
synthesis, partitioning, and fitting software. This software takes a design and
uses sophisticated mathematical routines to optimize and compact the user's
logic, partition the logic among several chips (if necessary), and then fit each
partitioned section into one of these chips. Typically this process requires
minimal intervention from the user.
Design verification lets a user confirm the logic correctness of a
design by using several proprietary tools in addition to third party simulators.
The Company's static timing analyzer allows analysis of the timing of critical
logic paths; integrated functional simulation allows rapid functional logic
debugging; and timing simulation allows the validation of full circuit
operation. Simulation results may be viewed using the Company's waveform editor.
The final step, programming, may be performed using the Company's
programming hardware and integrated software, or third party programmers such as
those from Data I/O Corporation. During this step, the optimized logic design is
programmed into a PLD (or serial EPROM in the case of the FLEX SRAM-based logic
chips), which is then ready for use on a circuit board in an electronic system
product.
PRODUCTS
Altera sells a range of CMOS programmable logic integrated circuits and
associated development software and hardware. The integrated circuits include
products aimed at general logic replacement as an alternative to ASICs and
products targeted at specific functions. The Company's development software
allows the user to take advantage of the features of Altera integrated circuits.
The Company's strategy has been to provide support for users of its newest
integrated circuits from the date of product introduction by developing its
software tools in tandem with the related components. Altera currently markets
seven general purpose families of CMOS programmable logic in over 500
package/chip combinations.
The Company must continue to make significant investments in research
and development in order to continue to develop new products, enhance existing
products, and achieve market acceptance for such products, particularly in light
of the industry pattern of price erosion for mature products. Over the past 18
months, the Company has added further enhanced members of its existing MAX 7000
and FLEX 8000 families, and introduced its MAX 9000 and FLEX 10K product
families.
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The commercial success of these products will depend upon the achievement of
targeted yield, product cost, and performance levels and the development of
manufacturing, marketing, and support capabilities. Even if such goals are
accomplished, there can be no assurance that these products will achieve
significant market acceptance. See "--Research and Development."
Integrated Circuits
Classic. This is the initial family of integrated circuits introduced
to the market by Altera. It originally consisted of four general-purpose PLDs
targeted to replace multiple small scale integrated circuits. The product family
was expanded with the acquisition of Intel's PLD division and now includes ten
different circuits, although some products will be obsoleted during 1996. This
architecture provides densities ranging from an estimated 150 to 900 usable
logic gates in packages ranging from 20 to 68 pins. Wafers for this family of
products were initially provided by Intel and were subsequently migrated to more
advanced CMOS process technologies to provide faster speed and reduced cost.
Prior to the acquisition of Intel's PLD division, wafers for most of these
products were manufactured for the Company by Sharp; however as a result of
separate agreements related to the PLD product line purchase, Intel has
re-emerged as a supplier of wafers for this family. All of these products use
EPROM configuration elements. The products generally incorporate the first
generation architecture and are currently marketed and sold to customers as the
"Classic" family of products.
MAX 5000. This family of PLDs uses a second generation architecture
known as Multiple Array MatriX (MAX) to provide greater densities than products
in the Classic family. The MAX architecture provides multiple array logic.
Signals in the higher-density devices are routed between multiple arrays by the
Programmable Interconnect Array that delivers a high percentage of routability.
This multiple array architecture enables MAX 5000 PLDs to offer the speed of
smaller arrays with the integration density of larger arrays - MAX 5000 offers
up to an estimated 3,750 usable gates. Wafers for MAX 5000 products use EPROM
configuration elements and are manufactured by Cypress Semiconductor currently
on 0.8 micron and 0.65 micron CMOS process technologies. These products are
available in packages ranging from 24 to 100 pins, and Cypress has a license to
manufacture and sell certain MAX 5000 products.
MAX 7000. This third family of PLDs incorporates an enhanced MAX
architecture. The MAX 7000 family provides higher integration densities with
faster performance and higher pin count than the MAX 5000 family. Current MAX
7000 products offer a range of densities from an estimated 600 to 5000 usable
gates, in packages ranging from 44 to 208 pins. This family incorporates EEPROM
configuration elements on all of its chips. The Company is currently obtaining
most wafers for this product from Sharp.
FLEX 8000. The FLEX 8000 family, which uses 0.8 micron CMOS technology
from Sharp, is based on SRAM configuration elements which provide in-system
reconfigurability, and low standby power. The Company also acquires FLEX 8000
wafers from TSMC's facility, using a 0.6 micron CMOS process technology. The
FLEX 8000 architecture provides relatively high register count compared to the
Classic and MAX architectures, with an estimated 16,000 usable gates and 1,500
registers in a 304 pin package.
MAX 9000. This further enhanced MAX family is one of the Company's
newest architectures. MAX 9000 is a feature- rich, high-density macrocell
architecture with up to 560 macrocells (an estimated 12,000 usable gates). The
EEPROM-based devices are PCI-compliant and offer non-volatile, 5.0 volt,
in-system programmability (ISP). ISP functionality allows these devices to be
programmed after being soldered onto the circuit board for manufacturing ease.
Devices are offered in packages ranging from 84 to 304 pins and have in-system
clock speeds of up to 100 MHz.
FLEX 10K. The FLEX 10K architecture features an embedded array which
can more efficiently implement a variety of memory and specialized logic
functions. This family includes the Company's largest devices (currently a
device with an estimated 50,000 useable gates), and will be capable of
addressing designs estimated to be as large as 100,000 gates and up to 503 pins.
Various combinations of memory configurations and complex logic functions can be
implemented in FLEX 10K devices. (In mid-1995, the Company discontinued the sale
of its 50,000 gate multi-chip module.)
FLASHlogic. Acquired through the Company's purchase of Intel's PLD
product line, this high-speed, medium-density family combines volatile SRAM
elements and non-volatile FLASH memory elements to create one of the most
feature-rich
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families in the PLD industry. Features include on-board RAM, ISP, and in-circuit
reconfigurability. Devices are offered in usable gate counts from an estimated
800 to 3,200, with up to 208 pin packages, and in-system clock speeds of up to
100 MHz.
Function-Specific. In contrast to the Company's general-purpose PLDs,
which are designed for maximum flexibility, these products dedicate a portion of
the circuit to predetermined functions, trading architectural generality for
more structured organization. Presently, two products are being sold in the
marketplace: a microsequencer chip and a synchronous timing generator chip for
imaging applications. Both of these products are expected to be discontinued in
1997. The Company also sells serial EPROM devices which are used as one method
of configuring the Company's FLEX 8000 products, which require an external
configuration source because of their use of volatile SRAM memory elements. The
Company intends to develop other function-specific products as it sees
appropriate market opportunities.
The Company offers a variety of plastic and quartz-windowed ceramic
packages for its chips, including dual-in-line, surface mount, ball-grid, and
pin-grid array configurations. Altera provides components to meet the operating
temperature ranges of commercial and industrial users. The Company also offers
its customers a conversion option on a number of its chips, that converts the
programmable chip to a non-programmable gate array format. This option is called
a Mask Programmable Logic Device (MPLD). By hard coding the programming into the
chip with a mask (as with a gate array), Altera is able to provide the customer
a lower cost end solution after prototyping with programmable chips.
Development System Software and Hardware
A cornerstone of Altera's strategy is the market penetration of its
low-cost proprietary software design tools. These tools improve the productivity
of Altera's customers, and the Company, in turn, develops a base of customers
who use Altera's software to design their products. Each development software
package can be used repeatedly for different designs on an ongoing basis. A
number of these designs may become incorporated into long-term customer
products, which generate expanded logic chip sales.
Altera's software works only with Altera-designed logic chips, thus
providing a competitive advantage for Altera when dealing with customers that
use its development system. As of the end of 1995, Altera had licensed over
23,000 of its development system software packages, although at any given time
only a portion of these are active.
The Company attempts to work closely with its installed base of
customers, tracking the progress of logic chip designs, providing applications
design support, and for those customers who have purchased maintenance
agreements, upgrading the customers' software. Management believes that close
contact with its development software customers is a key element in customer
satisfaction and can also provide insight into new product development areas.
Altera's PC-based development software runs under Microsoft Windows.
The compiler software has also been ported and is available for engineering
workstations, including Sun, IBM, and Hewlett-Packard workstation platforms. The
software, in general, is typically delivered to the customer on CD ROM or on
multiple diskettes, along with documentation manuals. The hardware consists of a
programming board which plugs into an expansion slot of the user's personal
computer, and a programming unit which uses hardware that accepts various chip
package types. High-volume production programming equipment is available from
Data I/O Corporation and other companies.
Altera's development software products aid the chip user's design
efficiency by allowing the user to continue with proven, familiar methods rather
than learn new ones. Accordingly, the most widely-used design methodologies are
supported, including Boolean algebra for low-density PLD users, and schematic
capture and hardware description languages for TTL and ASIC users.
The output from any of these design methodologies is translated into a
consistent format for implementation into an Altera chip, and the design is
fitted by Altera's proprietary software into the particular chip chosen. This
approach frees the system design engineer from the unfamiliar task of chip
design and allows the engineer to focus on logic implementation.
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MANUFACTURING
The Company does not directly manufacture its silicon wafers. Its
products, however, require wafers manufactured with relatively state-of-the-art
fabrication techniques. The Company's strategy, therefore, has been to maintain
relationships with larger semiconductor manufacturers for production of its
wafers. The Company believes that these manufacturers can produce wafers at
lower cost due to their advanced production facilities and manufacturing
economies of scale. Altera's chips are produced using each manufacturer's
high-volume wafer fabrication processes, thus enabling the Company to take
advantage of economies of scale and process advances.
Altera presently has its primary wafer supply arrangements with four
semiconductor vendors: Sharp, Intel, Cypress, and TSMC. See "Patents and
Licenses" for a summary of these arrangements. The Company continues to
negotiate additional foundry contracts and intends to establish other sources of
wafer supply for its products as such arrangements become useful or necessary.
Although there are a number of new state of the art wafer fabrication facilities
currently under construction around the world, semiconductor foundry capacity
remains limited, and the Company cannot guarantee that manufacturing capacity
constraints will not pose significant problems in the future.
The Company owns a 17% equity interest in Cypress Semiconductor (Texas)
Inc. (CSTI), a subsidiary of Cypress Semiconductor Corporation. Pursuant to the
agreements governing this ownership, Altera can obtain wafer supply from CSTI
approximately in proportion to its percentage ownership in CSTI. This investment
provides Altera with the option to design, produce, and market certain
sole-sourced products and to access the next generation process technology at
CSTI. The Company uses this facility for the manufacture of all of its MAX 5000
products. Cypress Semiconductor, which has manufacturing and marketing rights to
certain MAX 5000 products, also manufactures its own products in the CSTI
facility.
In 1995, the Company entered into several agreements with TSMC whereby
it agreed to make certain deposits to TSMC for future wafer capacity allocations
extending into 2001. The Company made cash deposits amounting to $2.4 million in
1995 and issued promissory notes for $120.5 million representing partial
prepayments for wafers to be supplied under these agreements. Under the terms of
these agreements, TSMC agrees to provide the Company with wafers manufactured
with TSMC processes and according to the Company's specifications, and the
Company agrees to purchase and TSMC agrees to supply, a specific capacity of
wafers per year through 2001. Subsequent billings for actual wafers received
from TSMC will reduce the prepaid balance. The pre-payments are generally
nonrefundable if the Company does not purchase the full prepaid capacity unless
the Company identifies a third party purchaser, acceptable to TSMC, for the
capacity. To further secure capacity, in 1995 Altera entered into a letter of
intent concerning the formation of a joint-venture company with TSMC and several
other prospective partners to build a US-based wafer fab. Under the terms of the
letter of intent, Altera will receive 16% equity ownership in the joint venture
company and up to 24% capacity in the wafer fab. Altera's investment in the
joint venture is expected to be $125 million to be paid over the next two years.
The Company depends upon its foundries to produce wafers at acceptable
yields and to deliver them to the Company in a timely manner. The manufacture of
advanced CMOS semiconductor wafers is a highly complex process, and the Company
has from time to time experienced difficulties in obtaining acceptable yields
and timely deliveries from its suppliers. Good production yields are
particularly important to the Company's business, including its ability to meet
customers' demand for products and to maintain profit margins. The manufacture
of semiconductor products is sensitive to a wide variety of factors, including
the level of contaminants in the manufacturing environment, impurities in the
materials used, and the performance of personnel and equipment. As is common in
the semiconductor industry, the Company has from time to time experienced in the
past and expects that it will experience in the future production yield
problems. Accordingly, no assurance can be given that the Company will not
experience significant production yield problems with one or more of its product
lines. Production throughput times also vary considerably among the Company's
wafer suppliers. The Company has experienced delays from time to time in
processing some of its products and recently experienced long lead times from
vendors on some of its new products. Any prolonged inability to obtain adequate
yields or deliveries could adversely affect the Company's operating results. The
Company expects that, as is customary in the semiconductor business, in order to
maintain or enhance competitive position, it will in the future continue to
convert its fabrication process arrangements to larger wafer sizes, to more
advanced process technologies, or to new suppliers. Such conversions entail
inherent technological risks that can adversely affect yields and delivery
times. In addition, if for any reason the Company were required to seek
alternative sources of supply, shipments could be delayed significantly while
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such sources are qualified for volume production, and any significant delay
would have a material adverse effect on the Company's operating results.
After wafer manufacturing is completed, each wafer is tested using a
variety of test and handling equipment. Resulting good die are separated into
individual chips that are then encapsulated in ceramic or plastic packages by
subcontractors in Korea, Hong Kong, Malaysia, and the Philippines.
Following assembly, the packaged units receive final testing. Altera
has developed sophisticated proprietary test software and hardware that provides
relatively high speed, back-end testing. After final testing, each unit goes
through marking and final inspection prior to shipment to customers.
Much of the manufacturing, assembly, testing, and packaging of Altera's
development system hardware products is done by outside contractors.
Although the Company's wafer fabrication, assembly, and other
subcontractors have not recently experienced any serious work stoppages, the
social and political situations in countries where certain subcontractors are
located are volatile, and any prolonged work stoppages or other inability of the
Company to manufacture and assemble its products would have a serious adverse
effect on the Company's operating results. Furthermore, economic risks, such as
changes in tax laws, tariff or freight rates, or interruptions in air
transportation, could have a material adverse effect on the Company's operating
results.
MARKETING, SALES, AND CUSTOMERS
The Company markets its products in the United States and Canada
through a network of direct sales personnel, independent sales representatives,
and electronics distributors to a broad range of customers. The Company's direct
sales personnel and independent sales representatives focus on major target
accounts. Distributors generally focus selling activities on the broad base of
small and medium-size customers and often provide stocking, kitting, and
programming services, even to larger accounts.
In the United States, Altera's major distributors currently include
Arrow/Schweber Electronics Inc. and Wyle Electronics Marketing Group, a division
of Wyle Laboratories which provide nationwide coverage. From time-to-time the
Company expects that it may add or delete distributors from its selling
organization as it deems appropriate to the level of business.
To support its distribution network and focus on the target accounts
and the direct OEM channel of business, the Company has manufacturer's
representative firms throughout the United States and Canada. The Company also
has domestic sales offices in San Jose and in major metropolitan areas
throughout the country.
The Company's international business is supported by a network of
technical distributors throughout Europe and the Far East. The Company has
representation in every major European country, in Israel, Japan, Australia,
South America, and the Pacific Rim. International sales management offices are
located in the metropolitan areas of Hong Kong, London, Munich, Ottawa, Paris,
Seoul, Tokyo, and Turin.
Customer service and support are important aspects of the CMOS
programmable logic integrated circuit business. Altera provides several levels
of user support, including applications assistance, design services, and
customer training. The Company's applications engineering staff publishes data
sheets and application notes, conducts technical seminars, and provides design
assistance via modem links to the customer's design station. Customer service is
supported with inventory maintained both at the factory and at distributors'
locations to provide short-term delivery of chips.
During each of the last three years, export sales constituted nearly
half of the Company's total sales revenue. Through 1995, almost all export sales
were denominated in U.S. dollars, but the Company is considering doing an
increased amount of business in local currencies in the future. The Company's
export sales are subject to those risks common to all export activities,
including governmental regulation, possible imposition of tariffs or other trade
barriers, and currency fluctuations. Certain export sales must be licensed by
the Office of Export Administration of the U.S. Department of Commerce. From
time to time, the
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<PAGE> 10
Company has experienced delays in obtaining the necessary licenses, but to date
such delays have not had a material adverse effect on the Company's business.
There can be no assurance that such delays will not occur in the future,
however, or that if such delays do occur, that they will not have a material
adverse effect on the Company's business or operating results.
In the year ended December 31, 1995, worldwide sales through
distributors accounted for approximately 79% of sales. Two distributors
accounted for approximately 21% and 15% of sales in 1995, and each accounted for
approximately 15% of sales in 1994, and 10% in 1993. No direct OEM customer
accounted for more than 10% of the Company's sales in 1995, 1994, or 1993.
Export sales constituted 47%, 48%, and 49% of sales in 1995, 1994, and 1993,
respectively.
BACKLOG
The Company's backlog of released orders at December 31, 1995 was
approximately $189.6 million as compared to approximately $51.8 million at
December 31, 1994. The Company includes in its backlog OEM customer-released
orders that are requested for delivery within the next 12 months, and
distributor orders requested for delivery within the next six months. The
Company produces standard products which may be shipped from inventory within a
short time after receipt of an order. The Company's business has been
characterized by a high percentage of short-term orders with short-term shipment
schedules (turns orders). At times, due to high demand and supply constraints in
certain products, lead times can lengthen, causing an increase in backlog.
However, orders constituting the Company's current backlog are cancelable
without significant penalty at the option of the purchaser, thereby decreasing
backlog during periods of lower demand. In addition, distributor shipments are
subject to price adjustments. Accordingly, backlog as of any particular date
should not be used as a measure of sales for any future period.
PATENTS AND LICENSES
The Company owns more than 50 United States patents and has additional
pending United States patent applications on its semiconductor products. The
Company also has technology licensing agreements with AMD, Cypress, Intel, and
Texas Instruments giving the Company royalty-free rights to design, manufacture,
and package products using certain patents they control. Other companies have
filed applications for, or have been issued, other patents and may develop, or
obtain proprietary rights relating to products or processes competitive with
those of the Company. From time to time the Company may find it desirable to
obtain additional licenses from the holders of patents relating to products or
processes competitive with those of the Company. Although its patents and patent
applications may have value in discouraging competitive entry into the Company's
market segment and the Company believes that its current licenses will assist it
in developing additional products, there can be no assurance that any additional
patents will be granted to the Company, that the Company's patents will provide
meaningful protection from competition, or that any additional products will be
developed based on any of the licenses that the Company currently holds. In
addition, there can be no assurance that such additional licenses could be
obtained on terms or conditions acceptable to the Company or that such licenses,
if obtained, would lead to the development of additional products. The Company
believes that its future success will depend primarily upon the technical
competence and creative skills of its personnel, rather than on its patents,
licenses, or other proprietary rights.
The Company has entered into technology cross-licensing agreements with
Cypress Semiconductor and Texas Instruments, in connection with wafer supply and
second source relationships. Pursuant to these agreements, the Company has been
granted rights to procure wafers from these companies and to design products
using certain technology that may be protected by such companies' patents. The
Company has, in turn, granted Cypress Semiconductor and Texas Instruments rights
to manufacture and sell certain of the Company's products. In each of the
Company's product license agreements, the licensee has been granted a license
with respect to a limited portion of the Company's overall product line. Sharp,
TSMC, and Intel manufacture wafers for the Company but do not have rights to
sell the Company's products. Except for the deposit agreements with TSMC, the
Company's wafer supply agreements do not require minimum purchases by the
Company.
An agreement with Cypress Semiconductor covers certain of the Company's
MAX 5000 family products. An initial agreement, entered into in June 1987, was
terminated on November 23, 1993, though product licenses continue after
termination. In April 1990, the Company entered into an additional agreement
with Cypress Semiconductor regarding an 17% equity
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<PAGE> 11
investment in CSTI and a related supply agreement. This supply agreement was
amended effective November 23, 1993, and currently is in effect. See
"-Manufacturing."
The agreement with Texas Instruments covered certain chip types within
the Classic family. The agreement expired in July 1995, but the second source
license survived termination of the agreement. Texas Instruments has agreed to
continue to provide foundry services for an additional year beyond the
expiration of the agreement.
The Company entered into an intellectual property cross-licensing
agreement with Intel as part of the Company's purchase of Intel's PLD division
in October 1994. The agreement continues for the lives of the licensed patents,
and is perpetual with respect to other licensed intellectual property.
In March 1987, the Company and Monolithic Memories, Inc. (MMI) entered
into an agreement cross-licensing all of each others' patents covering
programmable and reprogrammable logic devices and processes for making such
devices having a first filing date prior to April 1, 1989, as part of the
settlement of a patent suit against the Company. This agreement covered only
patents, and no products or non-patented technology was licensed to either
company as a result of this agreement. In March, 1988, AMD succeeded to MMI's
rights and responsibilities under the license agreement, and agreed to be bound
by the terms of the agreement, in connection with its acquisition of MMI. In
March 1994, AMD informed the Company that it believes the scope of the patent
license described above is more limited than the Company has interpreted such
license in the past. In August, 1994, AMD sued the Company on patents for which
the Company believes it is licensed. It is not yet possible to determine what
effect, if any, this dispute might have on the operations of the Company (see
Item 3. Legal Proceedings).
The Company, in the normal course of business, from time to time
receives and makes inquiries with respect to possible patent infringements. As a
result of inquiries received from companies, it may be necessary or desirable
for the Company to obtain additional licenses relating to one or more of its
current or future products. There can be no assurance that such additional
licenses could be obtained, and, if obtainable, could be obtained on conditions
which would not have a material and adverse effect on the Company's operating
results. If the inquiring companies were to allege infringement of their
patents, as is the case in the Company's current litigation with two of its
competitors, there can be no assurance that any necessary licenses could be
obtained, and, if obtainable, would be on terms or conditions that would not
have a material adverse effect on the Company. In addition, if litigation
ensued, there can be no assurance that these companies would not succeed in
obtaining significant monetary damages or an injunction against the manufacture
and sale of one or more of the Company's products families. It may be necessary
or desirable for the Company to incur litigation expenses to enforce its
intellectual property rights. There is no assurance that any such litigation
would be successful, or that the Company's patents would be upheld if
challenged.
RESEARCH AND DEVELOPMENT
The Company's research and development activities have focused
primarily on general-purpose programmable logic chips and on the associated
development software and hardware. The Company has developed these related
products in parallel to provide software support to customers simultaneously
with circuit introduction. Altera believes that advanced software tools are a
critical factor in the advancement of programmable semiconductor technology.
Since 1991, the Company's research and development activities have been
primarily directed toward the design of the MAX 7000 integrated circuits and
subsequently the FLEX 8000, MAX 9000, and FLEX 10K circuits, as well as the
development of new software and hardware for these circuits, cost reductions and
advancements in other existing products, and development of alternative
architectures and technologies. In 1994, the Company announced and is now
shipping the MAX 9000 family and an enhanced version of the FLEX 8000 family
(the 8000A family) using 0.6 micron, three layer metal technology. In the first
quarter of 1995, the Company announced the FLEX 10K family; shipments commenced
in the fourth quarter of 1995.
The Company's research and development expenditures in 1995, 1994, and
1993 were $33,849,000, $22,249,000, and $16,847,000 (excluding an R&D In Process
charge in 1994 of $23,745,000 associated with the Intel PLD product line
acquisition), respectively. The Company has not capitalized research and
development or software costs to date. The Company intends to continue to spend
substantial amounts on research and development in order to continue to develop
new products and achieve market acceptance for such products, particularly in
light of the industry pattern of price erosion for mature products and
increasing competition of the programmable logic market. Even if such goals are
accomplished, there can be no assurance that
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<PAGE> 12
these products will achieve significant market acceptance. If the Company were
unable to successfully define, develop, and introduce competitive new products,
and enhance its existing products, its future operating results would be
adversely affected.
COMPETITION
The semiconductor industry overall is intensely competitive and is
characterized by rapid technological change, rapid rates of product
obsolescence, and price erosion resulting from both product obsolescence and
price competition. The Company competes directly with a number of fast-growing
domestic companies that devote a significant portion of their resources to new
product development and existing product enhancement. The semiconductor industry
also includes many large domestic and foreign companies that have substantially
greater financial, technical, and marketing resources than the Company. The
Company currently experiences direct competition from AT&T and other large
companies, and others offer products that are indirectly competitive with the
Company's products or have announced their intention to enter the market.
The principal factors of competition in the CMOS programmable logic
marketplace include the capability of software development tools, the
integration capacity and flexibility of the individual circuits, product
performance and features, quality and reliability, pricing, technical service
and support, and the ability to respond rapidly to technical innovation. The
Company believes it competes favorably with respect to these factors, although
it may be at a disadvantage in comparison to larger companies with broader
product lines, greater technical service and support capabilities, and internal
wafer fabrication capabilities. The Company believes, however, that its
proprietary device architecture and its installed base of development systems
with proprietary software may provide some competitive advantage.
The Company's competition for its general-purpose programmable logic
chips has come from many sources. The Company's licensees, Cypress Semiconductor
and, formerly, Texas Instrument and Intel, compete on their particular licensed
products. Licensees can compete directly with pin-compatible parts even after a
customer has chosen to design its product using the Company's chips. In
anticipation of this, the Company structured its licenses so that each
individual licensee has rights to a limited portion of the Company's overall
product line. In addition, the Company's agreement with Cypress Semiconductor
and CSTI allows the Company to manufacture certain products without granting
second source rights. At present, only Cypress competes directly with
pin-compatible parts, on the MAX 5000 family.
The Company also experiences significant competition from a number of
other companies which are in the market with products competitive with those of
the Company. These companies include major domestic and international
semiconductor companies, traditional programmable logic and application-specific
circuit manufacturers, and emerging companies. Among these are companies such as
AT&T, Actel Corporation, AMD, Atmel Corporation, Lattice Semiconductor
Corporation, and Xilinx. The Company's primary competition is from suppliers of
products marketed as field programmable gate arrays ("FPGAs"), though as the
average pin count and functional density for the Company's products continue to
increase, the Company expects to compete to an increasing extent with ASIC
suppliers, such as LSI Logic.
A number of very large, well-financed companies have announced their
intentions to compete with the Company in its core business, and in some cases
are already shipping products. These companies, including AT&T, Motorola, and
others, all have proprietary wafer manufacturing ability, preferred vendor
status with many of the Company's customers, extensive marketing power and name
recognition, much greater financial resources than those of the Company, and
other significant advantages over the Company. The Company expects that as the
dollar volume of the programmable logic market grows, the attractiveness of this
market to larger, more powerful competitors will continue to increase.
Substantial direct or indirect competition could have a significant
adverse effect on the Company's future sales and operating results.
EMPLOYEES
As of December 31, 1995, the Company had 881 regular employees: 240 in
engineering and development, 249 in sales and marketing, 289 in manufacturing,
and 103 in administration and finance. The success of the Company is dependent
in large part upon the continued service of its key management, technical,
sales, and support employees and on its ability to continue to
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<PAGE> 13
attract and retain additional qualified employees. The competition for such
employees is intense and their loss as employees could have an adverse effect on
the Company. The Company believes employee relations are good.
ITEM 2. PROPERTIES.
The Company's headquarters are in facilities in San Jose, California
totaling approximately 220,000 square feet. Design, limited manufacturing,
research, marketing, and administrative activities are performed in these
facilities. The Company occupies these properties under non-cancelable leases
which expire in 1997, and under which it has multiple options to renew for up to
17 1/2 years on the majority of the premises. In June 1995, the Company
purchased approximately 25 acres of land near the Company's present headquarters
for the long term development of a multiple building corporate headquarters. The
Company is formulating development plans for the site and presently anticipates
building approximately 500,000 square feet of office and light manufacturing
space on the new site. Construction is expected to be completed in 1997. The
Company also leases on a short-term basis office facilities for its domestic and
international sales management offices.
ITEM 3. LEGAL PROCEEDINGS.
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company
seeking monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. In June 1993, the Company
brought suit against Xilinx, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of certain patents held by the Company.
In April 1995, the Company filed a separate lawsuit against Xilinx in Delaware,
Xilinx's state of incorporation, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counterclaimed against the Company in Delaware, asserting defenses
and seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. A motion by Xilinx to
transfer the Delaware cases to California is pending. The California litigation
is presently the subject of court-ordered mediation. Due to the nature of the
litigation with Xilinx and because the lawsuits are still in the pre-trial
stage, the Company's management cannot estimate the total expense, the possible
loss, if any, or the range of loss that may ultimately be incurred in connection
with the allegations. Management cannot ensure that Xilinx will not succeed in
obtaining significant monetary damages or an injunction against the manufacture
and sale of the Company's MAX 5000, MAX 7000, FLEX 8000, or MAX 9000 families of
products, or succeed in invalidating any of the Company's patents. Although no
assurances can be given as to the results of these cases, based on the present
status, management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results of
operations.
In August 1994, Advanced Micro Devices ("AMD") brought suit against the
Company seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by AMD. In September 1994, Altera
answered the complaint asserting that it is licensed to use the patents which
AMD claims are infringed and filed a counterclaim against AMD alleging
infringement of certain patents held by the Company. The case has been
bifurcated to provide that a separate trial on the issue of the scope of the
existing cross-license agreement between the parties will precede the trial on
the infringement claims. Due to the nature of the litigation with AMD, and
because the lawsuit is still in the pre-trial stage, the Company's management
cannot estimate the total expense, the possible loss, if any, or the range of
loss that may ultimately be incurred in connection with the allegations.
Management cannot ensure that AMD will not succeed in obtaining significant
monetary damages or an injunction against the manufacture and sale of the
Classic, MAX 5000, MAX 7000, FLEX 8000, MAX 9000, FLEX 10K, and FLASHlogic
product families, or succeed in invalidating any of the Company's patents.
Although no assurances can be given as to the results of this case, based on its
present status, management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results of
operations.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The textual portion of the section entitled "About Your Investment" and
the section entitled "Corporate Directory" in the Company's 1995 Annual Report
to Shareholders for the year ended December 31, 1995 ("1995 Annual Report") are
incorporated herein by reference.
The Company believes factors such as quarter-to-quarter variances in
financial results, announcements of new products, new orders, and order rate
variations by the Company or its competitors could cause the market price of its
Common Stock to fluctuate substantially. In addition, the stock prices for many
high technology companies experience large fluctuations, which are often
unrelated to the operating performance of the specific companies. Broad market
fluctuations, as well as general economic conditions such as a recessionary
period or high interest rates, may adversely affect the market price of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The section entitled "Selected Consolidated Financial Data/Five-Year
Summary" in the Company's 1995 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The textual portion of the section entitled "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" in the Company's
1995 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the report thereon
of Price Waterhouse LLP dated January 16, 1996 and the section entitled
"Selected Consolidated Financial Data/Quarterly Data (Unaudited)" in the
Company's 1995 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and their ages are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------------------------------------------------------------------------------------------
<S> <S> <S>
Rodney Smith 55 Chairman of the Board of Directors; President; and Chief Executive
Officer
C. Wendell Bergere 50 Vice President, General Counsel, and Secretary
Denis Berlan 46 Vice President, Operations
Erik Cleage 35 Vice President, Marketing
John R. Fitzhenry 46 Vice President, Human Resources
Clive McCarthy 49 Vice President, Development Engineering
Paul Newhagen(1)(3) 46 Director; Vice President, Administration
Thomas J. Nicoletti 49 Vice President, Investor Relations and Business
Nathan Sarkisian 37 Vice President, Finance; Chief Financial Officer
Peter Smyth 58 Vice President, Sales
Michael A. Ellison(1)(2)(3) 50 Director
Robert W. Reed(1)(3) 49 Director
William E. Terry(1)(2) 62 Director
</TABLE>
- ---------------------------
(1) Member of Nominating Committee
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
All directors hold office until the next annual meeting of shareholders
or until their successors have been elected and qualified. There are no family
relationships between any of the directors or executive officers of the Company.
Rodney Smith joined the Company in November 1983 as Chairman of the
Board of Directors, President, and Chief Executive Officer. Prior to that time,
he held various management positions with Fairchild Semiconductor Corporation
("Fairchild"), a semiconductor manufacturer.
C. Wendell Bergere joined the Company in August 1995 as Vice President,
General Counsel, and Secretary. Prior to joining the Company, from 1993 to 1995,
Mr. Bergere was Special Counsel at the law firm of Sheppard, Mullin, Richter &
Hampton. From 1982 to 1993, he was Vice President, General Counsel, and
Secretary of The Perkin-Elmer Corporation.
Denis M. Berlan joined the Company in December 1989 as Vice President,
Product Engineering, and was named Vice President, Operations and Product
Engineering in October 1994. In January 1996, he was named Vice President,
Operations.
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<PAGE> 16
He was previously employed by Advanced Micro Devices, Inc. ("AMD"), a
semiconductor manufacturer, and by Lattice Semiconductor Corporation, a
semiconductor manufacturer, in engineering management capacities.
Erik Cleage joined the Company as International Marketing Manager in
February 1986. He became Director, Japan and Asia Pacific Sales in April 1989,
and was appointed Vice President, Marketing in August 1990. Previously, he was
employed by AMD and Fairchild in various positions.
John R. Fitzhenry joined the Company in May 1995 as Vice President of
Human Resources. From 1983 to May 1995, he was employed by Apple Computer, Inc.,
a manufacturer of personal computers, in various human resource management
positions.
Clive McCarthy joined the Company in February 1984 as Director of
Applications. He was appointed Vice President of Software in March 1987. In
March 1990 he was appointed Vice President of Development Engineering. Prior to
joining the Company, Mr. McCarthy had been employed by Fairchild, Northern
Telecom, and Texas Instruments in various technical and marketing management
positions.
Paul Newhagen, a co-founder of the Company, has served as a director of
the Company since July 1987 and as Vice President of Administration since
December 1994. Mr. Newhagen served as Vice President of the Company from
November 1992 to February 1993, Secretary from July 1987 to January 1993, Vice
President of Finance and Administration from June 1983 to November 1992, and
Chief Financial Officer from June 1983 to February 1993. From June 1993 to
November 1994, Mr. Newhagen served as a consultant to the Company.
Thomas J. Nicoletti joined the Company in October 1992 as Vice
President of Finance and was appointed Chief Financial Officer in February 1993.
In August 1995 he became Vice President, Investor Relations and Business
Development. Previously, he was Chief Financial Officer for Procase, Inc., a
software company, and for Lam Research Corporation, a semiconductor equipment
manufacturer. Prior to that, Mr. Nicoletti was employed by Fairchild and AMD in
various accounting and financial positions.
Nathan Sarkisian joined the Company in June 1992 as Corporate
Controller. He was appointed Vice President, Finance and Chief Financial Officer
in August 1995. Prior to joining the Company, Mr. Sarkisian held various
accounting and financial positions at Fairchild Semiconductor Corporation, and
at Schlumberger, an oil field services company.
Peter Smyth joined the Company in May 1990 as Vice President of Sales.
Prior to joining the Company, Mr. Smyth served as Vice President of Sales at
Precision Monolithics, Inc., a semiconductor manufacturer, and Vice President of
North American Sales at Mostek, a semiconductor manufacturer. Mr. Smyth was also
previously associated with Texas Instruments in a variety of sales and marketing
capacities.
Michael A. Ellison has served as a director of the Company since April
1984. Since October 1994, Mr. Ellison has been the Chief Executive Officer of
Steller, Inc., a distributor of electronic parts. Until December 1992, he was a
General Partner at Cable & Howse Ventures, a venture capital investment firm,
and following that a private venture capital investor. Mr. Ellison also served
as a director of Wall Data Incorporated from September 1986 to January 1996.
Robert W. Reed has served as a director of the Company since October
1994. Since 1991, Mr. Reed has been a Senior Vice President of Intel
Corporation, a semiconductor manufacturer, and General Manager of its
Semiconductor Products Group, which includes Flash Memory Products, Intel's
Military and Special Products Division, and Intel's embedded microcontrollers
and microprocessors. Previously, Mr. Reed was Intel's Chief Financial Officer.
William E. Terry has served as a director of the Company since August
1994. Mr. Terry is a former director and Executive Vice President of the
Hewlett-Packard Company, a diversified electronics manufacturing company. At
Hewlett- Packard, he held a number of senior management positions, including
general manager of Hewlett-Packard's Data Products and Instrument Groups, and
subsequently had overall responsibility for the Measurement Systems Sector. He
retired from Hewlett- Packard in November 1993. Mr. Terry also serves as a
director of Key Tronic Corporation.
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<PAGE> 17
ITEM 11. EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" and the section entitled
"Changes to Benefit Plans" in the Company's Proxy Statement dated March 25, 1996
("Proxy Statement") are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Security Ownership of Certain Beneficial Owners
and Management" in the Company's Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Director Compensation" and the section entitled
"Certain Business Relationships" in the Company's Proxy Statement are
incorporated herein by reference.
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<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following documents from the Annual Report to Shareholders
are filed as part of this report:
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1995. Consolidated
Balance Sheets at December 31, 1995 and December 31, 1994.
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1995. Consolidated
Statements of Shareholders' Equity for each of the three years
in the period ended December 31, 1995. Notes to Consolidated
Financial Statements. Report of Independent Accountants.
2. Financial Statement Schedules.
All schedules have been omitted as they are either not
required, not applicable, or the required information is
included in the financial statements or notes thereto.
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
2.1* Asset Purchase Agreement dated as of July 12, 1994 by and
between the Company and Intel Corporation.(8)
2.2* Amendment No. 1 to Asset Purchase Agreement dated as of October
1, 1994 by and between the Company and Intel Corporation.(8)
2.3 Investor Agreement dated as of July 12, 1994 by and between
the Company and Intel Corporation.(8)
3.1 Restated Articles of Incorporation of the Company filed May 23,
1990.(5)
3.2 Certificate of Amendment of Articles of Incorporation filed on
May 10, 1995.(11)
3.3 Amended and Restated Bylaws of the Company, as amended through
August 18, 1994.(10)
4.1 Specimen copy of certificate for shares of Common Stock of
the Registrant.(7)
4.2 Indenture Agreement dated as of June 15, 1995 by and between
Registrant and the First National Bank of Boston, as trustee.(11)
4.3 Form of Convertible Subordinated Note due 2002.(11)
10.1* License Agreement dated as of July 12, 1994 with Intel
Corporation.(9)
10.2* Supply Agreement dated as of July 12, 1994 with Intel
Corporation.(9)
10.3(a)+ Forms of Incentive and Nonstatutory Stock Option Agreements
under the 1987 Stock Option Plan.(10)
10.3(b)+ 1987 Stock Option Plan, as amended May 10, 1995.(12)
10.4(a)+ 1987 Employee Stock Purchase Plan, as amended May 10, 1995.(12)
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.4(b)+ Form of Subscription Agreement under the 1987 Employee Stock
Purchase Plan.(10)
10.6* Technology License and Manufacturing Agreement with Cypress
Semiconductor Corporation, dated June 19, 1987.(1)
10.6(a)* Termination Agreement dated November 23, 1993, regarding
Technology License and Manufacturing Agreement with Cypress
Semiconductor Corporation.(7)
10.11 Form of Sales Representative Agreement.(1)
10.22* Advanced Micro Devices, formerly MMI, Settlement Agreement and
associated Series E Preferred Stock Purchase Agreement and Patent
License Agreement, all dated March 31, 1987.(1)
10.23 Amended and Restated Lease Agreement with Orchard Investment
Company Number 611, dated November 10, 1989, for lease of
Buildings B and C at 2610 Orchard Parkway, San Jose, California.(3)
10.24 First Amendment, effective February 5, 1990, to Lease Agreement
with Orchard Investment Company Number 611.(3)
10.25 Product Distribution Agreement with Wyle Electronics Marketing
Group, effective May 16, 1984, as amended.(1)
10.26 Form of Indemnification Agreement entered into with each of the
Company's officers and directors.(10)
10.30 Technology License and Manufacturing Agreement with Texas
Instruments Incorporated, dated July 1, 1988.(2)
10.30(a) Amendment No. 2 to Technology License and Manufacturing Agreement
with Texas Instruments Incorporated, dated effective October 1,
1990.(5)
10.31 Product Distribution Agreement with LEX Electronics, Inc.,
formerly Schweber Electronics Corporation effective December 22,
1988.(2)
10.31(a) Consent to Assignment of Product Distribution Agreement, effective
September 23, 1991.(6)
10.33(a)+ 1988 Director Stock Option Plan, as amended January 17, 1996.
10.33(b)+ Forms of Outside Director Nonstatutory Stock Option Agreement
under the 1988 Director Stock Option Plan.(10)
10.34* Foundry and PROM II.5 Process Technology License Agreement with
Cypress Semiconductor Corporation and Cypress Semiconductor
(Texas) Inc., dated April 24, 1990.(4)
10.34(a)* Amendment Number 1 dated November 23, 1993, regarding Foundry and
PROM II.5 Process Technology License Agreement with Cypress
Semiconductor Corporation and Cypress Semiconductor (Texas) Inc.(7)
10.37 LSI Products Supply Agreement with Sharp Corporation, dated
October 1, 1993.(7)
10.38+ Altera Corporation Nonqualified Deferred Compensation Plan and
Trust Agreement dated February 1, 1994, and form of Deferred
Compensation Agreement.(7)
10.39* Wafer Supply Agreement dated June 26, 1995 between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd.(11)
10.40* Option Agreement dated June 26, 1995 between Registrant and
Taiwan Semiconductor Manufacturing Co., Ltd.(11)
10.41** Memorandum of Intent dated October 1, 1995 between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd.
</TABLE>
-18-
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.42** Amendment No. 1 dated as of October 1, 1995 to Wafer Supply
Agreement dated as of June 26, 1995 by and between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd. and to
Option Agreement 1 dated as of June 26, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.43** Option Agreement 2 dated as of October 1, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.44** Option Agreement 3 dated as of October 1, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.45(a)+ 1996 Stock Option Plan.
10.45(b)+ Form of Stock Option Agreement under 1996 Stock Option Plan.
10.46 Owner/Contractor Agreement for Construction between Registrant
and Rudolph and Sletten, Inc. dated January 10, 1996.
11.1 Computation of Earnings per Share.
13.1 Annual Report to Shareholders for the fiscal year ended December
31, 1995 (to be deemed filed only to the extent required by the
instructions to Exhibits for Reports on Form 10-K).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (see page 21).
24.1 Power of Attorney (included on page 22).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to item 16(a), "Exhibits," of the registrant's Registration
Statement on Form S-1, as amended, (File No. 33-17717) which became
effective March 29, 1988.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1988.
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1989.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended March 31, 1990, as amended by a Form 8 filed on July
13, 1990.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1990.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1992.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrants Report on Form 10-K
for the fiscal year ended December 31, 1993.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 7, "Exhibits," of the registrants' Report on Form 8-K
dated October 15, 1994 and 8-KA dated December 15, 1994.
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended September 30, 1994.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1994.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended June 30, 1995.
(12) Incorporated by reference to identically named exhibits filed in
response to Item 8, "Exhibits," of registrant's Registration Statement on
Form S-8, as amended (File No. 33-61085) which became effective July 17,
1995.
* Confidential treatment has previously been granted for portions of this
exhibit pursuant to an order of the Commission.
-19-
<PAGE> 21
** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Commission on March 29, 1996. The portions of the
exhibit for which confidential treatment has been requested have been
omitted from the exhibit and are marked with asterisks. The omitted
information has been filed separately with the Commission as part of the
confidential treatment request.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c)
thereof.
(b) Reports on Form 8-K.
None
-20-
<PAGE> 22
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-8 (No. 33-22877, No.
33-37159, No. 33-57350, and No. 33-61085) of Altera Corporation of our report
dated January 16, 1996 appearing on page 32 in the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
- -------------------------------
PRICE WATERHOUSE LLP
San Jose, California
March 25, 1996
-21-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to
be signed on its behalf, by the undersigned thereto duly authorized.
ALTERA CORPORATION
--------------------------
Registrant
By: /S/ RODNEY SMITH
--------------------------
Rodney Smith, President and
Chief Executive Officer
March 25, 1996
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Rodney Smith and Nathan Sarkisian,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<S> <C> <C>
/S/ RODNEY SMITH President, Chief Executive Officer March 25, 1996
- ----------------------------------------
Rodney Smith (Principal Executive Officer), and
Chairman of the Board of Directors
/S/ NATHAN SARKISIAN Vice President - Finance and Chief March 25, 1996
- ----------------------------------------
Nathan Sarkisian Financial Officer (Principal Financial
and Accounting Officer)
/S/ MICHAEL A. ELLISON Director March 25, 1996
- ----------------------------------------
Michael A. Ellison
/S/ PAUL NEWHAGEN Director March 25, 1996
- ----------------------------------------
PAUL NEWHAGEN
/S/ ROBERT W. REED Director March 25, 1996
- ----------------------------------------
Robert W. Reed
/S/ WILLIAM E. TERRY Director March 25, 1996
- ----------------------------------------
William E. Terry
</TABLE>
-22-
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
2.1* Asset Purchase Agreement dated as of July 12, 1994 by and
between the Company and Intel Corporation.(8)
2.2* Amendment No. 1 to Asset Purchase Agreement dated as of October
1, 1994 by and between the Company and Intel Corporation.(8)
2.3 Investor Agreement dated as of July 12, 1994 by and between
the Company and Intel Corporation.(8)
3.1 Restated Articles of Incorporation of the Company filed May 23,
1990.(5)
3.2 Certificate of Amendment of Articles of Incorporation filed on
May 10, 1995.(11)
3.3 Amended and Restated Bylaws of the Company, as amended through
August 18, 1994.(10)
4.1 Specimen copy of certificate for shares of Common Stock of
the Registrant.(7)
4.2 Indenture Agreement dated as of June 15, 1995 by and between
Registrant and the First National Bank of Boston, as trustee.(11)
4.3 Form of Convertible Subordinated Note due 2002.(11)
10.1* License Agreement dated as of July 12, 1994 with Intel
Corporation.(9)
10.2* Supply Agreement dated as of July 12, 1994 with Intel
Corporation.(9)
10.3(a)+ Forms of Incentive and Nonstatutory Stock Option Agreements
under the 1987 Stock Option Plan.(10)
10.3(b)+ 1987 Stock Option Plan, as amended May 10, 1995.(12)
10.4(a)+ 1987 Employee Stock Purchase Plan, as amended May 10, 1995.(12)
10.4(b)+ Form of Subscription Agreement under the 1987 Employee Stock
Purchase Plan.(10)
10.6* Technology License and Manufacturing Agreement with Cypress
Semiconductor Corporation, dated June 19, 1987.(1)
10.6(a)* Termination Agreement dated November 23, 1993, regarding
Technology License and Manufacturing Agreement with Cypress
Semiconductor Corporation.(7)
10.11 Form of Sales Representative Agreement.(1)
10.22* Advanced Micro Devices, formerly MMI, Settlement Agreement and
associated Series E Preferred Stock Purchase Agreement and Patent
License Agreement, all dated March 31, 1987.(1)
10.23 Amended and Restated Lease Agreement with Orchard Investment
Company Number 611, dated November 10, 1989, for lease of
Buildings B and C at 2610 Orchard Parkway, San Jose, California.(3)
10.24 First Amendment, effective February 5, 1990, to Lease Agreement
with Orchard Investment Company Number 611.(3)
10.25 Product Distribution Agreement with Wyle Electronics Marketing
Group, effective May 16, 1984, as amended.(1)
</TABLE>
-23-
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.26 Form of Indemnification Agreement entered into with each of the
Company's officers and directors.(10)
10.30 Technology License and Manufacturing Agreement with Texas
Instruments Incorporated, dated July 1, 1988.(2)
10.30(a) Amendment No. 2 to Technology License and Manufacturing Agreement
with Texas Instruments Incorporated, dated effective October 1,
1990.(5)
10.31 Product Distribution Agreement with LEX Electronics, Inc.,
formerly Schweber Electronics Corporation effective December 22,
1988.(2)
10.31(a) Consent to Assignment of Product Distribution Agreement, effective
September 23, 1991.(6)
10.33(a)+ 1988 Director Stock Option Plan, as amended January 17, 1996.
10.33(b)+ Forms of Outside Director Nonstatutory Stock Option Agreement
under the 1988 Director Stock Option Plan.(10)
10.34* Foundry and PROM II.5 Process Technology License Agreement with
Cypress Semiconductor Corporation and Cypress Semiconductor
(Texas) Inc., dated April 24, 1990.(4)
10.34(a)* Amendment Number 1 dated November 23, 1993, regarding Foundry and
PROM II.5 Process Technology License Agreement with Cypress
Semiconductor Corporation and Cypress Semiconductor (Texas) Inc.(7)
10.37 LSI Products Supply Agreement with Sharp Corporation, dated
October 1, 1993.(7)
10.38+ Altera Corporation Nonqualified Deferred Compensation Plan and
Trust Agreement dated February 1, 1994, and form of Deferred
Compensation Agreement.(7)
10.39* Wafer Supply Agreement dated June 26, 1995 between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd.(11)
10.40* Option Agreement dated June 26, 1995 between Registrant and
Taiwan Semiconductor Manufacturing Co., Ltd.(11)
10.41** Memorandum of Intent dated October 1, 1995 between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd.
10.42** Amendment No. 1 dated as of October 1, 1995 to Wafer Supply
Agreement dated as of June 26, 1995 by and between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd. and to
Option Agreement 1 dated as of June 26, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.43** Option Agreement 2 dated as of October 1, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.44** Option Agreement 3 dated as of October 1, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.45(a)+ 1996 Stock Option Plan.
10.45(b)+ Form of Stock Option Agreement under 1996 Stock Option Plan.
10.46 Owner/Contractor Agreement for Construction between Registrant
and Rudolph and Sletten, Inc. dated January 10, 1996.
11.1 Computation of Earnings per Share.
13.1 Annual Report to Shareholders for the fiscal year ended December
31, 1995 (to be deemed filed only to the extent required by the
instructions to Exhibits for Reports on Form 10-K).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (see page 21).
24.1 Power of Attorney (included on page 22).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------------
See Pages 19-20 for footnotes.
-24-
<PAGE> 1
EXHIBIT 10.33(a)
ALTERA CORPORATION
1988 DIRECTOR STOCK OPTION PLAN
(Restated effective January 17, 1996)
1. Purposes of the Plan. The purposes of this Director Stock Option Plan
are to attract and retain the best available personnel for service as Directors
of the Company, to provide additional incentive to the Outside Directors of the
Company to serve as Directors, and to encourage their continued service on the
Board.
All options granted hereunder shall be "non-statutory stock options".
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean the Common Stock of the Company.
(c) "Company" shall mean Altera Corporation, a California corporation.
(d) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(e) "Director" shall mean a member of the Board.
(f) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Option" shall mean a stock option granted pursuant to the Plan.
(i) "Optioned Stock" shall mean the Common Stock subject to an Option.
(j) "Optionee" shall mean an Outside Director who receives an Option.
(k) "Outside Director" shall mean a Director who is not an Employee.
(l) "Parent" shall mean a "parent corporation", whether now or
hereafter existing as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
<PAGE> 2
(m) "Plan" shall mean this 1988 Director Stock Option Plan, as
amended.
(n) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(o) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Internal Revenue Code of
1986, as amended.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 470,000 Shares (the "Pool") of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan shall
be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
automatic and non- discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 40,000 Shares (the "First Option") upon the later to occur of
(A) the effective date of this Plan, as determined in accordance with Section 6
hereof, or (B) the date on which such person first becomes an Outside Director,
whether through election by the shareholders of the Company, appointment by the
Board of Directors to fill a vacancy, or (for an employee director) by ceasing
to be employed by the Company.
(iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") on the day of each
annual shareholders meeting, at which such Outside Director is reelected to an
additional term, occurring after the grant date of such Outside Director's
-2-
<PAGE> 3
First Option; provided, however, that in no event shall an Outside Director be
granted Options to purchase in the aggregate more than 100,000 shares.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors on the automatic grant
date. Any further grants shall then be deferred until such time, if any, as
additional Shares become available for grant under the Plan through action to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(v) The terms of an Option granted hereunder shall be consistent
with the requirements set forth elsewhere in this plan and shall additionally
include the following:
(A) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 9
hereof.
(B) Subsequent Options granted prior to January 14, 1992 and
all First Options shall become exercisable in installments cumulatively with
respect to 25% of the Shares on the first day of the first year after the date
of grant of such First Option and with respect to 2.083% of the Shares for each
month after such anniversary. Subsequent Options granted on or after January 14,
1992 shall become exercisable in installments cumulatively with respect to 8.34%
of the shares for each month beginning after the First Option and all other
Subsequent Options, if any, are fully vested. However, in no event shall any
Option be exercisable prior to obtaining shareholder approval of the Plan in
accordance with Section 17 hereof.
(c) Powers of the Board. Subject to the provisions and restrictions of
the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
-3-
<PAGE> 4
(e) Suspension or Termination of Option. If the President or his
designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his estate shall be entitled to
exercise any option whatsoever. In making such determination, the Board of
Directors (excluding the Outside Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present evidence
on Optionee's behalf at a hearing before a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be ten (10) years from the
date of grant thereof.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
the Board in its discretion; provided, however, that where there is a public
market for the Common Stock, the fair
-4-
<PAGE> 5
market value per Share shall be the mean of the bid and asked prices of the
Common Stock in the over-the-counter market on the date of grant, as reported in
the Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System) or, in the event the Common Stock is traded on the NASDAQ National
Market System or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option, as reported in the Wall Street Journal.
(c) Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option shall consist entirely of cash, check,
other Shares of Common Stock having a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, or any combination of such methods of payment.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. In the event of the
termination of the Outside Director's Continuous Status as a Director, he may,
but only within thirty (30) days after the date of
-5-
<PAGE> 6
such termination, exercise his Option to the extent that he was entitled to
exercise it at the date of such termination. To the extent that he was not
entitled to exercise an Option at the date of such termination, or if he does
not exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
9(b) above, in the event a Director is unable to continue his service as a
Director with the Company as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Internal Revenue Code), he may, but only
within three (3) months from the date of termination, exercise his Option to the
extent he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death
a Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, the Option may be exercised, at
any time within six (6) months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status a
Director for six (6) months after the date of death.
(ii) within thirty (30) days after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within six (6)
months following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
10. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. The designation of a
beneficiary by an Optionee does not constitute a transfer. An Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or a
transferee permitted by this Section 10.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any
-6-
<PAGE> 7
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If however
such successor corporation does not agree to fully assume such options, the
Board shall act to fully accelerate the vesting of all of the shares subject to
each outstanding option such that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of thirty (30) days from the date of such notice,
and the Option will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date determined in accordance with Section 4(b) hereof. Notice
of the determination shall be given to each Outside Director to whom an Option
is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided
that, the following revisions or amendments shall require approval of the
shareholders of the Company in the manner described in Section 17 of the Plan:
-7-
<PAGE> 8
(i) any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the Plan; or
(ii) any change in the designation of the class of persons eligible
to be granted Options; or
(iii) any material increase in the benefits accruing to
participants under the Plan; or
(iv) any change in the number of shares subject to Options to be
granted hereunder or in the terms thereof as set forth in Section 4(b) hereof.
Notwithstanding the foregoing, the provisions set forth in Section 4(b) of
this Plan (and any other Sections of this Plan that affect the formula award
terms required to be specified in this Plan by Rule 16b-3) shall not be amended
more that once every six months, other than to comport with changes in the Code,
the Employee Retirement Income Security Act, or the rules thereunder.
(b) Shareholder Approval. Shareholder approval of any amendment
requiring shareholder approval under Section 13(a) of the Plan shall be
solicited as described in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-8-
<PAGE> 9
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company at or prior to the first annual meeting of
shareholders held subsequent to the granting of an Option hereunder. If such
shareholder approval is obtained at a duly held shareholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such shareholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
(b) Any required approval of the shareholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
18. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports to shareholders, proxy statements and other
information provided to all shareholders of the Company.
-9-
<PAGE> 1
EXHIBIT 10.41
MEMORANDUM OF INTENT
Altera and TSMC are presently contemplating the organization of a USA
joint venture, to which Altera, or an affiliate of Altera, expects to make a
cash equity investment for the purpose of acquiring a minority ownership
position. The parties agree to negotiate in good faith to structure and
conclude such a joint venture to the extent that best interests of each party
are served.
The parties have this date entered into Option Agreement 3 under which
Altera agrees to pay TSMC an option fee in the amount of *** for certain
option capacity to be provided by TSMC in years 1998 through 2001. The parties
intend that at any time beginning with the closing of the initial equity
contributions to the joint venture and continuing until January 31, 1997, Option
Agreement 3 can be superseded at Altera's option and the *** option fee
payment can be applied as a credit to Altera's cash investment in the joint
venture.
Dated: October 1, 1995
TAIWAN SEMICONDUCTOR ALTERA CORPORATION
MANUFACTURING CO., LTD.
BY: /s/ DONALD BROOKS BY: /s/ RODNEY SMITH
----------------------- -----------------------
Donald Brooks Rodney Smith
President President
*** Confidential treatment requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 1
EXHIBIT 10.42
AMENDMENT NO. 1
TO
SUPPLY AGREEMENT
AND TO
OPTION AGREEMENT 1
BETWEEN
ALTERA CORPORATION
AND
TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.
OCTOBER 1, 1995
<PAGE> 2
AMENDMENT NO. 1
TO
SUPPLY AGREEMENT AND OPTION AGREEMENT 1
THIS AMENDMENT is made and becomes effective as of October 1, 1995 (the
"Amendment Date") by Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"), a
company organized under the laws of the Republic of China with its registered
address at No. 121, Park Ave. 3, Science Based Industrial Park, Hsinchu,
Taiwan, and Altera Corporation, a company organized under the laws of the State
of California, with its registered address at 2610 Orchard Parkway, San Jose,
California 95134-2020 ("Customer").
RECITALS
WHEREAS, on June 26, 1995, the parties entered into a Wafer Supply
Agreement (the "Supply Agreement") and an Option Agreement ("Option Agreement
1"), the Supply Agreement specifying terms and conditions under which TSMC
supplies wafers to Customer through 1999 with provision for automatic extension,
and the Option Agreement 1 granting Customer the right to purchase a specified
option capacity through 1999;
WHEREAS, as of the Amendment Date, the parties are entering into
"Option Agreement 2" granting the Customer the right to purchase additional
option capacity through 2000, and "Option Agreement 3" granting the Customer the
right to purchase still additional option capacity through 2001;
WHEREAS, certain amendments to the Supply Agreement and to Option
Agreement 1 are required for purposes of coordinating all of these documents;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. SUPPLY AGREEMENT
(a) Section 5.1 of the Supply Agreement is hereby amended by
extending the initial term by two years (i.e. through December
31, 2001).
(b) Section 5.3 of the Supply Agreement ("Automatic Extension") is
hereby amended by extending each date specified therein by two
years.
2. OPTION AGREEMENT 1
(a) Exhibit B attached to Option Agreement 1 is hereby replaced by
Exhibit B attached to this Amendment.
<PAGE> 3
(b) Section 1(c) of Option Agreement 1 (definition of "Option
Capacity") is hereby amended by inserting "identified as
'Option 1' in Exhibit B," after the comma.
(c) The last sentence of Section 2(a) of Option Agreement 1 is
hereby amended to read in full as follows:
In any calendar year, the orders placed by Customer
shall first apply to fill the Base Capacity Portion of
the Customer Committed Capacity (identified as "Base
Commit" in Exhibit B), then to the Option Capacity of
this Option Agreement 1 (identified as "Option 1" in
Exhibit B), then the Option Capacity of Option
Agreement 2 (identified as "Option 2" in Exhibit B),
and then the Option Capacity of Option Agreement 3
(identified as "Option 3" in Exhibit B).
(d) Section 4 of Option Agreement 1 is hereby amended to read in
full as follows:
4. OTHER PURCHASE TERMS AND CONDITIONS
The Supply Agreement will apply to all
purchases of wafers by Customer from TSMC,
except that the provisions of this Agreement
will supersede the Supply Agreement with
respect to the subject matter hereof, and the
provisions of Option Agreement 2 and Option
Agreement 3 will supersede the Supply
Agreement as to the respective subject matter
thereof.
(e) The Parties acknowledge that "Equivalent Wafer" in Section
5(a), line 2 of Option Agreement 1 should read "Wafer
Equivalent".
3. CONTINUING EFFECT
Subject to the foregoing amendments, the Supply Agreement and Option
Agreement 1 continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first stated above.
TAIWAN SEMICONDUCTOR ALTERA CORPORATION
MANUFACTURING CO., LTD.
BY: /s/ DONALD BROOKS BY: /s/ RODNEY SMITH
----------------------- -----------------------
Donald Brooks Rodney Smith
President President
<PAGE> 4
EXHIBIT B
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
95 96 97 98 99 2000 2001
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BASE *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
%
Commit *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
Base Commit *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
Option1 *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
Option2 *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
Option3 *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
Tot Opt *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
TSMC Commit *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
Cust. Commit *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------
</TABLE>
UNITS: K 6" WAFER EQUIVALENT
***
*** Confidential treatment requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 1
EXHIBIT 10.43
OPTION AGREEMENT 2
BETWEEN
ALTERA CORPORATION
AND
TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.
OCTOBER 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. VOLUME COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. WAFER PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. OTHER PURCHASE TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. OBLIGATION TO PAY OPTION FEE FOR OPTION CAPACITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. FAILURE TO PURCHASE THE OPTION CAPACITY; FIRST RIGHT OF REFUSAL . . . . . . . . . . . . . . . . . . . 4
7. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. BOARD APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
16. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
OPTION AGREEMENT 2
THIS AGREEMENT is made and becomes effective as of October 1, 1995 (the
"Effective Date") by Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC", a
company organized under the laws of the Republic of China with its registered
address at No. 121, Park Ave. 3, Science Based Industrial Park, Hsinchu, Taiwan,
and Altera Corporation, a company organized under the laws of the State of
California, with its registered address at 2610 Orchard Parkway, San Jose,
California 95134-2020 ("Customer").
RECITALS
WHEREAS, TSMC currently supplies Customer with wafers pursuant to a
Wafer Supply Agreement dated June 26, 1995 (the "Supply Agreement") and an
Option Agreement dated June 26, 1995 ("Option Agreement 1"), relating to option
capacity through 1999, and Customer wishes to increase the volume of wafers to
be purchased from TSMC;
WHEREAS, in order to increase its output, TSMC must accelerate its ramp
up in Fab 4 and advance the start of Fab 5;
WHEREAS, as a condition to TSMC's acceleration of these facilities,
TSMC has asked that Customer make a capacity commitment and advance payment for
the right to buy additional capacity, and Customer is willing to do so;
WHEREAS, to implement the foregoing, as of the Effective Date, the
parties are entering into this Option Agreement 2 (this "Agreement") relating to
option capacity through 2000, as well as "Option Agreement 3" relating to option
capacity through 2001 and "Amendment No. 1 to Supply Agreement and Option
Agreement 1" for purposes of coordinating all of these documents.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the parties agree as follows:
1. DEFINITIONS
(a) "Base Capacity" used in this Agreement shall mean the
annualized run rate that TSMC has committed to the Customer as
set forth in Exhibit B.
(b) "Customer Committed Capacity" used in this Agreement shall mean
the total capacity that Customer agrees to purchase from TSMC
pursuant to this Agreement, as set forth in Exhibit B, subject
to the applicable provisions of this Agreement and the Supply
Agreement.
-1-
<PAGE> 4
(c) "Option Capacity" used in this Agreement shall mean the firm
capacity commitment made by Customer pursuant to this
Agreement, identified as "Option 2" on Exhibit B, for which
capacity Customer agrees to pay the Option Fee as defined in
Section 1(d) below.
(d) "Option Fee" used in this Agreement shall mean the deposit
that Customer agrees to place with TSMC as the advance payment
for the Option Capacity.
(e) "TSMC Committed Capacity" used in this Agreement shall mean
the total capacity that TSMC agrees to provide to Customer
pursuant to this Agreement, and as set forth in Exhibit B.
(f) "Wafer Equivalent" used in this Agreement shall mean the
number of six-inch wafers based on the equivalency factor for
TSMC's 0.5 micron, single poly, triple level metal process.
For details of the equivalency factor, please refer to Exhibit
A. Any and all capacity commitments referred to in this
Agreement shall be measured in Wafer Equivalent. For an
example of the application of the equivalency factor refer to
Exhibit A-1.
2. VOLUME COMMITMENT
(a) Subject to the applicable provisions of this Agreement and the
Supply Agreement , Customer agrees to purchase from TSMC , and
TSMC agrees to supply , the Customer Committed Capacity, and
subject to the payment of the Option Fee by Customer under
Section 5, TSMC agrees to provide to Customer the TSMC
Committed Capacity, as set forth in Exhibit B. In any
calendar year, the orders placed by Customer shall first apply
to fulfill the Base Capacity portion of the Customer Committed
Capacity (identified as "Base Commit" in Exhibit B), then to
the Option Capacity of Option Agreement 1 (identified as
"Option 1" in Exhibit B), then the Option Capacity of this
Option Agreement 2 (identified as "Option 2" in Exhibit B),
and then the Option Capacity of Option Agreement 3 (identified
as "Option 3" in Exhibit B).
(b) Each month, Customer agrees to provide to TSMC a six-month
rolling forecast of the number of wafers that Customer expects
to purchase, with the volume for the first twelve weeks being
frozen (i.e., Customer must purchase all of the quantity
forecast for the delivery in the first twelve weeks of the
forecast). The forecast must be based on wafers out or
deliveries expected to be made by TSMC.
(c) TSMC will use its reasonable effort to cause its fabs to be
capable of producing wafers of more advanced
-2-
<PAGE> 5
specifications, as set forth in the TSMC Technology Road Map
attached as Exhibit C.
3. WAFER PRICE
(a) The wafer prices for the Customer Committed Capacity shall not
be more than TSMC's average wafer prices to optionees (i.e.
customers that are parties to option agreements similar to
this Agreement) for the same or comparable technology, same
wafer fab and the same period of time. Customer shall have
the right at any time, but no more frequently than once per
year, on at least thirty days prior written notice, to have an
independent party acceptable to TSMC (such acceptance not to
be unreasonably delayed or withheld) examine TSMC's records
relating to the above pricing. Any price change will apply to
the unfilled and future orders only and may not apply
retroactively.
(b) The parties shall negotiate in good faith each year the wafer
prices for the Customer Committed Capacity of the following
year in coordination with the annual negotiation under the
Supply Agreement. In the course of such negotiations, TSMC
will make available relevant information in its possession
regarding wafer market prices and TSMC's average wafer prices
for the same or comparable technology in the same fab. If no
agreement on these prices is reached by the parties within
three months following written notice of request for
negotiation by either party (the "Negotiation Request"), the
parties agree to submit the dispute to the binding arbitration
pursuant to Section 13 below, and under such circumstances,
neither party shall have the right to terminate this agreement
under Section 7 below.
4. OTHER PURCHASE TERMS AND CONDITIONS
The Supply Agreement will apply to all purchases of wafers by Customer
from TSMC, except that the provisions of this Agreement will supersede the
Supply Agreement with respect to the subject matter hereof, and the provisions
of Option Agreement 1 and Option Agreement 3 will supersede the Supply
Agreement as to the respective subject matter thereof.
5. OBLIGATION TO PAY OPTION FEE FOR OPTION CAPACITY
(a) Customer agrees to pay to TSMC the Option Fee in the amount of
*** for the right to purchase the Option Capacity pursuant to
this Agreement, which TSMC hereby agrees to supply. The
Option Fee is set forth in Exhibit D, and Customer agrees
to pay the
*** Confidential treatment requested. Omitted portions have been filed
separately with the Commission.
-3-
<PAGE> 6
Option Fees for the entire term of this Agreement (U.S.$57.12M
in total) in cash by Jan. 31, 1996. Except that TSMC
exercises its first right of refusal or the Customer assigns
its purchase rights and obligations, pursuant to Section 6
below, the Option Fee, once paid, shall be non-refundable
except as provided in Section 7(d), but will be credited
against payments due for wafers purchased by Customer from the
Option Capacity provided by TSMC under this Agreement.
(b) Customer further agrees to deliver to TSMC, within seven (7)
days following the Effective Date, one promissory note in the
amount of the Option Fee due (U.S. $57.12M), and payable to
TSMC or order, which promissory note is in the form of Exhibit
E. The promissory note shall be returned by TSMC to Customer
within seven (7) days upon receipt of the Option Fee by TSMC.
(c) Neither the payment of the Option Fee nor the delivery of the
promissory note shall prejudice Customer's right to any
damages or other remedy to which Customer may be entitled by
law.
6. FAILURE TO PURCHASE THE OPTION CAPACITY; FIRST RIGHT OF REFUSAL
(a) If, in any calendar year, for any reason, Customer is not able
to use or purchase all or a portion of the Customer Committed
Capacity of that year, or any other year(s) during the term of
this Agreement, Customer shall promptly notify TSMC of such in
writing and first offer TSMC such Capacity or portion thereof
for sales to any third parties. TSMC may, at its option,
accept such offer, in whole or in part, within thirty (30)
days following Customer's notification, and if TSMC so
accepts, or if TSMC, in fact, sells such capacity or portion
thereof to third parties, the corresponding Option Fee, if
paid, will be returned without interest (notwithstanding
Section 6(b)). In the event that TSMC decides not to accept
such offer, Customer may assign its right to purchase the
Customer Committed Capacity or portion thereof for all or part
of the remaining term of this Agreement to any third parties
acceptable to TSMC (such acceptance not to be unreasonably
delayed or withheld), within two months upon TSMC's written
notice that it will not accept such offer, and if Customer
fails to do so, Customer shall remain liable for the Option
Fee for the remaining term of this Agreement under Section 5
above, and so long as Customer continues to pay the Option Fee
it shall (regardless of any prior notification) retain the
right to purchase the Option Capacity pursuant to this
Agreement.
- --------
*** Confidential treatment requested. Omitted portions have been filed
separately with the Commission.
-4-
<PAGE> 7
(b) Any of Customer's rights or obligations set forth in Section
6(a) shall not affect its obligation to pay the Option Fee
pursuant to Section 5 above, except that if the right to
purchase all or part of the Option Capacity is assigned to any
third parties acceptable to TSMC pursuant to Section 6(a)
above, such third parties shall then have the exclusive
obligation to pay the corresponding Option Fee and abide by
the applicable terms and conditions of this Agreement.
7. TERM AND TERMINATION
(a) The term of this Agreement shall commence from the Effective
Date, and continue until December 31, 2000.
(b) TERMINATION BY TSMC FOR CUSTOMER'S FAILURE TO PAY THE OPTION
FEE
TSMC may terminate this Agreement if Customer fails to pay the
Option Fee pursuant to Section 5 above, and does not cure or
remedy such breach within thirty (30) days of receiving written
notice of such breach.
(c) TERMINATION FOR OTHER BREACH OR FOR BANKRUPTCY
Either party may terminate this Agreement if, (i) the other
party breaches any material provisions of this Agreement
(other than breach of Section 5 above), and does not cure or
remedy such breach within sixty (60) days of receiving written
notice of such breach, or (ii) becomes the subject of a
voluntary or involuntary petition in bankruptcy or any
proceeding relating to insolvency, receivership or
liquidation, if such petition or proceeding is not dismissed
with prejudice within sixty (60) days after filing.
(d) EFFECT OF TERMINATION
Both parties shall remain liable to the other party for any
outstanding and matured rights and obligations at the time of
termination, including all outstanding payments of the Option
Fee applicable to the used Option Capacity and for the wafers
already ordered and/or shipped to Customer. In the event
Altera terminates this Agreement pursuant to Section 7(c) or
Section 16, any advance payment of the Option Fee applicable
to the unused and/or unprovided Option Capacity shall be
refunded and any promissory note therefor shall be returned.
-5-
<PAGE> 8
8. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special,
incidental or consequential damages (including loss of profits and loss of use)
resulting from, arising out of or in connection with its performance or failure
to perform under this Agreement, or resulting from, arising out of or in
connection with the production, supply and/or purchase and sale of the wafers,
whether due to a breach of contract, breach of warranty, tort, or negligence,
or otherwise.
9. BOARD APPROVAL
Customer shall obtain the approval of its Board of Directors of this
Agreement, and submit to TSMC, at the time of executing this Agreement, an
authentic copy of its Board resolution authorizing the representative
designated below to execute this Agreement.
10. NOTICE
All notices required or permitted to be sent by either party to the
other party under this Agreement shall be sent by registered mail postage
prepaid, or by personal delivery, or by fax. Any notice given by fax shall be
followed by a confirmation copy within ten (10) days. Unless changed by
written notice given by either party to the other, the addresses and fax
numbers of the respective parties shall be as follows:
To TSMC:
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.
No. 121, Park Avenue 3
Science-Based Industrial Park
Hsinchu, Taiwan
Republic of China FAX: 886-35-781545
To Customer:
Altera Corporation
2610 Orchard Parkway
San Jose, California 95134-2020
USA FAX: 408-894-8000
11. ENTIRE AGREEMENT
This Agreement, including Exhibits A-E, constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes and replaces all prior or contemporaneous understandings,
agreements, dealings and negotiations, oral or written, regarding the subject
matter hereof. No modification,
-6-
<PAGE> 9
alteration or amendment of this Agreement shall be effective unless in writing
and signed by both parties. No waiver of any breach or failure by either party
to enforce any provision of this Agreement shall be deemed a waiver of any other
or subsequent breach, or a waiver of future enforcement of that or any other
provision.
12. GOVERNING LAW
This Agreement will be governed by and interpreted as set forth in
Section 18.0 of the Supply Agreement.
13. ARBITRATION
If the parties fail to agree on the wafer prices within three months
of any Negotiation Request given pursuant to Section 3, each party shall submit
a written proposal to the other within 15 days following said three month
period setting forth proposed prices and reasons in support thereof. If upon a
review of these proposals, the parties are unable to reach agreement on the
prices within thirty days following said three month period, the matter will be
submitted to arbitration under the rules of the American Arbitration
Association, but subject to the following special provisions. The arbitration
shall be conducted by a panel of three arbitrators, one appointed by each
Party, and the third selected by the two appointed arbitrators. The
arbitrators shall decide which proposal is the most reasonable and the selected
proposal shall thereupon become binding on both parties. The arbitrators shall
not select any other prices nor decide any other issue, unless otherwise agreed
in writing by both parties. All other disputes shall be resolved in accordance
with Section 20.0 of the Supply Agreement.
14. ASSIGNMENT
This Agreement shall be binding on and inure to the benefit of each
party and its successors, and except that Customer may assign its purchase
rights and obligations under this Agreement pursuant to Section 6 above,
neither party shall assign any of its rights hereunder, nor delegate its
obligations hereunder, to any third party, without the prior written consent of
the other.
15. CONFIDENTIALITY
Neither party shall disclose the existence or contents of this
Agreement except as required by Customer's assignment of rights and obligations
under this Agreement to any third parties pursuant to Section 6 above, in
confidence to its advisers, as required by applicable law, or otherwise with
the prior written consent of the other party.
-7-
<PAGE> 10
16. FORCE MAJEURE
Neither party shall be responsible for delays or failure in
performance resulting from acts beyond the reasonable control of such party.
Such acts shall include but not be limited to acts of God, war, riot, labor
stoppages, governmental actions, fires, floods, and earthquakes. If such
delays or failures on the part of either party continue for a period of more
than one hundred twenty (120) days, the other party may terminate this
Agreement upon written notice, subject to Section 7(d).
IN WITNESS WHEREOF, the parties, have executed this Agreement as of
the date first stated above.
TAIWAN SEMICONDUCTOR ALTERA CORPORATION
MANUFACTURING CO., LTD.
BY: /s/ DONALD BROOKS BY: /s/ RODNEY SMITH
----------------------- -----------------------
Donald Brooks Rodney Smith
President President
-8-
<PAGE> 11
EXHIBIT A ***
***
Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 12
EXHIBIT A-1
***
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 13
EXHIBIT B
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
95 96 97 98 99 2000 2001
- ----------------------------------------------------------------------------------------------------------
<S> <C>
BASE 0 *** *** *** *** *** ***
- -------------------------------
%
Commit *** *** *** *** *** ***
- -------------------------------
Base Commit *** *** *** *** *** ***
- -------------------------------
Option1 *** *** *** *** *** ***
- -------------------------------
Option2 *** *** *** *** *** ***
- -------------------------------
Option3 *** *** *** *** *** ***
- -------------------------------
Tot Opt *** *** *** *** *** ***
- -------------------------------
TSMC Commit *** *** *** *** *** ***
- -------------------------------
Cust. Commit *** *** *** *** *** ***
- -------------------------------
</TABLE>
UNITS: K 6" WAFER EQUIVALENT
***
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 14
EXHIBIT C
***
*** Confidential Treatment Requested.
Omitted portions have been filed
separately with the Commission***
<PAGE> 15
EXHIBIT D
OPTION FEE
<TABLE>
<CAPTION>
Year Option Capacity Option Fee Due Date
(Unit: Wafer Equivalent) (Unit: US$)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 *** *** Jan. 31, 1996
1997
1998
1999
2000
</TABLE>
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 16
EXHIBIT E
STANDARD FORM OF PROMISSORY NOTE
Amount: US$_______________ Due Date: _____________
The undersigned, _____________________ (the "Maker"), unconditionally
(except as otherwise provided in the Option Agreement between TSMC and Maker
dated _________________) promises to pay to Taiwan Semiconductor Manufacturing
Co., Ltd. or its order the sum of US Dollars ___________________
($____________), plus interest calculated from the Due date stated herein to
the date of full payment at the rate of 10% per annum on any unpaid portion of
the principal amount stated herein, and said payment will be made at __________
(Place of Payment).
This Note shall be governed in all respects by the laws of the State of
California, U.S.A.
The Maker of this Note agrees to waive protests and notice of whatever
kind.
Issue Date: ___________________
Issue Place: __________________
Makers Signature: _________________
Makers Address: ___________________
___________________________________
___________________________________
<PAGE> 1
EXHIBIT 10.44
OPTION AGREEMENT 3
BETWEEN
ALTERA CORPORATION
AND
TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.
OCTOBER 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. VOLUME COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. WAFER PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. OTHER PURCHASE TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. OBLIGATION TO PAY OPTION FEE FOR OPTION CAPACITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. FAILURE TO PURCHASE THE OPTION CAPACITY; FIRST RIGHT OF REFUSAL . . . . . . . . . . . . . . . . . . . . 4
7. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. BOARD APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
16. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
OPTION AGREEMENT 3
THIS AGREEMENT is made and becomes effective as of October 1, 1995
(the "Effective Date") by Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC",
a company organized under the laws of the Republic of China with its registered
address at No. 121, Park Ave. 3, Science Based Industrial Park, Hsinchu, Taiwan,
and Altera Corporation, a company organized under the laws of the State of
California, with its registered address at 2610 Orchard Parkway, San Jose ,
California 95134-2020 ("Customer").
RECITALS
WHEREAS, TSMC currently supplies Customer with wafers pursuant to a
Wafer Supply Agreement dated June 26, 1995 (the "Supply Agreement") and an
Option Agreement dated June 26, 1995 ("Option Agreement 1"), relating to option
capacity through 1999, and Customer wishes to increase the volume of wafers to
be purchased from TSMC;
WHEREAS, in order to increase its output, TSMC must accelerate its
ramp up in Fab 4 and advance the start of Fab 5;
WHEREAS, as a condition to TSMC's acceleration of these facilities,
TSMC has asked that Customer make a capacity commitment and advance payment for
the right to buy additional capacity, and Customer is willing to do so;
WHEREAS, to implement the foregoing, as of the Effective Date, the
parties are entering into this Option Agreement 3 (this "Agreement") relating
to option capacity through 2001, as well as "Option Agreement 2" relating to
option capacity through 2000 and "Amendment No. 1 to Supply Agreement and
Option Agreement 1" for purposes of coordinating all of these documents.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the parties agree as follows:
1. DEFINITIONS
(a) "Base Capacity" used in this Agreement shall mean the
annualized run rate that TSMC has committed to the Customer as
set forth in Exhibit B.
(b) "Customer Committed Capacity" used in this Agreement shall
mean the total capacity that Customer agrees to purchase from
TSMC pursuant to this Agreement, as set forth in Exhibit B,
subject to the applicable provisions of this Agreement and the
Supply Agreement.
-1-
<PAGE> 4
(c) "Option Capacity" used in this Agreement shall mean the firm
capacity commitment made by Customer pursuant to this
Agreement, identified as "Option 3" on Exhibit B, for which
capacity Customer agrees to pay the Option Fee as defined in
Section 1(d) below.
(d) "Option Fee" used in this Agreement shall mean the deposit
that Customer agrees to place with TSMC as the advance payment
for the Option Capacity.
(e) "TSMC Committed Capacity" used in this Agreement shall mean
the total capacity that TSMC agrees to provide to Customer
pursuant to this Agreement, and as set forth in Exhibit B.
(f) "Wafer Equivalent" used in this Agreement shall mean the
number of six-inch wafers based on the equivalency factor for
TSMC's 0.5 micron, single poly, triple level metal process.
For details of the equivalency factor, please refer to Exhibit
A. Any and all capacity commitments referred to in this
Agreement shall be measured in Wafer Equivalent. For an
example of the application of the equivalency factor refer to
Exhibit A-1.
2. VOLUME COMMITMENT
(a) Subject to the applicable provisions of this Agreement and the
Supply Agreement, Customer agrees to purchase from TSMC, and
TSMC agrees to supply, the Customer Committed Capacity, and
subject to the payment of the Option Fee by Customer under
Section 5, TSMC agrees to provide to Customer the TSMC
Committed Capacity, as set forth in Exhibit B. In any
calendar year, the orders placed by Customer shall first apply
to fulfill the Base Capacity portion of the Customer Committed
Capacity (identified as "Base Commit" in Exhibit B), then to
the Option Capacity of Option Agreement 1 (identified as
"Option 1" in Exhibit B), then the Option Capacity of Option
Agreement 2 (identified as "Option 2" in Exhibit B), and then
the Option Capacity of this Option Agreement 3 (identified as
"Option 3" in Exhibit B).
(b) Each month, Customer agrees to provide to TSMC a six-month
rolling forecast of the number of wafers that Customer expects
to purchase, with the volume for the first twelve weeks being
frozen (i.e., Customer must purchase all of the quantity
forecast for the delivery in the first twelve weeks of the
forecast). The forecast must be based on wafers out or
deliveries expected to be made by TSMC.
(c) TSMC will use its reasonable effort to cause its fabs to be
capable of producing wafers of more advanced
-2-
<PAGE> 5
specifications, as set forth in the TSMC Technology Road Map
attached as Exhibit C.
3. WAFER PRICE
(a) The wafer prices for the Customer Committed Capacity shall not
be more than TSMC's average wafer prices to optionees (i.e.
customers that are parties to option agreements similar to
this Agreement) for the same or comparable technology, same
wafer fab and the same period of time. Customer shall have
the right at any time, but no more frequently than once per
year, on at least thirty days prior written notice, to have an
independent party acceptable to TSMC (such acceptance not to
be unreasonably delayed or withheld) examine TSMC's records
relating to the above pricing. Any price change will apply to
the unfilled and future orders only and may not apply
retroactively.
(b) The parties shall negotiate in good faith each year the wafer
prices for the Customer Committed Capacity of the following
year in coordination with the annual negotiation under the
Supply Agreement. In the course of such negotiations, TSMC
will make available relevant information in its possession
regarding wafer market prices and TSMC's average wafer prices
for the same or comparable technology in the same fab. If no
agreement on these prices is reached by the parties within
three months following written notice of request for
negotiation by either party ( the "Negotiation Request"), the
parties agree to submit the dispute to the binding arbitration
pursuant to Section 13 below, and under such circumstances,
neither party shall have the right to terminate this agreement
under Section 7 below.
4. OTHER PURCHASE TERMS AND CONDITIONS
The Supply Agreement will apply to all purchases of wafers by Customer
from TSMC, except that the provisions of this Agreement will supersede the
Supply Agreement with respect to the subject matter hereof, and the provisions
of Option Agreement 1 and Option Agreement 3 will supersede the Supply Agreement
as to the respective subject matter thereof.
5. OBLIGATION TO PAY OPTION FEE FOR OPTION CAPACITY
(a) Customer agrees to pay to TSMC the Option Fee in the amount of
*** for the right to purchase the Option Capacity pursuant to
this Agreement, which TSMC hereby agrees to supply. The
Option Fee is set forth in Exhibit D, and Customer agrees to
pay the
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
-3-
<PAGE> 6
Option Fees for the entire term of this Agreement (U.S. $49.0M
in total) in cash by Jan. 31, 1997. Except that TSMC
exercises its first right of refusal or the Customer assigns
its purchase rights and obligations, pursuant to Section 6
below, the Option Fee, once paid, shall be non-refundable
except as provided in Section 7(d), but will be credited
against payments due for wafers purchased by Customer from the
Option Capacity provided by TSMC under this Agreement.
(b) Customer further agrees to deliver to TSMC, within seven (7)
days following the Effective Date, one promissory note in the
amount of the Option Fee due (U.S. $49.0M), and payable to
TSMC or order, which promissory note is in the form of Exhibit
E. The promissory notes shall be returned by TSMC to Customer
within seven (7) days upon receipt of the Option Fee by TSMC.
(c) Neither the payment of the Option Fee nor the delivery of the
promissory notes shall prejudice Customer's right to any
damages or other remedy to which Customer may be entitled by
law.
6. FAILURE TO PURCHASE THE OPTION CAPACITY; FIRST RIGHT OF REFUSAL
(a) If, in any calendar year, for any reason, Customer is not able
to use or purchase all or a portion of the Customer Committed
Capacity of that year, or any other year(s) during the term of
this Agreement, Customer shall promptly notify TSMC of such in
writing and first offer TSMC such Capacity or portion thereof
for sales to any third parties. TSMC may, at its option,
accept such offer, in whole or in part, within thirty (30)
days following Customer's notification, and if TSMC so
accepts, or if TSMC, in fact, sells such capacity or portion
thereof to third parties, the corresponding Option Fee, if
paid, will be returned without interest (notwithstanding
Section 6(b)). In the event that TSMC decides not to accept
such offer, Customer may assign its right to purchase the
Customer Committed Capacity or portion thereof for all or part
of the remaining term of this Agreement to any third parties
acceptable to TSMC (such acceptance not to be unreasonably
delayed or withheld), within two months upon TSMC's written
notice that it will not accept such offer, and if Customer
fails to do so, Customer shall remain liable for the Option
Fee for the remaining term of this Agreement under Section 5
above, and so long as Customer continues to pay the Option Fee
it shall (regardless of any prior notification) retain the
right to purchase the Option Capacity pursuant to this
Agreement.
- -------
*** Confidential treatment requested. Omitted portions have been filed
separately with the Commission.
-4-
<PAGE> 7
(b) Any of Customer's rights or obligations set forth in Section
6(a) shall not affect its obligation to pay the Option Fee
pursuant to Section 5 above, except that if the right to
purchase all or part of the Option Capacity is assigned to any
third parties acceptable to TSMC pursuant to Section 6(a)
above, such third parties shall then have the exclusive
obligation to pay the corresponding Option Fee and abide by
the applicable terms and conditions of this Agreement.
7. TERM AND TERMINATION
(a) The term of this Agreement shall commence from the Effective
Date, and continue until December 31, 2001.
(b) TERMINATION BY TSMC FOR CUSTOMER'S FAILURE TO PAY THE OPTION
FEE
TSMC may terminate this Agreement if Customer fails to pay the
Option Fee pursuant to Section 5 above, and does not cure or
remedy such breach within thirty (30) days of receiving written
notice of such breach.
(c) TERMINATION FOR OTHER BREACH OR FOR BANKRUPTCY
Either party may terminate this Agreement if, (i) the other
party breaches any material provisions of this Agreement (other
than breach of Section 5 above), and does not cure or remedy
such breach within sixty (60) days of receiving written notice
of such breach, or (ii) becomes the subject of a voluntary or
involuntary petition in bankruptcy or any proceeding relating
to insolvency, receivership or liquidation, if such petition or
proceeding is not dismissed with prejudice within sixty (60)
days after filing.
(d) EFFECT OF TERMINATION
Both parties shall remain liable to the other party for any
outstanding and matured rights and obligations at the time of
termination, including all outstanding payments of the Option
Fee applicable to the used Option Capacity and for the wafers
already ordered and/or shipped to Customer. In the event
Altera terminates this Agreement pursuant to Section 7(c) or
Section 16, any advance payment of the Option Fee applicable to
the unused and/or unprovided Option Capacity shall be refunded
and any promissory note therefor shall be returned.
-5-
<PAGE> 8
8. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special,
incidental or consequential damages (including loss of profits and loss of use)
resulting from, arising out of or in connection with its performance or failure
to perform under this Agreement, or resulting from, arising out of or in
connection with the production, supply and/or purchase and sale of the wafers,
whether due to a breach of contract, breach of warranty, tort, or negligence or
otherwise.
9. BOARD APPROVAL
Customer shall obtain the approval of its Board of Directors of this
Agreement, and submit to TSMC, at the time of executing this Agreement, an
authentic copy of its Board resolution authorizing the representative
designated below to execute this Agreement.
10. NOTICE
All notices required or permitted to be sent by either party to the
other party under this Agreement shall be sent by registered mail postage
prepaid, or by personal delivery, or by fax. Any notice given by fax shall be
followed by a confirmation copy within ten (10) days. Unless changed by written
notice given by either party to the other, the addresses and fax numbers of the
respective parties shall be as follows:
To TSMC:
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.
No. 121, Park Avenue 3
Science-Based Industrial Park
Hsinchu, Taiwan
Republic of China FAX: 886-35-781545
To Customer:
Altera Corporation
2610 Orchard Parkway
San Jose, California 95134-2020
USA FAX: 408-894-8000
11. ENTIRE AGREEMENT
This Agreement, including Exhibits A-E, constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes and replaces all prior or contemporaneous understandings, agreements,
dealings and negotiations, oral or written, regarding the subject matter hereof.
No modification,
-6-
<PAGE> 9
alteration or amendment of this Agreement shall be effective unless in writing
and signed by both parties. No waiver of any breach or failure by either party
to enforce any provision of this Agreement shall be deemed a waiver of any other
or subsequent breach, or a waiver of future enforcement of that or any other
provision.
12. GOVERNING LAW
This Agreement will be governed by and interpreted as set forth in
Section 18.0 of the Supply Agreement.
13. ARBITRATION
If the parties fail to agree on the wafer prices within three months of
any Negotiation Request given pursuant to Section 3, each party shall submit a
written proposal to the other within 15 days following said three month period
setting forth proposed prices and reasons in support thereof. If upon a review
of these proposals, the parties are unable to reach agreement on the prices
within thirty days following said three month period, the matter will be
submitted to arbitration under the rules of the American Arbitration
Association, but subject to the following special provisions. The arbitration
shall be conducted by a panel of three arbitrators, one appointed by each Party,
and the third selected by the two appointed arbitrators. The arbitrators shall
decide which proposal is the most reasonable and the selected proposal shall
thereupon become binding on both parties. The arbitrators shall not select any
other prices nor decide any other issue, unless otherwise agreed in writing by
both parties. All other disputes shall be resolved in accordance with Section
20.0 of the Supply Agreement.
14. ASSIGNMENT
This Agreement shall be binding on and inure to the benefit of each
party and its successors, and except that Customer may assign its purchase
rights and obligations under this Agreement pursuant to Section 6 above, neither
party shall assign any of its rights hereunder, nor delegate its obligations
hereunder, to any third party, without the prior written consent of the other.
15. CONFIDENTIALITY
Neither party shall disclose the existence or contents of this
Agreement except as required by Customer's assignment of rights and obligations
under this Agreement to any third parties pursuant to Section 6 above, in
confidence to its advisers, as required by applicable law, or otherwise with the
prior written consent of the other party.
-7-
<PAGE> 10
16. FORCE MAJEURE
Neither party shall be responsible for delays or failure in performance
resulting from acts beyond the reasonable control of such party. Such acts shall
include but not be limited to acts of God, war, riot, labor stoppages,
governmental actions, fires, floods, and earthquakes. If such delays or
failures on the part of either party continue for a period of more than one
hundred twenty (120) days, the other party may terminate this Agreement upon
written notice, subject to Section 7(d).
IN WITNESS WHEREOF, the parties, have executed this Agreement as of the
date first stated above.
TAIWAN SEMICONDUCTOR ALTERA CORPORATION
MANUFACTURING CO., LTD.
BY: /s/ DONALD BROOKS BY: /s/ RODNEY SMITH
----------------------- -----------------------
Donald Brooks Rodney Smith
President President
-8-
<PAGE> 11
EXHIBIT A
***
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 12
Exhibit A-1
***
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 13
EXHIBIT B
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
95 96 97 98 99 2000 2001
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BASE 0 *** *** *** *** *** ***
- -----------------------------------
%
Commit *** *** *** *** *** ***
- -----------------------------------
Base Commit *** *** *** *** *** ***
- -----------------------------------
Option1 *** *** *** *** *** ***
- -----------------------------------
Option2 *** *** *** *** *** ***
- -----------------------------------
Option3 *** *** *** *** *** ***
- -----------------------------------
Tot Opt *** *** *** *** *** ***
- -----------------------------------
TSMC Commit *** *** *** *** *** ***
- -----------------------------------
Cust. Commit *** *** *** *** *** ***
- -----------------------------------
</TABLE>
UNITS: K 6" WAFER EQUIVALENT
***
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 14
EXHIBIT C
***
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 15
EXHIBIT D
OPTION FEE
<TABLE>
<CAPTION>
Year Option Capacity Option Fee Due Date
(Unit: Wafer Equivalent) (Unit: US$)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
1997 *** *** Jan. 31, 1997
1998
1999
2000
2001
</TABLE>
*** Confidential Treatment Requested. Omitted portions have been filed
separately with the Commission.
<PAGE> 16
Exhibit E
STANDARD FORM OF PROMISSORY NOTE
Amount: US$_______________ Due Date: _____________
The undersigned, _____________________ (the "Maker"), unconditionally
(except as otherwise provided in the Option Agreement between TSMC and Maker
dated _________________) promises to pay to Taiwan Semiconductor Manufacturing
Co., Ltd. or its order the sum of US Dollars ___________________
($____________), plus interest calculated from the Due date stated herein to
the date of full payment at the rate of 10% per annum on any unpaid portion of
the principal amount stated herein, and said payment will be made at __________
(Place of Payment).
This Note shall be governed in all respects by the laws of the State of
California, U.S.A.
The Maker of this Note agrees to waive protests and notice of whatever
kind.
Issue Date: ___________________
Issue Place: __________________
Makers Signature: _________________
Makers Address: ___________________
___________________________________
___________________________________
<PAGE> 1
EXHIBIT 10.45(a)
ALTERA CORPORATION
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options are, or will be, granted under the
Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in accordance
with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Altera Corporation, a California corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall not include Directors who are
paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
<PAGE> 2
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
-2-
<PAGE> 3
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Misconduct" means the commission of any act that is inimical,
contrary, or harmful to the interests of the Company (or any Parent or
Subsidiary), including but not limited to (1) conduct related to employment for
which either criminal or civil penalties may be sought, (2) willful violation of
the Company's written policies, (3) engaging in any activity that is in
competition with the Company (or any Parent or Subsidiary), or (4) unauthorized
disclosure of confidential information or trade secrets of the Company (or any
Parent or Subsidiary). The foregoing definition shall not be deemed to be
inclusive of all acts or omissions that the Company (or any Parent or
Subsidiary) may consider as Misconduct for purposes of the Plan.
(q) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of the
Option Agreement.
(s) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(v) "Optioned Stock" means the Common Stock subject to an Option.
(w) "Optionee" means an Employee or Consultant who holds an
outstanding Option.
(x) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1996 Stock Option Plan.
(z) "Retirement" means:
(i) a termination of Optionee's Continuous Status as an Employee
or Consultant, other than for Misconduct, after attaining age fifty (50) with at
least ten (10) years of service as an Employee or Consultant of the Company
rendered after attaining age forty (40); or
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<PAGE> 4
(ii) a termination of Optionee's Continuous Status as an Employee
or Consultant as a result of Disability, regardless of Optionee's age, if
Optionee has completed at least ten (10) years of service as an Employee or
Consultant of the Company and if Optionee qualifies for Social Security
disability benefits at the time of such termination.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16" means Section 16 of the Securities Exchange Act of
1934, as amended.
(cc) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(dd) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Directors and Officers
Subject to Section 16. With respect to Option grants made to Employees who are
also Officers or Directors subject to Section 16 of the Exchange Act, the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
a manner complying with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16 exempt
discretionary grants and awards of equity securities are to be made, or (B) a
committee or committees designated by the Board to administer the Plan, which
committee shall be constituted to comply with the rules under Rule 16b-3
relating to the disinterested administration of employee benefit plans under
which
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<PAGE> 5
Section 16 exempt discretionary grants and awards of equity securities are to be
made. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16 exempt discretionary grants and awards of equity
securities are to be made.
(iii) Administration With Respect to Other Persons. With respect
to Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a committee or committees designated by the Board, which committee shall be
constituted to satisfy Applicable Laws. Once appointed, such Committee shall
serve in its designated capacity until otherwise directed by the Board. The
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to grant options to Employees and Consultants hereunder;
(ii) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(iii) to determine the Consultants and Employees eligible to be
granted Options hereunder;
(iv) to determine whether and to what extent Options are granted
hereunder;
(v) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(vi) to approve forms of agreement for use under the Plan;
(vii) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration, and any restriction or limitation regarding
any Option or the shares
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<PAGE> 6
of Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 14(c) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator; and
(xii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to those
Employees and Consultants selected by the Administrator. Incentive Stock Options
may be granted only to those Employees selected by the Administrator. If
otherwise eligible, an Employee or Consultant who has been granted an Option may
be granted additional Options.
6. Limitations.
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
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<PAGE> 7
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 250,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 250,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become
effective upon its approval by the shareholders of the Company as described in
Section 18 of the Plan. It shall continue in effect for a term of ten (10) years
unless terminated earlier under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice of
Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
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<PAGE> 8
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
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<PAGE> 9
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship.
(i) In General. Upon termination of an Optionee's Continuous
Status as an Employee or Consultant, other than upon the Optionee's death,
Disability, or Retirement, the Optionee may exercise his or her Option within
such period of time as is specified in the Notice of Grant to the extent that he
or she is entitled to exercise it on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Notice
of Grant). In the absence of a specified time in the Notice of Grant, the Option
shall remain exercisable for thirty (30) days following the Optionee's
termination. In the case of an Incentive Stock Option, such period of time for
exercise shall not exceed three (3) months from the date of termination. If, on
the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, the Optionee's
Continuous Status as an Employee or Consultant shall not automatically terminate
solely as a result of such change in status. In the event of an Optionee's
change in status from Employee to Consultant, each Incentive Stock Option held
by the Optionee shall cease to be treated as an Incentive Stock Option and shall
be treated for tax purposes as a Nonstatutory Stock Option three months and one
day following such change of status.
(ii) Retirement of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her Retirement, such Optionee's Option shall, in the sole discretion of the
Administrator, and so long as no act of Misconduct is committed by Optionee,
continue to vest, continue to become exercisable, and may be exercised during
such period of time as is determined by the Administrator and as provided in the
Option Agreement (but in no event may the Option be exercised after the
expiration date of the term of such Option as set forth in the Option
Agreement). If, at the end of such period of time, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan. If Optionee commits an act of Misconduct, the Option shall immediately
terminate, and the Shares covered by such Option shall revert to the Plan.
(iii) Disability of Optionee. Upon termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within three
(3) months (or such other period of time not
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<PAGE> 10
exceeding twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) from the date of termination, but only to the extent that
the Optionee is entitled to exercise it on the date of termination (and in no
event later than the expiration of the term of the Option as set forth in the
Notice of Grant). If, on the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(iv) Death of Optionee. Upon the death of an Optionee:
(A) during the term of the Option who is at the time of his
or her death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance at any time
within six (6) months (or, in the case of Retirement, such longer period of
time, not to exceed 12 months, as determined by the Administrator) following the
date of death, but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement, and only to the extent of the
right to exercise the Option that would have accrued had the Optionee continued
living and remained in Continuous Status as an Employee or Consultant six (6)
months after the date of death, subject to the limitation set forth in Section
6(a); or
(B) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after his or her termination of Continuous Status as an
Employee or Consultant, the Option may be exercised by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, at any time within six (6) months (or, in the case of Retirement,
such longer period of time, not to exceed 12 months, as determined by the
Administrator) following the date of death, but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement,
and only to the extent of the right to exercise the Option that had accrued at
the date of termination.
(c) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
(d) Rule 16b-3. Options granted to individuals subject to Section 16
of the Exchange Act ("Insiders") must comply with the applicable provisions of
Rule 16b-3 and shall contain such additional conditions or restrictions as may,
in the Administrator's sole discretion, be necessary and desirable to qualify
thereunder for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
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<PAGE> 11
11. Non-Transferability of Options. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger, or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination, or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding, and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option prior to such transaction as to all
of the Optioned Stock covered thereby, including Shares as to which the Option
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option will
terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option is exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following
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<PAGE> 12
the merger or sale of assets, the option or right confers the right to purchase
or receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend, or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule, or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule, or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension, or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
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<PAGE> 13
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by
an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under Applicable Laws and the rules of
any stock exchange upon which the Common Stock is listed.
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<PAGE> 1
EXHIBIT 10.45(b)
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
-------------------------
Date of Grant
-------------------------
Vesting Commencement Date
-------------------------
Exercise Price per Share $
------------------------
Total Number of Shares Granted
-------------------------
Total Exercise Price $
-------------------------
Type of Option: Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
--------------------------
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
20% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/60 of the Shares subject to the Option shall
vest each month thereafter.
<PAGE> 2
Termination Period:
Except as provided below, this Option may be exercised for ___________
[days/month] after termination of Optionee's employment or consulting
relationship with the Company. Upon the death or Disability of the Optionee,
this Option may be exercised for such longer period as provided in the Plan. In
the event of Optionee's Retirement, this Option shall continue to vest, continue
to become exercisable, and may be exercised for a period of ________________
months/years] after such Retirement. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 14(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
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<PAGE> 3
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares;
or
(e) delivery of Optionee's promissory note (the "Note") in the form
attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of
the Exercised Shares together with the execution and delivery by the Optionee of
the Security Agreement attached hereto as Exhibit B. The Note shall bear
interest at a rate no less than the "applicable federal rate" prescribed under
the Code and its regulations at time of purchase, and shall be secured by a
pledge of the Shares purchased by the Note pursuant to the Security Agreement.
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal and California tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE.
-3-
<PAGE> 4
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax and California income tax liability upon exercise of a NSO.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price. If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax or California income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee undergoes a
change of status from Employee to Consultant, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately
-4-
<PAGE> 5
notify the Company in writing of such disposition. The Optionee agrees that he
or she may be subject to income tax withholding by the Company on the
compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
8. NO GUARANTEE OF EMPLOYMENT. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
-5-
<PAGE> 6
OPTIONEE: ALTERA CORPORATION
By:
- ------------------------------------ ------------------------------------
Signature
Title:
- ------------------------------------ ---------------------------------
Print Name
- ------------------------------------
Residence Address
- ------------------------------------
-6-
<PAGE> 7
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
-7-
<PAGE> 8
EXHIBIT A
1996 STOCK OPTION PLAN
EXERCISE NOTICE
[Company name and Address]
Attention: Secretary
1. Exercise of Option. Effective as of today, ______________ , 199__ , the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Altera Corporation (the "Company") under and
pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated ____________, 19__ (the "Option Agreement"). The purchase price
for the Shares shall be $_______, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE> 9
signed by the Company and Purchaser. This agreement is governed by California
law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
PURCHASER: ALTERA CORPORATION
By:
- ---------------------------------- ---------------------------------
Signature
Its:
- ---------------------------------- --------------------------------
Print Name
Address: Address:
2610 Orchard Parkway
- ---------------------------
San Jose, CA 95134
- ---------------------------
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<PAGE> 10
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of ___________, 19__ between Altera
Corporation, a California corporation ("Pledgee"), and ______________________
("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $_________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
_________, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledge holder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter into
this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of the
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE> 11
c. Margin Regulations. In the event that Pledgee's Common Stock is now
or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be
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<PAGE> 12
released shall be that number of full Shares which bears the same proportion to
the initial number of Shares pledged hereunder as the payment of principal bears
to the initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" By:
------------------------------------
---------------------------------------
Print Name
Address:
-------------------------------
---------------------------------------
"PLEDGEE" ALTERA CORPORATION,
a California corporation
By:
------------------------------------
Title:
---------------------------------
"PLEDGEHOLDER"
---------------------------------------
Secretary of
ALTERA CORPORATION
-4-
<PAGE> 14
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, ______________ promises to pay to Altera Corporation,
a California corporation (the "Company"), or order, the principal sum of
_______________________ ($___________), together with interest on the unpaid
principal hereof from the date hereof at the rate of ______________ percent
(_____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19__.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of ___________
_________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee or consultant of
the Company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal and accrued
interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
____________________________________
<PAGE> 15
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: _____ shares (the "Shares") of the Common Stock of Altera
Corporation (the "Company").
3. The date on which the property was transferred is: ___________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ _______________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.46
OWNER/CONTRACTOR AGREEMENT
FOR CONSTRUCTION
BETWEEN
OWNER
ALTERA CORPORATION
2610 ORCHARD PARKWAY
SAN JOSE, CA 95134-2020
AND
CONTRACTOR
RUDOLPH AND SLETTEN, INC.
P.O. BOX 4637
989 E. HILLSDALE BLVD., SUITE 100
FOSTER CITY, CA 94404
JANUARY 10, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1: DEFINITIONS.................................................... 2
ARTICLE 2: CONTRACT DOCUMENTS............................................. 6
ARTICLE 3: THE WORK....................................................... 6
ARTICLE 4: CONTRACTOR'S DUTIES AND STATUS................................. 6
ARTICLE 5: CONTRACT TIME.................................................. 9
ARTICLE 6: COST OF THE WORK AND GUARANTEED MAXIMUM PRICE.................. 10
ARTICLE 7: CONTRACTOR'S FEE............................................... 11
ARTICLE 8: CHANGE IN THE WORK............................................. 12
ARTICLE 9: COSTS TO BE REIMBURSED......................................... 13
ARTICLE 10: COSTS NOT TO BE REIMBURSED.................................... 16
ARTICLE 11: DISCOUNTS, REBATES AND REFUNDS................................ 17
ARTICLE 12: SUBCONTRACTS AND OTHER AGREEMENTS............................. 17
ARTICLE 13: ACCOUNTING RECORDS............................................ 18
ARTICLE 14: APPLICATIONS FOR PAYMENT...................................... 18
ARTICLE 15: PAYMENTS TO CONTRACTOR........................................ 21
ARTICLE 16: TERMINATION OF AGREEMENT...................................... 25
ARTICLE 17: MISCELLANEOUS PROVISIONS...................................... 29
ARTICLE 18: EXHIBITS...................................................... 34
</TABLE>
<PAGE> 3
OWNER/CONTRACTOR AGREEMENT
FOR CONSTRUCTION
(GUARANTEED MAXIMUM PRICE)
THIS AGREEMENT is made as of January 10, 1995
BETWEEN
Owner: Altera Corporation
2610 Orchard Parkway
San Jose, CA 95134-2020
and Contractor: Rudolph and Sletten, Inc.
P.O. Box 4637
989 E. Hillsdale Blvd., Suite 100
Foster City, CA 94404
For the Project: Altera Corporation Headquarters Project
North First Street and Caviglia Drive
San Jose, CA
Project Architect: Robinson Mills + Williams
50 W. San Fernando St.
Suite 330
San Jose, CA 95113
Contractor agrees to provide certain construction services, and Owner
agrees to compensate Contractor for such services, on the following terms and
conditions:
January 10, 1995
Page 1
<PAGE> 4
ARTICLE 1: DEFINITIONS
1.1 Interpretation and Use of Definitions. All capitalized terms and words
(other than proper nouns) used in this Agreement shall have the meanings set
forth below, unless otherwise defined in this Agreement or unless another
meaning is clearly intended based on the express language of the applicable
provision.
.1 Agreement. This Owner/Contractor Agreement for Construction between
Owner and Contractor, including all attached Exhibits, and any addenda and/or
modifications to any of the foregoing.
.2 Architect. The Project Architect identified above.
.3 Certificate of Occupancy. Written notification by the City of San Jose
of satisfaction of all terms, conditions and other provisions of all necessary
permits and approvals authorizing the full use and occupancy of the respective
Segment of the Work for the purposes intended without restriction.
.4 Certificate of Substantial Completion. A certificate prepared by
Architect pursuant to Subparagraph 9.8.2 of the General Conditions, certifying
that the Work is Substantially Complete and establishing the date of Substantial
Completion.
.5 Change Order. Defined in Paragraph 8.2.
.6 Change Order Request. Defined in Paragraph 8.2.
.7 Change Order Work. A Change in the Work covered by any approved Change
Order.
.8 Claim. A demand or assertion by one of the parties seeking, as a
matter of right, an adjustment or interpretation of the terms of the Agreement,
payment of money, extension of time, or other relief with respect to the terms
of the Agreement, whether arising due to an error or omission, breach of the
Agreement, or otherwise.
.9 Confidential Information. Defined in Exhibit G.
.10 Construction Schedule. Defined in Paragraph 5.1.
.11 Contract Documents. Defined in Paragraph 2.1.
January 10, 1995
Page 2
<PAGE> 5
.12 Contract Time. The period of time, including adjustments authorized by
Change Orders, allotted in the Contract Documents for Substantial Completion of
each respective building or other applicable Segment of the Work.
.13 Contractor. Rudolph and Sletten, Inc., a California corporation.
.14 Contractor's Fee. Defined in Article 7.
.15 Cost of the Work. Defined in Article 9.
.16 Day. Calendar day unless otherwise specifically designated.
.17 Default Rate. The "reference rate" or "prime rate" published from time
to time by Bank of America, N.T.& S.A., as the rate at which it lends funds to
credit worthy borrowers, plus two percent (2%); provided, however, that in no
event shall any interest or other amount due, payable or paid hereunder, or
pursuant to any other provision of this Agreement or any Contract Documents,
exceed the maximum applicable legal interest rate in effect from time to time.
.18 Drawings and Specifications. The drawings, specifications and other
documents which fix and describe the size and character of the entire Project as
to, without limitation, architecture, structure, electrical systems, mechanical
systems, civil engineering and landscaping.
.19 Equipment Schedule. Defined in Subparagraph 9.1.5.
.20 Event of Default. Defined in Paragraph 16.3.
.21 Final Application for Payment. An Application for Payment for the
Final Payment, which shall only be made in accordance with the provisions of
Paragraph 15.8.
.22 Final Completion. The status of the Work when all Punch List items
have been fully and finally completed, and all final releases, documents and
manuals required by the Contract Documents have been delivered.
.23 Final Payment. Defined in Paragraph 15.8.
.24 Force Majeure Delay. A delay in Contractor's performance under this
Agreement due to: an act or omission of Owner or Architect or any of their
respective employees or agents; labor disputes not caused by Contractor, fire,
unusual delay in transportation, adverse weather conditions not reasonably
foreseeable, unavoidable casualties, or any similar causes beyond the reasonable
control of Contractor and not reasonably foreseeable by Contractor, for which a
written claim of justifiable delay is made by Contractor pursuant to Paragraph
8.3 of the General Conditions.
January 10, 1995
Page 3
<PAGE> 6
.25 General Conditions. Those "General Conditions of the Contract for
Construction" set forth in Exhibit I attached hereto.
.26 General Work Requirements. The portions of the Work and related
requirements that apply generally to site conditions, site safety, permits,
taxes, insurance, jobsite administration, and so forth, as described more
specifically in Exhibit E attached to this Agreement.
.27 Guaranteed Maximum Price. Defined in Paragraph 6.2.
.28 Laws. All Federal, State and local laws, statutes, ordinances, rules,
regulations, building codes and orders applicable to the Project, the Work, the
parties to this Agreement or otherwise governing the foregoing, as well as those
certain covenants, conditions and restrictions (CC&R's) recorded in the Official
Records of Santa Clara County on February 7, 1980 in Book F 128, Page 480, as
amended (the Protea CC&R's), and on February 7, 1985 in Book J 232, Page 651, as
amended (the NELO CC&R's).
.29 Mechanics' Lien. Any mechanics' lien, materialmen's lien, stop notice,
charge, imposition, garnishment or attachment upon or against the Property, the
Project or Owner.
.30 Notice of Completion. A written notice verified by Owner or Owner's
authorized agent, and recorded with the Santa Clara County Recorder within 10
days after completion of a Segment of the Work, pursuant to Section 3093 of the
California Civil Code.
.31 Notice to Proceed. Owner's issuance to Contractor of an instruction to
proceed with a defined scope of Work prior to Owner's having approved the
Guaranteed Maximum Price.
.32 Owner. Altera Corporation, a California corporation.
.33 Preconstruction Services. Services performed by Contractor prior to
commencement of construction, as defined in Subparagraph 9.1.16.
.34 Project. The total construction of which the Work performed under the
Contract Documents may be the whole or a part, and which may include
construction by the Owner or by separate contractors as described in Paragraph
3.1. The Project will include (i) approximately 360,000 square feet consisting
of a Corporate Building with 4 levels, a Production Building with 2 levels, and
an Engineering Building with 3 levels, all with shell, core, sitework and
interior improvements; and (ii) approximately 150,000 square feet consisting of
an Expansion Building with 3 levels, with shell, core, sitework, and partial
interior improvements.
.35 Property. The real property described in Exhibit A attached hereto,
which is also the site of the Project.
January 10, 1995
Page 4
<PAGE> 7
.36 Punch List. A comprehensive list of minor items to be completed or
corrected following Substantial Completion of the Work, which items shall not
materially affect the use or aesthetic appearance of the Project.
.37 Schedule of Values. Defined in Paragraph 6.3.
.38 Segment. Each separate building, design/build system, or distinct
portion of the Work covered by a separate Notice to Proceed.
.39 Subcontract. A written agreement between the Contractor and another
party to perform a portion of the Work or to supply equipment, materials or
labor to the Project, as defined in Paragraph 12.1.
.40 Subcontractor. A person or entity who, pursuant to a Subcontract, is
retained by Contractor to perform a portion of the Work or to supply equipment,
materials or labor to the Project, including without limitation any
subcontractor, sub-subcontractor, laborer, design professional, engineer,
surveyor, consultant, equipment lessor, supplier or other materialman so
retained, but excluding any separate contractor retained by Owner to construct
any portion of the Project that is not within the scope of the Work.
.41 Substantial Completion. The status of the Work when (i) Owner and
Architect agree that the Work is sufficiently complete to permit Owner to occupy
or utilize the Work (or designated portion thereof) for the use for which it is
intended and (ii) Contractor has delivered to the Owner all information showing
the Work to be sufficiently complete to allow Owner to obtain a Certificate of
Occupancy.
.42 Work. The construction and services required and reasonably implied or
inferred to be required by the Contract Documents, whether such work is
completed or partially completed, and includes all other labor, materials,
equipment and services provided or to be provided by the Contractor to fulfill
the Contractor's obligations. The Work includes all Work which would reasonably
be inferred or anticipated by a contractor with Contractor's experience and
expertise after reviewing the Contract Documents. The Work may constitute the
whole or a part of the Project.
ARTICLE 2: CONTRACT DOCUMENTS
2.1 The Contract Documents consist of this Agreement (including all exhibits
attached hereto), the Drawings and Specifications, all Notices to Proceed issued
by Owner, and all Change Orders executed by Owner and Contractor. The Contract
Documents are further enumerated in Exhibit B attached hereto, entitled
"Contract Documents," and are incorporated herein by this reference, and
supersede all prior negotiations, representations and agreements, either written
or oral, between Owner and Contractor with respect to the Work. The Contract
Documents shall not include shop drawings, product data, or samples
January 10, 1995
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as described in Paragraph 3.12 of the General Conditions. The Contract Documents
will be developed and completed in accordance with the Construction Schedule. As
Contract Documents are completed, they shall become a part of this Agreement.
ARTICLE 3: THE WORK
3.1 Subject to Article 4 below, Contractor shall perform all the Work required
for the Project under the Contract Documents. The Work includes, without
limitation, the sitework, the core and shell of each of the buildings, and the
interior improvements of each of the buildings (but only partial interiors for
the Expansion Building). The Property is approximately twenty five (25) acres.
Parking lots and landscaping will be built out for the entire 25 acre site. The
buildings will be steel framed with curtainwall and pre-cast concrete exteriors,
or such other materials as Owner elects.
3.2 Owner may require Subcontracts to include hourly rates, unit prices,
alternate prices or allowances for certain portions of the Work. Contractor
shall be liable for the enforcement and administration of such hourly rates,
unit prices, alternate prices or allowances until completion of the Work. Such
Subcontracts shall provide that if this Agreement is terminated, or if Owner
wishes to engage a Subcontractor directly for work that is not part of
Contractor's Work under this Agreement, then Owner shall be entitled to contract
with Subcontractor directly on the basis of such rates, prices and allowances.
ARTICLE 4: CONTRACTOR'S DUTIES AND STATUS
4.1 Contractor shall perform all services and prosecute the Work under and
pursuant to this Agreement with the degree of care, skill and diligence
generally recognized as applicable to general contractors of good reputation
performing services of the nature encompassed in the Work in the San Francisco
Bay Area.
4.1.1 Contractor is skilled in the professional calling necessary to
perform the Work. Any references, terms or provisions in this Agreement, the
General Conditions or any other Contract Documents to the standard of care or
degree of knowledge or deemed knowledge to be applied to Contractor's
performance of the Work shall be deemed to refer to the standards set forth in
this Paragraph 4.1.
4.1.2 Contractor acknowledges that Owner, not being skilled in such
matters, is relying upon the skill and knowledge of Contractor with respect to
the Work. Contractor accepts the relationship of trust and confidence
established by this Agreement. Contractor shall exercise its best skill and
judgment, and shall cooperate with Architect to further the interests of Owner.
Contractor shall furnish efficient business administration and superintendence,
and shall use its best efforts to furnish at all times an adequate supply of
workers and materials, and to perform the Work in the best, most expeditious and
most economical manner consistent with the interests of Owner.
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4.2 Contractor shall furnish and transport all necessary labor, materials,
tools, implements and appliances required to perform and completely finish the
Work as described in Article 3 of this Agreement, in a workmanlike manner, and
to the satisfaction and approval of Owner and Architect, in accordance with the
Contract Documents, free of any and all Mechanics' Liens and claims of
Subcontractors.
4.3 Contractor agrees that the design and construction of any design/build
portion of the Project shall be in conformity in all respects with all Laws.
Contractor shall not construct any portions of the Work when it knows or should
reasonably know, as a competent and experienced general contractor, that such
Work or any portion thereof was designed in violation of any Law. Contractor
shall not construct any portion of the Work when it knows or should reasonably
know, as a competent and experienced general contractor, that such portion of
the Work is unbuildable or unsafe. Contractor shall require design/build
Subcontractors to obtain and maintain such insurance coverages, including
professional liability, as Owner requires.
4.4 The services to be performed by Contractor pursuant to this Agreement and
any of the Contract Documents shall not constitute it as an architect or
engineer, nor impose upon Contractor any obligation to assume, or to render to,
or to perform on behalf of Owner, the professional responsibilities, duties,
services and activities for which Owner has contracted with Architect, nor
impose upon Contractor any liability with respect thereto. Subject to the
provisions of Paragraphs 4.1 and 4.3 of this Agreement, above, Contractor
assumes no responsibility or liability in connection with the design of the
Project nor for the failure of Architect to provide any such design for the
Project. Contractor, by the performance of its duties under this Agreement,
shall not be deemed to have relieved Architect of any responsibilities for
services to be rendered by Architect with respect to the Project, whether
pursuant to the written agreement between Owner and Architect or otherwise, nor
shall Contractor incur any liability for Architect's failure or refusal to
perform or render any such services. Contractor shall promptly notify Owner
and/or Architect, in writing, if Contractor becomes aware that any needed
designs for the Project are omitted, and Contractor shall not proceed with the
relevant part of the Project until so directed by Owner.
4.5 Intentionally omitted.
4.6 Contractor hereby certifies that it has verified, to the best of its
ability, the coordination and completeness of all Contract Documents. Contractor
shall review all Contract Documents prior to their being issued for
Subcontractor bidding. Following this review, Contractor shall advise Owner and
Architect of any areas where the Contract Documents are incomplete or lacking in
clarity. The Architect shall coordinate with the Contractor for the Work of the
design/build Subcontractors by providing drawing backgrounds for their Work,
conducting meetings for the purpose of coordination, and establishing completion
dates for their Work in the Construction Schedule. The design/build
Subcontractors will be responsible for coordinating their Work with that of the
Architect and its subconsultants on the Project. The Construction Schedule will
establish mutually agreed milestones and completion dates for the design/build
Subcontractors' Work. If any changes are required to other aspects
January 10, 1995
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of the design because of insufficient information provided by Contractor on the
design/build systems or failure to meet an applicable completion date in the
Construction Schedule, the services of the Architect in connection with such
changes shall be paid by the Contractor and shall not be a Cost of the Work.
Conversely, the Architect's contract with Owner shall provide that if any
changes are required to the design/build Subcontractor's Work due to
insufficient information on the Architect's drawings or failure by the Architect
to meet an applicable completion date in the Construction Schedule, the
Architect is responsible for the cost of the time incurred by the Subcontractors
to make changes to their drawings.
4.7 Contractor has considered all information relevant to the Project and
available as of the date of this Agreement. Contractor shall coordinate its
construction with other projects under construction in the immediate vicinity of
the Project. As of the time that Owner and Contractor agree upon the Guaranteed
Maximum Price pursuant to Paragraph 6.2(iii), Contractor shall have satisfied
itself with respect to visible conditions, then-current public knowledge,
matters of record, and all other then-existing information relevant to the
Project and available to Contractor. Contractor's agreement to the Guaranteed
Maximum Price shall be deemed conclusively to be an acceptance by Contractor of
the foregoing information, and a determination by Contractor that the Guaranteed
Maximum Price is just and reasonable compensation for the Work. The Contractor
shall be entitled to reasonably rely on all information the Owner has provided
concerning the Project.
4.8 If any disputed Claim (as defined in Paragraph 1.1) should arise between
Owner and Contractor under this Agreement or otherwise concerning the Work,
Contractor shall proceed to perform the Work as directed by Owner pending
settlement of the dispute in accordance with Article 4 of the General
Conditions. Until any such disputed Claim is settled, Owner shall continue to
pay Contractor all sums due Contractor which are not in dispute and/or are not
directly related to Work which is in dispute.
4.9 Contractor shall warrant the Work to Owner as provided in Section 3.5 of
the General Conditions.
ARTICLE 5: CONTRACT TIME
5.1 The time allowed for Substantial Completion of each Segment of the Work,
and all other important Project milestones, are set forth in Exhibit C attached
hereto ("Construction Schedule"). Each Segment of the Work shall commence upon
Owner's issuance of a Notice to Proceed to Contractor provided that necessary
governmental authorizations have been obtained for such Segment. The Contract
Time for Substantial Completion of each of the buildings, together with
associated sitework and other related portions of the Work as shown on the
Drawings and Specifications, shall be consistent with the following completion
dates:
Building 1 Corporate Building June 13, 1997
Building 2 Expansion Building May 2, 1997
Building 3 Engineering Building May 23, 1997
Building 4 Production Building May 2, 1997
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Contractor shall achieve Substantial Completion of each Segment of the Work
within the Contract Time specified in the Construction Schedule. Contractor
acknowledges that the applicable Contract Time for each Segment includes an
allowance for thirty (30) calendar days of delay due to Force Majeure Delays,
including inclement weather. If Contractor is delayed on the critical path by
more than thirty (30) days due to Force Majeure Delays, then the provisions of
Subparagraph 8.3.1 of the General Conditions shall apply.
Contractor also acknowledges that Owner intends to install its office
systems furniture with non-union labor prior to Substantial Completion, and
Contractor shall not be entitled to any extension of the Contract Time by reason
of any labor disputes on account of such non-union labor, pursuant to Paragraph
3.20 of the General Conditions.
Final Completion with respect to any portion of the Work shall occur within
forty-five (45) days following Substantial Completion and agreement upon the
Punch List as to any such portion. It is understood that the Architect will use
reasonable efforts to respond to submittals, shop drawings and questions with
reasonable promptness, so as to not delay the Work, as described in Subparagraph
4.2.7 of the General Conditions.
5.2 Time is of the essence of this Agreement. Contractor shall complete each
portion of the Work within the applicable Contract Time as may be adjusted by
Change Order.
5.3 Contractor shall advise Owner of any delay in the Work (including delays in
receipt of drawings from Architect) and the cause of such delay, pursuant to
Article 8 of the General Conditions. Contractor shall take all prudent steps
necessary to minimize the delay and shall diligently proceed to complete the
Work as required by the Contract Documents. Contractor's notice to Owner
required by this Paragraph 5.3 shall not limit any right Owner may otherwise
have to recover damages from Contractor based on such delay.
5.4 Contractor shall meet all milestones in the Construction Schedule, as
adjusted by Change Orders. Should Contractor fail to meet any of such critical
dates, Contractor shall, upon written notice from Owner, cause its employees,
Subcontractors and all other parties under its control to work any necessary
overtime or extra shift work to return to the Construction Schedule, or to
demonstrate to Owner's satisfaction an alternate plan to return the Work to the
Construction Schedule. If the delays are not caused by Contractor's or any
Subcontractor's negligence, then the cost for such extra work, including without
limitation overtime rates, shall be a Cost of the Work, except that the
Guaranteed Maximum Price shall not be increased as a result of such work other
than for Force Majeure Delays as provided in Subparagraph 8.3.1 of the General
Conditions. If the delays are caused by Contractor's or a Subcontractor's
negligence, then the cost for such extra work, including without limitation
overtime rates, shall not be a Cost of the Work, but shall be borne solely by
Contractor.
ARTICLE 6: COST OF THE WORK AND GUARANTEED MAXIMUM PRICE
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6.1 The maximum cost to Owner for Contractor's performance of the Work shall be
the least of the following amounts:
6.1.1 the Cost of the Work as defined in Article 9 below and as limited by
Paragraph 6.2, plus the Contractor's Fee; or
6.1.2 the sum set forth in those Notices to Proceed to be executed by
Owner and Contractor from time to time during the course of the Work, as more
particularly provided in Article 15 of the General Conditions; or
6.1.3 an amount to be determined by Owner and Contractor within 45 days
after completion of the Contract Documents and set forth in a Change Order (the
"Guaranteed Maximum Price"), which Guaranteed Maximum Price is intended to
represent Owner's and Contractor's best estimate of the overall Cost of the Work
plus the Contractor's Fee.
The Cost of the Work shall be fixed as design documents are completed and
awarded, and the costs are authorized by Owner. If the sum of the Cost of the
Work and the Contractor's Fee is less than the Guaranteed Maximum Price, all
savings shall benefit Owner. The Guaranteed Maximum Price shall be modified only
as provided by Change Order.
6.2 The amount due to Contractor as part of the Cost of the Work shall not
exceed (a) $25,000 for Preconstruction Services, or (b) $61,000 per month for
the General Work Requirements (which amount shall apply with respect to any
extension or shortening of the Contract Time), or as otherwise agreed upon by
Owner and Contractor. Exhibit E to this Agreement describes the general
categories of the General Work Requirements. Prior to establishing the
Guaranteed Maximum Price, Owner and Contractor shall agree upon a schedule
setting forth a more detailed, line item description of each of such categories.
Once such schedule has been signed by both Owner and Contractor, it shall be
deemed to be incorporated into Exhibit E and shall become a part of this
Agreement to the same extent as if it had been originally set forth therein.
6.3 Subject to the approval of Owner, Contractor shall prepare (at such time as
Contractor has sufficient information) a schedule of values which divides the
Cost of the Work for the various trades, subcontracts, suppliers, materials,
equipment, labor or other recognized industry trade breakdowns ("Schedule of
Values"). Contractor warrants that the breakdowns so prepared will be accurate
breakdowns of Contractor's estimated costs used to determine the Guaranteed
Maximum Price. The Schedule of Values, as approved by Owner, shall be used as
the basis for Contractor's applications for payment.
6.4 Contractor shall not seek any increase in the Guaranteed Maximum Price on
account of any labor dispute within the Contractor's control involving
Contractor or Subcontractors arising during the period the Work is to be
performed, or by reason of the breach, fault, neglect, bankruptcy, insolvency,
or any failure of performance not excused hereunder, by Contractor or any
Subcontractor.
January 10, 1995
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ARTICLE 7: CONTRACTOR'S FEE
7.1 For Contractor's performance of the Work, Owner shall pay Contractor an
amount equal to One and Eight-Tenths Percent (1.80%) of the Cost of the Work
(the "Contractor's Fee"). At the time that the Guaranteed Maximum Price is
determined, the maximum Contractor's Fee (which is part of the Guaranteed
Maximum Price) shall be established as a fixed sum equal to the estimated Cost
of the Work times 1.80%.
7.2 There shall be no increase in the Contractor's Fee based on Change Order
Work until the Guaranteed Maximum Price has been increased, based upon the sum
of all increases in the individual Cost of Work authorizations resulting from
Change Order Work, by an amount equal to 3% of the Guaranteed Maximum Price
originally set forth in Paragraph 6.2, above. After Change Orders have increased
the Guaranteed Maximum Price by 3%, additional Change Order Work during
construction of the Project shall cause the Contractor's Fee to increase in an
amount equal to Four Percent (4.0%) for Change Order Work that results in an
increase in the Cost of the Work, and in an amount equal to Two Percent (2.0%)
for Change Order Work that results in a decrease in the Cost of the Work.
ARTICLE 8: CHANGE IN THE WORK
8.1 From time to time, there may be a change in the Work described in the
Contract Documents. Owner shall reimburse Contractor for any change in the Work
based on the Cost of the Work for such change. The Contractor's Fee shall not be
increased except as set forth in Paragraph 7.2
8.2 Owner, Architect or Contractor shall initiate a change in the Work and/or a
change in the Contract Documents by preparing the upper portion of a written
change order request ("Change Order Request") substantially in the form attached
hereto as Exhibit H setting forth in detail the nature of the requested change.
On or before the twenty-first (21st) day following Contractor's receipt or
preparation of a Change Order Request, Contractor shall complete the Change
Order Request setting forth in detail, with a suitable breakdown, (i) the
increase or decrease in the Cost of the Work as a consequence of the change,
(ii) the increase or decrease in the Contractor's Fee, if any, (iii) the revised
time for the completion of all other affected Work, and (iv) any adjustment in
the Contract Time attributable to the Change in the Work. Promptly thereafter,
Contractor shall submit such Change Order Request to Owner and Architect for
their written approval. Owner and Architect shall review all such Change Order
Requests and shall take appropriate action in a timely manner which does not
delay the Work. For purposes of the immediately preceding sentence, Owner shall
respond to any Change Order Request within twenty-one (21) days after Owner's
receipt of such Change Order Request, provided that the Change Order Request, as
submitted by Contractor, is complete and complies with the requirements of this
Paragraph 8.2. When Owner has approved a Change Order Request in writing,
Contractor shall undertake the Change in the Work described therein. Contractor
shall prepare a change order ("Change Order") each month, incorporating all
Change Order Requests which Owner has approved in writing during that month.
Each Change Order shall include the change in the Guaranteed Maximum Price, if
January 10, 1995
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any, and the revised Contract Time, if applicable. The Guaranteed Maximum Price
and the Contract Time shall not be adjusted except by Change Order executed by
Owner.
8.3 Contractor shall submit Subcontractors' breakdowns for overhead, labor
rates and profit related to that portion of the Change in the Work covered by
any Change Order ("Change Order Work") as part of the Subcontractor bid
analysis. The mark-up for any Change Order Work shall not exceed the rates,
overhead and fees listed in such breakdowns.
8.4 If Owner and Contractor are unable to agree (i) on a proposed Change Order
cost or (ii) whether work required by Owner constitutes part of the Work or
Change Order Work, then Contractor shall submit a Change Order Request which
sets forth a "not-to-exceed" cost for the proposed Change in the Work, as well
as the information required by clauses (ii), (iii) and (iv) in Paragraph 8.2,
above. Owner may then direct Contractor to proceed with such portion of the Work
or such Change Order Work on a "not-to-exceed" cost basis with Contractor
accounting for the Work on a time and material basis. If the dispute over such
Change Order Work concerned cost, then, promptly following completion of such
Change Order Work, Owner and Contractor shall execute a Change Order which sets
forth the cost of the Change Order Work as the lesser of (x) the not-to-exceed
cost or (y) the actual cost computed on a time and material basis, in each case
including cost impact on other portions of the Work. Owner reserves the right to
audit all Contractor and Subcontractor records regarding such Change Orders. If
Contractor submitted a Change Order Request because Owner and Contractor could
not agree on whether or not certain work required by Owner constituted part of
the Work or constituted Change Order Work, then Owner and Contractor shall
resolve that issue as set forth in Article 4 of the General Conditions within
twenty-one (21) days after the commencement of such disputed work. If Owner and
Contractor are unable to agree on a change in the Contract Time for any portion
of the Work, but the Change Order is otherwise acceptable to Owner and
Contractor, then Contractor shall commence the Change Order Work as directed by
Owner. If, within twenty-one (21) days following such commencement, Owner and
Contractor have not agreed on a change in the applicable Contract Time, then
Owner and Contractor shall submit that issue to dispute resolution as set forth
in Article 4 of the General Conditions.
ARTICLE 9: COSTS TO BE REIMBURSED
9.1 The term "Cost of the Work" shall mean costs necessarily incurred in the
proper performance of the Work which are actually paid by Contractor. Such costs
shall not exceed the standard paid in the locality of the Work except with the
prior written consent of Owner. Such costs shall include the items set forth in
this Article 9:
9.1.1 Wages paid for Contractor's employees, including (a) labor in the
direct employ of Contractor in the performance of the Work, (b) non-management
personnel stationed at the Project field office, engaged at shops to oversee
portions of the Work, performing courier services or delivery of materials to
the site necessary to expedite the Work, or for employees performing Work
exclusively on behalf of the Project, but only to the extent specifically agreed
to prior to incurring any cost on the
January 10, 1995
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Project, and (c) salaries for the services of management personnel in connection
with the Project, but only to the extent specifically agreed to by Owner prior
to incurring any cost on the Project. As of the date of this Agreement, Owner
and Contractor have agreed that the Cost of the Work for any of such employees
shall be charged at the rates shown on Exhibit D to this Agreement. Such rates
are deemed to be inclusive of any benefits or other payroll burden.
9.1.2 The portion of reasonable travel and subsistence expenses which
Contractor, its officers or employees incur while traveling substantially
outside the vicinity of the Project in discharge of duties connected with the
Work. Any expenses incurred because Contractor, its officers, employees or
Subcontractors live outside the vicinity of the Project are not included in the
foregoing.
9.1.3 Cost of all materials, supplies and equipment incorporated in the
Work, including costs of transportation thereof, excess materials and supplies,
and a reasonable allowance for waste and spoilage.
9.1.4 Payments made by Contractor to Subcontractors retained by Contractor
for Work performed pursuant to written Subcontracts entered into pursuant to
this Agreement.
9.1.5 Cost, including transportation and maintenance, of all materials,
supplies, equipment, temporary facilities and hand tools purchased by Contractor
to perform the Work which are consumed in the performance of the Work, and the
cost (less salvage value) of such items used to perform the Work, but not
consumed in the performance of the Work. In the latter of the two situations
described in the immediately preceding sentence, Contractor shall become the
owner of such items upon completion or termination of the Work. Owner may, at
its discretion, retain ownership of those items not consumed in the performance
of the Work or may direct Contractor to sell or buy such items and credit the
Cost of the Work by the amount of the proceeds which would then determine the
salvage value described above. Contractor shall provide Owner with a schedule
indicating the then current inventory of all equipment, hand tools, and
temporary facilities, showing original cost (as amended from time to time, the
"Equipment Schedule"). Contractor shall amend the Equipment Schedule by deleting
all items consumed and adding all items purchased during the course of the Work.
Contractor shall maintain a current Equipment Schedule located in the Project
office for review by Owner for equipment whose individual cost is One Hundred
Dollars ($100.00) or more.
9.1.6 Rental charges for all necessary machinery and equipment, exclusive
of hand tools, used at the site of the Work, whether rented from Contractor or
others, including installation, minor repairs and replacements, dismantling,
removal, transportation and delivery costs thereof, at rental charges consistent
with those prevailing in the vicinity of the Project. Rental charges for
Contractor-owned equipment shall not exceed prevailing market rates. Contractor
shall submit a source of published rates to Owner for approval. The rental
charge for each item of equipment shall not exceed its market price to purchase,
insure, maintain or store.
January 10, 1995
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9.1.7 Costs of premiums for all labor, materials and performance bonds and
insurance which the Contractor is required by the Contract Documents to purchase
and maintain, including the costs of Subcontract bonds. As a normal course of
business, the Contractor does not bond Subcontractors. There may be extenuating
circumstances where the Owner will consider bonding Subcontractors. Bonding of
Subcontractors shall be mutually agreed upon between Owner and Contractor. The
cost of liability insurance in an amount not to exceed One-Half Percent (0.50%)
of the other items comprising Cost of the Work.
9.1.8 Sales, use or similar taxes imposed by any governmental authority
which are related to the Work and for which the Contractor is liable.
9.1.9 Permit fees, royalties approved in advance by Owner, and deposits
lost for causes other than Contractor's negligence.
9.1.10 Cost of water, gas and electricity consumed in construction of the
Project.
9.1.11 Minor expenses such as telegrams, long distance telephone calls,
telephone service at the site, overnight courier service, and similar petty cash
items in connection with the Work.
9.1.12 The cost of removal of all debris from the site of the Work.
9.1.13 Costs incurred due to an emergency affecting the safety of persons
and property, unless arising out of the fault or negligence of Contractor or its
Subcontractors, employees or agents.
9.1.14 The cost of on-site security necessary to protect the materials,
supplies, equipment and Project improvements at the Project site, including any
watchmen or other security services reasonably required to protect the Work.
9.1.15 Other costs incurred in the performance of the Work, if and to the
extent approved in advance in writing by Owner.
9.1.16 A fee for Contractor's services prior to commencement of
construction ("Preconstruction Services"), including preparation of detailed
estimates of the Cost of the Work and preparation of construction budgets and
value engineering during the design phase of the Project.
ARTICLE 10: COSTS NOT TO BE REIMBURSED
10.1 The term "Cost of the Work" shall not include any of the items set forth
below in this Article 10.
10.1.1 Salaries or other compensation of Contractor's personnel at
Contractor's principal office and branch offices other than personnel
specifically described in Article 9.
January 10, 1995
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10.1.2 Expenses of Contractor's principal and branch offices other than
the Project field office.
10.1.3 Any part of Contractor's capital expenses, including interest on
Contractor's capital employed for the Work.
10.1.4 Except as specifically provided in Subparagraph 9.1.6, rental cost
of machinery and equipment.
10.1.5 Overhead or general expenses of any kind, unless expressly included
in Article 9.
10.1.6 Costs arising out of the negligence of Contractor, any
Subcontractor, or of anyone directly or indirectly employed by any of them, or
for whose acts any of them may be liable, including but not limited to the costs
of correction of defective or non conforming Work, disposal of materials and
equipment wrongly supplied, or making good any damage to property.
10.1.7 The cost of any item not specifically and expressly included in the
items described in Article 9, unless previously specifically approved in writing
by Owner.
10.1.8 Losses and expenses sustained by Contractor or Subcontractors, not
compensated by insurance or otherwise, if such losses or expenses arise out of
the infidelity or dishonesty on the part of an employee of Contractor or a
Subcontractor.
10.1.9 Losses and expenses not covered by insurance if Contractor shall
fail to obtain and/or maintain in effect the insurance required by the Contract
Documents.
10.1.10 Costs, losses, expenses, bonds and/or insurance incurred by reason
of Contractor's general operations which Contractor would customarily incur or
carry without reference to Contractor's obligations under this Agreement.
10.1.11 Costs in excess of the Guaranteed Maximum Price, as it may be
adjusted pursuant to Article 8.
10.1.12 Provided Owner has paid Contractor all amounts then properly due
and payable under this Agreement, any sums spent or costs incurred by
Contractor, or for which Contractor is liable or obligated, with respect to any
Mechanic's Lien, filed or served by any Subcontractor because of Contractor's
failure or refusal to pay any such Subcontractor, whether or not any such
failure or refusal is wrongful or as a result of a bona fide dispute between
Contractor and any such Subcontractor, including without limitation any amounts
paid or incurred to discharge or release such Mechanics' Lien (whether paid to
such claimant or other party, or as attorneys' fees or otherwise), and all costs
of any bonds obtained to clear any such Mechanics' Lien.
ARTICLE 11: DISCOUNTS, REBATES AND REFUNDS
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11.1 All cash discounts shall accrue to Contractor unless Owner deposits funds
with Contractor with which to make payments, in which case cash discounts shall
accrue to Owner. Contractor shall notify Owner in writing, in advance, of the
availability of cash discounts to provide Owner adequate opportunity to take
advantage of such discounts. All trade discounts, rebates and refunds, and all
returns from sale of surplus materials and equipment, shall accrue to Owner, and
Contractor shall make provisions so that they can be secured.
ARTICLE 12: SUBCONTRACTS AND OTHER AGREEMENTS
12.1 All portions of the Work that Contractor does not perform with its
employees shall be performed pursuant to written subcontracts and, where
applicable, sub-subcontracts or material purchase orders (collectively,
"Subcontracts") with licensed or otherwise properly qualified subcontractors,
sub-subcontractors, laborers, design professionals, engineers, surveyors,
consultants, equipment lessors, and suppliers or other materialmen
(collectively, "Subcontractors"), approved in advance by Owner. Contractor shall
secure and deliver to Owner at least three (3) qualified bids on any and all
items in the construction of the Project (excluding those included in the
General Work Requirements), including without limitation those performed by
Contractor, unless agreed otherwise, from Owner-approved Subcontractors, and
shall promptly deliver to Owner all bids received in response to such
solicitations, together with Contractor's analysis and recommendations for
awards. Contractor shall keep all bid results confidential. Contractor shall
simultaneously deliver to Owner all data pertinent to Owner's decision and shall
certify that, to the best of Contractor's knowledge, the bid is bona fide,
complete and reasonable. As part of its bid analysis, Contractor shall notify
Owner of any bid that deviates from the Contract Documents. Owner's approval of
a bid on a Subcontract shall not constitute approval of a deviation or omission
from the Contract Documents. Any approved deviation or omission from the
Contract Documents shall occur only by means of a Change Order. Subject to
Article 5 of the General Conditions, Owner shall determine (with the advice of
Contractor and Architect, if requested by Owner) which bids are acceptable.
Owner reserves the right to reject any bid at any time.
12.2 All Subcontracts in excess of Two Hundred Fifty Thousand Dollars
($250,000) shall be submitted to Owner upon request by Owner prior to execution
by Contractor. Owner shall have ten (10) working days within which to approve or
disapprove award recommendations. After Owner has approved the award of any such
Subcontract, Contractor shall contract, solely in its own name and behalf, and
not in the name or on behalf of Owner, with the specified Subcontractor. Owner's
approval shall not make Owner a party to any Subcontract. Contractor's
Subcontract forms shall be subject to Owner's prior written approval.
12.3 All Subcontracts shall contain a clause approved by Owner allowing for the
direct assignment of each Subcontract to Owner upon termination or full
performance of this Agreement. Each Subcontract may then be further assigned to
a new general contractor if Owner so elects.
ARTICLE 13: ACCOUNTING RECORDS
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13.1 Contractor shall check all materials, equipment and labor being
incorporated into the Work, and shall keep such full and detailed accounts as
may be necessary for proper financial management under this Agreement.
Contractor's system shall be subject to the approval of Owner. Owner shall have
access to all Contractor's records, books, correspondence, instructions,
drawings, receipts, vouchers, memoranda and similar data relating to this
Agreement and/or the Work, and Contractor shall preserve all such records for a
period of three (3) years following Final Payment, or for any longer period
required by Law. Owner shall have the right to copy all or any part of
Contractor's job records.
13.2 Owner shall have the right, during the performance of the Work and for a
period of three (3) years thereafter, to audit the accounting records of
Contractor. Contractor shall have the opportunity to audit itself prior to
Owner's audit. Should any overcharge be found by Contractor's audit, Contractor
shall pay overcharge plus interest to Owner. After Contractor's audit, if any
such audit by Owner reveals that the amounts charged to Owner by Contractor
exceeded the actual Cost of the Work, then Contractor shall pay Owner an amount
equal to the amount overcharged plus interest at the rate set forth in Paragraph
15.6 (including any part of Contractor's Fee based on such overcharge) and shall
pay for the cost of the audit if the amount overcharged exceeds Five Thousand
Dollars ($5,000).
ARTICLE 14: APPLICATIONS FOR PAYMENT
14.1 Not later than the first (1st) business day of each calendar month,
Contractor shall submit to Owner an application for payment ("Application for
Payment") for the prior month, which application shall also include any portions
of the Work completed during periods of time covered by previously submitted
Applications for Payment to the extent such portions of the Work were not shown
on any such previous applications. Each Application for Payment shall be for a
sum equal to: (i) that portion of the Cost of the Work incurred during the
period covered by the particular application, determined in accordance with the
Schedule of Values, calculated on the basis of the percentage of the Work
completed during said month, provided that no payment to Contractor for Work
performed shall exceed the actual Cost of the Work performed (together with any
items applicable to the period covered by any preceding Application for Payment
to the extent such items were not reflected in any such Application for
Payment); and (ii) that portion of the Contractor's Fee equal to that percentage
of the Work completed during the prior month. In no event, however, shall the
Cost of the Work and the Contractor's Fee set forth in any Application for
Payment, when added to all amounts previously invoiced for the Cost of the Work
and for the Contractor's Fee, represent a percentage of the Guaranteed Maximum
Price greater than the completed percentage of the total Work to be performed
under the Contract Documents.
14.2 Contractor shall include with each Application for Payment back-up
material satisfactory to Owner to support all components of the application,
including, without limitation, verifiable Subcontractor payment applications,
current month as-built information, and actual cost for Contractor's Work,
indicating in detail all monies paid out or to be paid out for costs incurred on
account of the Cost of the Work, segregated where applicable for each separate
building as more particularly provided in Paragraph 14.8 below.
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14.3 In each Application for Payment, including the Final Application for
Payment upon the Final Completion of each respective building or other
applicable Segment of the Work, Contractor shall certify that:
(i) The Application for Payment represents a just estimate of the costs
then due Contractor under the terms of this Agreement.
(ii) All Work covered by the Application for Payment has been completed
in accordance with the applicable Contract Documents.
(iii) There are no known unbonded Mechanics' Liens outstanding at the date
of the Application for Payment.
(iv) All due and payable bills (except for amounts in dispute with
Subcontractors) with respect to the Work have been paid to date or
are included in the amount requested in the Application for Payment.
(v) There is no known basis for the filing of any Mechanics' Liens for
or relating to the Work except for (a) unpaid bills included in the
Application for Payment, all of which will be paid from the amount
due to Contractor with respect to the Application for Payment, or
(b) amounts in dispute with Subcontractors.
(vi) Subject to receipt of payment, Contractor waives any Mechanics' Lien
rights to the extent of such payments.
14.4 Each Application for Payment shall include unconditional Mechanics' Lien
releases from Contractor and all appropriate Subcontractors for all Work
performed in the prior payment period.
14.5 Requests for payment for materials stored on-site or off-site shall be
limited to materials on a list approved by Owner prior to Subcontract award.
Owner does not anticipate payment for any off-site materials other than
structural steel. Owner will not pay for on-site materials such as drywall or
any other commodity-like material until it is in place as a part of the Work.
14.6 As a condition of payment, Contractor shall submit a detailed construction
report to Owner each month in a form satisfactory to Owner, together with the
Application for Payment. The report shall contain pertinent information on the
following aspects of the Project:
(i) Past month's activities.
(ii) Current month's activities.
(iii) Current problems.
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(iv) Owner action required.
(v) Progress billing which shall include actual expenditures to date in
reasonable detail.
(vi) Updated Construction Schedule.
(vii) Change Order log.
(viii) Projected monthly cash expenditures for the remainder of the
Project.
14.7 Contractor warrants that title to all Work and materials covered by an
Application for Payment will pass to the Owner either by incorporation in the
construction or upon the receipt of payment by the Contractor, whichever occurs
first, free and clear of all Mechanics' Liens, claims, security interests or
encumbrances.
14.8 Since each of the four buildings comprising the Project will proceed on a
separate schedule, and will commence (and be completed) at different times, it
is essential for proper administration of the Project and the Work that the
provisions of this Article 14 and of Article 15 ("Payments to Contractor") shall
apply, to the extent possible, to each of the four buildings, each as an
individual Segment of the Work (provided, however, that Contractor shall not be
required to submit separate Applications for Payment in any month for the
individual portions of the Work, but only one Application for Payment each
month, covering the entire Work performed during the particular period covered
by the Application for Payment in question, except for the Final Application for
Payment for any individual Segment of the Work upon the Final Completion
thereof, as provided in the final sentence of this Paragraph 14.8). However,
Contractor shall make all reasonable efforts to ensure that each Application for
Payment reflects the Cost of the Work and the Contractor's Fee, prorated as to
each Segment of the Work covered by the Application for Payment in question; and
Contractor shall provide to Owner, together with each Application for Payment,
the back-up material required in Paragraph 14.2, including all Subcontractor
requests for payment, suitably segregated with respect to each building, as the
case may be. Contractor shall submit a Final Application for Payment separately
upon the Final Completion, respectively, of each of the four buildings.
ARTICLE 15: PAYMENTS TO CONTRACTOR
15.1 Owner will review each Application for Payment and will promptly take
appropriate action thereon as provided in the Contract Documents. The amount
agreed upon for payment shall be payable by Owner no later than fifteen (15)
calendar days after Contractor's submittal of a complete and accurate
Application for Payment, but no sooner than the tenth (10th) day of the month.
15.2 Payment by Owner with respect to any Application for Payment shall not
constitute Owner's approval or acceptance of any item or cost in such
Application for Payment, nor shall it be construed to
January 10, 1995
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be final acceptance or approval of that part of the Work to which the payment
relates, nor shall it relieve Contractor of any of its obligations under this
Agreement.
15.3 With respect to each Application for Payment, Owner shall pay Contractor
an amount equal to ninety percent (90%) of the Cost of the Work and the
Contractor's Fee then payable according to the Schedule of Values, until fifty
percent (50%) of that portion of the Work to be performed by Contractor or that
portion of the Work to be performed by any Subcontractor has been completed.
With respect to each Application for Payment thereafter, Owner shall pay
Contractor an amount equal to one hundred percent (100%) of the Cost of the
Work, but only to the extent that the amount paid by Owner is in turn paid to
the Subcontractor in question, and one hundred percent (100%) of the
Contractor's Fee then payable according to the Schedule of Values. The balance
of the retention shall be paid at time of Final Payment for each respective
Segment of the Work.
Any provision to the contrary in this Agreement or any other Contract
Documents notwithstanding, in the event of a disputed Claim (defined in Article
1.1) between Owner and Contractor with respect to any amount or circumstance
covered by any Application for Payment, Owner may withhold from the payment in
question an amount not to exceed one hundred fifty percent (150%) of the
disputed Claim, including without limitation amounts sufficient to reimburse
Owner for its expenditures for the account of Contractor and to secure (i)
correction or re-execution of Work which is defective or has not been performed
in accordance with the Contract Documents; (ii) past due payments to
Subcontractors; (iii) Owner's remedies in consequence of any default by
Contractor under this Agreement; and (iv) any costs incurred by Owner as a
result of claims, liabilities, losses and other damages covered by Contractor's
indemnification obligations pursuant to Paragraph 17.16.
15.3.2 If Owner, in its good faith judgment, determines that the portion
of the Guaranteed Maximum Price then remaining unpaid will not be sufficient to
complete the Work in accordance with this Agreement, then no additional
payments, including any payments in respect of the Contractor's Fee, will be due
Contractor hereunder unless and until Contractor, at its sole cost, performs a
sufficient portion of the Work so that such portion of the Guaranteed Maximum
Price then remaining unpaid is determined by Owner to be sufficient to complete
the Work.
15.3.3 In no event shall any interest be due and payable by Owner to
Contractor, any Subcontractor or any other party, on any of the sums properly
retained by Owner pursuant to any of the terms or provisions of any of the
Contract Documents.
15.4 In taking action on each Application for Payment, Owner shall have the
right to rely on the accuracy and completeness of the information furnished by
Contractor. Owner shall not be deemed to have made audits of the supporting
data, or exhaustive or continuous on-site inspections, or any examination to
ascertain how or for what purposes Contractor has used the monies previously
paid on account of this Agreement.
January 10, 1995
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15.5 Except for the Contractor's Fee, all sums paid to Contractor pursuant to
this Agreement shall be used for the performance of the Work and for no other
purpose whatsoever. To the extent applicable, all sums paid to Contractor in
turn shall be paid promptly to the respective Subcontractors.
15.6 Subject to Subparagraph 15.3.3, payments due and unpaid under any
Application for Payment for fifteen (15) calendar days shall bear interest, from
twenty (20) calendar days after the particular Application for Payment in
question was received until paid, at the Default Rate.
15.7 If, in connection with any Work for which Owner has paid Contractor as
required by this Agreement, any Mechanics' Lien is filed or served on Owner or
on any lender with respect to the Project, then Owner or any such lender, as the
case may be, shall have the right to withhold from any sums otherwise payable to
Contractor, an amount sufficient to discharge any or all such Mechanics' Liens.
Releases or receipted vouchers in settlement of such Mechanics' Liens, or other
security satisfactory to Owner, must be furnished to Owner by Contractor before
the withheld sums will be paid to Contractor. If Contractor has not settled or
provided acceptable security for any such Mechanics' Liens within a reasonable
time, not to exceed thirty (30) days from and after the date on which such
Mechanics' Lien is made, then Owner shall have the right, but not the
obligation, to discharge any or all such Mechanics' Liens out of the withheld
sums. Notwithstanding the foregoing, the Contractor shall have the right to bond
over the Mechanics' Lien and receive payment.
15.8 The entire unpaid balance due Contractor on account of the Cost of the
Work, including the Contractor's Fee, with respect to each Segment of the Work
(in each case, the "Final Payment"), shall be due to Contractor within
forty-five (45) days after the date on which a Certificate of Occupancy is
issued for the Segment of the Work in question (or, in the case of Building 4,
certification by the Architect of Final Completion of the Work required under
the Contract Documents). Contractor covenants that prior to submitting a Final
Application for Payment for the Final Payment, the following shall be
satisfactorily completed:
(i) A title insurance company designated by Owner shall have issued its
endorsements to Owner's title policy for the Project evidencing the
absence of any Mechanics' Liens related to the portion of the Work
in question. Contractor may, if any qualifying Subcontractor refuses
to furnish a release in full, furnish a bond satisfactory to Owner
to indemnify Owner against any Mechanics' Lien. Owner shall pay for
the cost of obtaining the endorsements, which cost shall not be
included in the Guaranteed Maximum Price.
(ii) A copy of the Certificate of Occupancy (or, for Building 4, all
applicable governmental approvals) shall have been delivered to
Owner.
(iii) Contractor shall have certified, in writing, that the Segment of the
Work in question has been completed in accordance with this
Agreement, subject only to minor Punch List items which shall be
noted on such certification. An amount sufficient to complete such
items shall be withheld by Owner.
January 10, 1995
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(iv) The applicable requirements of Article 14 (regarding Application for
Payment) shall have been met.
(v) Contractor shall have delivered to the Owner a waiver of Mechanics'
Lien rights, complying with California Civil Code Section 3262,
conditioned only upon receipt of the funds requested in the Final
Application for Payment, and executed by Contractor and by each
person or entity entitled to record a Mechanics' Lien against the
Property (or, if any Subcontractor refuses to furnish such waiver,
then a lien bond in form, substance and amount satisfactory to
Owner, protecting Owner from Mechanics' Liens by such persons).
(vi) Contractor shall have delivered to the Owner an affidavit in a form
satisfactory to the Owner stating that the Final Payment is being
requested and that the Mechanics' Lien releases and/or bonds
delivered to the Owner include and cover all materials, labor, and
services for which a Mechanics' Lien could be filed against the
Property.
(vii) Contractor shall have delivered to Owner one complete set of "as
built" drawings (and one electronic copy), all guaranties,
warranties, operating and maintenance manuals applicable to the
portion of the Work in question and/or required by the Drawings and
Specifications; provided, however, that Contractor shall only be
obligated to deliver two (2) sets of operating and maintenance
manuals for each building system or other portion of the Work which
is common to all buildings comprising the Project.
In the event of a disputed Claim between Owner and Contractor with respect
to any amount or circumstance covered by any Final Application for Payment,
Owner may withhold from the Final Payment in question an amount not to exceed
one hundred fifty percent (150%) of the disputed Claim. If an undisputed Final
Payment is not made within the time periods specified in this Article 15, the
Owner shall be subject to a charge of two percent (2%) per month (as provided by
Section 3260(g) of the California Civil Code on the improperly withheld amount,
in lieu of any interest otherwise due.
January 10, 1995
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15.9 Owner may file a Notice of Completion for any portion of the Work within
ten (10) days of the issuance of a Certificate of Occupancy for the portion of
the Work in question in the Official Records of the county in which the Project
is located (the "Notice of Completion").
ARTICLE 16: TERMINATION OF AGREEMENT
16.1 Contractor may suspend the Work (i) if Owner fails to pay or to object to
an Application for Payment within thirty (30) days after written notice of
delinquency is received by Owner from Contractor, (ii) pursuant to an order of
any court or other public authority having jurisdiction, or (iii) as a result of
an act of government, such as a declaration of a national emergency, making
materials unavailable. Owner may, at any time, without cause, order Contractor,
in writing, to suspend, delay or interrupt the Work in whole or in part for such
period of time as Owner may determine. If the Work is properly suspended for a
period of thirty (30) consecutive days or more by Contractor or Owner, then
Contractor shall have the right to terminate this Agreement and recover from
Owner payment for all Work completed and in place as of the date of the
termination.
16.2 The following provisions of this Paragraph 16.2 shall govern the Owner's
right to terminate this Agreement without cause.
16.2.1 In addition to Owner's right to terminate on account of
Contractor's default, as set forth in Paragraph 16.4, Owner may terminate this
Agreement and/or the Work, in whole or in part, at any time without cause, by
giving Contractor at least ten (10) days' prior written notice. Upon receipt of
any such notice, Contractor shall, unless the notice directs otherwise: (i)
immediately discontinue the Work on that date and to the extent specified in the
notice; (ii) enter into no further Subcontracts, except as may be necessary for
completion of such portion of the Work as is not discontinued; (iii) promptly
make every reasonable effort to procure cancellation, upon terms satisfactory to
Owner, of all Subcontracts to the extent they relate to the performance of the
discontinued portion of the Work; and (iv) shall thereafter do only such Work as
may be necessary to preserve and protect Work already in progress and to protect
materials, landscaping materials and equipment on the Property or in transit
thereto. Upon such termination, the obligations of the parties under this
Agreement shall continue as to those portions of the Work already performed and
as to bona fide obligations assumed by Contractor prior to the date of
termination.
16.2.2 In the event of such termination by Owner, Owner shall reimburse
Contractor for any unpaid Cost of the Work due under Article 6, plus (i) the
unpaid balance of the Contractor's Fee computed upon the Cost of the Work to the
date of termination at the percentage rate provided in Article 7, or (ii) if the
Contractor's Fee is stated as a fixed sum, an amount which will increase the
payments already made on account of the Contractor's Fee to a sum which bears
the same ratio to such fixed sum as the Cost of the Work at the time of
termination bears to the Guaranteed Maximum Price. In the event of any such
termination by Owner, Owner shall also pay to Contractor fair compensation,
either by purchase or rental, at the election of Owner, for any equipment Owner
wishes to continue to use. If Owner so terminates this Agreement, Owner shall
also assume and become liable for obligations,
January 10, 1995
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commitments and unsettled claims within the scope of the Contract Documents that
Contractor has previously undertaken or incurred in good faith in connection
with the Work. If, at the date of such termination, Contractor has properly
prepared or fabricated off the site any goods for subsequent incorporation into
the Work, and if Contractor delivers such goods to the site or to such other
place as Owner shall reasonably direct, then Contractor shall be paid for such
goods or materials. Contractor shall, as a condition to receiving the payments
described in this Article 16, execute and deliver to Owner such documents as may
be reasonably acceptable to Owner releasing Owner from all liability to
Contractor under this Agreement, including without limitation the waiver of
Mechanics' Lien rights and the affidavit described in Paragraph 15.8 (v) and
(vi).
16.2.3 Contractor hereby waives all claims for damages and loss of
anticipated profits on account of any termination by Owner pursuant to this
Paragraph 16.2 and, as the sole right or remedy of Contractor on account of such
termination, Contractor shall receive the amounts payable to Contractor under
this Paragraph 16.2. In addition, Contractor shall take all steps, including the
legal assignment of its contractual rights, which Owner may require for the
purpose of fully vesting in Owner such contractual rights.
16.3 Any of the following events shall be deemed to be a material default by
Contractor under the Contract Documents (an "Event of Default"):
(i) failure, without reasonable cause, by Contractor to prosecute the
Work diligently or properly; or
(ii) failure by the Contractor to make prompt payment to any
Subcontractor without just cause; or
(iii) failure by Contractor to comply with any applicable Law; or
(iv) failure by Contractor to perform any contractual obligation under
the Contract Documents, which failure by its nature Contractor has no capacity
to cure; or
(v) failure by Contractor to perform any other obligation under, or to
comply with any term, provision or condition of, the Contract Documents for a
period of ten (10) days following receipt of written notice of such failure from
Owner; or
(vi) the occurrence of any of the following: (A) the making by
Contractor of any general arrangements or assignments for the benefit of
creditors; (B) Contractor becomes a "debtor" as defined in 11 USC Section 101 or
any successor statute (unless, in the case of a petition filed against
Contractor, the same is dismissed within 60 days); (C) the appointment of a
trustee or receiver to take possession of substantially all of Contractor's
assets or of any asset used in connection with the Work, where possession is not
restored to Contractor within 30 days; or (D) the attachment, execution or other
judicial seizure of substantially all of Contractor's assets or of any asset
used in connection with the Work, where such
January 10, 1995
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seizure is not discharged within 30 days; provided, however, if any provision of
this Paragraph 16.3 (vi) is contrary to any applicable Law, such provision shall
be of no force or effect; or
(vii) a default by Contractor under any other contract between
Contractor and Owner; or
(viii) repeated failure (defined as a failure for which Owner has given
more than one notice) by Contractor to perform its obligations under the
Contract Documents in a timely or satisfactory fashion, which failure materially
interferes with Owner's scheduled completion of any portion of the Work within
the Contract Time.
16.4 Upon the occurrence of an Event of Default, Owner shall have the right to
pursue any and all remedies available at law or in equity including, without
limitation, the following: (i) the right to keep this Agreement in effect and
sue Contractor for all damages caused by the default and recover the cost
thereof, which damages shall include, by way of illustration only and not by way
of limitation, any and all premiums, penalties, fees or other amounts Owner may
incur or pay to any third parties (including without limitation lenders on
construction or permanent financing for all or any portion of the Project) as a
result of or in connection with any delay in the completion of any portion of
the Work or otherwise caused by or resulting from any such default on the part
of Contractor, (ii) the right to cure any such default by Contractor and to
recover any damages caused thereby, and (iii) the right to terminate this
Agreement by giving Contractor written notice that this Agreement is terminated.
Upon such termination, Owner shall have the right to complete the Work or to
contract with others for completion of the Work and, in either event, to charge
the cost of completion to Contractor, including interest on Owner's expenditures
from the date the costs and expenses exceed the unpaid balance of the Guaranteed
Maximum Price until repayment by Contractor at the Default Rate. Owner may
deduct the cost of completion from amounts that may at any time be payable to
Contractor. If the cost of completion exceeds the amount that would have been
payable under this Agreement had Contractor completely performed the Work
pursuant to the terms of this Agreement, Contractor shall immediately pay the
amount of such excess to Owner. Owner may recover from Contractor all damages,
costs, expenses, attorneys' fees, experts' fees, court costs and lost profits,
of any kind and nature, directly or indirectly related to the default, including
without limitation any and all third party damages as described in subparagraph
16.4(i) above. Upon termination, Contractor shall be deemed to have waived all
claims against Owner for profits, loss or damage on or with respect to the
uncompleted Work. Contractor shall indemnify, defend, protect and hold Owner
harmless against any liability, claim, damage, loss, cost (including reasonable
attorneys' fees) or penalty which may be threatened or may in fact arise during
the period of any curable failure of Contractor to perform its contractual
duties hereunder.
16.5 If Owner terminates this Agreement on account of Contractor's default as
provided in Paragraph 16.4, then in addition to its obligations under Article 12
of the General Conditions, Contractor shall promptly and peaceably vacate the
Property and, at Owner's election, Owner may (i) take possession of the Property
and of all materials, equipment, tools, construction equipment and machinery
thereon owned by Contractor and Owner may finish the Work by whatever method it
may deem expedient, or (ii) cease construction and require the Contractor
promptly to remove from the Property, at Contractor's expense,
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all materials, equipment, tools, and construction equipment owned by Contractor.
Owner shall pay to Contractor fair compensation (at the election of Owner either
by purchase at fair market value or by rental at the prevailing rate of the
locale) for any equipment owned by the Contractor and used by the Owner during
the completion of the Work. Upon demand, (x) Contractor shall assign and deliver
to Owner all Drawings and Specifications, Subcontracts, documents, tangible and
intangible property, and contractual rights as Owner may demand for the purpose
of completing the Work, and (y) Contractor shall execute and deliver to Owner
such written documentation as Owner may request for the purpose of evidencing
the vesting in Owner of the rights and benefits of Contractor with respect to
the documents and rights so delivered and assigned.
16.6 If Owner terminates this Agreement as provided herein on account of
Contractor's default, and Owner then elects to complete the Work, Contractor
shall not be entitled to receive any further payments under this Agreement until
the Work is fully completed. Upon completion of the Work, if the expenses
reasonably incurred by Owner in completing the Work (including, without
limitation, payments made by Owner to any party supplying labor, materials,
equipment, services and the like for the Work, and all costs incurred by Owner
for managerial, administrative or supervisory services), plus the amounts
previously paid by Owner to Contractor, exceed the Guaranteed Maximum Price,
then Contractor shall pay Owner, upon demand, the amount of such excess, plus
interest thereon at the Default Rate. In all other cases of termination for
Contractor's default, Owner's liability to Contractor shall be limited to
reimbursement to Contractor of that portion of the unpaid Guaranteed Maximum
Price which is earned, due and payable to Contractor as of the date of the
termination, less the sum of (i) any amounts owing to Owner by Contractor under
the terms of the Contract Documents, and (ii) all costs, expenses, damages,
attorneys' fees, experts' fees, court costs and lost profits incurred by Owner
as a consequence of the Contractor's default.
ARTICLE 17: MISCELLANEOUS PROVISIONS
17.1 Time of Performance. If the date for any payment or obligations under this
Agreement falls on a Saturday, Sunday or legal holiday, payment shall be made or
the obligation shall be performed as specified on the next following business
day.
17.2 Independent Contractor. Contractor is and at all times shall be an
independent contractor with respect to the Work and the Project. Neither this
Agreement or any of the Contract Documents shall be interpreted as creating, or
shall be deemed to create, any employer-employee, partnership or other
relationship between Owner and Contractor. Contractor has and hereby retains the
right to exercise full control and supervision of the Work, and full control
over the employment, direction, compensation and discharge of all persons
assisting it in the execution of the Work. Contractor shall be solely
responsible for all matters relating to payment of its employees, including
compliance with Social Security, withholding and all other regulations governing
such matters. Contractor shall be solely and fully responsible for its own acts
and those of its subordinates, employees and Subcontractors during the term of
this Agreement.
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17.3 Design/Build Subcontractors. Architect and Contractor's engineering
consultants have established performance criteria and quality standards for the
Project. Contractor shall be solely responsible to Owner for the design,
engineering, construction and performance of the HVAC, electrical, plumbing,
fire sprinkler and exterior skin of the buildings, and for any other building
systems as provided by mutual agreement between Owner and Contractor. Contractor
shall coordinate the performance of the foregoing with Architect to insure that
such systems are fully and efficiently integrated into the Project. Subject to
the provisions of the following sentence, Architect's review of such systems
shall not constitute approval of the design, but shall indicate only that the
intent of the system conforms to the design criteria. Based on the loads given
by the design/build Subcontractor to the Architect, Architect shall review the
design/build systems and elements to ensure that the building structure, as
designed by Architect, will support the design/build elements for which
Contractor is responsible pursuant to this Paragraph 17.3. Architect shall
approve the architectural and spatial relationships of the design/build systems.
Owner and Contractor shall agree on the amount of professional liability
insurance the design/build Subcontractor shall carry. The cost of the
design/build work described in this Paragraph 17.3 is part of the Cost of the
Work, and is included in the Guaranteed Maximum Price.
17.4 Prior Work. Any Work, including all engineering and design work performed
by Contractor or its Subcontractors for the Project prior to the date of this
Agreement, shall be and hereby is incorporated into this Agreement and covered
by the conditions and requirements set forth herein.
17.5 Notices. All notices required or permitted to be given hereunder shall be
in writing, and shall be deemed duly delivered, received and given, (i) when
personally delivered, or (ii) one day following delivery to an overnight courier
guaranteeing next business day delivery to the address set forth below, or to
such other address designated by five (5) days' prior written notice to the
other party, or (iii) immediately upon confirmation of facsimile receipt at the
fax number set forth below or to such other fax number designated by five (5)
days' written notice to the other party. The address of the parties for the
purpose hereof shall respectively be:
TO OWNER AT: Altera Corporation
2610 Orchard Parkway
San Jose, CA 95134-2020
Attn: General Counsel
Fax Number: (408) 894-8000
TO CONTRACTOR AT: Rudolph & Sletten, Inc.
P.O. Box 4637
989 E. Hillsdale Blvd., Suite 100
Foster City, CA 94404
Attn: Mr. Bill Hammerson
Fax Number: (415) 341-3459
January 10, 1995
Page 27
<PAGE> 30
17.6 Successors and Assigns. This Agreement calls for the personal services of
Contractor and, therefore, Contractor has no right to assign or transfer, and
shall not assign or transfer, any right or obligation under this Agreement
(including Contractor's right to payments). Owner may assign this Agreement to
any person or entity controlled by, under common control with, or which
controls, Owner, or to any lender on all or any portion of the Project, or to
any entity which succeeds to Owner's interest in the Project, without
Contractor's consent, or to any other person or entity with Contractor's
consent, which consent shall not be unreasonably withheld. Owner shall promptly
notify Contractor of any such assignment or transfer. Subject to the foregoing,
this Agreement shall extend to, be binding upon and inure to the benefit of, the
respective heirs, executors, administrators, successors and assigns of Owner and
Contractor.
17.7 Release and Waiver of Subrogation. Owner and Contractor, by their execution
of this Agreement, each hereby waives all rights against the other party for
damages to property caused by fire or other perils to the extent such damages
are covered by insurance obtained pursuant to any provision of the Contract
Documents, or any other property insurance applicable to the Work, except rights
they may have to the proceeds of insurance held by Owner as trustee; provided,
however, that such waivers are effective only if the applicable insurance
policies of both parties contain a clause to the effect that such release shall
not affect the right of the insured to recover under such policy. Each party
shall use reasonable efforts to cause each insurance policy obtained by it to
provide that the insurer waives all right of recovery by way of subrogation
against the other party in connection with any injury or damage covered by such
policy. Contractor shall also require of all Subcontractors similar waivers in
favor of Owner and Contractor.
17.8 Occupancy of Work Prior to Completion. If Owner finds it necessary to
occupy or use a portion of the Work prior to Substantial Completion thereof,
such occupancy or use shall not commence prior to a time mutually agreed to by
Owner and Contractor. Unless otherwise agreed upon, partial occupancy or use of
a portion or portions of the Work shall not constitute acceptance of Work not
complying with the requirements of the Contract Documents.
17.9 Confidentiality. Contractor and all Subcontractors shall keep confidential
any information acquired from Owner's employees, or from inspection of Owner's
property relating to Owner's designs, business plans, business opportunities,
financial or other confidential information. Contractor and those of its
employees as may be designated by Owner, and all Subcontractors, shall execute
Owner's Confidentiality Covenant in the form attached hereto as Exhibit G.
17.10 Attorneys' Fees. Should arbitration or litigation occur between Owner and
Contractor relating to the enforcement of any provision of this Agreement, all
hearing or court costs, witness fees, reasonable attorney's fees and related
costs shall be paid by the non-prevailing party to the prevailing party.
"Prevailing party" as used in this Paragraph 17.10 includes a party who
dismisses an action for recovery hereunder in exchange for sums allegedly due,
performance of covenants allegedly breached or considerations substantially
equal to the relief sought in the action.
January 10, 1995
Page 28
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17.11 Amendments; Survival of Provisions. This Agreement may be amended only by
a written instrument signed by both Owner and Contractor. All provisions of this
Agreement which, by their nature (such as indemnification provisions) are
intended to or should survive the termination or expiration of this Agreement,
shall so survive.
17.12 Effective Date. This Agreement shall be deemed binding and effective the
day and year first above written, notwithstanding the actual date of execution
by the Parties hereto.
17.13 No Waiver. No failure on the part of either party to this Agreement to
exercise its rights hereunder shall be, or operate as, a waiver, a release, or
relinquishment of any rights or powers conferred under this Agreement.
17.14 Contractor's Representations and Warranties. Contractor hereby represents
and warrants to Owner that it is legally empowered to provide all of the
services required by this Agreement in the state in which the Project is located
and the state in which the Work will be performed. At all times during the term
of this Agreement, Contractor shall, at its sole cost and expense, keep in full
force and effect all professional and business permits, licenses and approvals
directly affecting Contractor's ability to perform the services required under
this Agreement, and otherwise necessary and appropriate to enable Contractor to
perform the Work, including without limitation all professional licenses and
qualifications of any individual employees of Contractor providing services
under this Agreement or any other Contract Documents. The person executing this
Agreement on behalf of Contractor represents that this Agreement is binding and
enforceable against Contractor in accordance with its terms, and that no other
signature of any party is necessary to make this Agreement binding on and
enforceable against Contractor. Contractor has made these representations and
warranties to Owner knowing that Owner is relying to a material extent on said
representations and warranties in entering into this Agreement.
17.15 Exposure to Hazardous Materials.
17.15.1 Contractor shall be solely responsible for any exposure of its
employees, agents and consultants to asbestos, PCB's or toxic substances brought
or permitted on the Property or elsewhere by Contractor or by any Subcontractor
and their respective employees and agents, except to the extent such exposure
results from the negligence or willful misconduct of Owner, its employees,
agents and contractors (other than Contractor or any Subcontractors, Architect
and any sub-consultant of Architect, and their respective employees and
contractors), and Owner shall have no liability to Contractor or such parties
with respect to such exposures; it being the understanding of the parties that
Contractor shall cause its Subcontractors, and the respective employees and
agents of Contractor and all Subcontractors, to take all reasonable precautions
necessary to prevent their exposure to such asbestos, PCB's and other toxic
substances. The Owner shall be responsible for removal of existing conditions of
toxic material which may be discovered in the construction process.
17.15.2 In addition, Owner and Contractor shall each have the rights
and obligations set forth in Article 10 of the General Conditions.
January 10, 1995
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17.16 Indemnification. Contractor shall indemnify, defend upon demand, protect
and hold harmless Owner and its officers, agents and employees, and any lender
on all or any portion of the Project, from and against any and all causes of
action, demands, losses, violations, infringements of Law, patent, license or
trademark, costs, attorneys' and experts' fees, claims, damages, and liabilities
of every kind and nature arising out of, alleged to have risen out of, or
resulting in any way from, the Work to be performed under this Agreement by
Contractor and its Subcontractors which are the result of any willful
misconduct, negligence, breach, act or omission of Contractor or its
Subcontractors, or by the respective agents, officers, employees, contractors or
subconsultants of any of them, except to the extent such claims are caused by
the negligence or a design deficiency on the part of Owner and/or its officers
and employees. Acceptance of any Work by Owner shall not operate as a waiver of
the foregoing indemnification, and the foregoing indemnification shall survive
the completion of the Project and the termination of this Agreement.
17.17 No Limitation of Rights and Remedies. No provision of this Agreement is
intended to, and no provision of this Agreement shall, limit the rights or
remedies of Owner or Contractor pursuant to any other provisions of this
Agreement, the Contract Documents or at law or in equity, except as otherwise
expressly provided in Articles 4.3, 4.4, and 4.5 of the General Conditions or
any other express provision of the Contract Documents.
17.18 Governing Law. This Agreement shall be construed and interpreted in
accordance with, and shall be governed and enforced in all respects according
to, the Laws of the State of California.
17.19 Counterparts. This Agreement may be executed in one or more counterparts.
All counterparts so executed shall constitute one agreement, binding on all
parties, even though all parties are not signatory to the same counterpart.
17.20 Construction. Each party has reviewed and revised this Agreement. The
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
17.21 Severability. If any provision of this Agreement as applied to either
party or to any circumstance shall be ruled by a court of competent jurisdiction
to be void or unenforceable for any reason, the same shall in no way affect (to
the maximum extent permissible by law) that provision as applied to other
permissible parties or circumstances or any other provision of this Agreement or
the validity or enforceability of the Agreement as a whole.
17.22 Headings. The headings used herein are for purposes of convenience only
and should not be used in construing the provisions hereof.
17.23 Cooperation with Lenders. Contractor shall at all times cooperate with any
lender on the Project, the Work, or any portion thereof, including without
limitation executing any agreements, documents, acknowledgments, certificates
and/or amendments to this Agreement as Owner and/or such lender may
January 10, 1995
Page 30
<PAGE> 33
reasonably require in connection with any financing, whether construction or
permanent, for the Project or any portion thereof, all as more particularly
provided in the General Conditions.
17.24 No Third Party Beneficiary. This Agreement is not intended to and shall
not create any third party beneficiaries. No acts, omissions, reviews, approvals
or other actions hereunder by Contractor shall function to isolate any party
from liability to Owner, Contractor or any other party.
ARTICLE 18: EXHIBITS
18.1 The following exhibit are incorporated into this Agreement by this
reference:
Exhibit A Legal Description of the Property
Exhibit B Contract Documents
Exhibit C Construction Schedule
Exhibit D Contractor Rate Schedule
Exhibit E General Work Requirements
Exhibit F Minimum Insurance Requirements
Exhibit G Confidentiality and Non-Disclosure Covenant
Exhibit H Change Order Request
Exhibit I General Conditions of the Contract for Construction
18.2 In the event of any conflict or inconsistency between the terms and
conditions of the foregoing Owner/Contractor Agreement and the terms and
conditions of any of the exhibits attached hereto, the terms and conditions and
the foregoing Owner/Contractor Agreement shall govern and control.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the day and year first set forth above.
OWNER: CONTRACTOR:
ALTERA CORPORATION, RUDOLPH AND SLETTEN, INC.,
a California corporation a California corporation
By:________________________ By:________________________
Its:_______________________ Its:_______________________
Date:______________________ Date:______________________
January 10, 1995
Page 31
<PAGE> 34
EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
All that real property situate in the City of San Jose, County of Santa Clara,
State of California, described as follows:
Parcel One (NELO Parcel)
All of Parcel 2, as shown on that Parcel Map filed for record in the Official
Records of the County of Santa Clara, State of California, on July 20, 1990, in
Book 616 of Maps, pages 16 and 17, as amended by Certificate of Correction
recorded June 6, 1991, in Book L 740, page 0602, Official Records.
Parcel Two (Protea Parcels)
All of Parcels A and B, as shown on that Parcel Map filed for record in the
Official Records of the County of Santa Clara, State of California, on January
14, 1993, in Book 643 of Maps, pages 19 and 20.
January 10, 1995
Page 32
<PAGE> 35
EXHIBIT B
CONTRACT DOCUMENTS
The Contract Documents consist of the following, all as may be amended,
supplemented or revised from time to time pursuant to the written agreement of
the parties:
1. The Owner/Contractor Agreement for Construction, with all
Exhibits attached thereto.
2. Drawings and Specifications prepared by Robinson Mills +
Williams, to be completed in accordance with the Construction Schedule.
3. All Notices to Proceed executed by Owner.
4. All Change Orders executed by Owner and Contractor.
January 10, 1995
Page 33
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EXHIBIT C
CONSTRUCTION SCHEDULE
The Project Construction Schedule current as of execution of the
Contract Documents is entitled Altera Corporation New Headquarters Project
Summary Schedule, and has a revision date of December 29, 1995 (see copy
attached).
January 10, 1995
Page 34
<PAGE> 37
EXHIBIT D
CONTRACTOR RATE SCHEDULE
<TABLE>
<CAPTION>
Preconstruction Services Fixed Cost per Hour
- ------------------------ -------------------
<S> <C>
V.P./Chief Estimator $95.00
Project Executive $95.00
Senior Estimator $75.00
Project Estimator $65.00
Mechanical Estimator $75.00
Electrical Estimator $75.00
Administrative Assistant $35.00
<CAPTION>
Construction Services Fixed Cost per Hour
- --------------------- -------------------
<S> <C>
Project Manager $70.00
Project Superintendent $85.00
Project Engineer $50.00
Mechanical/Electrical Coordinator $71.00
Project Accountant/Field Office Coordinator $29.00
Carpenter Foreman $52.75
Laborer Foreman $48.00
Carpenter $46.85
Laborer $39.25
Cement Mason $42.50
Operating Engineer $57.60
</TABLE>
January 10, 1995
Page 35
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EXHIBIT E
GENERAL WORK REQUIREMENTS
(CATEGORIES)
I. JOBSITE ADMINISTRATION
II. SURVEY/LAYOUT
III. TEMPORARY FACILITIES
IV. TEMPORARY UTILITIES
V. SAFETY AND HEALTH
VI. CLEAN-UP
VII. MISCELLANEOUS EQUIPMENT
VIII. SITE CONDITIONS
IX. PERMITS, TAXES, INSURANCE
X. OTHER
The above list describes only the general categories of the General
Work Requirements. Prior to establishing the Guaranteed Maximum Price, Owner and
Contractor shall agree upon a schedule setting forth a more detailed, line item
description of each of the above categories. Once such schedule has been signed
by both Owner and Contractor, it shall be deemed to be incorporated into this
Exhibit E and shall become a part of this Agreement to the same extent as if it
had been originally set forth herein.
January 10, 1995
Page 36
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EXHIBIT F
MINIMUM INSURANCE REQUIREMENTS
1. Minimum Amounts of Coverage. As a material part of the consideration
for this Agreement, Contractor agrees, for Owner's benefit, that Contractor
shall maintain amounts and types of insurance coverages as follows:
1.1 Commercial Liability. Comprehensive or Commercial General
Liability insurance covering Contractor and its officers, partners, employees,
agents and Subcontractors with respect to or in any way related to the Work.
Such insurance shall contain all coverage customarily found in such policies of
insurance, including endorsements or other provisions covering products and
completed operations, covering the contractual indemnities contained in this
Agreement, and including employees as additional insureds. Such insurance shall
have a combined single limit of not less than One Million Dollars ($1,000,000)
for all damages arising out of the bodily and/or personal injuries to or death
of one or more persons, and for all damages to or destruction of tangible
property, including loss of use resulting therefrom, in any one occurrence, and
subject to that limit, where applicable, an annual aggregate limit of not less
than One Million Dollars ($1,000,000).
1.2 Umbrella Liability. Umbrella liability insurance including
the coverages required in paragraph 1 above, with limits of not less than Ten
Million Dollars ($10,000,000).
1.3 Auto Liability. Auto Liability, comprehensive or business
automobile form, including owned, non-owned and hired autos, of not less than
One Million Dollars ($1,000,000).
1.4 Worker's Compensation. Worker's Compensation covering all
employees of Contractor performing services under this Agreement and complying
with all laws of the State of California.
1.5 Employer's Liability. Employers' Liability covering
employees of Contractor performing services under this Agreement providing a
limit of not less than Five Hundred Thousand Dollars ($500,000).
1.6 Valuable Papers and Records. Property insurance covering
valuable papers which will insure all documentation produced or used in
connection with the Work in an amount of not less than Five Hundred Thousand
Dollars ($500,000).
Exhibit F Page 1 of 2
January 10, 1995
Page 37
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2. General Policy Requirements. Except for Worker's Compensation, the
insurance policies required above shall name Owner as an additional insured and
shall be in effect at all times during the term of this Agreement and for two
(2) years after the date of Substantial Completion of the Work. All the
insurance policies required above shall be primary (and any insurance maintained
by Owner shall be excess insurance only); shall include only such deductible
amounts as Owner shall reasonably approve; and shall provide that Owner shall
receive a minimum of 30 days' advance notice of cancellation or alteration. If
Contractor does not replace such insurance within the 30 day period, Owner shall
have the right, but not the obligation, to procure replacement insurance for
Contractor, at Contractor's cost (except to the extent the cost would have been
a Cost of the Work if Contractor had properly obtained the required insurance).
Contractor shall furnish Owner with copies of the insurance policies and/or
certificates showing that all insurance described above is being maintained by
Contractor. The certificates shall include the Project name as shown on drawings
and Project address, and the holder thereof shall be listed as follows:
Risk Management Department
Altera Corporation
2610 Orchard Parkway
San Jose, CA 95134-2020
3. Additional Insurance. In addition to the insurance policies required
above, Owner shall have the right to require additional insurance policies,
additional or increased limits of coverage in existing policies of insurance,
and additional endorsements, including without limitation project-specific
liability insurance, builder's risk and property damage insurance, and
contractor's bonds. Such additional insurance shall be in such amounts, on such
policy forms, and with such carriers as Owner may reasonably require. Within
five days after written request by Owner at any time after the execution of this
Agreement, Contractor shall procure and deliver to Owner, at Owner's expense,
one or more commitments or binders for insurance, in form and content
satisfactory to Owner, issued by insurance carrier(s) satisfactory to Owner,
assuring that such carrier(s) will be obligated, upon payment of the required
premium, to issue for Owner's benefit such additional insurance as may be
requested by Owner. The premiums and all other costs to obtain any such
additional insurance requested by Owner shall be reimbursed by Owner to
Contractor at cost.
Exhibit F Page 2 of 2
January 10, 1995
Page 38
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EXHIBIT G
CONFIDENTIALITY AND NON-DISCLOSURE COVENANT
THIS CONFIDENTIALITY AND NON-DISCLOSURE COVENANT ("Covenant") is made
as of _____________________, 19__ , by ______________________________, on behalf
of itself and its affiliates, successors, assigns, agents, officers, directors
and partners (collectively, "Receiving Party") for the benefit of Altera
Corporation, a California corporation, and its affiliates, successors, assigns,
agents, officers, directors and partners (collectively, "Owner"), pursuant to
that certain Owner/Contractor Agreement for Construction dated _______________
(the "Agreement"), executed by Owner and by Rudolph and Sletten, Inc.
("Contractor") with respect to that certain Altera Corporation Headquarters
Project of construction ("Project") located at North First Street and Caviglia
Drive in San Jose, California ("Property").
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, Receiving Party hereby agrees as follows:
1. Confidential Information. As used herein, the term "Confidential
Information" shall mean and include any and all data, reports, interpretations,
forecasts, projections, records, designs, analyses, and any other information
received from any source (whether oral, in writing, or in electronic form)
concerning or relating to the products, designs, business plans, business
opportunities, finances, research, development, know-how, personnel, or
activities of Owner, including without limitation information regarding the
Project; provided, however, that for purposes of this Covenant the term
"Confidential Information" shall not be deemed to include information which (1)
is now generally known or available by publication, commercial use or otherwise;
or (2) is known by Receiving Party at the time of disclosure and is not subject
to restriction under this Covenant.
2. Covenant of Non-Disclosure. Receiving Party agrees to use the same
degree of effort and care in maintaining the confidence of the Confidential
Information as it does with its own confidential information, but not less than
reasonable care, and to maintain the confidence of such Confidential
Information, to prevent its unauthorized dissemination, and to use the
Confidential Information only in accordance with this Covenant. Receiving Party
agrees not to use the Confidential Information in any manner except as may be
necessary to perform its obligations under the Agreement.
3. Return of Information. Receiving Party agrees to return all
Confidential Information including all manuals, technical notes, plans and
copies thereof to Owner (or to Owner's designee) on the written request of
Owner.
January 10, 1995
Page 39
<PAGE> 42
4. Remedies. Receiving Party hereby acknowledges that unauthorized
disclosure or use of Confidential Information could cause irreparable harm and
significant injury which may be difficult to ascertain. Accordingly, Receiving
Party agrees that Owner shall have the right to seek and obtain immediate
injunctive relief from breaches of this Covenant, in addition to any other
rights and remedies Owner may have.
5. Governing Law. This Covenant shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, Receiving Party has executed this Covenant at San
Jose, California, as of the date first written above.
"RECEIVING PARTY"
________________________________________
________________________________________
By _____________________________________
Its ____________________________________
Date ___________________________________
January 10, 1995
Page 40
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EXHIBIT H
CHANGE ORDER REQUEST
[See attached sample form.]
January 10, 1995
Page 41
<PAGE> 44
EXHIBIT I
GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
[See attached.]
January 10, 1995
Page 42
<PAGE> 45
EXHIBIT I
GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
ARTICLE 1
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 All capitalized terms and words (other than proper nouns) used in these
General Conditions shall have the meanings set forth below, unless otherwise
defined in the Agreement or unless another meaning is clearly intended based on
the express language of the applicable provision.
.1 Agreement. The Owner/Contractor Agreement for Construction between
Owner and Contractor to which these General Conditions are annexed, including
all attached Exhibits, and any addenda and/or modifications to any of the
foregoing.
.2 Architect. The Project Architect identified in the Agreement.
.3 Certificate of Occupancy. Written notification by the City of
San Jose of satisfaction of all terms, conditions and other provisions of all
necessary permits and approvals authorizing the full use and occupancy of the
respective Segment of the Work for the purposes intended without restriction.
.4 Certificate of Substantial Completion. A certificate prepared by
Architect pursuant to Subparagraph 9.8.2 below, certifying that the Work is
Substantially Complete and establishing the date of Substantial Completion.
.5 Change Order. Defined in Paragraph 8.2 of the Agreement.
.6 Change Order Request. Defined in Paragraph 8.2 of the Agreement.
.7 Change Order Work. A Change in the Work covered by any approved
Change Order.
.8 Claim. A demand or assertion by one of the parties seeking, as a
matter of right, an adjustment or interpretation of the terms of the Agreement,
payment of money, extension of time, or other relief with respect to the terms
of the Agreement, whether arising due to an error or omission, breach of the
Agreement, or otherwise.
.9 Confidential Information. Defined in Exhibit G to the Agreement.
General Conditions
January 10, 1996
Page 1
<PAGE> 46
.10 Construction Schedule. Defined in Paragraph 5.1 of the Agreement.
.11 Contract Documents. Defined in Paragraph 2.1 of the Agreement.
.12 Contract Time. The period of time, including adjustments
authorized by Change Orders, allotted in the Contract Documents for
Substantial Completion of each respective building or other applicable Segment
of the Work.
.13 Contractor. Rudolph and Sletten, Inc., a California corporation.
.14 Contractor's Fee. Defined in Article 7 of the Agreement
.15 Cost of the Work. Defined in Article 9 of the Agreement.
.16 Day. Calendar day unless otherwise specifically designated.
.17 Default Rate. The "reference rate" or "prime rate" published from
time to time by Bank of America, N.T.& S.A., as the rate at which it lends funds
to credit worthy borrowers, plus two percent (2%); provided, however, that in no
event shall any interest or other amount due, payable or paid hereunder, or
pursuant to any other provision of this Agreement or any Contract Documents,
exceed the maximum applicable legal interest rate in effect from time to time.
.18 Drawings and Specifications. The drawings, specifications and
other documents which fix and describe the size and character of the entire
Project as to, without limitation, architecture, structure, electrical systems,
mechanical systems, civil engineering and landscaping.
.19 Equipment Schedule. Defined in Subparagraph 9.1.5 of the
Agreement.
.20 Event of Default. Defined in Paragraph 16.3 of the Agreement.
.21 Final Application for Payment. An Application for Payment for the
Final Payment, which shall only be made in accordance with the provisions of
Paragraph 15.8 of the Agreement.
.22 Final Completion. The status of the Work when all Punch List
items have been fully and finally completed, and all final releases, documents
and manuals required by the Contract Documents have been delivered.
.23 Final Payment. Defined in Paragraph 15.8 of the Agreement.
.24 Force Majeure Delay. A delay in Contractor's performance under
this Agreement due to: an act or omission of Owner or Architect or any of their
respective employees or agents; labor disputes not caused by Contractor, fire,
unusual delay in transportation, adverse weather conditions not reasonably
foreseeable, unavoidable casualties, or any similar causes beyond the reasonable
control of Contractor and not reasonably foreseeable by Contractor, for which a
written claim of justifiable delay is made by Contractor pursuant to Paragraph
8.3 below.
General Conditions
January 10, 1996
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.25 General Conditions. These "General Conditions of the Contract for
Construction" which are attached to the Agreement.
.26 General Work Requirements. The portions of the Work and related
requirements that apply generally to site conditions, site safety, permits,
taxes, insurance, jobsite administration, and so forth, as described more
specifically in Exhibit E attached to the Agreement.
.27 Guaranteed Maximum Price. Defined in Paragraph 6.2 of the
Agreement.
.28 Laws. All Federal, State and local laws, statutes, ordinances,
rules, regulations, building codes and orders applicable to the Project, the
Work, the parties to this Agreement or otherwise governing the foregoing, as
well as those certain covenants, conditions and restrictions (CC&R's) recorded
in the Official Records of Santa Clara County on February 7, 1980 in Book F 128,
Page 480, as amended (the Protea CC&R's), and on February 7, 1985 in Book J 232,
Page 651, as amended (the NELO CC&R's).
.29 Mechanics' Lien. Any mechanics' lien, materialmen's lien, stop
notice, charge, imposition, garnishment or attachment upon or against the
Property, the Project or Owner.
.30 Notice of Completion. A written notice verified by Owner or
Owner's authorized agent, and recorded with the Santa Clara County Recorder
within 10 days after completion of a Segment of the Work, pursuant to Section
3093 of the California Civil Code.
.31 Notice to Proceed. Owner's issuance to Contractor of an
instruction to proceed with a defined scope of Work prior to Owner's having
approved the Guaranteed Maximum Price.
.32 Owner. Altera Corporation, a California corporation.
.33 Preconstruction Services. Services performed by Contractor prior
to commencement of construction, as defined in Subparagraph 9.1.16 of the
Agreement.
.34 Project. The total construction of which the Work performed
under the Contract Documents may be the whole or a part, and which may include
construction by the Owner or by separate contractors as described in Paragraph
3.1 of the Agreement. The Project will include (i) approximately 360,000 square
feet consisting of a Corporate Building with 4 levels, a Production Building
with 2 levels, and an Engineering Building with 3 levels, all with shell, core,
sitework and interior improvements; and (ii) approximately 150,000 square feet
consisting of an Expansion Building with 3 levels, with shell, core, sitework,
and partial interior improvements.
.35 Property. The real property described in Exhibit A attached to
the Agreement, which is also the site of the Project.
.36 Punch List. A comprehensive list of minor items to be completed
or corrected
General Conditions
January 10, 1996
Page 3
<PAGE> 48
following Substantial Completion of the Work, which items shall not materially
affect the use or aesthetic appearance of the Project.
.37 Schedule of Values. Defined in Paragraph 6.3 of the Agreement.
.38 Segment. Each separate building, design/build system, or
distinct portion of the Work covered by a separate Notice to Proceed.
.39 Subcontract. A written agreement between the Contractor and
another party to perform a portion of the Work or to supply equipment,
materials or labor to the Project, as defined in Paragraph 12.1 of the
Agreement.
.40 Subcontractor. A person or entity who, pursuant to a Subcontract,
is retained by Contractor to perform a portion of the Work or to supply
equipment, materials or labor to the Project, including without limitation any
subcontractor, sub-subcontractor, laborer, design professional, engineer,
surveyor, consultant, equipment lessor, supplier or other materialman so
retained, but excluding any separate contractor retained by Owner to construct
any portion of the Project that is not within the scope of the Work.
.41 Substantial Completion. The status of the Work when (i) Owner and
Architect agree that the Work is sufficiently complete to permit Owner to occupy
or utilize the Work (or designated portion thereof) for the use for which it is
intended and (ii) Contractor has delivered to the Owner all information showing
the Work to be sufficiently complete to allow Owner to obtain a Certificate of
Occupancy.
.42 Work. The construction and services required and reasonably
implied or inferred to be required by the Contract Documents, whether such wor
is completed or partially completed, and includes all other labor, materials,
equipment and services provided or to be provided by the Contractor to fulfill
the Contractor's obligations. The Work includes all Work which would reasonably
be inferred or anticipated by a contractor with Contractor's experience and
expertise after reviewing the Contract Documents. The Work may constitute the
whole or a part of the Project.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 The Contract Documents shall not be construed to create a contractual
relationship of any kind (i) between the Architect and the Contractor, (ii)
between the Owner and a Subcontractor, or (iii) between any persons or entities
other than the Owner and the Contractor. The Architect shall, however, be
entitled to performance and enforcement of obligations of the Contractor under
the Agreement intended to facilitate performance of the Architect's duties, and
the Contractor shall be entitled to the performance and enforcement of the
obligations of the Architect intended to facilitate performance of the
Contractor's duties. The Contractor and the Architect are independent
contractors of the Owner. Neither the Contractor nor the Architect is the
employee, agent, joint venturer, or partner of the Owner. The Contractor shall
have the sole responsibility for performance under any Subcontract entered into
by the Contractor with respect to the Work.
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1.2.2 Execution of the Agreement by the Contractor is a representation that the
Contractor has visited the Property, become familiar with local conditions under
which the Work is to be performed and correlated personal observations with
requirements of the Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items necessary for
the proper execution and completion of the Work by the Contractor. The Contract
Documents are complementary, and what is required by one shall be as binding as
if required by all; performance by the Contractor shall be required only to the
extent consistent with the Contract Documents and reasonably inferable from them
as being necessary to produce the intended results. Conflicts or discrepancies
among the Contract Documents shall be resolved in the following order of
priority:
.1 The Agreement;
.2 Supplementary Conditions, if any;
.3 The General Conditions;
.4 Drawings and Specifications (drawings govern specifications
for quantity and location, and specifications govern drawings
for quality and performance; in the event of ambiguity in
quantity or quality, the greater quantity and the better
quality shall govern);
.5 Figured dimensions govern scale dimensions, and large scale
drawings govern small scale drawings; and
.6 Approved revisions and addenda take precedence over the
original documents, and those of later date take precedence
over those of earlier date.
1.2.4 Organization of the specifications into divisions, sections and articles,
and arrangement of drawings, shall not control the Contractor in dividing the
Work among Subcontractors or in establishing the extent of Work to be performed
by any trade. The Contractor represents that the Subcontractors engaged or to be
engaged by it are and will be familiar with the requirements for performance by
them of their obligations.
1.2.5 Unless otherwise defined in the Contract Documents, words which have
well-known technical or construction industry meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS
AND OTHER DOCUMENTS
1.3.1 The Owner shall be deemed the owner of all Drawings and Specifications and
other documents (including any and all copies thereof) furnished by the
Architect to the Owner, and the Owner shall have and retain all common law,
statutory and other reserved rights with respect thereto.
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Any such Drawings and Specifications and other documents shall not be used by
Architect on any other project without the prior written consent of the Owner.
Submittal or distribution to meet official regulatory requirements or for other
purposes in connection with the Project is not and shall not be construed as a
publication in derogation of the Owner's or the Architect's copyright or other
reserved rights.
1.4 CAPITALIZATION
1.4.1 Terms capitalized in these General Conditions include those which are (i)
specifically defined in Subparagraph 1.1.1 above, (ii) the titles of numbered
articles and identified references to Paragraphs, Subparagraphs and Clauses in
the document, (iii) the titles of other documents published by the American
Institute of Architects, or (iv) terms otherwise defined in the Contract
Documents.
1.5 INTERPRETATION
1.5.1 In the interest of brevity, the Contract Documents frequently omit
modifying words such as "all" and "any", and articles such as "the" and "an,"
but the fact that a modifier or an article is absent from one statement and
appears in another is not intended to affect the interpretation of either
statement.
ARTICLE 2
OWNER
2.1 DEFINITION
2.1.1 The Owner is the person or entity identified as such in the Agreement and
is referred to throughout the Contract Documents as if singular in number. The
term "Owner" means the Owner or the Owner's authorized representative.
2.1.2 The Owner, upon reasonable written request, shall furnish to the
Contractor, in writing, a statement of the record legal title to the real
property on which the Project is located and the Owner's interest therein as of
the date of such request.
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2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER
2.2.1 [Intentionally omitted]
2.2.2 The Owner shall furnish a soil report and survey of the Property
containing information about the physical characteristics and utility locations
for the Property.
2.2.3 The Owner shall pay all costs for the following: building, Health
Department and utility permits, connection fees and assessments: plan check,
energy fee, seismic fee, school tax, construction tax, gas and electric, sewer
treatment, sanitary sewer, storm drain, water, Housing Fund, Planning
Department, and similar charges and fees.
2.2.4 Upon receipt of a written request therefor from the Contractor,
information or services under the Owner's control shall be furnished by the
Owner with reasonable promptness to avoid delay in orderly progress of the Work.
2.2.5 The Owner shall furnish to the Contractor, free of charge, twenty-five
(25) sets of bid documents, a reproducible copy of the Drawings and
Specifications prepared by the Architect, and the Contractor shall furnish at
its sole expense all other drawings and documents necessary for the execution
and completion of the Work.
2.2.6 The foregoing are in addition to other duties and responsibilities of the
Owner enumerated herein and especially those in respect to Article 6
(Construction by Owner or by Separate Contractors), Article 9 (Payments and
Completion) and Article 11 (Insurance and Bonds).
2.2.7 No action taken by the Owner pursuant to the Contract Documents requires
the approval of the Architect. However, the Owner will not have control over or
charge of, and will not be responsible for, construction means, methods,
techniques, sequences or procedures, or for safety precautions and programs in
connection with the Work, since those are solely the Contractor's responsibility
as provided in the Contract Documents. The Owner will not be responsible for the
Contractor's failure to carry out the Work in accordance with the Contract
Documents. The Owner will not have control over or charge of, and will not be
responsible for, negligent acts or omissions of the Contractor, Subcontractors,
or their respective agents or employees.
2.3 OWNER'S RIGHT TO STOP THE WORK
2.3.1 If suspension of the Work is warranted by reason of unforeseen conditions
which may adversely affect the quality and/or progress of the Work if the Work
were continued, the Owner (but not the Architect) by written notice to the
Contractor may do either or both of the following, to the extent necessary to
address such unforeseen conditions: (i) entirely suspend the Work; or (ii) cause
the Work, or portions thereof, to be partially suspended or delayed, while other
portions of the Work continue on the same or a different schedule
redetermined by the Owner and the Contractor. In such event, the Contract Time
shall be extended by such reasonable amount of time as is appropriate as
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a consequence of the delay caused by the exercise by the Owner of such remedies
and the Guaranteed Maximum Price shall be increased by the additional cost
occasioned by the suspension, if any, as approved by the Owner and the
Contractor, which approvals shall not be unreasonably withheld or delayed. If
the Contractor reasonably believes that a suspension of the Work is warranted by
reason of unforeseen circumstances which may adversely affect the quality of the
Work if the Work were continued, the Contractor shall immediately notify the
Owner of such belief, but the Contractor shall have no right to suspend the
Work, except with the written consent of the Owner or except in the case of an
emergency (in which event the Contractor shall resume work upon cessation of the
emergency).
2.3.2 If the Contractor fails to correct defective Work as required by Paragraph
12.2, fails to complete the Work on time as required by the Agreement, or is in
material default of its obligations hereunder, the Owner may order the
Contractor to stop the Work, or any portion thereof, until the cause for such
order has been eliminated and/or Owner may pursue its remedies as set forth in
the Agreement.
ARTICLE 3
CONTRACTOR
3.1 DEFINITION
3.1.1 The Contractor is the person or entity identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Contractor" means the Contractor or the Contractor's authorized
representative.
3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY
CONTRACTOR
3.2.1 The Contractor, as a competent and experienced general contractor (without
assuming any of the obligations of the Architect, as more particularly set forth
in Paragraph 4.4 of the Agreement), acknowledges that it is responsible for the
General Work Requirements as defined in Subparagraph 1.1.1 above. The Contractor
also acknowledges that it has provided Preconstruction Services as defined in
Subparagraph 1.1.1 above. The Contractor shall carefully study and compare the
Contract Documents with each other and with any information furnished by the
Owner pursuant to Subparagraph 2.2.2, and shall at once report to the Architect
and the Owner errors, inconsistencies, omissions or violations of applicable
Laws of which the Contractor, as a competent and experienced general contractor,
is or should be aware. If the Contractor fails to so report such errors,
inconsistencies, omissions or violations of such applicable Laws, then the
Contractor shall be responsible for the cost of correction or the reduction in
value of any defective portion of the Work thereafter performed, if the
Contractor, as a competent and experienced general contractor (without assuming
any of the obligations of the Architect, as more particularly set forth in
Paragraph 4.4 of the Agreement) knew or should have known of
such errors, inconsistencies, omissions or violations of such applicable Laws
By its execution of the Agreement, the Contractor acknowledges, agrees and
represents to the Owner that:
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(i) the Contractor has inspected, to the extent necessary for
its purposes, the General Work Requirements and has received
all information it needs concerning the condition of the site;
(ii) the Contractor has inspected the location of the Work and
has satisfied itself as to the condition thereof, including,
without limitation, all structural, surface and subsurface
conditions which (a) have been disclosed by the Owner and/or
the Architect, (b) are visible or (c) reasonably should be
known to the Contractor following such review of records,
files and documents in local building, planning and/or public
works departments, and/or the recorder's or other public
offices which the Contractor, as a competent and experienced
general contractor, deems prudent and reasonable in the
circumstances, including a review of all reasonably accessible
records, files and documents;
(iii) the Contractor's knowledge of the General Work
Requirements as of the execution of the Agreement is
sufficient to enable the Contractor to determine the cost of
the Work;
(iv) to the best of the Contractor's knowledge, as an
experienced and competent general contractor (but without
assuming the obligations of the Architect, as more
particularly provided in Paragraph 4.4 of the Agreement), the
Work described in the Contract Documents can be performed in
strict compliance with all Laws; and
(v) the Contract Documents are adequate and sufficient to
provide for the completion of the Work, and include all work,
whether or not shown or described, which reasonably may be
inferred to be required or useful for the completion of the
Work in accordance with all applicable Laws and professional
standards of which the Contractor, as a competent and
experienced general contractor (but without assuming the
obligations of the Architect, as more particularly provided in
Paragraph 4.4 of the Agreement) knows or should know.
The Contractor also shall review specified construction and
installation procedures and shall advise the Owner if it becomes aware that any
such procedures would result in finished Work not in conformance with the
Contract Documents or if it becomes aware that such procedures would affect any
warranties, and the Contractor shall propose alternative procedures which will
comply with the Contract Documents and which the Contractor will warrant.
Based upon the foregoing inspections, understandings, agreements and
acknowledgments, the Contractor agrees and acknowledges (x) that the Guaranteed
Maximum Price is just and reasonable compensation for all the Work, (y) that the
Contract Time is adequate for the performance of the Work, and (z) that the
construction means and methods for the Work shall not result in any lateral or
vertical movement of any adjacent structure. The Contractor shall exercise
special care in executing subsurface work in proximity of known subsurface
utilities, improvements and easements. At the Owner's request, the Contractor
shall make available to the Owner the results of any Property
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investigation, test borings, analyses, studies or other tests conducted by or in
the possession of the Contractor or any of its agents.
3.2.2 The Contractor shall take field measurements and verify field conditions,
and shall carefully compare such field measurements and conditions and other
information known to the Contractor with the Contract Documents before
commencing activities. Errors, inconsistencies or omissions discovered shall be
reported to the Architect at once.
3.2.3 The Contractor shall perform the Work in accordance with the Contract
Documents and submittals approved pursuant to Paragraph 3.12.
3.3 SUPERVISION AND CONSTRUCTION PROCEDURES
3.3.1 The Contractor shall supervise and direct the Work, using the Contractor's
best skill and attention. The Contractor shall be solely responsible for and
have control over construction means, methods, techniques, sequences and
procedures, and for coordinating all portions of the Work under the Agreement,
including coordination of the duties of all trades, unless the Contract
Documents give other specific instructions concerning these matters.
3.3.2 The Contractor shall be responsible to the Owner for acts and omissions of
the Contractor's employees, Subcontractors and their agents and employees, and
other persons performing portions of the Work under a contract with the
Contractor.
3.3.3 The Contractor shall not be relieved of its obligation to perform the Work
in accordance with the Contract Documents either by activities or duties of the
Architect in the Architect's administration of the Contract, or by tests,
inspections or approvals required or performed by persons other than the
Contractor.
3.3.4 The Contractor shall be responsible for inspection of portions of Work
already performed under the Contract to determine that such portions are in
proper condition to receive subsequent Work.
3.3.5 If the Contractor knows or reasonably should know, as a competent and
experienced general contractor, but without imposing an architect's or
engineer's responsibilities (subject, however, to the provisions of Paragraph
4.3 of the Agreement), that any of the Work is required to be inspected or
approved by any public authority, or if Owner or Architect requires that any of
the Work be inspected or approved, then the Contractor shall cause such
inspection or approval to be performed. No inspection performed or failed to be
performed by the Owner hereunder shall be a waiver of any of the Contractor's
obligations hereunder, or be construed as an approval or acceptance of the Work
or any part thereof.
3.3.6 The Contractor acknowledges that it is the Contractor's responsibility to
hire all personnel for the proper and diligent prosecution of the Work, and the
Contractor shall use its best efforts to maintain labor peace for the duration
of the Project. In the event of a labor dispute within the
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Contractor's control, the Contractor shall not be entitled to any increase in
the Guaranteed Maximum Price.
3.4 LABOR AND MATERIALS
3.4.1 Unless otherwise provided in the Contract Documents, the Contractor shall
provide and pay for labor, materials, equipment, tools, construction equipment
and machinery, water, heat, utilities, transportation, and other facilities and
services necessary for proper execution and completion of the Work, whether
temporary or permanent, and whether or not incorporated or to be incorporated in
the Work. The Contractor shall check all materials and labor entering into the
Work and shall keep full detailed accounts thereof.
3.4.2 The Contractor shall enforce strict discipline and good order among the
Contractor's employees and other persons carrying out the Agreement. The
Contractor shall not permit employment of unfit persons or persons not skilled
in tasks assigned to them.
3.4.3 Neither the Contractor nor any Subcontractor shall incorporate into the
Work any materials (i) to which its title is imperfect, (ii) against which there
is any claim by a manufacturer or other entity, or (iii) which are encumbered by
any security interest other than vendor's liens incurred in the ordinary course
of business prior to the Owner's payment for the materials involved. The
Contractor shall be solely responsible for all materials specified by the
Contract Documents which are delivered to the Property. Any materials delivered
to the Property, which are not to be used in or incorporated into the Work under
the Contract Documents, shall be forthwith removed from the Property and the
Contractor shall be solely responsible for all costs incurred with respect to
such materials.
3.4.4 After a Notice to Proceed has been executed, the Owner and the Architect
will consider a formal request for the substitution of products in place of
those specified only under the conditions set forth in the Drawings and
Specifications.
3.4.5 By making requests for substitutions based on Subparagraph 3.4.4 above,
the Contractor:
.1 Represents that the Contractor has personally investigated the
proposed substitute product and determined that it is equal or
superior in all respects to that specified;
.2 Represents that the Contractor will provide the same warranty
for the substitute product that the Contractor would for the
product originally specified;
.3 Certifies that the cost data presented is complete and includes
all related costs and/or savings under the Agreement, and
waives all claims for additional costs related to the
substitution which subsequently become apparent; and
.4 Will coordinate the installation of the accepted substitute,
making such changes as may be required for the Work to be
complete in all respects.
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3.5 WARRANTY
3.5.1 The Contractor warrants to the Owner and the Architect that materials and
equipment furnished under the Agreement will be of good quality and new unless
otherwise required or permitted by the Contract Documents, that the Work will be
free from defects not inherent in the quality required or permitted, and that
the Work will conform with the requirements of the Contract Documents. Work not
conforming to these requirements, including substitutions not properly approved
and authorized, shall be considered defective. The Contractor's warranty
excludes damage or defect caused by abuse, modifications not executed by the
Contractor, improper or insufficient maintenance, improper operation, or normal
wear and tear under normal usage. If required by the Architect or the Owner, the
Contractor shall furnish satisfactory evidence as to the kind and quality of
materials and equipment. If, notwithstanding that Contractor furnishes such
evidence, Owner still requires testing to confirm the kind and quality of
materials and equipment, then the cost of any such testing shall be borne by the
Owner. The Contractor's warranty shall include all specified procedures or
accepted alternative procedures and all specified or accepted substituted
products and, notwithstanding Paragraph 12.2, shall continue with respect to
latent defects, as defined in California Code of Civil Procedure Section 337.15,
for a period of ten (10) years following Final Completion of the Work, and, with
respect to patent defects, as defined in California Code of Civil Procedure
Section 337.1, for a period of four (4) years following Substantial Completion
of the Work; provided, however that the Contractor's obligation to return to the
Property and actually correct defects (as distinguished from the Contractor's
liability for defects) shall be governed by Paragraph 9.10, Paragraph 12.2 and
Subparagraph 12.2.4 below. All guaranties and warranties of materials used or
incorporated into the Work shall be assigned and delivered by the Contractor to
the Owner upon demand, or without demand upon completion of the Work. The
warranties in the Contract Documents or assigned to the Owner (i) shall not be
deemed exclusive of any other warranty or guaranty, whether express or implied,
(ii) shall survive the completion of the Work and the termination of the
Contract Documents, and (iii) shall inure to the benefit of the Owner's
successors and assigns.
3.6 TAXES
3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the
Work or portions thereof provided by the Contractor which are legally enacted
when bids are due whether or not then effective or merely scheduled to go into
effect.
3.7 PERMITS, FEES AND NOTICES
3.7.1 The Contractor shall provide and pay for all permits, licenses and
certificates of inspection, use and occupancy required for the Work unless
otherwise provided in Subparagraph 2.2.3 or elsewhere in the Contract Documents.
The cost of permits which are not paid for by the Contractor shall be excluded
from the Cost of the Work for the purpose of calculating the Contractor's Fee.
The Contractor shall furnish the Owner with copies of all permits, licenses and
certificates of inspection, use and occupancy obtained during the course of the
Work.
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3.7.2 The Contractor shall comply with and give all notices required by any Laws
bearing on performance of the Work.
3.7.3 The Contractor shall comply with all Laws applicable to the performance of
the Work and the employment of labor. The Contractor shall review the Contract
Documents and shall (i) notify the Owner and the Architect of any deviation of
the Contract Documents from the requirements of applicable Laws and/or private
restrictions of which the Contractor is aware or reasonably should be aware, as
a competent and experienced general contractor (but without assuming any of the
obligations of the Architect or an engineer with respect to the Project and the
Work, all as more particularly set forth in Paragraph 4.4 of the Agreement, but
subject, however, to the provisions of Paragraph 4.3 of the Agreement) and (ii)
perform no Work which the Contractor knows or reasonably should know, as a
competent and experienced general contractor (but without assuming any of the
obligations of the Architect with respect to the Project and the work, all as
more particularly set forth in Paragraph 4.4 of the Agreement), to be contrary
to applicable Laws and/or private restrictions.
3.7.4 If the Contractor or any of its Subcontractors performs Work which the
Contractor, as a competent and experienced general contractor (but without
assuming any of the obligations of the Architect with respect to the Project and
the Work, all as more particularly set forth in Paragraph 4.4 of the Agreement),
knows or reasonably should know is contrary to any Laws, without such notice to
the Architect and the Owner, then the Contractor shall assume full
responsibility for such Work and shall bear the attributable costs.
3.7.5 The Contractor shall send all notices, make all necessary arrangements,
and provide all labor and materials, required to protect and maintain in
operation all public utilities within the Property or affected by the Work.
3.8 ALLOWANCES
3.8.1 The Contractor shall include in the Guaranteed Maximum Price all
allowances stated in the Contract Documents. Items covered by allowances shall
be supplied in such amounts and by such persons or entities as the Owner may
direct, but the Contractor shall not be required to employ persons or entities
as to which the Contractor makes reasonable objection.
3.8.2 Unless otherwise provided in the Contract Documents, the following shall
apply to any allowance for materials:
.1 Materials and equipment under an allowance shall be selected
promptly by the Owner to avoid delay in the Work;
.2 Allowances shall cover the cost to the Contractor of materials
and equipment delivered to the Property, and all required
taxes, less applicable trade discounts; and
.3 The Contractor's and its Subcontractors' overhead, profit and
other expenses
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contemplated for stated allowance amounts shall be included in
the Guaranteed Maximum Price and not in the allowance.
3.8.3 Owner and Contractor acknowledge that, at the date of the Agreement, there
are items which constitute part of the Work, which cannot be quantified in
detail, as otherwise provided in the Contract Documents. For purposes of
determining the Guaranteed Maximum Price, with respect to these undetermined
items, Contractor shall include one or more estimated allowances, which shall
include estimated amounts for labor, materials, equipment, Subcontractor
overhead, profit and taxes.
3.8.4 Whenever actual costs for any allowance item or category are more than or
less than the stated allowance, the Guaranteed Maximum Price shall be adjusted
accordingly by Change Order. The amount of the Change Order shall reflect (i)
the difference between actual costs and the allowance under Subsection 3.8.2.2
and (ii) changes in the Contractor's costs under Subsection 3.8.2.3.
3.9 PROJECT MANAGER, SUPERINTENDENT; OTHER CONTRACTOR'S PERSONNEL
3.9.1 The Contractor shall employ a competent project manager, superintendent
and necessary assistants who shall be in attendance at the Property during
performance of the Work. The project manager shall represent the Contractor, and
communications given to the project manager shall be as binding as if given to
the Contractor. Important communications shall be confirmed in writing. Other
communications shall be similarly confirmed on written request in each case.
Contractor shall also employ such other competent personnel, including
management, estimators, engineering and other personnel, as shall be necessary
or appropriate for the performance of the Work as required by the Agreement.
3.9.2 All reimbursable personnel employed by Contractor with respect to the
performance of the Work (as provided in Exhibit D attached to the Agreement)
shall be subject to Owner's prior approval, and satisfactory to Owner in all
respects. Owner shall have the right to require Contractor to dismiss from the
Project any such personnel whose performance is not satisfactory, in Owner's
reasonable discretion. Any such dismissed personnel shall be replaced with
personnel reasonably satisfactory to Owner, and shall be subject to all
provisions of this Paragraph 3.9. Contractor shall not replace any of the
reimbursable personnel without Owner's prior written consent. If any of the
reimbursable personnel dies, becomes disabled or voluntarily terminates his or
her employment with Contractor, then Contractor shall promptly replace any such
personnel as provided in this Subparagraph 3.9.2. Any failure or refusal on
Contractor's part to comply with the requirements of this Paragraph 3.9 shall be
deemed a material breach of the Agreement by Contractor.
3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES
3.10.1 Included as an exhibit to the Agreement is the Contractor's Construction
Schedule for the Work prepared in consultation with the Owner and the Architect.
The Construction Schedule shall not exceed time limits provided for in the
Contract Documents. Said Construction Schedule relates
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to the Work for which Drawings and Specifications have not yet been issued. The
Construction Schedule shall be updated and revised at appropriate intervals as
required by the General Work Requirements and the Project, shall be related to
the entire Project to the extent required by the Contract Documents, shall
provide for expeditious and practicable execution of the Work, and shall not
modify or extend critical dates (milestones) without the prior approval of the
Owner in each instance.
3.10.2 The Contractor shall prepare, not later than twenty (20) days after the
date of the Subcontractor award for each trade, a shop drawing schedule which
shall include a complete list of suppliers and fabricators, under contract items
to be purchased from the suppliers or fabricators, time required for fabrication
and the scheduled delivery dates for each item to be purchased. As soon as
available, the Contractor shall furnish copies of purchase orders to the Owner.
The Contractor shall prepare any additional reports that the Owner or
the Owner's lender for the Project, if any, may reasonably request, considering
the size, type and complexity of the Project and the Work.
The Contractor shall prepare and keep current, for the Architect's and
the Owner's approval, a schedule of submittals which shall be coordinated with
the Contractor's Construction Schedule and allows the Architect and the Owner
reasonable time to review submittals.
The Contractor shall hold weekly progress meetings at the Property, or
at such other time and frequency as the Owner requests, and Contractor shall
keep written minutes of each such meeting, and distribute true and correct
copies of the same to Owner and Architect promptly following each such meeting.
At each such meeting, progress of the Work shall be reported in detail with
reference to the Construction Schedule. Each interested Subcontractor shall have
a competent representative present at each such progress meeting to report the
condition of its Work and receive information.
3.10.3 [Intentionally omitted]
3.10.4 The Contractor acknowledges that independent of the Contractor's schedule
requirements the Owner may retain the services of a scheduling consultant at the
Owner's expense. The Contractor shall cooperate with any such scheduling
consultant at the Owner's direction with regard to the preparation of the
Project schedule.
3.11 DOCUMENTS AND samples AT THE PROPERTY
3.11.1 The Contractor shall maintain at the Property, for the Owner, one record
copy of the Drawings and Specifications, addenda, Change Orders and other
modifications, in good order and marked currently to record changes and
selections made during construction, and in addition approved shop drawings,
product data, samples and similar required submittals. These shall be available
to the Architect and shall be delivered to the Architect for submittal to the
Owner upon completion of the Work. They shall be signed by the Contractor,
certifying that they show complete and accurate "as-built" conditions, stating
sizes, kind of materials, vital piping, conduit locations and
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similar matters.
3.11.2 The Contractor shall maintain all approved permit drawings in a manner
which allows access to governmental inspectors and other authorized agencies.
3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
3.12.1 Shop drawings are drawings, diagrams, schedules and other data specially
prepared for the Work by the Contractor or a Subcontractor to illustrate some
portion of the Work.
3.12.2 Product data are illustrations, standard schedules, performance charts,
instructions, brochures, diagrams and other information furnished by the
Contractor to illustrate materials or equipment for some portion of the Work.
3.12.3 samples are physical examples which illustrate materials, equipment or
workmanship and establish standards by which the Work will be judged.
3.12.4 Shop drawings, product data, samples and similar submittals are not
Contract Documents. The purpose of their submittal is to demonstrate, for those
portions of the Work for which submittals are required, the way the Contractor
proposes to conform to the information given and the design concept expressed in
the Contract Documents.
3.12.5 The Contractor shall review, approve and submit to the Architect shop
drawings, product data, samples and similar submittals required by the Contract
Documents with reasonable promptness and in such sequence as to cause no delay
in the Work or in the activities of the Owner or of separate contractors.
3.12.6 The Contractor shall perform no portion of the Work requiring submittal
and review of shop drawings, product data, samples or similar submittals until
the respective submittal has been approved by the Architect. Such Work shall be
in accordance with approved submittals.
3.12.7 By approving and submitting shop drawings, product data, samples and
similar submittals, the Contractor represents that the Contractor has determined
and verified materials, field measurements and field construction criteria
related thereto, or will do so, and has checked and coordinated the information
contained within such submittals with the requirements of the Work and of the
Contract Documents.
3.12.8 The Contractor shall not be relieved of responsibility for deviations
from requirements of the Contract Documents by the Architect's approval of shop
drawings, product data, samples or similar submittals unless the Contractor has
specifically informed the Architect in writing of such deviation at the time of
submittal and the Architect has given written approval to the specific
deviation. The Contractor shall not be relieved of responsibility for errors or
omissions in shop drawings, product data, samples or similar submittals by
reason of the Architect's approval thereof.
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3.12.9 The Contractor shall direct specific attention, in writing or on
resubmitted shop drawings, product data, samples or similar submittals, to
revisions other than those requested by the Architect on previous submittals.
3.12.10 Informational submittals upon which the Architect is not expected to
take responsive action may be so identified in the Contract Documents.
3.12.11 When professional certification of performance criteria of materials,
systems or equipment is required by the Contract Documents, the Architect shall
be entitled to rely upon the accuracy and completeness of such calculations and
certifications.
3.12.12 Shop drawings for the architectural, structural, mechanical, electrical
and other work as delineated in the Specifications shall be submitted for
approval to the Architect.
3.12.13 The Contractor shall assemble for the Architect's approval three (3)
complete copies, in loose-leaf binders, of all operating and maintenance data
from all manufacturers whose equipment is or will be installed in the Work. The
Contractor shall also prepare a checklist or schedule showing the type of
lubricant to be used at each point of application, and the intervals between
lubrication for each item of equipment.
3.12.14 The Contractor shall submit to the Owner one copy of all submissions
made to the Architect pursuant to this Paragraph 3.12 unless directed otherwise
by Owner.
3.13 USE OF PROPERTY
3.13.1 The Contractor shall confine operations at the Property to areas
permitted by Laws, permits and the Contract Documents, and shall not
unreasonably encumber the Property with materials. In performing the Work, the
Contractor shall not cause or allow water, dust, nauseous vapors, noise, or
other intrusions to go beyond the boundaries of the Property in any manner that
would constitute a nuisance or a violation of Law.
3.13.2 The Contractor shall assure free, convenient, unencumbered and direct
access to properties neighboring the Property for the owners of such properties
and their respective tenants, agents, invitees and guests.
3.14 CUTTING AND PATCHING
3.14.1 The Contractor shall be responsible for cutting, fitting or patching
required to complete the Work or to make its parts fit together properly.
3.14.2 The Contractor shall not damage or endanger a portion of the Work, or
fully or partially completed construction of the Owner or separate contractors,
by cutting, patching or otherwise altering such construction, or by excavation.
The Contractor shall not cut or otherwise alter such construction by the Owner
or a separate contractor except with written consent of the Owner and
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of such separate contractor; such consent shall not be unreasonably withheld.
The Contractor shall not unreasonably withhold from the Owner or a separate
contractor the Contractor's consent to cutting or otherwise altering the Work.
3.15 CLEANING UP
3.15.1 The Contractor shall keep the premises and surrounding area free from
accumulation of waste materials or rubbish caused by operations under the
Agreement. At completion of the Work, the Contractor shall remove from and about
the Project site waste materials, rubbish, the Contractor's tools, construction
equipment, machinery and surplus materials. The Contractor shall maintain
streets and sidewalks around the Property in a clean condition. The Contractor
shall remove all spillage and tracking arising from the performance of the Work
from such areas, and shall establish a regular maintenance program of sweeping
and hosing to minimize accumulation of dirt and dust upon such areas.
3.15.2 If the Contractor fails to clean up as provided in the Contract
Documents, the Owner may do so and the cost thereof shall be charged to the
Contractor.
3.15.3 The Contractor shall be responsible for broken glass, and at the
completion of the Work shall replace such damaged or broken glass, except as
caused by the act of God or Owner. The Contractor shall remove all labels and
shall wash and polish both sides of all glass.
In addition to general broom cleaning, the Contractor shall perform the
following final cleaning for all trades at completion of the Work:
.1 Remove temporary protections;
.2 Remove marks, stains, fingerprints and other soil
or dirt from painted, decorated and
natural-finished woodwork and other Work;
.3 Remove spots, plaster, soil and paint from ceramic
tile, marble and other finished materials, and
wash or wipe clean;
.4 Clean fixtures, cabinet work and equipment and
remove stains, paint, dirt and dust, and leave
same in undamaged, new condition;
.5 Clean aluminum in accordance with recommendations
of the manufacturer; and
.6 Clean resilient floors thoroughly with a well
rinsed mop containing only enough moisture to
clean off any surface dirt or dust, and buff dry
by machine to bring the surfaces to sheen.
3.16 ACCESS TO WORK
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3.16.1 The Contractor shall provide the Owner and the Architect access to the
Work in preparation and progress wherever located.
3.17 ROYALTIES AND PATENTS
3.17.1 The Contractor shall pay all royalties and license fees. The Contractor
shall defend suits or claims for infringement of patent rights and shall hold
the Owner and the Architect harmless from loss on account thereof, but shall not
be responsible for such defense or loss when a particular design, process or
product of a particular manufacturer or manufacturers is required by the
Contract Documents. However, if the Contractor, as a competent and experienced
general contractor (but without assuming the design obligations of the
Architect, as more particularly set forth in Paragraph 4.4 of the Agreement),
has reason to believe that the required design, process or product is an
infringement of a patent, then the Contractor shall be responsible for such loss
unless such information is promptly furnished to the Architect.
3.18 INDEMNIFICATION
3.18.1 Contractor shall indemnify, defend, protect and hold harmless Owner and
its officers, agents and employees, and any lender on all or any portion of the
Project, from and against any and all causes of action, demands, losses,
violations, infringements of Law, patent, license or trademark, costs,
attorneys' and experts' fees, claims, damages, and liabilities of every kind and
nature arising out of, alleged to have risen out of, or resulting in any way
from, the Work to be performed under the Agreement by Contractor and its
Subcontractors which are the result of any willful misconduct, negligence,
breach, act or omission of Contractor or its Subcontractors, or by the
respective agents, officers, employees, contractors or subconsultants of any of
them, except to the extent such claims are caused by the negligence or a design
deficiency on the part of Owner and/or its officers and employees. Acceptance of
any Work by Owner shall not operate as a waiver of the foregoing
indemnification, and the foregoing indemnification shall survive the completion
of the Project and the termination of the Agreement.
3.18.2 In claims against any person or entity indemnified under this Paragraph
3.18 by an employee of the Contractor, a Subcontractor, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable, the
indemnification obligation under this Paragraph 3.18 shall not be limited by a
limitation on amount or type of damages, compensation or benefits payable by or
for the Contractor or a Subcontractor under workers' or workmen's compensation
acts, disability benefit acts or other employee benefit acts.
3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not
extend to the liability of the Architect, the Architect's consultants, and the
agents and employees of either of them arising out of their negligence.
3.19 LENDER REQUIREMENTS
3.19.1 With approval from Owner, Contractor shall deliver and, if appropriate,
execute, all
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documents, reports and other information reasonably requested by any lender,
escrowee under any construction loan escrow, or title insurer, and shall
cooperate with such lender, escrowee or insurer to the fullest extent possible.
3.19.2 If the Owner's lender (if any) shall designate an inspecting architect or
other representative, the Owner may require the concurrence of such architect or
representative in each instance in which the approval of the Architect is
required by any provision of these General Conditions or other Contract
Documents. The Contractor shall cooperate with such inspecting architect or
representative to the fullest extent possible.
3.20 LABOR RELATIONS
3.20.1 Employment of labor by the Contractor shall be effected under conditions
which are satisfactory to the Owner. If the Contractor has entered into any
labor agreements covering work at the Property, the Contractor shall comply with
all of the terms and conditions of those labor agreements, including without
limitation the procedure contained therein for resolution of jurisdictional
disputes. In the absence of any such procedure, or if such procedure fails to
promptly resolve any jurisdictional dispute, the Contractor agrees, at its own
cost, upon request of the Owner, to take any and all lawful steps to secure
binding and final determination of said jurisdictional dispute by the National
Labor Relations Board. Should there be picketing on the Property and if the
Owner establishes a reserved gate for the Contractor's purposes, the Contractor
shall continue the proper performance of the Work, without interruption or
delay, using such gate.
By its execution of the Agreement, the Contractor acknowledges that the
Owner has reserved the right to contract with non-union contractors for work on
the Project, including without limitation for the installation of Owner's office
systems furniture, which work is not within the scope of the Work covered by the
Agreement. The Contractor, by its execution of the Agreement, expressly agrees
that it shall, in each bid package which it prepares for any subcontract trade,
include a provision advising all potential bidders of such reserved right on the
part of the Owner, requiring any successful bidder to agree, in writing, to
cooperate reasonably with the Owner and the Contractor if the Owner exercises
such right and employs non-union contractors on any portion of the Project, and
holding any such bidder liable for any damages incurred by Owner because of any
failure on the part of such bidder to so cooperate. A similar provision shall be
included in each Subcontract into by Contractor and any Subcontractor. If the
Owner elects to contract with non-union contractors for work which is not part
of the Agreement, the Contractor shall cooperate reasonably with Owner.
If, notwithstanding the foregoing, it becomes necessary to establish a
separate gate because of labor problems related to Owner's use of non-union
labor, Owner shall bear the direct cost of such gate, and any delay related to
the same which is not reasonably within the control of Contractor shall be
treated as a Force Majeure Delay in accordance with Paragraph 8.3 below.
However, in no event shall Owner be liable for any indirect or consequential
costs suffered or incurred by Contractor or any Subcontractor which may arise
out of or as a result of any employment by Owner of non-union contractors
(including without limitation any costs because of any labor stoppage,
disturbance or
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other action by union contractors employed by Contractor or any Subcontractor in
violation of the terms of this Subparagraph 3.20.1 or in violation of the terms
of any Subcontract entered into by the Contractor and any Subcontractor), nor
shall the Contractor be entitled to any increase in the Guaranteed Maximum Price
because of any such labor stoppage, disturbance or other action, except pursuant
to Paragraph 8.3.
3.20.2 The Contractor and all Subcontractors shall not discriminate against any
employee or applicant for employment because of handicap, age, religion, color,
sex, or national origin. The Contractor shall take affirmative action to insure
that applicants are employed, and that employees are treated during employment,
without regard to their handicap, age, race, religion, color, sex, or national
origin. Such action shall include, but not be limited to the following:
employment, upgrading, demotion, transfer, recruitment, advertising, layoff or
termination, rates of pay or other forms of compensation, and selection for
training, including apprenticeship. The Contractor agrees to post in conspicuous
places, available to employees and applicants for employment, notices setting
forth its policies of nondiscrimination. The Contractor and each Subcontractor
shall, in all solicitations or advertisements for employees placed by them or on
their behalf, state that all qualified applicants will receive consideration for
employment without regard to handicap, age, race, religion, color, sex or
national origin. The Contractor will not discriminate in the selection
of Subcontractors because of age, sex, race, creed, color, national origin, age
or handicap. The Contractor shall comply with all laws, rules and regulations of
the Immigration and Naturalization Service.
ARTICLE 4
ADMINISTRATION OF THE CONTRACT
4.1 ARCHITECT
4.1.1 The Architect is that person or entity identified in the preamble to the
Agreement, or any successor to the Architect whom the Owner may appoint by
written notice to the Contractor from time to time. The term "the Architect"
means the Architect or the Architect's authorized representative.
4.1.2 Duties, responsibilities and limitations of authority of the Architect as
set forth in the Contract Documents shall not be restricted, modified or
extended without written consent of the Owner, the Contractor and the Architect.
4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT
4.2.1 The Architect will provide administration of the Agreement as described in
the Contract Documents, and will be the Owner's representative (i) during
construction, (ii) until Final Payment is due, and (iii) with the Owner's
concurrence, from time to time during the correction period described in
Paragraph 12.2. The Architect will advise and consult with the Owner. The
Architect will have authority to act on behalf of the Owner only to the extent
provided in the Contract Documents. Notwithstanding anything to the contrary in
the Contract Documents (including without limitation Paragraphs 4.1, 4.2 and
4.4, and Subparagraphs 1.1.2 and 8.3.1 of these General
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Conditions), the Owner may replace the Architect at any time, and from
time to time. The Owner (a) shall have the right to exercise any right or power
given to the Architect by the Contract Documents, which the Owner or a
representative appointed by the Owner may do either in conjunction with the
Architect or by itself, with or without consultation with or involvement of the
Architect, (b) shall receive or obtain any notices, plans, or other documents
the Architect is entitled to receive or obtain pursuant to the Contract
Documents, and (c) shall communicate directly with the Contractor with a copy to
Architect. Except as the Owner may hereafter notify the Contractor in writing,
the Architect shall have no right to act on behalf of the Owner, to provide any
approval for the Owner, or to otherwise bind the Owner to any action or promise.
The Architect's approval, decision, or determination as to any matter is
advisory only and shall not be binding upon the Owner. If the Architect requests
additional inspection, testing, labor, materials or other Work, the Owner shall
not be bound to pay the cost thereof, unless the Owner has agreed in writing to
do so. Nothing in the Agreement shall limit or modify the Architect's duties
under the agreement between Owner and Architect.
4.2.2 The Architect will make on-site observations of the Work (i) to endeavor
to protect the Owner's interest, and (ii) to determine to the best of its
ability that the Work is progressing in general accordance with the Contract
Documents. The Architect shall keep the Owner informed of its findings.
4.2.3 [Intentionally omitted]
4.2.4 Except as otherwise provided in the Contract Documents or when direct
communications have been specially authorized, the Owner and the Contractor
shall endeavor to communicate through the Architect. Communications by and with
the Architect's consultants shall be through the Architect. Architect's and
Owner's communications by and with Subcontractors shall be through the
Contractor. The Contractor shall provide the Owner with copies of all material
correspondence with Subcontractors (that is, correspondence dealing with
financial issues respecting the Work or any portion of the Work or with matters
of substantial importance respecting the Work or any portion of the Work,
including without limitation any accidents on the Property, claims of
Subcontractors which may lead to any Mechanics' Lien on the Work or any portion
thereof, or similar matters). Contractor shall make its files with respect to
the Work accessible to the Owner and the Architect, and any lender on the
Project, at all reasonable times.
4.2.5 Architect shall participate in the review and approval of Applications for
Payment as set forth in the Agreement.
4.2.6 The Architect shall have the authority to advise Owner to reject Work
which does not conform to the Contract Documents. Whenever the Architect
considers it necessary or advisable for implementation of the intent of the
Contract Documents, with the prior written approval of the Owner, the Architect
will have authority to require additional inspection or testing of the Work in
accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such Work is
fabricated, installed or completed. However, neither this authority of the
Architect nor a decision made in good faith either to exercise or not to
exercise such authority shall give rise to a duty or responsibility of the
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Architect to the Contractor, Subcontractors, their agents or employees, or other
persons performing portions of the Work.
4.2.7 The Architect shall review and approve or take other action on the
Contractor's submittals, including, but not limited to, shop drawings (which
drawings shall be submitted to the Architect according to the schedule prepared
by Contractor, and approved by Owner, pursuant to Paragraph 3.10.2, above, so as
to ensure an appropriate flow and sequence of review and approval by the
Architect), product data, prototypes, mock-ups and samples. The Architect's
review of a specific item shall include consideration of the assembly of which
the item is a component. Based on such review, the Architect shall indicate in
writing whether or not such submittals conform (i) with the design concept of
the Work, including, but not limited to, adequacy, completeness and basic
engineering principles, and (ii) to the Contract Documents. With respect to each
determination that a submittal fails to conform with the design concept of the
Work and/or fails to conform to the Contract Documents, the Architect shall
either (a) indicate in writing all necessary corrective measures, or (b) return
such submittal to the Contractor with a directive that such submittal be redone
and resubmitted to the Architect for review. The Architect's review of the
Contractor's submittals shall be taken with reasonable promptness in order to
cause no delay. "Reasonable promptness" shall mean that, within two weeks
following receipt of each submittal, the Architect will, with respect to each
such submittal, (1) perform the review specified above, (2) make the
determinations specified above and (3) take the actions specified above with
respect to any deficient submittal. Since some drawings are more critical to the
timely performance of the Work than others, the Owner and the Contractor agree
that if Architect fails, with respect to any such "critical path" submittals (as
identified by the Contractor, subject to the Owner's reasonable approval), to
take any such action within the two-week period provided for in the preceding
sentence, the respective Contract Time for the Segment of the Work in question
shall be extended, on a day-for-day basis, for each day of any such delay by
Architect. The Architect, the Owner and the Contractor may agree, prior to the
Architect's receipt of a particular submittal, that such two-week period may be
extended with respect to such submittal. Owner and Contractor agree that they
shall be reasonable in agreeing to any such extension of the two-week period
provided for in this Subparagraph 4.2.7. If such an extension is agreed upon,
the Construction Schedule (and, if necessary, the projected date of Substantial
Completion of the Work, or the affected Segment of the Work) shall be revised to
appropriately reflect any such extension. In order to expedite the Architect's
review, the Contractor shall review shop drawings prior to submittal to the
Architect. The Architect's review of the Contractor's submittals shall not
relieve the Contractor of its responsibilities under the Contract Documents,
including, without limitation, those imposed by Article 3 of these General
Conditions.
4.2.8 The Architect will prepare Drawings and Specifications for Change Orders
prepared by the Contractor pursuant to the Agreement. The Architect may
authorize minor changes in the Work. Minor changes are defined as changes which
have no schedule or cost implications.
4.2.9 The Architect will conduct inspections to determine the date or dates of
Substantial Completion and the date of Final Completion, will receive and
forward to the Owner for the Owner's review and records written warranties and
related documents required by the Contract Documents and assembled by the
Contractor, and will review and approve the Final Application for Payment
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upon compliance with the requirements of the Contract Documents.
4.2.10 If the Owner and the Architect agree, the Architect will provide one or
more Project representatives to assist in carrying out the Architect's
responsibilities at the Property. The duties, responsibilities and limitations
of authority of such Project representatives shall be as set forth in an exhibit
to be incorporated in the Contract Documents.
4.2.11 The Architect will interpret, and advise the Owner on matters concerning
performance under, the requirements of the Contract Documents, on written
request of the Owner or the Contractor. The Architect's response to any requests
for its advice shall be made within five (5) working days following request
therefor and will be delivered simultaneously to the Owner and the Contractor.
If the Contractor has been notified in writing by the Architect that such
interpretations are to be issued, any Work done before receipt of such
interpretations, if not in accord with the same, shall be removed and replaced
or adjusted as directed by the Architect, without additional expense to the
Owner.
4.2.12 Interpretations and decisions of the Architect will be consistent with
the intent of and reasonably inferable from the Contract Documents, and will be
in writing or in the form of drawings.
4.2.13 [Intentionally omitted]
4.3 CLAIMS AND DISPUTES
4.3.1 A Claim (as defined in Subparagraph 1.1.1) must be made by written notice.
The responsibility to substantiate Claims shall rest with the party making the
Claim.
4.3.2 Claims, including those alleging an error or omission by the Architect,
may, upon request of both the Contractor and the Owner, be referred initially to
the Architect for action as provided in Paragraph 4.4. The decision by the
Architect in response to a Claim shall not be a condition precedent to
arbitration or litigation.
4.3.3 Except as provided in Subparagraphs 4.3.5 and 4.3.6 below, Claims by any
party must be made within twenty-one (21) days after occurrence of the event
giving rise to such Claim, or within twenty-one (21) days after the claimant
first recognizes the condition giving rise to the Claim, whichever is later.
Claims must be made by written notice to the other party containing a
description thereof. An additional Claim made after the initial Claim has been
implemented by Change Order will not be considered unless submitted in a timely
manner.
4.3.4 Pending final resolution of a Claim (whether by mediation, arbitration, or
litigation), unless otherwise agreed in writing, the Contractor shall proceed
diligently with performance of the Agreement and the Owner shall continue to
make payments in accordance with the Contract Documents.
4.3.5 The making of Final Payment shall constitute a waiver of Claims by the
Owner except those arising from:
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.1 Mechanics' Liens, Claims, security interests or encumbrances
arising out of the Agreement and unsettled;
.2 Failure of the Work to comply with the requirements of the
Contract Documents;
.3 Terms of special warranties required by the Contract Document
and warranties and indemnifications granted through the
Contract Documents; or
.4 Defects (both latent and patent) in the Work.
4.3.6 If conditions are encountered at the Property which are (i) subsurface or
otherwise concealed physical conditions which differ materially from those
indicated in the Contract Documents or (ii) unknown physical conditions of an
unusual nature, which differ materially from those ordinarily found to exist and
generally recognized as inherent in construction activities of the character
provided for in the Contract Documents, then notice by the observing party shall
be given to the other party promptly, before such conditions are disturbed, and
in no event later than twenty-one (21) days after first observance of the
conditions. The Architect will promptly investigate such conditions and, if they
differ materially and cause an increase or decrease in the Contractor's cost of,
or time required for, performance of any part of the Work, will recommend to
Owner an equitable adjustment in the Guaranteed Maximum Price or Contract Time,
or both. If the Architect determines that the conditions at the Property are not
materially different from those indicated in the Contract Documents and that no
change in the terms of the Agreement is justified, the Architect shall so notify
the Owner in writing, stating the reasons. Based on the Architect's
recommendation, Owner will make its determination. If Contractor is opposed to
such determination, Contractor must make a Claim within twenty-one (21) days
after notice of Owner's decision.
4.3.7 If the Contractor wishes to make a Claim for an increase in the Guaranteed
Maximum Price, the Contractor shall give written notice to the Owner and the
Architect, and the Architect shall be given reasonable time to evaluate the
condition giving rise to such Claim prior to the time the Contractor proceeds to
execute the Work. Prior notice is not required for Claims relating to an
emergency endangering life or property arising under Paragraph 10.3. If the
Contractor believes additional cost is involved for reasons including but not
limited to (i) a written interpretation from the Architect, (ii) an order by the
Owner to stop the Work where the Contractor was not at fault, (iii) a written
order for a minor change in the Work issued by the Architect, (iv) failure of
payment by the Owner, (v) termination of the Agreement by the Owner, (vi) the
Owner's suspension of the Work, or (vii) other reasonable grounds, such Claim
shall be filed in accordance with the procedure established herein.
4.3.8 If the Contractor wishes to make a Claim for an increase in the Contract
Time, written notice as provided herein shall be given. The Contractor's Claim
shall include an estimate of cost and of probable effect of delay on progress of
the Work. In the case of a continuing delay only one Claim is necessary.
4.3.9 If either party to the Agreement suffers injury or damage to persons or
property because of
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an act or omission of the other party, of any of the other party's employees or
agents, or of others for whose acts such party is legally liable, written notice
of such injury or damage, whether or not insured, shall be given to the other
party within a reasonable time not exceeding twenty-one (21) days after first
observance or occurrence of such injury or damage. Written notice of delay due
to inclement weather shall be given within twenty-four (24) hours. The notice
shall provide sufficient detail to enable the other party
to investigate the matter. If a Claim for additional cost or time related to
this Claim is to be asserted, it shall be filed as provided in Subparagraphs
4.3.7 or 4.3.8, above.
4.4 RESOLUTION OF CLAIMS AND DISPUTES
4.4.1 The Architect will review Claims and take one or both of the following
preliminary actions within ten days of receipt of a Claim: (i) request
additional supporting data from the claimant, or (ii) submit a schedule to the
parties indicating when the Architect expects to make a recommendation to Owner.
4.4.2 If a Claim has been resolved, the Architect will prepare or obtain
appropriate documentation.
4.4.3 If a Claim has not been resolved, the party making the Claim shall, within
ten (10) days after the Owner's preliminary response, take one or more of the
following actions: (i) submit additional supporting data, (ii) modify the
initial Claim or (iii) notify the Owner that the initial Claim stands.
4.4.4 When requested by Owner, Architect (i) shall interpret the requirements of
the Contract Documents and (ii) shall render written opinions within a
reasonable time on all Claims, disputes, Contractor requests for Change Orders,
matters relating to the sufficiency of the execution and progress of the Work,
and other matters in question between Owner and Contractor relating to the
execution or progress of the Work or interpretation of the Contract Documents.
Architect shall consult with its subconsultants or others as appropriate prior
to rendering any such decisions and/or interpretations unless instructed
otherwise by Owner. Architect's decisions on any Claim, disputes, or other
matters, including those in question between Owner and Contractor, shall be
advisory only.
4.4.5 Notwithstanding any provisions to the contrary in Paragraph 4.3 and
Paragraph 4.5 of these General Conditions, if any dispute arises between the
Owner and the Contractor which relates to the Contract Documents or the Work,
the Contractor shall not interrupt the progress of the Work during the pendency
of any such dispute, unless ordered to do so by the Owner in writing and Owner
shall make all progress payments for the Cost of the Work incurred by the
Contractor other than disputed amounts. The Contractor must submit Claims on or
before the earlier of (i) the twenty-first (21st) day after the first occurrence
of the event giving rise to such Claim, or (ii) the delivery to the Owner of the
Contractor's Final Application for Payment; and no additional Claim made by the
Contractor after an initial Claim on the same matter has been implemented by a
Change Order will be considered. If either party becomes involved in litigation
or arbitration in connection with the Contract Documents or the Work, the court
or tribunal in such arbitration or litigation, or in a separate suit, may award
reasonable costs and expenses of litigation, including court costs, experts'
fees and attorneys' fees, to be paid by the losing party to the prevailing
party. If either party becomes the subject of any bankruptcy or insolvency
proceeding, the other party shall be entitled to reimbursement
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of all costs and expenses, including attorneys' fees and court costs, incurred
by such other party to obtain adequate protection of its rights under the
Contract Documents or to obtain other requested relief in such bankruptcy or
insolvency proceeding.
4.5 ARBITRATION OF DISPUTES
4.5.1 All Claims (as defined in Subparagraph 1.1.1 above) between the parties
shall be handled as follows:
.1 The parties shall endeavor, in good faith, to settle a Claim
in an amicable fashion pursuant to Paragraph 4.4.
.2 If the parties are unable to resolve a Claim pursuant to
Paragraph 4.4 within a reasonable period (but in no event
longer than forty-five (45) days) after the Claim is submitted
to the Architect, or the Architect fails to act or continue to
act for any reason, then either party shall submit the Claim
to non-binding mediation under the Construction Industry
Mediation Rules of the American Arbitration Association
("AAA"). Mediation shall be initiated by the written request
of either party, and shall be commenced within five (5) days
after delivery of such notice. The mediator shall be a neutral
third party selected by the AAA. Upon request of the
initiating party or the AAA, the other party shall promptly
evidence its consent to the mediation if such consent is
required to proceed.
.3 If the parties are unable to resolve any Claim through
mediation within thirty (30) days of delivery of the notice to
mediate, then, except for Reserved Claims (as defined below),
the Claim shall be decided by arbitration as provided in
Subparagraph 4.5.2.
4.5.2 Demand for arbitration of any Claim may not be made until thirty (30) days
after delivery of the notice to mediate. Any unresolved Claim other than a
Reserved Claim (as defined below) shall be decided by arbitration in accordance
with the Construction Industry Arbitration Rules of the AAA in effect as of the
date of the Agreement, as amended by the following:
.1 Written notice of demand for arbitration shall be given to the
other party to the Agreement, the AAA, and the Architect. The
demand shall specifically describe the Claim, including the
amounts in controversy and/or other relief sought.
.2 Any Claim (including counterclaims but excluding relief other
than monetary damages) valued at up to [$250,000] shall be
heard and decided by a single arbitrator and any Claim valued
in excess of [$250,000] shall be heard and decided by a panel
of three arbitrators; provided, however, that each party
reserves the right to proceed with legal action and not to
arbitrate (i) any Claim valued in excess of [$1,000,000]; or
(ii) any Claim that seeks damages or other relief for latent
construction defects (collectively, "Reserved Claims").
Reserved Claims shall not be arbitrated unless the parties
agree to do so in a separate signed writing. Legal fees and
costs shall not be
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included in determining the valuation thresholds set forth
herein and any dispute over the valuation of a Claim or the
jurisdiction of the arbitrator(s) as provided herein shall be
conclusively determined by the AAA on application of either
party.
.3 Each arbitrator shall be a neutral third party, shall have at
least ten (10) years experience in construction matters, shall
reside in the San Francisco Bay Area, and shall otherwise meet
the AAA qualification requirements. For Claims decided by a
single arbitrator, the arbitrator also shall be a licensed
practicing attorney or retired judge. For Claims decided by a
panel of three arbitrators, the additional requirements shall
apply: one arbitrator shall be a licensed practicing attorney
or retired judge; one arbitrator shall have been in the
business of, or shall have been employed by a company in the
business of, performing general construction contracts with a
volume of at least $50 Million per year; and one arbitrator
shall have been in the business of, or shall have been
employed by a company in the business of, representing owner's
interests in construction projects or managing such projects
on behalf of the owner. In the event the parties cannot agree
on the selection of an arbitrator or arbitrators within ten
(10) days after the arbitration demand, any unfilled
appointments shall be selected by the AAA from a list of
arbitrators approved by the parties in accordance with this
Subparagraph 4.5.2.3.
Upon filing of the demand to arbitrate, each party shall
receive an identical list of names of potential arbitrators
from the AAA. Each party may disapprove an entire list without
cause on one occasion by notifying the AAA and the other
party. Each party shall have ten (10) days from transmittal of
a list to notify the AAA and the other party of its
disapproval thereof (as permitted herein) or to strike names
objected to, number the remaining names in order of
preference, and return the list to the AAA. Each party may
strike up to five (5) names from a list on a preemptory basis.
Failure of a party to return a list within the specified time
shall constitute acceptance of all persons listed thereon.
From among the persons approved on both lists, and in
accordance with the designated orders of mutual preference,
the AAA shall invite the acceptance of the selected
arbitrator(s) to serve. If for any reason the appointment of a
sufficient number of arbitrators cannot be made from the
submitted lists, the process shall be continued until the
additional required arbitrators are appointed.
.4 Prior to the initial arbitration hearing, all appointees
shall be required to disclose to the AAA in writing any facts
or circumstances within his or her knowledge or belief that
are likely to affect impartiality in arbitrating the Claim,
including any bias, any financial or personal interest in the
result of the arbitration, or any past or present financial or
other relationship with the parties or their representatives.
Upon receipt of such information from the arbitrator or
another source, the AAA shall communicate the information to
the parties. Each party shall have the right to disqualify an
arbitrator for cause by submitting a written request to the
AAA setting forth the basis for disqualification. In
evaluating evidence of cause, the AAA shall determine whether
there is reasonable evidence of any facts or circumstances
that are likely to materially affect the impartiality of the
challenged appointee. Absent fraud,
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collusion or willful misconduct by the arbitrator(s), the
determination of the AAA as to whether there is sufficient
cause for disqualification shall be conclusive. In the event
an appointee is disqualified, the vacancy shall be filled by
an alternate appointee selected by the procedure set forth in
Subparagraph 4.5.2.3 above.
.5 There shall be no absolute right of discovery or dispositive
motion practice except that the arbitrators may authorize such
discovery as is deemed to be reasonably necessary or
appropriate to ensure a fair hearing, and no such discovery
shall extend the time limits contained herein. The arbitrators
shall not be bound by the rules of evidence or of civil
procedure, but rather may consider such writings and oral
presentations as reasonable business people would use in the
conduct of their daily business affairs, and may require the
parties to submit some or all of their case by written
declaration or such other manner of presentation as the
arbitrator may determine to be appropriate. The arbitrators
shall also have the right to limit live testimony and cross-
examination, provided that such limitation does not prevent a
party from obtaining a fair hearing on material issues. The
arbitrators shall have the right to use experts to render
opinions as to matters requiring expert opinion. Unless
otherwise provided in the award, the cost of such experts
shall be shared equally by the parties.
.6 The arbitrators shall take such reasonable steps as may be
necessary to hold a private hearing within sixty (60) days
after the initial demand for arbitration and to conclude the
hearing within two (2) days. All arbitration hearings shall be
held in Santa Clara County at a place selected by the
arbitrators. Unless otherwise provided in the award, the cost
of the hearing site, if any, shall be shared equally by the
parties. The parties irrevocably submit to the venue of Santa
Clara County with respect to Claims that are subject to
arbitration pursuant to the Agreement.
The arbitrators' preliminary written decision shall be made
not later than fifteen (15) calendar days after the hearing,
and their final award shall be made not later than thirty (30)
calendar days after the hearing, as described in Subparagraph
4.5.2.10. The parties have included these time limits in order
to expedite the proceeding, but they are not jurisdictional,
and the arbitrators may for good cause afford or permit
reasonable extensions or delays, which shall not affect the
validity of the award.
.7 Unless otherwise agreed by the parties in writing, all
hearings shall be transcribed by a stenographer, with the cost
shared equally by the parties. Each transcript shall be made
available to the arbitrators and the parties for inspection
and correction at a mutually convenient time and place
selected by the arbitrators and shall be the official
transcript of the proceeding.
.8 The arbitrators may award only such relief or remedy as would
be available pursuant to judicial proceedings in a court of
competent jurisdiction, including, without limitation,
injunctive and affirmative relief; provided, however, that the
arbitrators
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may not award punitive damages. Reasonable attorneys' fees and
costs shall be awarded to the prevailing party in the
arbitration, as determined by the arbitrators, whether or not
such fees and costs could be awarded under applicable
California law.
.9 The arbitrators' award shall be in a writing signed by all of
the arbitrators, and the written decision shall contain a
statement of all of the Claims determined and the award made
on each Claim. The award rendered by the arbitrators shall set
forth findings of fact and conclusions of law and the
arbitrators shall endeavor to correctly apply the substantive
law of the State of California and to base the award on
substantial evidence.
.10 Within fifteen (15) calendar days after the last day of
the arbitration proceeding, the arbitrators shall deliver to
the parties and their counsel a preliminary decision,
including proposed written findings of fact and conclusions of
law. Within five (5) calendar days following the delivery of
such preliminary decision, the parties may deliver written
comments to the arbitrators, a copy of which comments shall be
sent to the other parties and their counsel. Within ten (10)
calendar days after the five (5) day comment period, the
arbitrators shall make a final award, including written
findings of fact and conclusions of law.
4.5.3 Any decision of the arbitrators regarding an item outside of the scope of
"Claims" as defined in Paragraph 4.3.1, shall be deemed to have been made in
excess of the arbitrators' powers in violation of section 1286.2 of the
California Code of Civil Procedure.
4.5.4 A demand for arbitration shall be made within a reasonable time after the
right to demand arbitration of the Claim under this Agreement has arisen, and in
no event shall it be made after the date when institution of legal or equitable
proceedings based on such Claim would be barred by the applicable statute of
limitations as determined pursuant to Paragraph 13.7 below.
4.5.5 A party who files a notice of demand for arbitration must assert in the
demand all Claims then known to that party. When a party fails to include a
Claim through oversight, inadvertence or excusable neglect, or when a Claim has
matured or been acquired subsequently, the arbitrator(s) may permit the
additional Claim to be included in the pending arbitration provided that the
party against whom the additional Claim is asserted has been given reasonable
advance notice of the additional Claim prior to the arbitration hearing.
4.5.6 In the event of any inconsistency or discrepancy between the matters set
forth in this Paragraph 4.5 and the above-referenced Construction Industry
Arbitration Rules, the provisions of this Paragraph 4.5 shall control.
4.5.7 Provided that the arbitration award sets forth findings of fact and
conclusions of law, and absent fraud, collusion, or willful misconduct by the
arbitrator(s), the award shall be final and binding on the parties, except as
otherwise provided by California law, and judgment may be entered upon
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it in accordance with applicable law in any court having jurisdiction thereof. A
FAILURE BY THE ARBITRATORS TO MAKE FINDINGS OF FACT AND CONCLUSIONS OF LAW SHALL
BE DEEMED TO RENDER THE AWARD NON-BINDING, AND SHALL BE GROUNDS FOR OVERTURNING
THE AWARD. HOWEVER, ABSENT FRAUD, COLLUSION, WILLFUL MISCONDUCT OR OTHER GROUNDS
FOR OVERTURNING AN AWARD UNDER CALIFORNIA LAW, AN AWARD THAT SETS FORTH FINDINGS
OF FACT AND CONCLUSIONS OF LAW SHALL BE FINAL AND BINDING ON THE PARTIES AND
SHALL NOT BE OVERTURNED ON THE BASIS THAT THE ARBITRATOR BASED THE AWARD ON, OR
STATED, INCORRECT CONCLUSIONS OF LAW.
4.5.8 This agreement to arbitrate shall be specifically enforceable under the
prevailing arbitration law. Nothing herein shall restrict the right of either
party to apply to a court of competent jurisdiction for interim relief or a
provisional remedy pending the decision of the arbitrator.
4.5.9 BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALLING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
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WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
OWNER'S CONTRACTOR'S
INITIALS: INITIALS:
----- ------
ARTICLE 5
SUBCONTRACTORS
5.1 DEFINITIONS
5.1.1 A Subcontractor is as defined is Subparagraph 1.1.1 above. The term
"Subcontractor" is referred to throughout the Contract Documents as if singular
in number and means a Subcontractor or an authorized representative of the
Subcontractor. The term "Subcontractor" does not include a separate contractor
or subcontractors of a separate contractor.
5.1.2 A sub-subcontractor is included within the definition of "Subcontractor"
for purposes of the Contract Documents.
5.2 AWARD OF SUBCONTRACTS FOR PORTIONS OF THE WORK
5.2.1 [Intentionally omitted]
5.2.2 [Intentionally omitted]
5.2.3 [Intentionally omitted]
5.2.4 The Contractor shall not change a Subcontractor, person or entity
previously selected if the Owner or Architect makes reasonable objection to such
change. The Owner may require the Contractor to change any Subcontractor or
Sub-subcontractor previously approved and, if at such time the Contractor is not
in default under the Agreement, the Guaranteed Maximum Price shall be increased
or decreased by the difference in cost occasioned by such change.
5.3 SUBCONTRACTUAL RELATIONS
5.3.1 By appropriate agreement, written where legally required for validity, the
Contractor shall require each Subcontractor, to the extent of the Work to be
performed by the Subcontractor, to be bound to the Contractor by the terms of
the Contract Documents, and to assume toward the Contractor all the obligations
and responsibilities which the Contractor, by the Contract Documents, assumes
toward the Owner and the Architect. Each Subcontract shall preserve and protect
the rights of the Owner and the Architect under the Contract Documents with
respect to the Work to be
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performed by the Subcontractor so that subcontracting thereof will not prejudice
such rights, and shall allow to the Subcontractor, unless specifically provided
otherwise in the Subcontract, the benefit of all rights, remedies and redress
against the Contractor that the Contractor, by the Contract Documents, has
against the Owner. Where appropriate, the Contractor shall require each
Subcontractor to enter into similar agreements with its respective
sub-subcontractors. The Contractor shall make available to each proposed
Subcontractor, prior to the execution of the Subcontract, copies of the Contract
Documents to which the Subcontractor will be bound.
5.3.2 Notwithstanding any provision of Subparagraph 5.3.1, any part of the Work
performed for the Contractor by a Subcontractor shall be pursuant to a written
Subcontract between the Contractor and such Subcontractor (or the Subcontractor
and its sub-subcontractor at any tier), which shall be prepared on a form of
Subcontract satisfactory to the Owner in all respects. Each such Subcontract
shall, where the context so requires, contain provisions that:
.1 Include a fixed amount for the Subcontractor's overhead and
profit in connection with changes in the Work (i.e., (i) for
each Subcontractor, for any Work performed by that
contractor's own forces, not to exceed fifteen percent (15%)
of the cost for amounts up to $10,000 and not to exceed seven
and a half percent (7-1/2%) for amounts in excess of $10,000,
and (ii) for each Subcontractor, for any Work performed by its
sub-subcontractors, not to exceed ten percent (10%) of the
amount due to the sub-subcontractor for costs for amounts up
to $5,000 and not to exceed five percent (5%) of the amount
due for costs for amounts in excess of $5,000);
.2 Require that such Work be performed in strict accordance with
the requirements of the Contract Documents, including, without
limitation, the labor and employment provisions thereof;
.3 Waive all rights the contracting parties may have against one
another or that the Subcontractor may have against the Owner
for damages caused by fire or other perils covered by the
insurance described in the Contract Documents or which is
otherwise covered by insurance;
.4 Require the Subcontractor to carry and maintain insurance
coverage in accordance with the Contract Documents, and to
file certificates of such coverage with the Contractor;
.5 Require the Subcontractor to submit certificates and
unconditional waivers of Mechanics' Liens for Work completed
by it and by its sub-subcontractors to the extent included in
the current and in any previous progress payments as a
condition to the disbursement of the progress payment next due
and owing;
.6 Require submission to the Contractor or Subcontractor, as the
case may be, of Applications for Payment in a form approved by
the Owner, together with clearly defined invoices and billings
supporting all such applications under each Subcontract
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to which the Contractor is a party;
.7 Report, so far as practicable, unit prices and any other
feasible formula for use in the determination of costs of
changes in the Work;
.8 Require each Subcontractor to furnish to the Contractor in a
timely fashion all information necessary for the preparation
and submission of the reports required herein;
.9 Require that each Subcontractor continue to perform under its
Subcontract if the Agreement is terminated, and permit the
Owner to take an assignment of such Subcontract and request
such Subcontractor to continue such performance;
.10 Require each Subcontractor to remove all debris created by its
activities;
.11 Require that each Subcontractor warrant the Work and materials
supplied and/or installed by them in the same manner and for
the same period as is required of Contractor under the
Agreement and other Contract Documents or in such broader
manner and for such longer period as may be required by the
Drawings and Specifications; and
.12 Require Contractor and each Subcontractor to coordinate its
respective Work with all adjacent work and all other trades so
as to facilitate the general progress of all Work, and require
each Subcontractor to afford all other contractors every
reasonable opportunity to install other work and materials.
ARTICLE 6
CONSTRUCTION BY OWNER OR BY
SEPARATE CONTRACTORS
6.1 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD
SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform construction or operations related
to the Project with the Owner's own forces, and to award separate contracts in
connection with other portions of the Project or other construction or
operations on the Property under Conditions of the Contract identical or
substantially similar to these General Conditions, including those portions
related to insurance and waiver of subrogation. If the Contractor claims that
delay or additional costs are involved because of such action by the Owner, the
Contractor shall make such claims as provided elsewhere in the Contract
Documents.
6.1.2 When separate contracts are awarded for different portions of the Project
or other construction or operations on the Property, the term "the Contractor"
in the Contract Documents in
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each case shall mean the contractor who executeseach separate agreement between
the Owner and such contractor.
6.1.3 The Owner, at its option, either (i) shall provide for coordination of the
activities of the Owner's own forces and of each separate contractor with the
Work of the Contractor, who shall cooperate with them, or (ii) shall require
that the Contractor provide for such coordination, which the Contractor shall
perform when directed by the Owner to do so. The Contractor shall participate
with other separate contractors and the Owner in reviewing their respective
Construction Schedules when directed by the Owner to do so. The Contractor shall
make any revisions to the Construction Schedule and Guaranteed Maximum Price
deemed necessary after a joint review and mutual agreement. The Construction
Schedules shall then constitute the schedules to be used by the Contractor,
separate contractors and the Owner until subsequently revised.
6.1.4 Unless otherwise provided in the Contract Documents, when the Owner
performs construction or operations related to the Project with the Owner's own
forces, then the Owner shall be deemed to be subject to the same obligations and
to have the same rights which apply to the Contractor under these General
Conditions, including, without limitation, those stated in Article 3, this
Article 6, and Articles 10, 11 and 12.
6.2 MUTUAL RESPONSIBILITY
6.2.1 The Contractor shall afford the Owner and separate contractors reasonable
opportunity for introduction and storage of their materials and equipment and
performance of their activities, and shall connect and coordinate the
Contractor's construction and operations with theirs as required by the Contract
Documents.
6.2.2 If part of the Contractor's Work depends for proper execution or results
upon construction or operation by the Owner or a separate contractor, the
Contractor shall, prior to proceeding with that portion of the Work, promptly
report to the Architect and the Owner apparent discrepancies or defects in such
other construction that would render it unsuitable for such proper execution and
results. Failure of the Contractor to so report shall constitute an
acknowledgment that the Owner's or separate contractors' completed or partially
completed construction is fit and proper to receive the Contractor's Work,
except as to defects not then reasonably discoverable.
6.2.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party responsible therefor.
6.2.4 The Contractor shall promptly remedy damage caused by the Contractor to
completed or partially completed construction or to property of the Owner or
separate contractors as provided in Subparagraph 10.2.5, below.
6.2.5 Claims and other disputes and matters in question between the Contractor
and a separate contractor shall be subject to the provisions of Paragraph 4.3
above, provided the separate contractor has reciprocal obligations. If such
separate contractor initiates legal or any other proceedings against
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the Owner on account of any damage alleged to have been caused by the
Contractor, the Owner shall notify the Contractor, who shall defend such
proceedings at its own expense, and if any judgment or award against the Owner
arises therefrom, the Contractor shall pay or satisfy it, and shall reimburse
the Owner for all attorneys' fees and court or other costs which the Owner has
incurred over and above those paid for directly by the Contractor.
6.2.6 The Owner and each separate contractor shall have the same
responsibilities for cutting and patching as are described for the Contractor in
Paragraph 3.14, above.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises among the Contractor, separate contractors and the
Owner as to the responsibility under their respective contracts for maintaining
the Property and surrounding area free from waste materials and rubbish as
described in Paragraph 3.15, the Owner may clean up and allocate the cost among
those responsible in the Owner's reasonable discretion.
ARTICLE 7
CHANGES IN THE WORK
7.1 CHANGES
7.1.1 Changes in the Work may be accomplished after execution of the Agreement,
and without invalidating the Agreement, by Change Order as specified in Article
8 of the Agreement, or order for a minor change in the Work, subject to the
limitations stated in this Article 7 and elsewhere in the Contract Documents.
The Architect shall notify the Owner in writing of each such minor change.
7.2 CHANGE ORDERS
7.2.1 [Intentionally omitted]
7.2.2 [Intentionally omitted]
7.2.3 The Guaranteed Maximum Price may be adjusted and the Contract Time may be
extended or shortened only upon written approval of a Change Order by the Owner
and the Contractor. The Architect shall execute all Change Orders, but a Change
Order executed by the Architect shall be ineffective unless executed by the
Owner. If the parties cannot agree with respect to any Change Order, then the
dispute shall be resolved pursuant to the dispute resolution provisions of
Article 4 of these General Conditions.
7.4 MINOR CHANGES IN THE WORK
7.4.1 The Architect will have authority to order minor changes in the Work not
involving adjustment in the Guaranteed Maximum Price or extension of the
Contract Time and not inconsistent with the intent of the Contract Documents.
Such changes shall be effected by written order and shall
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be binding on the Owner and the Contractor. The Architect shall deliver a copy
of each order for each such minor change to the Owner immediately after
preparation thereof. The Contractor shall carry out such written orders
promptly.
ARTICLE 8
TIME
8.1 DEFINITIONS
8.1.1 Unless otherwise provided, Contract Time (as defined in Subparagraph
1.1.1) is the period of time, including authorized adjustments, allotted in the
Contract Documents for Substantial Completion of the Work.
8.1.2 The date of commencement of the Work is the date established in the
Agreement. The date shall not be postponed by any failure to act by the
Contractor or by persons or entities for whom the Contractor is responsible.
8.2 PROGRESS AND COMPLETION
8.2.1 [Intentionally omitted]
8.2.2 The Contractor shall not knowingly, except by agreement or instruction of
the Owner in writing, prematurely commence operations on the Property or
elsewhere prior to the effective date of insurance required by Article 11 to be
furnished by the Contractor. The date of commencement of the Work shall not be
changed by the effective date of such insurance.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in the progress of the Work by
any act or omission of the Owner or the Architect, or by any employee of either
the Owner or the Architect, or by any separate contractor employed by the Owner,
or by changes ordered in the Work, or (subject to the provisions of Subparagraph
3.20.1 of these General Conditions) by labor disputes, or by fire, unusual delay
in transportation, adverse weather conditions not reasonably anticipatable (as
more particularly set forth in Subsection 4.3.8.2, above), unavoidable
casualties, or any similar causes reasonably beyond the Contractor's control and
which could not have been reasonably foreseen by the Contractor, then the
Contract Time shall be extended by Change Order for a reasonable period of time
which is appropriate under the circumstances and is approved by the Owner and
the Contractor, which approvals shall not be unreasonably withheld. No
justifiable delay shall be deemed to have occurred unless the Contractor
delivers a written claim of justifiable delay to the Owner within twenty-one
(21) days following the commencement of the delay or the date the Contractor
delivers to the Owner its final Application For Payment, whichever date is
earlier. In the case of delays due to inclement weather, written notice shall be
given within twenty-four (24) hours. A delay for which a written claim of
justifiable delay is made pursuant to this provision is referred to in the
Contract Documents as a "Force Majeure Delay." Immediately upon the Contractor's
becoming aware of an
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event causing a Force Majeure Delay, the Contractor shall take all steps
reasonably available to lessen the adverse impact of such delay upon the Owner.
No increase in the Contract Time shall be granted for periods of delay for which
the Contractor would otherwise be entitled to an increase in Contract Time, if
such periods of delay are concurrent with delays for which the Contractor is not
entitled to such increase under the Contract Documents.
8.3.2 Notwithstanding the provisions of Subparagraph 8.3.1, above, if either
Owner or Contractor believes at any time that an event causing a Force Majeure
Delay has occurred which event could reasonably lead to a delay in the
Substantial Completion of any Segment of the Work, such party shall give the
other party written notice of such alleged event not more than two (2) business
days after the commencement of any such alleged Force Majeure Delay; provided,
however, that (i) if the alleged Force Majeure Delay is a weather delay, the
appropriate notice period for any such alleged delay shall be twenty-four (24)
hours, as provided in Subparagraph 8.3.1, above, and (ii) if the notice is given
more than two (2) business days after the commencement of any such alleged Force
Majeure Delay (i.e., other than a weather delay), the claim will still be
effective but the delay period will be deemed to have commenced two (2) business
days before the notice is given.
Any such notice shall contain a reasonably detailed description of the
reason for the delay and the occurrence causing the delay, and a reasonably
detailed explanation of how such delay will affect the Construction Schedule for
that Segment of the Work affected by the delay, and the party's anticipated
course of action to cause the Construction Schedule to be completed within any
applicable Force Majeure Delay extension period. Any such notice shall
specifically describe the number of days which the extension will cover. The
other party shall have the right to contest the need for any such Force Majeure
Delay extension, or the issue of whether the delay is a Force Majeure Delay as
opposed to a delay for which the party is responsible. If the parties are unable
to resolve this dispute between themselves, the matter shall be referred to
arbitration as provided for in Section 4.5, above.
8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by
either party under other provisions of the Contract Documents.
ARTICLE 9
PAYMENTS AND COMPLETION
9.1 [Intentionally omitted]
9.2 [Intentionally omitted]
9.3 [Intentionally omitted]
9.4 [Intentionally omitted]
9.5 [Intentionally omitted]
9.6 [Intentionally omitted]
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9.7 [Intentionally omitted]
9.8 SUBSTANTIAL COMPLETION
9.8.1 Upon Substantial Completion the Contractor shall secure and deliver to the
Owner written warranties and guarantees from its Subcontractors bearing the date
of Substantial Completion (or other date agreed to by the Owner) and stating the
period of warranty as required by the Contract Documents. The Contractor is
responsible for the warranty of all Work and materials, whether performed by it
or provided by its Subcontractors at any tier.
9.8.2 When the Contractor considers that the Work, or any portion thereof which
the Owner agrees to accept separately, is Substantially Complete, the Contractor
shall prepare and submit to the Architect a comprehensive Punch List of items to
be completed or corrected. The Contractor shall proceed promptly to complete and
correct all items on the Punch List. Failure to include an item on such Punch
List does not alter the responsibility of the Contractor to complete all Work in
accordance with the Contract Documents. Upon receipt of the Contractor's Punch
List, the Architect will make an inspection to determine whether the Work or
designated portion thereof is Substantially Complete. If the Architect's
inspection discloses any item, whether or not included on the Contractor's Punch
List, which is not in accordance with the requirements of the Contract
Documents, the Contractor shall, before issuance of the Certificate of
Substantial Completion, complete or correct such item upon notification by the
Architect.
The Contractor shall then submit a request for another inspection by
the Architect to determine Substantial Completion. When the Work or designated
portion thereof is Substantially Complete, the Architect will prepare a
Certificate of Substantial Completion which shall (i) establish the date of
Substantial Completion, (ii) establish responsibilities of the Owner and the
Contractor for security, maintenance, heat, utilities, damage to the Work and
insurance, and (iii) fix the time within which the Contractor shall finish all
items on the Punch List accompanying the Certificate of Substantial Completion.
Warranties required by the Contract Documents shall commence on the date of
Substantial Completion of the Work or designated portion thereof unless
otherwise provided in the Certificate of Substantial Completion. The Certificate
of Substantial Completion shall be submitted to the Owner and the Contractor for
their written acceptance of the responsibilities assigned to them in such
certificate.
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9.9 PARTIAL OCCUPANCY OR USE
9.9.1 [Intentionally omitted]
9.9.2 Immediately prior to partial occupancy or use, the Owner, the Contractor
and the Architect shall jointly inspect the area to be occupied or Segment of
the Work to be used in order to determine and record the condition of the Work.
The Owner may withhold a reasonable sum from payments otherwise payable to the
Contractor until the Contractor delivers to the Owner record Drawings and
Specifications, addenda, Change Orders and other modifications maintained at the
Property pursuant to Subparagraph 3.11.1, and the warranties, instructions and
maintenance manuals required to be furnished pursuant to Subparagraph 3.12.14,
and a final statement of the Cost of the Work allocated in accordance with the
official construction budget and in a form approved by the Owner's lender, if
any.
9.10 FINAL COMPLETION AND FINAL PAYMENT
9.10.1 Upon receipt of written notice that the Work (or applicable Segment of
the Work) is ready for final inspection and acceptance, and upon receipt of a
Final Application for Payment, the Architect and Owner will promptly make such
inspection. When the Architect finds the Work acceptable under the Contract
Documents and the Contract fully performed, the Architect will notify the Owner
in writing, stating that to the best of the Architect's knowledge, information
and belief, and on the basis of the Architect's observations and inspections,
the Work has been fully and finally completed in accordance with the terms and
conditions of the Contract Documents and that the Final Payment to the
Contractor is due and payable.
9.10.2 [Intentionally omitted]
9.10.3 If, after Substantial Completion of the Work, Final Completion thereof is
materially delayed through no fault of the Contractor or by issuance of Change
Orders affecting Final Completion, and the Architect so confirms, the Owner
shall, upon application by the Contractor and certification by the Architect,
and without terminating the Agreement, make payment of the balance due for that
Segment of the Work fully completed and accepted. If the remaining balance for
Work not fully completed or corrected is less than the retention stipulated in
the Contract Documents, and if bonds have been furnished, the written consent of
surety to payment of the balance due for that Segment of the Work fully
completed and accepted shall be submitted by the Contractor to the Architect
prior to certification of such payment. Such payment shall be made under terms
and conditions governing Final Payment, except that it shall not constitute a
waiver of Claims. The making of Final Payment shall constitute a waiver of
Claims by the Owner only as provided in Subparagraph 4.3.5, above.
9.10.4 Acceptance of Final Payment by the Contractor or a Subcontractor shall
constitute a waiver of Claims by that payee except those previously made in
writing and identified bythat payee as unsettled at the time of Final
Application for Payment. Such waivers shall be in addition to the waiver
described in Subparagraph 4.3.5, above.
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ARTICLE 10
PROTECTION OF PERSONS AND PROPERTY
10.1 HAZARDOUS MATERIALS
10.1.1 If there is any conflict between the provisions of this Paragraph 10.1
and the provisions of Subparagraph 17.15.1 of the Agreement, then the provisions
of the Agreement shall control.
10.1.2 If the Contractor encounters on the Property material reasonably
believed to be hazardous material not placed at the Property by the Contractor
or by any Subcontractor or by any person under the control of either of them,
which has not been rendered harmless, the Contractor shall immediately stop Work
in the area affected and report the condition to the Owner and the Architect in
writing. The Work in the affected area shall not thereafter be resumed except by
written agreement of the Owner and the Contractor if in fact the material is
hazardous material not placed at the Property by the Contractor or any
Subcontractor or any person under the control of either of them, and has not
been rendered harmless. The Work in the affected area shall be resumed in the
absence of hazardous material not placed at the Property by the Contractor or
any Subcontractor or any person under the control of either of them, or when it
has been rendered harmless, by written agreement of the Owner and the
Contractor, or in accordance with final determination by the Architect on which
arbitration has not been demanded, or by arbitration under Article 4.
10.1.3 The Contractor shall not be required pursuant to Article 7 to perform,
without consent, any Work relating to hazardous material not placed at the
Property by the Contractor or any Subcontractor or any person under the control
of either of them.
10.1.4 Neither the Contractor nor any Subcontractor shall cause or permit any
hazardous material to be brought upon the Property or used in the Work without
the prior written consent of the Owner. The Contractor and each Subcontractor
shall comply with all Laws regarding the use, storage, transportation, exposure
of employees to, and disposal of, hazardous materials brought onto the Property
by them or any of them.
If the foregoing obligations are breached, or if the presence of a hazardous
material brought on the Property by the Contractor or its Subcontractors results
in contamination of the Property, or if contamination of the Property by
hazardous materials for which the Contractor is legally liable to the Owner for
damage resulting therefrom otherwise occurs, then the Contractor shall
indemnify, defend, protect and hold the Owner harmless from any and all Claims
which arise as a result of the breach of such obligation or such contamination.
This indemnification of the Owner by the Contractor includes, without
limitation, costs incurred by Owner in connection with any investigation of the
Property, or any clean-up, remedial, removal, or restoration work required by
any federal, state or local governmental agency, because of hazardous materials
present in the soil or ground water on or under the Property. If the Owner fails
to disclose the presence of hazardous materials on the Property to the
Contractor, then the Owner shall indemnify and hold the Contractor harmless from
all Claims caused by the Owner's concealment of the presence of such hazardous
materials, except to the extent that such Claim is covered by insurance or other
sources of reimbursement to the Contractor, and
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except to the extent that the Claim results as a consequence of the negligence
or willful misconduct of the Contractor or any Subcontractor.
10.1.5 As used in this Paragraph 10.1 and in the Agreement, the term
"hazardous material" shall mean any hazardous or toxic substance or material or
radioactive material which is or becomes regulated by any local, state or
federal governmental authority.
10.1.6 To the fullest extent permitted by law, the Owner shall indemnify and
hold the Contractor, its consultants, agents and employees, harmless from and
against claims, damages, losses and expenses, including but not limited to
reasonable attorneys' fees and costs, arising out of or resulting from the
performance of the Work in any affected area, if in fact the hazardous material
affecting the area is asbestos, PCB's or any other hazardous substances not
brought onto or permitted on the Property by Contractor, its consultants, agents
and employees, and has not been rendered harmless, provided that such claim,
damage, loss or expense is attributable to bodily injury, sickness, disease or
death, or to injury to or destruction of tangible property (other than the Work
itself), including loss of use resulting therefrom, but only to the extent
caused in whole or in part by negligent acts or omissions of the Owner, its
consultants, agents and employees, regardless of whether or not such claim,
damage, loss or expense is caused in part by any party indemnified pursuant to
this Subparagraph 10.1.6. The obligation of Owner pursuant to this Subparagraph
10.1.6 shall not be construed to negate, abridge or reduce other rights or
obligations of indemnity which would otherwise exist as to a party or person
described in this Subparagraph 10.1.6.
10.2 SAFETY OF PERSONS AND PROPERTY
10.2.1 The Contractor shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with the
performance of the Agreement. The Contractor shall take reasonable precautions
for safety of, and shall provide reasonable protection to prevent damage, injury
or loss to:
.1 Employees on the Work and other persons who may be affected
thereby;
.2 The Work and materials and equipment to be incorporated therein
or used in connection therewith, whether in storage on or off the
Property, under care, custody or control of the Contractor or the
Subcontractors; and
.3 Other property at the site or adjacent thereto, such as trees,
shrubs, lawns, walks, pavements, roadways, structures and
utilities not designated for removal, relocation or replacement
in the course of construction.
10.2.2 The Contractor shall give all notices required by and comply with, all
applicable Laws bearing on safety of persons or property or their protection
from damage, injury or loss.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and performance of the Agreement, reasonable safeguards for safety
and protection of persons and property, including
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posting danger signs and other warnings against hazards, promulgating safety
regulations and notifying owners and users of adjacent sites and utilities.
10.2.4 When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work, the
Contractor shall exercise utmost care and carry on such activities under
supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy damage and loss (other than damage
or loss insured under property insurance required by the Contract Documents) to
property referred to in Subparagraphs 10.2.1.2 and 10.2.1.3 caused in whole or
in part by the Contractor, a Subcontractor, or anyone directly or indirectly
employed by any of them, or by anyone for whose acts they may be liable, and for
which the Contractor is responsible under Subparagraphs 10.2.1.2 and 10.2.1.3,
except damage or loss attributable to acts or omissions of the Owner or the
Architect or anyone directly or indirectly employed by either of them, or by
anyone for whose acts either of them may be liable, and not attributable to the
fault or negligence of the Contractor. The foregoing obligations of the
Contractor are in addition to the Contractor's obligations under Paragraph 3.18,
above.
10.2.6 The Contractor shall designate a responsible member of the Contractor's
organization at the Property whose duty shall be the prevention of accidents.
This person shall be the Contractor's superintendent unless otherwise designated
by the Contractor in writing to the Owner and the Architect.
10.2.7 The Contractor shall not load or permit any part of the construction or
Property to be loaded so as to endanger its safety.
10.2.8 The Contractor assumes all risk of loss of, or damage to, its materials
or equipment and the materials and equipment of its Subcontractors and employees
due to theft or vandalism in excess of the proceeds of the Owner's builder's
risk insurance policy. Until incorporated into the Work, all materials ordered
by the Contractor or any of its Subcontractors which are delivered to the
Property shall be the responsibility of the Contractor, who shall provide for
the care, protection and security of such materials. The Contractor shall bear
the risk of loss with respect to such materials until they are incorporated into
the Work. Notwithstanding the foregoing, if the premium for any applicable
insurance policy covering the Work is paid by Owner, then Owner shall bear the
risk of loss, to the extent of such insurance coverage; provided, however, that
if any loss or claim arises or occurs under any such policy, and such loss or
claim is caused by, or arises out of or in connection with, or as a result of,
any negligence or willful misconduct on the part of Contractor or any
Subcontractor, then Contractor shall bear the risk of loss to such extent, and
Owner shall be entitled to offset any and all amounts so paid by Owner against
amounts otherwise payable to Contractor under the Agreement. Unless prohibited
by the terms of any insurance policy or the rules and regulations of any
insurer, Owner shall deliver to the Contractor, upon request by the Contractor,
a true and correct copy of any policy of insurance referred to in this
Subparagraph 10.2.8. The Contractor shall furnish any watchman's or other
security services reasonably required to protect the Work.
10.2.9 The Contractor shall maintain Work, materials and equipment free from
injury or damage
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from rain, wind, storms, frost or heat. If adverse weather makes it impossible
to continue operations safely in spite of weather precautions, the Contractor
shall cease Work and notify the Owner and the Architect of such cessation. The
Contractor shall not permit open fires on the Property.
10.2.10 The Contractor shall protect adjoining private or municipal property
and shall provide barricades, temporary fences, and covered walkways required to
protect the safety of passers-by, as required by prudent construction practices,
Laws, or the Contract Documents.
10.2.11 In addition to its other obligations pursuant to this Article 10, the
Contractor shall, at its sole cost and expense, promptly repair any damage or
disturbance to walls, utilities, sidewalks, curbs and the property of third
parties (including municipalities) resulting from the performance of the Work,
whether such damage or disturbance is caused by it or by any of its
Subcontractors at any tier. The Contractor shall maintain streets in good repair
and traversable condition.
10.3 EMERGENCIES
10.3.1 In an emergency affecting safety of persons or property, the Contractor
shall act, at the Contractor's discretion, to prevent threatened damage, injury
or loss. Additional compensation or extension of time claimed by the Contractor
on account of an emergency shall be determined as provided in Paragraph 4.3 and
Article 7.
ARTICLE 11
INSURANCE AND BONDS
11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 The Contractor shall purchase and maintain insurance which will protect
the Contractor and the Owner from the types of claims set forth below which may
arise out of or result from the Contractor's operations under the Agreement and
for which the Contractor may be legally liable, whether such operations be by
the Contractor or by a Subcontractor or by anyone directly or indirectly
employed by any of them, or by anyone for whose acts any of them may be liable:
.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit acts which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death, of the Contractor's employees;
.3 claims for damages because of bodily injury, sickness or disease,
or death of any person other than the Contractor's employees;
.4 claims for damages insured by usual personal injury liability
coverage which are sustained (i) by a person as a result of an
offense directly or indirectly related to
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employment of such person by the Contractor, or (ii) by another
person;
.5 claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss of
use resulting therefrom (whether resulting from operations of
Contractor, any Subcontractor or anyone directly or indirectly
employed by any of them);
.6 claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a
motor vehicle; and
.7 claims involving contractual liability insurance applicable to
the Contractor's obligations under Paragraph 3.18, above.
All insurance coverage required to be obtained and maintained by the
Contractor pursuant to the terms of the Contract Documents shall be primary in
the event of any loss, with any insurance carried by the Owner to be excess
capacity to Contractor's coverage. All insurance policies required of the
Contractor by the Contract Documents and any modifications thereto shall be
subject to the Owner's reasonable approval as to form, insurer, and adequacy of
protection. The Contractor and each Subcontractor shall carry insurance with
coverage and limits of liability as specified on Exhibit F to the Agreement,
entitled "Minimum Insurance Requirements." All insurance required by this
Paragraph 11.1.1 shall be purchased from and maintained with a company or
companies lawfully authorized to do business in the State of California, and who
are incorporated admitted insurance companies in such State.
11.1.2 All coverages, written on an occurrence basis, shall be maintained
without interruption from date of commencement of the Work until date of Final
Payment and termination of any coverage required to be maintained after Final
Payment. Such coverages shall be maintained by insurance carriers acceptable to
the Owner and the Owner's lender in all respects.
11.1.3 Certificates of insurance acceptable to the Owner shall be filed with
the Owner prior to commencement of the Work. These certificates and the
insurance policies required by this Paragraph 11.1 shall contain a provision
that coverages afforded under the policies will not be canceled or allowed to
expire until at least 30 days' prior written notice has been given to the Owner.
If any of the foregoing insurance coverages are required to remain in force
after Final Payment and are reasonably available, an additional certificate
evidencing continuation of such coverage shall be submitted with the Final
Application for Payment as required by the Agreement. Information concerning
reduction of coverage shall be furnished by the Contractor with reasonable
promptness in accordance with the Contractor's information and belief.
11.1.4 The Owner and the Contractor each acknowledge that Owner's insurance
carrier may require that those provisions of the Contract Documents setting
forth the respective insurance coverages required of Owner and Contractor,
respectively, be varied. In such event, Contractor and each Subcontractor shall,
upon the request of the Owner, obtain any other or additional insurance coverage
so required, provided the Owner bears any additional costs occasioned thereby.
All policies of
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insurance (excepting only the worker's or workman's compensation insurance)
shall name the Owner and, at the Owner's option, any other person(s) the Owner
deems to have an insurable interest in the Owner's real property and/or the
Work, as additional insured(s) under the policy. Upon request by the Owner, each
Subcontractor shall furnish policies (or certificates thereof) to the Owner
before commencement of the Work, evidencing all coverage required hereto. The
Contractor and each Subcontractor shall promptly furnish to the Owner copies of
all endorsements which are subsequently issued, which amend coverage of limits;
but delivery of such endorsements will not release such parties from their
obligation to obtain the insurance required by the Contract Documents. The
requirements for the foregoing insurance shall not diminish or limit the
Contractor's obligations to indemnify the Owner under the Contract Documents.
11.1.5 Notwithstanding any provision in any of the Contract Documents to the
contrary, the Contractor shall obtain Products and Completed Operations Coverage
required under the Agreement, which coverage shall be maintained in force until
expiration of the applicable statute of limitations for claims related to latent
defects in construction of improvements to real property.
11.1.6 If the Contractor fails to secure and maintain the required insurance,
the Owner shall have the right (without the obligation to do so, however) to
secure same in the name and for the account of the Contractor, in which event
the Contractor shall pay the cost thereof and shall furnish upon demand all
information that may be required in connection therewith.
11.2 [Intentionally omitted]
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided in any provision of the Contract Documents,
the Owner shall purchase and maintain property insurance, in the amount of the
initial Guaranteed Maximum Price as well as subsequent modifications thereto,
for the entire Work at the Property on a replacement cost basis without
voluntary deductibles. Such property insurance shall be maintained, unless
otherwise provided in the Contract Documents or otherwise agreed in writing by
all persons and entities who are beneficiaries of such insurance, until Final
Payment has been made as provided in Paragraph 9.10 or until no person or entity
other than the Owner has an insurable interest in the property required by this
Paragraph 11.3 to be covered, whichever is earlier. This insurance shall include
interests of the Owner, the Contractor, and Subcontractors in the Work, as well
as the interests of any lender with respect to the Work or any applicable
portion thereof. The deductible amount of the Owner's property insurance
required by this Subparagraph 11.3.1 shall be the amount approved by the Owner.
The Owner's insurance (i) shall be placed in the name of the Owner and, at the
Owner's option, any other person(s) whom the Owner deems to have an insurable
interest in the Owner's real property and/or the Work, or any part thereof, and
(ii) shall be payable as the respective interests of such named insureds may
appear. Except as expressly provided herein, the policy will not insure any
interest which the Contractor or Subcontractors may have in the Project. Such
insurance shall not insure against loss, damage, or destruction of any
materials, supplies, equipment or temporary structures or other property located
in, on or about the Owner's Property, which are the property of the Contractor,
or any Subcontractor, or any person directly or indirectly employed by or under
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contract with the Contractor or its Subcontractors. The policy shall be retained
and held by the Owner. A copy of a certificate for each policy required of the
Owner by the Contract Documents shall be delivered to the Contractor upon
demand.
The Contractor acknowledges that the amount of any property insurance
to be obtained and maintained by the Owner as provided in this Paragraph 11.3,
or any other insurance which the Owner may elect to obtain and maintain with
respect to the Project and/or the Work, may be less than the full value of the
Project and/or the Work, as the case may be, and may not provide coverage
(either in full or in part) from all types of casualty losses (such as
earthquake and flood). The Contractor further acknowledges that the Contractor
has no right to require Owner to obtain any additional amounts or types of
insurance other than as expressly required by the Agreement and these General
Contract Conditions. The Owner acknowledges that if the Project and/or the Work
is damaged in an amount which exceeds any applicable insurance coverage or the
proceeds of any applicable policy of insurance, or is damaged by a casualty that
the Owner elects not to insure against, the Contractor shall not be obligated to
contribute any sums to cover the cost of any repair or restoration which the
Owner is required or may elect to do.
.1 Property insurance shall be on an all-risk policy form, and shall
insure against the perils of fire and extended coverage and
physical loss or damage including, without duplication of
coverage, theft, vandalism, malicious mischief, collapse,
false-work, temporary buildings and debris removal, including
demolition occasioned by enforcement of any applicable legal
requirements, and shall cover reasonable compensation for the
Architect's services and expenses required as a result of such
insured loss. Coverage for other perils shall not be required
unless otherwise provided in the Contract Documents.
.2 The Owner shall purchase and maintain boiler and machinery
insurance required by the Contract Documents or by any applicable
Laws, which insurance shall specifically cover such insured
objects during installation and until final acceptance by Owner.
Such insurance shall include the interests of Owner, Contractor,
all appropriate Subcontractors, and any lenders in the Work. The
Owner, the Contractor and any lender shall be named insureds.
.3 The Owner, at the Owner's option, may purchase and maintain such
insurance as well insure the Owner against loss of use of the
Owner's property due to fire or other hazards, however caused.
.4 If the Owner does not intend to purchase such property insurance
as may be required by the Agreement and with all of the coverages
in the amount described above, the Owner shall so inform the
Contractor in writing prior to commencement of the Work. The
Contractor may then obtain insurance which will protect the
interests of the Contractor and the Subcontractors in the Work,
and by the appropriate Change Order the cost thereof shall be
charged to the Owner. If the Contractor is damaged by the failure
or neglect of the Owner to purchase or maintain insurance as
above, without
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so notifying the Contractor, then the Owner shall bear all
reasonable costs properly attributable to the failure or neglect.
.5 If the Owner or any insurer with respect to the Work increases
the required minimum deductibles above the amounts so identified,
or if the Owner elects to purchase this insurance with voluntary
deductible amounts, the Owner shall be responsible for payment of
the additional costs not covered because of such increased or
voluntary deductibles. If deductibles are not identified in the
Contract Documents, the Owner shall pay costs not covered because
of deductibles.
.6 Unless otherwise provided in the Contract Documents, this
property insurance shall cover portions of the Work stored off
the Property after written approval of the Owner at the value
established in the approval, and also portions of the Work in
transit.
11.3.2 [Intentionally omitted]
11.3.3 [Intentionally omitted]
11.3.4 [Intentionally omitted]
11.3.5 If, during the Project construction period the Owner insures
properties, real or personal or both, adjoining or adjacent to the Property by
property insurance under policies separate from those insuring the Project, or
if after Final Payment property insurance is to be provided on the completed
Project through a policy or policies other than those insuring the Project
during the construction period, the Owner shall waive all rights in accordance
with the terms of Subparagraph 11.3.7 for damages caused by fire or other perils
covered by this separate property insurance. All separate policies shall provide
this waiver of subrogation by endorsement or otherwise.
11.3.6 If requested by Contractor, Owner shall obtain and provide Contractor
with a certificate (or certificates) of any insurance carried by Owner covering
the Work during the course of construction, to the extent any such insurance
affects or covers any interest of Contractor in the Work.
11.3.7 By their execution of the Agreement, the Owner and the Contractor each
waive all rights against (i) each other and any of their respective
Subcontractors, agents and employees, and (ii) the Architect, the Architect's
consultants, separate contractors described in Article 6, if any, and any of
their respective Subcontractors, agents and employees, for damages caused by
fire or other perils to the extent covered by property insurance obtained
pursuant to this Paragraph 11.3 or other property insurance applicable to the
Work, except such rights as they have to proceeds of such insurance held by the
Owner. The foregoing waiver afforded the Architect, its consultants, agents and
employees or any of them shall not extend to the liability imposed by
Subparagraph 3.18.3, above. The Owner shall require of the Architect, the
Architect's consultants, separate contractors described in Article 6, if any,
and the Subcontractors, agents and employees of any of them, by appropriate
written agreements, similar waivers in favor of other parties enumerated herein.
The policies shall provide
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such waivers of subrogation by endorsement or otherwise. A waiver of subrogation
shall be effective as to a person or entity (i) even though that person or
entity would otherwise have a duty of indemnification, contractual or otherwise,
(ii) did not pay the insurance premium directly or indirectly, and (iii) whether
or not the person or entity had an insurable interest in the property damaged.
11.3.8 A loss covered under the Owner's property insurance shall be adjusted
by the Owner and made payable to the Owner for the insureds, as their interests
may appear. The Contractor shall pay Subcontractors their just portion of any
insurance proceeds received by the Contractor and, by appropriate written
agreements, shall require Subcontractors to make payments to their
sub-subcontractors in similar manner.
11.3.9 The Owner shall deposit in a separate account any insurance proceeds
actually received by Owner under any of the applicable policies, which the Owner
shall distribute in accordance with such agreement as the parties in interest
may reach. If, after such loss, no other special agreement is made, replacement
of damaged property shall be covered by appropriate Change Order.
11.3.10 The Owner shall have the sole power to adjust and settle a loss with
insurers.
11.3.11 Partial occupancy or use of the Work or any portion thereof in
accordance with Paragraph 9.9 shall not commence until the insurance company or
companies providing property insurance have consented to such partial occupancy
or use, by endorsement or otherwise. The Owner and the Contractor shall take
reasonable steps to obtain consent of the insurance company or companies and
shall not, without mutual written consent, take any action with respect to
partial occupancy or use that would cause cancellation, lapse or reduction of
insurance.
11.4 PERFORMANCE BOND AND PAYMENT BOND
11.4.1 At the request of the Owner, the Contractor shall furnish to the Owner,
and keep in force during the term of the Agreement performance and labor and
material payment bonds guaranteeing that the Contractor will perform its
obligations under the Agreement and will pay for all labor and materials
furnished for the Work. Such bonds shall be issued in a form and by a surety
reasonably acceptable to the Owner, shall be submitted to the Owner for prior
approval as to form and content, shall name the Owner and its lender as
obligees, and shall be in an amount equal to at least one hundred percent (100%)
of the Guaranteed Maximum Price (as the same may be adjusted from time to time
pursuant to the Agreement). The Contractor shall deliver the executed, approved
bonds to the Owner within fourteen (14) days after the Owner's request therefor.
11.4.2 At the Owner's request, Subcontractors shall also obtain and provide
performance and labor and material payment bonds, issued in an amount and form
and by a surety reasonably acceptable to the Owner, and naming the Owner and its
lender as obligees.
11.4.3 If bonds are required by Owner, they shall be a specific line item in
the Schedule of Values.
11.4.4 Upon the request of any person or entity appearing to be a potential
beneficiary of any of the
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bonds required under this Paragraph 11.4, the Contractor promptly shall furnish
a copy of the bonds or shall permit a copy thereof to be made and delivered to
such person or entity.
ARTICLE 12
UNCOVERING AND CORRECTION OF WORK
12.1 UNCOVERING OF WORK
12.1.1 If a portion of the Work is covered contrary to the Architect's request
or to requirements specifically expressed in the Contract Documents, it must, if
required in writing by the Architect, the Owner or any governmental authority,
be uncovered for their observation and be replaced, at the Contractor's expense,
without change in the Contract Time. The Contractor will cooperate with the
Architect to establish a mutually acceptable procedure for inspection of Work
which will be covered by other Work.
12.1.2 If a portion of the Work has been covered which the Architect, the
Owner or any governmental authority has not specifically requested to observe
prior to its being covered, the Architect may request to see such Work and it
shall be uncovered by the Contractor. If such Work is in accordance with the
Contract Documents, costs of uncovering and replacement shall, by appropriate
Change Order, be charged to the Owner. If such Work is not in accordance with
the Contract Documents, the Contractor shall pay such costs unless the condition
was caused by the Owner or a separate contractor in which event the Owner shall
be responsible for payment of such costs.
12.2 CORRECTION OF WORK
12.2.1 The Contractor shall promptly correct Work rejected by the Architect,
the Owner or any governmental authority, or which fails to conform to the
requirements of the Contract Documents, whether such Work is observed before or
after Substantial Completion and whether or not fabricated, installed or
completed. The Contractor shall bear costs of correcting such rejected Work,
including additional testing and inspections and compensation for the
Architect's services and expenses made necessary thereby.
12.2.2 If, within one year after the date of Substantial Completion of the
Work or designated portion thereof, or after the date for commencement of
warranties established under Subparagraph 9.9.1, or by terms of an applicable
special warranty required by the Contract Documents, any of the Work is found to
be not in accordance with the requirements of the Contract Documents, the
Contractor shall correct it promptly after receipt of written notice from the
Owner to do so unless the Owner has previously given the Contractor a written
acceptance of such condition. The Owner shall give such notice promptly after
discovery of the condition. This period of one year shall be extended with
respect to portions of Work first performed after Substantial Completion by the
period of time between Substantial Completion and the actual performance of the
Work. This obligation under this Subparagraph 12.2.2 shall survive acceptance of
the Work under the Agreement and termination of the Agreement.
General Conditions
January 10, 1996
Page 50
<PAGE> 95
12.2.3 The Contractor shall remove from the Property portions of the Work
which are not in accordance with the requirements of the Contract Documents, and
which are neither corrected by the Contractor nor accepted by the Owner.
12.2.4 The Owner may correct any nonconforming Work (i) which the Contractor
does not undertake to correct within ten (10) days following written notice from
the Owner or the Architect to the Contractor of the need for such correction or
which the Contractor fails to continue to correct thereafter with due diligence,
or (ii) without notice, in the case of an emergency. If the Contractor does not
proceed with correction of such nonconforming Work within ten (10) days
following written notice from the Owner, and thereafter diligently continue such
correction until completed, the Owner may remove it and store the salvageable
materials or equipment at the Contractor's expense. If the Contractor does not
pay costs of such removal and storage within ten days after written notice, the
Owner may, upon ten (10) additional days' written notice, sell such materials
and equipment at auction or at private sale and shall account for the proceeds
thereof after deducting costs and damages that should have been borne by the
Contractor, including compensation for the Architect's services and expenses
made necessary thereby. If such proceeds of sale do not cover costs which the
Contractor should have borne, the Guaranteed Maximum Price shall be reduced by
the deficiency. If payments then or thereafter due the Contractor are not
sufficient to cover such amount, the Contractor shall pay the difference to the
Owner. The Contractor shall repair any consequential damage to the Owner's
property caused by any Work furnished by the Contractor which does not conform
to the Drawings and Specifications or the other Contract Documents.
12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged
construction, whether completed or partially completed, of the Owner or separate
contractors caused by the Contractor's correction or removal of Work which is
not in accordance with the requirements of the Contract Documents.
12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to
establish a period of limitation with respect to other obligations which the
Contractor might have under the Contract Documents. Establishment of the time
period of one year as described in Subparagraph 12.2.2 relates only to the
specific obligation of the Contractor to correct the Work, and has no
relationship to the time within which the obligation to comply with the Contract
Documents may be sought to be enforced, nor to the time within which proceedings
may be commenced to establish the Contractor's liability with respect to the
Contractor's obligations other than specifically to correct the Work.
12.3 ACCEPTANCE OF NONCONFORMING WORK
12.3.1 If the Owner, in its sole discretion, elects to accept Work which is
not in accordance with the requirements of the Contract Documents, the Owner may
do so instead of requiring its removal and correction, in which case the
Guaranteed Maximum Price will be reduced as appropriate and equitable. Such
adjustment shall be effected whether or not Final Payment has been made.
ARTICLE 13
General Conditions
January 10, 1996
Page 51
<PAGE> 96
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW AND SEVERABILITY
13.1.1 The Contract Documents shall be governed by and construed in accordance
with the laws of the place where the Project is located. The invalidity of any
provision of the Contract Documents (other than the amount of the Guaranteed
Maximum Price) shall not impair or affect in any manner whatsoever the validity
or enforceability of any other provision of the Contract Documents, and the
Contract Documents shall remain in full force and effect to the maximum extent
permitted by applicable law.
13.1.2 Historical lack of enforcement of any local Law shall not constitute a
waiver of the Contractor's responsibility for compliance with such Law in a
manner consistent with the Contract Documents unless and until the Contractor
has received written consent for the
General Conditions
January 10, 1996
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<PAGE> 97
waiver of such compliance from the Owner and the agency responsible for the
local Law enforcement.
13.2 SUCCESSORS AND ASSIGNS
13.2.1 [Intentionally omitted]
13.3 WRITTEN NOTICE
13.3.1 [Intentionally omitted]
13.4 RIGHTS AND REMEDIES
13.4.1 Duties and obligations imposed by the Contract Documents, and rights
and remedies available thereunder, shall be in addition to and not a limitation
of duties, obligations, rights and remedies otherwise imposed or available by
law.
13.4.2 No action or failure to act by the Owner, the Architect or the
Contractor shall constitute a waiver of any right or duty afforded them under
the Contract Documents, nor shall such action or failure to act constitute
approval of or acquiescence in a breach thereunder, except as may be
specifically agreed in writing.
13.5 TESTS AND INSPECTIONS
13.5.1 Tests, inspections and approvals of portions of the Work required by
the Contract Documents or by Laws shall be made at an appropriate time. At the
Owner's election, the Owner shall contract with one or more independent testing
or laboratory entities to conduct inspections and/or tests of the Work. Unless
otherwise provided, the Contractor shall make arrangements for the inspections
and tests of the work to be conducted by such independent testing or laboratory
entities and/or with any appropriate public authority. The Owner shall bear all
initial related costs of tests, inspections and approvals. The Contractor shall
give the Architect timely notice of when and where tests and inspections are to
be made so the Architect may observe such procedures.
13.5.2 If the Architect, the Owner or public authorities having jurisdiction
determine that portions of the Work require additional testing, inspection or
approval not included under Subparagraph 13.5.1, the Architect will, upon
written authorization from the Owner, instruct the Contractor to make
arrangements for such additional testing, inspection or approval by an entity
acceptable to the Owner, and the Contractor shall give timely notice to the
Architect of when and where tests and inspections are to be made so the
Architect may observe such procedures. The Owner shall bear such costs except as
provided in Subparagraph 13.5.3.
13.5.3 If such procedures for testing, inspection or approval under
Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to
comply with requirements established by the Contract
General Conditions
January 10, 1996
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<PAGE> 98
Documents, the Contractor shall bear all costs made necessary by such failure
including those of repeated procedures and compensation for the Architect's
services and expenses, including the cost of retesting for verification of
compliance if necessary, until the Architect certifies that the Work in question
does comply with the requirements of the Contract Documents, and all such costs
shall be excluded in computing the Guaranteed Maximum Price.
13.5.4 Required certificates of testing, inspection or approval shall, unless
otherwise required by the Contract Documents, be secured by the Contractor and
promptly delivered to the Architect.
13.5.5 If the Architect is to observe tests, inspections or approvals required
by the Contract Documents, the Architect will do so promptly and, where
practicable, at the normal place of testing.
13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall
be made promptly to avoid unreasonable delay in the Work.
13.5.7 The Contractor shall furnish, promptly, and without additional charge,
all facilities, labor and materials necessary to permit safe, thorough and
convenient inspection and testing as required in the Contract Documents. The
Contractor shall pay any costs of inspection or testing when material and
workmanship is not ready for such inspection or testing at the time that it was
requested by the Contractor, unless previously agreed to by the parties.
13.6 [Intentionally omitted]
13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD
13.7.1 As between the Owner and the Contractor:
.1 As to acts or failures to act occurring prior to the relevant
date of Substantial Completion of the applicable Segment of the
Work, any applicable statute of limitations shall commence to run
and any alleged cause of action shall be deemed to have accrued
in any and all events not later than such date of Substantial
Completion;
.2 As to acts or failures to act occurring subsequent to the
relevant date of Substantial Completion of the applicable Segment
of the Work, and prior to issuance of the Final Application for
Payment for such Segment of the Work, any applicable statute of
limitations shall commence to run and any alleged cause of action
shall be deemed to have accrued in any and all events not later
than the date of issuance of the Final Application for Payment;
and
.3 As to acts or failures to act occurring after the relevant date
of issuance of the Final Application for Payment covering a
Segment of the Work, any applicable statute of limitations shall
commence to run and any alleged cause of action shall be deemed
to have accrued in any and all events not later than the date of
any act or failure to act by the Contractor pursuant to any
warranty provided under Paragraph 3.5, the date
General Conditions
January 10, 1996
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<PAGE> 99
of any correction of the Work in question or failure to correct
such Work by the Contractor under Paragraph 12.2, or the date of
actual commission of any other act or failure to perform any duty
or obligation by the Contractor or the Owner, whichever occurs
last.
13.8 CONTRACTOR'S CERTIFICATIONS
13.8.1 Within ten (10) days after the Owner's request, the Contractor shall
execute and deliver such representations and certifications which the Owner may
be required to provide in connection with financing for the Project.
ARTICLE 14
[Intentionally omitted]
ARTICLE 15
NOTICE TO PROCEED;
GUARANTEED MAXIMUM PRICE
15.1 NOTICE TO PROCEED; GUARANTEED MAXIMUM PRICE
15.1.1 The parties acknowledge that the Work shall proceed in segments, and
that the Guaranteed Maximum Price applicable to all Work pursuant to the
Agreement cannot be determined at the time of the execution of the Agreement.
Therefore, the total Guaranteed Maximum Price for all Work shall be established
based on the final Drawings and Specifications, as well as Subcontractors' bids,
in accordance with this Article 15. Concurrently with the execution of the
Agreement, the parties have prepared and signed "Notice(s) To Proceed" (defined
in Subparagraph 1.1.1), for various "Segments" of the Work authorized to date
(each such Notice To Proceed covering a "Segment" of the Work), all as more
particularly described in the Drawings and Specifications referred to in such
Notice(s) to Proceed. From time to time during the term of the Agreement, the
Owner may elect, in its discretion, to submit to the Contractor Drawings and
Specifications for additional "Segments" of the Work. However, the Owner does
not guarantee to the Contractor or the Architect that any Work, other than that
authorized by any initial Notice(s) To Proceed attached hereto, will be
authorized by the Owner. Upon receipt of Drawings and Specifications for
additional Segments of Work, the Contractor shall immediately prepare bid
packages for such Work, for submission to Subcontractors who have been approved
by the Owner. Based on Subcontractor bids approved by the Owner, the Contractor
shall deliver to the Owner a proposed Notice To Proceed for the Segment
General Conditions
January 10, 1996
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<PAGE> 100
of the Work described in the Drawings and Specifications so delivered to the
Contractor and the bid packages approved by the Owner. If, after requesting
bids, the Owner and the Contractor are unable to agree upon the terms of a
Notice To Proceed for the particular Segment of the Work, the Owner may rescind
its request for such Segment of the Work and may obtain performance of the
Segment of the Work by others. The Contractor shall be authorized to undertake
only those portions of the Work authorized in writing by the Owner in a Notice
To Proceed complying with this Article 15.
15.1.2 Each "Notice To Proceed" shall (i) describe the Work to be performed in
each Segment and the Drawings and Specifications and any other additional
Contract Documents applicable to such Work, (ii) set forth the "Maximum Segment
Cost", as defined below, proposed by the Contractor and approved by the Owner,
in its sole discretion, for such Work, and (iii) specify the Contract Time(s)
agreed upon by the Owner and the Contractor for the Segment(s) of the Work
covered by the Notice To Proceed. The Owner and the Contractor agree that the
"Maximum Segment Cost" for the Work authorized by each Notice To Proceed shall
be equal to the sum of the total of all Subcontractors' bids and the
Contractor's work approved by the Contractor and the Owner for the Segment in
question. The Contractor's Fee for Work covered by each Notice To Proceed shall
be equal to that percentage set forth in the Agreement. The Contractor's Fee for
each Segment shall be specified in the Notice To Proceed for the Segment. The
Contractor shall complete all Work specified in Notices To Proceed executed by
the Owner and the Contractor in accordance with the Contract Documents within
the Contract Time for each Segment of the Work as specified in the Notice To
Proceed for such Segment, at a cost not exceeding the Maximum Segment Cost for
such Segment of the Work, as stated in the Notice(s) To Proceed as adjusted by
Change Order for such Segment of the Work.
15.1.3 As each segment of the Work is authorized, the Guaranteed Maximum Price
shall be increased by the amount of the Guaranteed Maximum Price of the work
authorized in the segment. There shall be no separate Guaranteed Maximum Price
for each segment after it has been authorized and added to the Work previously
authorized.
General Conditions
January 10, 1996
Page 56
<PAGE> 1
EXHIBIT 11.1
ALTERA CORPORATION
______________
COMPUTATION OF EARNINGS PER SHARE(1)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1994 1993
------- ------- -------
(In thousands except
per share amounts)
<S> <C> <C> <C>
Net Income ......................................................... $86,871 $14,608 $21,195
======= ======= =======
Weighted average shares outstanding ................................ 43,313 41,626 40,484
Net effect of dilutive stock options ............................... 2,264 1,620 1,508
------- ------- -------
Total common and common equivalent shares outstanding .............. 45,577 43,246 41,992
======= ======= =======
Net income per share ............................................... $ 1.91 $ 0.34 $ 0.51
======= ======= =======
</TABLE>
- -----------
(1) This exhibit should be read in conjunction with Notes 2 and 9 of Notes to
Consolidated Financial Statements.
<PAGE> 1
EXHIBIT 13.1
EXCERPT FROM ALTERA CORPORATION
1995 ANNUAL REPORT
ABOUT YOUR INVESTMENT
Stock Ownership Profile. At December 31, 1995, there were approximately
410 holders of record of Altera stock. Since most holders' shares are
listed under their brokerage firm's name, the actual number of
shareholders is much higher, and is estimated by the Company to be
over 10,000.
[ESTIMATED STOCK OWNERSHIP GRAPH]
Stock Price. Altera's initial public offering took place on March 31,
1988. The Company's price-to-earnings ratio at each year-end for the
last five years, was as follows:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
32.5 23.0 32.4 26.0* 22.2
</TABLE>
* Excludes R&D in-process write-off associated with the acquisition of
Intel's programmable logic business.
[COMPARATIVE STOCK PERFORMANCE GRAPH]
Trading Volume. The average trading volume in the Company's stock
increased 13% in 1995 over 1994, as measured by Nasdaq. Trading volume
in 1995 averaged 1.7 million shares per day, compared to 1.5 million per
day in 1994, and 840,000 in 1993, retroactively adjusted for a 2 for 1
split of the Company's common stock in the second quarter of 1995.
[AVERAGE DAILY TRADING VOLUME GRAPH]
ALTERA CORPORATION 13
<PAGE> 2
SELECTED CONSOLIDATED FINANCIAL DATA
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands, -------------------------------------------------------------------------
except per share amounts) 1995 1994 1993 1992 1991
-------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Sales $401,598 $198,796 $140,279 $101,470 $106,862
Cost of sales 158,808 77,672 58,470 43,994 43,846
-------------------------------------------- -------- -------- -------- --------
Gross profit 242,790 121,124 81,809 57,476 63,016
Research and development 33,849 45,994 16,847 15,826 14,381
Selling, general, and
administrative 74,658 45,771 35,202 25,147 22,423
-------------------------------------------- -------- -------- -------- --------
Income from operations $134,283 $ 29,359 $ 29,760 $ 16,503 $ 26,212
======== ======== ======== ======== ========
Income before income taxes $137,891 $ 31,496 $ 31,392 $ 18,024 $ 27,845
======== ======== ======== ======== ========
Net income $ 86,871 $ 14,608 $ 21,195 $ 11,539 $ 17,807
======== ======== ======== ======== ========
Net income per share $ 1.91 $ 0.34 $ 0.51 $ 0.28 $ 0.43
======== ======== ======== ======== ========
Shares used in computing net
income per share 45,577 43,246 41,992 41,286 41,134
======== ======= ======== ======== ========
<CAPTION>
December 31
(In thousands, -------------------------------------------------------------------------
except per share amounts) 1995 1994 1993 1992 1991
-------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheets Data:
Working capital $346,242 $121,479 $ 94,895 $ 66,508 $ 51,414
Total assets $715,554 $213,882 $155,757 $114,693 $102,206
Long-term debt $288,600 -- -- -- --
Shareholders' equity $255,189 $158,019 $121,699 $ 95,606 $ 81,450
Book value per share $ 5.86 $ 3.68 $ 2.98 $ 2.38 $ 2.06
</TABLE>
QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------------
(In thousands, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
-------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $75,038 $92,165 $109,079 $125,316
Gross profit $44,987 $54,676 $ 66,262 $ 76,865
Net income $15,097 $19,632 $ 23,729 $ 28,413
======= ======= ======== ========
Net income per share $ 0.34 $ 0.43 $ 0.52 $ 0.62
======= ======= ======== ========
<CAPTION>
Year Ended December 31, 1994
--------------------------------------------------------
(In thousands, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
-------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $43,510 $47,061 $49,051 $59,174
Gross profit $26,531 $28,854 $30,180 $35,559
Net income $ 7,657 $ 8,292 $ 8,448 $(9,789)
======= ======= ======== ========
Net income per share $ 0.18 $ 0.20 $ 0.20 $ (0.22)
======= ======= ======== ========
</TABLE>
14 ALTERA CORPORATION
<PAGE> 3
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS &
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales. 1995 sales were $401.6 million, a 102% increase from 1994 sales
of $198.8 million, and a 186% increase from 1993 sales of $140.3
million. The increase in sales from 1994 was driven by increased unit
volumes of the Company's MAX 7000 component family, and to a lesser
extent by the FLEX 8000 family, as well as by sales of products
acquired from Intel on October 1, 1994, including the Classic and
FLEXlogic (now called FLASHlogic) product lines. Sales of the mature
Classic and MAX 5000 product lines have been flat for the last two
years, although unit volume has generally been increasing. Percentage
sales growth was generally consistent across all regions.
Sales of development systems and software used by customers to design
and program Altera components were approximately 6% of sales in 1995,
compared to 9% and 10% of sales in 1994 and 1993, respectively.
Licensed installations grew approximately 21% during the year and now
cumulatively total approximately 23,000.
Sales of the MAX 7000 family more than doubled from 1994 and comprised
more than 40% of total Company sales for the year. The MAX 7000 family
offers users some of the fastest mid-density parts available in the
marketplace today. All members of the family are electrically erasable.
Average selling prices for the family declined approximately 30%
through the year, commensurate with manufacturing cost reductions.
Sales of the FLEX 8000 family increased by a factor of six from the
prior year and the family now accounts for 18% of Company sales. This
family includes some of the largest programmable logic devices offered
by any vendor. All members of the family may be reprogrammed without
being removed from the end-user's system (in-circuit reconfigurability).
During 1995, average selling prices for the family declined
approximately 35%, as a result of lower pricing generally, and somewhat
as a result of a product mix shift.
In the second quarter of 1995, the Company began shipping the MAX 9000
product family. This family has a feature-rich, high-density
architecture. All members of the family can be programmed after being
soldered onto the circuit board for manufacturing ease. Also in 1995,
the Company introduced the FLEX 10K family. This family offers logic
capacities that were once associated exclusively with gate arrays,
combined with the time-to-market advantages of programmable logic
devices. Various combinations of memory configurations and complex logic
functions can be implemented in FLEX 10K devices.
Altera believes that it is common for the prices of high-technology
products to decline as the technology matures, as availability and
competition increase, and as new, more advanced products are introduced.
The Company expects this trend to continue.
Altera's major markets are in communications, computing, and industrial
applications. Altera's 1995 international sales were 47% of total sales,
compared to 48% in 1994 and 49% in 1993.
ALTERA CORPORATION 15
<PAGE> 4
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS & RESULTS OF
OPERATIONS
Major items in the statements of operations, expressed as a percentage of
sales, were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Cost of sales 40% 39% 42%
Gross margin 61% 61% 58%
Research and development 8% 23% 12%
Selling, general, and administrative 19% 23% 25%
Operating income 33% 15% 21%
Other income, net 1% 1% 1%
Provision for income taxes 13% 9% 7%
Net income 22% 7% 15%
</TABLE>
Gross Margin. As a percentage of sales, gross margin declined slightly from
60.9% in 1994 to 60.6% in 1995. The margin percentage showed quarter-to-quarter
decline in each of the first three quarters of the year, due to lower prices to
end customers and higher costs for purchased silicon wafers. As the Company
purchases the majority of its silicon wafers in yen, the appreciation of the
yen versus the dollar resulted in higher costs to the Company during the first
half of 1995. The increased silicon costs were partially offset by a reduction
in other manufacturing costs as a result of scale efficiencies on higher
production volumes and improvements in production yields. The margin percentage
increased in the fourth quarter of 1995 to 61.3%, due to improved yields of the
Company's newer, higher-density products and a strengthening of the dollar to
the yen.
Research & Development. The Company, through its research and development
efforts, attempts to bring new products to market and to improve and update its
existing products. In the last three years, the Company has introduced the FLEX
8000, MAX 9000, and FLEX 10K families of products, three major new software
releases, and several new package technologies. Additionally, the Company has
redesigned a number of its products to accommodate their manufacture on new
wafer fabrication processes, including a new eight-inch wafer process using
triple-layer metal technology.
In the fourth quarter of 1994, the Company charged $23.7 million of the
purchase price of the Intel programmable logic business to "research and
development in process." Excluding this charge, research and development
expenditures increased by 52% from 1994 to 1995, and 32% from 1993 to 1994. The
increases were driven by larger expenditures for the design of new products,
including more design engineering labor, prototype wafers, and masks. Also
contributing to the increase in 1995 were the higher labor expenses for the
development of software to support new products and design environments, and
pre-production costs related to the introductions of the MAX 9000 and FLEX 10K
families.
Selling, General & Administrative. Selling, general, and administrative
expenses rose 63% in 1995, compared to a 30% increase from 1993 to 1994.
Selling expenses increased 69% over 1994, driven by higher marketing and field
sales headcount, new offices both domestically and internationally, increases
in advertising and promotional expenditures, and higher commissions due to
increased sales. Altera has about twenty field sales offices and markets its
products through distributors, representatives, and its own direct sales force.
16 ALTERA CORPORATION
<PAGE> 5
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS &
RESULTS OF OPERATIONS
Approximately 79% of the Company's worldwide sales are made through
distributors. The Company will continue to increase sales resources in markets
and regions where it anticipates such actions will increase sales or improve
customer service.
General and administrative expenses increased 51% in 1995 over 1994, and 19% in
1994 over 1993. General and administrative expenses include legal, accounting,
data processing, human resources management, and corporate administration
costs. The expenses increased in 1995 primarily as a result of increased
headcount. The increase in general and administrative expenses in 1994 compared
to 1993 was a result of increased legal expenses associated with the patent
litigation with Xilinx, Inc., which commenced in June 1993, and to a much
lesser degree, patent litigation with AMD, which commenced in August 1994.
Operating Income. Operating income in 1995 was $134.3 million, compared to
$29.4 million in 1994. The 1994 operating income includes a $23.7 million
charge for research and development in process. Excluding this charge,
operating income for 1994 was $53.1 million or 27% of sales compared to 33% of
sales in 1995. On this basis, the operating income as a percentage of sales
increased from 1994 to 1995, primarily due to lower operating expenses. The
lower operating expenses stemmed from a lower percentage of selling, general
and administrative, and research and development expenses.
Interest & Other Income. In 1995, increased cash balances, as a result of the
issuance of $230 million of convertible notes, combined with improved interest
rates, increased interest income to $11.0 million, compared to $2.9 million in
1994. The increase in interest income was partially offset by interest expense
and amortization of debt issuance costs of $7.4 million related to the
convertible notes issued in June 1995.
Taxes. Altera's tax rate was 37% percent in 1995, compared to 54% in 1994 and
33% in 1993. The higher rate in 1994 resulted from the tax treatment of the
research and development in-process charge. The tax rate in 1993 includes a
favorable adjustment for taxes related to prior tax years. Excluding the effect
of the research and development in-process charge, the effective rate was 37% in
1994, which is consistent with the 1995 rate.
Future Results. Future operating results depend on the Company's ability to
develop, manufacture, and sell complicated semiconductor components and complex
software that offer customers greater value than solutions offered by competing
vendors. The Company's efforts in this regard may not be successful. Also, a
number of factors outside of the Company's control, including general economic
conditions and cycles in world markets, exchange rate fluctuations, or a lack
of growth in the Company's end markets could adversely impact future results.
The Company is highly dependent upon subcontractors to manufacture silicon
wafers and perform assembly and testing services. Disruptions or adverse supply
conditions arising from market conditions, political strife, labor disruptions,
natural or man-made disasters, normal process fluctuations, variances in
manufacturing yields, and other factors could have adverse consequences on the
Company's future results. Additionally, litigation relating to competitive
patents and intellectual property, competitive breakthroughs, and aggressive
competitive pricing could also adversely affect future operating results.
ALTERA CORPORATION 17
<PAGE> 6
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS &
RESULTS OF OPERATIONS
For instance, in 1994, the Company found it necessary to significantly
reduce the prices for its FLEX 8000 family of products in order to
stimulate customer interest and design activity. In 1992 and 1993,
competition resulted in severe price erosion on the MAX 5000 line of
products resulting in lower margins. The Company expects price competition
and other competitive threats to continue. Because of the foregoing and
other factors that might affect the Company's operating results, past
financial performance should not be considered an indicator of future
performance, and investors should not use historical trends to anticipate
future results. In addition, the cyclical nature of the semiconductor
industry and other factors have resulted in a highly volatile price of the
Company's common stock.
FINANCIAL CONDITION
Total assets increased $501.7 million to a total of $715.6 million at year
end. Cash, cash equivalents, and short-term investments increased $272.6
million and receivables increased $22.9 million; property, plant, and
equipment increased $36.6 million, including the purchase of land for $19.9
million for the development of a multiple-building corporate headquarters.
In addition, total assets include a $122.9 million prepayment to secure
future wafer capacity allocations extending into 2001. The increased asset
base was funded primarily through operating income and the issuance of $230
million of convertible notes. Working capital of $346.2 million increased
$224.7 million over year-end 1994 working capital of $121.5 million.
Cash, Cash Equivalents & Short-term Investments. Altera's cash, cash
equivalents, and short-term investments (total cash) increased by $272.6
million in 1995 to $365.2 million. $83.8 million in cash generated from
operating activity and $224.8 million in net proceeds from convertible debt
issued in June 1995 were partially consumed by capital expenditures ($45.8
million) and an option fee paid to Taiwan Semiconductor Manufacturing Co.,
Ltd. (TSMC) to secure future wafer capacity ($2.4 million). At year-end
1995, total cash represented 51% of total assets and 143% of total
shareholders' equity.
Accounts Receivable. Accounts receivable increased 72% to $54.5 million.
This increase is less than the 112% increase in fourth quarter 1995 sales
versus fourth quarter of 1994 sales due to increased collections in
December 1995 versus December 1994.
Inventories. Year-end inventories of $55.4 million increased 44% compared
to year-end 1994 levels. Inventory levels have risen as a result of the
introduction of two new product families in 1995 (MAX 9000 and FLEX 10K),
as well as to support increasing customer demand and provide improved
customer delivery response.
Current Liabilities. Current liabilities increased by $115.9 million
(207%) over the prior year. Excluding $61.9 million of short-term notes
payable to TSMC to secure future wafer capacity allocations, current
liabilities increased 97% over the prior year. The increase reflects
increases in accrued liabilities to vendors and employees, and an increase
in the accruals for returns and allowances stemming from higher sales
volumes and increased worldwide distributor inventories.
18 ALTERA CORPORATION
<PAGE> 7
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS &
RESULTS OF OPERATIONS
Long-Term Debt. Long-term debt consists of the convertible subordinated notes
issued in June 1995 ($230.0 million) and notes payable to TSMC to secure future
wafer capacity allocations ($58.6 million). The convertible subordinated notes
are due in June of 2002 and bear an interest rate of 5.75%, payable
semiannually. The notes are convertible at the option of the holder into shares
of the Company's common stock at a price of $51.17 per share. Discounts,
commissions, and expenses, which are amortized over the seven-year life of the
notes, reduced the proceeds to $224.8 million. The notes are callable by the
Company no sooner than June of 1998. The long-term notes payable relate to
several agreements with TSMC securing future wafer capacity allocations
extending into 2001. The long-term portion of the notes with TSMC totals
$58.6 million of which $53.8 million and $4.8 million are due in 1997 and 1998,
respectively.
To further secure wafer capacity, in 1995 Altera entered into a letter of
intent concerning the formation of a joint-venture company with TSMC and
several other prospective partners to build a U.S.-based wafer fab. Under the
terms of the letter of intent, Altera will receive 16% equity ownership in the
joint-venture company and up to 24% capacity in the wafer fab. Altera's
investment in the joint venture is expected to be $125 million to be paid over
the next two years. The Company can give no assurance at this time as to the
final terms of the joint venture or the capacity of the planned wafer fab.
Shareholders' Equity. Shareholders' equity increased by $97.2 million in 1995.
Retained earnings increased $86.9 million, and common stock increased $10.3
million, primarily as a result of stock sold to employees. In 1995, the
Financial Accounting Standards Board released Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." FAS 123 provides
an alternative to APB 25, requires additional disclosure, and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans under APB 25 and provide additional
disclosure required by FAS 123.
Capital Expenditures. Capital expenditures for the year totaled $45.8 million,
a $35.3 million increase over 1994 expenditures. A major portion of the
increase ($19.9 million) was the purchase, for cash, of approximately 25 acres
of land near the Company's present headquarters for the long-term development
of a multiple-building corporate headquarters. The Company is formulating
development plans for the site and presently anticipates building approximately
500,000 square feet of office and light manufacturing space on the new site.
The construction is expected be completed in 1997. The remaining increase in
capital represents additional test and automated handling capacity to
accommodate increased sales and more rigorous test requirements of the
Company's newer products. Altera's capital expenditures in the past three
years, excluding the land purchase in 1995, have been primarily for
semiconductor design and test equipment, as well as data processing software
and equipment.
ALTERA CORPORATION 19
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS
& RESULTS OF OPERATIONS
Employees. Over the course of 1995, the number of regular employees increased
32% to 881 at year end. At year end, there were 240 employees in research and
development, 289 in manufacturing, 249 in sales and marketing, and 103 in
finance and administration. Sales per employee was $519,000 compared to
$335,000 in 1994, and $279,000 in 1993.
LIQUIDITY & CAPITAL RESOURCES
At December 31, 1995, Altera had $365.2 million of cash, cash equivalents, and
short-term investments available to finance future growth, $61.9 million of
short-term notes payable, and $288.6 million of long-term debt. The Company
also has a banking facility available for standby and commercial letters of
credit. Management believes that capital expenditures in 1996 will increase
from 1995 commensurate with sales growth. In addition, the Company expects $35
to $40 million of costs in 1996 related to the construction of its corporate
headquarters. Payments related to Altera's investment in the joint venture with
TSMC are expected to aggregate $125 million, spread over 1996 and 1997. Altera
believes the available sources of funds and the cash expected to be generated
from operations will be adequate to finance current operations, notes payable,
and capital expenditures through at least 1996.
IMPACT OF CURRENCY & INFLATION
The Company purchases the majority of its materials and services in U.S.
dollars, and its foreign sales are also billed in U.S. dollars. Thus, the
Company has not been subject to substantial currency exchange fluctuations in
the past. However, certain contracts for silicon wafer purchases are
denominated in Japanese yen, and the volume of such contracts increased
significantly in 1994 and in 1995. The increase of yen-dominated purchases in
1995 and the declining value of the dollar with respect to the yen had an
adverse impact on the Company's margins during the first six months of the
year. The Company was able to mitigate much of that impact with improved
yields and efficiencies. In addition, in the third quarter of 1995, the Company
purchased yen forward contracts in an amount approximately equal to its
expected yen requirements for that quarter. As of December 31, 1995, the
Company had no open foreign exchange contracts for the purchase or sale of
foreign currencies. If market conditions change, however, Altera may choose to
bill foreign customers in local currencies. In addition, the impacts of other
foreign currency exchange rate fluctuations may be material in the future, as a
result of increased material purchases in yen. The effects of inflation upon
Altera's financial results have not been significant to date.
20 ALTERA CORPORATION
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS -----December 31-----
(In thousands) 1995 1994
----------------------------------------------------------------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 79,409 $ 41,639
Short-term investments 285,810 50,955
----------------------------------------------------------------- --------
Total cash, cash equivalents, and
short-term investments 365,219 92,594
Accounts receivable, less allowance for doubtful
accounts of $1,005 and $727 54,518 31,662
Inventories 55,421 38,477
Deferred income taxes 37,339 12,365
Other current assets 5,510 2,244
----------------------------------------------------------------- --------
Total current assets 518,007 177,342
Property and equipment, net 54,846 18,212
Investments 131,331 11,772
Other assets 11,370 6,556
----------------------------------------------------------------- --------
$715,554 $213,882
======== ========
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY -----December 31-----
(In thousands, except share amounts) 1995 1994
----------------------------------------------------------------- --------
<S> <C> <C>
Current liabilities:
Accounts payable $ 17,049 $ 11,313
Accrued liabilities 72,209 34,573
Notes payable 61,920 -
Accrued compensation 16,347 8,631
Income taxes payable 4,240 1,346
----------------------------------------------------------------- --------
Total current liabilities 171,765 55,863
Notes payable 58,600 -
Convertible notes 230,000 -
----------------------------------------------------------------- --------
Total liabilities 460,365 55,863
-------- --------
Commitments and contingencies (Notes 6, 7, 8)
Shareholders' equity:
Common stock; no par value; 80,000,000 shares
authorized; 43,558,321 and 42,975,628 shares
issued and outstanding 83,445 73,146
Retained earnings 171,744 84,873
----------------------------------------------------------------- --------
Total shareholders' equity 255,189 158,019
-------- --------
$715,554 $213,882
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
ALTERA CORPORATION 21
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS & SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
OPERATIONS
Year Ended December 31
------------------------------------------
(In thousands, except per share amounts) 1995 1994 1993
------------------------------------------------------------ -------- --------
<S> <C> <C> <C>
Sales $401,598 $198,796 $140,279
Cost of sales 158,808 77,672 58,470
------------------------------------------------------------ -------- --------
Gross profit 242,790 121,124 81,809
Research and development 33,849 22,249 16,847
Research and development in process -- 23,745 --
Selling, general, and administrative 74,658 45,771 35,202
------------------------------------------------------------ -------- --------
Income from operations 134,283 29,359 29,760
Interest expense 7,401 -- --
Interest and other income, net 11,009 2,137 1,632
------------------------------------------------------------ -------- --------
Income before income taxes 137,891 31,496 31,392
Provision for income taxes 51,020 16,888 10,197
------------------------------------------------------------ -------- --------
Net income $ 86,871 $ 14,608 $ 21,195
======== ======== ========
Net income per common share and
common equivalent $ 1.91 $ 0.34 $ 0.51
======== ======== ========
Shares and equivalents used in calculation
of net income per share 45,577 43,246 41,992
======== ======== ========
<CAPTION>
SHAREHOLDERS' EQUITY
Common Retained
(In thousands, except per share amounts) Stock Earnings
---------------------------------------------------------------------------- --------
<S> <C> <C>
Balance, December 31, 1992 $46,536 $ 49,070
Tax benefit resulting from stock option transactions 2,049
Issuance of 664,570 shares 2,849
Net income 21,195
---------------------------------------------------------------------------- --------
Balance, December 31, 1993 51,434 70,265
Tax benefit resulting from stock option transactions 2,265
Issuance of 2,159,454 shares 19,447
Net income 14,608
---------------------------------------------------------------------------- --------
Balance, December 31, 1994 73,146 84,873
Tax benefit resulting from stock option transactions 5,269
Issuance of 582,693 shares 5,030
Net income 86,871
---------------------------------------------------------------------------- --------
Balance, December 31, 1995 $83,445 $171,744
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22 ALTERA CORPORATION
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 86,871 $ 14,608 $ 21,195
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,269 7,001 6,504
Amortization 2,897 2,527 1,310
Research and development in process -- 23,745 --
Deferred taxes (24,974) (4,568) (3,780)
Changes in assets and liabilities:
Accounts receivable, net (22,856) (9,804) (7,377)
Inventories (16,944) (12,235) (1,211)
Other assets (4,341) (825) 69
Accounts payable 5,736 6,001 2,765
Accrued liabilities 37,553 10,799 9,342
Accrued compensation 7,716 3,041 2,559
Income taxes payable 2,894 (2,107) 418
- -------------------------------------------------- -------- -------- --------
Cash provided by operating activities 83,821 38,183 31,794
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,820) (10,509) (5,520)
Acquisition of Intel programmable
logic business -- (22,911) --
Other long-term investments (500) (600) (112)
Net change in short-term investments (234,855) 13,850 (24,356)
- -------------------------------------------------- -------- -------- --------
Cash used for investing activities (281,175) (20,170) (29,988)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Convertible notes 224,825 -- --
Tax benefit from employee stock dispositions 5,269 2,265 2,049
Net proceeds from issuance of capital stock 5,030 4,529 2,849
- -------------------------------------------------- -------- -------- --------
Cash provided by financing activities 235,124 6,794 4,898
-------- -------- --------
Net increase in cash and cash equivalents 37,770 24,807 6,704
Cash and cash equivalents at beginning of year 41,639 16,832 10,128
- -------------------------------------------------- -------- -------- --------
Cash and cash equivalents at end of year $ 79,409 $ 41,639 $ 16,832
======== ======== ========
Cash paid during the year for:
Income taxes $ 64,122 $ 21,106 $ 11,390
Interest $ 6,392 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
ALTERA CORPORATION 23
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: COMPANY & BUSINESS
Altera Corporation (Altera or the Company) designs, develops,
manufactures, and markets CMOS programmable logic integrated
circuits and associated engineering development software and
hardware. The Company's major markets are communications,
computing, and industrial applications.
The Company's export sales were $187.4, $95.5, and $69.2 million
for 1995, 1994, and 1993, respectively. Sales to Europe were
$84.2, $42.6, and $34.5 million and to Japan were $78.9, $37.6, and
$24.7 million in 1995, 1994, and 1993, respectively. In 1995, the
two largest distributors accounted for 21% and 15% of sales. In 1994,
the two largest distributors accounted for 15% and 14% of sales,
whereas in 1993, they each accounted for approximately 10% of sales.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries: Altera
Germany GmbH, Altera France SARL, Altera Italia SARL, Altera U.K.
Limited, Altera Japan K.K., Altera Corporation (M) Sdn Bhd, and Altera
Foreign Sales Corporation. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts; actual results could differ from those estimates.
CASH EQUIVALENTS & SHORT-TERM INVESTMENTS. Cash equivalents consist of
highly liquid investments with original maturities of three months or
less. Short-term investments are held as securities available for sale
and are carried at their market value as of the balance sheet date.
Realized gains or losses are determined on the specific identification
method and are reflected in income. Net unrealized gains or losses are
recorded directly in shareholders' equity except that those unrealized
losses that are deemed to be other than temporary are reflected in
income.
INVENTORIES. Inventories are recorded on a first-in first-out basis at
the lower of standard cost, which approximates actual cost, or market.
The inventories at December 31, 1995 and 1994, were comprised of the
following components (in thousands):
<TABLE>
<CAPTION>
----December 31----
1995 1994
-------------------------------------------- --------
<S> <C> <C>
Inventories:
Purchased parts and raw materials $ 2,067 $ 2,185
Work in process 38,617 22,230
Finished goods 14,737 14,062
-------------------------------------------- -------
$55,421 $38,477
======= =======
</TABLE>
DEPRECIATION & AMORTIZATION. Depreciation and amortization are
computed using the straight-line method. Estimated useful lives of
two to five years are used for equipment and office furniture.
Amortization of leasehold improvements is computed using the
24 ALTERA CORPORATION
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shorter of the remaining facility lease term or the estimated useful life
of the improvements. Property and equipment at December 31, 1995 and 1994,
was comprised of the following components (in thousands):
<TABLE>
<CAPTION>
-----December 31-----
1995 1994
----------------------------------------------------------------- --------
<S> <C> <C>
Property and equipment:
Land $ 19,925 -
Building 1,605 -
Equipment 64,703 $ 43,284
Office furniture and equipment 4,908 4,124
Leasehold improvements 3,512 2,852
----------------------------------------------------------------- --------
94,653 50,260
Accumulated depreciation and amortization (39,807) (32,048)
----------------------------------------------------------------- --------
$ 54,846 $ 18,212
======== ========
</TABLE>
Intangibles. The Company evaluates the recoverability of its intangible
assets in accordance with Statement of Financial Accounting Standard No.
121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." FAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such
assets.
Revenue Recognition. The Company recognizes revenue from product sales
upon shipment. Product sales to distributors are made under agreements
allowing a limited right-of-return and price adjustments under certain
circumstances. Estimated returns and allowances are recorded at the time of
shipment. Accrued liabilities include provisions for returns and allowances
of $54.5 million and $22.5 million at December 31, 1995 and 1994,
respectively.
Foreign Exchange Contracts. The Company purchases the majority of its
materials and services in U.S. dollars and its foreign sales are also
billed in U.S. Dollars. However, certain contracts for silicon wafer
purchases are denominated in Japanese yen. At times, the Company enters
into foreign exchange option or forward contracts to hedge against currency
fluctuations which affect these transactions. As of December 31, 1995, the
Company had no open foreign exchange contracts for the purchase or sale of
foreign currencies, but may choose to enter into such contracts in the
future should conditions appear favorable. The Company maintains a
yen-denominated bank account, which is accounted for as an identifiable
hedge against wafer purchases. No assurances can be given that any of these
arrangements will protect the Company from the effects on its operation of
currency fluctuations.
Income Taxes. The Company accounts for income taxes under Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" (FAS
109), which requires an asset and liability approach that recognizes
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, FAS 109
generally considers all expected future events other than enactments of
changes in the tax law or rates.
ALTERA CORPORATION 25
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per Share. Net income per share is computed using the
weighted average number of common and dilutive common equivalent shares
attributable to stock options outstanding during the period, using the
treasury stock method. The financial data retroactively reflect a
2-for-1 split of the Company's outstanding common stock, paid May 31,
1995, to the shareholders of record on May 10, 1995. Effective on the
record date, the number of authorized shares of the Company's common
stock increased from 40 million to 80 million.
Employee Stock Plans. The Company accounts for its employee stock
option plan and employee stock purchase plan in accordance with
provisions of the Accounting Principles Board's Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees." In 1995, the Financial
Accounting Standards Board released FAS 123, "Accounting for
Stock-Based Compensation." FAS 123 provides an alternative to APB 25,
requires additional disclosure, and is effective for fiscal years
beginning after December 15, 1995. The Company expects to continue to
account for its employee stock plans in accordance with APB 25 and
provide additional disclosure required by FAS 123. Accordingly, FAS 123
is not expected to have any material impact on the Company's financial
position or results of operations.
Fair Value of Financial Instruments. For certain of the Company's
financial instruments, including cash and cash equivalents, short-term
investments, accounts receivable, notes payable, accounts payable, and
accrued expenses, the carrying amounts approximate fair value due to
their short maturities. The estimated fair value for the convertible
notes (with a carrying amount of $230 million at December 31, 1995) is
approximately $268 million. The fair value for the convertible notes is
primarily based on quoted market prices for the same or similar issues.
Given the nature of the Taiwan Semiconductor Manufacturing Co., Ltd.
(TSMC) wafer allocation agreements, it is not practicable to estimate
the fair value of the long-term investments and notes payable relating
to these agreements (see Note 7).
Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist
principally of investments and trade receivables. The Company places
its investments with high-credit-quality counterparties and, by policy,
limits the amount of credit exposure to any one counterparty. The
Company has adopted credit policies and standards to accommodate the
industry's growth and inherent risk. Management believes that any risk
of accounting loss is significantly reduced due to the diversity of its
products, end customers, and geographic sales areas. The Company
performs ongoing credit evaluations of its customers' financial
condition and requires collateral, such as letters of credit and bank
guarantees, whenever deemed necessary.
Dependence on Wafer Suppliers. The Company does not directly
manufacture finished silicon wafers. The Company's strategy has been to
maintain relationships with larger semi-conductor manufacturers for the
production of its wafers. The Company has been successful in
maintaining such relationships (Notes 5 and 7). However, there can be
no assurance that the Company will be able to satisfy its future wafer
needs from current or alternative manufacturing sources. This could
result in possible loss of sales or reduced margins.
26 ALTERA CORPORATION
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: MARKETABLE SECURITIES
At December 31, 1995 and 1994, the carrying value of the Company's portfolio of
marketable securities approximated fair value. The portfolio consists of the
following:
<TABLE>
<CAPTION>
December 31,
-----------------------
(in thousands) 1995 1994
- ---------------------------------- -------- -------
<S> <C> <C>
Cash equivalents:
Money market $ 48,800 $15,000
Other debt securities 10,500 900
Municipal bonds 14,800 19,100
- ---------------------------------- -------- -------
$ 74,100 $35,000
======== =======
Short-term investments:
Municipal bonds $ 89,800 $51,000
Government obligations 175,000 --
Corporate bonds 11,400 --
Other debt securities 9,600 --
- ---------------------------------- -------- -------
$285,800 $51,000
======== =======
</TABLE>
At December 31, 1995 and 1994, the net unrealized holding gains and losses on
securities were immaterial. Of the total short-term investments at December 31,
1995, $89.8 million matures in less than one year and the remaining $196.0
million matures within one to two years.
NOTE 4: ACQUISITION
On October 1, 1994, Altera purchased Intel Corporation's Programmable Logic
Device (PLD) product line, including certain directly associated capital
equipment, a credit toward the purchase of inventory, and certain intellectual
property. The PLD product line was purchased for a price of $37.8 million,
consisting of $22.9 million in cash and 1,402,700 shares of the Company's common
stock (valued at $14.9 million). The transaction was accounted for as a
purchase. The excess of the purchase price over the fair market value of the
net tangible assets acquired was allocated to research and development in
process ($23.7 million), and to acquired technology ($7.0 million) that is
being amortized over four years on a straight-line basis. At December 31, 1995,
the accumulated amortization related to the acquired technology amounted to
$2.2 million. Had the acquisition of the PLD product line occurred as of the
beginning of 1994, unaudited sales, net income, and net income per share
presented on a pro forma basis for the year ended December 31, 1994, would have
been $224.5 million, $29.7 million, and $0.67, respectively.
NOTE 5: INVESTMENTS
Altera's long-term investments primarily relate to deposits with TSMC for
future wafer allocations ($120.5 million; Note 7) and the Company's 17% equity
interest in Cypress Semiconductor (Texas) Inc. (CSTI), a subsidiary of Cypress
Semiconductor Corporation. Altera has the right to purchase a percentage of the
wafers produced by CSTI approximately equal to the Company's percentage
ownership of CSTI. The Company accounts for this investment under the cost
method.
ALTERA CORPORATION 27
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1995, Altera entered into a letter of intent concerning the
formation of a joint-venture company with TSMC and several other
prospective partners to build a U.S.-based wafer fab. Under the
terms of the letter of intent, Altera will receive 16% equity
ownership in the joint-venture company and up to 24% capacity in
the wafer fab. Altera's investment in the joint venture is expected
to be $125 million spread over the next two years.
NOTE 6: COMMITMENTS
The Company leases its facilities under non-cancelable lease
agreements. The major facility lease expires in July 1997; the
Company then has the option to extend the lease for an additional
two and one-half year period, followed by three five-year options.
The lease requires the Company to pay property taxes, insurance,
maintenance, and repair costs. Future minimum lease payments under
all non-cancelable operating leases as of December 31, 1995, are
$2,527,000 and $1,278,000 in 1996 and 1997, respectively, and none
thereafter. Rental expense under all operating leases amounted to
$2,151,000, $2,567,000, and $2,100,000 in 1995, 1994, and 1993,
respectively.
The Company has available a $25 million bank credit facility for letters
of credit only. The terms of this facility require immediate funding of
any draws against any letters of credit issued under the facility. The
facility requires the Company to comply with certain covenants regarding
net worth and financial ratios.
NOTE 7: NOTES PAYABLE
In 1995, the Company entered into several agreements with TSMC, whereby
it agreed to make certain deposits to TSMC for future wafer capacity
allocations extending into 2001. The Company made cash deposits
amounting to $2.4 million in 1995 and issued promissory notes for
$120.5 million representing partial prepayments for wafers to be
supplied under these agreements. The promissory notes are due in 1996
($61.9 million), 1997 ($53.8 million), and 1998 ($4.8 million).
Under the terms of these agreements, TSMC agrees to provide the Company
with wafers manufactured with TSMC processes and according to the
Company's specifications, and the Company agrees to purchase and TSMC
agrees to supply, a specific capacity of wafers per year through 2001.
Subsequent billings for actual wafers used from TSMC will reduce the
prepaid balance. The prepayments are generally nonrefundable if the
Company does not purchase the full prepaid capacity unless the Company
identifies a third-party purchaser, acceptable to TSMC, for the
capacity.
NOTE 8: CONVERTIBLE NOTES
In June 1995, the Company issued $230 million of convertible
subordinated notes due in June of 2002 and bearing an interest rate of
5.75%, payable semiannually. The notes are convertible into shares of
the Company's common stock at a price of $51.17 per share. Discounts,
commissions, and expenses, which are being amortized over the
seven-year life of the notes, reduced the net proceeds to $224.8
million. Accumulated amortization at December 31, 1995 amounted to
approximately $400,000. The notes are callable by the Company no sooner
than June of 1998.
28 ALTERA CORPORATION
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: CAPITAL STOCK
There are 8.1 million shares of common stock reserved for issuance under the
1987 Stock Option Plan. The Company commenced option grants under the 1987
Stock Option Plan in February 1988.
The Company's 1988 Director Stock Option Plan was approved by the shareholders
in April 1989. A total of 400,000 shares of common stock are reserved for
issuance thereunder. The plan provides for the periodic issuance of stock
options to members of the Company's Board of Directors who are not also
employees of the Company.
There are 1.4 million shares of common stock reserved for issuance under the
1987 Employee Stock Purchase Plan. The Plan permits eligible employees to
purchase common stock through payroll deductions not to exceed 10% of an
employee's compensation, at 85% of the lower of the closing price at the
beginning or at the end of each six-month offering period.
The Company received a $5,269,000, $2,265,000, and $2,049,000 tax benefit in
1995, 1994, and 1993, respectively, on the exercise of non-qualified stock
options and on the disposition of stock acquired with an incentive stock option
or through the employee purchase plan. The number of shares for which options
were exercisable was approximately 1,025,000 and 932,000 at December 31, 1995
and 1994, respectively. Subsequent to December 31, 1995, the Company's Board of
Directors authorized increases in the share reserves for the 1987 Stock Option
Plan and the 1988 Directors Stock Option Plan of one million and 70,000 shares,
respectively, subject to shareholder approval at the Company's next annual
meeting. A summary of transactions relating to the Company's stock plans
follows:
<TABLE>
<CAPTION>
Shares
Subject to
Shares Outstanding Per Share
Reserved Options Price
- ------------------------------------------- ----------- ------------
<S> <C> <C> <C>
Balance at December 31, 1992 842,216 3,404,724 $ 0.05-16.63
Shares authorized 2,800,000
Shares purchased (235,990) $ 4.84- 7.17
Stock options:
Granted (1,394,934) 1,394,934 $ 7.07-16.13
Exercised (428,580) $ 0.05- 5.69
Cancelled 165,384 (165,384) $ 2.75- 9.69
- ------------------------------------------- --------- ------------
Balance at December 31, 1993 2,176,676 4,205,694 $ 0.05-16.13
Shares purchased (153,178) $11.40-11.96
Stock options:
Granted (1,280,332) 1,280,332 $12.07-20.50
Exercised (603,900) $ 2.75-19.38
Cancelled 318,326 (318,326) $ 4.57-17.50
- ------------------------------------------- --------- ------------
Balance at December 31, 1994 1,061,492 4,563,800 $ 0.05-20.50
Shares authorized 1,600,000
Shares purchased (163,323) $11.79-21.62
Stock options:
Granted (1,173,200) 1,173,200 $20.25-69.75
Exercised (419,368) $ 0.05-19.44
Cancelled 288,128 (288,128) $ 4.56-62.56
- ------------------------------------------- --------- ------------
Balance at December 31, 1995 1,613,097 5,029,504 $ 0.05-69.75
========= =========
</TABLE>
ALTERA CORPORATION 29
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: LITIGATION
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company
seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. In June 1993,
the Company brought suit against Xilinx, seeking monetary damages and
injunctive relief based on Xilinx's alleged infringement of certain
patents held by the Company. In April 1995, the Company filed a
separate lawsuit against Xilinx in Delaware, Xilinx's state of
incorporation, seeking monetary damages and injunctive relief based on
Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counterclaimed against the Company in Delaware, asserting
defenses and seeking monetary damages and injunctive relief based on
the Company's alleged infringement of certain patents held by Xilinx.
A motion by Xilinx to transfer the Delaware cases to California is
pending. The California litigation is presently the subject of
court-ordered mediation. Due to the nature of the litigation with
Xilinx and because the lawsuits are still in the pre-trial stage, the
Company's management cannot estimate the total expense, the possible
loss, if any, or the range of loss that may ultimately be incurred in
connection with the allegations. Management cannot ensure that Xilinx
will not succeed in obtaining significant monetary damages or an
injunction against the manufacture and sale of the Company's MAX 5000,
MAX 7000, FLEX 8000, or MAX 9000 families of products, or succeed in
invalidating any of the Company's patents. Although no assurances can
be given as to the results of these cases, based on the present status,
management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results
of operations.
In August 1994, Advanced Micro Devices ("AMD") brought suit against the
Company seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by AMD. In
September 1994, Altera answered the complaint asserting that it is
licensed to use the patents which AMD claims are infringed and filed a
counterclaim against AMD alleging infringement of certain patents held
by the Company. The case has been bifurcated to provide that a separate
trial on the issue of the scope of the existing cross-license agreement
between the parties will precede the trial on the infringement claims.
Due to the nature of the litigation with AMD, and because the lawsuit
is still in the pre-trial stage, the Company's management cannot
estimate the total expense, the possible loss, if any, or the range of
loss that may ultimately be incurred in connection with the
allegations. Management cannot ensure that AMD will not succeed in
obtaining significant monetary damages or an injunction against the
manufacture and sale of the Classic, MAX 5000, MAX 7000, FLEX 8000, MAX
9000, FLEX 10K, and FLASHlogic product families, or succeed in
invalidating any of the Company's patents. Although no assurances can
be given as to the results of this case, based on its present status,
management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results
of operations.
30 ALTERA CORPORATION
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION> ----Year Ended December 31----
(In thousands) 1995 1994 1993
--------------------------------------------- ------- -------
<S> <C> <C> <C>
Current tax expense:
United States $ 64,931 $17,687 $11,302
State 10,663 3,568 2,406
Foreign 400 200 146
--------------------------------------------- ------- -------
Total current tax expense 75,994 21,455 13,854
Deferred taxes (24,974) (4,567) (3,657)
--------------------------------------------- ------- -------
Total provision for income taxes $ 51,020 $16,888 $10,197
======== ======= =======
</TABLE>
The 1994 tax provision includes taxes related to the acquisition of
Intel's programmable logic business. The 1993 tax provision includes a
reduction of previously provided taxes due to the change in tax rate
that resulted from the 1993 Omnibus Budget Reconciliation Act and the
settlement of various tax matters.
Deferred tax assets (liabilities) were as follows:
<TABLE>
<CAPTION>
----December 31----
(In thousands) 1995 1994
--------------------------------------------------------- -------
<S> <C> <C>
Assets:
Accrued expenses and reserves $30,846 $10,611
Acquisition costs 7,291 7,300
State taxes 3,325 --
Other 809 492
--------------------------------------------------------- -------
Gross deferred tax assets 42,271 18,403
Deferred tax liabilities (186) (805)
Deferred tax asset valuation allowance (4,746) (5,233)
--------------------------------------------------------- -------
Net deferred tax assets $37,339 $12,365
======= =======
</TABLE>
The valuation allowances of $4.7 and $5.2 million at December 31, 1995
and 1994, respectively, are attributable to deferred tax assets from
the acquisition of Intel's programmable logic business which will not
be deductible for tax purposes for several years. Sufficient
uncertainty exists regarding the realizability of these assets and,
accordingly, valuation allowances are required.
The provision for taxes reconciles to statutory taxes as follows:
<TABLE>
<CAPTION> ----Year Ended December 31----
(In thousands) 1995 1994 1993
------------------------------------------------ ------- -------
<S> <C> <C> <C>
Tax provision at U.S. statutory rates $48,262 $11,024 $10,987
State taxes, net of federal benefit 6,315 2,319 1,564
Foreign sales corporation (2,033) (995) (1,026)
Valuation allowance (487) 5,233 --
Other, net (1,037) (693) (1,328)
----------------------------------------------- ------- -------
Total provision for income taxes $51,020 $16,888 $10,197
======== ======= =======
</TABLE>
ALTERA CORPORATION 31
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALTERA CORPORATION
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity, and
cash flows present fairly, in all material respects, the financial position
of Altera Corporation and its subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
San Jose, California
January 16, 1996
32 ALTERA CORPORATION
<PAGE> 21
CORPORATE DIRECTORY
BOARD OF DIRECTORS
Rodney Smith
Chairman, Chief Executive Officer & President
Altera Corporation
Michael A. Ellison
Chief Executive Officer
Steller, Inc.
Paul Newhagen
Vice President, Administration
Altera Corporation
Robert W. Reed
Senior Vice President
Intel Corporation
William E. Terry
Former Director & Executive Vice President
Hewlett-Packard Company
CORPORATE OFFICERS
Rodney Smith
President & Chief Executive Officer
C. Wendell Bergere
Vice President, General Counsel & Secretary
Denis Berlan
Vice President, Operations/Product Engineering
Erik Cleage
Vice President, Marketing
John R. Fitzhenry
Vice President, Human Resources
Clive McCarthy
Vice President, Development Engineering
Paul Newhagen
Vice President, Administration
Thomas J. Nicoletti
Vice President, Investor Relations and
Business Development
James Sansbury
Vice President, Technology
Nathan Sarkisian
Vice President, Finance & Chief Financial Officer
Peter Smyth
Vice President, Sales
CORPORATE HEADQUARTERS
2610 Orchard Parkway
San Jose, California 95134-2020
(408) 894-7000
CORPORATE COUNSEL
Wilson, Sonsini, Goodrich & Rosati
Palo Alto, California
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
San Jose, California
FORM 10-K
A copy of the Company's Form 10-K, filed with the Securities and Exchange
Commission (without exhibits) is available from:
Shareholder Relations
Altera Corporation
2610 Orchard Parkway
San Jose, California 95134-2020
(408) 894-7707
STOCK LISTING
Altera's common stock has been traded on the over-the-counter market since the
Company's initial public offering (IPO) on March 31, 1988, and is quoted on
The Nasdaq Stock Market under the symbol "ALTR." The Company has never paid
cash dividends on its common stock and has no present plans to do so.
For the past two years, the quarterly high and low closing sales prices for the
common stock were:
<TABLE>
<CAPTION>
1995 1994
Quarter High Low High Low
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
First ......... 29 11/16 20 1/4 18 11/16 13 5/8
Second ........ 45 27 15/16 19 7/16 12 9/16
Third ......... 69 3/4 43 5/8 16 11 3/8
Fourth ........ 65 3/16 46 1/8 21 3/8 13 13/32
</TABLE>
REGISTRAR/TRANSFER AGENT
Bank of Boston
Investor Relations
P.O. Box 644
Boston, MA 02102-0644
(617) 575-3100
Altera, MAX, FLEX, and MAX+PLUS are registered trademarks, and MAX+PLUS II,
FLEX 10K, FLEX 8000, MAX 9000, MAX 7000, MAX 5000, Classic, FLASHlogic,
FLEXlogic, and individual device designations are trademarks of Altera
Corporation. Altera Corporation acknowledges the trademarks of other
organizations for their respective products or services mentioned in this
document.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction Year
Name of Incorporation Organized
- ------------------------------------- ------------------ -----------------
Altera GmbH Germany 1989
Altera Foreign Sales Corporation Barbados 1989
Nihon Altera KK Japan 1990
Altera France SARL France 1990
Altera Italia SARL Italy 1991
Altera (UK) Limited United Kingdom 1992
Altera Corporation (m) Sdn. Bhd. Malaysia 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 79,409
<SECURITIES> 285,810
<RECEIVABLES> 54,518
<ALLOWANCES> 1,005
<INVENTORY> 55,421
<CURRENT-ASSETS> 518,007
<PP&E> 94,653
<DEPRECIATION> 39,807
<TOTAL-ASSETS> 715,554
<CURRENT-LIABILITIES> 171,765
<BONDS> 288,600
83,445
0
<COMMON> 0
<OTHER-SE> 171,744
<TOTAL-LIABILITY-AND-EQUITY> 715,554
<SALES> 401,598
<TOTAL-REVENUES> 401,598
<CGS> 158,808
<TOTAL-COSTS> 158,808
<OTHER-EXPENSES> 108,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,401
<INCOME-PRETAX> 137,891
<INCOME-TAX> 51,020
<INCOME-CONTINUING> 86,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,871
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 0
</TABLE>
