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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 000-22339
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RAMBUS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-3112828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2465 Latham Street, Mountain View, CA 94040
(Address of principal executive offices) (zip code)
(650) 944-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
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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 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]
Aggregate market value of the registrant's Common Stock held by non-
affiliates of the Registrant as of November 30, 1999 was approximately $1.3
billion based upon the closing price reported for such date on the Nasdaq
National Market. For purposes of this disclosure, shares of Common Stock held
by persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of outstanding shares of the Registrant's Common Stock, $.001 par
value, was 23,796,308 as of November 30, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's next Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
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PART I
This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about the Company's industry, management's beliefs, and certain
assumptions made by the Company's management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions that are
difficult to predict; therefore, actual results may differ materially from
those expressed or forecasted in any such forward-looking statements. Such
risks and uncertainties include those set forth herein under "Factors Affecting
Future Results" on pages 6 through 13, as well as those noted in the documents
incorporated herein by reference. Unless required by law, the Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. However,
readers should carefully review the risk factors set forth in other reports or
documents the Company files from time to time with the Securities and Exchange
Commission, particularly the Quarterly Reports on Form 10-Q and any Current
Reports on Form 8-K.
Item 1. Business
Rambus Inc. ("Rambus" or the "Company") designs, develops, licenses and
markets high-speed chip-to-chip interface technology to enhance the performance
and cost-effectiveness of computers, consumer electronics and other electronic
systems. The Company licenses semiconductor companies to manufacture and sell
memory and logic ICs incorporating Rambus interface technology and markets its
solution to systems companies to encourage them to design Rambus interface
technology into their products. The Company's technology cost-effectively
increases the data transfer rate, or "memory bandwidth," allowing semiconductor
memory devices to keep pace with faster generations of processors and
controllers and thus supports the accelerating data transfer requirements of
multimedia and other high-bandwidth applications.
Rambus was incorporated in California in March 1990 and reincorporated in
Delaware in March 1997.
Background
The performance of a computer or other electronic system is typically
constrained by the speed of its slowest element. In the past, that element was
the logic IC that controlled the system's specific functions and performed
calculations--the microprocessor. In recent years, however, new generations of
microprocessors and controllers have become substantially faster and more
powerful, and increasingly the bottleneck in system performance is becoming the
component that stores the instructions and data needed by the microprocessors
and controllers--the DRAM.
Since 1980, the typical operating frequency of mainstream microprocessors
has increased from 5 MHz (million cycles per second) to over 700 MHz. During
this same period, the typical operating frequency of a standard DRAM has
increased only to 100 MHz. This growing disparity between the frequency of
microprocessors and DRAMs is termed the "Performance Gap."
While microprocessors have undergone both manufacturing and architectural
improvements, significant innovations for DRAMs have generally only occurred in
the manufacturing area. DRAM manufacturers have been successful in increasing
DRAM "density," or storage capacity, from roughly 1 Kbit (thousand bits) to 128
Mbits (million bits) per chip, thereby reducing the number of DRAMs required
for a given amount of memory. However, corresponding architectural improvements
necessary to increase DRAM data transfer rates to keep pace with increasing
microprocessor speeds have not occurred.
Rambus Technology
Rambus has created a revolutionary chip-to-chip interface architecture,
which allows data to be transferred through a simplified bus at significantly
higher frequencies than permitted by conventional technologies.
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Rambus has focused the application of its interface technology on the
Performance Gap and licenses its interface technology to memory and logic
semiconductor manufacturers, which incorporate this interface technology into
their IC designs to supply systems companies with Rambus ICs. The key elements
of the Rambus interface are Rambus-based DRAMs ("RDRAMs"), Rambus ASIC cells
("RACs") and the interconnecting circuitry known as the "Rambus Channel." While
Rambus technology can be used to address a wide variety of chip-to-chip data
transfer requirements, the largest immediate application is to connect logic
circuits to memory in home video games, PCs, workstations and other electronic
systems.
The latest generation of Rambus interface technology allows data transfers
of up to 1.6 gigabytes per second between a logic IC and RDRAMs by transferring
data at a frequency of 800 MHz over a two byte wide bus. System performance can
be further enhanced by applying Rambus interface technology to multiple
channels on a logic IC. For example, a Rambus-based logic IC can utilize four
channels to achieve data transfer of up to 6.4 gigabytes per second. There can
be no assurance that this latest technology will result in products suitable
for mass production. See "Factors Affecting Future Results- No Assurance of
Adoption of Rambus Technology as an Industry Standard; Cost of Rambus
Technology", "--Dependence upon PC Main Memory Market Segment and Intel" and
"--Rapid Technological Change; Reliance on Fundamental Technology; Importance
of Timely New Product Development."
Target Markets and Applications
The high-speed interface technology Rambus has developed is applicable to
data transfer between most semiconductor chips. The Company has chosen to
concentrate the application of its technology on the interface between logic
ICs and memory devices because of the acute performance needs and the relevant
market sizes. While Rambus interface technology is useful in providing
increased memory bandwidth in any electronic system, the Company believes that
the systems which will best utilize the high bandwidth provided by current
Rambus technology are the relatively high-volume, low-cost systems in which
maximum performance is desired at a reasonable cost. To date, the principal
applications for the Company's technology have been in video game and PC
systems. Other applications include various consumer and workstation multimedia
markets. These areas accounted for the sale of approximately $266 million, $495
million and $447 million of Rambus ICs by Rambus licensees in calendar 1998,
1997 and 1996, respectively.
In November 1996, Rambus entered into a development and license contract
with Intel. The contract provided for the parties to cooperate in the
development of a specification for next-generation Rambus technology to be
targeted at the PC main memory market segment. To date, Intel has developed and
begun producing two Rambus controllers as part of new chipsets. One, designed
for use with RDRAMs in workstations, was released on schedule. The other
chipset, meant for use in the much larger desktop PC segment, was delayed prior
to release due to technical problems. There can be no assurance that such
problems have been completely solved or that the Intel chipset and Rambus
technology will be successful in penetrating the market segment for PC main
memory.
Another major application for the second generation of Rambus interface
technology is in the next version of the Sony video game system known as
PlayStation 2. This system is scheduled to be introduced in Japan in March 2000
and in the U. S. and Europe later in the year. Other applications for the
Company's technology include inkjet and laser printers, consumer products such
as digital televisions and networking equipment such as high-speed Ethernet
switches. There can be no assurance that sales of such products will be
meaningful.
Rambus Business Model and Strategy
In order to establish Rambus interface technology as an industry standard,
the Company has adopted an innovative business model in which it neither
manufactures nor sells semiconductors incorporating the Company's technology.
The Company licenses its technology on a nonexclusive and worldwide basis to
semiconductor companies which manufacture and sell RDRAMs and logic ICs
containing RACs to systems companies which have adopted Rambus technology.
Systems companies are not required to obtain a Rambus license to incorporate
Rambus ICs into their products. However, an important part of the Company's
strategy is to maintain close ties to these systems companies in order to
encourage the adoption of Rambus technology.
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Rambus provides licenses to both DRAM manufacturers and logic IC
manufacturers, who can license Rambus interface technology for use in producing
RDRAMs and/or logic ICs containing RACs. At September 30, 1999, Rambus had a
total of 31 licensees for the newest generation of Rambus technology. Rambus
licensees include fourteen DRAM manufacturers which collectively accounted for
over 95% of worldwide DRAM sales in calendar 1998: Fujitsu, Hitachi, Hyundai
Electronics, IBM, Micron Technology, Matsushita, Mitsubishi, NEC, Oki Electric
Industry, Samsung Electronics, Siemens, Toshiba, Vanguard and Winbond. At
September 30, 1999, five of these licensees were shipping RDRAMs. Rambus logic
licensees include Advanced Micro Devices, Compaq, Hewlett-Packard, IBM, Intel,
LSI Logic, Matsushita, NEC, S3, Texas Instruments and Toshiba. At September 30,
1999, seven logic licensees were shipping logic ICs which include RACs.
The Rambus business model and strategy are designed to promote Rambus as an
industry standard, target leading systems companies in markets that the Company
believes represent the greatest potential for Rambus IC sales, provide systems
companies with multiple sources for RDRAMs, share research and development
efforts with licensees, maintain technology leadership, pursue a system-level
approach and generate revenue through a combination of contract fees and
royalties.
Contract fees have provided the majority of the capital needed to date by
the Company to develop its fundamental technology, and the Company believes
that its business model is well suited to continue funding future development.
However, there is no assurance that the Company's current partner licensees
will generate revenue, or that the Company will be able to add new license
contracts in the future, at levels sufficient to provide significant funding
for further development activities.
Royalties, which are generally a percentage of the revenues received by
licensees on their sales of Rambus ICs, are normally payable by a Rambus
licensee on sales occurring during the life of the Rambus patents being
licensed. For a typical systems application of Rambus technology, the Company
receives royalties from the sale of both logic ICs containing RACs and RDRAMs
as they are shipped by Rambus licensees. Royalty rates range up to a maximum of
approximately 2.5% for RDRAMs and a maximum of approximately 5% for logic ICs,
and in some cases may decline based on the passage of time or on the total
volume of Rambus ICs shipped. The exact rate and structure of a royalty
arrangement with a particular licensee depend on a number of factors, including
the amount of the license fee to be paid by the licensee and the marketing and
engineering commitment made by the licensee.
Design and Manufacturing
Rambus interface technology has been developed to allow semiconductor
companies to use familiar, widely-available design tools and conventional
techniques when designing their Rambus-enabled chips. A new Rambus licensee
receives an implementation package from the Company which contains all the
information needed to develop a Rambus IC in the licensee's process. There are
separate implementation packages for RDRAMs and for RACs. An implementation
package includes a specification, a generalized circuit layout database for the
particular version of the RDRAM or RAC which the licensee intends to develop,
test parameter software and, for RDRAMs, a DRAM core interface specification.
Many licensees have contracted to have Rambus produce the specific
implementation required to optimize the generalized circuit layout for the
licensee's manufacturing process. In such cases, the licensee provides specific
design rules and transistor models which Rambus designers use to integrate
RDRAM or RAC circuits into the licensee's process. However, Rambus anticipates
that as licensees become more familiar with the Rambus technology, they will be
able to do more of the implementation work without Rambus' assistance.
Rambus has developed its technology to be manufacturable using familiar,
industry-standard CMOS semiconductor processes. For this reason the Company
believes that the wafer fabrication yields of RDRAMs and logic products
containing RACs in mass-production volumes will be consistent with those for
similar products in the same manufacturing facility. However, it is likely that
for some initial startup period the newest generation of RDRAMs will have a
lower than normal yield to the full 800 MHz specification, and some parts will
have to be sold at a lower price based on a 700 MHz or even a 600 MHz
specification. There can be no
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assurance that a market for such downgraded RDRAMs will develop. In addition,
because of the extra Rambus interface circuitry and other features, an RDRAM
chip is somewhat larger than a standard DRAM. Therefore, a manufacturer will
generally produce fewer RDRAMs than standard DRAMs for a given wafer size and
an RDRAM chip will be somewhat more expensive than the standard version. Also,
RDRAM manufacturers are responsible for their own manufacturing processes and
Rambus has no role in the manufacture of RDRAMs. For example, Rambus has no
influence on decisions in regard to any process changes or on whether or when
to "shrink" or otherwise change a design to reduce the cost of the chips.
In the latest implementation of Rambus technology, RDRAMs use newer-
generation chip scale packaging ("CSP") and require high-speed testers for a
portion of the test procedure. While the Company feels that packaging and
testing costs for RDRAMs in mass production volumes will be no greater than for
current standard DRAMs, additional capital equipment will be required and
startup costs will be incurred by the manufacturers producing these newest
Rambus DRAMs. In addition, for PC main memory applications memory modules
(called "RIMMs"), connectors and clock chips must be produced by multiple
vendors and available in volume. There is no assurance that such changes in the
manufacturing processes and infrastructure of the DRAM industry will be
accomplished in sufficient time and at a sufficiently competitive price to
allow the development of a mass market for Rambus technology.
Research and Development
The ability of the Company to compete in the future will be substantially
dependent on its ability to advance its interface technology in order to meet
changing market needs. To this end, Company engineers are involved in
developing new versions of the Rambus interface technology which will allow
chip-to-chip data transfer at higher speeds as well as provide other
improvements. The Company has assembled a team of highly skilled engineers
whose activities are focused on further development of Rambus interface
technology as well as adaptation of current technology to specific licensees'
processes. Because of the complexity of these activities, the design and
development process at Rambus is a multi-disciplinary effort requiring
expertise in computer architecture, digital and analog circuit design and
layout, DRAM and logic semiconductor process characteristics, packaging, PCB
routing and high-speed testing techniques.
As of September 30, 1999, Rambus had 114 employees in its engineering
departments. Approximately two thirds of these employees have advanced
technical degrees. In fiscal 1999, 1998 and 1997, research and development
expenses were approximately $8.1 million, $9.6 million and $9.8 million,
respectively. In addition, because the Company's license agreements often call
for engineering support by Rambus, a substantial portion of the Company's total
engineering costs has been allocated to cost of contract revenues, even though
these engineering efforts have direct applicability to Rambus' technology
development. The Company expects that it will continue to invest substantial
funds in research and development activities. There can be no assurance that
new versions of the Rambus interface technology can be developed and introduced
by the Company's licensees in a timely fashion or that such new technology will
be accepted by the market. Moreover, the end markets for the Company's
technology are subject to rapid technological change and there can be no
assurance that as such markets change the Company's interface technology will
remain current and suitable.
Competition
The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change, short product life
cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers, including Rambus licensees, produce
higher-frequency versions of standard DRAMs such as SDRAMs (synchronous DRAMs)
which compete with RDRAMs. These companies are much larger and have better
access to financial, certain technical and other resources than Rambus.
The Company believes that its success in establishing a new high-speed
memory interface has been due in part to the systems approach it has taken to
solving the application needs of companies in home video game,
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PC and other electronic systems businesses. However, the Company believes
competitors have begun to take a similar approach. The Company believes that
its principal competition may come from its licensees and prospective
licensees, many of which are evaluating and developing products based on
alternative technologies. Some DRAM suppliers have begun to produce Double Data
Rate ("DDR") SDRAMs, aimed at doubling the memory bandwidth from SDRAMs without
increasing the clock frequency. In addition, a consortium including both large
DRAM manufacturers and systems companies is developing an extension of DDR
known as DDR-2. To the extent that these alternative technologies provide
comparable system performance at lower or similar cost than RDRAMs, or are
perceived to require the payment of lower royalties, the Company's licensees
and prospective licensees may adopt and promote the alternative technologies.
There can be no assurance that the Company's future competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, certain semiconductor companies are now
marketing ICs which combine logic and DRAM on the same chip. Such chips, called
"embedded DRAM," eliminate the need for any chip-to-chip interface and are
primarily being used for graphics applications. Embedded DRAMs are well suited
for applications where component space saving and power consumption are
important, such as in the graphics subsystems of notebook PCs. There can be no
assurance that competition from embedded DRAMs will not increase in the future.
Patents and Intellectual Property Protection
The Company has an active program to protect its proprietary technology
through the filing of patents. At September 30, 1999, the Company held 62
United States patents on various aspects of its technology, with expiration
dates ranging from 2010 to 2019 and had applications pending for an additional
approximately 90 United States patents. The Company's United States patents do
not prevent the manufacture or sale of Rambus-based ICs abroad. At September
30, 1999, the Company held ten foreign patents and had an additional 36 foreign
patent applications pending in Taiwan, Korea, Japan and various other
jurisdictions. In addition, the Company attempts to protect its trade secrets
and other proprietary information through agreements with licensees and systems
companies, proprietary information agreements with employees and consultants
and other security measures. The Company also relies on trademarks and trade
secret laws to protect its intellectual property.
Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's contracts generally prevent a licensee
from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus interface
technology. Specifically, the contracts generally require licensees to grant to
Rambus a royalty-free cross-license on patented licensee intellectual property
related to the implementation of Rambus interface technology, which Rambus
sublicenses to other licensees which have entered into similar arrangements.
Not all licensees have granted Rambus cross-licenses and there is no assurance
that such a blocking arrangement will not occur in the future.
Sales and Marketing
Consistent with the Company's business model, sales and marketing activities
are focused on developing relationships with potential licensees and on
participating with existing licensees in marketing, sales and technical efforts
directed to systems companies. In many cases, Rambus must dedicate substantial
resources to market to and support systems companies. The Company's sales and
marketing efforts include applications engineering and other technical support
for systems companies, as well as trade shows, advertising and other
traditional marketing activities.
Employees
As of September 30, 1999 the Company had 166 employees, including five in
Japan. Of this total, 114 were in engineering, 34 were in marketing and sales,
and 18 were in finance and administration. Overall, approximately three
quarters of the Company's employees have technical degrees, and more than half
of the
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Company's employees have advanced technical degrees. The Company's future
success will largely be dependent on its ability to attract, retain and
motivate highly qualified technical and management personnel who are in great
demand in the semiconductor industry. The Company's employees are not
represented by any collective bargaining agreements and the Company has never
experienced a work stoppage. The Company believes that its employee relations
are good.
Factors Affecting Future Results
Unpredictable and Fluctuating Operating Results. Because many of the
Company's revenue components fluctuate and are difficult to predict, and its
expenses are largely independent of revenues in any particular period, it is
difficult for the Company to accurately forecast revenues and profitability.
Historically, contract revenues have represented the largest portion of the
Company's revenues. The Company recognizes contract revenues ratably over the
period during which post-contract customer support is expected to be provided.
While this means that contract revenues from current licenses are generally
predictable, changes can be introduced by a reevaluation by Company management
of the length of the post-contract support period. The initial estimate of this
period is subject to revision as the Rambus IC being developed under a contract
nears production, and such revision will result in an increase or decrease to
the quarterly revenue for that contract. In addition, accurate prediction of
revenues from new licenses is difficult because the development of a business
relationship with a potential licensee is a lengthy process, frequently
spanning a year or more, and the fiscal period in which a new license agreement
will be entered into, if at all, and the financial terms of such an agreement
are difficult to predict. Contract revenues also include fees for engineering
services, which are dependent upon the varying level of assistance desired by
licensees and, therefore, the revenue from these services is also difficult to
predict. Adding to the complexity of making accurate financial forecasts is the
fact that certain expenses associated with a particular contract may not be
incurred evenly over the contract period, whereas contract fees associated with
that contract are recognized ratably over the period during which the post-
contract customer support is expected to be provided.
Royalties accounted for 18% of total revenues in fiscal 1999. The Company
believes that royalties will represent an increasing portion of total revenue
in the future. Increasing royalty revenues will add to the difficulty in making
accurate financial forecasts. Such royalties are recognized in the quarter in
which the Company receives a report from a licensee regarding the shipment of
Rambus ICs in the prior quarter, and are dependent upon fluctuating sales
volumes and prices of chips containing Rambus technology, all of which are
beyond the Company's ability to control or assess in advance. The Company
believes that its continued success will be substantially dependent upon
royalties increasing at a rate which more than offsets decreases in the
recognition of deferred revenue under existing contracts as their recognition
periods expire, as well as the Company's ability to add new licensees and to
license new generations of its technology to its existing licensees. Because a
systems company can change its source of Rambus ICs at any time, and because
the new Rambus license source could have a considerable nonrefundable prepaid
royalty balance as well as different royalty rates, any such change by a
systems company, particularly one which accounts for substantial volumes of
Rambus ICs, could have a sudden and significant adverse effect on the Company's
revenues.
The Company's business is subject to a variety of additional risks which
could materially adversely affect quarterly and annual operating results,
including market acceptance of the Company's technology; systems companies'
acceptance of Rambus ICs produced by the Company's licensees; market acceptance
of the products of systems companies which have adopted the Company's
technology; the loss of any strategic relationships with systems companies or
licensees; announcements or introductions of new technologies or products by
the Company or the Company's competitors; delays or problems in the
introduction or performance of enhancements or future generations of the
Company's technology; fluctuations in the market price and demand for DRAMs and
logic ICs into which the Company's technology has been incorporated;
competitive pressures resulting in lower contract revenues or royalty rates;
changes in the Company's and system companies' development schedules and levels
of expenditure on research and development; personnel changes, particularly
those involving engineering and technical personnel; costs associated with
protecting the
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Company's intellectual property; changes in Company strategies; foreign
exchange rate fluctuations or other changes in the international business
climate; and general economic trends and other factors.
Volatility of Stock Price. The trading price of the Company's Common Stock
has been subject to wide fluctuations which may continue in the future in
response to quarterly variations in operating results; progress or lack of
progress in the development of Rambus-based ICs by licensees or Rambus-based
products by systems companies; announcements of technological innovations or
new products by the Company, its licensees or its competitors; developments
with respect to patents or proprietary rights and other events or factors. The
trading price of the Company's Common Stock could also be subject to wide
fluctuations in response to the publication of reports and changes in financial
estimates by securities analysts, and it is possible that the Company's actual
results in one or more future periods will fall short of those estimates by
securities analysts. In addition, the equity markets have experienced
volatility that has particularly affected the market prices of equity
securities of many high technology companies and that often has been unrelated
or disproportionate to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock.
Dependence upon Limited Number of Licensees. The Company neither
manufactures nor sells devices containing its interface technology. Rather, the
Company licenses its technology to semiconductor companies, which in turn
manufacture and sell Rambus ICs to systems companies which incorporate Rambus
technology into their products. The Company's strategy to become an industry
standard is dependent upon the Company's ability to make its technology widely
available to systems companies through multiple semiconductor manufacturers,
and there can be no assurance that the Company will be successful in
maintaining its relationships with its current licensees or in entering into
new relationships with additional licensees. The Company faces numerous risks
in successfully obtaining licensees on terms consistent with the Company's
business model, including, among others, the lengthy and expensive process of
building a relationship with a potential licensee before there is any assurance
of a license agreement with such party; persuading large semiconductor
companies to work with, to rely for critical technology on, and to disclose
proprietary manufacturing technology to, a smaller company such as Rambus;
persuading potential licensees to bear certain development costs associated
with Rambus technology and to make the necessary investment to successfully
produce Rambus ICs; and successfully transferring technical know-how to
licensees. In addition, there are a relatively limited number of larger
semiconductor companies to which the Company could license its interface
technology in a manner consistent with its business model. The Company believes
that its principal competition may come from its licensees and prospective
licensees, many of which are evaluating and developing products based on
alternative technologies.
Dependence upon Systems Companies. Although sales of Rambus ICs to systems
companies which have adopted the Company's technology for their products are
not made directly by the Company, such sales directly affect the amount of
royalties received by the Company. Therefore, the Company's success is
substantially dependent upon the adoption of the Company's interface technology
by systems companies, particularly those which develop and market high-volume
business and consumer products such as home video games and PCs. The Company is
subject to many risks beyond its control that influence the success or failure
of a particular systems company, including among others competition faced by
the systems company in its particular industry; market acceptance of the
systems company's products; the engineering, sales and marketing and management
capabilities of the systems company; technical challenges unrelated to Rambus
technology faced by the systems company in developing its products; and the
financial and other resources of the systems company. The process of persuading
systems companies to adopt the Company's technology can be lengthy and, even if
adopted, there can be no assurance that the Rambus technology will be used in a
product that is ultimately brought to market, achieves commercial acceptance or
results in significant royalties to the Company. Rambus must dedicate
substantial resources to market to and support systems companies, in addition
to supporting the sales and marketing and technical efforts of its licensees in
promoting Rambus technology to systems companies. Even if a systems company
develops a Rambus-based product, success in the market will depend in part on a
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supply of ICs from Rambus licensees in sufficient quantities and at
commercially attractive prices. Because the Company does not control the
business practices of its licensees, it has no ability to establish the prices
at which its technology is made available to systems companies or the degree to
which its licensees promote Rambus technology to systems companies.
No Assurance of Adoption of Rambus Technology as an Industry Standard; Cost
of Rambus Technology. An important part of the Company's strategy to become an
industry standard is to penetrate new markets by targeting leaders in those
markets. This strategy is designed to encourage other participants in those
markets to follow such leaders in adopting Rambus technology. Should a high
profile industry participant adopt Rambus technology for one or more of its
products but fail to achieve success with those products, other industry
participants' perception of Rambus technology could be adversely affected. Any
such event could reduce future sales of Rambus ICs. Likewise, were a market
leader to adopt and achieve success with a competing technology, the Company's
reputation and sales could be adversely affected. In addition, some industry
participants have adopted, and others may in the future adopt, a strategy of
disparaging the Rambus solution adopted by their competitors. Failure of the
Company's technology to be adopted as an industry standard would have a
material adverse effect on the Company's business, financial condition and
results of operations.
One important requirement for the Company's technology to be adopted as an
industry standard is for any premium in the cost of Rambus memory over
alternatives to be reasonable in comparison to the perceived benefits of the
technology. However, there can be no assurance that the cost premium for RDRAMs
over standard memory can be reduced sufficiently to allow the development of
Rambus as an industry standard. It is likely that for some initial startup
period the newest generation of RDRAMs will have a lower than normal yield to
the full 800 MHz specification, and some parts will have to be sold at a lower
price based on a 700 MHz or even a 600 MHz specification. There can be no
assurance that a market for such downgraded RDRAMs will develop or that yields
to the full 800 MHz specification will reach satisfactory levels. In addition,
because of the extra Rambus interface circuitry and other features, an RDRAM
chip is somewhat larger than a standard DRAM. Therefore, a manufacturer will
generally produce fewer RDRAMs than standard DRAMs for a given wafer size and
an RDRAM chip will be somewhat more expensive than the standard version. Also,
RDRAM manufacturers are responsible for their own manufacturing processes and
Rambus has no role in the manufacture of RDRAMs. For example, Rambus has no
influence on decisions in regard to any process changes or on whether or when
to "shrink" or otherwise change a design to reduce the cost of the chips.
In the latest implementation of Rambus technology, RDRAMs use newer-
generation chip scale packaging ("CSP") and require high-speed testers for a
portion of the test procedure. While the Company feels that packaging and
testing costs for RDRAMs in mass production volumes will be no greater than for
current standard DRAMs, additional capital equipment will be required and
startup costs will be incurred by the manufacturers producing these newest
Rambus DRAMs. In addition, for PC main memory applications memory modules
(called "RIMMs"), connectors and clock chips must be produced by multiple
vendors and available in volume. There is no assurance that such changes in the
manufacturing processes and infrastructure of the DRAM industry will be
accomplished in sufficient time, nor that the cost of Rambus technology can be
reduced sufficiently, to allow the development of a mass market.
Dependence upon PC Main Memory Market Segment and Intel. An important part
of the Company's strategy is to penetrate the market segment for PC main
memory. Rambus believes that PC main memory currently accounts for more than
one-half of all DRAMs sold. In November 1996, Rambus signed a development and
license contract with Intel Corporation which provided for the parties to
cooperate in the development of a specification for an extension of the RDRAM
optimized for PC main memory applications. The initially-anticipated
development period for the new RDRAM technology was three years. During 1999,
the scheduled date for release of the initial Intel chipset incorporating a
Rambus memory controller was twice delayed due to a number of technological
issues which needed to be successfully resolved prior to implementation. There
can be no assurance that Intel's chipsets designed for use with RDRAMs will
meet
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market requirements. In addition, there can be no assurance that the market for
high bandwidth PC main memory products, as anticipated by Intel, will develop
at all or that RDRAMs will be built by the Company's licensees and purchased by
PC manufacturers in sufficient quantity to become a standard for PC main
memory. Under the contract, Intel can terminate its relationship with Rambus at
any time. The Company established an earlier relationship with Intel several
years ago, but Intel did not at that time pursue development relating to Rambus
technology. There can be no assurance that Intel's current emphasis or
priorities will not change in the future, resulting in less attention and fewer
resources being devoted to the current Rambus relationship. Although certain
aspects of the current relationship between the two companies are contractual
in nature, many important aspects depend on the continued cooperation of the
two companies. There can be no assurance that Rambus and Intel will be able to
work together successfully over an extended period of time. In addition, there
can be no assurance that Intel will not develop or adopt competing technologies
in the future.
Revenue Concentration. The Company is subject to revenue concentration risks
at both the licensee and the systems company levels. In fiscal 1999, 1998, and
1997, revenues from the Company's top five licensees accounted for
approximately 47%, 49% and 63% of the Company's revenues, respectively. In
fiscal 1999, 1998, and 1997 NEC accounted for approximately 11%, 22% and 29% of
revenues, respectively. Also in fiscal 1999, two other licensees accounted for
11% and 10% of revenues. In fiscal 1997, one other licensee accounted for 10%
of revenues. Because the revenues derived from various licensees vary from
period to period depending on the addition of new contracts, the expiration of
deferred revenue schedules under existing contracts and the volumes and prices
at which the licensees have recently sold Rambus ICs to systems companies, the
particular licensees which account for revenue concentration have varied from
period to period. These variations are expected to continue in the foreseeable
future although the Company anticipates that revenue will continue to be
concentrated in a limited number of licensees.
The royalties received by the Company are a function of the adoption of
Rambus technology at the systems company level. Systems companies purchase
semiconductors containing Rambus technology from Rambus licensees, and
generally do not have a direct contractual relationship with the Company. The
Company's licensees generally do not provide detail as to the identity of, or
volume of Rambus ICs purchased by, particular systems companies. As a result,
the Company faces difficulty in analyzing the extent to which its future
revenues will be dependent upon particular systems companies. However, the
Company believes that sales from its licensees to Nintendo have accounted for a
substantial portion of royalties in the past but are unlikely to continue at
such a rate in the future. In fiscal 2000 it is likely that sales by licensees
to Sony and to PC manufacturers will account for the majority of the Company's
royalty revenues. All these systems companies face intense competitive pressure
in their markets, which are characterized by extreme volatility, frequent new
product introductions and rapidly shifting consumer preferences, and there can
be no assurance as to the unit volumes of Rambus ICs that will be purchased by
these companies in the future or the level of royalty-bearing revenues that the
Company's licensees will receive from sales to these companies. There can be no
assurance that a significant number of other systems companies will adopt the
Company's technology or that the Company's dependence upon particular systems
companies will decrease in the future.
Reliance upon DRAM Market; Declines in DRAM Price and Unit Volume per
System. To date, a majority of the Company's royalties has been derived from
the sale of logic ICs incorporating RACs. If the Company is successful in its
strategy to penetrate the PC main memory market, the Company expects that
royalties from the sale of RDRAMs will eventually account for the largest
portion of royalties. Royalties on RDRAMs are based on the volumes and prices
of RDRAMs manufactured and sold by the Company's licensees. The royalties
received by the Company therefore are influenced by many of the risks faced by
the DRAM market in general, including constraints on the volumes shipped during
periods of shortage and reduced average selling prices. The DRAM market is
intensely competitive and generally is characterized by declining average
selling prices over the life of a generation of chips. Such price decreases,
and the corresponding decreases in per unit royalties received by the Company,
can be sudden and dramatic. Compounding the effect of price decreases is the
fact that, under certain of the Company's license agreements, royalty rates
decrease as a function of time or volume. With the introduction of each new
generation of higher density RDRAMs, the
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Company generally expects higher prices resulting in higher royalties per
device, but with correspondingly fewer devices required per system. There can
be no assurance that decreases in DRAM prices or in the Company's royalty rates
will not have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be successful in maintaining or increasing its share of any market.
Rapid Technological Change; Reliance on Fundamental Technology; Importance
of Timely New Product Development. The semiconductor industry is characterized
by rapid technological change, with new generations of semiconductors being
introduced periodically and with ongoing evolutionary improvements. Since
beginning operations in 1990, the Company has derived all of its revenue from
its interface technology and expects that this dependence on its fundamental
technology will continue for the foreseeable future. Accordingly, broad
acceptance of the Company's interface technology is critical to the Company's
future success. The introduction or market acceptance of competing technology
which renders the Company's interface technology less desirable or obsolete
would have a rapid and material adverse effect on the Company's business,
results of operations and financial condition. The announcement of new products
by the Company could cause licensees or systems companies to delay or defer
entering into arrangements for the use of the Company's technology, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's operating results will depend to a significant extent on its
ability to introduce enhancements and new generations of its interface
technology which keep pace with other changes in the semiconductor industry and
which achieve rapid market acceptance. The Company must continually devote
significant engineering resources to addressing the ever-increasing need for
memory bandwidth associated with increases in the speed of microprocessors and
other controllers. Technical innovations of the type that will be required for
the Company to be successful are inherently complex and require long
development cycles, and there can be no assurance that the Company's
development efforts will ultimately be successful. In addition, these
innovations must be completed before changes in the semiconductor industry have
rendered them obsolete, must be available when systems companies require these
innovations, and must be sufficiently compelling to cause semiconductor
manufacturers to enter into licensing arrangements with Rambus for the new
technology. There can be no assurance that Rambus will be able to meet these
requirements. Moreover, significant technological innovations generally require
a substantial investment before their commercial viability can be determined.
There can be no assurance that the Company will have the financial resources
necessary to fund future development, that the Company's licensees will
continue to share certain research and development costs with the Company as
they have in the past, or that revenues from enhancements or new generations of
the Company's technology, even if successfully developed, will exceed the costs
of development.
Competition. The semiconductor industry is intensely competitive and has
been characterized by price erosion, rapid technological change, short product
life cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers, including Rambus licensees, produce
higher-frequency versions of standard DRAMs such as SDRAMs which compete with
RDRAMs. These companies are much larger and have better access to financial,
certain technical and other resources than Rambus.
The Company believes that its principal competition may come from its
licensees and prospective licensees, many of which are evaluating and
developing products based on alternative technologies and are beginning to take
a systems approach similar to the Company's in solving the application needs of
systems companies. Some DRAM suppliers have begun to produce DDR SDRAMs, aimed
at doubling the memory bandwidth from SDRAMs without increasing the clock
frequency. In addition, a consortium including both large DRAM manufacturers
and systems companies is developing an extension of DDR known as DDR-2. To the
extent that these alternative technologies provide comparable system
performance at lower or similar cost than RDRAMs, or are perceived to require
the payment of lower royalties, the Company's licensees and prospective
licensees may adopt and promote the alternative technologies. There can be no
assurance that the
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Company's future competition will not have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
certain semiconductor companies are now marketing ICs which combine logic and
DRAM on the same chip. Such chips, called "embedded DRAM," eliminate the need
for any chip-to-chip interface and are primarily being used for graphics
applications. Embedded DRAMs are well suited for applications where component
space saving and power consumption are important, such as in the graphics
subsystems of notebook PCs. There can be no assurance that competition from
embedded DRAMs will not increase in the future.
Limited Protection of Intellectual Property; Likelihood of Potential
Litigation. While the Company has an active program to protect its proprietary
technology through the filing of patents, there can be no assurance that the
Company's pending United States or foreign patent applications or any future
United States or foreign patent applications will be approved, that any issued
patents will protect the Company's intellectual property or will not be
challenged by third parties, or that the patents of others will not have an
adverse effect on the Company's ability to do business. Furthermore, there can
be no assurance that others will not independently develop similar or competing
technology or design around any patents that may be issued to the Company.
The Company attempts to protect its trade secrets and other proprietary
information through agreements with licensees and systems companies,
proprietary information agreements with employees and consultants and other
security measures. The Company also relies on trademarks and trade secret laws
to protect its intellectual property. Despite these efforts, there can be no
assurance that others will not gain access to the Company's trade secrets, or
that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.
Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's contracts generally prevent a licensee
from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus interface
technology. Specifically, the contracts generally require licensees to grant to
Rambus a royalty-free cross-license on patented licensee intellectual property
related to the implementation of Rambus interface technology, which Rambus
sublicenses to other licensees that have entered into similar arrangements. Not
all licensees have granted Rambus cross-licenses, and there is no assurance
that such a blocking arrangement will not occur in the future.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. While the Company has not
received formal notice of any infringement of the rights of any third party,
questions of infringement in the semiconductor field involve highly technical
and subjective analyses. Litigation may be necessary in the future to enforce
the Company's patents and other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement or invalidity,
and there can be no assurance that the Company would prevail in any future
litigation. Any such litigation, whether or not determined in the Company's
favor or settled by the Company, would be costly and would divert the efforts
and attention of the Company's management and technical personnel from normal
business operations, which would have a material adverse effect on the
Company's business, financial condition and results of operations. Adverse
determinations in litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties or prevent the Company from
licensing its technology, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
In any potential dispute involving the Company's patents or other
intellectual property, the Company's licensees could also become the target of
litigation. While the Company generally does not indemnify its licensees, some
of its license agreements require the Company to provide technical support and
information to a licensee which is involved in litigation involving use of
Rambus technology. The Company is bound to
11
<PAGE>
indemnify certain licensees under the terms of certain license agreements, and
the Company may agree to indemnify others in the future. The Company's support
and indemnification obligations could result in substantial expenses to the
Company. In addition to the time and expense required for the Company to supply
such support or indemnification to its licensees, a licensee's development,
marketing and sales of Rambus ICs could be severely disrupted or shut down as a
result of litigation, which in turn could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Associated with International Licenses. In fiscal 1999, 1998 and 1997,
international revenues constituted approximately 60%, 73% and 80% of the
Company's total revenues, respectively. The Company expects that revenues
derived from international licensees will continue to represent a significant
portion of its total revenues in the future. All of the revenues from
international licensees have to date been denominated in United States dollars.
However, to the extent that such licensees' sales to systems companies are not
denominated in United States dollars, any royalties that the Company receives
as a result of such sales could be subject to fluctuations in currency exchange
rates. In addition, if the effective price of Rambus ICs sold to the Company's
foreign licensees were to increase as a result of fluctuations in the exchange
rate of the relevant currencies, demand for Rambus ICs could fall, which in
turn would reduce the Company's royalties. The Company does not use derivative
instruments to hedge foreign exchange rate risk. In addition, international
operations and demand for the products of the Company's licensees are subject
to a variety of risks, including tariffs, import restrictions and other trade
barriers, changes in regulatory requirements, longer accounts receivable
payment cycles, adverse tax consequences, export license requirements, foreign
government regulation, political and economic instability and changes in
diplomatic and trade relationships. In particular, the laws of certain
countries in which the Company currently licenses or may in the future license
its technology require significant withholding taxes on payments for
intellectual property, which the Company may not be able to offset fully
against its United States tax obligations. The Company is subject to the
further risk of the tax authorities in those countries recharacterizing certain
engineering fees as license fees, which could result in increased tax
withholdings and penalties. The Company's licensees are subject to many of the
risks described above with respect to systems companies which are located in
different countries, particularly video game and PC manufacturers located in
Asia and elsewhere. There can be no assurance that one or more of the risks
associated with international licenses of the Company's technology will not
have a direct or indirect material adverse effect on the Company's business,
financial condition and results of operations. Moreover, the laws of certain
foreign countries in which the Company's technology is or may in the future be
licensed may not protect the Company's intellectual property rights to the same
extent as the laws of the United States, thus increasing the possibility of
infringement of the Company's intellectual property.
Dependence on Key Personnel. The Company's success depends to a significant
extent on its ability to identify, attract, motivate and retain qualified
technical, sales, marketing, finance and executive personnel. Because the
future success of the Company is dependent upon its ability to continue
enhancing and introducing new generations of such technology, the Company is
particularly dependent upon its ability to identify, attract, motivate and
retain qualified engineers with the requisite educational background and
industry experience. Competition for qualified engineers, particularly those
with significant industry experience, is intense. The Company is also dependent
upon its senior management personnel, most of whom have worked together at the
Company for several years. The loss of the services of any of the senior
management personnel or a significant number of the Company's engineers could
be disruptive to the Company's development efforts or business relationships
and could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company generally does not enter into
employment contracts with its employees and does not maintain key person life
insurance.
Management of Expanded Operations. The Company is not experienced in
managing rapid growth. The Company may not be equipped to successfully manage
any future periods of rapid growth or expansion, which could be expected to
place a significant strain on the Company's limited managerial, financial,
engineering and other resources. The Company's licensees and systems companies
rely heavily on the Company's technological expertise in designing, testing and
manufacturing products incorporating the Company's interface technologies.
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Relationships with new licensees or systems companies generally require
significant engineering support. As a result, any increases in adoption of the
Company's technology will increase the strain on the Company's resources,
particularly the Company's engineers. Any delays or difficulties in the
Company's research and development process caused by these factors or others
could make it difficult for the Company to develop future generations of its
interface technology and to remain competitive. In addition, the rapid rate of
hiring new employees could be disruptive and adversely affect the efficiency of
the Company's research and development process. The rate of the Company's
future expansion, if any, in combination with the complexity of the technology
involved in the Company's licensee-based business model, may demand an
unusually high level of managerial effectiveness in anticipating, planning,
coordinating and meeting the operational needs of the Company as well as the
needs of the licensees and systems companies. Additionally, the Company may be
required to reorganize its managerial structure in order to more effectively
respond to the needs of customers. Given the small pool of potential licensees
and target systems companies, the adverse effect on the Company resulting from
a lack of effective management in any of these areas will be magnified.
Inability to manage the expansion of the Company's business would have a
material adverse effect on its business, financial condition and results of
operations.
Impact of Year 2000. To the extent permitted by law, the disclosure included
in this paragraph is intended to constitute Year 2000 readiness disclosure
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
As part of the transfer of technology to its licensees, the Company provides
information in the form of implementation packages which include
specifications, circuit layout databases, test parameter software and, in the
case of RDRAMs, core interface specifications. Such information is not date
sensitive and therefore not subject to Year 2000 problems. Since the Company
does not sell any other kind of product, internal Year 2000 issues are confined
to its engineering design and administrative systems. The Company has assessed
the readiness of its internal computer systems and outside services for
handling the Year 2000. The remediation process is underway and will be
complete in all material respects by year-end. The Company believes that its
internal computer systems and outside services will be Year 2000 compliant and
that the risk of major disruption from these systems and services due to Year
2000 issues is minimal. Through September 30, 1999, the Company has not
incurred any significant costs to ensure its internal computer systems and
outside services are Year 2000 compliant, other than software purchases and
upgrades which were purchased in the Company's normal course of business. The
Company does not expect the cost of implementation for its internal computer
systems and outside services to have a material impact on the Company's
financial position or results of operations. However, the Company could be
negatively affected to the extent that Year 2000 problems at its licensees or
their customers could affect the shipment of Rambus ICs and the payment of
royalties to the Company. Such effects on its licensees or their customers
could cause the Company to miss quarterly analysts' estimates of its revenue
and profits. The Company has no way of analyzing the probability of Year 2000
problems at its licensees or their customers, and therefore, there can be no
assurance that the Company's licensees or their customers will be Year 2000
compliant or, in any event, that the Company will not be negatively affected
from Year 2000 issues.
Item 2. Properties
The Company leases approximately 42,000 square feet in one building in
Mountain View, California for its U.S. engineering, marketing and
administrative operations. The principal lease expires in 2005, with an option
to extend the lease for an additional five years. In August 1999 the Company
signed a lease for a 96,000 square-foot building to be constructed in Los
Altos, California. The lease has an initial term of ten years, with options to
extend the term for two periods of five years each. The Company anticipates
moving its U.S. operations to this new building upon its completion, scheduled
for late 2000. The Company also leases space in Tokyo for an office which
provides sales and technical support to systems companies in Japan. The Company
believes that it will not have difficulty in securing additional facilities if
required.
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Item 3. Legal Proceedings
The Company has no current or threatened legal proceedings or claims.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed on the Nasdaq National Market under the
symbol "RMBS." The quarterly high and low prices as reported by Nasdaq are
included in the table "Consolidated Supplementary Financial Data" on page 45 of
this Report 10-K.
As of November 30, 1999, there were 461 holders of record of the Company's
common stock. Because many of the shares of the Company's common stock are held
by brokers and other institutions on behalf of stockholders, the Company is
unable to estimate the total number of stockholders represented by these record
holders. The Company has never paid or declared any cash dividends on its
common stock or other securities and does not anticipate paying cash dividends
in the foreseeable future.
Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Operations:
Total revenues.................... $ 43,370 $ 37,864 $26,015 $11,270 $ 7,364
Operating income (loss)........... 9,499 7,967 1,954 (4,568) (6,053)
Net income (loss)................. 8,718 6,788 1,981 (4,415) (7,020)
Net income (loss) per share-
assuming dilution................ $ 0.35 $ 0.28 $ 0.09 $ (0.78) $ (1.33)
Financial Position (at year end):
Total assets...................... $115,773 $110,987 $87,878 $12,868 $18,307
Total debt (capital lease
obligations)..................... -- 130 512 1,297 1,616
Stockholders' equity (deficit).... 61,564 41,792 26,661 (12,144) (7,936)
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains forward-looking statements, including
without limitation the Company's expectations regarding revenues, expenses and
results of operations. The Company's actual results may differ significantly
from those projected in the forward-looking statements. Factors that might
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements include, but are
not limited to, those discussed in "Factors Affecting Future Results" and
below. The Company assumes no obligation to update the forward-looking
statements or such factors.
Overview
Since its founding in 1990, Rambus has been engaged in the development of
high-speed chip-to-chip interface technology which can be used to enhance the
performance and cost-effectiveness of consumer electronics, computer systems
and other electronic systems. The Company neither manufactures nor sells
semiconductors incorporating the Company's technology. Rather, the Company
licenses its technology on a nonexclusive and worldwide basis to semiconductor
companies which manufacture and sell RDRAMs and logic ICs containing RACs to
systems companies which have adopted Rambus technology. Systems companies are
not required to obtain a Rambus license to incorporate licensed Rambus ICs into
their products.
Revenues. The Company's revenues consist of contract fees and royalties.
Contract fees are comprised of license fees, engineering service fees and
nonrefundable, prepaid royalties, and represented approximately 82% of the
Company's revenues in fiscal 1999, 76% in 1998, and 78% in 1997. The Company's
contracts generally require a licensee to pay a contract fee to Rambus
typically ranging from a few hundred thousand dollars for a narrow license
covering a single logic product to millions of dollars for a license with broad
coverage of Rambus technology. Part of these fees may be due upon the
achievement of certain milestones, such as provision of certain deliverables by
Rambus or production of chips by the licensee. All contract fees are
nonrefundable.
In a few cases, the Company has received nonrefundable, prepaid royalties
which offset the earliest royalty payments otherwise due from the licensee. As
of September 30, 1999, $3.7 million of such nonrefundable, prepaid royalties
had offset initial royalties, and the Company had a balance of $2.6 million
remaining to be offset against future royalties.
Substantially all of the license fees, engineering service fees and
nonrefundable, prepaid royalties are bundled together as contract fees because
the Company generally does not provide or price these components separately.
The contracts also generally include rights to upgrades and enhancements.
Accordingly, Rambus recognizes contract revenues ratably over the period during
which post-contract customer support is expected to be provided. The excess of
contract fees received over contract revenue recognized is shown on the
Company's balance sheet as "deferred revenue." As of September 30, 1999, the
Company's deferred revenue was $49.8 million, substantially all of which is
scheduled to be recognized in varying amounts over the next four years.
Royalties, which are generally a percentage of the revenues received by a
licensee on its sales of the Company's ICs, are normally payable by the
licensee on sales occurring during the life of the Company's patents being
licensed. For a typical application of the Company's technology, the Company
receives royalties from the sale of both RDRAMs and logic ICs containing RACs.
Royalty rates range up to a maximum of approximately 2.5% for RDRAMs and a
maximum of approximately 5% for logic ICs, and in some cases may decline based
on the passage of time or on the total volume of the Company's ICs shipped by a
licensee. The exact rate and structure of a royalty arrangement with a
particular licensee depend on a number of factors, including the amount of the
contract fee paid by the licensee and the marketing and engineering commitment
made by the licensee.
Rambus recognizes royalties from a licensee in the quarter in which it
receives the report detailing shipments of Rambus ICs by such licensee in the
prior quarter. The Company believes that royalties will
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become an increasing portion of revenues over the long term. To date, a
majority of the Company's royalties has been derived from the sale of logic ICs
incorporating RACs. If the Company is successful in its strategy to penetrate
the PC main memory market segment, the Company expects that royalties from the
sale of RDRAMs will eventually account for the largest portion of royalties.
As of September 30, 1999, the Company had 31 licensees. Because all of the
Company's revenues are derived from its relatively small number of licensees,
the Company's revenues tend to be highly concentrated. In fiscal 1999, 1998,
and 1997, revenues from the Company's top five licensees accounted for
approximately 47%, 49% and 63% of the Company's revenues, respectively. In
fiscal 1999, 1998, and 1997 NEC accounted for approximately 11%, 22% and 29% of
revenues, respectively. Also in fiscal 1999, two other licensees accounted for
11% and 10% of revenues. In fiscal 1997, one other licensee accounted for 10%
of total revenues. The Company expects that it will continue to experience
significant revenue concentration for the foreseeable future. However, the
particular licensees which account for revenue concentration may vary from
period to period depending on the addition of new contracts, the expiration of
deferred revenue schedules under existing contracts, and the volumes and prices
at which the licensees sell Rambus ICs to systems companies in any given
period.
The royalties received by the Company are also a function of the adoption of
Rambus technology by systems companies and the acceptance of the systems
companies' products by end users. The Company generally does not have a direct
contractual relationship with systems companies, and the royalty reports
submitted by the Company's licensees generally do not disclose the identity of,
or unit volume of Rambus ICs purchased by, particular systems companies. As a
result, it is difficult for the Company to predict the extent to which its
future revenues will be dependent upon particular systems companies.
In fiscal 1999, 1998, and 1997, international revenues constituted 60%, 73%
and 80% of the Company's total revenues, respectively. The Company expects that
revenues derived from international licensees will continue to represent a
significant portion of its total revenues in the future. All of the revenues
from international licensees to date have been denominated in United States
dollars.
Expenses. Since the Company's inception in 1990, its engineering costs
(which consist of cost of contract revenues and research and development
expenses) and marketing, general and administrative expenses have continually
increased as the Company has added personnel and ramped up its activities in
these areas. Engineering costs and marketing, general and administrative
expenses generally have decreased as a percentage of revenues throughout this
period due to the relatively rapid revenue base expansion which the Company
experienced as it began entering into license agreements. The Company intends
to continue making significant expenditures associated with engineering,
marketing, general and administration, and expects that these costs and
expenses will continue to be a significant percentage of revenues in future
periods. Whether such expenses increase or decrease as a percentage of revenues
will be substantially dependent upon the rate at which the Company's revenues
change.
Engineering costs are allocated between cost of contract revenues and
research and development expenses. Cost of contract revenues is determined
based on the portion of engineering costs which have been incurred during the
period for the adaptation of Rambus interface technology for specific licensee
processes. The balance of engineering costs, incurred for general development
of Rambus technology, is charged to research and development. In a given
period, the allocation of engineering costs between these two components is a
function of the timing of development and implementation cycles. As a
generation of technology matures from the development stage through
implementation, the majority of engineering costs shifts from research and
development expenses to cost of contract revenues. Engineering costs are
recognized as incurred and do not correspond to the recognition of revenues
under the related contracts.
Marketing, general and administrative expenses include salaries, travel
expenses and costs associated with trade shows, advertising, finance and other
marketing and administrative efforts. Costs of technical support for systems
companies, including applications engineering, are also charged to marketing,
general and
17
<PAGE>
administrative expense. Consistent with the Company's business model, sales and
marketing activities are focused on developing relationships with potential
licensees and on participating with existing licensees in marketing, sales and
technical efforts directed to systems companies. In many cases, Rambus must
dedicate substantial resources to the marketing and support of systems
companies. Due to the long business development cycles faced by the Company and
the semi-fixed nature of administrative expenses, marketing, general and
administrative expenses in a given period generally are unrelated to the level
of revenues in that period or in recent or near-term future periods.
Taxes. The Company reports certain items of income and expense for financial
reporting purposes in different years than they are reported in the tax return.
Specifically, the Company reports contract fees and royalties when received for
tax purposes, as required by tax law. For financial reporting purposes, the
Company records revenues from contract fees over the period post-contract
support is expected to be provided. Thus, the Company recognizes revenue
earlier for tax than for financial reporting purposes. Accordingly, the
Company's net operating loss for tax purposes may be more or less than the
cumulative operating deficit recorded for financial reporting purposes.
Results of Operations
The following table sets forth, for the fiscal years indicated, the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of operations:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Contract revenues........................................ 81.5% 75.9% 77.6%
Royalties................................................ 18.5 24.1 22.4
----- ----- -----
Total revenues......................................... 100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Cost of contract revenues................................ 28.2 23.7 21.1
Research and development................................. 18.7 25.5 37.7
Marketing, general and administrative.................... 31.2 29.8 33.7
----- ----- -----
Total costs and expenses............................... 78.1 79.0 92.5
----- ----- -----
Operating income........................................... 21.9 21.0 7.5
Other income, net.......................................... 10.0 8.9 5.2
----- ----- -----
Income before income taxes................................. 31.9 29.9 12.7
Provision for income taxes................................. 11.8 12.0 5.1
----- ----- -----
Net income................................................. 20.1% 17.9% 7.6%
===== ===== =====
</TABLE>
Revenues. Revenues were $43.4 million, $37.9 million and $26.0 million in
fiscal 1999, 1998 and 1997, respectively. Contract revenues increased 42.3% to
$28.7 million in fiscal 1998 and increased 23.1% to $35.4 million in fiscal
1999 primarily as a result of the Company's entering into contracts with new
licensees and additional contracts with current licensees for new developments.
In addition, fiscal 1999 contract revenues include approximately $500,000 of
previously deferred income from cancellation of a contract by Rambus due to
nonperformance of a licensee, and approximately $3.3 million of previously
deferred income due to a change in management's estimate of certain contract
revenue recognition periods. Such periods are initially estimated based on
management's judgment of the time over which the Company has an obligation to
support its licensees. As the new generation of RDRAMs goes into production, a
more accurate estimate of remaining support can be made. To the extent the new
estimated period is less than the original estimate there will be a temporary
increase in the amount of deferred revenue recognized. In general, the Company
expects that contract revenues will decline over time due to the expiration of
the period for revenue recognition on contracts
18
<PAGE>
booked previously, and also due to the Company's past success in signing
licensees which reduces the potential number of new licensees. However, in the
short term contract revenues may temporarily increase due to accelerated
revenue recognition based on a combination of changes in management's estimate
of contract revenue recognition periods and pending mergers and product
abandonments in the DRAM industry which could result in additional contract
terminations.
In fiscal 1998, royalties increased 56.8% to $9.1 million or 24.1% of total
revenues. Royalties were primarily from NEC and, the Company believes, were
largely based on sales of Rambus ICs for use in the Nintendo 64 home video game
system. In fiscal 1999, royalties decreased 12.3% to $8.0 million or 18.5% of
total revenues. The Company believes that this decrease was a result of
declining sales and/or prices for the Rambus ICs used by Nintendo as well as
steep price declines in the DRAM market. The Company anticipates that its
potential to generate royalties in fiscal 2000 will be largely dependent on
system sales by PC manufacturers, Sony and, to a decreasing degree, Nintendo.
All of these companies face intense competitive pressure in the PC and home
video game markets, which are characterized by extreme volatility, seasonal
fluctuations, frequent new product introductions and rapidly shifting consumer
preferences, and there can be no assurance as to the unit volumes of Rambus ICs
which they will purchase in the future or the level of royalty-bearing revenues
that the Company's licensees will receive. None of these companies is under any
obligation to continue using Rambus technology in their current products or to
incorporate Rambus technology into future products.
Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, were $20.4 million, $18.6
million and $15.3 million which represented 46.9%, 49.2% and 58.8% of revenues,
in fiscal 1999, 1998 and 1997, respectively. The increase in engineering costs
was due primarily to an increase in engineering personnel, and the decrease as
a percentage of revenues was primarily the result of the Company's growth in
revenues.
Cost of Contract Revenues. Cost of contract revenues were $12.2 million,
$9.0 million and $5.5 million, which represented 28.2%, 23.7% and 21.1% of
revenues, in fiscal 1999, 1998 and 1997, respectively. In fiscal 1998, cost of
contract revenues increased 63.7% to $9.0 million, and increased as a
percentage of revenues, primarily due to the beginning of the transition of the
Company's next generation technology from the design to the implementation
stage. In fiscal 1999, cost of contract revenues increased 36.1% to $12.2
million, and increased as a percentage of revenues, as the Company focused its
engineering resources on the ramp of its next generation technology into the PC
main memory market. The Company believes that the level of cost of contract
revenues will continue to fluctuate in the future, both in absolute dollars and
as a percentage of revenues, as new generations of Rambus ICs go through the
normal development and implementation phases.
Research and Development. Research and development expenses were $ 8.1
million, $9.6 million, and $9.8 million, which represented 18.7%, 25.5% and
37.7% of revenues, in fiscal 1999, 1998 and 1997, respectively. In fiscal 1998,
research and development expenses decreased 1.7% compared to 1997, and
decreased as a percentage of total revenues, as the major portion of design
work on the next generation of Rambus technology was completed and engineering
focus moved to implementation activities. Similarly, in fiscal 1999 research
and development expenses decreased 15.8% compared to 1998, and decreased as a
percentage of total revenues, as additional engineering resources were
transferred to the support of Intel, RDRAM licensees, PC OEMs and
infrastructure providers on the ramp of Rambus technology into the PC main
memory market. The Company expects research and development expenses to
increase over time as it enhances and improves its technology and applies it to
new generations of ICs. The rate of increase of, and the percentage of revenues
represented by, research and development expenses in the future will vary from
period to period based on the research and development projects underway and
the change in engineering headcount in any given period, as well as the rate of
change in the Company's total revenues.
Marketing, General and Administrative. Marketing, general and administrative
expenses were $13.5 million, $11.3 million and $8.8 million, which represented
31.2%, 29.8% and 33.7% of revenues, in fiscal 1999, 1998 and 1997,
respectively. The increase in absolute dollars in fiscal 1999 and 1998 and the
19
<PAGE>
increase in marketing, general and administrative expenses as a percentage of
revenues in 1999 was primarily due to a buildup of the marketing and sales
teams in both the U.S. and Japan as well as increased costs associated with
applications engineering and other technical support provided to systems
companies. The decrease in marketing, general and administrative expenses as a
percentage of revenues in 1998 reflects the increased revenue base. The Company
expects marketing, general and administrative expenses to increase in the
future as the Company puts additional effort into marketing its technology and
assisting systems companies to adapt this technology to new generations of
products. The rate of increase of, and the percentage of revenues represented
by, marketing, general and administrative expenses in the future will vary from
period to period based on the trade shows, advertising and other sales and
marketing activities undertaken and the change in sales, marketing and
administrative headcount in any given period, as well as the rate of change in
the Company's total revenues.
Other Income, Net. Other income, net consists primarily of interest income
from the Company's short-term cash investments, offset by interest expense on
leases and other equipment financing. Other income, net was $4.3 million, $3.4
million and $1.3 million, which represented 10.0%, 8.9% and 5.2% of revenues,
in fiscal 1999, 1998 and 1997, respectively. The increase in absolute dollars
was due to interest on higher average marketable securities, cash and cash
equivalent balances, offset by interest associated with leased equipment. The
Company expects net other income to increase in the future due to additional
interest income on higher cash balances.
Provision for Income Taxes. The Company recorded a provision for income
taxes of $5.1 million in fiscal 1999, $4.5 million in fiscal 1998 and $1.3
million in fiscal 1997. The estimated federal and state combined rate on income
before income taxes was 40% for the 1997 and 1998 provisions and 37% for the
1999 provision. The Company's effective tax rate differs from the statutory
rate due to timing differences related to the recognition of contract revenues
for tax and financial reporting purposes.
At September 30, 1999 the Company had gross deferred tax assets of
approximately $27 million, primarily relating to the difference between tax and
book treatment of deferred revenue. The Company has established a partial
valuation allowance against its deferred tax assets due to the uncertainty
surrounding the realization of such assets. The deferred tax assets of
approximately $27 million, net of the valuation allowance of $21 million, as of
September 30, 1999 represents management's estimate of those tax assets which
it believes will more likely than not (a probability of just over fifty
percent) be realized. The deferred tax asset valuation allowance is subject to
periodic adjustment as facts and circumstances warrant.
Contingent Warrants
In January 1997 the Company granted a warrant to Intel Corporation for the
purchase of 1,000,000 shares of Rambus common stock at an exercise price of
$10.00 per share. The warrant will become exercisable only upon the achievement
of certain milestones by Intel relating to shipment volumes of Rambus-based
chipsets. At the time that the achievement of the milestones becomes probable,
a charge will be made to the statement of operations based on the fair value of
the warrant.
In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants on a total of up to 400,000 shares of Rambus
common stock to be issued to various Rambus Direct DRAM partners upon the
achievement of certain product qualification and volume production targets. The
warrants, to be issued at the time the targets are met, will have an exercise
price of $10.00 per share and a life of five years. They will vest and become
exercisable on the same basis as the Intel warrant, which will result in a
charge to the statement of operations based on the fair value of the warrants
at the time the achievement of the Intel milestones becomes probable. As of
September 30, 1999 a total of 30,000 of these warrants had been issued.
20
<PAGE>
Liquidity and Capital Resources
As of September 30, 1999 the Company had cash and cash equivalents and
marketable securities of $95.3 million, including restricted cash of $2.5
million and a long-term component of $5.7 million. As of the same date, the
Company had total working capital of $61.8 million, including a short-term
component of deferred revenue of $32.3 million. Deferred revenue represents the
excess of cash received from licensees over revenue recognized on license
contracts, and the short-term component represents the amount of this deferred
revenue expected to be recognized over the next twelve months. Without the
short-term component of deferred revenue, working capital would have been $94.1
million at September 30, 1999.
The Company's operating activities provided net cash of $4.1 million, $16.3
million and $31.9 million in fiscal 1999, 1998 and 1997, respectively. Cash
generated by operations in fiscal 1997 and 1998 was primarily the result of
increases in deferred revenue and net income adjusted for non-cash items,
offset by net payments, provisions and adjustments relating to income taxes.
The increase in deferred revenue for both years was due to new billings on
license contracts in excess of revenues recognized thereon. In 1999 deferred
revenue decreased due to the recognition of contract revenues in excess of new
billings, but this was more than offset by cash generated from net income
adjusted for non-cash items and adjustments relating to income taxes.
Net cash used in investing activities was $19.8 million, $14.4 million and
$47.2 million in fiscal 1999, 1998 and 1997, respectively. Investing activities
have consisted primarily of net purchases of marketable securities and
purchases of property and equipment.
Net cash provided by financing activities were $4.7 million, $3.4 million
and $35.2 million in fiscal 1999, 1998 and 1997, respectively. Net cash
provided by financing activities in fiscal 1997 was primarily due to completion
of the Company's initial public offering of its common stock. Net cash provided
by financing activities in fiscal 1998 and 1999 was primarily due to proceeds
from the sale of common stock under the Company's Employee Stock Purchase and
Option plans.
The Company presently anticipates that existing cash balances will be
adequate to meet its cash needs for at least the next 12 months.
Impact of Year 2000
To the extent permitted by law, the disclosure included in this paragraph is
intended to constitute Year 2000 readiness disclosure within the meaning of the
Year 2000 Information and Readiness Disclosure Act. As part of the transfer of
technology to its licensees, the Company provides information in the form of
implementation packages which include specifications, circuit layout databases,
test parameter software and, in the case of RDRAMs, core interface
specifications. Such information is not date sensitive and therefore not
subject to Year 2000 problems. Since the Company does not sell any other kind
of product, internal Year 2000 issues are confined to its engineering design
and administrative systems. The Company has assessed the readiness of its
internal computer systems and outside services for handling the Year 2000. The
remediation process is underway and will be complete in all material respects
by year-end. The Company believes that its internal computer systems and
outside services will be Year 2000 compliant and that the risk of major
disruption from these systems and services due to Year 2000 issues is minimal.
Through September 30, 1999, the Company has not incurred any significant costs
to ensure its internal computer systems and outside services are Year 2000
compliant, other than software purchases and upgrades which were purchased in
the Company's normal course of business. The Company does not expect the cost
of implementation for its internal computer systems and outside services to
have a material impact on the Company's financial position or results of
operations. However, the Company could be negatively affected to the extent
that Year 2000 problems at its licensees or their customers could affect the
shipment of Rambus ICs and the payment of royalties to the Company. Such
effects on its licensees or their customers could cause the Company to miss
quarterly analysts' estimates of its revenue and profits. The Company has no
way of analyzing the probability of Year 2000 problems at its licensees or
their customers, and therefore, there can be no assurance that the Company's
licensees or their customers will be Year 2000 compliant or, in any event, that
the Company will not be negatively affected from Year 2000 issues.
21
<PAGE>
Recent Accounting Pronouncements
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is no vendor-
specific objective evidence ("VSOE") of the fair values of all the undelivered
elements that are not accounted for by means of long-term contract accounting,
(2) VSOE of fair value does not exist for one or more of the delivered
elements, and (3) all revenue recognition criteria of SOP 97-2 (other than the
requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company is currently evaluating the impact of the requirements
of SOP 98-9 and the effects, if any, on its current revenue recognition
policies.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. In July 1999, the Financial Accounting Standard Boards issued SFAS No.
137, or SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities. The Company is continuing to evaluate the impact
of the requirements of SFAS 133 and SFAS 137 will have on its financial
statements and related disclosures.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers and by policy limits the amount of credit
exposure to any one issuer. As stated in its policy, the Company will ensure
the safety and preservation of its invested funds by limiting default risk and
market risk. The Company has no investments denominated in foreign country
currencies and therefore is not subject to foreign exchange risk.
The Company mitigates default risk by investing in high credit quality
securities and by positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer or guarantor.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity.
The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at September 30, 1999.
<TABLE>
<CAPTION>
Average Rate
of Return at
September 30,
Carrying Value 1999
-------------- -------------
(in thousands) (annualized)
<S> <C> <C>
Marketable securities:
Cash equivalents................................. $12,415 5.3%
Corporate notes and bonds........................ 23,528 4.0%
Municipal notes and bonds........................ 29,297 3.5%
United States government debt securities......... 24,991 5.1%
-------
Total marketable securities.................... $90,231
=======
</TABLE>
22
<PAGE>
Item 8. Financial Statements and Supplementary Data
See Item 14 of this Form 10-K for required financial statements and
supplementary data.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
23
<PAGE>
PART III
Certain information required by Part III is omitted from this Report on Form
10-K since the Registrant will file its definitive Proxy Statement for its next
Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "Proxy Statement"), not later than 120
days after the end of the fiscal year covered by this Report, and certain
information to be included in the Proxy Statement is incorporated herein by
reference.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item concerning the Company's directors and
executive officers is incorporated by reference to the information set forth in
the sections entitled "Executive Officer Compensation--Executive Officers of
the Company" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended September 30, 1999.
Item 11. Executive Compensation
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the sections entitled
"Proposal One--Election of Directors--Director Compensation" and "Executive
Officer Compensation" in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of the Company's fiscal year ended September 30, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Share Ownership by Principal
Stockholders and Management" in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended September 30, 1999.
Item 13. Certain Relationships and Related Transactions
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Transactions with Management" in the Company's
Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with
the Commission within 120 days after the end of the Company's fiscal year ended
September 30, 1999.
24
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
The following consolidated financial statements of the Registrant and
Report of
PricewaterhouseCoopers LLP, Independent Accountants, are included
herewith:
Report of PricewaterhouseCoopers LLP, Independent Accountants............ 28
Consolidated Balance Sheets as of September 30, 1999 and 1998............ 29
Consolidated Statements of Operations for the years ended September 30,
1999, 1998, and 1997.................................................... 30
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998, and 1997...................................... 31
Consolidated Statements of Cash Flows for the years ended September 30,
1999, 1998, and 1997.................................................... 32
Notes to Consolidated Financial Statements............................... 33
Consolidated Supplementary Financial Data................................ 45
(a) (2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts........................... 47
</TABLE>
This financial statement schedule of the Company for each of the years ended
September 30, 1999, 1998 and 1997 is filed as part of this Form 10-K and should
be read in conjunction with the Consolidated Financial Statements, and related
notes thereto, of the Company. All other financial statement schedules have
been omitted because the required information is not present or not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the consolidated financial statements or
notes thereto.
25
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) (3) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C>
3.1(3) Amended and Restated Certificate of Incorporation of Registrant filed May 29, 1997.
3.2 Amended and Restated Bylaws of Registrant dated October 20, 1999.
4.1(1) Form of Registrant's Common Stock Certificate.
4.2(1) Amended and Restated Information and Registration Rights Agreement, dated as of
January 7, 1997, between Registrant and the parties indicated therein.
4.3(1) Form of Preferred Shares Rights Agreement dated April 1, 1997.
4.4(1) Common Stock Purchase Warrant dated January 7, 1997.
10.1(1) Form of Indemnification Agreement entered into by Registrant with each of its
directors and executive officers.
10.2(1) (2) Semiconductor Technology License Agreement, dated as of July 4, 1991, between
Registrant and NEC Corporation.
10.2.1(1) (2) Amendment No. 1 to Semiconductor Technology License Agreement, dated as of
April 28, 1995, between Registrant and NEC Corporation.
10.2.2(1) (2) Supplement No. 1 to Semiconductor Technology License Agreement, dated as of
February 25, 1993, between Registrant and NEC Corporation.
10.2.3(1) (2) Supplement No. 2 to Semiconductor Technology License Agreement, dated as of
July 28, 1994, between Registrant and NEC Corporation.
10.2.4(1) (2) Supplement No. 4 to Semiconductor Technology License Agreement, dated as of
August 31, 1995, between Registrant and NEC Corporation.
10.2.5(1) (2) Supplement No. 5 to Semiconductor Technology License Agreement, dated as of
November 14, 1994, between Registrant and NEC Corporation.
10.2.6(1) (2) Supplement No. 6 to Semiconductor Technology License Agreement, dated as of
December 27, 1994, between Registrant and NEC Corporation.
10.2.7(1) (2) Supplement No. 8 to Semiconductor Technology License Agreement, dated as of
September 27, 1996, between Registrant and NEC Corporation.
10.2.8(1) (2) Supplement No. 9 to Semiconductor Technology License Agreement, dated as of
September 10, 1996, between Registrant and NEC Corporation.
10.2.9(1) (2) Supplement No. 10 to Semiconductor Technology License Agreement, dated as of
February 27, 1997, between Registrant and NEC Corporation.
10.2.10(1) (2) Supplement No. 11 to Semiconductor Technology License Agreement, dated as of
March 4, 1997, between Registrant and NEC Corporation.
10.2.11(3) TRAC Addendum to Supplement No. 11 to Semiconductor Technology License
Agreement, dated as of April 23, 1997, between Registrant and NEC Corporation.
10.2.12(3) Supplement No. 12 to Semiconductor Technology License Agreement, dated as of
September 26, 1997, between Registrant and NEC Corporation.
10.2.13 Supplement No. 13 to Semiconductor Technology License Agreement, dated as of
February 16, 1999, between Registrant and NEC Corporation.
10.4(1) (2) Semiconductor Technology License Agreement, dated as of November 15, 1996,
between Registrant and Intel Corporation.
10.4.1(4) Amendment No. 1 to Semiconductor Technology License Agreement, dated as of
July 10, 1998, between Registrant and Intel Corporation.
</TABLE>
26
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) (3) Exhibits (Continued)
<TABLE>
<S> <C>
10.5(1) 1990 Stock Plan, as amended, and related forms of agreements.
10.6(1) 1997 Stock Plan and related forms of agreements.
10.7(1) 1997 Employee Stock Purchase Plan and related forms of agreements.
10.8(1) Standard Office Lease, dated as of March 10, 1991, between Registrant and South
Bay/Latham.
10.9(1) Form of Promissory Note between the Registrant and certain executive officers.
10.10 Office Lease, dated as of August 27, 1999, between Registrant and Los Altos--El Camino
Associates, LLC.
10.11 Common Stock Equivalent Agreement, dated as of October 20, 1999, between the Registrant
and Geoff Tate.
10.12 Common Stock Equivalent Agreement, dated as of October 20, 1999, between the
Registrant and David Mooring.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference to Registration Statement No. 333-22885.
(2) Confidential treatment was granted with respect to certain portions of this
exhibit. Omitted portions were filed separately with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Form 10-K filed on December 15, 1997.
(4) Incorporated by reference to the Form 10-K filed on December 9, 1998.
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed in the fourth quarter ended
September 30, 1999.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Rambus Inc. and Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Rambus Inc.
and its subsidiary at September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, 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.
PricewaterhouseCoopers LLP
San Jose, California
October 14, 1999
28
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
--------------------
1999 1998
--------- ---------
(in thousands,
except share and
per share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 14,982 $ 25,798
Marketable securities.................................. 72,158 53,913
Accounts receivable, less allowance for doubtful
accounts of $10 in 1999 and 1998...................... 1,499 1,913
Prepaid and deferred taxes............................. 7,579 7,829
Prepaids and other current assets...................... 2,260 2,340
--------- ---------
Total current assets.................................. 98,478 91,793
Property and equipment, net.............................. 4,232 3,989
Marketable securities, long-term......................... 5,658 8,357
Restricted cash.......................................... 2,500 --
Deferred taxes, long-term................................ 4,123 4,720
Other assets............................................. 782 2,128
--------- ---------
Total assets.......................................... $ 115,773 $ 110,987
========= =========
LIABILITIES
Current liabilities:
Accounts payable....................................... $ 265 $ 459
Income taxes payable................................... -- 12
Accrued salaries and benefits.......................... 3,090 1,940
Other accrued liabilities.............................. 1,070 1,017
Current portion of:
Capital lease obligations............................. -- 130
Deferred revenue...................................... 32,279 28,617
--------- ---------
Total current liabilities........................... 36,704 32,175
Deferred revenue, less current portion................... 17,505 37,020
--------- ---------
Total liabilities................................... 54,209 69,195
--------- ---------
Commitments and contingencies (Notes 6 and 7)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares;
Issued and outstanding: no shares at September 30, 1999
and
September 30, 1998..................................... -- --
Common stock, $.001 par value:
Authorized: 60,000,000 shares;
Issued and outstanding: 23,702,668 shares at September
30, 1999 and 22,925,885 shares at September 30, 1998.. 24 23
Additional paid-in capital............................... 78,574 67,617
Accumulated deficit...................................... (17,005) (25,723)
Accumulated other comprehensive loss..................... (29) (125)
--------- ---------
Total stockholders' equity.......................... 61,564 41,792
--------- ---------
Total liabilities and stockholders' equity........ $ 115,773 $ 110,987
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------------
1999 1998 1997
------- ------- -------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Revenues:
Contract revenues.................................. $35,353 $28,727 $20,186
Royalties.......................................... 8,017 9,137 5,829
------- ------- -------
Total revenues................................... 43,370 37,864 26,015
------- ------- -------
Costs and expenses:
Cost of contract revenues.......................... 12,232 8,988 5,491
Research and development........................... 8,123 9,649 9,815
Marketing, general and administrative.............. 13,516 11,260 8,755
------- ------- -------
Total costs and expenses......................... 33,871 29,897 24,061
------- ------- -------
Operating income................................. 9,499 7,967 1,954
Interest and other income, net....................... 4,346 3,413 1,536
Interest expense..................................... (7) (52) (194)
------- ------- -------
Income before income taxes....................... 13,838 11,328 3,296
Provision for income taxes........................... 5,120 4,540 1,315
------- ------- -------
Net income....................................... $ 8,718 $ 6,788 $ 1,981
======= ======= =======
Net income per share--basic.......................... $ 0.37 $ 0.30 $ 0.10
======= ======= =======
Net income per share--assuming dilution.............. $ 0.35 $ 0.28 $ 0.09
======= ======= =======
Number of shares used in per share calculations:
Basic.............................................. 23,332 22,704 19,548
======= ======= =======
Assuming dilution.................................. 25,052 24,376 21,510
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Convertible
Preferred Accumulated
Stock Common Stock Additional Stockholders' Other
--------------- ------------- Paid-In Notes Accumulated Comprehensive
Shares Amount Shares Amount Capital Receivable Deficit Loss Total
------- ------ ------ ------ ---------- ------------- ----------- ------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1996.................... 11,297 $ 11 5,759 $ 6 $22,330 $ -- $(34,492) $ 1 $(12,144)
Components of
comprehensive income:
Net income............. -- -- -- -- -- -- 1,981 -- 1,981
Foreign currency
translation
adjustments............ -- -- -- -- -- -- -- (36) (36)
--------
Total comprehensive
income................ 1,945
--------
Issuance of common
stock upon initial
public offering, net of
issuance costs of
$3,832................. -- -- 3,163 3 34,114 -- -- -- 34,117
Issuance of common
stock upon exercise of
options................ -- -- 2,092 2 2,564 (1,047) -- -- 1,519
Conversion of preferred
stock to common stock.. (11,297) (11) 11,297 11 -- -- -- -- --
Repayments of
stockholders' notes
receivable............. -- -- -- -- -- 367 -- -- 367
Tax benefit of stock
option exercises....... -- -- -- -- 857 -- -- -- 857
------- ----- ------ --- ------- ------ -------- ----- --------
Balances, September 30,
1997.................... -- -- 22,311 22 59,865 (680) (32,511) (35) 26,661
Components of
comprehensive income:
Net income............. -- -- -- -- -- -- 6,788 -- 6,788
Foreign currency
translation
adjustments............ -- -- -- -- -- -- -- (90) (90)
--------
Total comprehensive
income................ 6,698
--------
Issuance of common
stock upon exercise of
options, net........... -- -- 432 1 1,217 -- -- -- 1,218
Issuance of common
stock under Employee
Stock Purchase Plan.... -- -- 183 -- 1,880 -- -- -- 1,880
Repayments of
stockholders' notes
receivable............. -- -- -- -- -- 680 -- -- 680
Issuance of warrant.... -- -- -- -- 568 -- -- -- 568
Tax benefit of stock
option exercises....... -- -- -- -- 4,087 -- -- -- 4,087
------- ----- ------ --- ------- ------ -------- ----- --------
Balances, September 30,
1998.................... -- -- 22,926 23 67,617 -- (25,723) (125) 41,792
Components of
comprehensive income:
Net income............. -- -- -- -- -- -- 8,718 -- 8,718
Foreign currency
translation
adjustments............ -- -- -- -- -- -- -- 201 201
Unrealized loss on
marketable securities.. -- -- -- -- -- -- -- (105) (105)
--------
Total comprehensive
income................. 8,814
--------
Issuance of common
stock upon exercise of
options, net........... -- -- 590 1 2,822 -- -- -- 2,823
Issuance of common
stock under Employee
Stock Purchase Plan.... -- -- 187 -- 2,032 -- -- -- 2,032
Tax benefit of stock
option exercises....... -- -- -- -- 6,103 -- -- -- 6,103
------- ----- ------ --- ------- ------ -------- ----- --------
Balances, September 30,
1999.................... -- $ -- 23,703 $24 $78,574 $ -- $(17,005) $ (29) $ 61,564
======= ===== ====== === ======= ====== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1999 1998 1997
----------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 8,718 $ 6,788 $ 1,981
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 3,127 2,835 2,070
Non-cash compensation expense for issuance
of warrant............................... -- 568 --
(Gain) loss on investments and other...... (531) 666 45
Change in operating assets and
liabilities:
Accounts receivable...................... 414 (988) (207)
Prepaid taxes............................ 2,191 1,768 --
Prepaids and other current assets........ 80 (308) (1,160)
Other assets............................. 195 (81) (1,414)
Accounts payable......................... (194) 81 150
Deferred taxes........................... 4,759 (3,253) (5,974)
Income taxes payable..................... (12) (3,280) 4,065
Accrued salaries and benefits............ 1,150 473 1,116
Other accrued liabilities................ 35 (57) 394
Deferred revenue......................... (15,853) 11,098 30,861
----------- --------- ---------
Net cash provided by operating
activities............................. 4,079 16,310 31,927
----------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment......... (3,292) (2,229) (3,854)
Proceeds from sale of property and
equipment................................. -- 6 4
Purchases of marketable securities......... (1,118,281) (313,525) (279,222)
Maturities of marketable securities........ 1,102,630 302,439 235,850
Purchase of investments.................... (1,200) (1,150) --
Sale of investments........................ 2,822 -- --
Increase in restricted cash................ (2,500) -- --
----------- --------- ---------
Net cash used in investing activities... (19,821) (14,459) (47,222)
----------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common
stock..................................... 4,855 3,098 35,636
Repayments of stockholders' notes
receivable................................ -- 680 367
Proceeds from bank loans................... -- -- 794
Principal payments on bank loans........... -- -- (794)
Principal payments on capital lease
obligations............................... (130) (382) (773)
----------- --------- ---------
Net cash provided by financing
activities............................. 4,725 3,396 35,230
----------- --------- ---------
Effect of exchange rates on cash and cash
equivalents................................ 201 (90) (36)
----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (10,816) 5,157 19,899
Cash and cash equivalents at beginning of
period..................................... 25,798 20,641 742
----------- --------- ---------
Cash and cash equivalents at end of period.. $ 14,982 $ 25,798 $ 20,641
=========== ========= =========
Supplemental disclosure of cash flow
information:
Interest paid.............................. $ 7 $ 52 $ 194
Taxes paid................................. 408 8,874 4,224
License of technology for common stock..... -- -- 1,200
Issuance of stockholders' notes
receivable................................ -- -- 1,047
Tax benefit of stock option exercises...... 6,103 4,087 857
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Business of the Company
Rambus Inc. and Subsidiary (the Company) designs, develops, licenses and
markets high-speed chip-to-chip interface technology to enhance the performance
and cost-effectiveness of computers, consumer electronics, and other electronic
systems. The Company licenses semiconductor companies to manufacture and sell
memory and logic ICs incorporating Rambus interface technology and markets its
solution to systems companies to encourage them to design Rambus interface
technology into their products.
The Company was incorporated in California in March 1990 and reincorporated
in Delaware in March 1997.
2. Summary of Significant Accounting Policies
Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Rambus K.K., located in Tokyo,
Japan. All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements. Identifiable assets and
revenues of the subsidiary are not significant. Investments with less than 20%
ownership by the Company are recorded using the cost method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company has entered into nonexclusive technology agreements with
semiconductor licensees. These agreements provide a license to use the
Company's proprietary technology and to receive engineering implementation
services, customer support, and enhancements.
The Company delivers to a new licensee an implementation package which
contains all information needed to develop a Rambus chip in the licensee's
process. An implementation package includes a specification, a generalized
circuit layout database software for the particular version of the chip which
the licensee intends to develop, test parameter software and, for memory chips,
a core interface specification. Test parameters are the programs that test the
Rambus technology embedded in the customer's product. Many licensees have
contracted to have Rambus provide the specific engineering implementation
services required to optimize the generalized circuit layout for the licensee's
manufacturing process. The contracts also provide for the right to receive
ongoing customer support which includes technical advice on chip
specifications, enhancements, debugging and testing.
The Company recognizes revenue consistent with American Institute of
Certified Public Accountants (AICPA) Statement of Position No. 97-2 (SOP 97-2),
"Software Revenue Recognition," as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2," effective
January 1, 1998. This SOP applies to all entities that earn revenue on products
containing software, where software is not incidental to the product as a
whole. The Company's adoption of SOP 97-2, as amended, in the first quarter of
fiscal 1999 had no material impact on the Company's results of operations.
33
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Contract fees for the services provided under these agreements are comprised
of license fees, engineering service fees and nonrefundable, prepaid royalties.
Contract fees are bundled together as the total price of the agreement does not
vary as a result of inclusion or exclusion of services. Accordingly, the
revenues from such contract fees are recognized ratably over the period during
which the post-contract customer support is expected to be provided independent
of the payment schedules under the contract, including milestones. Fiscal 1999
contract revenues include approximately $3.3 million of previously deferred
income due to a change in management's estimate of certain contract revenue
recognition periods. Such periods are initially estimated based on management's
judgment of the time over which the Company has an obligation to support its
licensees. As the new generation of RDRAMs goes into production, a more
accurate estimate of remaining support can be made. To the extent the new
estimated period is less than the original estimate there will be a temporary
increase in the amount of deferred revenue recognized.
At the time the Company begins to recognize revenue under the contract, the
remaining obligations, as defined by the SOP, are no longer significant. These
remaining obligations are primarily to keep the product updated and include
activities such as responding to inquiries and periodic customer meetings.
Part of these contract fees may be due upon the achievement of certain
milestones, such as provision of certain deliverables by the Company or
production of chips by the licensee. The remaining fees are due on pre-
determined dates and include significant up-front fees.
The Company recognizes royalties upon notification of sale by its licensees.
The terms of the royalty agreements generally require licensees to give
notification to the Company and to pay royalties within 60 days of the end of
the quarter during which the sales take place.
Research and Development
Costs incurred in research and development are expensed as incurred.
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. The Company has not capitalized any
software development costs since such costs have not been significant.
Income Taxes
The Company accounts for income taxes under the liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current laws and rates in effect. Research and development
credits are accounted for using the flow-through method.
Computation of Net Income Per Share
Net income per share is calculated in accordance with Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" (SFAS 128), which
requires the presentation of basic and diluted earnings per share. Basic
earnings per share is calculated using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is calculated
using the weighted average number of common share and common stock equivalents,
if dilutive, outstanding during the period.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
34
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As the Company grants stock options with exercise prices equivalent to fair
market value, no compensation cost has been recognized for its stock plans. The
Company provides additional pro forma disclosures as required under Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation." See Note 7.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original or remaining
maturities of three months or less at the date of purchase. Cash equivalents
present risk of changes in value because of interest rate changes. The Company
maintains its cash balances with high quality financial institutions and has
not experienced any material losses.
Marketable Securities
Available-for-sale securities are carried at fair value, based on quoted
market prices, with the unrealized gains or losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, both of which
are included in interest income. Realized gains and losses are recorded on the
specific identification method.
Fair Value of Financial Instruments
The amounts reported for cash equivalents, receivables and other financial
instruments are considered to approximate fair values based upon comparable
market information available at the respective balance sheet dates.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over estimated useful lives of three to five years. Leasehold
improvements and property under capital leases are amortized on a straight-line
basis over the shorter of their estimated useful lives or the terms of the
leases. Upon disposal, assets and related accumulated depreciation are removed
from the accounts and the related gain or loss is included in results from
operations.
Foreign Currency Translation
The functional currency for the Company's foreign operation in Japan is the
Japanese yen. The translation from the Japanese yen to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the weighted
average exchange rate during the period. Adjustments resulting from such
translation are included in stockholders' equity and comprehensive loss. Gains
or losses resulting from foreign currency transactions are included in the
results of operations.
Segments
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one disclosable
segment, using one measurement of profitability for its business. The Company
has sales outside the United States, which are described in Note 12. All long-
lived assets are maintained in the United States.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation
35
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
adjustments and unrealized gains and losses on marketable securities. Other
comprehensive loss is presented on the statement of stockholders' equity.
Recent Accounting Pronouncements
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is no vendor-
specific objective evidence ("VSOE") of the fair values of all the undelivered
elements that are not accounted for by means of long-term contract accounting,
(2) VSOE of fair value does not exist for one or more of the delivered
elements, and (3) all revenue recognition criteria of SOP 97-2 (other than the
requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company is currently evaluating the impact of the requirements
of SOP 98-9 and the effects, if any, on its current revenue recognition
policies.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. In July 1999, the Financial Accounting Standard Boards issued SFAS No.
137, or SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities. The Company is continuing to evaluate the impact
of the requirements of SFAS 133 and SFAS 137 will have on its financial
statements and related disclosures.
3. Business Risks and Credit Concentration
The Company operates in the intensely competitive semiconductor industry,
which has been characterized by price erosion, rapid technological change,
short product life cycles, cyclical market patterns and heightened foreign and
domestic competition. Significant technological changes in the industry could
adversely affect operating results.
The Company markets and sells its technology to a narrow base of customers
and generally does not require collateral. At September 30, 1999, two customers
accounted for 67% and 17% of accounts receivable. At September 30, 1998, three
customers accounted for 26%, 16% and 10% of accounts receivable.
As of September 30, 1999 and 1998, the Company's cash and cash equivalents
are deposited with principally one financial institution in the form of
commercial paper, money market accounts, and demand deposits.
Financial instruments that potentially subject the Company to concentrations
of credit risk comprise principally cash and cash equivalents, available-for-
sale securities and trade accounts receivable. The Company invests its excess
cash primarily in U.S. government agency and treasury notes; corporate paper,
notes, bonds and preferred stock; and municipal notes and bonds that mature
within eighteen months.
36
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Marketable Securities
All marketable securities are classified as available-for-sale and are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------
1999 1998
------- -------
<S> <C> <C>
Corporate notes and bonds................................ $23,528 $20,523
Municipal notes and bonds................................ 29,297 18,879
United States government debt securities................. 24,991 16,989
Foreign debt securities.................................. -- 4,879
Certificates of deposit and commercial paper............. -- 1,000
------- -------
$77,816 $62,270
======= =======
</TABLE>
Available-for-sale securities are carried at fair value. Gross unrealized
gains of approximately $13,000 are netted against gross unrealized losses of
approximately $118,000, net of tax, and are included as a component of
stockholders' equity and comprehensive income. Realized gains and losses,
declines in value judged to be other than temporary, and interest on
available-for-sale securities are included in interest income. All marketable
securities classified as current have scheduled maturities of less than one
year.
5. Property and Equipment, Net
Property and equipment, net is comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Computer equipment..................................... $ 7,828 $ 6,762
Computer software...................................... 5,543 4,895
Furniture and fixtures................................. 1,423 1,170
Leasehold improvements................................. 589 429
-------- -------
15,383 13,256
Less accumulated depreciation and amortization......... (11,151) (9,267)
-------- -------
$ 4,232 $ 3,989
======== =======
</TABLE>
Depreciation and amortization expense was approximately $2,985,000,
$2,550,000 and $1,857,000 in the years ended September 30, 1999, 1998 and
1997.
Property and equipment under capital leases included above is comprised of
(in thousands):
<TABLE>
<CAPTION>
September 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Computer equipment......................................... $ -- $ 296
Furniture and fixtures..................................... -- 248
------ ------
-- 544
Less accumulated amortization.............................. -- (495)
------ ------
$ -- $ 49
====== ======
</TABLE>
37
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Lease Commitments
The Company leases its present office facilities in Mountain View,
California, under operating lease agreements that expire through February 2005.
The Company is responsible for taxes, insurance and utilities related to the
leased facilities.
The Company has entered into an agreement to lease approximately 96,000
square feet of office space in a building currently under construction in Los
Altos, California. The Company plans to relocate its headquarters to the new
site upon completion in late calendar 2000. The lease has an initial term of
ten years with options to renew for an additional ten years, subject to certain
conditions. Rent obligations for the building commence upon occupancy or
substantial completion of construction, whichever occurs first. As part of this
lease transaction, the Company provided the lessor with a letter of credit
restricting $2.5 million of its cash as collateral for certain of the Company's
obligations under the lease. The cash is restricted as to withdrawal and is
managed by a third party subject to certain limitations under the Company's
investment policy. The letter of credit is subject to reduction to $1.2 million
on the first anniversary of rent commencement and to $0.6 million on the second
anniversary.
As of September 30, 1999, aggregate future minimum payments under the leases
are (in thousands):
<TABLE>
<S> <C>
Fiscal Year:
2000............................................................ $ 1,034
2001............................................................ 3,698
2002............................................................ 4,682
2003............................................................ 4,822
2004............................................................ 4,960
Thereafter...................................................... 29,472
-------
Total minimum lease payments................................... $48,668
=======
</TABLE>
Rent expense was approximately $1,503,000, $1,309,000, and $987,000 for the
years ended September 30, 1999, 1998 and 1997, respectively.
7. Stockholders' Equity
Preferred and Common Stock
In February 1997, the Company established a Stockholder Rights Plan pursuant
to which each holder of the Company's common stock shall receive a right to
purchase one-thousandth of a share of Series E Preferred Stock for $125 per
right, subject to a number of conditions. Such rights are subject to adjustment
in the event of a takeover or commencement of a tender offer not approved by
the Board of Directors.
In May 1997, all of the then outstanding preferred shares were automatically
converted to common stock concurrent with the closing of the initial public
offering.
As of September 30, 1999 and 1998, the total shares held by employees that
were subject to repurchase was 210,486 and 390,509, respectively.
Stock Option Plans
In March 1990, the Company adopted the 1990 Stock Plan under which 2,657,143
shares of common stock were reserved for issuance. Incentive stock options may
be granted with exercise prices of no less than fair market value, and
nonqualified stock options may be granted with exercise prices of no less than
85% of the fair market value of the common stock on the grant date, as
determined by the Board of Directors. The
38
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
options generally vest over a four-year period but may be exercised immediately
subject to repurchase by the Company for those options that are not vested.
In May 1997, the 1990 Stock Plan was terminated and the 1997 Stock Plan was
adopted. The 1997 Stock Plan authorizes the issuance of incentive stock options
and nonstatutory stock options to employees and nonstatutory stock options to
directors, employees or paid consultants of the Company. The Company has
reserved 1,000,000 shares of common stock for issuance under the plan. The plan
expires ten years after adoption, and the Board of Directors or a committee
designated by the Board of Directors has the authority to determine to whom
options will be granted, the number of shares, the vesting period and the
exercise price (which generally cannot be less than 100% of the fair market
value at the date of grant for incentive stock options). The options are
exercisable at times and in increments as specified by the Board of Directors,
and expire not more than ten years from date of grant.
A summary of activity under all stock option plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Options Number Weighted
Available of Average Exercise
for Grant Shares Price Per Share
---------- ---------- ----------------
<S> <C> <C> <C>
Outstanding at September 30, 1996..... 1,065,452 3,105,450 $ 1.00
Shares reserved....................... 1,000,000 -- --
Options granted....................... (1,411,350) 1,411,350 $14.37
Options exercised..................... -- (2,092,428) $ 1.22
Options canceled...................... 20,000 (20,000) $ 8.00
---------- ----------
Outstanding at September 30, 1997..... 674,102 2,404,372 $ 8.55
Shares reserved....................... 440,000 -- --
Shares repurchased.................... 2,837 -- --
Options terminated under 1990 Plan.... (182,425) -- --
Options granted....................... (1,125,900) 1,125,900 $47.98
Options exercised..................... -- (435,202) $ 2.81
Options canceled...................... 333,586 (333,586) $45.72
---------- ----------
Outstanding at September 30, 1998..... 142,200 2,761,484 $21.10
Shares reserved....................... 857,800 -- --
Shares repurchased.................... 7,000 -- --
Options terminated under 1990 Plan.... (51,950) -- --
Options granted....................... (1,170,600) 1,170,600 $58.99
Options exercised..................... -- (596,605) $ 4.76
Options canceled...................... 273,888 (273,888) $43.96
---------- ----------
Outstanding at September 30, 1999..... 58,338 3,061,591 $36.75
========== ==========
</TABLE>
39
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about outstanding and exercisable
options as of September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Life Exercise Price Exercisable Exercise Price
Prices ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.25--
$ 5.00 629,388 6.26 $ 3.14 629,388 $3.14
$ 7.00--
$42.75 656,183 7.83 19.67 260,130 10.87
$42.88--
$53.00 613,020 8.58 49.21 24,574 47.03
$53.25--
$59.31 933,700 9.28 57.20 17,725 55.59
$59.75--
$63.13 229,300 9.31 61.24 14,418 61.17
--------- -------
3,061,591 8.21 $36.75 946,235 $8.27
========= =======
</TABLE>
As of September 30, 1999, a total of 3,119,929 shares of common stock were
reserved for issuance under all stock option plans. As of September 30, 1999,
1998 and 1997, options for the purchase of 490,191, 476,266 and 1,964,372
shares, respectively, were exercisable without being subject to repurchase by
the Company.
Employee Stock Purchase Plan
In May 1997, the Company adopted the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 400,000 shares of common stock for issuance under
the Purchase Plan. The Purchase Plan authorizes the granting of stock purchase
rights to eligible employees during two-year offering periods with exercise
dates approximately every six months. Shares are purchased through employee
payroll deductions at purchase prices equal to 85% of the lesser of the fair
market value of the Company's common stock at either the first day of each
offering period or the date of purchase. In fiscal 1999 and 1998, the Company
issued 187,178 and 183,021 shares, respectively, under the Purchase Plan at an
average price per share of $10.86 and $10.27, respectively.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock plans. As the Company grants stock options with exercise prices
equivalent to fair market value, no compensation expense has been recognized
for its stock-based compensation plans. If the Company had recognized
compensation expense based upon the fair value of stock option awards,
including shares issued under the Purchase Plan (collectively called
"options"), at the grant date consistent with the methodology prescribed under
SFAS 123, "Accounting for Stock-Based Compensation," the Company's net income
and net income per share would have changed to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year Ended September
30,
--------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income as reported.................................... $8,718 $6,788 $1,981
Net income pro forma...................................... $5,413 $5,299 $1,386
Net income per share as reported.......................... $ 0.37 $ 0.30 $ 0.10
Net income per share pro forma............................ $ 0.23 $ 0.23 $ 0.07
Net income per share--assuming dilution as reported....... $ 0.35 $ 0.28 $ 0.09
Net income per share--assuming dilution pro forma......... $ 0.22 $ 0.22 $ 0.06
</TABLE>
40
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The fair value of the options is estimated as of the grant date using the
Black-Scholes option-pricing model assuming a dividend yield of 0% and the
following additional weighted-average assumptions:
<TABLE>
<CAPTION>
Stock Option Plans Stock Purchase Plan
----------------------------- -------------------
1999 1998 1997 1999 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Expected stock price
volatility................. 82% 82% 71% 82% 82%
Risk-free interest rate..... 5.0% 5.1% 6.2% 4.7% 5.2%
Expected life of options 4.1 years 4.4 years 4.5 years 0.5 years 0.5 years
</TABLE>
The weighted-average fair value of stock options granted during the years
ended September 30, 1999, 1998 and 1997 is $37.42, $31.28, and $8.79,
respectively. The weighted-average fair value of purchase rights granted under
the Purchase Plan during the years ended September 30, 1999, 1998 and 1997 is
$10.70, $4.65 and $4.53, respectively. Fair value is calculated using the
Black-Scholes option valuation model.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.
The effects of applying SFAS 123 on the pro forma disclosures for the years
ended September 30, 1999, 1998 and 1997 are not likely to be representative of
the effects on pro forma disclosures in future years. Because SFAS No. 123 is
applicable only to options granted by the Company subsequent to October 1, 1995
the pro forma effect will not be fully reflected until 2001.
Warrants
In November 1996, the Company entered into an agreement with Intel
Corporation for the development of high-speed semiconductor memory interface
technology. In January 1997, as part of this agreement, the Company issued a
warrant to purchase 1,000,000 shares of common stock of the Company at a
purchase price of $10.00 per share. This warrant will become exercisable only
upon the achievement of certain specified performance milestones relating to
shipment volumes of Rambus-based chipsets. At the time that the achievement of
the milestones becomes probable, a charge will be made to the statement of
operations based on the fair value of the warrant.
In June 1998, the Company issued a warrant to purchase 25,000 shares of
common stock of the Company at a price of $36.64 per share to LG Semicon. This
warrant, issued as part of a DRAM incentive program among the Company's
licensees, was immediately exercisable and expires seven years from date of
issue. The fair value of this warrant, calculated using the Black-Scholes
option pricing model, was charged to expense in the Company's consolidated
statements of operations for the year ended September 30, 1998.
In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants for a total of up to 400,000 shares of Rambus
common stock to be issued to various Rambus DRAM partners upon the achievement
of certain product qualification and volume production targets associated with
the introduction of the newest generation of Rambus technology.
41
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These warrants, to be issued at the time the targets are met, have an
exercise price of $10 per share and a life of five years. They vest and become
exercisable on the same basis as the Intel warrant, which will result in a
charge to the statement of operations based on the fair value of these warrants
at the time the achievement of the Intel milestones becomes probable. As of
September 30, 1999 a total of 30,000 of these warrants have been issued.
8. Employee Benefit Plans
The Company has a 401(k) Profit Sharing Plan (the "Plan") qualified under
Section 401(k) of the Internal Revenue Code of 1986. Each eligible employee may
elect to contribute up to 20% of the employee's annual compensation to the
Plan. The Company, at the discretion of its Board of Directors, may match
employee contributions to the Plan but has not done so for the years ended
September 30, 1999, 1998 and 1997.
9. Income Taxes
The provision for income taxes comprises (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Foreign withholding tax:
Current...................................... $ 369 $ 1,225 $ 1,498
Federal:
Current...................................... (8) 3,941 4,335
Deferred..................................... 4,115 (2,830) (5,999)
State:
Current...................................... -- 2,627 2,458
Deferred..................................... 644 (423) (977)
-------- -------- --------
$5,120 $ 4,540 $ 1,315
======== ======== ========
</TABLE>
The Company's effective tax rate on pretax income differs from the U.S.
federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expense at U.S. federal statutory rate........... 35.0% 35.0% 34.0%
Expense at state statutory rate.................. 5.7 5.7 5.7
Nondeductible amortization....................... 0.4 1.0 2.7
R&D credit....................................... (9.7) (6.2) (15.1)
Change in valuation allowance.................... 10.8 12.6 12.7
FSC benefit...................................... -- (8.4) --
Other............................................ (5.2) 0.3 --
------- ------- --------
37.0% 40.0% 40.0%
======= ======= ========
</TABLE>
42
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred revenue......................................... $20,198 $26,416
Depreciation and amortization expense.................... 1,083 1,081
Other liabilities and reserves........................... 1,006 654
Net operating loss carryover............................. 2,701 --
Tax credits.............................................. 1,974 --
------- -------
Total deferred tax asset............................... 26,962 28,151
Deferred tax liability:
Deferred royalty cost.................................... -- (4)
Valuation allowance........................................ (21,491) (17,918)
------- -------
Deferred tax assets, net............................... $ 5,471 $10,229
======= =======
</TABLE>
The Company has established a partial valuation allowance against its
deferred tax assets due to the uncertainty surrounding the realization of such
assets. Management periodically evaluates the recoverability of the deferred
tax assets and recognizes the tax benefit only as reassessment demonstrates
they are realizable. At such time, if it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
The Company has net operating loss carryforwards of $6.5 million and $7.9
million for federal and state tax purposes, respectively. In addition, the
Company has federal and state research and experimentation tax credit
carryforwards of $0.8 million. The net operating loss carryforwards and tax
credits expire between 2004 and 2019.
10. Net Income Per Share
Net income per share is calculated as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income....................................... $ 8,718 $ 6,788 $ 1,981
======== ======== ========
Weighted average common shares outstanding....... 23,332 22,704 19,548
Additional dilutive common stock equivalents..... 1,720 1,672 1,672
-------- -------- --------
Diluted shares outstanding....................... 25,052 24,376 21,510
======== ======== ========
Net income per share--basic...................... $ 0.37 $ 0.30 $ 0.10
======== ======== ========
Net income per share--diluted.................... $ 0.35 $ 0.28 $ 0.09
======== ======== ========
</TABLE>
11. Related Party Transactions
Chromatic Research Inc. In February 1994, the Company licensed its interface
technology to Chromatic Research, Inc. ("Chromatic"), an entity in which the
Company held a minority interest and had members of the board of directors in
common. Under the terms of the license, Rambus received 626,053 shares of
Chromatic Series B Preferred Stock (representing 5% of the then outstanding
shares of Chromatic) and continuing royalties. The initial valuation of the
Chromatic stock, approximately $626,000, has been fully
43
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
written down by the Company. Revenue recognized as license fees under this
agreement was $70,000, $119,000 and $119,000 in the years ended September 30,
1999, 1998 and 1997, respectively. As of September 30, 1999 and 1998, the
remaining balance of license fees of approximately $10,000 and $81,000,
respectively, is included in deferred revenue.
In December 1997, the Company made a cash investment in Chromatic of
$1,000,000 and received 142,857 shares of Series I Preferred Stock.
In fiscal 1999, Chromatic was acquired and the Company received
approximately $782,000 in exchange for its Chromatic shares. The remaining book
value of the Chromatic investment of approximately $218,000 was written off
against previously established reserves.
12. Business Segments, Exports and Major Customers
The Company operates in a single industry segment.
Three customers accounted for 11%, 11% and 10% of revenues in the year ended
September 30, 1999. One customer accounted for 22% of revenues in the year
ended September 30, 1998. Two customers accounted for 29% and 10% of revenues
in the year ended September 30, 1997.
The Company sells its technology to customers in the Far East, North
America, and Europe. The net income and loss for all periods presented are
derived primarily from the Company's North American operations, which generates
revenues from the following geographic regions (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States....................................... $ 17,404 $10,218 $ 5,076
Japan............................................... 14,010 18,556 15,118
Korea............................................... 4,908 6,663 5,520
Taiwan.............................................. 4,461 618 --
Europe.............................................. 2,587 1,809 301
-------- ------- -------
$ 43,370 $37,864 $26,015
======== ======= =======
</TABLE>
44
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal years by quarter
-----------------------------------------------------------
1999 1998
------------------------------- ---------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
------- ------- ------- ------- ------ ------ ------ ------
(in thousands, except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Contract revenues..... $10,630 $ 8,830 $ 7,945 $ 7,948 $7,394 $7,535 $7,122 $6,676
Royalties............. 1,675 1,802 1,914 2,626 2,269 1,625 2,529 2,714
------- ------- ------- ------- ------ ------ ------ ------
Total revenues....... 12,305 10,632 9,859 10,574 9,663 9,160 9,651 9,390
------- ------- ------- ------- ------ ------ ------ ------
Costs and expenses:
Cost of contract
revenues............. 3,701 3,944 2,485 2,102 2,549 2,490 2,308 1,641
Research and
development.......... 1,425 1,111 2,498 3,089 2,497 2,183 2,163 2,806
Marketing, general and
administrative....... 3,733 3,520 3,293 2,970 2,802 2,687 2,948 2,823
------- ------- ------- ------- ------ ------ ------ ------
Total costs and
expenses............ 8,859 8,575 8,276 8,161 7,848 7,360 7,419 7,270
Operating income........ 3,446 2,057 1,583 2,413 1,815 1,800 2,232 2,120
Interest and other
income, net............ 770 900 1,657 1,012 1,117 1,018 755 471
------- ------- ------- ------- ------ ------ ------ ------
Income before income
taxes.................. 4,216 2,957 3,240 3,425 2,932 2,818 2,987 2,591
Provision for income
taxes.................. 1,563 956 1,231 1,370 1,186 1,123 1,195 1,036
------- ------- ------- ------- ------ ------ ------ ------
Net income.............. $ 2,653 $ 2,001 $ 2,009 $ 2,055 $1,746 $1,695 $1,792 $1,555
======= ======= ======= ======= ====== ====== ====== ======
Net income per share--
diluted................ $ 0.10 $ 0.08 $ 0.08 $ 0.08 $ 0.07 $ 0.07 $ 0.07 $ 0.06
======= ======= ======= ======= ====== ====== ====== ======
Shares used in per share
calculations........... 25,291 25,038 24,980 24,874 24,536 24,360 24,316 24,310
Stock prices:
High.................. $115.25 $100.63 $109.50 $102.88 $66.25 $61.50 $54.81 $61.25
Low................... $ 59.06 $ 55.00 $ 61.25 $ 50.75 $47.75 $35.75 $38.69 $40.06
</TABLE>
45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Rambus Inc. and Subsidiary
Our audits of the consolidated financial statements referred to in our
report dated October 14, 1999 which appears in this Annual Report on Form 10-K
of Rambus Inc. and Subsidiary also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
San Jose, California
October 14, 1999
46
<PAGE>
RAMBUS INC. AND SUBSIDIARY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Valuation allowance for doubtful accounts
<TABLE>
<CAPTION>
Additions
Balance at charged to Charged to
beginning costs and other Balance at
For the year ended: of period expenses accounts Deductions end of period
- ------------------- ---------- ---------- ---------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
September 30, 1997... $ 8 $ 2 -- -- $10
September 30, 1998... $10 -- -- -- $10
September 30, 1999... $10 -- -- -- $10
</TABLE>
Valuation allowance for deferred tax asset
<TABLE>
<CAPTION>
Additions
Balance at charged to Charged to
beginning costs and other Balance at
For the year ended: of period expenses accounts Deductions end of period
- ------------------- ---------- ---------- ---------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
September 30, 1997... $16,071 $ 418 -- -- $16,489
September 30, 1998... $16,489 $1,429 -- -- $17,918
September 30, 1999... $17,918 $3,573 -- -- $21,491
</TABLE>
47
<PAGE>
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 to be signed
on its behalf by the undersigned, thereunto duly authorized.
Rambus Inc.
Date: December 22, 1999
By: /s/ Gary Harmon
---------------------------------
Gary Harmon,
Sr. Vice President, Finance,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 Title Date
--------- ----- ----
<S> <C> <C>
/s/ Geoff Tate
- -------------------------------------- Chief Executive Officer December 22, 1999
Geoff Tate and Director (Principal
Executive Officer)
/s/ David Mooring
- -------------------------------------- President and Director December 22, 1999
David Mooring
/s/ Gary Harmon
- -------------------------------------- Sr. Vice President, December 22, 1999
Gary Harmon Finance, Chief Financial
Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ William Davidow
- -------------------------------------- Chairman of the Board of December 22, 1999
William Davidow Directors
/s/ Bruce Dunlevie
- -------------------------------------- Director December 22, 1999
Bruce Dunlevie
/s/ P. Michael Farmwald
- -------------------------------------- Director December 22, 1999
P. Michael Farmwald
/s/ Charles Geschke
- -------------------------------------- Director December 22, 1999
Charles Geschke
/s/ Mark Horowitz
- -------------------------------------- Director December 22, 1999
Mark Horowitz
</TABLE>
48
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
RAMBUS INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES........................................................... 1
1.1 REGISTERED OFFICE......................................................... 1
1.2 OTHER OFFICES............................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS................................................... 1
2.1 PLACE OF MEETINGS......................................................... 1
2.2 ANNUAL MEETING............................................................ 1
2.3 SPECIAL MEETING........................................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.......................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............................. 2
2.6 QUORUM.................................................................... 2
2.7 ADJOURNED MEETING; NOTICE................................................. 2
2.8 CONDUCT OF BUSINESS....................................................... 3
2.9 VOTING.................................................................... 3
2.10 WAIVER OF NOTICE.......................................................... 3
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING................... 4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS............... 4
2.13 PROXIES................................................................... 5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE..................................... 5
2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS........... 5
ARTICLE III - DIRECTORS................................................................. 6
3.1 POWERS.................................................................... 6
3.2 NUMBER OF DIRECTORS....................................................... 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS................... 7
3.4 RESIGNATION AND VACANCIES................................................. 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................................. 8
3.6 FIRST MEETINGS............................................................ 8
3.7 REGULAR MEETINGS.......................................................... 8
3.8 SPECIAL MEETINGS; NOTICE.................................................. 9
3.9 QUORUM.................................................................... 9
3.10 ADJOURNED MEETING; NOTICE................................................. 9
3.11 WAIVER OF NOTICE.......................................................... 9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................... 10
3.13 FEES AND COMPENSATION OF DIRECTORS........................................ 10
3.14 APPROVAL OF LOANS TO OFFICERS............................................. 10
3.15 REMOVAL OF DIRECTORS...................................................... 10
ARTICLE IV - COMMITTEES................................................................. 10
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.1 COMMITTEES OF DIRECTORS................................................... 11
4.2 COMMITTEE MINUTES......................................................... 11
4.3 MEETINGS AND ACTION OF COMMITTEES......................................... 11
ARTICLE V - OFFICERS.................................................................... 12
5.1 OFFICERS.................................................................. 12
5.2 APPOINTMENT OF OFFICERS................................................... 12
5.3 SUBORDINATE OFFICERS...................................................... 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS....................................... 12
5.5 VACANCIES IN OFFICES...................................................... 13
5.6 CHAIRMAN OF THE BOARD..................................................... 13
5.7 CHIEF EXECUTIVE OFFICER................................................... 13
5.8 PRESIDENT................................................................. 13
5.9 VICE PRESIDENTS........................................................... 13
5.10 SECRETARY................................................................. 14
5.11 CHIEF FINANCIAL OFFICER................................................... 14
5.12 ASSISTANT SECRETARY....................................................... 14
5.13 ASSISTANT TREASURER....................................................... 15
5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............................ 15
5.15 AUTHORITY AND DUTIES OF OFFICERS.......................................... 15
ARTICLE VI - INDEMNITY.................................................................. 15
6.1 THIRD PARTY ACTIONS....................................................... 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION............................. 16
6.3 SUCCESSFUL DEFENSE........................................................ 16
6.4 DETERMINATION OF CONDUCT.................................................. 16
6.5 PAYMENT OF EXPENSES IN ADVANCE............................................ 17
6.6 INDEMNITY NOT EXCLUSIVE................................................... 17
6.7 INSURANCE INDEMNIFICATION................................................. 17
6.8 THE CORPORATION........................................................... 17
6.9 EMPLOYEE BENEFIT PLANS.................................................... 18
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES............... 18
ARTICLE VII - RECORDS AND REPORTS....................................................... 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS..................................... 18
7.2 INSPECTION BY DIRECTORS................................................... 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.......................................... 19
ARTICLE VIII - GENERAL MATTERS.......................................................... 19
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.1 CHECKS................................................................... 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS......................... 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES................................... 19
8.4 SPECIAL DESIGNATION ON CERTIFICATES...................................... 20
8.5 LOST CERTIFICATES........................................................ 20
8.6 CONSTRUCTION; DEFINITIONS................................................ 21
8.7 DIVIDENDS................................................................ 21
8.8 FISCAL YEAR.............................................................. 21
8.9 SEAL..................................................................... 21
8.10 TRANSFER OF STOCK........................................................ 21
8.11 STOCK TRANSFER AGREEMENTS................................................ 21
8.12 REGISTERED STOCKHOLDERS.................................................. 22
ARTICLE IX - AMENDMENTS................................................................ 22
</TABLE>
<PAGE>
AMENDED AND RESTATED BYLAWS
---------------------------
OF
--
RAMBUS INC.
-----------
(As Amended and Restated as of October __, 1999)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by a
majority of the Board of Directors of the Corporation. No other person or
persons are permitted to call a special meeting. No business may be conducted
at a special meeting other than the business specified by the Board of Directors
as specified in its notice of calling of the meeting delivered to the
Corporation as provided below by Section 2.4 and 2.5.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the Chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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2.8 CONDUCT OF BUSINESS
-------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
as may be otherwise required by applicable law, each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder.
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, or as may be otherwise required by applicable law:
(i) in all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders;
(ii) directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors; and
(iii) where a separate vote by a class or classes or series is
required, the affirmative vote of the majority of shares of such class or
classes or series present in person or represented by proxy at the meeting shall
be the act of such class or classes or series.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
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2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing setting forth the action so
taken shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Such consents shall be delivered to the corporation by delivery to
it registered office in the state of Delaware, its principal place of business,
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
Effective upon the closing of a firm commitment underwritten initial public
offering of any of the corporation's securities pursuant to a registration
statement on Form S-1 filed under the Securities Act of 1933, as amended, the
stockholders of the corporation may not take action by written consent without a
meeting but must take any such actions at a duly called annual or special
meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for the stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was
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mailed or such public disclosure was made. To be in proper form, a stockholder's
notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations, propose the business, and, as the case may be, the name and address
of the person or persons to be nominated or the nature of the business to be
proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice or introduce the business specified in the
notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
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3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than three (3)
nor more than seven (7). The exact number of directors shall be seven (7) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
Certificate of Incorporation or by an amendment to this bylaw duly adopted by
the board of directors or by the stockholders.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until the director's earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the attention of
the Secretary of the corporation. When one or more directors so resigns and the
resignation is effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
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If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
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3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or a majority of the directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.10 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.11 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the
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beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the directors, or members
of a committee of directors, need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these bylaws.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
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4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series) [voting rights?], (ii) adopt an agreement
of merger or consolidation under Sections 251 or 252 of the General Corporation
Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.11
(waiver of notice), and Section 3.12 (action without a meeting), with such
changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
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committee, that special meetings of committees may also be called by resolution
of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a chairman of the board or a
president or both, a secretary and a chief financial officer/treasurer. The
corporation may also have, at the discretion of the board of directors, a chief
executive officer, one or more vice presidents, one or more assistant vice
presidents, one or more assistant secretaries, one or more assistant treasurers,
and any such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not
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be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him or her
by the board of directors or as may be prescribed by these bylaws. If there is
no chief executive officer and no president, then the chairman of the board
shall also be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 5.7 of these bylaws.
5.7 CHIEF EXECUTIVE OFFICER
-----------------------
Subject to the supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the chief
executive officer shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. In the absence or nonexistence of a chairman of the board, the
chief executive officer shall preside at meetings of the board of directors.
The chief executive officer shall have such other powers and duties as may be
prescribed by the board of directors or these bylaws.
5.8 PRESIDENT
---------
The president shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board and a chief executive
officer, at all meetings of the board of directors. The president shall have
the general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these bylaws. If there is no chief
executive officer, then the president shall also be the chief executive officer
of the corporation and shall have the powers and duties prescribed in Section
5.7 of these bylaws.
5.9 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
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5.10 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.11 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. The chief financial officer shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors or these bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.12 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such
-14-
<PAGE>
other duties and have such other powers as may be prescribed by the board of
directors or these bylaws.
5.13 ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.15 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 THIRD PARTY ACTIONS
-------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a
-15-
<PAGE>
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) and amounts paid in settlement (if such settlement is approved in advance
by the corporation, which approval shall not be unreasonably withheld) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding any other
provision of this Article VI, no person shall be indemnified hereunder for any
expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
6.3 SUCCESSFUL DEFENSE
------------------
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection therewith.
6.4 DETERMINATION OF CONDUCT
------------------------
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because the person has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (1) by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or (2) if there are
no such directors, or if such directors so direct, by
-16-
<PAGE>
independent legal counsel in a written opinion, or (3) by the stockholders.
Notwithstanding the foregoing, a director, officer, employee or agent of the
Corporation shall be entitled to contest any determination that the director,
officer, employee or agent has not met the applicable standard of conduct set
forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that the individual is not entitled to be
indemnified by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in their official
capacity and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against the
person and incurred by the person in any such capacity or arising out of the
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION
---------------
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as the person would have with respect to such
constituent corporation if its separate existence had continued.
-17-
<PAGE>
6.9 EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive officer or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
-18-
<PAGE>
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to
-19-
<PAGE>
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if the person were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
-20-
<PAGE>
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
-21-
<PAGE>
8.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
-22-
<PAGE>
EXHIBIT 10.2.13
SUPPLEMENT NO. 13 TO
SEMICONDUCTOR TECHNOLOGY
LICENSE AGREEMENT
This Supplement No. 13 (the "Amendment") to the parties' Semiconductor
Technology License Agreement is entered into as of the date last entered below
by and between Rambus Inc., a Delaware corporation with principal offices at
2465 Latham Street, Mountain View, California 94040, U.S.A. ("Rambus") and NEC
Corporation, a Japanese corporation with principal offices at 7-1, Shiba 5-
chome, Minato-ku, Tokyo 108-8001, Japan ("NEC").
WHEREAS, in 1991 the parties entered into a Semiconductor Technology
License Agreement (as previously amended, the "License Agreement"); and
WHEREAS, the parties desire to further amend the License Agreement to,
among other things, provide for validation of NEC's Rambus-2 DRAMs, and memory
modules incorporating NEC Rambus-2 DRAMs, and to permit NEC to sell memory
modules bearing the Rambus mark, on the terms and conditions set forth herein;
NOW, THEREFORE, the parties agree that the License Agreement is further
amended to include the following:
1. Capitalized terms used in this Amendment but not defined herein shall
have the meaning specified therefor in the License Agreement. In addition, the
following terms shall have the following meanings:
a. Memory Module. "Memory Module" means each Rambus Module or Rambus
-------------
Board which i) contains one or more Rambus-2 DRAMs, and only Rambus-2 DRAMs, ii)
the principal function of which is memory storage, iii) is fully compliant with
a Direct Rambus Memory Module Specification in protocol, pin function, pin
sequencing, pin pitch, physical dimensions and electrical specifications. It is
expected there will be more than one different Direct Rambus Memory Module
Specifications, the first of which is the RIMM specification.
b. Direct Rambus Memory Module Specification. "Direct Rambus Memory
-----------------------------------------
Module Specification" means, at any time, the then most current version of a
Rambus specification for Memory Modules, as such specification is finalized and
released by Rambus.
c. Rambus Validation Suite. "Rambus Validation Suite" means the then
-----------------------
most current version of the Rambus validation suite provided by Rambus for
either Rambus-2 DRAM or Memory Modules. Rambus Validation Suite consists of
validation specification, procedures, required test environment and any
associated software programs.
d. Validation. "Validation" means a procedure to verify compliance of
----------
either the Rambus-2 DRAM or Memory Modules to the applicable Rambus Validation
Suite.
e. Validated. "Validated", as applied to a Rambus-2 DRAM or Memory
---------
Module, means that the Rambus-2 DRAM or Memory Module is fully compliant with
Rambus Validation
<PAGE>
Suite.
2. It is understood and agreed that the Direct Rambus Memory Module
Specification, and Rambus technology pertaining to Memory Modules, shall be part
of the Rambus Technology.
3. Rambus shall provide a Rambus Validation Suite for Rambus-2 DRAMs and a
Rambus Validation Suite for Memory Modules to NEC. NEC may check compliance of
the Rambus-2 DRAM and Memory Module with the Rambus Validation Suite provided by
Rambus. NEC may use this Rambus Validation Suite to evaluate sample quantity of
Rambus-2 DRAMs and Memory Modules to determine if these Rambus-2 DRAMs and
Memory Modules can be represented as Validated. NEC may perform its own
Validation of NEC's Rambus-2 DRAMs or Memory Modules, or Validation may be
contracted to any third party test company ("Test Company") designated in
writing by Rambus as authorized to provide such Validation. In the event NEC or
Test Company check compliance of Rambus-2 DRAM and/or Memory Module under this
Agreement, NEC shall promptly provide to Rambus a written report of the results
of the Validation testing, including data required by the Rambus Validation
Suite. Rambus shall notify NEC of the result of the evaluation of the Rambus-2
DRAM and/or Memory Module based upon such written report under this Agreement
within seven (7) days after receipt by Rambus of such written report from NEC.
If NEC does not receive any such notification within above-mentioned seven-day
period and if the test results in such written report reflect that the Rambus-2
DRAMs and/or Memory Modules (as applicable) passed the Rambus Validation Suite,
NEC may deem such Rambus-2 DRAM and/or Memory Module as currently Validated. NEC
agrees that it will not represent any Rambus-2 DRAM or Memory Module as
Validated unless such Rambus-2 DRAM or Memory Module is currently Validated.
This Supplement shall not be construed as imposing NEC to check compliance of
the Rambus-2 DRAM and Memory Module with the Rambus Validation Suite. Once NEC
elects to check compliance of the Rambus-2 DRAM or Memory Module with any of
Rambus Validation Suite under this Agreement, each change to any previously
Validated Rambus-2 DRAM or Memory Module which requires NEC internal
requalification or re-characterization shall void any Validation thereof and
shall require re-Validation of such Rambus-2 DRAM or Memory Module. In such
event NEC shall promptly notify Rambus in writing of each such change.
4. At Rambus' or at NEC's request from time to time (but not more
frequently than once for each design), NEC will deliver to Rambus up to fifteen
(15) randomly chosen samples, for each design, of NEC's Validated Rambus-2 DRAMs
and up to ten (10) randomly chosen samples, for each design, of NEC's Validated
Memory Modules. Rambus shall notify NEC of the result of the evaluation of the
Rambus-2 DRAM and/or Memory Module based upon such delivered samples within
fifteen (15) days after receipt by Rambus of such samples from NEC. If NEC does
not receive any such notification within above-mentioned fifteen-day period, NEC
may deem such Rambus-2 DRAM and/or Memory Module as currently Validated. If an
evaluation reveals that any such Rambus-2 DRAMs or Memory Modules do not pass
Validation, then NEC shall not represent such Rambus-2 DRAMs or Memory Modules
as Validated until they are Validated.
5. NEC shall have a right to mark each Memory Module as specified in the
Direct Rambus Memory Module Specification, as amended by Rambus from time to
time. In the event the Memory Module fails Validation testing under this
Agreement, then Rambus may elect to prohibit NEC from using such marking with
respect to such Memory Module. In such case, Rambus will
<PAGE>
notify NEC in writing and NEC shall have a reasonable time, but no longer than
ninety (90) days, to correct such failures of such Memory Modules to comply with
Validation or stop using such marking with respect to such Memory Modules.
6. Regardless of Validation, NEC shall not advertise, represent, state, or
imply (other than use of the Rambus logo in accordance with the License
Agreement) that Rambus has certified or guaranteed that NEC's Rambus-2 DRAMs are
Compatible or that NEC's Memory Modules will be compatible with or otherwise
operate properly in boards, systems, or other products which use Rambus
Interface Technology.
7. Except as set forth herein, the License Agreement shall remain
unmodified and in full force and effect in accordance with its terms.
RAMBUS INC. NEC CORPORATION
By: /s/ Allen Roberts By: /s/ Hidemori Inukai
------------------------------ --------------------------------------
Print Name: Allen Roberts Print Name: Hidemori Inukai
--------------------- ------------------------------
Title: Vice President Title: Chief Manager 1st LSI Mem. Div. NEC
-------------------------- -----------------------------------
Date: January 25/th/, 1999 Date: Feburary 16/th/, 1999
--------------------------- ------------------------------------
<PAGE>
EXHIBIT 10.10
LEASE
Between
LOS ALTOS - EL CAMINO ASSOCIATES, LLC,
a California limited liability company
LANDLORD
and
RAMBUS INC.,
a Delaware corporation
TENANT
DATED: August 27, 1999
Los Altos, California
<PAGE>
LEASE SUMMARY
-------------
Parties:
Landlord: Los Altos - El Camino Associates,
a California limited liability company
Tenant: Rambus Inc., a Delaware corporation
Premises: 4434-4444 El Camino Real, Los Altos, California
(address subject to change)
Floor Area: Approximately 96,000 rentable square feet
Scheduled Term Commencement
Date: Date of Landlord's acquisition of title to
Premises
Expiration Date: Ten (10) years after Rent Commencement Date,
subject to Tenant's right to extend term for up
to two (2) periods of five (5) years each
Rent Commencement Date: Sooner of (i) ninety (90) days after Substantial
Completion of Landlord's Work, and (ii)
Substantial Completion of Tenant Improvements and
receipt by Tenant of occupancy permit
Rent: Initially $3.35 per square foot per month,
increased annually by 3% of preceding year's Base
Rent
Security Deposit: Letter of Credit initially in the amount of
$2,500,000, subject to reduction to $1,200,000
upon first anniversary of Rent Commencement Date,
and subject to further reduction to $600,000 upon
second anniversary of Rent Commencement Date
Option(s) to Extend: Two (2) options to extend for five (5) years each
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1. Premises............................................................... 1
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2. Term and Delivery of Possession........................................ 3
-------------------------------
3. Rent................................................................... 4
----
4. Security Deposit....................................................... 8
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5. Taxes.................................................................. 9
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6. Use.................................................................... 11
---
7. Operating Expenses..................................................... 15
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8. Maintenance and Repairs................................................ 17
-----------------------
9. Alterations............................................................ 18
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10. Mechanics' Liens....................................................... 20
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11. Utilities.............................................................. 20
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12. Indemnity.............................................................. 20
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13. Waiver of Claims....................................................... 21
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14. Insurance.............................................................. 21
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15. Damage or Destruction.................................................. 23
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16. Condemnation........................................................... 25
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17. Assignment and Subletting.............................................. 26
-------------------------
18. Default by Tenant...................................................... 28
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19. Default by Landlord.................................................... 30
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20. Advertisements and Signs............................................... 30
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21. Entry by Landlord...................................................... 30
-----------------
22. Subordination and Attornment........................................... 31
----------------------------
23. Estoppel Certificates and Financial Statements......................... 32
----------------------------------------------
24. Notices................................................................ 32
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25. Waiver................................................................. 32
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</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
26. No Accord and Satisfaction............................................. 32
--------------------------
27. Attorney's Fees........................................................ 32
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28. Surrender.............................................................. 33
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29. Holding Over........................................................... 33
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30. Transfer of Premises by Landlord....................................... 33
--------------------------------
31. Rules and Regulations of Building...................................... 33
---------------------------------
32. General Provisions..................................................... 34
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</TABLE>
EXHIBITS
Exhibit "A-1" -------- Site Plan of Original Parcel
Exhibit "A-2" -------- Legal Description of Original Parcel
Exhibit "A-3" -------- Plan of Parking Garage Showing Portion of
First Level of Parking Garage for Exclusive
Use of Tenant, and Showing Second Level
Exhibit "B" -------- Landlord's Work and Tenant Improvements
Exhibit "B-1" -------- Description of Landlord's Work
Exhibit "B-2" -------- List of Certain Tenant Improvements Items
Exhibit "B-2" -------- Approved Tenant Improvements Plans
Exhibit "C" -------- Baseline Environmental Reports
Exhibit "D" -------- Tenant Improvements Depreciable by Landlord
(to be attached)
ii
<PAGE>
LEASE
This Lease is made and entered into as of August 27, 1999 (the "Effective
Date"), by and between LOS ALTOS - EL CAMINO ASSOCIATES, LLC, a California
limited liability company ("Landlord"), whose address is c/o Sand Hill Property
Company, 30 East 4th Avenue, San Mateo, California 94401, and RAMBUS INC., a
Delaware corporation ("Tenant"), whose present address is 2465 Latham Street,
Mountain View, California and whose address from and after the Rent Commencement
Date (as defined below) for purposes of notices shall be the address assigned by
the U.S. Postal Office to the Premises.
Landlord and Tenant agree to the provisions of this Lease, as follows:
1. Premises.
--------
1.1 Lease of Premises. Subject to the provisions set forth below,
-----------------
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for the
term, at the rental, and upon all of the other terms, covenants and conditions
set forth herein, that certain 3-story building (the "Building") containing
approximately 96,000 square feet of floor space to be constructed within the
area of land encompassed by the parcel of land comprising an aggregate of
approximately 2.9 acres of land situated in the City of Los Altos, County of
Santa Clara, State of California, shown on the site plan attached as Exhibit "A-
----------
1" hereto and more particularly described in the legal description attached as
- --
Exhibit "A-2" hereto (the "Original Parcel"). The Building shall be constructed
- -------------
in approximately the location shown on Exhibit "A-1" attached hereto. As of the
-------------
Effective Date, Landlord does not own the Original Parcel, but Landlord's
acquisition of the Original Parcel shall be a condition to the continued
effectiveness of the Lease as more particularly set forth in Paragraph 2.2
below. Concurrently with Landlord's acquisition of the Original Parcel,
Landlord intends to acquire that certain parcel of land (the "Second Parcel")
located to the southwest of the Original Parcel and separated from the Original
Parcel by an approximately 80 foot strip of land, which Second Parcel and strip
of land are also shown on Exhibit "A-1" attached hereto. Subsequent to the
-------------
Effective Date, Landlord intends to subdivide the Original Parcel to accommodate
development of the Building on a single parcel which comprises only a portion of
the Original Parcel (the "Office Parcel") and development of other buildings
which may include a hotel on one or more separate parcels comprising a portion
of the Original Parcel (collectively, the "Remainder Parcel") and the Second
Parcel. As of the Effective Date, Landlord anticipates that the Office Parcel
will consist of approximately 1.44 acres of the Original Parcel, but Landlord
shall be entitled to subdivide the Original Parcel in such a fashion that the
Office Parcel is the minimum size for development of the Building thereon which
the City of Los Altos is willing to permit, or alternatively if Landlord so
chooses in its sole and absolute discretion the Office Parcel is any greater
area of land permitted by the City of Los Altos. In all events, Landlord shall
not construct on the Office Parcel any buildings other than the Building, except
for the Parking Garage (defined below). Effective concurrently with recordation
of a final subdivision map or parcel map creating the Office Parcel, or upon
approval by the City of Los Altos of a lot line adjustment modifying the
existing lot lines separating the Original Parcel from the Second Parcel to
create the Office Parcel and recordation thereof in the Official Records of
Santa Clara County, the parcel of land on which the Building is constructed
shall be deemed reduced to only the Office Parcel. The portion of the Office
Parcel which, after construction of the Building and subdivision of the Original
Parcel into the Office Parcel and the Remainder Parcel, is not covered by the
Building is hereinafter called the "Outside Areas." The parties acknowledge
that this Lease is (i) a build to suit lease and that as of the Effective Date,
the Building, the Parking Garage, and related improvements on the Office Parcel
do not yet exist, but will be constructed prior to the Rent Commencement Date as
provided in this Lease, and (ii) a lease of the Building only, and not a lease
of any land underlying or surrounding the same or of the Parking Garage
(although Tenant shall have certain rights to use the Outside Areas and Parking
Garage as set forth in Paragraph 1.3 below). Landlord and Tenant shall work
together in trying to obtain a permanent address for the Building which address
is suitable to Tenant from among the choices, if any, therefor made available by
the governmental entity (e.g. U.S. Post Office) in charge of assigning addresses
for the improvements developed on the Original Parcel and the Second Parcel.
Landlord acknowledges that Tenant desires the address of 4444 El Camino Real if
such choice is available.
1.2 Building Square Feet. The number of square feet in the Building
--------------------
(the "Building Square Feet") shall be determined promptly after Substantial
Completion of Landlord's Work (as defined in Exhibit "B").
-----------
1
<PAGE>
The Building Square Feet, for purposes of this Lease, shall be equal to the
gross square feet of floor area on all floors within the Building, measured from
the exterior surface of the exterior walls of the Building for each such floor.
Such measurement shall not include within Building Square Feet the area outside
the exterior walls of the Building situated within balconies or under roof
overhangs, but shall include (i) the entire floor plate for each floor of the
Building measured as though the floor plate for such floor is a horizontal plane
encompassing the entire area bounded by the exterior surfaces of the exterior
walls of the Building, with absolutely no exclusions from Building Square Feet
for any interior areas whatsoever including without limitation mechanical rooms,
electrical rooms, interior elevators, stairwells, or other vertical
penetrations, and (ii) the area within recessed areas on the exterior of the
Building such as windows, entryways and doorways. Landlord shall cause its
architect for Landlord's Work to determine and certify to Tenant and Landlord in
writing the total Building Square Feet promptly upon Substantial Completion of
Landlord's Work. The number of Building Square Feet so determined shall be
deemed conclusively to be the number of Building Square Feet for all purposes
under this Lease, provided that such number shall be no less than 91,000 square
feet and no more than 101,000 square feet as provided in Exhibit "B."
------------
1.3 Outside Areas, Driveways, and Parking Garage. During the Term,
--------------------------------------------
and subject to the provisions of this Lease, Tenant shall have the exclusive
right to use all portions of the Outside Areas, including all surface level
parking areas within the Outside Areas. Notwithstanding the preceding sentence,
and regardless whether the same are situated not only on the Office Parcel but
also on any portion of the Remainder Parcel and the Second Parcel, during the
Term (i) Tenant shall have a nonexclusive right to use the "north" driveway
providing access from El Camino Real to the Parking Garage to be situated
approximately as shown on Exhibit "A-1", and an exclusive right to use the ramp
-------------
leading from such driveway into the Parking Garage, and (ii) Tenant shall have a
nonexclusive right to use the "south" driveway providing access from El Camino
Real to the Parking Garage situated as shown on Exhibit "A-1." Furthermore, in
--------------
the event the patio area shown on Exhibit "A-1" (the "Patio Area") is built,
-------------
during the Term Tenant shall have an exclusive right to use the same even though
the Patio Area may be situated on the Remainder Parcel rather than the Office
Parcel. Subject to the provisions of Exhibit "B", Landlord shall construct a
-----------
two-level underground parking garage situated under some or all of the Office
Parcel and under some or all of the Remainder Parcel in approximately the
location shown on Exhibit "A-1" (the "Parking Garage"). Subject to the
--------------
provisions of this Lease, Tenant and its employees and customers shall also have
exclusive rights to park in the following portions of the Parking Garage: (i) a
portion of the top or first underground level of the Parking Garage as shown on
Exhibit "A-3", and (ii) the entire bottom or second underground level of the
- -------------
Parking Garage. Tenant shall have the nonexclusive right to use the ramps and
vehicle circulation areas of both levels of such parking garage. The
nonexclusive rights referred to in this paragraph shall be in common with the
rights of Landlord, tenants and other occupants of improvements from time to
time existing on the Remainder Parcel and the Second Parcel, and their
respective employees, agents, and other invitees, and further shall be subject
to such rights as the local fire department and other governmental agencies may
require with respect to use thereof. Tenant and its employees and other invitees
shall not park in any portions of the Parking Garage except the portion with
respect to which Tenant has exclusive parking rights as set forth above.
Landlord shall not be obligated to tow cars or otherwise enforce Tenant's
exclusive use and/or parking rights in the Outside Areas, the Patio Area, or the
Parking Garage, and Tenant shall be solely responsible for enforcing the same.
Except for Landlord's grant of parking rights to Tenant and its employees and
customers as set forth in this paragraph, and except as required by Laws (e.g.,
with respect to the fire department and police), Landlord shall not grant to any
entities rights to park in the Outside Areas or in the portion of the Parking
Garage which is subject to Tenant's exclusive parking rights. Landlord in its
sole discretion shall be entitled to establish the precise location, size, and
configuration of such driveways, the Parking Garage, the Outside Areas, and the
Patio Area, and to change the size, configuration, and improvements within the
Outside Areas and the Patio Area from time to time, and to replace, remove, and
or add to landscaping therein. Landlord shall be entitled from time to time
temporarily to prevent public access to all or any portion of the Outside Areas,
such driveways, and the Parking Garage in order to prevent a public dedication
thereof, and in connection therewith shall use reasonable efforts to minimize
any disruption of Tenant's use of such facilities. Additional provisions
regarding Tenant's use of the Outside Areas, such driveways, the Patio Area and
the Parking Garage are set forth in Paragraph 6.1(b) below. Nothing in this
paragraph shall be construed to obligate Landlord to build the Patio Area.
2
<PAGE>
2. Term and Delivery of Possession.
-------------------------------
2.1 Term. The term of this Lease (the "Term") shall commence on the
----
date (the "Commencement Date") Landlord acquires fee title to the Original
Parcel as evidenced by recordation of a deed conveying fee simple title to
Landlord in the Official Records of Santa Clara County, and shall continue
thereafter until the date which is ten (10) years after the Rent Commencement
Date (as defined in Paragraph 3.1 below) (the "Initial Term"), unless extended
pursuant to Paragraph 2.3 or sooner terminated pursuant to the provisions of
this Lease or Laws. Landlord shall deliver possession of the Premises to Tenant
upon Substantial Completion of Landlord's Work in order to permit Tenant to
construct and install the Tenant Improvements in accordance with Exhibit "B".
-----------
Prior to Substantial Completion of Landlord's Work, Tenant shall be entitled to
enter onto the Premises to take measurements and to inspect the same subject to
coordination with Landlord as to the timing of such entries to prevent any
interruption or delay of Landlord's Work, and subject to the following sentences
shall not enter onto the Premises for any other purpose. If prior to
Substantial Completion of Landlord's Work Landlord determines in its reasonable
discretion that Tenant's construction of the Tenant Improvements will not
interfere with Landlord's schedule for completion of Landlord's Work, Landlord
shall notify Tenant thereof. Tenant shall thereupon be entitled to commence and
pursue construction of the Tenant Improvements (or such components thereof as
Landlord expressly permits) in the Premises even though Substantial Completion
of Landlord's Work has not yet occurred, provided that Tenant coordinates its
construction work with Landlord so as to avoid interference with Landlord's Work
remaining to be performed. In conjunction with any such early entry onto the
Premises by Tenant to conduct Tenant Improvements work, Tenant shall use union
labor for all of its work (other than with respect to customary Tenant
contracted outfitting vendors such as furniture installers) prior to Substantial
Completion of Landlord's Work if Landlord is using union labor so as to avoid
labor disputes (and similarly shall use nonunion labor if all of Landlord's work
force for Landlord's Work is nonunion labor). Tenant shall not occupy the
Premises for purposes of conducting its regular business thereon until (i)
Substantial Completion of the Tenant Improvements has been achieved, and (ii)
Tenant has obtained all permits and approvals required by applicable
governmental authorities permitting Tenant to use and occupy the Premises.
Promptly after the Rent Commencement Date has occurred, Landlord and Tenant
shall sign a written acknowledgment of the Commencement Date and the Rent
Commencement Date and the scheduled expiration date of the Initial Term ten (10)
years after the Rent Commencement Date. Upon any exercise by Tenant of an
Option to extend the Term, Landlord and Tenant shall again sign a written
acknowledgment of the then scheduled expiration date of the Term (as so
extended). The failure of Landlord or Tenant to sign any such acknowledgments
shall not affect the validity of this Lease or the commencement or expiration
dates of the Term.
2.2 Outside Dates for Commencement and Substantial Completion of
------------------------------------------------------------
Landlord's Work. Landlord shall use its best efforts to acquire fee simple
- ---------------
title to the Original Parcel and to commence construction of Landlord's Work on
or before the date which is ninety (90) days after the Effective Date. In the
event Landlord has not acquired fee simple title to the Original Parcel and
commenced construction of Landlord's Work on or before the date which is ninety
(90) days after the Effective Date, then either Landlord or Tenant may as their
sole remedy in such event, by written notice to the other within five (5) days
after such date, terminate this Lease, in which event Landlord shall return all
sums deposited by Tenant with Landlord and the parties shall be released from
all further obligations hereunder. Said ninety (90) day period of time shall be
extended one day for each day of delay due to force majeure causes as provided
in Paragraph 32.14 below. Landlord's acquisition of fee simple title to the
Original Parcel shall be evidenced by recordation of a deed conveying to
Landlord such title in the Official Records of Santa Clara County. Commencement
of construction of Landlord's Work shall be deemed to occur when Landlord
commences physical grading of the Original Parcel. In the event Landlord has
not achieved Substantial Completion of Landlord's Work by November 15, 2000,
Tenant shall be entitled to elect to terminate this Lease subject to the
following. Tenant shall make such election, if at all, by delivery to Landlord
of written notice to Landlord by November 20, 2000, specifying in detail the
respects in which Substantial Completion of Landlord's Work has failed to occur.
Time is of the essence with respect to the delivery of such notice. Upon actual
receipt of such notice, Landlord shall have one hundred eighty (180) days within
which to achieve Substantial Completion of Landlord's Work. If Landlord
achieves Substantial Completion of Landlord's Work within such period of time,
then the prior election to terminate shall be deemed rescinded and of no force
or effect, and Tenant shall sign such documentation as Landlord may reasonably
request (including an estoppel certificate) stating the same. If after receipt
of such notice of Tenant's election to terminate Landlord does not achieve
Substantial Completion of Landlord's Work
3
<PAGE>
within one hundred eighty (180) days, then as of the date which is the end of
such one hundred eighty (180) day period of time, this Lease shall be deemed
terminated, and the parties thereupon shall be released from all further
obligations hereunder except to the extent such obligations have accrued under
this Lease prior to such termination (e.g., indemnification obligations). The
dates set forth above in this paragraph shall be deemed extended one day for
each day of delay caused by force majeure causes as provided in Paragraph 32.14
below; provided that, whether or not force majeure causes continue to delay
Substantial Completion of Landlord's Work, in no event shall such dates be so
extended for more than 120 days by force majeure causes.
2.3 Options to Extend Term. Subject to the remaining provisions of
----------------------
this Paragraph 2.3 and Paragraph 3.7 below, Tenant shall have two (2) options
(each such option herein called an "Option") to extend the Term for a period of
five (5) years (each such five year period herein called an "Extended Term").
Each Option shall be exercised by Tenant, if at all, by delivery to Landlord of
notice of such election to extend no later than three hundred sixty five (365)
days prior to the then scheduled expiration date of the Term. Time is of the
essence with respect to the date of exercise of each Option. Any exercise by
Tenant of an Option, once made, shall be irrevocable, and Tenant shall have no
right to rescind or revoke such Option exercise. At Landlord's sole and
absolute election, to be exercised if at all by delivery of notice to Tenant
that the Option exercise is invalid by the date which is no more than ninety
(90) days after Tenant delivers notice to Landlord that Tenant is exercising the
Option, a purported exercise by Tenant of an Option shall have no force or
effect if: (a) an Event of Default exists at the time of the purported Option
exercise, (b) Tenant is attempting to exercise the second Option, but the first
Option has not been exercised, or (c) two or more Events of Default have
occurred within the three (3) year period of time immediately preceding Tenant's
purported exercise of the Option. Each Extended Term shall be upon all of the
terms and conditions of this Lease, except that the monthly Base Rent for such
Extended Term shall be determined in accordance with Paragraph 3.7, and except
that in no event shall there be more than the two Extended Terms provided in
this Paragraph 2.3 (i.e., the Term shall not be extended to exceed an aggregate
of twenty (20) years from the Rent Commencement Date). Upon commencement of any
Extended Term, all references herein to the "Term" of this Lease shall be deemed
to include such Extended Term.
3. Rent.
----
3.1 Initial Base Rent.
-----------------
(a) Commencing on the Rent Commencement Date, and continuing
thereafter during the Term, Tenant shall pay to Landlord for each calendar month
of the Term of this Lease, monthly base rent (hereafter called "Base Rent"). The
monthly Base Rent initially shall be equal to the product of Three Dollars and
Thirty Five Cents ($3.35) multiplied by the Building Square Feet, as determined
pursuant to Paragraph 1.2 above. Base Rent shall be subject to annual adjustment
by increasing the same by 3% each year all as more particularly set forth in
Paragraph 3.2. Tenant shall pay to Landlord upon Landlord's acquisition of title
to the Original Parcel (as evidenced by recordation of a grant deed showing fee
simple title in Landlord's name) estimated Base Rent for the first month after
the Rent Commencement Date in the amount of Three Hundred Twenty One Thousand
Six Hundred Dollars ($321,600) which sum shall be applied to the first sums of
Base Rent payable by Tenant from and after the Rent Commencement Date.
(b) The "Rent Commencement Date" shall mean the sooner of the
following dates: (1) ninety (90) days after the date of Substantial Completion
of Landlord's Work (as defined in Exhibit "B"), (2) the first date on which both
-----------
Substantial Completion of the Tenant Improvements has occurred and Tenant has
obtained a certificate of occupancy or its equivalent from the City of Los Altos
authorizing Tenant's use and occupancy of the Premises, or (3) the date on which
Tenant first occupies the Building for purposes of conducting its business
therein. "Substantial Completion of the Tenant Improvements" shall mean
substantial completion of construction of the Tenant Improvements subject only
to punchlist items which will not unreasonably interfere with Tenant's use and
occupancy of the Premises for the conduct of its business therein.
3.2 Rental Adjustment. During the Initial Term, the amount of
-----------------
monthly Base Rent shall be increased as of the first and each succeeding annual
anniversary of the Rent Commencement Date (each such date herein called a "Rent
Adjustment Date"). The amount of monthly Base Rent shall be increased to an
amount equal
4
<PAGE>
to one hundred three percent (103%) of the amount of the Base Rent in effect for
the month immediately preceding such Rent Adjustment Date, as the same may
previously have been adjusted pursuant to this Paragraph 3.2. In the event
Tenant exercises any Option to extend the Term pursuant to Paragraph 2.3 above,
then the amount of monthly Base Rent determined to be applicable as of the
commencement of the Extended Term pursuant to Paragraph 3.7 shall be increased
in accordance with the Base Rent Adjustment Mechanism determined to be
applicable in accordance with Paragraph 3.7. For purposes of all rent
adjustments pursuant to this Paragraph 3.2 or Paragraph 3.7, whether during the
Initial Term or during any Extended Term, the amount of the Base Rent in effect
for the month immediately preceding any increase in the amount of Base Rent
shall not be reduced by the amount of any temporary rent abatement in the
aftermath of damage and destruction of the Premises, or by the amount of any
other rent abatement which may then be in effect other than any permanent rent
abatement which may then be in effect in the aftermath of a partial Taking of
the Premises pursuant to the condemnation provisions of this Lease.
3.3 Manner of Payment. Tenant shall pay to Landlord the Base Rent
-----------------
calculated as set forth above in advance on the first day of each calendar month
of the Term occurring on or after the Rent Commencement Date. All Base Rent and
Additional Rent shall be payable without deduction, offset, or abatement, and
without prior notice or demand, in lawful money of the United States to Landlord
at the address stated in the preamble paragraph to this Lease or to such other
places as Landlord may from time to time designate in writing. Tenant's
obligation to pay Base Rent for any partial month shall be prorated based on the
actual number of days in such month.
3.4 Late Payment Charge. If any installment of Base Rent or other
-------------------
amount due from Tenant is not received by Landlord within seven (7) days after
the date such amount is due hereunder, Tenant shall pay to Landlord an
additional sum equal to six percent (6%) of the amount overdue. The seven (7)
day period of time referred to in the preceding sentence shall be reduced to
five (5) days if any late charge applicable to Landlord under any loan documents
respecting all or any portion of the Office Parcel entitle the lender thereunder
to a late charge in the event payments are not made thereunder within five (5)
days or less after the due date thereunder. Such sum shall represent liquidated
damages for, and a reasonable estimate of, Landlord's administrative costs of
collection and costs and penalties which may be incurred by Landlord for late
payment in connection with its loan encumbering the Premises, the exact amount
of which would be extremely difficult or impractical to fix. Such late charge
shall be in addition to interest which shall accrue on any such overdue Base
Rent or other sums as provided in Paragraph 18.4 or elsewhere in this Lease.
Landlord's acceptance of such late charge shall not excuse any default by Tenant
hereunder, and shall not preclude Landlord from pursuing any other rights and
remedies it may have relating to such default.
3.5 Additional Rent.
---------------
(a) Tenant shall pay to Landlord from and after the Rent
Commencement Date, in addition to the Base Rent, as additional rent ("Additional
Rent"): (i) all Operating Expenses, as described in Paragraph 7; and (ii) all
charges, costs and expenses which Tenant is required to pay hereunder, together
with all late charges, interest, costs and expenses including attorneys' fees,
that may accrue thereon in the event of Tenant's failure to pay such amounts,
and all damages, reasonable costs and expenses which Landlord may incur by
reason of Tenant's default or breach of this Lease.
(b) In the event of nonpayment by Tenant of Additional Rent,
Landlord shall have all the rights and remedies with respect thereto as Landlord
has for nonpayment of Base Rent.
3.6 Amounts Payable on Landlord's Acquisition of Title to Original
--------------------------------------------------------------
Parcel. Tenant shall pay the following amount to Landlord and deposit the
- ------
letter of credit specified below upon Landlord's acquisition of title to the
Original Parcel (as evidenced by recordation of a grant deed showing fee simple
title in Landlord's name):
5
<PAGE>
(a) Estimated first month's Base Rent $ 321,600.00
(b) Letter of Credit security deposit as set
forth in Paragraph 4 $2,500,000.00
3.7 Base Rent During Any Extended Term.
----------------------------------
(a) In the event Tenant delivers to Landlord a notice exercising
an Option pursuant to Paragraph 2.3 above, then by the date which is one hundred
twenty (120) days before the date the Term would expire but for the exercise of
such Option, Landlord shall deliver to Tenant a proposal setting forth the
initial monthly Base Rent for the upcoming Extended Term based upon Landlord's
determination of the fair market rental for the Premises in the condition in
which Tenant is required to surrender the Premises upon termination of the Term,
which proposal shall also specify the Base Rent Adjustment Mechanism (as defined
below) which Landlord believes should be applicable during such Extended Term.
If Tenant within twenty (20) days after receipt of such proposal agrees to such
proposal, or fails to notify Landlord of its acceptance or rejection of such
proposal (in which event Tenant shall be deemed to have agreed thereto), the
amount of monthly Base Rent and the Base Rent Adjustment Mechanism set forth in
such proposal shall be binding on Landlord and Tenant. Should Tenant object in
writing to Landlord's proposal within twenty (20) days after receipt thereof,
then during the twenty (20) day period following Tenant's objection to
Landlord's proposal, Landlord and Tenant shall negotiate in good faith for the
purpose of reaching an agreement regarding the amount of the monthly Base Rent
and any applicable Base Rent Adjustment Mechanism during the Extended Term. In
the event the parties fail to agree in a written instrument signed by both
parties upon the amount of the initial monthly Base Rent and Base Rent
Adjustment Mechanism for the Extended Term within such twenty (20) day period,
the initial monthly Base Rent and Base Rent Adjustment Mechanism for the
Extended Term shall be determined by arbitration in the manner hereafter set
forth.
(b) Each rental adjustment mechanism ("Base Rent Adjustment
Mechanism") proposed by either party or selected by any arbiter appointed as set
forth in this Paragraph 3.7 shall be applicable for an entire Extended Term, and
shall contemplate an increase in the absolute amount of monthly Base Rent
payable over time during such Extended Term based on market conditions as of the
beginning of such Extended Term given the proposed starting rent for such
Extended Term (for example, among numerous other possibilities: (i) periodic
(e.g. annual) fixed increases; (ii) periodic increases based on Consumer Price
Index increases; and (iii) periodic minimum and maximum percentage increases).
In no event shall any Base Rent Adjustment Mechanism result in a decrease or in
no increase in the absolute amount of monthly Base Rent payable over time during
any Extended Term.
(c) In the event it becomes necessary under Paragraph 3.2(a) to
determine the initial fair market monthly Base Rent and Base Rent Adjustment
Mechanism for any Extended Term by arbitration, the following procedures shall
be utilized. Landlord and Tenant shall each appoint an arbiter within ten (10)
days after the end of the twenty (20) day negotiation period referred to in the
immediately preceding paragraph. Except as otherwise expressly provided in this
paragraph, each arbiter appointed by Landlord and Tenant or any other entities
pursuant to this paragraph shall be an individual person (not a corporation or
other entity) who (i) is licensed in California as a real estate broker or real
estate salesperson, (ii) has at least ten years (10) years of experience in
leasing office space in Los Altos and Mountain View, California (the "Comparable
Office Area"), and (iii) has during the twenty four (24) month period
immediately preceding appointment of such person been the listing or cooperating
broker or salesperson on leases (not including subleases or assignments of
leases) entered into for premises within the Comparable Office Area which
premises aggregate at least 50,000 square feet of space. Each arbiter so
appointed by Landlord and Tenant shall determine the fair market monthly Base
Rent for the Premises for the entire five (5) years of such Extended Term (i.e.,
an initial Base Rent amount, as well as a Base Rent Adjustment Mechanism which
is appropriate to apply to such initial Base Rent amount during such Extended
Term). Such initial fair market monthly Base Rent and Base Rent Adjustment
Mechanism for such Extended Term shall be determined based upon estimated
prevailing comparable rentals during the Extended Term within a similar class of
office buildings within the Comparable Office Area assuming the Premises are in
the condition in which Tenant will be required to surrender the same to Landlord
at the end of the Term, and further assuming for such purposes that Tenant shall
be required to leave on the Premises any improvements therein which Tenant has
made
6
<PAGE>
which are not equipment, furnishings, or movable personal property of Tenant to
the extent the same add value to the Premises for successor tenants of the
Premises and that all other improvements will be required to be removed from the
Premises at the end of the Term. Such arbiters shall, within twenty one (21)
business days after their appointment, make their determinations of the initial
fair market monthly Base Rent and appropriate Base Rent Adjustment Mechanism for
the Base Rent during the Extended Term and submit their written reports thereof
to Landlord and Tenant. If only one report is submitted to Landlord and Tenant
(e.g., because only one arbiter has been appointed), or if the initial Base Rent
and Base Rent Adjustment Mechanism of the two arbiters are identical, then the
determination set forth in such report(s) shall be final and binding on the
parties as the initial Base Rent amount and applicable Base Rent Adjustment
Mechanism. If the Base Rent Adjustment Mechanism of the two arbiters is
identical, but the initial Base Rent amount differs by no more than five percent
(5%), then the two Base Rent amounts shall be averaged and such averaged Base
Rent amount together with such Base Rent Adjustment Mechanism shall be final and
binding on the parties as the initial Base Rent amount and applicable Base Rent
Adjustment Mechanism. Subject to the preceding sentence, if two reports are
submitted and either the initial Base Rent amount or the Base Rent Adjustment
Mechanism set forth in either report differs from that set forth in the other
report, then the two arbiters, within ten (10) days after submission of the last
report to both Landlord and Tenant, shall appoint a third arbiter meeting the
qualifications set forth above. The role of the third arbiter shall be to
select, within twenty (20) business days after his appointment, which of the two
proposed initial Base Rent and Base Rent Adjustment Mechanisms determined by the
first two arbiters most closely approximates the third arbiter's determination
of initial Base Rent and Base Rent Adjustment Mechanism for the Extended Term
taking into account the same factors and using the same assumptions referred to
above which are applicable to the determinations made by the first two arbiters.
The third arbiter shall have no right to propose a middle ground or any
modification of either of the determinations made by the first two arbiters. The
determination of initial Base Rent and Base Rent Adjustment Mechanism chosen by
the third arbiter as most closely approximating his determination shall
constitute the decision of the arbiters and be final and binding upon the
parties, and not subject to appeal of any kind.
(d) If either Landlord or Tenant fails to appoint an arbiter, or
if an arbiter appointed by either of them fails, after his appointment, to
submit his report within the required period in accordance with the foregoing,
the report submitted by the arbiter properly appointed and timely submitting his
report shall be controlling. If the two arbiters appointed by Landlord and
Tenant are unable to agree upon a third arbiter within the required period in
accordance with the foregoing, application shall be made within thirty (30) days
thereafter by either Landlord or Tenant to the Appraisal Institute ("AI"), which
shall appoint a member of said institute willing to serve as arbiter who has at
least five (5) consecutive years experience during the five (5) years
immediately preceding his appointment in appraising rental values for office
space within the Comparable Office Area, or if such institute does not so
appoint an arbiter, then either Landlord or Tenant may petition any California
state court having jurisdiction for appointment of a suitable arbiter having a
least five (5) consecutive years experience during the five (5) years
immediately preceding his appointment in leasing (as a broker or salesperson) or
appraising office space in the Comparable Office Area. Any third arbiter chosen
by the first two arbiters or appointed by the AI or by court shall not have
worked before in any capacity for either Landlord or Tenant, or for any of their
respective general partners, managing members, officers, directors, shareholders
having more than a 5% interest in any class of voting stock, real estate
consultants, real estate brokers, and real estate attorneys, it being the
intention of the parties that such third arbiter be independent of the parties
so as to ensure an objective report. Each party shall pay the fee and expenses
of its respective arbiter, and both shall share equally the fee and expenses of
the third arbiter, if any. If at the time of any report required or desired
hereunder the AI no longer exists, then any appraiser licensed or certified by
its successor organization, or if there is no successor organization, then by
any other nationally recognized appraisal institute, which appraiser otherwise
meets the qualifications set forth above for an appraiser appointed as the third
arbiter may be appointed and hired under this paragraph and shall be deemed an
appropriate arbiter for purposes of this paragraph.
(e) The parties intend that Landlord have the benefit of a floor
Base Rent for any given Extended Term which floor is no less than the monthly
Base Rent payable during the last year immediately preceding such Extended Term.
Accordingly, notwithstanding anything to the contrary contained in this Lease,
after the initial Base Rent amount and Base Rent Adjustment Mechanism for any
Extended Term is determined pursuant to the foregoing provisions (i.e., whether
by Tenant accepting Landlord's proposal, or by Tenant and
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<PAGE>
Landlord reaching agreement after negotiation, or by the arbitration process set
forth above), Landlord shall be entitled to elect in its sole discretion to
substitute in place thereof during such Extended Term the Base Rent Adjustment
Mechanism so determined applied to the following initial Base Rent amount: (i)
for the first Extended Term, an initial monthly Base Rent of Four Dollars and
Thirty Seven Cents ($4.37) multiplied by the Building Square Feet (based on
$3.35 psf escalated by 3% per year through the last year of the Initial Term),
and (ii) for the second Extended Term, an initial monthly Base Rent equal to the
last monthly Base Rent amount applicable during the first Extended Term.
Landlord shall make such election, if at all, by notice thereof to Tenant within
ten (10) days after the Base Rent and Base Rent Adjustment Mechanism is finally
determined pursuant to any of the processes referred to above. If Landlord makes
such an election with respect to the first Extended Term, then the initial Base
Rent for the first Extended Term shall be Four Dollars and Thirty Seven Cents
($4.37) multiplied by the Building Square Feet, and such Base Rent shall
thereafter be increased in accordance with the applicable Base Rent Adjustment
Mechanism for the first Extended Term. If Landlord makes such an election with
respect to the second Extended Term, then the initial Base Rent for the second
Extended Term shall be the monthly Base Rent applicable during the last month of
the first Extended Term, and such Base Rent shall thereafter be increased in
accordance with the applicable Base Rent Adjustment Mechanism for the second
Extended Term.
4. Security Deposit. Concurrently with Landlord's acquisition of title
----------------
to the Original Parcel (as evidenced by recordation of a grant deed showing fee
simple title in Landlord's name), Tenant shall deposit with Landlord as security
for the faithful performance by Tenant of all of its obligations hereunder an
unconditional irrevocable standby letter of credit (the "Letter of Credit").
The Letter of Credit shall be in the amount of Two Million Five Hundred Thousand
Dollars ($2,500,000), subject to later reduction as set forth in this paragraph.
The Letter of Credit shall be in form reasonably satisfactory to Landlord. In
all events, such form shall provide that Landlord may draw upon the Letter of
Credit solely upon making demand to the issuing bank for the amount specified by
Landlord in its demand, by certifying to the issuing bank that based on
Landlord's best information and belief Landlord is entitled under the Lease to
draw such amount, and by presenting evidence to the issuing bank of the identity
of Landlord. Landlord shall not be required to satisfy any conditions in order
to draw upon the Letter of Credit, it being understood that the Letter of Credit
shall be unconditional and irrevocable. However, Landlord shall have access to
the funds represented by the Letter of Credit only for the purposes and under
the conditions set forth herein, and shall not make any such demand for a draw
unless Landlord is entitled under this Paragraph 4 to draw upon the Letter of
Credit. Tenant shall cause the Letter of Credit to be renewed on an annual
basis and shall renew the same at least thirty (30) days prior to the scheduled
maturity thereof each year (and deliver evidence thereof to Landlord promptly
after such renewal). In the event Tenant fails timely to so renew the Letter of
Credit, and continues to so fail to renew the Letter of Credit within five (5)
days after written notice of such failure from Landlord, Landlord shall be
entitled to draw the full amount of the Letter of Credit before expiration
thereof, whereupon Landlord shall hold the same as a cash security deposit and
shall be entitled to apply sums therefrom on the same basis as Landlord would
otherwise have been entitled to draw sums from the Letter of Credit had the
Letter of Credit been renewed; provided that, if Tenant thereafter obtains a new
letter of credit satisfying the requirements of this paragraph, such new letter
of credit shall be deemed the Letter of Credit hereunder, and promptly after
such new Letter of Credit is issued to Landlord and Landlord is notified
thereof, Landlord shall return such cash security deposit to Tenant. The
preceding sentence shall not be deemed a limitation of Landlord's remedies for
any such failure by Tenant to observe its obligations under this paragraph.
Tenant shall cause the Letter of Credit, as the same may be renewed from time to
time, to remain in effect until the later of ten (10) days after the expiration
of the Term, or ten (10) days after Tenant has vacated the Premises. In the
event Tenant fails to cause the Letter of Credit to remain in effect for such
ten (10) day period following expiration of the Term or Tenant's vacation of the
Premises, whichever later occurs, Landlord shall be entitled to draw the full
amount of the Letter of Credit before expiration thereof without any obligation
to give Tenant notice thereof, whereupon Landlord shall hold the same as a cash
security deposit and shall be entitled to apply sums therefrom on the same basis
as Landlord would otherwise have been entitled to draw sums from the Letter of
Credit had the Letter of Credit remained in effect for such period of time. If
Tenant fails to pay as and when due Base Rent or any other sums payable by
Tenant hereunder and continues to fail to pay the same for five (5) business
days after delivery to Tenant of notice thereof , or otherwise fails to perform
any other obligation of Tenant under this Lease as and when obligated to perform
the same and continues to fail to perform the same for five (5) business days
after delivery to Tenant of notice thereof (except to the extent different
notice periods or no notice periods are expressly specified pursuant to the
preceding sentences of this paragraph), Landlord may draw from the Letter of
Credit and use, apply
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<PAGE>
or retain the proceeds therefrom to the extent (and only to the extent) applied
(i) to the payment of such sum which has not been paid, or (ii) to compensate
Landlord for the payment of any other sum which Landlord incurs or becomes
obligated to spend as a result of Tenant's failure to so perform its obligations
and/or Landlord's cure of such failure by Tenant, or (iii) to compensate
Landlord for any expenditures, loss or damage which Landlord may suffer thereby.
The intent of the preceding sentence is to limit the amount of draws by Landlord
against the Letter of Credit to sums actually applied pursuant to clauses (i)
through (iii) of the preceding sentence. Landlord may draw and use, apply or
retain such amounts without prejudice to any other remedy Landlord may have by
reason of Tenant's failure to perform its obligations hereunder. If Landlord so
draws all or any portion of the Letter of Credit, Tenant shall, within twenty
(20) days after demand in writing therefor, obtain and deposit with Landlord a
new letter of credit on the terms specified above applicable to the Letter of
Credit but only in the amount of the amount so drawn, and thereafter such new
letter of credit together with the remaining undrawn balance of any one or more
prior letters of credit constituting the Letter of Credit shall collectively
herein be deemed the "Letter of Credit." Landlord shall not be required to keep
any amounts drawn from the Letter of Credit separate from its general funds, and
shall not be deemed a trustee with respect to such amounts. On the first
anniversary of the Rent Commencement Date, and provided no Event of Default has
occurred and is continuing as of such first anniversary of the Rent Commencement
Date, Tenant shall be entitled to cause the amount of the Letter of Credit to be
reduced to One Million Two Hundred Thousand Dollars ($1,200,000). On the second
anniversary of the Rent Commencement Date, and provided no Event of Default has
occurred and is continuing as of such second anniversary of the Rent
Commencement Date, Tenant shall be entitled to cause the amount of the Letter of
Credit to be reduced to Six Hundred Thousand Dollars ($600,000).
5. Taxes.
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5.1 Tenant's Personal Property. Tenant shall pay directly to the
--------------------------
charging authority prior to delinquency all taxes assessed against and levied
upon Tenant's leasehold improvements (including the Tenant Improvements defined
in Exhibit "B"), trade fixtures, furnishings, equipment and all other personal
-----------
property and merchandise of Tenant situated in or about the Premises.
5.2 Real Property Taxes.
-------------------
(a) From and after the Rent Commencement Date, in the event any
lender who has provided Landlord a loan respecting the Premises requires
impounding of real estate taxes, and Landlord so notifies Tenant of such
impounding requirement, Tenant shall pay to Landlord as part of Operating
Expenses pursuant to Paragraph 7 below Tenant's Share of all Real Property Taxes
(as hereafter defined) levied with respect to the Taxable Property. The "Taxable
Property" shall mean the Office Parcel and all improvements from time to time
situated thereon, the Patio Area, the driveways described in Paragraph 1.3 and
the ramps leading therefrom to the Parking Garage (which driveways and ramps for
purposes of this Paragraph 5.2 only shall be deemed part of the Parking Garage),
and the Parking Garage. Tenant's Share of Real Property Taxes levied with
respect to the Office Parcel and all improvements from time to time situated
thereon shall be 100%. Tenant's Share of Real Property Taxes levied with respect
to the Patio Area and all improvements from time to time situated thereon shall
be 100%. Tenant's Share of Real Property Taxes levied with respect to the
Parking Garage shall be a fraction the numerator of which is the square footage
of the portions of the Parking Garage with respect to which Tenant has exclusive
parking rights, and the denominator of which is the square footage of the entire
Parking Garage, with such square footage measurements made in the same fashion
as Building Square Feet are determined pursuant to Paragraph 1.2.
Notwithstanding the preceding sentence, Tenant's Share of Real Property Taxes
respecting the driveways referred to above shall be 50%, and respecting the
north ramp referred to above shall be 100%. From and after the Rent Commencement
Date, during any period of time during the Term that impounding is not so
required, Tenant shall pay Tenant's Share of all such Real Property Taxes
directly to the taxing authority (and not as part of Operating Expenses) no
later than the later of: (i) thirty (30) days before the same become delinquent,
or (ii) if tax statements are sent to Landlord as the owner of the Premises
instead of directly by the taxing authority to Tenant, fifteen (15) days after
Landlord delivers to Tenant the tax bill or other written statement setting
forth the amount to be paid by Tenant. Tenant shall deliver to Landlord
reasonable evidence of the payment of any such Real Property Taxes paid directly
to the taxing authority within five (5) days after payment thereof. Tenant shall
pay Tenant's Share of all such Real Property Taxes for periods of time within
the Term.
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(b) The term "Real Property Taxes" as used herein shall mean (i)
all taxes, assessments, levies, and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay for any general or
special assessments for public improvements, services, or benefits and any
increases resulting from reassessments caused by any change in ownership, new
construction, or change in valuation), now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against or with respect to (a) the value, occupancy or use of the
Taxable Property, (b) the fixtures, equipment, and other real or personal
property of Landlord that are an integral part of the Taxable Property, (c) the
gross receipts, income, and rentals from the Taxable Property, or (d) the use of
the Taxable Property, public utilities, or energy within the improvements
comprising the Taxable Property; (ii) all new excise, transaction, sales,
privilege or other taxes now or hereafter imposed upon Landlord as a result of
this Lease; and (iii) all costs and fees (including reasonable attorneys' fees)
incurred by Landlord in contesting any Real Property Taxes and in negotiating
with public authorities as to any Real Property Taxes to the extent such costs
and fees do not exceed the anticipated monetary savings which would accrue to
Tenant's benefit as a result thereof as reasonably determined by Landlord. If at
any time during the Term the taxation or assessment of the Taxable Property and
improvements thereon prevailing as of the Effective Date shall be altered so
that in lieu of or in addition to any Real Property Taxes described above there
shall be levied, assessed or imposed (whether by reason of a change in the
method of taxation or assessment, creation of a new tax or charge, or any other
cause) an alternate, substitute, or additional tax or charge (i) on the value,
use or occupancy of the Taxable Property or any portion thereto, (ii) on or
measured by the gross receipts, income, or rentals from the Taxable Property or
any portion thereof, or on Landlord's business of leasing the Taxable Property
or any portion thereof, or (iii) computed in any manner with respect to the
operation of the Taxable Property or any portion thereof, then any such tax or
charge, however designated, shall be included within the meaning of the term
"Real Property Taxes" for purposes of the Lease. Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include the state, inheritance,
transfer, gift, franchise, or net income taxes of Landlord, and further shall
not include any taxes assessed against the Remainder Parcel or the Second Parcel
(except as expressly provided in Paragraph 5.2(a) above with respect to the
driveways referred to in Paragraph 3.1, the ramp leading from the north driveway
into the Parking Garage, the Patio Area, and the Parking Garage), or the
business activities of the occupants thereof . For purposes of this paragraph,
Taxable Property shall include all improvements within the Office Parcel, Patio
Area, and the Parking Garage (including such driveways and ramp referred to
above) as now constructed or as may at any time hereinafter be constructed,
altered, or otherwise changed.
(c) Real Property Taxes shall be prorated on the basis of a 365-
day year to account for any fractional portion of a fiscal tax year included in
the Term at the commencement or expiration of the Term.
(d) Landlord shall use reasonable efforts to cause the real
estate tax assessor for Santa Clara County to separately assess the Parking
Garage. In the event the Parking Garage is not separately assessed, the Real
Property Taxes for the Parking Garage shall be an equitable portion of the taxes
assessed against the property of which the Parking Garage is deemed a part, as
reasonably determined by Landlord. The Real Property Taxes for the Patio Area
and the driveways and north ramp shall be an equitable portion of the taxes
assessed against the property of which such areas are deemed a part, as
reasonably determined by Landlord.
(e) Tenant at its cost shall have the right, at any time, to
contest with the applicable taxing authority any amount of Real Property Taxes
which has been paid by Tenant. Landlord shall not be required to join in any
contest brought by Tenant unless the provisions of any law require that the
contest be brought by or in the name of Landlord or any owner of the Premises,
in which case Landlord shall join in the contest or permit it to be brought in
Landlord's name as long as Landlord is not required to bear any cost. In the
event any sum is awarded to Landlord as a result of Tenant's contest, Landlord
shall reimburse the same to Tenant to the extent such sum represents overpaid
Real Estate Taxes previously paid by Tenant.
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6. Use.
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6.1 Permitted Uses.
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(a) Tenant shall use the Building solely for general offices and
lawful uses related thereto, and for no other use. In no event shall Tenant use
the Premises or permit the Premises to be used for any use which would increase
the number of parking spaces required to be made available for parking for the
Premises beyond 4 per 1,000 square feet of Building Square Feet.
(a) Tenant's parking rights respecting the Outside Areas and the
Parking Garage as set forth in Paragraph 1.3 above shall be subject to the
provisions of this paragraph. Tenant shall use such parking areas solely for
purposes of parking vehicles used by its employees, clients, and contractors
only for such period of time as such entities are working within the Premises or
Outside Areas, or working for Tenant outside of the Premises. Tenant shall not
permit any employees, clients, contractors or other entities within its control
to use such parking areas for any purposes inconsistent with the preceding
sentence. Neither Tenant nor its employees, clients, or contractors shall be
obligated to pay any parking charge or fee for parking within such parking areas
(subject to Tenant's obligation to pay for maintenance and operation of such
parking areas as an Operating Expense pursuant to other provisions of this
Lease). Notwithstanding the foregoing, and subject to applicable Laws, Tenant
shall be entitled to use parking spaces in the Parking Garage within the portion
of the Parking Garage available for Tenant's exclusive use for purposes of
storing containers, provided that (i) such storage area is fenced and secured in
a fashion suitable to Landlord in its reasonable judgment, (ii) the location of
the parking spaces so utilized for storage is approved by Landlord which
approval shall not unreasonably be withheld, (iii) Tenant maintains such spaces,
and is solely responsible for all security relating thereto, (iv) the property
and liability insurance required to be carried by Tenant under this Lease covers
such storage area, (v) such use of parking spaces for storage does not reduce
the number of parking spaces available for Tenant's exclusive use to below the
minimum number of parking spaces required by the City of Los Altos to be made
available for Tenant's parking and does not otherwise violate any Laws, and (vi)
upon expiration or sooner termination of the Term, Tenant shall unless otherwise
directed by Landlord in writing remove the fencing for such storage area and
repair any damage to the Parking Garage resulting from such fencing such that
the areas so affected are restored to their original condition subject only to
reasonable wear and tear. Subject to applicable Laws, Tenant at its cost shall
be entitled to purchase and install an electronic reader at the security gate
installed as part of Landlord's Work at the entrance to the portion of the
Parking Garage containing the parking spaces Tenant is entitled to use, provided
that (i) the design, materials, location thereof and all other aspects thereof
are approved by Landlord in advance of installation thereof, which approval
shall not unreasonably be withheld, (ii) installation thereof is performed by a
contractor and in a location and in a fashion satisfactory to Landlord in its
reasonable discretion, and the timing of such installation is coordinated with
Landlord so as not to interrupt any Landlord's Work or other work by Landlord on
or about the Original Parcel and/or the Second Parcel, (iii) after installation
thereof, Tenant maintains the same at its sole cost, and (iv) immediately upon
installation thereof such reader shall be deemed the property of Landlord and
Tenant shall have no right to remove the same. Tenant shall deliver to Landlord
such keys, card, tokens, or other access devices as shall permit unobstructed
access at all times by Landlord and Landlord's employees, contractors, agents to
the Parking Garage. Tenant shall comply with and observe any reasonable rules
and regulations from time to time promulgated by Landlord respecting the use of
such parking areas and the Patio Area. Tenant shall comply with and observe the
reasonable requirements and restrictions of any conditions, covenants,
restrictions, and easements respecting the "north" and "south" driveways
referred to in Paragraph 3.1 and recorded against title to any one or more of
the Office Parcel, any parcels within the Remainder Parcel, and the Second
Parcel. Tenant shall be entitled to place chairs and tables in the Patio Area
which are of first class quality subject to Landlord's advance approval thereof
which shall not unreasonably be withheld or delayed. Subject to the restrictions
hereinafter set forth, Tenant and its employees shall be entitled to use the
Patio Area solely for purposes of eating food from the cafeteria which Tenant
anticipates will be situated in the Building immediately adjacent to the Patio
Area and for social gatherings. Tenant shall comply with any and all
requirements of any lender or insurer respecting the Remainder Parcel regarding
Tenant's use of the Patio Area, including without limitation insurance naming
the owner of the Remainder Parcel and such lender and insurers as additional
insureds with respect to use of the Patio Area. Tenant acknowledges that the
Patio Area will abut the contemplated development on the Remainder Parcel
situated adjacent thereto, and that such development may entail hotel or other
residential uses, and accordingly agrees not to create or generate in or
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<PAGE>
from the Patio Area unreasonably loud noises at any time taking into
consideration the contemplated residential use immediately adjacent thereto, or
any significant noise whatsoever prior to 10:00 A.M. or after 8:00 P.M. Monday
through Sunday. Tenant shall keep the Patio Area in a clean and trash free
sanitary condition, with all garbage removed therefrom and all chairs and tables
therein kept in good and safe condition and repair.
6.2 Compliance with Laws.
--------------------
(a) Landlord warrants to Tenant that, as of the date of
Substantial Completion of Landlord's Work, all improvements constructed by
Landlord as part of Landlord's Work (specifically excluding any work performed
by Tenant in the Premises prior to Substantial Completion of Landlord's Work)
shall comply with all applicable laws, ordinances, codes, rules, orders,
directions and regulations of lawful governmental authority (collectively,
"Laws") regulating the condition of the Premises and in effect as of the date of
Substantial Completion of Landlord's Work and shall not have any latent defects
respecting materials or workmanship. The warranty set forth in the preceding
sentence shall only be effective with respect to any written claim of a breach
thereof delivered by Tenant to Landlord within one year from the date of
Substantial Completion of Landlord's Work. For purposes of the preceding
sentence, no claim shall be deemed effective unless it specifically identifies
the Law which has not been complied with and each component(s) of Landlord's
Work which is the subject of such noncompliance.
(b) Landlord shall have no obligation to make any alterations,
improvements, or repairs to the Premises unless otherwise expressly required in
this Lease. Tenant acknowledges that its possession and use of the Premises is
subject to all Laws regulating the use and occupancy of the Premises. Subject to
Landlord's warranty set forth in Paragraph 6.2(a), Tenant, at Tenant's sole
expense, shall promptly comply with all Laws and restrictive covenants of public
record as may now or hereafter be in effect relating to or affecting the
condition, use or occupancy of the Premises, including without limitation the
obligation to make structural or nonstructural Alterations to the extent
required to comply therewith. Notwithstanding the preceding sentence, if any
structural Alterations to the Premises are required as a result of a change in
Laws existing on the date of Substantial Completion of Landlord's Work or as a
result of additional Laws enacted after the date of Substantial Completion of
Landlord's Work which changed or additional Laws are applicable to buildings
generally (including the Building) and are not applicable to the Premises
because of Tenant's particular use of the Premises for general office use or any
Tenant Improvements therein or Alterations thereto by Tenant, then Landlord
shall cause such Alterations to be made, and the Amortized Portion (as defined
below in Paragraph 6.2(c)) of such cost shall be deemed an Operating Expense
under Paragraph 7.
(c) The "Amortized Portion" of costs of items, as reasonably
determined by Landlord, shall mean an amount equal to a fraction of the cost of
such item the numerator of which is the lesser of (i) the number of years
remaining in the Term, and (ii) the number of years of the estimated useful life
of such item as reasonably determined by Landlord, and the denominator of which
is the number of years of the estimated useful life of such item as reasonably
determined by Landlord, with such amount amortized monthly over the remainder of
the Term as of the date such cost is incurred assuming an interest rate (the
"Assumed Interest Rate") equal to the rate of interest on any loan obtained by
Landlord to pay for such item, or if Landlord does not obtain a loan to pay for
such item, then assuming an interest rate equal to the rate of interest Landlord
would have to pay if Landlord were to borrow such funds, as reasonably
determined by Landlord. If Tenant later exercises any Option to extend the Term,
upon commencement of each such Extended Term, Operating Expenses shall, if such
item was not previously fully amortized pursuant to the preceding sentence,
include an additional Amortized Portion of the cost of such item equal to a
fraction the numerator of which is the lesser of (i) five, or (ii) the same
number of years of the estimated useful life of such item as originally
determined by Landlord as reduced by the number of years represented in the
numerator determined pursuant to the preceding sentence, and the denominator of
which is the same number of years of the estimated useful life of such item as
originally determined by Landlord (with no reduction in such number reflecting
any time which has passed since the item was made), with such portion amortized
monthly over the five year Extended Term assuming interest thereon over such
period at the Assumed Interest Rate.
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6.3 Hazardous Materials.
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(a) As used herein, "Hazardous Materials" means any hazardous,
toxic, environmentally damaging or radioactive materials, substances or wastes,
including, but not limited to, those materials, substances or wastes: (1)
defined or listed as hazardous or extremely hazardous materials or wastes
pursuant to Title 22, Division 4.5, Chapter 10 et seq., of the California Code
of Regulations, as may be amended; (2) defined or listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S) 9601, et seq. and regulations promulgated thereunder, as may
------
be amended; (3) defined or listed as hazardous or acutely hazardous wastes
pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901,
et seq. and regulations promulgated thereunder, as may be amended; and/or (4)
- ------
which consists in whole or part of petroleum, petroleum fractions, petroleum
products or petroleum distillates.
(b) Tenant shall not cause or permit to be discharged from or
about the Building and Outside Areas any Hazardous Materials. Without limiting
the foregoing, Tenant shall not cause or permit to be discharged any Hazardous
Materials into the groundwater or soils underlying or adjacent to the Office
Parcel. Tenant shall provide Landlord with at least five (5) days prior written
notice before bringing, using, or storing any Hazardous Materials on the
Premises except for minor amounts thereof commonly used for office purposes (for
example: white-out for correcting typing mistakes, toner in printers, and office
cleaning supplies). Tenant shall not use, store, handle, or generate in, on, or
about the Premises any Hazardous Materials except for minor amounts thereof
commonly used for office purposes (for example: white-out for correcting typing
mistakes, toner in printers, and office cleaning supplies), and then only to the
extent such usage strictly complies with applicable Laws.
(c) Tenant, at its sole expense shall comply with all applicable
Laws respecting Hazardous Materials in connection with Tenant's activities and
the activities of its agents, employees, contractors and invitees on or about
the Premises. Tenant, at its sole cost, shall perform all investigations, clean-
up and other response actions which may be required by any governmental
authority respecting Hazardous Materials in, on, or about the Building, the
Outside Areas, or the Parking Garage or the soils or groundwater underlying any
one or more of the same resulting from or caused to exist by Tenant's activities
and/or the activities of its agents, employees, contractors and invitees. Except
as provided in the preceding sentence, Landlord, at its sole cost (and not as a
cost passed through to Tenant as an Operating Expense), shall perform all
investigations, clean-up and other response actions which may be required by any
governmental authority in, on, or about the Premises respecting Hazardous
Materials migrating from offsite onto the Office Parcel or into the soils or
groundwater underlying the same or underlying the Parking Garage whether or not
caused to exist by the activities of Landlord and/or the activities of
Landlord's agents, employees, contractors and invitees.
(d) Tenant shall indemnify, protect, defend (by legal counsel
subject to Landlord's approval, which shall not unreasonably be withheld) and
hold harmless Landlord from and against all costs (including, but not limited
to, environmental response costs), expenses, claims, judgments, losses, demands,
liabilities, causes of action, governmental directives, proceedings or hearings,
including Landlord's attorneys' and experts' fees and costs, relating to the
use, handling, generation, storage, transportation, release or disposal of
Hazardous Materials by Tenant, its employees, agents, invitees or contractors
on, in, beneath, about or from, the Building, the Outside Areas, the Parking
Garage, or in the groundwater or land underlying the Building, Outside Areas,
Parking Garage, or, in, on, or about any groundwater or land adjacent to, on, in
the vicinity of the Building, Outside Areas, or Parking Garage, and/or relating
to the breach of any of Tenant's obligations under this Paragraph 6.3. The
foregoing indemnity shall include an obligation for Tenant to indemnify,
protect, defend, and hold harmless Landlord from and against the cost of
environmental consultants, attorneys, and other consultants as Landlord
determines are appropriate to assist Landlord in (1) investigating the source,
extent, and composition of such Hazardous Materials, (2) cleaning up or
otherwise remediating the same, (3) dealing with any potential or actual
liability of Landlord and/or Tenant respecting such Hazardous Materials, and (4)
otherwise dealing with such Hazardous Materials. Tenant shall reimburse Landlord
for (i) losses in or reductions to rental income resulting from Tenant's use,
handling, generation, storage, transportation, release or disposal of Hazardous
Materials; (ii) all costs of clean-up or other alterations to the Building,
Outside Areas, and Parking Garage necessitated by Tenant's use, handling,
generation, storage, transportation, release or disposal of Hazardous Materials;
and (iii) any diminution in the fair market value of the Office Parcel,
Remainder Parcel, and Second Parcel and any
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improvements thereon caused by Tenant's use, handling, generation, storage,
transportation, release or disposal of Hazardous Materials.
(e) Tenant shall notify Landlord in writing, immediately upon
becoming aware of: (1) any environmental investigation, clean-up or other
environmental response action requested, demanded, instituted or to be
instituted by any person, including but not limited to a governmental entity,
relating to any release or migration of Hazardous Materials on, in, beneath, to
or adjacent to the Office Parcel; (2) any environmental investigation, cleanup
or other environmental response action requested, demanded, instituted or to be
instituted by any person, including a governmental entity, relating to the use,
handling, generation, storage, transportation, release or disposal of Hazardous
Materials on, in, beneath, about or from the Building and Outside Areas; (3) any
claim or demand made or threatened by any person, including but not limited to a
governmental entity, against Landlord or Tenant, or the Building and/or Outside
Areas relating to damages, contribution, cost recovery, compensation, loss or
injury relating to or claimed to result from any Hazardous Materials that have
come to be located on or about the Building or Outside Areas; or (4) any data,
workplans, proposals or reports submitted to any governmental entity arising out
of or in connection with any Hazardous Materials on or about the Building or
Outside Areas, including but not limited to any complaints, notices, warnings or
asserted violations in connection therewith.
(f) Landlord shall have the right, but not the obligation, in
its sole discretion, to conduct from time to time an inspection of the Building
and Outside Areas regarding Hazardous Materials on, in, beneath or about same.
Landlord shall give Tenant forty-eight (48) hours advance notice of any such
inspection, except in the event of an emergency situation in which event no
notice shall be required. When conducting any such inspections, Landlord shall
avoid unreasonably disrupting Tenant's activities. Tenant shall provide Landlord
with reasonable cooperation to facilitate any such inspection by Landlord, its
agents or representatives.
(g) Under no circumstances shall Tenant install, temporarily or
permanently, any underground or below-floor tanks relating to the use, storage
or disposal of Hazardous Materials.
(h) Prior to the expiration or termination of the Term, Tenant
shall decontaminate, remove or close any equipment, improvements or facilities
used by Tenant at the Premises in connection with Hazardous Materials, in full
compliance with applicable Laws.
(i) Landlord shall indemnify, protect, defend and hold harmless
Tenant from and against all costs (including, but not limited to, environmental
response costs), expenses, claims, judgments, losses, demands, liabilities,
causes of action, governmental directives, proceedings or hearings, including
Tenant's attorneys' and experts' fees and costs (collectively, a "Claim"),
incurred to investigate and/or remediate any Hazardous Materials contamination
in the soils or groundwater under the surface of the Premises which
investigation or remediation is required by written mandate of lawful
governmental authority having jurisdiction over such Hazardous Materials
contamination, and only to the extent of Hazardous Materials situated in the
soils or groundwater underlying the Premises (i) as of the Effective Date, or
(ii) caused to exist by the actions of Landlord or its employees, agents, or
contractors in connection with Landlord's Work or otherwise. In satisfying its
defense obligation pursuant to this paragraph, Landlord shall have the right in
its sole discretion to select and control defense counsel. Landlord's
indemnification and defense obligations under this paragraph shall not apply to
the extent a subject Claim is based on Hazardous Materials contamination on or
about the Premises caused by Tenant or any agent, contractor, or invitee of
Tenant. Landlord warrants and represents that to the actual knowledge of Peter
Pau, without any duty to inspect, there are no Hazardous Materials in the soils
or groundwater under the surface of the Premises other than as is set forth in
the environmental reports listed on Exhibit "C" hereto.
----------
(j) To the extent any of the provisions of this Lease conflict
with the provisions of Paragraph 6.3, the provisions of Paragraph 6.3 shall be
controlling. The obligations of Tenant and Landlord under this Paragraph 6.3
shall survive the expiration of the Term.
6.4 Restrictions on Use. Tenant shall not use or permit the use of
-------------------
the Premises in any manner that will tend to create waste on the Premises or
constitute a nuisance to any neighboring building. Tenant shall not
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use any apparatus, machinery or other equipment in or about the Premises that
may cause substantial noise or vibration or overload existing electrical
systems, or otherwise place any unusual loads upon the floors, walls, or
ceilings of the Building which may overload the Building or jeopardize the
structural integrity of the Building or any part thereof, or the Parking Garage
underneath the Building. Tenant shall not make any penetrations of the roof or
exterior of the Building without the prior written approval of Landlord which
shall not unreasonably be withheld; provided that, if so required by Landlord,
all such work shall be performed by the roofing contractor who initially
installed the roof of the Building in order to prevent voidance of any warranty
obtained by Landlord from such roofing contractor with respect to labor and/or
materials respecting the roof. No materials or articles of any nature shall be
stored upon any portion of the Outside Areas unless located within an enclosure
approved by Landlord. Tenant understands that Landlord desires to prevent
unauthorized use of the parking facilities for the Premises given that parking
spaces are in high demand in the vicinity of the Premises, and thus Tenant
agrees not to use or permit any employees, agents, contractors, or other persons
within its control to use the Parking Garage or any surface level parking areas
within the Office Parcel for any purpose other than parking for the period of
time that such person is working in the Premises or for Tenant off of the
Premises. Without limiting the generality of the preceding sentence, Tenant
shall not permit long term parking by persons within its control, except for
valid business reasons which are directly related to the primary business
conducted by Tenant on the Premises, and shall not grant rights to use such
parking facilities to any persons other than its employees, agents, contractors,
customers and other invitees involved in Tenant's primary business conducted on
the Premises.
6.5 Satellite Dish. Tenant shall be entitled to install one or more
--------------
satellite dishes on the roof of the Building provided that as to each such dish:
(i) the size, weight, height and other dimensions and features of such dish are
approved by Landlord in writing prior to installation thereof, which approval
shall not be unreasonably withheld; (ii) the installation and operation of such
dish shall be in compliance with all Laws, (iii) Tenant at its expense shall pay
for screening of such dish from view from all points at ground level by a screen
of a weight, dimensions, and material that is reasonably satisfactory to
Landlord, (iv) installation of the dish shall be performed at Tenant's expense
by Landlord's roofing contractor who initially installed the roof so as not to
invalidate any roof warranty benefitting Landlord, and (v) the cost of such
dishes and installation thereof and roof work relating thereto shall not be
deemed a Tenant Improvement Cost the cost of which is payable out of the
Tenant's Improvement Allowance. Tenant shall be entitled to use such satellite
dishes only for its normal and regular business operations from the Premises
(e.g., no such dish shall operate as a repeater station which is part of a
cellular network for which revenues can be or are obtained by Tenant for either
such repeater station or cellular network).
7. Operating Expenses. Commencing on the Rent Commencement Date, Tenant
------------------
shall pay to Landlord as Additional Rent hereunder Tenant's Share of Operating
Expenses as may be paid or incurred by Landlord during the Term. "Tenant's Share
of Operating Expenses" shall mean: (i) 100% as to Operating Expenses for the
Building and Outside Areas; (ii) 100% as to Operating Expenses for the Parking
Garage which are segregated from Operating Expenses for the balance of the
Parking Garage and allocated solely to the portion thereof in which Tenant has
exclusive parking rights, (iii) 50% as to Operating Expenses for the Patio Area,
and (iv) a fraction of all other Operating Expenses for the Parking Garage
(i.e., those Operating Expenses which cannot be segregated as provided in clause
(ii) above), the numerator of which is the square footage of the portions of the
Parking Garage with respect to which Tenant has exclusive parking rights, and
the denominator of which is the square footage of the entire Parking Garage,
with such square footage measurements made in the same fashion as Building
Square Feet are determined pursuant to Paragraph 1.2, and (iv) notwithstanding
the foregoing, 50% as to Operating Expenses relating solely to either of the two
driveways referred to in Paragraph 3.1, 0% as to Operating Expenses for the ramp
leading from the south driveway into the Parking Garage, and 100% of Operating
Expenses for the north ramp leading from the north driveway to the Parking
Garage.
7.1 Definition. Subject to the exclusions therefrom set forth
----------
below, the term "Operating Expenses" shall mean all costs and disbursements
which Landlord shall pay or become obligated to pay in connection with
maintaining, repairing, managing and operating the Premises, Outside Areas,
Patio Area, the north and south driveways described in Paragraph 1.3 and the
ramps leading therefrom into the Parking Garage (which driveways and ramps for
purposes of this Paragraph 7.1 only shall be deemed a part of the Parking
Garage), and Parking Garage, including, without limitation (i) Real Property
Taxes (as defined in Paragraph 5.2(b)) to the extent not paid directly by Tenant
pursuant to Paragraph 5.2 above, (ii) the insurance premiums and deductibles for
insurance which
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Landlord is required or entitled to maintain with respect to the Premises,
Outside Areas, Patio Area and Parking Garage as described below in Paragraph 14,
(iii) the maintenance, repair and operation of the Premises, Outside Areas,
Patio Area and Parking Garage including, but not limited to all labor,
materials, supplies and services, and the cost of all maintenance contracts,
used or consumed in performing Landlord's maintenance and repair obligations
hereunder, (iv) landscaping maintenance and replacement (but not initial
landscaping which is part of Landlord's Work), sign maintenance, restriping,
reasphalting and patching costs related to the Outside Areas, Patio Area and
Parking Garage, (v) wages and fees of all employees, contractors, agents, or
other persons performing services in, on or about the Premises, Outside Areas,
Patio Area or Parking Garage to the extent relating to the operation and
maintenance of the Premises, Outside Areas, Patio Area and Parking Garage,
including taxes, insurance and benefits relating thereto, (vi) the cost of all
replacements of the HVAC system and roof membrane of the Building, and the
Amortized Portion (as defined in Paragraph 6.2) of any other replacements, (vii)
the Amortized Portion of Alterations or capital improvements to the Premises,
Outside Areas, Patio Area and Parking Garage to the extent the same are required
to be made by applicable Laws, and (viii) any costs for security personnel or
security systems, if any, provided for the Parking Garage. Additionally,
Operating Expenses shall include a management fee for management, operation and
administration of the Premises, Outside Areas, Patio Area and Parking Garage
whether performed by Landlord or a third party property manager, equal to 2% of
the Base Rent payable for the period of time for which such Operating Expenses
are payable. All costs payable by Tenant under this paragraph shall be payable
by Tenant as part of Operating Expenses under Paragraph 7.
Notwithstanding anything to the contrary contained in this Paragraph 7, it is
expressly understood that Operating Expenses do not include (i) amounts due
under loans encumbering the Premises, or payments of rent under ground leases of
the Premises, (ii) depreciation of the Building or of any building service
equipment, (iii) brokerage commissions incurred in connection with leasing all
or any portion of the Building, (iv) attorneys' fees, accounting costs, and
other costs directly related to leasing space in the Building, except for
reasonable fees therefor in the context of reviewing, negotiating, and/or
drafting of any assignment or sublease proposed by Tenant; (v) physical damage
to property caused by the active negligence or wilful misconduct of Landlord or
its employees, agents, or contractors, (vi) expenses related to repairing
construction defects in the Building shell or the breach of Landlord's warranty
set forth in Paragraph 6.2(a) above, (vii) all costs incurred by Landlord to
maintain, repair, and replace all or any portion of the exterior walls of the
Building, the foundation, the structural components of the roof (but not
including the roof membrane), and all other structural components of the
Building, except to the extent required to comply with new or changed Laws
pursuant to Paragraph 6.2(b) the Amortized Portion of which shall be included
within Operating Expenses, (viii) all costs incurred by Landlord to investigate
or remediate Hazardous Materials to the extent Landlord is not otherwise
indemnified against such costs pursuant to Paragraph 6.3(d) above, (ix) costs
incurred by Landlord for repairing damage which costs are actually recovered
from insurance proceeds (or if Landlord fails to carry the insurance which it is
required to carry under this Lease, the costs that would have been recovered
from insurance proceeds had Landlord carried such insurance) or condemnation
awards, (x) Landlord's overhead and administrative costs to the extent exceeding
the management fee charge permitted pursuant to the provisions of this Paragraph
7.1,and (xi) to the extent recovered by Landlord, costs attributable to
repairing or maintaining items which are covered by warranties, other contracts,
or insurance maintained by Landlord.
7.2 Payment of Tenant's Share. On or prior to the Rent Commencement
-------------------------
Date, and thereafter within ninety (90) days after January 1 of each calendar
year during the Term, Landlord shall notify Tenant of Tenant's Share of
Operating Expenses reasonably estimated by Landlord for the following calendar
year. Commencing on the Rent Commencement Date, and on the first day of every
month thereafter, Tenant shall pay to Landlord, as Additional Rent, one-twelfth
(1/12th) of such estimated Tenant's Share of Operating Expenses for the
following calendar year. If at any time during any such period, Landlord
concludes that Operating Expenses for such period will vary from Landlord's
estimate, Landlord may, by written notice to Tenant, revise its estimate for
such period and Operating Expense payments by Tenant for such period shall
thereafter be based upon such revised estimate.
7.3 Statement of Operating Expenses. On or before the end of the
-------------------------------
ninety (90) day period following January 1 of each calendar year or portion
thereof for which Tenant has made estimated payments of or is liable for any
Operating Expenses, Landlord shall furnish Tenant a statement with respect to
such year showing Tenant's Share of Operating Expenses, and the total payments
made by Tenant. Unless Tenant raises any
16
<PAGE>
objections to Landlord's statement within two (2) years after receipt of the
same, such statement shall conclusively be deemed correct and Tenant shall have
no right thereafter to dispute such statement or any item therein or the
computation of Operating Expenses or Tenant's Share of Operating Expenses in
such statement. Any amounts due Landlord or Tenant shall be paid in the manner
set forth below. Landlord shall keep at Landlord's headquarters or at its
property manager's office accurate and separate books of account and records for
Operating Expenses. Tenant may, upon ten (10) days advance notice to Landlord,
and no more than twice each calendar year during business hours and on the
day(s) specified by Landlord, inspect such books and records at Tenant's sole
cost.
7.4 Annual Reconciliation. If Tenant's Share of Operating Expenses
---------------------
for the year as finally determined exceeds the total payments made by Tenant
based on Landlord's estimate, Tenant shall pay Landlord the deficiency within
thirty (30) days after Tenant's receipt of Landlord's statement. If the total
payments made by Tenant based on Landlord's estimate exceed the amount properly
payable by Tenant, Landlord shall credit the excess amount to the next Operating
Expenses payment due under this Lease, or upon expiration of the Term pay Tenant
such excess amount within thirty (30) days after Tenant's receipt of Landlord's
statement. Notwithstanding the preceding sentence, if Tenant's Share of Real
Estate Taxes are paid as part of Operating Expenses, then any excess portion of
Operating Expenses attributable to estimated Tenant's Share of Real Estate Taxes
shall not be refunded at the time of such annual reconciliations unless and
until such amounts are determined truly to be excess payments after reassessment
(or supplemental assessment) of the Taxable Property following Landlord's
acquisition thereof and completion of construction of Landlord's Work and the
Tenant Improvements. To the extent any amounts collected as part of Operating
Expenses for payment of Real Estate Taxes are placed in an interest bearing
account, then any interest earned thereon while in such account shall be deemed
earned by Tenant and at such time as such amounts are applied to Real Estate
Taxes or returned to Tenant, as the case may be, shall be paid to Tenant. The
provisions of this paragraph shall survive expiration of the Term.
7.5 Prorations and End of Term. For any partial calendar year at
--------------------------
the commencement or termination of the Term, Tenant's Share of Operating
Expenses for such year shall be prorated on the basis of a 365-day year.
Notwithstanding the termination of this Lease, within thirty (30) days after
Tenant's receipt of Landlord's statement regarding the determination of Tenant's
Share of Operating Expenses for the calendar year in which the Term ends, Tenant
shall pay to Landlord or Landlord shall pay to Tenant, as the case may be, an
amount equal to the difference between Tenant's Share of Operating Expenses for
such year, as finally determined, and the amount previously paid by Tenant
toward such Operating Expenses. The provisions of this paragraph shall survive
expiration or sooner termination of the Term.
8. Maintenance and Repairs.
-----------------------
8.1 Landlord's Obligations. Except as provided in Paragraph 8.2
----------------------
below, Landlord shall keep in good and safe condition, order and repair, and
replace as and if necessary the following items: (i) the roof structure and
membrane, exterior walls, and foundation of the Building, (ii) the Outside Areas
including without limitation all parking, landscaping, driveway, and other
improvements and facilities in the Outside Areas, and (iii) the Parking Garage.
Landlord shall exercise reasonable diligence in performing such maintenance and
repairs as it is required to perform under this paragraph; provided that,
Landlord shall have no obligation to make repairs under this Paragraph 8.1 until
a reasonable time after Landlord's receipt of notice from Tenant of the need for
such repairs or Landlord otherwise actually receives notice of the need for such
repairs. In connection with all of Landlord's activities under this paragraph,
Landlord shall make a reasonable effort to minimize any disruption of Tenant's
business, provided that Landlord shall not be obligated to incur overtime costs
to employ workers who work after normal business hours and on weekends. Except
as otherwise specifically provided in Paragraph 15.5 below (damage and
destruction), there shall be no abatement of rent or other sums payable by
Tenant prior to or during any repairs by Tenant or Landlord, and Tenant waives
all claims for loss of business or lost profits relating to any such repairs.
All costs incurred by Landlord under this paragraph shall be deemed Operating
Expenses payable by Tenant pursuant to Paragraph 7; provided that, all costs
incurred by Landlord to maintain, repair, and replace all or any portion of the
exterior walls of the Building, the foundation, the structural components of the
roof (but not including the roof membrane), and all other structural components
of the Building shall be borne by Landlord at its sole cost and expense and
shall not be included in Operating Expenses. Tenant hereby waives the benefit
of any statute now or hereafter in effect which would otherwise afford Tenant
the right to make repairs at Landlord's
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expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good condition, order and repair. Tenant specifically waives all
rights it may have under Sections 1932(1), 1941, and 1942 of the California
Civil Code, and any similar or successor statute or law.
8.2 Tenant's Obligations. Commencing on the date of Substantial
--------------------
Completion of Landlord's Work, Tenant shall, at Tenant's expense, keep in good
condition, order and repair all of the following: (i) interior walls, interior
surfaces of exterior walls, floors, ceilings, windows, doors, entrances, and all
glass (including plate glass) located within the Premises; (ii) all plumbing,
heating, air conditioning, ventilating, fire sprinklers, electrical, gas,
sanitary sewer, lighting, and other Building facilities and systems (including
underground conduits to the extent exclusively serving the Building and portions
thereof within the walls or foundation of the Building or on the roof of the
Building); and (iv) all other portions of the Premises other than the foundation
of the Building, the roof structure of the Building, the roof membrane (subject
to Tenant's obligation to obtain maintenance contracts respecting the same
pursuant to this paragraph), the exterior walls of the Building, and other
structural components of the Building. Tenant shall also maintain at its sole
expense in good condition, order and repair its personal property and equipment
located within the Premises. Notwithstanding anything to the contrary contained
in this Lease, Tenant shall repair at its sole expense any damage caused to the
Premises by Tenant or its agents, contractors, or invitees; provided that,
subject to the requirements of the loan documents executed by Landlord and
benefitting any lender having a lien against all or any portion of the Premises,
Landlord shall make available to Tenant any insurance proceeds collected by
Landlord (net of Landlord's costs of collecting the same) arising from any
policy of property insurance carried by Landlord respecting such damage to the
Premises. Tenant shall at its sole expense hire contractors who shall perform
(i) periodic (no less frequently than once every six months) performance of
routine inspection and preventative maintenance of the following components of
the Building: the roof membrane; life safety system; elevators; and heating,
ventilation, and air conditioning system; and (ii) periodic (no less frequently
than once every year) washing of all windows of the Premises (both interior and
exterior surfaces). Such contractors shall be selected from a list of
contractors reasonably acceptable to Landlord based on their experience,
reputation, and quality of performance, all of whom shall carry appropriate
liability insurance naming Landlord and Tenant as additional insureds. The
contract between Tenant and such contractor(s) shall be in a form and substance
reasonably acceptable to Landlord. Tenant shall arrange and pay for such
janitorial service to the Premises as Tenant desires, and for any security
personnel for the Premises as Tenant desires.
9. Alterations.
-----------
9.1 Landlord's Consent Required. Subject to the following
---------------------------
provisions, Tenant shall not, without first obtaining Landlord's prior written
consent which consent shall not unreasonably be withheld, make any alterations,
improvements (including the Tenant Improvements), additions, or utility
installations (collectively called "Alterations") in, on or about the Premises.
As used in this Paragraph 9.1, the term "utility installation" means power
panels, wiring, fluorescent fixtures, space heaters, conduits, air conditioning
and plumbing equipment, lines, and materials. Notwithstanding anything to the
contrary contained in this Lease, Tenant shall not make any Alteration which
increases or reduces the Building Square Feet, and Landlord shall have no
obligation to consent to any such Alteration. Tenant at its sole cost shall
cause to be prepared by an architect or design engineer detailed plans and
specifications respecting any proposed Alterations that Tenant desires to make
to the Premises. Whether or not Landlord's consent thereto is required before
Tenant can make such Alterations, Tenant shall deliver a copy of such plans and
specifications to Landlord at least ten (10) days before commencing such
Alterations. Landlord shall not unreasonably withhold any requested consent to
proposed Alterations or delay giving its consent to or disapproval of proposed
Alterations more than ten (10) days after submission by Tenant to Landlord of
such detailed plans and specifications and a written request by Tenant for
Landlord's consent to such Alterations. Notwithstanding the foregoing, Tenant
shall not be obligated to obtain Landlord's prior written consent for
Alterations which do not (i) affect the structural components of the Building,
(ii) entail any penetration of the roof membrane, or (iii) affect the elevator
or the electrical, gas, plumbing, fire sprinklering or HVAC systems of the
Building. Prior to construction or installation of any Alterations, Landlord may
require Tenant to provide Landlord, at Tenant's expense, a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alterations, to insure Landlord against any liability resulting from the
construction of any such Alterations, including mechanic's and materialmen's
liens, and to insure completion of the work. Should Tenant make any Alterations
requiring the prior written consent of Landlord without obtaining such consent,
then
18
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in addition to any other remedies Landlord may have under this Lease for
Tenant's breach of its obligations hereunder, Landlord shall be entitled to
require Tenant immediately to remove the same at Tenant's expense upon demand by
Landlord and to repair any damage to the Premises occasioned by such removal.
Notwithstanding any consent that Landlord may give with respect to proposed
Alterations, such consent shall not imply that Landlord has checked or insures
compliance thereof with applicable Laws, nor that Landlord approves the design
thereof, and as between Tenant and Landlord, Tenant alone shall have sole
responsibility and liability for ensuring compliance thereof with Laws and the
safety of the design thereof. Tenant shall give Landlord notice of the
commencement of construction of any Alterations concurrently with or immediately
prior to such commencement so that Landlord may post notices of
nonresponsibility relating thereto within ten (10) days after such commencement
of construction.
9.2 Permits and As-Built Plans. Tenant shall not make any
--------------------------
Alteration until Tenant first acquires all permits required to make such
Alteration from all appropriate governmental agencies and furnishes a copy
thereof to Landlord prior to commencement of the work. Tenant shall comply with
all conditions of said permits in a prompt and expeditious manner, all at
Tenant's sole expense. Upon completion of any Alteration, Tenant, at Tenant's
sole cost, shall immediately deliver to Landlord "as-built" plans and
specifications therefor.
9.3 Construction Work Done by Tenant. All construction work
--------------------------------
required or permitted to be done by Tenant shall be performed by a contractor
licensed to do business in California and the County of Santa Clara in a prompt,
diligent, and good and workmanlike manner, and shall not diminish the value of
the Building. Furthermore, all such construction work shall conform in quality
and design with the Premises existing as of the time such work is performed. In
addition, all such construction work shall be performed in compliance with all
applicable statutes, ordinances, regulations, codes and orders of governmental
authorities and insurers of the Premises. Tenant or its agents shall obtain and
pay for all licenses and permits necessary therefor. Tenant shall give Landlord
notice of the date of commencement of any work in the Premises not less than ten
(10) days prior thereto, and Landlord shall have the right to post notices of
non-responsibility or similar notices in or on the Premises in connection
therewith.
9.4 Roof Repairs. All installation of air conditioning equipment
------------
and duct work requiring penetration of the roof shall be properly flashed and
caulked. Any electrical or refrigeration conduits or other piping or materials
installed by Tenant in the Building shall be installed beneath the surface of
the roof (and not on the surface of the roof), and Tenant shall thereafter
repair and re-roof the affected portions of the roof surface. Notwithstanding
the foregoing, any conduits and other equipment placed by Tenant on the roof
shall be elevated and supported by Tenant so as not to inhibit drainage or
Landlord's repair of the roof pursuant to Paragraph 8.1. Nothing in this
paragraph shall be construed to allow Tenant or any of its employees, agents,
contractors, or invitees to go upon the roof of the Building, which is strictly
prohibited without the prior written consent of Landlord; except that, Tenant's
General Contractor pursuant to Exhibit "B" of this Lease and its subcontractors
-----------
shall be entitled to go upon the roof of the Building solely for purposes of
construction of the Tenant Improvements and subsequent performance of warranty
work in connection with repairs or curing defects in construction of the Tenant
Improvements; and further except that, Tenant's contractors hired for routine
inspection and maintenance of the roof membrane pursuant to Paragraph 8.2 above
shall be entitled to go upon the roof solely for purposes of performing such
inspection and maintenance. Notwithstanding anything to the contrary contained
in this Lease, Tenant shall obtain Landlord's prior approval of the location and
size of any penetrations (of any depth) made by Tenant or its contractors into
or through the roof of the Building, shall if so required by Landlord have such
penetrations performed by the roofing contractor who initially installed the
roof of the Building so as not to void any warranty obtained by Landlord for
labor and/or materials in connection therewith, and shall at Tenant's sole
expense repair any damage to the roof (including loss of structural integrity)
occasioned thereby to the reasonable satisfaction of Landlord.
9.5 Title to Alterations. Any Alterations which may be made on the
--------------------
Premises shall remain upon and be surrendered with the Premises at the
expiration or sooner termination of the Term, and shall become the property of
Landlord at that time. Without limiting the generality of the foregoing, all
heating, lighting, electrical (including all wiring, conduits, main and
subpanels), air conditioning, immovable partitioning (i.e. affixed to ceiling or
walls), drapery, and carpet installations made by Tenant, regardless of how
affixed to the Premises, together with all other Alterations that have become an
integral part of the Premises, shall not be deemed trade
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fixtures or Tenant's equipment, and shall remain upon and be surrendered with
the Premises at the expiration or sooner termination of this Lease, and shall
become the property of the Landlord at that time. Notwithstanding the provisions
of this Paragraph 9.5, Tenant's furnishings, movable partitioning (i.e. not
affixed to ceilings or walls), and computers shall remain the property of Tenant
and may be removed by Tenant at any time during the Term provided Tenant at
Tenant's expense immediately after removal repairs any damage to the Premises
caused thereby. Notwithstanding anything to the contrary contained in this
Paragraph 9.5, title to the Tenant Improvements specified on Exhibit "D" (which
-----------
items are allocable to Tenant's Improvement Allowance paid by Landlord) shall
belong to Landlord from the time such Tenant Improvements are constructed or
installed on the Premises, regardless whether Tenant has any obligation to
maintain the same during the Term and/or to restore the same in the event of
damage or destruction of the Premises, it being the intention of the parties
that Landlord, and not Tenant, has all rights to depreciate such items for
income tax purposes. The parties acknowledge that Exhibit "D" is not available
-----------
as of the Effective Date. Landlord and Tenant shall attach such exhibit to this
Lease when Tenant has prepared the Approved Plans as specified in Exhibit "B,"
------------
and prior to Tenant starting construction of the Tenant Improvements. In no
event shall Tenant commence construction of the Tenant Improvements before
Exhibit "D" is agreed to by both Landlord and Tenant and attached as an exhibit
- -----------
to this Lease. Such exhibit shall specify Tenant Improvements the allocable
Tenant Improvement Costs for which in the aggregate are no less than the
Tenant's Improvement Allowance. In the event estimated Tenant Improvement Costs
are in excess of the Tenant's Improvement Allowance, and Tenant and Landlord
disagree as to what should be included on said exhibit, Landlord shall choose
the items to be so listed based on its reasonable determination of the items
most likely to be reusable by a successor tenant. Landlord and Tenant shall use
their best efforts to reach agreement on the contents of such exhibit so as not
to delay Tenant's commencement of construction of the Tenant Improvements.
10. Mechanics' Liens. Tenant shall keep the Premises free from any liens
----------------
arising out of any work performed, materials furnished or obligations incurred
by Tenant. In the event that Tenant shall not, within thirty (30) days following
the imposition of any such lien, cause the same to be released of record,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but no obligation, to cause the same to be released by such
means as Landlord shall deem proper, including payment of the claim giving rise
to such lien. All sums paid by Landlord for such purpose, and all expenses
incurred by it in connection therewith, shall be payable to Landlord by Tenant
on demand with interest at the rate of fifteen percent (15%) per annum, or the
maximum rate permitted by law, whichever is less.
11. Utilities. Tenant shall pay when due directly to the charging
---------
authority all charges for water, gas, electricity, telephone, internet, cable,
refuse pickup, janitorial services, and all other utilities and services
supplied or furnished to the Building or Outside Areas during the Term, together
with any taxes thereon. In no event shall Landlord be liable to Tenant for
failure or interruption of any such utilities or services, unless caused by the
willful misconduct of Landlord, and no such failure or interruption shall
entitle Tenant to terminate this Lease or to withhold rent or other sums due
hereunder. Landlord shall not be responsible for providing security guards or
other security protection for all or any portion of the Premises, the Outside
Areas, or the Parking Garage, and Tenant shall at its own expense provide or
obtain such security services as Tenant shall desire to insure the safety of
thereof (provided that, if Landlord does provide such services, then such
services shall be an Operating Expense pursuant to Paragraph 7). Tenant shall
hire such janitorial services as it desires, and Landlord shall have no
responsibility or liability relating to janitorial services for the Premises.
12. Indemnity. Tenant shall indemnify, protect, defend, and hold
---------
harmless Landlord from and against any and all claims, damages, loss,
proceedings, causes of action, costs, expense or liability due to, but not
limited to, bodily injury, including death resulting at any time therefrom,
and/or property damage, now or hereafter arising from any act, work or things
done or permitted to be done or otherwise suffered, or any omission in or about
the Premises, the Outside Areas, and the Parking Garage by Tenant or by any of
Tenant's agents, employees, contractors, or invitees, or from any breach or
default by Tenant in the performance of any obligation on the part of Tenant to
be performed under the terms of this Lease, except to the extent such damage,
loss, expense or liability is caused by the willful misconduct of Landlord or
its agents, employees, or contractors. Tenant shall also indemnify Landlord from
and against all damage, loss, expense (including without limitation, attorneys'
fees, costs of investigation, and expert witness fees), and liability incurred
or suffered by Landlord in the defense of or arising out of or resulting from
any claim or any action or proceeding brought thereon. In the event any action
or proceeding
20
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shall be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense with counsel
reasonably satisfactory to Landlord. The obligations of Tenant contained in this
paragraph shall survive the expiration or sooner termination of this Lease.
13. Waiver of Claims. Except to the extent caused by Landlord's wilful
----------------
misconduct, Tenant hereby waives any claims against Landlord for injury to
Tenant's business or any loss of income therefrom or for damage to the goods,
wares, merchandise or other property of Tenant, or for injury or death of
Tenant's agents, employees, invitees, or any other person in or about the
Premises, the Outside Areas, and the Parking Garage from any cause whatsoever,
regardless of whether the same results from conditions existing thereupon or
from other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant.
Notwithstanding the foregoing, Tenant waives all claims against Landlord for
loss of business or other consequential damages regardless of the cause thereof,
including without limitation Landlord's negligence or wilful misconduct.
14. Insurance.
---------
14.1 Tenant's Liability Insurance. Commencing on the date of
----------------------------
Substantial Completion of Landlord's Work, or if Tenant enters onto the Premises
to construct Tenant Improvements prior to such date then on the date Tenant so
enters onto the Premises to construct Tenant Improvements, and continuing
thereafter through the entire Term, Tenant shall, at its sole cost and expense,
obtain and keep in force either comprehensive general liability insurance or
commercial general liability insurance applying to the condition, use,
occupancy, and maintenance of the Premises and the business operated by Tenant,
or any other occupant, on the Premises and applying to the use of the Outside
Areas and the portion of the Parking Garage used by Tenant. Such insurance
shall include broad form contractual liability insurance coverage insuring all
of Tenant's indemnity obligations under this Lease. Such coverage shall have a
minimum combined single limit of liability of at least Five Million Dollars
($5,000,000). All such policies shall be written to apply to all bodily injury,
property damage, personal injury and other covered loss, however occasioned.
All such policies shall be endorsed to add Landlord and any lender or other
party named by Landlord as an additional insured and to provide that any
insurance maintained by Landlord shall be excess insurance only. Such coverage
shall also contain endorsements: (i) including employees as additional
insureds; and (ii) providing for coverage of employer's automobile non-ownership
liability. All such insurance shall provide for severability of interests;
shall provide that an act or omission of one of the named insureds shall not
reduce or avoid coverage to the other named insureds; and shall afford coverage
for all claims based on acts, omissions, injury and damage, which claims
occurred or arose (or the onset of which occurred or arose) in whole or in part
during the policy period. Tenant shall also maintain Workers' Compensation
insurance in accordance with California law, and employers liability insurance
with a limit no less than One Million Dollars ($1,000,000) per employee and One
Million Dollars ($1,000,000) per occurrence. The limits of all insurance
described in this Paragraph 14.1 shall not, however, limit the liability of
Tenant hereunder. Not more frequently than once each calendar year, if any
lender of Landlord who has provided financing to Landlord respecting the
Premises requires the amount of insurance required hereunder to be increased,
Tenant shall increase said insurance coverage as so required by such lender;
provided that, in no event shall any such increase result in an increase in the
premium therefor of greater than twenty five percent (25%) of the amount of the
premium during the preceding year of the term of this Lease. The failure of
Landlord to require any additional insurance coverage at any time shall not
relieve Tenant from the obligation to provide increased coverage at any later
time or relieve Tenant from any other obligations under this Lease.
14.2 Landlord's Liability Insurance. Landlord shall maintain a
------------------------------
policy or policies of comprehensive general liability insurance insuring
Landlord (and such other persons as may be designated by Landlord) against
liability for personal injury, bodily injury or death and damage to property
occurring or resulting from an occurrence in, on, or about the Premises with a
combined single limit of not less than Five Million Dollars ($5,000,000), or
such greater coverage as Landlord may from time to time determine is reasonably
necessary for its protection. Landlord shall also maintain a policy or policies
of comprehensive general liability insurance insuring Landlord (and such other
persons as may be designated by Landlord) and naming Tenant as an additional
insured, and insuring against liability for personal injury, bodily injury or
death and damage to property occurring or resulting from an occurrence in, on,
or about the Outside Areas and the Parking Garage with a combined single limit
of not
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less than Five Million Dollars ($5,000,000), or such greater coverage as
Landlord may from time to time determine is reasonably necessary for its
protection.
14.3 Property Insurance.
------------------
(a) Landlord shall obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Premises, but excluding coverage of the Tenant Improvements and other
Alterations of Tenant, and excluding coverage of merchandise, fixtures, and
equipment of Tenant, in the amount of the full replacement value thereof,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, special extended perils
(all risk), including boiler and machinery coverage and an inflation
endorsement, cost of code compliance, fire sprinkler leakage, and at Landlord's
election (or if otherwise required by any loan documents executed by Landlord
and benefitting a lender holding a lien against all or any portion of the
Premises) of flood and/or earthquake. In addition, Landlord shall obtain and
keep in force, during the term of this Lease, a policy of rental loss insurance
covering a period of one year, commencing on the date of loss, with proceeds
payable to Landlord, which insurance may also cover all Operating Expenses and
other sums payable by Tenant to Landlord hereunder for said period. Tenant shall
have no interest in or right to the proceeds of any such insurance carried by
Landlord.
(b) Commencing on the date of substantial completion of the
Tenant Improvements, Tenant shall, at Tenant's sole expense, obtain and keep in
force during the term of this Lease, a policy of fire and extended coverage
insurance including a standard "all risk" endorsement, and a sprinkler leakage
endorsement (if the Premises shall be sprinklered), insuring the Tenant
Improvements and any other Alterations of Tenant within the Premises for the
full replacement value thereof, as the same may increase from time to time due
to inflation or otherwise. During the period of time that Tenant is constructing
Tenant Improvements, Tenant shall at its sole cost and expense obtain and carry
course of construction insurance covering the full replacement cost of all
Tenant Improvements in place as of the date of occurrence of damage and insuring
against fire and other perils included within extended coverage insurance which
includes a standard "all risk" endorsement and an earthquake endorsement if
Landlord then carries earthquake insurance pursuant to Paragraph 14.3 above. The
proceeds from any of such policies shall be used for the repair or replacement
of such items so insured and, provided such insurance proceeds are used for such
repair and replacement, Landlord shall have no interest in such insurance
proceeds.
14.4 Payment. The cost of premiums and deductibles for insurance
-------
obtained by Landlord pursuant to Paragraphs 14.2 and 14.3(a) shall be included
within Operating Expenses payable by Tenant pursuant to Paragraph 7. Landlord
may obtain liability insurance and property insurance for the Premises, Outside
Areas, and Parking Garage separately, or together with other buildings and
improvements under blanket policies of insurance. In the latter case Operating
Expenses shall include only such portion of the premiums for such blanket
policies as are allocable to the Premises, Outside Areas, and Parking Garage as
reasonably determined by the insurer or Landlord. If the Term does not commence
or expire concurrently with the commencement or expiration, respectively, of the
period covered by such insurance, the premiums shall be prorated on an annual
basis and only such prorated portion shall be included in Operating Expenses.
14.5 Insurance Policies. The insurance required to be obtained by
------------------
Tenant pursuant to Paragraphs 14.1 and 14.3(b) shall be primary insurance and
(a) shall provide that the insurer shall be liable for the full amount of the
loss up to and including the total amount of liability set forth in the
declarations without the right of contribution from any other insurance coverage
of Landlord, (b) as to any liability insurance, shall contain a deductible
amount no greater than Twenty Five Thousand Dollars ($25,000), (c) shall be
carried with companies licensed to do business in the State of California with a
general policyholder's rating of not less than "A-" and a financing rating of
not less than Class "X," as rated by the most current available "Bests"
Insurance Reports (or a comparable rating designated by Landlord if Bests no
longer issues such ratings), and (d) shall specifically provide that such
policies shall not be subject to cancellation, reduction of coverage or other
change except after at least thirty (30) days prior written notice to Landlord.
The policy or policies, or duly executed certificates for them, together with
satisfactory evidence of payment of the premium thereon, shall be deposited with
Landlord on or prior to the date of Substantial Completion of Landlord's Work,
and in all events before Tenant enters onto the Premises
22
<PAGE>
to construct or install Tenant Improvements or for any other purpose, and upon
each renewal of such policies, which shall be effected not less than thirty (30)
days prior to the expiration date of the term of such coverage. Tenant shall not
do or permit to be done anything which invalidates any of the insurance policies
referred to in Paragraphs 14.1, 14.2, and 14.3.
14.6 Waiver of Subrogation. Tenant and Landlord each hereby waives
---------------------
any and all rights of recovery against the other, or against the officers,
employees, agents and representatives of the other, for loss of or damage to the
property of the waiving party or the property of others under its control, to
the extent such loss or damage is insured against under any insurance policy
carried by Landlord or Tenant and in force at the time of such loss or damage.
Tenant and Landlord shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
14.7 No Limitation of Liability. Landlord makes no representation
--------------------------
that the limits of liability for insurance specified to be carried by Tenant or
Landlord under the terms of this Lease are adequate to protect any party. If
Tenant believes that the insurance coverage required under this Lease is
insufficient to adequately protect Tenant, Tenant shall provide, at its own
expense, such additional insurance as Tenant deems adequate.
15. Damage or Destruction.
---------------------
15.1 Partial Damage-Insured. If at any time during the Term the
----------------------
Premises are damaged to the extent that the Estimated Restoration Time (as
defined below) is one hundred eighty (180) days or less, and if such damage was
caused by an act or casualty covered under an insurance policy required to be
maintained pursuant to Paragraph 14.3(a), and if the proceeds of such insurance
received by Landlord are sufficient to repair the damage, and if Landlord is
permitted, under all applicable Laws, to restore the Premises to their prior
condition, Landlord shall at Landlord's expense repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect.
15.2 Partial Damage-Uninsured. Subject to the provisions of
------------------------
Paragraph 15.3, if at any time during the Term the Premises (other than the
Tenant Improvements and other Alterations) are damaged and the insurance
proceeds received by Landlord are not sufficient to repair such damage, or such
damage was caused by an act or casualty not covered under an insurance policy
required to be maintained by Landlord pursuant to Paragraph 14.3(a), Landlord
may at Landlord's option either (a) repair such damage as soon as reasonably
possible at Landlord's expense, in which event this Lease shall continue in full
force and effect, or (b) give written notice of termination of this Lease to
Tenant within thirty (30) days after the date of the occurrence of such damage,
with the effective date of such termination to be the date of the occurrence of
such damage. In the event Landlord gives such notice of termination of this
Lease, Tenant shall have the right, within twenty (20) days after receipt of
such notice, to agree in writing on a basis satisfactory to Landlord to pay for
the entire cost of repairing such damage less only the amount of insurance
proceeds, if any, received by Landlord, in which event the notice of termination
shall be ineffective and this Lease shall continue in full force and effect, and
Landlord shall proceed to make such repairs as soon as reasonably possible. If
Tenant does not give such notice within such twenty (20) day period this Lease
shall be terminated pursuant to such notice of termination by Landlord.
Landlord shall have no further obligation to repair such damage from and after
the date of any such notice of termination by Tenant.
15.3 Total Destruction. If at any time during the Term the Premises
-----------------
are destroyed to the extent that the Estimated Restoration Time is more than one
hundred eighty (180) days from any cause whether or not covered by the insurance
maintained by Landlord pursuant to Paragraph 14.3(a), or if, regardless of the
extent of the damage, Landlord is not permitted under all applicable Laws to
restore the Premises to the condition which existed prior to the casualty, this
Lease shall at the option of Landlord terminate as of the date of such
destruction. Landlord shall exercise its right to terminate this Lease by
delivery of notice of termination to Tenant within thirty (30) days after the
date that Tenant notifies Landlord of the occurrence of such damage. If
Landlord does not terminate this Lease pursuant to the foregoing provisions of
this Paragraph 15.3, then at Landlord's sole expense Landlord shall commence the
repair of such damage as soon as reasonably possible after expiration of the
thirty (30) day period of time during which Landlord can terminate this Lease
pursuant to the foregoing provisions of this Paragraph 15.3, and thereafter
diligently continue such repair work until completion thereof, and this Lease
shall
23
<PAGE>
continue in full force and effect. Landlord shall have no further obligation to
repair such damage from and after the date of any such notice of termination by
Tenant. In the event Landlord gives notice of termination of this Lease pursuant
to the preceding provisions of this Paragraph 15.3, and restoration of the
Premises to the condition existing prior to the casualty is permitted under all
applicable Laws, then notwithstanding such notice of termination, Tenant shall
have the right, within twenty (20) days after receipt of such notice, to agree
in writing on a basis satisfactory to Landlord to pay for the entire cost of
repairing such damage less only the amount of insurance proceeds, if any,
received by Landlord, in which event (i) the notice of termination from Landlord
shall be ineffective, (ii) this Lease shall continue in full force and effect,
and (iii) Landlord shall proceed to make such repairs as soon as reasonably
possible. If Tenant does not give such notice within such twenty (20) day period
this Lease shall be terminated pursuant to such notice of termination by
Landlord.
15.4 Damage Near End of Term. Notwithstanding anything to the
-----------------------
contrary in Paragraph 15, if the Premises (exclusive of Tenant's trade fixtures,
equipment, merchandise, Tenant Improvements and other Alterations) are destroyed
or damaged in whole or in part to the extent that the estimated cost of
restoration thereof, as reasonably determined by Landlord, is Two Hundred Fifty
Thousand Dollars ($250,000) or more, whether such damage is caused by an insured
or uninsured casualty, and which damage occurs during the last year of the Term,
then either Landlord or Tenant may terminate this Lease as of the date of
occurrence of such damage by delivering written notice to the other party of its
election to do so within thirty (30) days after the date of occurrence of such
damage.
15.5 Abatement of Rent. If the Premises are partially damaged and
-----------------
Landlord repairs or restores them pursuant to the provisions of this Paragraph
15, then Base Rent, Operating Expenses, and Real Estate Taxes (if paid
separately from Operating Expenses) payable hereunder for the period commencing
on the occurrence of such damage and ending upon completion of such repair or
restoration shall be abated in proportion to the extent to which Tenant's use of
the Premises is impaired starting on the date of damage and continuing until
completion of the repair or restoration; provided that the aggregate amount of
the rent abatement shall not exceed (i) if Landlord carries the rental loss
insurance it is obligated to carry pursuant to Paragraph 14.3(a) above, the
aggregate amount of rental loss insurance proceeds which are paid to Landlord in
connection with such damage, or (ii) if Landlord fails to obtain the rental loss
insurance it is obligated to carry pursuant to Paragraph 14.3(a) above, then one
year of Base Rent, Operating Expenses, and Real Estate Taxes (if paid separately
from Operating Expenses) at the rate for each such item in effect as of the date
of damage. Except for such abatement, if any, Tenant shall have no claim
against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration.
15.6 Waiver. Tenant waives the provisions of California Civil Code
------
Sections 1932(2) and 1933(4), and any similar or successor statutes relating to
termination of leases when the thing leased is substantially or entirely
destroyed, and agrees that any such occurrence shall instead be governed by the
terms of this Lease.
15.7 Tenant's Property. Landlord's obligation to rebuild or restore
-----------------
shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or the Tenant Improvements, or any other Alterations made by Tenant
to the Premises. Promptly after completion by Landlord of any restoration work
Landlord performs pursuant to this Paragraph 15.7, Tenant at its expense shall
restore all such items.
15.8 Notice of Damage. Tenant shall notify Landlord within five (5)
----------------
days after the occurrence thereof of any damage to all or any portion of the
Premises. In no event shall Landlord have any obligation to repair or restore
the Premises pursuant to this Paragraph 15 until a reasonable period of time
after Landlord's receipt of notice of the nature and scope of any damage to the
Premises, and a reasonable period of time to collect insurance proceeds arising
from such damage (unless such damage is clearly not covered by insurance then in
effect covering the Premises).
15.9 Restoration Time. Landlord's good faith estimation of the
----------------
period of time to repair all damage and destruction to the Premises other than
damage to Tenant's trade fixtures, equipment, merchandise, Tenant Improvements
or other Alterations, including the estimated period of time to obtain insurance
proceeds and all governmental permits necessary to perform such repairs, is
herein called the "Estimated Restoration Time."
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Landlord's determination of the Estimated Restoration Time shall be made in good
faith and shall be conclusive for purposes of this Paragraph 15.
16. Condemnation.
------------
16.1 Partial Taking. Subject to Paragraph 16.5, if part of the
--------------
Building or a portion of the parking area within the Outside Areas or Parking
Garage is taken for any public or quasi-public use, under any statute or right
of eminent domain (collectively a "taking"), and such taking is not deemed a
total taking pursuant to Paragraph 16.2 below, then this Lease shall, as to the
part so taken, terminate as of the date the condemnor or purchaser takes
possession of the property being taken, and the monthly Base Rent payable
hereunder shall be reduced in the same proportion that the floor area of the
portion of the Building so taken (measured in the same fashion as the Building
Square Feet are measured pursuant to Paragraph 1.2 above) bears to the Building
Square Feet immediately prior to such taking. Landlord shall, to the extent
funds therefor are made available from the condemnation award allocable to
severance costs, make all necessary repairs or alterations to the Building in
order to make the portion of the Building not taken a complete architectural
unit. Each party hereto waives the provisions of California Code of Civil
Procedure Section 1265.130 allowing either party to petition the superior court
to terminate this Lease in the event of a partial taking of the Premises.
16.2 Total Taking. Subject to Paragraph 16.5, if all of the Premises
------------
are taken, or if part of the Building is taken so that Tenant is not able to use
at least ninety five percent (95%) of the floor area of the Building in
substantially the same manner as before the taking, or if there is a taking of
more than the greater of five percent (5%) of the aggregate parking area in the
Outside Areas and Parking Garage existing immediately prior to such taking, or a
portion of such parking areas which would leave less than the minimum parking
area required by applicable Laws to permit continued occupancy and use of the
entire Building in substantially the same manner as before the taking, such
taking shall at the election of Tenant or Landlord be treated as a total taking
and this Lease shall terminate upon the date possession shall be taken by the
condemning authority. Each party shall make such election, if at all, by
delivery of notice thereof to the other within thirty (30) days after the date
of such taking.
16.3 Distribution of Award. All compensation awarded upon a taking
---------------------
governed by Paragraph 16.1 or Paragraph 16.2 shall belong to and be paid to
Landlord, except that Tenant shall be entitled to petition for a separate award
from the condemning authority, so long as such separate award does not in any
way reduce the compensation awarded to Landlord, for (i) the unamortized cost of
Tenant's Alterations and Tenant Improvements (based on an amortization period of
10 years) to the extent such Alterations or Tenant Improvements are made to the
Premises by Tenant at Tenant's sole expense (i.e., not paid for by the Tenant's
Improvement Allowance) in accordance with this Lease, or, (ii) if Tenant elects
to and is entitled to remove any such Alterations made to the Premises at
Tenant's expense, for reasonable removal and relocation costs thereof not to
exceed the market value of such Alterations on the date possession of the
Premises is taken.
16.4 Sale Under Threat of Condemnation. A sale by Landlord to any
---------------------------------
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for purposes of this Paragraph 16.
16.5 Temporary Taking. If all or any part of the Premises is
----------------
occupied, taken, or appropriated by military or other public or quasi-public use
or other governmental authority for less than thirty (30) consecutive days, it
shall not constitute a taking of the Premises which would be governed by
Paragraph 16.1 or Paragraph 16.2. In such event, during such a "temporary
taking," all of the provisions of this Lease shall remain in force and effect,
except that the monthly Base Rent and Operating Expenses payable during such
temporary taking shall be reduced in the same proportion that the floor area of
the portion of the Building so occupied, taken, or appropriated bears to the
floor area of the Premises immediately prior to such occupation. Any award that
may be paid in connection with such a temporary taking shall be paid to
Landlord. In the event a taking which appears, at its commencement, to be only
a temporary taking nevertheless continues for thirty (30) consecutive days or
more, a partial or total taking, as the case may be, shall be deemed to have
occurred on the thirtieth (30th) consecutive day of such taking, and shall be
governed by the provisions of either Paragraph 16.1 or Paragraph 16.2 as the
case may be.
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17. Assignment and Subletting.
-------------------------
17.1 Consent Required Except for Permitted Transfers.
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(a) Except as provided in Paragraph 17.1(b) with respect to
Permitted Transfers, Tenant shall not assign this Lease, or any interest
therein, voluntarily or involuntarily, and shall not sublet the Premises or any
part thereof, or any right or privilege appurtenant thereto, or suffer any other
person (the agents and employees of Tenant excepted) to occupy or use the
Premises, or any portion thereof, without the prior written consent of Landlord
in each instance pursuant to the terms and conditions set forth below, which
consent shall not unreasonably be withheld. All of the following shall be deemed
an assignment within the meaning of this Paragraph 17: (i) any transfer
resulting from the merger, consolidation or other reorganization of Tenant, or
transfer to any Affiliate (as defined below) of Tenant, (ii) any transfer
resulting from the sale or other transfer of all or substantially all of
Tenant's assets, and (iii) if Tenant is a partnership, trust or unincorporated
association, the sale, issuance or transfer of a controlling interest therein,
or the transfer of a majority interest in or a change in the voting control of
any partnership, trust, unincorporated association which is an Affiliate of
Tenant, or the transfer of any portion of any general partnership or managing
interest in Tenant or in any such Affiliate. "Affiliate" shall mean any Entity
controlled by, under common control with, or controlling, Tenant. "Entity" shall
mean any person, corporation, partnership (general or limited), limited
liability company, joint venture, association, joint stock company, trust or
other business entity or organization. For purposes of this paragraph, "control"
shall mean (i) with respect to a corporation, the direct or indirect ownership
of more than fifty percent (50%) of any class of voting shares, (ii) with
respect to a partnership, the ownership of a general partnership interest, or
entitlement to more than fifty percent (50%) of the partnership interests in
profits or capital, (iii) with respect to any other Entity, the ownership of a
majority of the voting rights thereof, or the ability to direct its management
decisions. Tenant shall have no right to transfer any rights respecting the
Outside Areas or Parking Garage independently of its rights to the Premises, and
as to any sublease, shall transfer only a prorata share of parking rights in the
Outside Areas and Parking Garage based on the ratio between the Building Square
Feet so subleased and the total Building Square Feet.
(b) Notwithstanding Paragraph 17.1(a), Tenant shall be entitled
to assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent, to any Affiliate and any Entity which results from a merger
or consolidation with or other reorganization of Tenant, or to any Entity which
acquires substantially all of the stock or assets of Tenant as a going concern
with respect to the business that is being conducted in the Premises (each a
"Permitted Transfer"), provided that as to each Permitted Transfer either (i)
Tenant is the only surviving entity in the aftermath of such transaction and
remains fully and primarily liable under this Lease for the performance of all
of Tenant's obligations hereunder, or (ii) if Tenant is not a surviving entity
(for example, it merges into another corporation), then the net worth of such
assignee on the effective date of such assignment, excluding good will and other
intangible assets, is no less than the net worth of Tenant (as so calculated) on
the Effective Date.
17.2 Documentation. Prior to any assignment or sublease which Tenant
-------------
desires to make, Tenant shall provide to Landlord the name and address of the
proposed assignee or sublessee, a statement of the proposed use of the Premises
by the assignee or sublessee (including an indication of the extent to and
manner in which Hazardous Materials [as defined in Paragraph 6.3(a)] will be
utilized), and true and complete copies of all documents relating to Tenant's
prospective agreement to assign or sublease, and shall specify all consideration
to be received by Tenant for such assignment or sublease in the form of lump sum
payments, installments of rent, or otherwise. For purposes of this Paragraph
17, the term "consideration" shall include, without limitation, all monies or
other consideration of any kind, to the extent such sums are related to Tenant's
interest in this Lease or in the Premises, including but not limited to any and
all of the following items to the extent related to Tenant's interest in this
Lease or in the Premises: bonus money, payments (in excess of book value
thereof) for Tenant's tangible assets, and any payments for intangible assets
relating solely to the Premises. Within ten (10) business days after the
receipt of such written notice, Landlord shall either consent in writing to such
proposed assignment or sublease subject to the terms and conditions hereinafter
set forth, or notify Tenant in writing that Landlord refuses such consent,
specifying reasonable grounds for such refusal.
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17.3 Terms and Conditions. As a condition to Landlord's granting its
--------------------
consent to any assignment or sublease, Landlord may require that (i) Tenant pay
to Landlord fifty percent (50%) of the amount of any excess of such
consideration payable to Tenant in connection with said assignment or subletting
over and above the rental amount fixed by this Lease and payable by Tenant to
Landlord (prorated to reflect the rent allocable to the portion of the Premises
subject to any sublease) after Tenant first deducts from such excess
consideration its amortized Costs of Transfer (as hereinafter defined) as
provided below, and (ii) Tenant and the proposed assignee or sublessee
demonstrate to Landlord's reasonable satisfaction that the assignee or sublessee
is financially responsible and proposes to use the Premises for the uses
permitted in this Lease. Tenant's "Costs of Transfer" shall mean only the
following amounts of money: (i) real estate brokerage commissions reasonably
incurred by Tenant in connection with said assignment or subletting, up to but
not exceeding Seven Dollars and Fifty Cents ($7.50) per square foot of space
subleased or assigned; and (ii) the cost of any Alterations made by Tenant
within sixty (60) days before or ninety (90) days after the effective date of
such assignment or subletting for the benefit of such assignee or sublessee, up
to but not exceeding Ten Dollars ($10) per square foot of space within the
assigned or sublet premises; provided that such Ten Dollar ($10) amount shall be
changed by the same percentage change in the United States Department of Labor,
Bureau of Labor Statistics Consumer Price Index for All Urban Consumers, for San
Francisco-Oakland-San Jose (1982-84=100) during the period of time between the
date of Substantial Completion of Landlord's Work and the date of any such
assignment or subletting. Nothing in clause (ii) of the preceding sentence
shall be construed to mean that Landlord must approve any proposed Alterations
desired by any assignee or sublessee; the provisions of Paragraph 9 regarding
Alterations and Landlord's right to approve or disapprove any proposed
Alterations shall not be affected in any way by said clause (ii). In the event
Tenant enters into more than one assignment or sublease respecting all or any
portion of the Premises during the Term, then for purposes of calculating the
amount of Costs of Transfer which can first be deducted by Tenant from excess
consideration before giving Landlord fifty percent (50%) of the remainder
thereof, Tenant shall reduce the amount of the Costs of Transfer by the amounts
deductible by Tenant in connection with prior assignments or subleases allocable
to costs listed in clause (ii) in the definition of Costs of Transfer set forth
above. All square footage measurements specified in this paragraph shall be
made in the same fashion as is set forth in Paragraph 1.2. Each assignment or
sublease agreement, regardless whether Landlord's consent thereto is required to
be obtained and/or is obtained, shall be an instrument in writing (and if
Landlord's consent thereto is required to be obtained, shall be in form
satisfactory to Landlord), and shall be executed by both Tenant and the assignee
or sublessee, as the case may be. Each such assignment or sublease agreement
shall recite that it is and shall be subject and subordinate to the provisions
of this Lease, that the assignee or sublessee accepts such assignment or
sublease and agrees to perform all of the obligations of Tenant hereunder, and
that the termination of this Lease shall, at Landlord's sole election,
constitute a termination of every such assignment or sublease. Notwithstanding
any assignment or sublease, Tenant shall remain primarily liable for all
obligations and liabilities of Tenant under this Lease, including but not
limited to the payment of Base Rent and Operating Expenses. Tenant agrees to
reimburse Landlord upon demand for reasonable attorneys' fees incurred by
Landlord in connection with the negotiation, review, and documentation of any
such requested assignment or subleasing. Tenant hereby stipulates that the
foregoing terms and conditions are reasonable.
17.4 Landlord's Remedies. Any assignment or sublease made in
-------------------
violation of any of the provisions of Paragraph 17 shall at Landlord's election
be void, and shall constitute an Event of Default. The consent by Landlord to
any assignment or sublease shall not constitute a waiver of the provisions of
this Paragraph 17, including the requirement of Landlord's prior written
consent, with respect to any subsequent assignment or sublease. If Tenant shall
purport to assign this Lease, or sublease all or any portion of the Premises, or
permit any person or persons other than Tenant to occupy the Premises, without
Landlord's prior written consent, Landlord may collect rent from the person or
persons then or thereafter occupying the Premises and apply the net amount
collected to the rent reserved herein, but no such collection shall be deemed a
waiver of Landlord's rights and remedies under this Paragraph 17, or the
acceptance of any such purported assignee, sublessee or occupant, or a release
of Tenant from the further performance by Tenant of covenants on the part of
Tenant herein contained.
17.5 Encumbrances, Licenses and Concession Agreements. Tenant shall
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not encumber its interest under this Lease or any rights of Tenant hereunder, or
enter into any license or concession agreement respecting all or any portion of
the Premises, without Landlord's prior written consent which consent shall not
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unreasonably be withheld subject to the terms and conditions referred to in
Paragraph 17.2 above, and Tenant's granting of any such encumbrance, license, or
concession agreement shall constitute an assignment (or a sublease if it relates
to less than all of the Premises) for purposes of this Paragraph 17.
18. Default by Tenant.
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18.1 Event of Default. The occurrence of any one or more of the
----------------
following events (an "Event of Default") shall constitute a default and breach
of this Lease by Tenant.
(a) The failure by Tenant to make any payment of rent or any
other payment requited to be made by Tenant hereunder, as and when due, and such
failure shall not have been cured within seven (7) days after written notice
thereof from Landlord. Any such notice shall constitute the notice required
under Section 1161 of the California Code of Civil Procedure (and/or any related
or successor statutes regarding unlawful detainer actions), provided such notice
is given in accordance with the requirements of such statute.
(b) Tenant's failure to obtain the liability insurance required
to be obtained by Tenant under this Lease, to provide the Letter of Credit in
the full amount required under this Lease, and/or to provide any subordination
or attornment agreement or estoppel certificate as and when required by this
Lease, and such failure shall have continued for seven (7) days after written
notice of such failure is given to Tenant;
(c) Tenant's assignment of this Lease or any interests herein or
sublease of all or any portion of the Premises without Landlord's prior written
consent where such consent is required by the provisions of Paragraph 17.
(d) Tenant's failure to perform any of its material obligations
under this Lease other than those referenced in Paragraphs 18.1(a), (b), or (c)
above or to observe or comply with any other requirement of this Lease and such
failure shall have continued for thirty (30) days after written notice of such
failure is given to Tenant; or in the event such failure is curable but cannot
reasonably be cured within said thirty (30) day period, Tenant fails to commence
such cure within said thirty (30) day period and thereafter diligently continue
to pursue all reasonable efforts to complete said cure until completion thereof.
(e) Tenant's failure to regularly conduct its business in the
Premises for a period of more than ten (10) consecutive days, or Tenant's
removal of all or substantially all of its equipment and other possessions from
the Premises;
(f) Tenant's assignment of its assets for the benefit of its
creditors;
(g) The sequestration of, attachment of, or execution on, any
substantial part of the property of Tenant or on any property essential to the
conduct of Tenant's business on the Premises, and Tenant shall have failed to
obtain a return or release on such property within thirty (30) days thereafter,
or prior to sale pursuant to such sequestration, attachment or execution,
whichever is earlier;
(h) An entry of any of the following orders by a court having
jurisdiction, and such order shall have continued for a period of thirty (30)
days: (1) an order for relief in any proceeding under Title 11 of the United
States Code, or an order adjudicating Tenant to be bankrupt or insolvent; (2) an
order appointing a receiver, trustee or assignee of Tenant's property in
bankruptcy or any other proceeding; or (3) an order directing the winding up or
liquidation of Tenant; or
(i) The filing of a petition to commence against Tenant an
involuntary proceeding under Title 11 of the United States Code, and Tenant
shall fail to cause such petition to be dismissed within thirty (30) days
thereafter.
18.2 Remedies. Upon any Event of Default, Landlord shall have the
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following remedies, in addition to all other rights and remedies provided by law
or equity:
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(a) Landlord shall be entitled to keep this Lease in full force
and effect for so long as Landlord does not terminate Tenant's right to
possession (whether or not Tenant shall have abandoned the Premises) and
Landlord may enforce all of its rights and remedies under this Lease, including
the right to recover rent and other sums as they become due under this Lease,
plus interest at the lesser of fifteen percent (15%) per annum or the highest
rate then allowed by law, from the due date of each installment of rent or other
sum until paid; or
(b) Landlord may terminate Tenant's right to possession by
delivery to Tenant of written notice of termination. Upon delivery of such
notice, this Lease and all of Tenant's rights in the Premises shall terminate.
Any termination under this paragraph shall not release Tenant from the payment
of any sum then due Landlord or from any claim for damages or rent previously
accrued or then accruing against Tenant. In the event this Lease is terminated
pursuant to this Paragraph 18.2(b), Landlord may recover from Tenant: (1) the
worth at the time of award of the unpaid rent which had been earned at the time
of termination; plus (2) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss for the same period that Tenant
proves could have been reasonably avoided; plus (3) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term after
the time of award exceeds the amount of such rental loss for the same period
that Tenant proves could be reasonably avoided; plus (4) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform Tenant's obligations under this Lease, or which in
the ordinary course of things would be likely to result therefrom, including
without limitation, the following: (i) expenses for cleaning, repairing or
restoring the Premises; (ii) expenses for altering, remodeling or otherwise
improving the Premises for the purpose of reletting, including installation of
leasehold improvements (whether such installation be funded by a reduction of
rent payable by a new tenant, direct payment or allowance to a new tenant, or
otherwise); (iii) real estate leasing commissions for any new lease allocable to
the period of time commensurate with the portion of the Term which would have
remained had the Lease not been terminated (based on the leasing commission
schedule of the broker if such commission is based on a varying percentage of
rents over time, and otherwise based on straight line amortization of such costs
over the term of the new lease assuming a rate of interest equal to Landlord's
normal costs of financing at such time, exclusive of options to extend such
term), less any amount recovered by Landlord as damages pursuant to clause
(viii) below; (iv) advertising costs and other expenses of reletting the
Premises; (v) costs incurred as owner of the Premises including without
limitation taxes and insurance premiums thereon, utilities and building
security; (vi) expenses in retaking possession of the Premises; (vii) attorneys'
fees and court costs; and (viii) any unamortized lease commission paid in
connection with this Lease. The "worth at the time of award" of the amounts
referred to in clauses (1) and (2) of this Paragraph 18.2(b) shall be computed
by allowing interest at the lower of fifteen percent (15%) per annum, or the
maximum rate then permitted by law. The "worth at the time of award" of the
amount referred to in subparagraph (3) of this paragraph shall be computed by
discounting such amount at the discount rate of the Federal Reserve Board of San
Francisco at the time of award plus one percent (1%). The term "time of award"
as used in clauses (1), (2), and (3) of this paragraph shall mean the date of
entry of a judgment or award against Tenant in an action or proceeding arising
out of Tenant's breach of this Lease. The term "rent" as used in this paragraph
shall include all Base Rent and Additional Rent.
(c) This Lease may be terminated by a judgment specifically
providing for termination, or by Landlord's delivery to Tenant of written notice
specifically terminating this Lease. In no event shall any one or more of the
following actions by Landlord, in the absence of a written election by Landlord
to terminate this Lease, constitute a termination of this Lease or a waiver of
Landlord's right to recover damages under this Paragraph 18: (1) appointment of
a receiver in order to protect Landlord's interest hereunder; (2) consent to any
subletting of the Premises or assignment of this Lease by Tenant, whether
pursuant to provisions hereof concerning subletting and assignment or otherwise;
or (3) any other action by Landlord or Landlord's agents intended to mitigate
the adverse effects of any breach of this Lease by Tenant, including without
limitation any action taken to maintain and preserve the Premises, or any action
taken to relet the Premises or any portion thereof for the account of Tenant and
in the name of Tenant.
18.3 Landlord's Right to Perform Tenant's Obligations. If
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Tenant at any time shall fail to make any payment or perform any other act
required to be made or performed by Tenant under this Lease, then Landlord may,
but shall not be obligated to, make such payment or perform such other act to
the extent Landlord may deem
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desirable, and may, in connection therewith, pay any and all expenses incidental
thereto and employ counsel. No such action by Landlord shall be deemed a waiver
by Landlord of any rights or remedies Landlord may have as a result of such
failure by Tenant, or a release of Tenant from performance of such obligation.
All sums so paid by Landlord, including without limitation all penalties,
interest and costs in connection therewith, shall be due and payable by Tenant
to Landlord on the day immediately following any such payment by Landlord.
Landlord shall have the same rights and remedies for the nonpayment of any such
sums as Landlord may be entitled to in the case of default by Tenant in the
payment of rent.
18.4 Interest on Past Due Obligations. Any amount due to Landlord
--------------------------------
hereunder not paid when due shall bear interest at the lower of fifteen percent
(15%) per annum, or the highest rate then allowed by law, from the date due
until paid in full. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
18.5 Additional Rent. All sums payable by Tenant to Landlord or to
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third parties under this Lease in addition to such sums payable pursuant to
Paragraphs 3.1 and 3.2 hereof shall be payable as Additional Rent. For purposes
of any unlawful detainer action by Landlord against Tenant pursuant to
California Code of Civil Procedure Sections 1161-1174, or any similar or
successor statutes, Landlord shall be entitled to recover as rent not only such
sums specified in Paragraph 3 as may then be overdue, but also all such
Additional Rent as may then be overdue.
18.6 Remedies Not Exclusive. No remedy or election hereunder shall
----------------------
be deemed exclusive but shall, wherever possible, be cumulative with all other
remedies herein provided or permitted at law or in equity.
19. Default by Landlord.
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19.1 Cure Period. Landlord shall not be deemed to be in default in
-----------
the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within the period of
time specifically provided herein, or if no period of time has been provided,
then within thirty (30) days after receipt of written notice by Tenant to
Landlord specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are reasonably required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecute the same
to completion.
19.2 Mortgagee Protection. In the event of any default on the part
--------------------
of Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage encumbering the
Premises whose address shall have been furnished to Tenant, and before Tenant
shall have any right to terminate this Lease Tenant shall grant such beneficiary
or mortgagee a reasonable period within which to cure the default, including a
reasonable period to obtain possession of the Premises by power of sale or
judicial foreclosure, if such action is necessary to effect a cure.
20. Advertisements and Signs. Tenant shall be entitled to place its name
------------------------
on a sign located on the exterior of the Building, and on any monument sign in
the Outside Areas that Tenant erects, provided that Tenant first obtains all
necessary approvals and permits required therefor by the City of Los Altos and
any other applicable Laws, and provided further that Tenant first obtains
Landlord's consent thereto as to the color, size, style, character, and location
of each such sign, which consent shall not unreasonably be withheld or delayed.
Upon termination of this Lease, Tenant shall remove any sign which it has placed
on or about the Premises, and shall repair any damage caused by the installation
or removal of such sign. Tenant at its sole expense shall bear all costs of
making and erecting such signage, obtaining all consents and permits required to
erect or place the same, and removing the same and repairing damage occasioned
by such removal.
21. Entry by Landlord. Landlord and its agents shall be entitled to enter
-----------------
into and upon the Premises at all reasonable times, upon reasonable notice
(except in the case of an emergency, in which event no notice shall be
required), for the following purposes: (a) to inspect or make repairs,
alterations or additions to all or any portion of the Premises which Landlord
may deem appropriate (i) to comply with any laws, ordinances, rules,
regulations, or
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policies of any governmental authority or Landlord's insurance carrier(s), or
(ii) to prevent waste or deterioration of the Premises, or (iii) to promote the
general welfare and safety of occupants of the Premises, or (iv) to perform
construction work in the Building or in the Outside Areas, including the
erection and maintenance of such scaffolding, canopies, fences and props as may
be required; (b) to post notices of non-responsibility for Alterations; or (c)
to show the Premises to prospective purchasers or lenders and their appraisers
and other representatives; and, during the one hundred eighty (180) day period
prior to the expiration of this Lease, or upon any Event of Default, to place
upon the Premises any usual or ordinary "for lease" signs and exhibit the
Premises to prospective tenants at reasonable hours. Landlord's rights of entry
as set forth in this Paragraph 21 shall be subject to the reasonable security
regulations of Tenant, and to the requirement that Landlord shall use reasonable
efforts to minimize interference with Tenant's business activities on the
Premises. If Tenant so requests in connection with any work being performed by
Landlord the costs of which are deemed Operating Expenses under this Lease,
Landlord shall use reasonable efforts to perform such work during Tenant's non-
business hours; nothing in this sentence shall be construed to otherwise
obligated Landlord to use overtime labor or perform any work or other activities
during Tenant's non-business hours. Landlord shall be entitled to exercise the
foregoing rights of entry without any abatement of rent and without liability to
Tenant for any injury or inconvenience to or interference with Tenant's
business, quiet enjoyment of the Premises, or any other loss occasioned thereby;
provided that, Tenant shall have the right to bring claims against Landlord for
compensatory damages (but not lost profits or other consequential damages) to
the extent arising from damage to property or injury or death to persons caused
by the wilful misconduct of Landlord occurring in or about the Premises and
relating to Landlord's exercise of the foregoing rights.
22. Subordination and Attornment.
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22.1 Subordination. Except with respect to any existing deeds of
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trust or other liens encumbering the Premises or any portion thereof as of the
Effective Date (which the parties acknowledge are prior to this Lease), this
Lease shall not be subject to or subordinate to any ground or underlying lease
or to any lien, mortgage, deed of trust, or security interest now or hereafter
affecting the Premises, nor shall Tenant be required to execute any documents
subordinating this Lease, unless the ground lessor, lender, or other holder of
the interest to which this Lease shall be subordinated (collectively, the
"lender") agrees to execute a recognition and non-disturbance agreement on
commercially reasonable terms providing that this Lease shall not be terminated
so long as Tenant is not in default under this Lease. "Commercially reasonable
terms" for purposes of Paragraphs 22.1 and 22.2 shall be deemed to include
without limitation provisions exculpating such lender from any liability for any
default of Landlord occurring prior to the date such entity acquires title to
the Premises except to the extent such default continues after the date such
entity acquires title to the Premises, for any prepaid rent in excess of one
month's installment of Base Rent and Operating Expenses, and for any sums drawn
on the Letter of Credit prior to the date such entity acquires title to the
Premises, and provisions under which the loan document provisions relating to
insurance and condemnation supercede inconsistent provisions of this Lease.
Tenant shall execute and return to Landlord the written agreement and any other
documents required to accomplish the purposes of this paragraph within seven (7)
business days after delivery thereof to Tenant, and the failure of Tenant to
execute and return any such instruments shall constitute an Event of Default
hereunder. Notwithstanding anything to the contrary set forth above, any such
ground lessor, lender, or other interest holder may at any time subordinate its
ground lease, deed of trust, mortgage, or other security interest to this Lease,
without any need to obtain Tenant's consent, by execution of a written document
subordinating the same to this Lease and thereupon this Lease shall be deemed
prior thereto without regard to their respective dates of execution, delivery
and/or recording.
22.2 Attornment. Upon request by such acquiring entity, Tenant shall
----------
attorn to any third party purchasing or otherwise acquiring the Premises at any
sale or other proceeding, or pursuant to the exercise of any rights, powers or
remedies under any mortgages or deeds of trust or ground leases now or hereafter
encumbering all or any part of the Premises, as if such third party had been
named as Landlord under this Lease. Such attornment shall be effectuated by
Tenant's execution of such attornment documentation as such acquiring entity
requests Tenant to execute. Tenant shall execute a new lease with such new
Landlord on the same terms of this Lease if so required by such new Landlord,
but only with respect to the then remaining balance of the Term, and including
Tenant's rights to extend the Term to the extent Tenant then has any remaining
Options to extend the Term.
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23. Estoppel Certificates and Financial Statements. Tenant shall within
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fifteen (15) days following request by Landlord: (a) execute and deliver to
Landlord any documents, including estoppel certificates, in the form presented
to Tenant by Landlord (1) certifying that this Lease has not been modified and
is in full force and effect or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect, (2) stating the date to which the rent and other charges are paid in
advance, if at all, (3) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder, or if there are uncured
defaults on the part of Landlord, stating the nature of such uncured defaults,
and (4) certifying any other information relating to this Lease as may be
required either by a lender making a loan to Landlord to be secured by a deed of
trust or mortgage encumbering the Premises or a purchaser of the Premises from
Landlord; and (b) deliver to Landlord the best available current financial
statements of Tenant, including a balance sheet and profit and loss statement
for the then current fiscal year, and the two (2) immediately prior fiscal years
(if available), all prepared in accordance with generally accepted accounting
principles (GAAP) consistently applied. Tenant's failure to deliver any such
documents, including an estoppel certificate, or any such financial statements
within fifteen (15) days following such request shall be an Event of Default
under this Lease.
24. Notices. Any notice, approval, proposal, request, demand, consent or
-------
other communication (collectively "notice") required or desired to be given or
made under this Lease shall be in writing and shall be personally delivered by
commercial courier (including process servers) or United States mail, registered
or certified, postage prepaid, and addressed to the party to be served at the
last address given by that party to the other party under the provisions of this
paragraph. As of the Effective Date, the addresses of Landlord and Tenant are
as set forth above in the preamble to this Lease. Either party may change its
address by notice to the other party. Any notice delivered in accordance with
the foregoing by commercial courier shall be deemed delivered on the date of
actual receipt (as evidenced by signed receipt), or upon refusal of receipt, or
if delivered by United States mail on the date of receipt evidenced by the
return receipt. No notice shall be deemed effective under this Lease unless
delivered in compliance with the provisions of this Paragraph 24.
25. Waiver. The waiver by either party of any breach of any term,
------
covenant, or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. No term, covenant or condition shall be deemed to have
been waived by either party unless such waiver is in writing and signed by the
party making such waiver.
26. No Accord and Satisfaction. No payment by Tenant, or receipt by
--------------------------
Landlord, of an amount which is less than the full amount of rent and all other
sums payable by Tenant hereunder at such time shall be deemed to be other than
on account of (a) the earliest of such other sums due and payable, and
thereafter (b) to the earliest rent due and payable hereunder. No endorsement
or statement on any check or any letter accompanying any payment of rent or such
other sums shall be deemed an accord and satisfaction, and Landlord may accept
any such check or payment without prejudice to Landlord's right to receive
payment of the balance of such rent and/or the other sums, or Landlord's right
to pursue any remedies to which Landlord may be entitled to recover such
balance.
27. Attorney's Fees. If any action or proceeding at law or in equity, or
---------------
an arbitration proceeding (collectively an "action"), shall be brought to
recover any rent or other sum payable under this Lease, or resulting from the
failure by either party to perform any of its other obligations under this
Lease, or to enforce or interpret any of the terms, covenants, or conditions of
this Lease, or for the recovery of possession of the Premises, the prevailing
party shall be entitled to recover from the other party as a part of such
action, or in a separate action brought for that purpose, its reasonable
attorney's fees and costs and expenses (including expert witness fees, court
costs) incurred in connection with the prosecution or defense of such action,
and any appeal therefrom. "Prevailing party" within the meaning of this
paragraph shall include, without limitation, a party who brings an action
against the other after the other is in breach or default, if such action is
dismissed upon the other's payment of the sums allegedly due or upon the other's
performance of the covenants allegedly breached, or if the party commencing such
32
<PAGE>
action or proceeding obtains substantially the relief sought by it in such
action, whether or not such action proceeds to a final judgment or
determination.
28. Surrender. Tenant shall, upon expiration or sooner termination of
---------
this Lease, surrender the Premises to Landlord in the same condition as existed
on the date Tenant originally took possession thereof (reasonable wear and tear
and damage due to causes beyond the reasonable control of Tenant excepted, and
as improved with Tenant Improvements and other Alterations) with all holes in
walls repaired, all carpets shampooed and cleaned, all HVAC equipment in
operating order and in good repair, and all floors cleaned and waxed, all to the
reasonable satisfaction of Landlord. Tenant shall at such time also surrender
to Landlord all Tenant Improvements and Alterations (as defined in Paragraph 9).
Tenant, on or before the expiration or sooner termination of this Lease, shall
remove all of its personal property and trade fixtures from the Premises, and
any such items not removed by Tenant shall be deemed abandoned. Tenant shall be
liable to Landlord for costs of removal of any such abandoned personal property
and trade fixtures of Tenant, together with the cost of repairing any damage to
the Premises occasioned by removal thereof and/or occasioned by any removal of
items removed by Tenant which damage Tenant has failed to repair, and the
transportation and storage costs of all trade fixtures and personal property of
Tenant so removed by Landlord. All keys to the Premises or any part thereof
shall be surrendered to Landlord upon expiration or sooner termination of the
Lease term.
29. Holding Over. This Lease shall terminate without further notice at
------------
the expiration of the Term. Any holding over by Tenant after expiration shall
not constitute a renewal or extension of the Term or give Tenant any rights in
or to the Premises unless otherwise expressly provided in this Lease. Any
holding over after expiration of the Term with the express written consent of
Landlord shall be construed to be a tenancy from month to month, at one hundred
twenty-five percent (125%) of the monthly Base Rent for the last month of the
Term, and shall otherwise be on the terms and conditions herein specified
insofar as applicable, unless otherwise mutually agreed in writing by the
parties.
30. Transfer of Premises by Landlord. The term "Landlord" as used in this
--------------------------------
Lease, so far as the covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner at the time in
question of the fee title to the Premises. In the event of any transfer of such
fee title, the Landlord herein named (and in case of any subsequent transfer or
conveyance, the then grantor) shall after the date of such transfer or
conveyance be automatically freed and relieved of all liability with respect to
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed; provided, that any funds in the hands of
Landlord or the then grantor at the time of such transfer in which Tenant has an
interest, shall be turned over to the grantee. Tenant shall cause the Letter of
Credit to be reissued in the name of such grantee on the sooner of: (i) the date
of such transfer, (ii) ten (10) days after Tenant receives notice of such
transfer. The covenants and obligations contained in this Lease on the part of
Landlord shall, subject to the foregoing, be binding upon each Landlord
hereunder only during its respective period of ownership.
31. Rules and Regulations of Building.
---------------------------------
31.1 The sash doors, sashes, lights, and skylights that reflect or
admit light into the halls or other places of the Building shall not be covered
or obstructed. The toilets and urinals shall not be used for any purpose other
than those for which they were constructed, and no rubbish, newspapers or other
substances of any kind shall be thrown into them. Waste and excessive or
unusual use of water shall not be allowed. Tenant shall not deface the walls,
ceilings, partitions, floors, wood, stone or iron work. The expense of any
breakage, stoppage or damage resulting from a violation of this rule shall be
borne by Tenant.
31.2 No additional lock or locks shall be placed by Tenant on any
door in the Building unless written consent of Landlord shall have first been
obtained which consent shall not unreasonably be withheld. All keys shall be
surrendered to Landlord upon termination of the tenancy. At all times during the
Lease, Tenant shall provide Landlord with current working copies of keys and any
other applicable means of access (e.g. an access card for a security card
system) to all areas of the Premises for purposes of emergency access by
Landlord.
33
<PAGE>
31.3 Tenant and its guests and employees shall not bring into or keep
within the Building any motorcycle or other vehicle.
31.4 No awnings are allowed. Any window covering in Building windows
desired by Tenant shall be installed at its expense and must be of such uniform
shape, color, material and make as may first be approved by Landlord which
approval shall not unreasonably be withheld or delayed.
31.5 Neither Tenant nor its employees, contractors or invitees shall
go upon the roof of the Building except to the extent otherwise expressly
permitted in this Lease.
31.6 Tenant shall not use or keep in the Building any kerosene,
gasoline or inflammable or combustible fluid or material.
31.7 Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's reasonable opinion, tends to impair the reputation
of the Premises, and upon written notice from Landlord, Tenant shall refrain
from or discontinue such advertising.
32. General Provisions.
------------------
32.1 Entire Agreement. This instrument including Exhibits A-1, A-2,
---------------- ------------------
A-3, B, B-1, B-2, C , and D (when attached) attached hereto contains all of the
- -------------------------------------------
agreements and conditions made between the parties hereto and may not be
modified orally or in any manner other than by an agreement in writing signed by
all of the parties hereto or their respective successors in interest. Any
executed copy of this Lease shall be deemed an original for all purposes.
32.2 Time. Time is of the essence with respect to the performance of
----
each and every provision of this Lease in which time of performance is a factor.
All references to days contained in this Lease shall be deemed to mean calendar
days, unless otherwise specifically stated.
32.3 Captions. The captions and headings of the numbered paragraphs
--------
of this Lease are inserted solely for the convenience of the parties hereto, and
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
32.4 California Law. This Lease shall be construed and interpreted
--------------
in accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to its
fair meaning and not strictly for or against either Landlord or Tenant, and
without regard to which party prepared this Lease.
32.5 Gender; Singular and Plural. When required by the context of
---------------------------
this Lease, the neuter includes the masculine, the feminine, a partnership, a
corporation, a limited liability company, or a joint venture, and the singular
shall include the plural.
32.6 Partial Invalidity. If any provision of this Lease is held by a
------------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions hereof shall nonetheless continue in full force and
effect and shall in no way be affected, impaired, or invalidated thereby.
32.7 No Implied Warranties. No agreements, warranties or
---------------------
representations not expressly contained herein shall bind either Landlord or
Tenant, and Landlord and Tenant expressly waive all claims for damages by reason
of any statement, representation, warranty, promise or agreement, if any, not
expressly contained in this Lease.
32.8 Joint and Several Liability. If Tenant is more than one person
---------------------------
or entity, each such person or entity shall be jointly and severally liable for
the obligations of Tenant hereunder.
34
<PAGE>
32.9 Successors and Assigns. The covenants and conditions herein
----------------------
contained, subject to the provisions as to assignment, shall inure to the
benefit of and bind the heirs, executors, administrators, assigns, and any other
person or entity succeeding lawfully, and pursuant to the provisions of this
Lease, to the rights or obligations of the respective parties hereto.
32.10 Rules and Regulations and CC&R's. Landlord may from time to
--------------------------------
time promulgate reasonable rules and regulations in addition to those set forth
in Paragraph 31 above respecting the Building, Outside Areas, and Parking
Garage. Landlord may also from time to time by declaration or enter into
reasonable agreements creating conditions, covenants, restrictions and/or
reciprocal access and parking easements (collectively, "CC&R's") respecting the
driveways referred to in Paragraph 1.3 and the Parking Garage, all to the extent
relating to the use, safety, care and cleanliness of such driveways and the
Parking Garage, and the preservation of good order thereon, but which shall not
conflict with any other term of this Lease. Such reasonable rules and
regulations shall be binding upon Tenant upon delivery of a copy thereof to
Tenant, and any such CC&R's shall be binding upon Tenant upon recordation
thereof in the public records and delivery of a copy thereof to Tenant. Tenant
shall abide by all such reasonable rules and regulations and CC&R's.
32.11 Authority. The individuals signing this Lease hereby represent
---------
and warrant that they have all necessary power and authority to execute and
deliver this Lease on behalf of Landlord and Tenant, respectively.
32.12 Memorandum of Lease. Neither Landlord nor Tenant shall record
-------------------
in the records of Santa Clara County this Lease or a short form memorandum
hereof without the prior written consent of the other, which consent shall not
unreasonably be withheld or delayed.
32.13 Merger. The voluntary or other surrender of this Lease, or a
------
mutual cancellation thereof, shall not work an automatic merger, but shall, at
the sole option of Landlord, either terminate all or any existing subleases or
subtenancies, or operate as an assignment to Landlord of any or all of such
subleases or subtenancies.
32.14 Force Majeure. Any prevention of or delay in the performance by
-------------
a party hereto of its obligations under this Lease caused by inclement weather,
labor disputes (including strikes and lockouts, but not including any labor
strikes precipitated by Landlord's use of non-union labor), inability to obtain
materials or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other
causes beyond the reasonable control of the party obligated to perform (except
financial inability), shall excuse the performance by such party of its
obligations hereunder (except the obligation of Tenant to pay rent and other
sums hereunder) for a period of one day for each such day of delay.
32.15 Real Estate Brokers. Except for Cornish and Carey Commercial
-------------------
Real Estate - Oncor International ("Broker"), whose commission or fee shall be
paid by Landlord in accordance with the provisions of a separate commission
agreement, each party represents to the other that it has not had any dealings
with any real estate broker, finder, or other person, with respect to this
Lease, and each party shall indemnify and hold harmless the other party from all
damages, expenses, and liabilities resulting from any claims that may be
asserted against the indemnified party by any broker, finder, or other person
other than Broker with whom the indemnifying party has or purportedly has dealt.
[TEXT CONTINUED ON NEXT PAGE]
35
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date
first above specified. Delivery of this Lease to Landlord, duly executed by
Tenant, constitutes an offer by Tenant to lease the Premises as herein set
forth, and under no circumstances shall such delivery be deemed to create an
option or reservation to lease the Premises for the benefit of Tenant. This
Lease shall only become effective and binding upon execution of this Lease by
Landlord and delivery of a signed copy to Tenant.
1.1
1.2 "TENANT"
1.3
1.4 RAMBUS INC.
1.5 a Delaware corporation
1.6
1.7 By /s/ Ed Larsen
----------------------------
1.8 Its VICE PRESIDENT
---------------------------
1.9
1.10 By /s/ Gary Harmon
----------------------------
1.11 Its VP & CEO
---------------------------
1.12
1.13
1.14 "LANDLORD"
1.15
LOS ALTOS - EL CAMINO ASSOCIATES, LLC,
a California limited liability company
By /s/ Peter Pau
---------------------------------
Peter Pau, managing member
36
<PAGE>
SCHEDULE OF EXHIBITS
Exhibit "A-1" ------- Site Plan of Original Parcel
Exhibit "A-2" ------- Legal Description of Original Parcel
Exhibit "A-3" ------- Plan of Parking Garage Showing Portion of First Level of
Parking Garage for Exclusive Use of Tenant and Showing
Second Level
Exhibit "B" ------- Landlord's Work and Tenant Improvements
Exhibit "B-1" ------- Description of Landlord's Work
Exhibit "B-2" ------- List of Certain Tenant Improvement Items
Exhibit "B-3" ------- Approved Tenant Improvements Plans
Exhibit "C" ------- Baseline Hazardous Materials reports
Exhibit "D" ------- Tenant Improvements paid for by Tenant's Improvement
Allowance and Depreciable by Landlord (to be attached)
37
<PAGE>
EXHIBIT "A-1"
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "A-1"
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "A-1"
[FLOOR PLAN APPEARS HERE]
<PAGE>
Page No. 11
File No. 99003161-001-A GP
LEGAL DESCRIPTION
All that certain real property situate in the City of Los Altos, County of Santa
Clara, State of California, described as follows:
PARCEL ONE:
All of Parcels 1 and 2, as said Parcels are shown upon that certain Map
entitled, "Record of Survey of Property of Irma W. Neill", which Map was filed
for record in the Office of the Recorder of the County of Santa Clara, State of
California on September 2, 1960 in Book 125 of Maps, at page 3
EXCEPTING THEREFROM all that portion thereof granted to the City of Los Altos, a
municipal corporation, by Deed dated February 7, 1968, recorded March 1, 1968.
Book 8042, Page 189, Series No. 3376401, Official Records, and more particularly
described as follows:
A strip of land of the uniform width of 10 feet situate in the City of Los
Altos, County of Santa Clara, State of California, more particularly described
as follows:
BEGINNING at the most Northerly corner of Parcel 1, as said Parcel is delineated
and so designated upon that certain Map entitled, "Record of Survey of property
of Irma W. Neill, being a portion of Rancho Rincon de San Francisquito, City of
Los Altos, County of Santa Clara, California", which Map was filed for record in
the office of the Recorder of the County of Santa Clara, State of California on
September 2, 1960 in Book 125 of Maps, at page 3, said point of beginning also
being located on the Southwesterly line of El Camino Real distant thereon South
42 degrees 13' 30" East 653.49 feet from the centerline of Los Altos Avenue;
thence from said point of beginning and continuing along said Southwesterly line
of El Camino Real South 42 degrees 13' 30" East 333.25 feet; thence continuing
along said Southwesterly line of El Camino Real on a tangent curve to the left
with a radius of 2050 feet from a central angel of 2 degrees 26' 27" an arc
length of 87.33 feet; thence South 21 degrees 53' 38" West, 10.90 feet; thence
Northwesterly along a curve to the right from a tangent bearing North 44 degrees
47' 11" West and running parallel with and 10 feet Westerly of measured radially
to said Southwesterly line of El Camino Real with a radius of 2060 feet through
a central angle of 2 degrees 33' 41" an arc length of 92.09 feet; thence North
42 degrees 13' 30" West 330.81 feet; thence North 34 degrees 01' 00" East 10.29
feet to the point of beginning.
EXHIBIT "A-2"
<PAGE>
EXHIBIT A-3
----
[PLAN APPEARS HERE]
PARKING LEVEL ONE
<PAGE>
EXHIBIT A-3
----
[PLAN APPEARS HERE]
PARKING LEVEL TWO
<PAGE>
EXHIBIT "B"
LANDLORD'S WORK AND TENANT IMPROVEMENTS
1. Landlord's Work.
---------------
1.1 Definition. "Landlord's Work" shall mean all the work described on
----------
Exhibit "B-1" attached hereto, including to the extent described on Exhibit "B-
- ------------- ----------
1" construction and installation of (i) the foundation, exterior walls, roof,
- --
and structural supports of the Building, (ii) fire sprinkling, gas, electrical,
water, and heating ventilating and air conditioning systems for the Building
shell and core, (iii) parking areas, driveways, sidewalks, and landscaping in
the Outside Areas, and (iv) the Parking Garage.
1.2 Landlord's Work Plans. Promptly after the Commencement Date, Landlord
---------------------
shall prepare working plans and specifications for Landlord's Work (the
"Landlord's Work Plans"). Landlord's Work Plans shall mean the plans and
specifications dated August 14, 1998 prepared by Hoover and Associates and
certain other design consultants hired by Landlord (or the predecessor owner of
the Original Parcel), subject to modification and supplementation of the same to
reflect plan check comments from the City of Los Altos and other requirements of
lawful governmental authority, and to reflect such other modifications as
Landlord shall from time to time determine are appropriate in its sole
discretion provided that such plans shall reflect aggregate square footage of
the Building (measured as described in Paragraph 1.2 of the Lease) when
constructed of no less than 91,000 square feet and no more than 101,000 square
feet, and provided further that any such other modifications required by
Landlord shall be consistent with the Building being a first class (Class A)
office building. Prior to commencement of Landlord's Work, Tenant shall have
the right to request that Landlord make changes to the Landlord's Work Plans
concerning the core features thereof, such as bathroom and stairwell location.
Tenant shall make such request, if at all, by notice to Landlord specifying in
detail the changes required. Landlord shall make such changes if in Landlord's
reasonable judgment such changes do not materially change the cost of
construction of Landlord's Work and do not increase the period of time required
to construct Landlord's Work. Tenant shall pay all architect, engineering, and
other costs of Landlord related to making such changes. Before Landlord makes
any changes to the Landlord's Work Plans to reflect such requested changes, and
in all events within three (3) days after demand by Landlord, Tenant shall pay
to Landlord in cash (and not out of the Tenant's Improvement Allowance) the
estimated costs of architects and engineers employed by Landlord to reflect such
changes in the Landlord's Work Plans, and upon completion of such changes shall
pay any shortfall in the actual cost or receive a refund from Landlord as to any
excess paid by Tenant.
1.3 Construction of Landlord's Work. Commencing promptly after the
-------------------------------
Commencement Date and finalization of the Landlord's Work Plans described below,
and provided Tenant has deposited with Landlord both the Letter of Credit and
the estimated first month's Base Rent, Landlord shall begin construction of
Landlord's Work, or if it has already begun the same then Landlord shall
diligently continue construction of Landlord's Work, until Substantial
Completion of Landlord's Work. Construction of Landlord's Work shall be
performed substantially in accordance with the Landlord's Work Plans in a good
and workmanlike manner, with materials that conform to said plans and that are
new and otherwise of good quality. Landlord shall ensure that each warranty
obtained by Landlord respecting the roof membrane and HVAC system of the
Building is issued to both Tenant and Landlord. Landlords shall obtain a
warranty for all mechanical and electrical systems installed as part of
Landlord's Work, including without limitation for the rooftop HVAC system and
elevators.
1.4 Substantial Completion of Landlord's Work. Within ten (10) days after
-----------------------------------------
Landlord notifies Tenant that Landlord's Work is substantially completed,
Landlord and Tenant shall together walk through and inspect Landlord's Work
using their best efforts to discover all incomplete or defective construction
("punchlist items"). After such inspection has been completed, a list of
punchlist items shall be prepared by Landlord and Tenant. Landlord shall use
its best efforts to complete and/or repair such punchlist items within thirty
(30) days, and in all events shall diligently continue to complete and/or repair
such punchlist items until completion and/or repair thereof is achieved. On the
date that Substantial Completion of Landlord's Work (as defined below) occurs,
Tenant shall accept possession of the Premises and shall thereupon be deemed to
have accepted Landlord's Work as complete subject only to Landlord's completion
and/or correction of punchlist items, and any claims which Tenant is expressly
Exhibit B -- Page 1
<PAGE>
entitled to bring against Landlord under Paragraph 6.2(a) of this Lease. Tenant
shall not commence construction of the Tenant Improvements until Substantial
Completion of Landlord's Work except to the extent otherwise provided for early
entry pursuant to Paragraph 2.1 of the Lease. "Substantial Completion of
Landlord's Work" shall mean the date on which all of the following have
occurred: (i) Landlord certifies that all Landlord's Work has been completed in
accordance with the Landlord's Work Plans, subject only to normal and customary
punchlist items relating to minor defective or incomplete construction which
will not materially interfere with Tenant's use of the Premises or the
construction of Tenant Improvements therein, (ii) all utilities, if any, called
for by the Landlord's Work Plans servicing the Premises have been installed to
the extent specified by the Landlord's Work Plans, and (iii) Landlord has
tendered possession of the Premises to Tenant and Tenant has substantially
unrestricted access to the Premises for purposes of constructing the Tenant
Improvements.
1.5 Payment of Cost of Landlord's Work. All Landlord's Work shall be
----------------------------------
performed and paid for by Landlord, and the costs thereof shall not be part of
Tenant Improvement Costs or passed through to Tenant as Operating Expenses.
1.6 Recreational Facilities. Landlord has no obligation to provide
-----------------------
recreational facilities to Tenant. If recreational facilities are in the future
constructed on the Remainder Parcel and/or the Second Parcel, Landlord has no
objection, and will not raise any objections, to Tenant attempting to arrange
with the then owner and/or operator of such facilities the right for Tenant and
its employees to use such facilities.
2. Tenant Improvements.
-------------------
2.1 Definitions.
-----------
(a) The term "Tenant Improvements" shall mean those improvements
which are to be constructed in the Building by Tenant pursuant to plans and
specifications developed therefor in accordance with Paragraph 2.2(a). Tenant
Improvements shall include all improvements necessary to build out all space
within the Building over and above Landlord's Work in order for Tenant to use
and occupy the Premises, and shall include, but not be limited to, all items
specified on Exhibit "B-2."
-------------
(b) The term "Tenant Improvement Costs" shall mean all sums (1) paid
to contractors for labor and materials furnished in connection with construction
of the Tenant Improvements pursuant to Paragraph 2.2 below; (2) all costs,
expenses, payments, fees, and charges whatsoever paid or incurred by Tenant to
or at the direction of any city, county, or other governmental authority or
agency which are required to be paid in order to obtain all necessary
governmental permits, licenses, inspections and approvals relating to the
construction of the Tenant Improvements and the use and occupancy of the
Premises; and (3) engineering and architectural fees for services required in
connection with the design and construction of the Tenant Improvements.
(c) The term "Tenant's Improvement Allowance" shall mean the maximum
dollar amount Landlord is required to spend toward the payment of Tenant
Improvement Costs, which amount is Twenty Five Dollars ($25.00) multiplied by
the Building Square Feet.
2.2 Procedure and Time Schedules.
----------------------------
(a) Approval of Tenant Improvements Plans. Within ninety (90) days
-------------------------------------
after Landlord's acquisition of the Original Parcel, Landlord shall deliver to
Tenant electrical and mechanical drawings for the shell of the Building together
with a space layout package which includes design criteria for the Building (the
"Design Criteria"). On or before the date which is ninety (90) days after
Landlord delivers the same to Tenant, Tenant shall deliver to Landlord for
Landlord's review and approval one (1) set of reproducible prints of design
drawings showing Tenant's intended design character and finishing of the
Building (the "Design Drawings"). The Design Drawings, and all other drawings,
plans and specifications prepared by Tenant pursuant to this Exhibit "B", shall
-----------
be prepared by both an architect and an engineer hired by Tenant and both of
whom are licensed and/or registered to practice in the State of California and
specialize in design of tenant improvements for multistory office buildings.
The Design Drawings shall comply with the Design Criteria and shall set forth
all design requirements of Tenant within the
Exhibit B -- Page 2
<PAGE>
Building. The Design Drawings shall include at a minimum the following: (i)
architectural design of all interior space within the Building, including floor
plans, reflected ceiling plans, and interior elevations, and materials
selections and finishes including color and material sample boards; (ii)
mechanical systems, including basic equipment to be used and its position and
capacity, duct distribution system and diffuser locations, projected mechanical
load and temperature control; and (iii) the electrical system, including floor
and reflected ceiling plans showing outlets, type of lighting fixtures, other
electrical equipment contemplated and location of panelboard(s), switchboard(s)
and projected electrical loads. After Landlord's review of the Design Drawings,
Landlord shall return to Tenant one (1) set of prints of design drawings with
Landlord's modifications and/or approval. If the Design Drawings are returned to
Tenant with modifications, but without Landlord's approval, Tenant shall revise
the same to reflect such modifications and resubmit the same to Landlord for
review and approval within fifteen (15) days after receipt of the modified
Design Drawings from Landlord. Landlord and Tenant shall continue such process
of review, modification, revision and resubmission until Landlord approves the
Design Drawings, and in all events the parties shall use their best efforts to
reach agreement so that such plans may be submitted for governmental approval as
soon as reasonably practicable. On or before the date which is sixty (60) days
after Landlord approves the Design Drawings, Tenant shall prepare and submit for
plan check with the City of Los Altos plans, specifications and working drawings
for the Tenant Improvements which are suitable for plan check by the City of Los
Altos and obtaining a building permit from the City of Los Altos for the Tenant
Improvements and which are in strict compliance with the Design Criteria and
strictly adhere to the Design Drawings approved by Landlord and shall deliver
one (1) set of prints and one (1) set of reproducible prints thereof to Landlord
for its review and approval, which approval shall not be unreasonably withheld
or delayed. Landlord and Tenant shall indicate their approval of all plans,
specifications, and working drawings prepared pursuant to this Exhibit "B" by
-----------
initialing and dating the same. If required by the City of Los Altos plan check
in order to obtain a building permit for the Tenant Improvements, Tenant shall
resubmit the final plans, specifications and working drawings to the City of Los
Altos for approval. Tenant shall submit for review and approval such final
plans, specifications and working drawings to all other governmental authorities
(if any) whose approval is required or from whom a permit must be obtained to
construct the Tenant Improvements. Tenant will notify Landlord of any changes
required by any such governmental authorities, and Landlord shall have five (5)
days thereafter to indicate its approval thereof. All such changes required by
such governmental authorities shall be deemed acceptable to both Tenant and
Landlord unless Tenant's use of the Premises is significantly impaired thereby.
The final plans, specifications and working drawings as approved by Landlord and
Tenant and as approved by all such governmental authorities, and all change
orders specifically permitted pursuant to Paragraph 2.2(c) below, shall be
referred to herein as the "Approved Tenant Improvements Plans," a copy of each
of which shall be attached hereto as Exhibit "B-3." Landlord's approval of any
------------
plans, specifications and drawings pursuant to this exhibit, including without
limitation the Design Drawings and the Approved Tenant Improvements Plans, shall
not mean Landlord assumes liability for any aspect thereof, including without
limitation any liability for compliance thereof with applicable Laws, the
accuracy or sufficiency thereof, the adequacy thereof for Tenant's intended use,
or the safety of the Tenant Improvements, and Tenant shall be solely liable for
all aspects relating to the design of the Tenant Improvements. Tenant hereby
agrees to indemnify, protect, defend, and hold Landlord harmless from and
against all claims, liability, damage, costs, and expense (including without
limitation attorneys' fee, court costs, and expert witness fees) relating to the
design of the Tenant Improvements.
(b) Contractors.
-----------
(i) Tenant and Landlord agree that Turner Construction is a
general contractor who is suitable to both Tenant and Landlord for Tenant's
hiring for construction of the Tenant Improvements. Provided Tenant selects such
entity as the general contractor for construction of the Tenant Improvements,
the provisions of Paragraph 2.2(b)(ii) below shall have no force or effect.
(ii) Promptly after approval by Landlord and Tenant of the
Approved Tenant Improvements Plans, Tenant shall deliver to Landlord a list of
general contractors who Tenant would like to construct the Tenant Improvements.
Each such general contractor identified on said list shall be licensed to do
business in the State of California and County of Santa Clara, bonded (or
bondable), and experienced in construction of interior improvements in
multistory office buildings. Tenant shall not obtain bids from or hire for
construction of the Tenant Improvements any general contractors on such list who
Landlord reasonably disapproves by delivery of
Exhibit B -- Page 3
<PAGE>
notice thereof to Tenant within five (5) business days after receipt of such
list by Landlord. Tenant shall obtain bids for the fee and general conditions
component of construction of the Tenant Improvements from at least three general
contractors on said list who have not been disapproved by Landlord. After
obtaining such bids and delivering a copy of each of such bids to Landlord,
Tenant shall select one of such general contractors to construct the Tenant
Improvements.
(iii) The contractor selected by Tenant to construct the Tenant
Improvements shall herein be called the "General Contractor." Upon selection of
the General Contractor, Tenant shall enter into a construction agreement with
such general contractor for construction of the Tenant Improvements. Tenant
shall deliver to Landlord a complete copy of such construction agreement,
together with any amendments thereto, within five (5) days after executing any
of the same. Subcontractors for the mechanical, electrical, and fire sprinkler
systems shall be chosen by Tenant and the General Contractor without any
requirement for competitive bidding. All other subcontractors for Tenant
Improvements work costing in excess of Twenty Thousand Dollars ($20,000) for
such line item of work shall be selected by the General Contractor based upon
competitive bidding. Each subcontractor shall be licensed to do business in the
State of California and County of Santa Clara. The construction contract with
the General Contractor and all subcontracts shall provide for a retention from
invoiced amounts of no less than 10% which retention shall not be paid until
completion of all work by such contractor.
(c) Changes To Approved Tenant Improvements Plans. Once the Approved
---------------------------------------------
Tenant Improvements Plans have been finally approved by Landlord and Tenant as
provided above, then Tenant shall not materially change such plans without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Any changes so consented to by Landlord shall become
effective and a part of the Approved Tenant Improvements Plans upon and only
upon Landlord's giving such consent.
(d) Commencement and Completion of the Tenant Improvements. Tenant
------------------------------------------------------
shall commence construction of the Tenant Improvements as soon as all of the
following have occurred (and not before such time): (1) the Approved Tenant
Improvements Plans have been developed as provided above, (2) all necessary
governmental approvals to construct the Tenant Improvements have been obtained,
and (3) Landlord has achieved Substantial Completion of Landlord's Work, or
Landlord has permitted Tenant to enter the Premises prior thereto for purposes
of constructing Tenant Improvements pursuant to Paragraph 2.1 of the Lease. Once
Tenant has commenced construction of the Tenant Improvements, Tenant thereafter
shall diligently prosecute such construction to completion. The Tenant
Improvements shall be constructed by Tenant (i) using only new materials of
first class quality, (ii) in a first class workmanlike manner, (iii) in strict
accordance with the Approved Tenant Improvements Plans, (iv) in compliance with
all applicable Laws including without limitation any requirements of the
Americans with Disabilities Act, and (v) at Tenant's sole expense, subject to
the provisions of this exhibit regarding reimbursement of a portion of Tenant
Improvement Costs in connection with Tenant's Improvement Allowance. Except to
the extent permitted by applicable Laws in connection with performing work prior
to actual issuance of the permit therefor, Tenant shall not construct any Tenant
Improvements until Tenant first acquires all permits required to construct the
same from all appropriate governmental agencies and furnishes a copy thereof to
Landlord prior to commencement of such work. Whether or not Tenant obtains such
any such permit before actually commencing the work to be performed under such
permit, such work shall be performed in compliance with and subject to the
provisions of such permit. Tenant shall comply with all conditions of said
permits in a prompt and expeditious manner. All installation of air conditioning
equipment and duct work requiring penetration of the roof of the Building shall
be properly flashed and caulked, and shall be coordinated with and performed by
the roofing contractor who installed the Building roof in order to prevent any
warranty respecting the roof obtained by Landlord from being rendered void. Any
electrical or refrigeration conduits or other piping or materials installed in
the Building shall be installed beneath the surface of the roof (and not on the
surface of the roof), and Tenant shall thereafter repair and re-roof the
affected portions of the roof surface (again using such roofing contractor who
installed the roof so as not to void any roof warranties). Any equipment placed
on the roof shall be elevated and supported so as not to inhibit drainage or
Landlord's repair of the roof pursuant to Paragraph 8.1 of the Lease. The
preceding provisions regarding work on the roof shall not be construed to mean
that Tenant is required to install the core HVAC system as more particularly set
forth in Exhibit B-1. Upon completion of the Tenant Improvements, Tenant shall
-----------
deliver to Landlord, at Tenant's cost, "as-built" plans and specifications
therefor as provided in Paragraph 2.4 below.
Exhibit B -- Page 4
<PAGE>
(e) Payment of Tenant Improvement Costs. Tenant shall initially pay
-----------------------------------
all Tenant Improvement Costs. Before Landlord has any obligation to pay any
portion of the Tenant's Improvement Allowance to Tenant, Tenant shall
demonstrate to Landlord's reasonable satisfaction that the estimated Tenant
Improvement Costs are at least equal to the Tenant's Improvement Allowance.
Provided that the Tenant Improvement Costs are at least equal to the Tenant's
Improvement Allowance, Landlord shall reimburse to Tenant an amount equal to the
Tenant's Improvement Allowance. Such reimbursement shall be in three stages,
each of which shall not exceed one third of the total Tenant's Improvement
Allowance. Upon completion of each one third (1/3rd) of the Tenant Improvements
work, Tenant shall deliver to Landlord (i) a certificate in form reasonably
satisfactory to Landlord from Tenant's project architect that one third of the
total Tenant Improvement Costs have been incurred (and as to the 2nd and 3rd
stages, that an additional one third of the total Tenant Improvement Costs have
been incurred), and that the work covered by payment of such Tenant Improvement
Costs has been performed (ii) copies of all invoices for such work and
unconditional lien releases from each contractor performing work or supplying
materials covered by such invoices. Within thirty (30) days after receipt
thereof, Landlord shall pay to Tenant an amount equal to one third of the
Tenant's Improvement Allowance; provided that, as to Landlord's payment of the
last one third of the Tenant's Improvement Allowance, Landlord shall not be
obligated to pay the same to Tenant until Landlord issues the Certificate of
Acceptance set forth in Paragraph 2.4 below. In no event shall Landlord be
required to pay any amounts for Tenant Improvement Costs which are in excess of
the Tenant's Improvement Allowance. For purposes of this paragraph, the amount
of invoiced amounts submitted by Tenant to Landlord in connection with any
request for payment by Landlord of any portion of the Tenant's Improvement
Allowance shall not include the amount of any retention therefrom pending
completion of the Tenant Improvements unless and until such retention is paid by
Tenant. Prior to commencement of construction of the Tenant Improvements, Tenant
shall demonstrate to Landlord's reasonable satisfaction that it has obtained a
loan or otherwise has cash ready and available to pay, and dedicated to payment
of, the entire estimated Tenant Improvement Costs over and above the Tenant's
Improvement Allowance without recourse to the Letter of Credit. Tenant shall
make the same demonstration to Landlord's reasonable satisfaction respecting any
increases in the estimated Tenant Improvement Costs resulting from change
orders.
(f) Tenant shall secure, pay for, and maintain, or cause the General
Contractor and all subcontractors to secure, pay for, and maintain, during the
continuance of all Tenant Improvements work, all of the insurance policies
required in the amounts set forth below, together with such insurance as may
from time to time be required by Laws and any permits and approvals obtained
from lawful governmental authorities. Tenant shall not permit any Tenant
Improvements work to commence until all required insurance has been obtained and
certificates of such insurance have been delivered to Landlord. All insurance
policies shall name as additional insureds Landlord, Landlord's architect,
Landlord's engineer, and Landlord's general contractor for Landlord's Work.
Certificates of insurance shall provide that there shall be no change or
cancellation of such insurance until after notice thereof has been delivered to
Landlord and passage of thirty (30) days after delivery of such notice.
Landlord shall have the right to require Tenant, and Tenant shall have the duty,
to stop work in the Premises immediately if any of the coverages required herein
lapses during the course of the work, in which event Tenant shall not resume any
such work until the required insurance is obtained and satisfactory evidence
thereof is delivered to Landlord. The insurance, minimum amounts of coverage
and minimum limits of liability required at a minimum are:
(i) Worker's Compensation, as required by California law, and
employer's liability insurance with a limit of not less than $2,000,000 (or more
if required by California law), and any insurance required by any employee
benefit act or similar statute applicable in California, as will protect the
contractor and subcontractors from any and all liability under such laws.
(ii) Comprehensive general liability insurance (including
contractor's protective liability) in an amount not less than $2,000,000 per
occurrence whether involving personal injury liability (or death resulting
therefrom) or property damage liability or a combination thereof (combined
single limit coverage) with a minimum aggregate limit of $2,000,000.
(iii) Comprehensive automotive liability insurance, for the
ownership, maintenance, or operation of any automotive equipment, whether owned,
leased, or otherwise held, including employer's
Exhibit B -- Page 5
<PAGE>
nonownership and hired car liability endorsements, in an amount not less than
$2,000,000 per occurrence and $2,000,000 aggregate, combined single limit bodily
injury and property damage liability.
All such insurance shall insure the General Contractor and all subcontractors
against any and all claims for personal injury, death, and damage to the
property of others arising from its operations under its construction contract
in connection with construction of the Tenant Improvements, whether such
operations are performed by the General Contractor, any subcontractors, or
subsubcontractors, or by anyone directly or indirectly employed by any of them.
The insurance required in this Paragraph 2.2(f) shall be in addition to any and
all insurance required to be procured and maintained by Tenant under any other
provisions of the Lease.
2.3 Walk Through Inspection and Punch List. Within ten (10) days after
--------------------------------------
Tenant notifies Landlord that the Tenant Improvements are substantially
completed, Landlord and Tenant shall together walk through and inspect the
Tenant Improvements so completed using their best efforts to discover all
incomplete or defective construction ("punchlist items"). After such inspection
has been completed, a list of punchlist items shall be prepared by Landlord and
Tenant. Tenant shall use its best efforts to complete and/or repair such
punchlist items within thirty (30) days, and in all events shall diligently
continue to complete and/or repair such punchlist items until completion and/or
repair thereof is achieved. Landlord shall have no liability or responsibility
whatsoever for the completion of the Tenant Improvements or punchlist items or
for any defects in the construction thereof at any time before or after
completion thereof.
2.4 Certificate of Acceptance. Upon Tenant's completion of the Tenant
-------------------------
Improvements, including the punchlist items, Tenant shall notify Landlord
thereof and shall request that Landlord issue a certificate of acceptance (the
"Certificate of Acceptance"). Tenant shall use its best efforts to cause the
occurrence of all items set forth below which are conditions to Landlord's
issuance of the Certificate of Acceptance within ninety (90) days after Tenant
first occupies the Premises for the conduct of its business therein, and in all
events as soon as reasonably possible after Tenant occupies the Premises for the
conduct of its business therein. Landlord's issuance of the Certificate of
Acceptance shall not (i) confer upon Landlord any liability relating to the
Tenant Improvements, including without limitation liability for their compliance
with Laws or the Approved Tenant Improvements Plans, (ii) constitute an estoppel
with respect to any determinations made by Landlord in connection with issuance
of such certificate or otherwise release or waive any rights or remedies of
Landlord relating to Tenant's obligations under this Lease relating to the
Tenant Improvements, or (iii) be construed as approval by the City of Los Altos
or any other governmental authority relating to completion of the Tenant
Improvements. Landlord shall issue a Certificate of Acceptance to Tenant at
such time, and only when, Landlord in its reasonable judgment determines that
each and all of the following have occurred:
(a) Tenant has completed all of the Tenant Improvements in strict
accordance with the Approved Tenant Improvements Plans and otherwise in
compliance with the provisions of this Exhibit "B". In this connection, Landlord
-----------
may require as reasonable evidence of such completion a certificate issued to
Landlord by Landlord's architect that all such work has been so completed, which
shall not be unreasonably withheld or delayed.
(b) Tenant has delivered to Landlord and Landlord has received copies of
final unconditional lien waivers in such form as may be required by Landlord
from the General Contractor, all subcontractors, and all other persons
performing labor and/or supplying materials in connection with the Tenant
Improvements work showing that all of them have been paid in full and that no
claims are pending. In this connection, Tenant shall pay for an endorsement to
Landlord's policy of title insurance respecting the Premises evidencing that
there are no mechanics liens respecting the Premises (other than any mechanics
liens relating to Landlord's Work).
(c) Tenant has delivered to Landlord and Landlord has received a detailed
breakdown of Tenant's final and total construction costs, and a complete list of
contractors, subcontractors and suppliers, together with receipted invoices
showing payment thereof and thereto.
(d) Tenant has delivered to Landlord and Landlord has received a notebook
including (i) warranties for the benefit of Tenant and Landlord relating to the
workmanship, materials and equipment incorporated into the Premises, and (ii)
operating and maintenance manuals for all equipment.
Exhibit B -- Page 6
<PAGE>
(e) Tenant has delivered to Landlord and Landlord has received copies of
all governmental permits and final certificates of occupancy (or comparable
governmental authorization to occupy the Premises), and Tenant's business
license (if any is required by applicable governmental authority) for the
Premises.
(f) One set of mylar reproducible "as built" working plans for the Tenant
Improvements, signed and dated by Tenant and the General Contractor.
2.5 Construction Warranty for the Tenant Improvements. Tenant hereby
-------------------------------------------------
warrants to Landlord that the construction of the Tenant Improvements shall be
performed substantially in accordance with the Approved Tenant Improvements
Plans in a good and workmanlike manner, and that all materials and equipment
furnished shall conform to said plans and be new and otherwise of good quality.
Tenant shall ensure that each warranty obtained by Tenant respecting any
component of the Tenant Improvements is issued to both Tenant and Landlord, and
that the rights thereunder are assignable by Landlord to any successor in
interest to the Premises, including a lender foreclosing any lien held by such
lender against all or any portion of the Premises. Tenant shall also require
the General Contractor to be directly liable to Landlord with respect to any
latent or patent defects in the Tenant Improvements from and after the date
Landlord acquires title to such Tenant Improvements pursuant to this Lease
(e.g., immediately upon completion thereof as to any Tenant Improvements listed
on Exhibit "E", and upon Landlord's acquisition of title thereto pursuant to
-----------
Paragraph 9.5 of the Lease as to other Tenant Improvements).
Exhibit B -- Page 7
<PAGE>
EXHIBIT "B-1"
LANDLORD'S WORK
Landlord's Work shall be limited to those items expressly set forth below in
Paragraphs A, B, C, D, and E of this Exhibit "B-1". All other items of work,
-------------
including the purchase and installation of all materials and equipment necessary
for Tenant's use and occupancy of the Premises shall be provided by Tenant at
Tenant's sole cost and expense and shall be deemed Tenant Improvements. Such
Tenant Improvements shall include, but not be limited to, those items identified
in Exhibit "B-2".
-------------
Landlord, at its sole cost and expense, will design, in its sole and absolute
discretion, and undertake the following work, unless provided elsewhere in this
Lease to the contrary, in the Building and Outside Areas:
1. Building: A 3-story commercial office building, including:
1.1 Steel and concrete structure.
1.2 Roof, including roof screens to the extent required by the City of Los
Altos. Landlord may elect to provide ship ladder and hatch for roof access in
lieu of penthouse.
1.3 Exterior walls of glazing, plaster, or GFRC as may be determined by
Landlord's architect.
1.4 Exposed interior face of exterior walls of plaster or GFRC as may be
determined by Landlord's architect. Interior drywall and insulation is not
included.
1.5 Guardrails on all balconies, all balconies to be watertight and
finished.
1.6 All exterior metal surfaces painted or otherwise finished.
1.7 All permits, fees, and special assessments in order to construct
Landlord's Work, including school taxes, sanitary sewer connection fee, storm
district fees, traffic mitigation fees, landscape assessments, and offsite
improvements (but Tenant shall pay any user connection fees normally charged to
the end user, such as PG&E startup fees and charges).
1.8 Landlord to provide one pair of double glass entry doors at ground
floor lobby.
2. Outside Areas: Parking areas (in compliance with ADA requirements), access
roads, delivery areas, drainage systems, walks, ramps, lighting, landscaping and
planting, striping, signage, and other areas, facilities and improvements as
determined by Landlord in the Outside Areas. Shall include exterior lighting on
time clock and photo cell control. Shall also include a monument sign base
(Tenant to provide artwork on top of same the cost of which shall not be
included within Tenant Improvement Costs). Shall also include a trash enclosure
of appropriate size for the Building as reasonably determined by Landlord.
3. Core Areas:
3.1 Elevator shaft and pit and elevator system for three hydraulic
elevators, all in compliance with ADA requirements. Landlord shall install and
make operational the elevator system including fire closures and interior cab
finishes. Landlord and Tenant to agree on the selection of the elevator
equipment.
3.2 Stairwells fully enclosed with drywall and taped but not painted. Such
stairwells shall be in compliance with all ADA requirements and shall include
guardrails, handrails, interior lighting, ceilings, fire sprinklers, and
finishes to the structure and underside of treads.
3.3 Two separate rooftop HVAC units with capacity sufficient for 97,000
square feet of standard office space, with Landlord to stub out mechanical in
shaft locations shown on Landlord's Work Plans and Tenant to connect
Exhibit B-1 -- Page 1
<PAGE>
therefrom for its interior distribution. The rooftop units shall be installed
with all structural supports, roof curbs, weatherproofing, electrical service,
and utility feeds (electrical, gas, condensate, and water) in place. The HVAC
system shall be a hot water reheat system. The boiler, pumps, expansion tank,
and controls are all to be installed and operational. In bathroom cores,
Landlord to provide exhaust but Tenant shall provide supply distribution as part
of Tenant Improvements work.
3.4 Primary electrical service with 480-volt 3-phase and 2,000 amps (or
more at Landlord's election), distributed only to the HVAC on the roof, the
elevators, and distribution panels of at least 400 amps in the electrical room
on each of the three floors of the Building. No further distribution shall be
provided. Tenant to furnish and install step down transformers as part of Tenant
Improvements work. The two telephone/electrical rooms on each floor shall be
relocated from stairwell locations to two enlarged rooms adjacent to the
elevator core.
3.5 Fire sprinklers distributed in the shell and core of the Building,
with all horizontal distribution for the shell including "upper heads." All
"upper" and "lower" heads for the improved core areas (i.e., toilet core,
stairways, elevator lobby, and janitor's closet) shall be included. The fire
riser, PIVs, and hose connections in stair cores shall also be provided. No
further branch distribution or drop heads will be provided.
3.6 Plumbing stubbed to each floor but not distributed. Janitor's closets
will be rough plumbed, but not finish plumbed. Landlord to rough plumb and
finish plumb toilets.
3.7 Janitor and electrical/telephone rooms as required on each floor
enclosed with drywall on walls and ceiling and taped but not painted, including
lighting. Concrete floor with no floor finish.
3.8 Elevator lobbies on each floor to receive wall and floor finishes as
determined by Landlord's Architect, or Landlord will provide allowance to Tenant
in lieu thereof. All elevator lobbies shall (i) be in compliance with
applicable fire code regulations of closures, and the control of closures, (ii)
be ventilated and have fire dampers in compliance with applicable codes, and
(iii) have lights and exit signage to the extent required by applicable codes.
All finishes, except paint and floor covering, shall be provided.
3.9 One set of bathroom cores on each floor with (i) standard "Dell"
ceramic floor tile and wall wainscot up to six feet height with color to be
selected by Tenant; (ii) painted gypsum board above wainscot and ceilings; (iii)
corian counter top; (iv) floor mounted metal toilet partitions; (v) full length
mirrors; (vi) wall mounted "American Standard" fixtures and accessories; (vii)
toilet exhaust; (viii) toilet accessories; (ix) fluorescent lighting; and (x)
fire sprinklers.
4. Parking Garage: Subterranean concrete parking structure with lighting, fire
sprinkler, ventilation, striping, wheel stops, emergency duress telephone (if
code required), pedestrian stairways, and handicap parking striped and with
appropriate signage, and security gate or grille. Tenant to provide all
security controls including card reader and camera as part of Tenant Improvement
work.
5. Utility Distribution System to Building:
5.1 On-site water supply mains for domestic and fire protection, with
shut-off valves, backflow preventers, and fire hydrants as required by
applicable code. Interior domestic waterlines shall be taken to each of the
toilet cores and provided with individual shut-off valves at each floor stubbed
at a point to be determined by Landlord.
5.2 Sanitary and storm mains to serve the Building, sanitary lines stubbed
where applicable to a point in Building which is nearest to Landlord's sanitary
sewer system. Sanitary sewers will be cast or ductal iron.
5.3 Incoming telephone feeders to central distribution backboards, at
locations designated by Landlord. Tenant responsible for telephone service to
the Building.
5.4 Natural gas service.
5.5 Exterior lighting on time clock and photo cell control.
Exhibit B-1 -- Page 2
<PAGE>
EXHIBIT "B-2"
TENANT IMPROVEMENTS
1. Subject to the next sentence, finishing the interior face of all exterior
walls including insulation, furring or studs as may be required and drywall, all
of which meets all requirements of applicable fire codes and other codes. As
noted in Exhibit "B-1," drywall for the Building core, including the stairway,
------------
elevator, and toilets, shall be part of Landlord's Work, not part of the Tenant
Improvements.
2. Complete mechanical HVAC system including duct distribution system,
diffusers, and complete smoke removal system and framing roof openings as may be
required per code and local jurisdiction approval. Roof patching and
penetrations to the extent required by special HVAC systems required by Tenant
over and above the HVAC systems installed by Landlord as part of Landlord's Work
must be coordinated with and performed by Landlord's roofer so as not to violate
any warranty.
3. Complete electrical system including power distribution and lighting and
emergency power as may be required by applicable codes, including without
limitation interior lighting, 208/110-volt transfers, and secondary
distributions. The Landlord's responsibility for electrical power to the
Building as set forth in Exhibit "B-1" shall not be part of the Tenant
--------------
Improvements.
4. Complete fire protection and fire alarm monitoring system extending from
the core system to be provided by Landlord as part of Landlord's Work in
accordance with Exhibit "B-1." Landlord shall provide minimum code compliance
--------------
system required for building shell, or shall credit Tenant for the cost thereof
in the event Tenant installs its own upgraded system provided Tenant elects to
do so by written notice to Landlord before Landlord installs such minimum code
compliance system. If Tenant so elects to install its own upgraded system, the
obligation to install a complete fire protection and fire alarm monitoring
system extending from the core system shall thereafter be deemed deleted as part
of Landlord's Work and shifted to the Tenant Improvement work.
5. All interior finishes, fixtures and equipment.
6. Compliance with all applicable codes and regulations including, but not
limited to, Title 24, ADA and the approved equivalency concept for this
location.
7. Interior and exterior signage, other than code requirement for the building
shell and core.
8. Flag poles.
9. Case goods and reception desk.
10. Any outdoor staging area must be coordinated with Landlord prior to use.
Exhibit "B-2" -- Page 1
<PAGE>
LEASE EXHIBIT "C"
4430-4444 El Camino Real
Los Altos
BASELINE ENVIRONMENTAL REPORTS
1. Environmental Site assessment, Phase I
Dated February 14, 1997
Prepared by United Soil Engineering, Inc.
[Omitted.]
2. Phase II Environmental Site Investigation
Soil and Groundwater Testing
Dated May 19, 1997
Prepared by United Soil Engineering, Inc.
[Omitted.]
<PAGE>
EXHIBIT "D"
TENANT IMPROVEMENTS DEPRECIABLE BY LANDLORD
Exhibit "D" -- Page 1
<PAGE>
EXHIBIT "D"
TENANT IMPROVEMENTS DEPRECIABLE BY LANDLORD
[Omitted.]
Exhibit "D" -- Page 1
<PAGE>
EXHIBIT 10.11
RAMBUS INC.
1997 STOCK PLAN
COMMON STOCK EQUIVALENT AGREEMENT
This Common Stock Equivalent Agreement (the "Agreement") is made this 20th
day of October, 1999, by and between Rambus Inc. (the "Company") and Geoff Tate
(the "Recipient"). Unless otherwise defined herein, the terms defined in the
Company's 1997 Stock Plan (the "Plan") shall have the same defined meanings
herein.
1. Award. The Company hereby awards 250,000 Common Stock Equivalents to
-----
the Recipient pursuant to this Agreement and Section 12 of the Plan; provided,
however, that this Award shall vest in accordance with the following schedule:
(a) 125,000 of the Common Stock Equivalents shall vest on the date,
if any, that the Company determines that more than 20% of the main memory
chipsets shipped by Intel Corporation in each of two (2) consecutive calendar
quarters implement certain Company interface specifications, subject to the
Recipient remaining a Service Provider at such time; and
(b) 125,000 of the Common Stock Equivalents shall vest in the event
that the closing sales price of the Company's Common Stock on Nasdaq (or on any
successor exchange upon which the Company's shares of common stock are
principally traded) equals or exceeds $200.00 (with such price target adjusted
appropriately for any stock splits, stock dividends or other changes in
capitalization effected by the Company without receipt of consideration) for
thirty (30) consecutive calendar days, subject to the Recipient remaining a
Service Provider at such time.
The Company shall credit a bookkeeping account in the Recipient's name (the
"Account"), established for such purpose, with the number of Common Stock
Equivalents specified above entered into the Account at such times as specified
above.
2. Conversion. Following the earlier of (i) the date two (2) years from
----------
the date, if any, that Common Stock Equivalents vest pursuant to Section 1(a) or
1(b), (ii) the date on which the Recipient's status as a Service Provider
terminates for any or no reason, or (iii) such earlier date as determined by the
Administrator, the Company shall deliver to the Recipient (or to his designated
beneficiary, executor or administrator, in the event of his death) a number of
Shares equal to the whole number of vested Common Stock Equivalents, if any,
credited to the Account at such time; provided, however, that in no event shall
this Common Stock Equivalent be converted later than the term set forth in
Section 3.
<PAGE>
3. Term. The term of this Common Stock Equivalent shall be ten (10)
----
years from the date of grant hereof. This Common Stock Equivalent shall be
subject to the terms of the Plan and this Agreement during such term.
4. Designation of Beneficiary; Nontransferability.
----------------------------------------------
(a) Designation of Beneficiary. The Recipient shall have the right by
--------------------------
will to designate one or more beneficiaries to receive any Shares deliverable
pursuant to Section 2 above. If no beneficiary shall be designated or, having
been designated, shall not be living at the time delivery of the Shares is to be
made, the balance of the Shares shall be delivered to the Recipient's executor
or administrator and shall constitute part of the Recipient's estate. If the
Company determines that a person to whom Shares are to be delivered is a minor
or is mentally or physically incapable of receiving or caring for the Shares
that would otherwise be delivered to such person, the Shares may be applied for
the benefit of the person (with or without the intervention of a guardian or
committee) or, in the case of a minor, may be delivered to a custodian for the
minor under the California Uniform Transfer to Minors Act, to the parents or a
parent of the minor, to a legal guardian of the minor, or any other person who
may have the estate or custody of the minor's person. Any such delivery shall be
a complete discharge of the liabilities of the Company under this Agreement.
(b) Nontransferability. Except as provided in subsection (a), the
------------------
rights of the Recipient under this Agreement are personal to him or her and no
right or benefit under this Agreement shall be subject to anticipation,
alienation, sale, assignment, pledge or encumbrance by the Recipient or anyone
on his or her behalf and shall not be liable for the debts, contracts,
liabilities, engagements or torts of the Recipient. Neither this Agreement nor
the establishment of the Account shall create or be construed to create a trust
or asset segregation of any kind for the benefit of the Recipient or to create
any form of fiduciary relationship between the Company and the Recipient, his
named beneficiary or executor or administrator, as the relationship created by
this Agreement is that of a general creditor.
5. Title and Beneficial Ownership. Title to and beneficial ownership of
------------------------------
all assets in the Account shall at all times remain with the Company, and
neither the Recipient nor his named beneficiary or executor or administrator
shall have any property interest whatsoever in any specific assets of the
Company.
6. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. This Agreement shall in all respects be subject to the terms,
definitions and provisions of the Plan. The Plan and this 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 the Recipient with respect to the subject matter hereof, and may not
be modified except by means of a writing signed by the Company and the
Recipient. This Agreement shall be governed by California law, except for that
body of law pertaining to conflicts of laws.
-2-
<PAGE>
THE RECIPIENT ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT OR THE
PLAN SHALL CONFER UPON THE RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF
HIS ENGAGEMENT AS A SERVICE PROVIDER.
RECIPIENT: RAMBUS INC:
/s/ Geoff Tate /s/ Ed Larsen
_______________________ _____________________________
Geoff Tate Its: Vice President
_________________________
-3-
<PAGE>
EXHIBIT 10.12
RAMBUS INC.
1997 STOCK PLAN
COMMON STOCK EQUIVALENT AGREEMENT
This Common Stock Equivalent Agreement (the "Agreement") is made this 20th
day of October, 1999, by and between Rambus Inc. (the "Company") and David
Mooring (the "Recipient"). Unless otherwise defined herein, the terms defined
in the Company's 1997 Stock Plan (the "Plan") shall have the same defined
meanings herein.
1. Award. The Company hereby awards 250,000 Common Stock Equivalents to
-----
the Recipient pursuant to this Agreement and Section 12 of the Plan; provided,
however, that this Award shall vest in accordance with the following schedule:
(a) 125,000 of the Common Stock Equivalents shall vest on the date,
if any, that the Company determines that more than 20% of the main memory
chipsets shipped by Intel Corporation in each of two (2) consecutive calendar
quarters implement certain Company interface specifications, subject to the
Recipient remaining a Service Provider at such time; and
(b) 125,000 of the Common Stock Equivalents shall vest in the event
that the closing sales price of the Company's Common Stock on Nasdaq (or on any
successor exchange upon which the Company's shares of common stock are
principally traded) equals or exceeds $200.00 (with such price target adjusted
appropriately for any stock splits, stock dividends or other changes in
capitalization effected by the Company without receipt of consideration) for
thirty (30) consecutive calendar days, subject to the Recipient remaining a
Service Provider at such time.
The Company shall credit a bookkeeping account in the Recipient's name (the
"Account"), established for such purpose, with the number of Common Stock
Equivalents specified above entered into the Account at such times as specified
above.
2. Conversion. Following the earlier of (i) the date two (2) years from
----------
the date, if any, that Common Stock Equivalents vest pursuant to Section 1(a) or
1(b), (ii) the date on which the Recipient's status as a Service Provider
terminates for any or no reason, or (iii) such earlier date as determined by the
Administrator, the Company shall deliver to the Recipient (or to his designated
beneficiary, executor or administrator, in the event of his death) a number of
Shares equal to the whole number of vested Common Stock Equivalents, if any,
credited to the Account at such time; provided, however, that in no event shall
this Common Stock Equivalent be converted later than the term set forth in
Section 3.
<PAGE>
3. Term. The term of this Common Stock Equivalent shall be ten (10) years
----
from the date of grant hereof. This Common Stock Equivalent shall be subject to
the terms of the Plan and this Agreement during such term.
4. Designation of Beneficiary; Nontransferability.
----------------------------------------------
(a) Designation of Beneficiary. The Recipient shall have the right
--------------------------
by will to designate one or more beneficiaries to receive any Shares deliverable
pursuant to Section 2 above. If no beneficiary shall be designated or, having
been designated, shall not be living at the time delivery of the Shares is to be
made, the balance of the Shares shall be delivered to the Recipient's executor
or administrator and shall constitute part of the Recipient's estate. If the
Company determines that a person to whom Shares are to be delivered is a minor
or is mentally or physically incapable of receiving or caring for the Shares
that would otherwise be delivered to such person, the Shares may be applied for
the benefit of the person (with or without the intervention of a guardian or
committee) or, in the case of a minor, may be delivered to a custodian for the
minor under the California Uniform Transfer to Minors Act, to the parents or a
parent of the minor, to a legal guardian of the minor, or any other person who
may have the estate or custody of the minor's person. Any such delivery shall be
a complete discharge of the liabilities of the Company under this Agreement.
(b) Nontransferability. Except as provided in subsection (a), the
------------------
rights of the Recipient under this Agreement are personal to him or her and no
right or benefit under this Agreement shall be subject to anticipation,
alienation, sale, assignment, pledge or encumbrance by the Recipient or anyone
on his or her behalf and shall not be liable for the debts, contracts,
liabilities, engagements or torts of the Recipient. Neither this Agreement nor
the establishment of the Account shall create or be construed to create a trust
or asset segregation of any kind for the benefit of the Recipient or to create
any form of fiduciary relationship between the Company and the Recipient, his
named beneficiary or executor or administrator, as the relationship created by
this Agreement is that of a general creditor.
5. Title and Beneficial Ownership. Title to and beneficial ownership of
------------------------------
all assets in the Account shall at all times remain with the Company, and
neither the Recipient nor his named beneficiary or executor or administrator
shall have any property interest whatsoever in any specific assets of the
Company.
6. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. This Agreement shall in all respects be subject to the terms,
definitions and provisions of the Plan. The Plan and this 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 the Recipient with respect to the subject matter hereof, and may not
be modified except by means of a writing signed by the Company and the
Recipient. This Agreement shall be governed by California law, except for that
body of law pertaining to conflicts of laws.
-2-
<PAGE>
THE RECIPIENT ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT OR THE
PLAN SHALL CONFER UPON THE RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF
HIS ENGAGEMENT AS A SERVICE PROVIDER.
RECIPIENT: RAMBUS INC:
/s/ David Mooring /s/ Ed Larsen
_______________________ __________________________
David Mooring Its: Vice President
______________________
-3-
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-28597, 333-38855 and 333-67457) of Rambus Inc.
of our report dated October 14, 1999 relating to the financial statements, which
appears in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated October 14, 1999 relating to the
financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
December 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 14,982
<SECURITIES> 72,158
<RECEIVABLES> 1,509
<ALLOWANCES> (10)
<INVENTORY> 0
<CURRENT-ASSETS> 98,478
<PP&E> 15,383
<DEPRECIATION> (11,151)
<TOTAL-ASSETS> 115,773
<CURRENT-LIABILITIES> 36,704
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 61,540
<TOTAL-LIABILITY-AND-EQUITY> 115,773
<SALES> 43,370
<TOTAL-REVENUES> 43,370
<CGS> 12,232
<TOTAL-COSTS> 12,232
<OTHER-EXPENSES> 21,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,838
<INCOME-TAX> 5,120
<INCOME-CONTINUING> 8,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,718
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.35
</TABLE>
