Form 10-Q (Period Ending September 27, 1997)

 (Mark One)

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES [ X ] NO [ ]

 Class Shares Outstanding at September 27, 1997

Common Stock, $.01 par value 73,986,865

Three Months Ended Six Months Ended

	Sept. 27,	Sept. 28,		Sept. 27,	Sept. 28,
	1997	1996		1997	1996
Net revenues	$ 150,272	$ 130,579		$ 311,033	$ 280,779
Costs and expenses:
Cost of revenues	56,048	50,658		116,954	103,983
Write-off of discontinued product family	-	5,000		-	5,000
Research and development	19,950	16,748		39,888	34,585
Marketing, general and administrative	31,226	28,709		63,892	58,257
Operating costs and expenses	107,224	101,115		220,734	201,825
Operating income	43,048	29,464		90,299	78,954
Interest income and other	5,303	5,407		11,089	9,767
Interest expense	(3,496)	(3,437)		(6,987)	(6,912)
Income before provision for taxes on income	44,855	31,434		94,401	81,809
Provision for taxes on income	13,905	10,216		30,007	28,099
Net income	$ 30,950	$ 21,218		$ 64,394	$ 53,710
Net income per share	$ 0.38	$ 0.27		$ 0.79	$ 0.68
Weighted average common and common equivalent
shares used in computing per share amounts	81,416	79,378		81,371	79,161

 

	Sept. 27,	March 29,
	1997	1997
ASSETS
Current assets:
Cash and cash equivalents	$ 260,372	$ 215,903
Short-term investments	174,241	209,944
Accounts receivable, net	65,985	72,248
Inventories	54,313	62,367
Advances for wafer purchases	37,000	-
Deferred income taxes and other current assets	44,641	41,093
Total current assets	636,552	601,555
Property, plant and equipment, at cost	163,096	154,443
Accumulated depreciation and amortization	(79,381)	(67,863)
Net property, plant and equipment	83,715	86,580
Restricted investments	36,263	36,257
Investment in joint venture	101,116	35,286
Advances for wafer purchases	53,000	60,000
Developed technology and other assets	25,641	28,015
	$ 936,287	$ 847,693
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$ 27,391	$ 16,758
Accrued payroll, other accrued liabilities and interest payable	31,361	33,282
Income taxes payable	7,840	10,858
Deferred income on shipments to distributors	46,881	36,355
Total current liabilities	113,473	97,253
Long-term debt	250,000	250,000
Deferred tax liabilities	10,753	9,760
Stockholders’ equity:
Preferred stock, $.01 par value	-	-
Common stock, $.01 par value	740	733
Additional paid-in capital	123,273	114,530
Retained earnings	442,275	377,881
Treasury Stock, at cost	-	(1,847)
Cumulative translation adjustment	(4,227)	(617)
Total stockholders’ equity	562,061	490,680
	$ 936,287	$ 847,693

 

Six Months Ended

	Sept. 27,	Sept. 28,
	1997	1996
Cash flows from operating activities:
Net income	$ 64,394	$ 53,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,768	12,770
Undistributed earnings of joint venture	(1,028)	(408)
Changes in assets and liabilities:
Accounts receivable	6,263	12,153
Inventories	8,054	(15,206)
Deferred income taxes and other	6,752	(1,041)
Accounts payable, accrued liabilities and income taxes payable	5,694	16,768
Deferred income on shipments to distributors	10,526	1,620
Total adjustments	52,029	26,656
Net cash provided by operating activities	116,423	80,366
Cash flows from investing activities:
Purchases of short-term available-for-sale investments	(234,495)	(178,216)
Proceeds from sale or maturity of short-term available-for-sale investments	270,154	135,134
Purchases of restricted held-to-maturity investments	(36,136)	(36,109)
Proceeds from maturity of restricted held-to maturity investments	36,130	36,092
Advances for wafer purchases	(30,000)	(30,000)
Property, plant and equipment	(10,556)	(17,151)
Investment in joint venture	(67,422)	-
Net cash used in investing activities	(72,325)	(90,250)
Cash flows from financing activities:
Acquisition of Treasury Stock	(15,164)	-
Principal payments on capital lease obligations	-	(478)
Proceeds from issuance of common stock	15,535	13,550
Net cash provided by financing activities	371	13,072
Net increase in cash and cash equivalents	44,469	3,188
Cash and cash equivalents at beginning of period	215,903	110,893
Cash and cash equivalents at end of period	$ 260,372	$ 114,081
Schedule of non-cash transactions:
Tax benefit from stock options	$ 10,252	$ 4,345
Issuance of Treasury Stock under employee stock plans	17,011	-
Receipts against advances for wafer purchases	-	8,963
Supplemental disclosures of cash flow information:
Interest paid	6,480	6,068
Income taxes paid	$ 26,087	$ 22,773

1. The accompanying interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles and should be read in conjunction with the Xilinx, Inc. ("Xilinx" or the "Company") consolidated financial statements for the year ended March 29, 1997. The balance sheet at March 29, 1997 is derived from audited financial statements, although certain prior period amounts have been reclassified to conform to the fiscal 1998 presentation. The interim financial statements are unaudited but reflect all adjustments which are in the opinion of management of a normal, recurring nature necessary to present fairly the statements of financial position, results of operations and cash flows for the interim periods presented. The results for the six-month period ended September 27, 1997 are not necessarily indicative of the results that may be expected for the year ending March 28, 1998.

 

2. Inventories are stated at the lower of cost (first-in, first-out) or market (estimated net realizable value). Inventories at September 27, 1997 and March 29, 1997 are as follows:

3. The Company, United Microelectronics Corporation ("UMC") and other parties have entered into a joint venture to construct a wafer fabrication facility in Taiwan, known as United Silicon Inc. ("USI"). In July 1997, the Company invested additional equity of $67.4 million in USI. The Company will retain its 25% equity ownership in the joint venture. UMC has committed to and is supplying the Company with wafers manufactured in an existing facility until capacity is available in the new facility.

 

4. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which the Company will be required to adopt during the quarter ending December 31, 1997. At that time, the Company will be required to change the method currently used to compute net income per share and to restate all prior periods. The new requirements will include a calculation of "basic" net income per share, which will exclude the dilutive effect of stock options. The restated calculations of basic net income per share for the second quarter and first six months of fiscal 1998 result in net income per share of $0.42 and $0.87 respectively. Fiscal 1997’s comparable periods resulted in net income per share of $0.29 and $0.74, respectively. A calculation of "diluted" net income per share will also be required. However, this calculation is not expected to differ materially from the primary net income per share amounts reported for the periods presented.

 

5. The Company is currently involved in patent litigation with Altera Corporation (see Part II, Item 1, Legal Proceedings). Due to the uncertain nature of the litigation with Altera and because the lawsuits are still in the pre-trial stage, the ultimate outcome of these matters cannot be determined at this time. Management believes that it has meritorious defenses to Altera’s claims, is defending them vigorously, and has not recorded a provision for the ultimate outcome of these matters in its financial statements. The foregoing is a forward-looking statement subject to risks and uncertainties, and the future outcome could differ materially due to the uncertain nature of the litigation with Altera and because the lawsuits are still in the pre-trial stage.

 

6. Subsequent to September 27, 1997, the Company entered into a lease agreement for a facility to be built on property adjacent to the Company’s corporate facilities. Building construction and occupancy is expected to be completed in calendar 1998. Upon signing the lease agreement, the Company paid the lessor $31.3 million for prepaid rent and an option to purchase. The rent prepayment covers one full year, and was discounted to its present value. Additionally, the Company can exercise the lease agreement’s purchase option between the sixth and twelfth month following the commencement date of the lease term. If the Company elects to exercise the option, the prepaid purchase option will be considered payment in full. However, if the Company decides not to exercise the purchase option, the prepaid option will be returned without interest at the end of the first year lease.

Results of operations - Second quarter and first six months of fiscal 1998 compared to the second quarter and first six months of fiscal 1997

Revenues

Revenues for the second quarter of fiscal 1998 were $150.3 million, which represented a $19.7 million, or 15.1%, increase from the corresponding period of fiscal 1997. In addition, revenues for the first six months of fiscal 1998 were $311.0 million, up 10.8% from the corresponding period of 1997. The revenue increase during the second quarter of fiscal 1998 as compared to the same quarter in the prior year was primarily attributable to increases in the volume of shipments relating to each of the Company’s XC4000, XC4000X (which includes the Company’s XC4000EX and XC4000XL devices) and XC5200 field programmable gate array ("FPGA") product families. The XC4000, XC4000X and XC5200 integrated circuits represented 60.2% of aggregate revenues in the second quarter of fiscal 1998 as compared to 51.5% of aggregate revenues in the comparable quarter of the prior fiscal year. The year to year percentage increase was primarily due to the growth in the Company’s XC4000EX and XC4000XL devices. These high density devices were shipped in volume in the third quarter of fiscal 1997 and in the first quarter of fiscal 1998, respectively, and together represented $11.7 million during the second quarter of fiscal 1998. In comparison to the immediately preceding quarter, the 133.0% sequential growth in revenues achieved by the Company’s XC4000X products only partially offset the decline in revenues and unit volumes for the Company’s older XC4000 products. Revenues for the XC4000 family decreased $12.3 million, or 16.5%, in comparison to the first quarter of fiscal 1998. The decrease from the first quarter of fiscal 1998 is a function of the slowing requirements for these mature products and the increasing demand for the functionality and performance provided by the higher density XC4000X products. Total revenues in the second quarter of fiscal 1998 as compared to the immediately preceding quarter decreased $10.5 million, or 6.5%, and were adversely impacted by a general slowdown in the global CMOS programmable logic industry, a seasonal slowdown in Europe, reduced demand for the Company’s mature FPGA products, distributor inventory balancing and continued decreases in selling prices.

Revenues for the Company’s XC2000, XC3000 and XC3100 product families, represented 26.7% of aggregate revenues in the second quarter of fiscal 1998, compared to 36.8% of aggregate revenues during the comparable quarter of the prior fiscal year. The decrease is a function of the slowing requirements for these products and the increasing demand for the functionality and performance provided by the Company’s higher density FPGA devices.

Other products, consisting primarily of the complex programmable logic device ("CPLD") families, HardWire Arrays and serial proms, represented 13.1% of aggregate revenues in the second quarter of fiscal 1998 compared to 11.7% of aggregate revenues for the comparable quarter of the prior year. Proprietary products constituted 94.4% of revenues for the second quarter of fiscal 1998, as compared to 88.9% in the comparable quarter last year. Additionally, software revenues represented approximately 3% of total revenues for the second quarter of 1998, representing approximately 2200 revenue seats. In the second quarter of fiscal 1997, software revenues represented approximately 3% of total revenues, representing approximately 1100 revenue seats. The increase in revenue seats from the prior year quarter resulted from increased demand for the Company’s lower cost, easier to use Foundation Series software, and increased demand in the software utilized to design high volume logic devices, as well as a decrease in average selling prices.

International revenues constituted approximately 37% of total revenues in the second quarter of fiscal 1998 in comparison to approximately 36% in the prior year quarter. International revenues are primarily derived from customers in Europe, Japan and Southeast Asia, which represent approximately 21%, 11% and 5% of the Company’s worldwide sales, respectively. Revenue growth in the European, Japanese and Southeast Asian markets was 11.4%, 19.2% and 56.1%, respectively, in the second quarter of 1998 as compared to the second quarter in 1997.

Gross Margin

Cost of revenues was $56.0 million, or 37.3% of revenues, and $117.0 million or 37.6% of revenues for the second quarter and first six months of fiscal 1998, respectively. Costs of revenues for the comparable periods of fiscal 1997 were $50.7 million, or 38.8% of revenues, and $104.0 million, or 37.0% of revenues, respectively, excluding the impact of a $5.0 million write-off of the XC8100 product family of one-time programmable antifuse devices (see below). The decrease in the cost of revenues as a percentage of revenues from the prior year second quarter was primarily attributable to ongoing yield improvements and the favorable impact of lower wafer costs, including the impact of favorable movement in the yen exchange rate, partially offset by selling price reductions. In the past, Xilinx has also been able to offset much of the erosion in gross margin percentages on more mature integrated circuits with increased volumes of newer, proprietary, higher margin products. The Company recognizes that ongoing manufacturing cost reductions for its integrated circuits, which assist the Company in its efforts to lower selling prices while maintaining historical margins, represent a significant element in expanding the market for its products. Company management believes that future gross margin objectives in the range of 60% to 62% of revenues are consistent with expanding market share while realizing acceptable returns, although there can be no assurance that future gross margins will be in this range.

During the second quarter of fiscal 1997, the Company discontinued the XC8100 family of one-time programmable antifuse devices. As a result, the Company recorded a pretax charge against earnings of $5.0 million. This charge primarily related to the write-off of inventory and for termination charges related to purchase commitments to foundry partners for work-in-process wafers which had not completed the manufacturing process.

Research and Development

Research and development expenditures were $20.0 million for the second quarter and $39.9 million for the first six months of fiscal 1998, or 13.3% and 12.8% of revenues, respectively. The expenditures for the comparable periods in the prior year were $16.7 million and $34.6 million, or 12.8% and 12.3% of revenues, respectively. The 19.1% and 15.3% increase in expenditures over the prior year second quarter and six month periods, respectively, resulted primarily from increased testing of development products and labor-related expenses partially offset by a decline in engineering wafer purchases. The Company remains committed to a significant level of research and development effort in order to continue to compete aggressively in the programmable logic marketplace.

Marketing, General and Administrative

Marketing, general and administrative expenses decreased as a percentage of revenue from 22.0% and 20.7% of revenues, or $28.7 million and $58.3 million, respectively, during the second quarter and first six months of fiscal 1997 to 20.8% and 20.5% of revenues, or $31.2 million and $63.9 million, respectively, during the second quarter and first six months of fiscal 1998. These expenses have increased in amount primarily as a result of increased staffing and labor-related expenses as well as increased legal costs. The Company remains committed to controlling administrative expenses and believes that most of these expenses should grow at a lower rate than revenue growth. However, the timing and extent of future legal costs associated with the ongoing enforcement of the Company’s intellectual property rights are not readily predictable and may significantly increase the level of general and administrative expenses in the future.

Operating Income

Operating income of $43.0 million, or 28.6% of revenues, was generated during the second quarter of fiscal 1998, an increase of 46.1% from the $29.5 million or 22.6% of revenues, for the prior year comparable period. Excluding the impact of the $5.0 million non-recurring write-off of the XC8100 product family in the second quarter of fiscal 1997, the second quarter of fiscal 1998 operating income increased 24.9% from $34.5 million, or 26.4% of revenues. In addition, operating income for the first six months of fiscal 1998 increased 14.4% to $90.3 million, or 29.0% of revenues, from $79.0 million or 28.1% of revenues in the comparable fiscal 1997 period. Excluding the impact of the $5.0 million non-recurring write-off, the first six months of fiscal 1998 operating income was 7.6% higher than the operating income for the comparable prior year period. The increase in operating income in the second quarter of 1998 compared to the second quarter of 1997 is primarily a result of the 15.1% revenue growth, the impact of the non-recurring write-off and lower growth in marketing, general and administrative expenses. Operating income as a percentage of revenues could be adversely impacted in future years by the factors noted under "Risk Factors".

Interest and Other, net

The Company earns interest income on its cash, cash equivalents, short-term investments and restricted investments. The amount of interest earned is a function of the balance of cash invested as well as prevailing interest rates. The Company incurs interest expense on the $250 million of 5 1/4% convertible subordinated notes issued in November 1995. The Company’s investment portfolio contains tax-advantaged municipal securities, which have pretax yields that are less than the interest rate on the convertible subordinated notes. For financial reporting purposes, the Company effectively records the difference between the pretax and tax-equivalent yields as a reduction in provision for taxes on income.

The Company also records 25% of the net income of United Silicon Inc. ("USI"), a wafer fabrication joint venture in which the Company participates, as joint venture equity income. To date, USI’s net income has resulted primarily from interest earned on its investment portfolio. The Company expects that as the USI wafer fabrication facility begins to ramp up operations over the next year the Company may incur joint venture equity losses.

Net interest and other income was relatively constant in the second quarter of fiscal 1998 compared to the second quarter of fiscal 1997. For the first six months of fiscal 1998, net interest income was up $1.2 million to $4.1 million as compared to the prior year six-month period. The increased interest and other income for the first six months of fiscal 1998 over the prior year period is primarily attributable to joint venture equity income. As a result of the difference in interest income and expense yields, future uses of the Company’s investment portfolio and operating results for USI, levels of net interest and other income could decrease in the future.

Provision for Income Taxes

The Company recorded a tax provision of $13.9 million (31.0% of income before taxes) for the second quarter of fiscal 1998 as compared to $10.2 million (32.5% of income before taxes) in the comparable prior year period. For the first six months of fiscal 1998 the Company recorded a provision of $30.0 million (31.8% of income before taxes) as compared to $28.1 million (34.3% of income before taxes) for the first six months of fiscal 1997. The lower tax rate for the first six months of fiscal 1998 is primarily due to legislation extending the R&D Tax Credit as well as increased profits in foreign operations.

Risk Factors

The following risk factors are associated with the Company's business:

Factors Affecting Future Operating Results

The semiconductor industry is characterized by rapid technological change, intense competitive pressure and cyclical market patterns. The Company’s results of operations are affected by a wide variety of factors, including general economic conditions, conditions relating to technology companies, conditions specific to the semiconductor industry, decreases in average selling prices over the life of any particular product, the timing of new product introductions (by the Company, its competitors and others), the ability to manufacture sufficient quantities of a given product in a timely manner, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property from competitors, and the impact of new technologies resulting in rapid escalation of demand for some products in the face of equally steep decline in demand for others. Market demand for the Company’s products, particularly for those most recently introduced, can be difficult to predict, especially in light of customers’ demands to shorten product lead times and minimize inventory levels. Unpredictable market demand could lead to revenue volatility if the Company were unable to provide sufficient quantities of specified products in a given quarter. In addition, any difficulty in achieving targeted wafer production yields could adversely impact the Company’s financial condition and results of operations. The Company attempts to identify changes in market conditions as soon as possible; however, the dynamics of the market make prediction of and timely reaction to such events difficult. Due to the foregoing and other factors, past results, including those described in this report, are much less reliable predictors of the future than is the case in many older, more stable and less dynamic industries. Based on the factors noted herein, the Company may experience substantial period-to-period fluctuations in future operating results.

The semiconductor industry has historically been cyclical and subject to, at various times, significant economic downturns characterized by diminished product demand, limited visibility to demand for products further out than three to six months, accelerated erosion of average selling prices and overcapacity. The Company may experience substantial period-to-period fluctuations in future operating results due to general semiconductor industry conditions, overall economic conditions or other factors.

The Company’s future success depends in large part on the continued service of its key technical, sales, marketing and management personnel and on its ability to continue to attract and retain qualified employees. Particularly important are those highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material, adverse effect on the Company’s financial condition and results of operations.

Sales and operations outside of the United States subject the Company to risks associated with conducting business in foreign economic and regulatory environments. The Company’s financial condition and results of operations could be adversely impacted by unfavorable economic conditions in countries in which it does significant business and by changes in foreign currency exchange rates affecting those countries. Additionally, risks include government regulation of exports, tariffs and other potential trade barriers, reduced protection for intellectual property rights in some countries, and generally longer receivable collection periods. The Company’s business is also subject to the risks associated with the imposition of legislation and regulations relating specifically to the import or export of semiconductor products. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be imposed by the United States or other countries upon the importation or exportation of the Company’s products in the future or what, if any, effect such actions would have on the Company’s financial condition and results of operations.

In order to expand international sales and service, the Company will need to maintain and expand existing foreign operations or establish new foreign operations. This entails hiring additional personnel and maintaining or expanding existing relationships with international distributors and sales representatives. This will require significant management attention and financial resources and could adversely affect the Company’s financial condition and results of operations. There can be no assurance that the Company will be successful in its maintenance or expansion of existing foreign operations, in its establishment of new foreign operations or in its efforts to maintain or expand its relationships with international distributors or sales representatives.

Many of the Company’s operations are centered in an area of California that has been seismically active. Should there be a major earthquake in this area, the Company’s operations may be disrupted resulting in the inability of the Company to ship products in a timely manner, thereby materially adversely affecting the Company’s financial condition and results of operations.

In addition, the securities of many high technology companies have historically been subject to extreme price and volume fluctuations, which may adversely affect the market price of the Company’s common stock.

Dependence Upon Independent Manufacturers

The Company does not manufacture the wafers used for its products. During the past two years, most of the Company’s wafers have been manufactured by Seiko Epson Corporation ("Seiko Epson") and United Microelectronics Corporation ("UMC"). The Company has depended upon these suppliers and others to produce wafers with competitive performance and cost attributes, including transitioning to advanced process technologies, producing wafers at acceptable yields, and delivering them to the Company in a timely manner. While the timeliness, yield and quality of wafer deliveries have met the Company’s requirements to date, there can be no assurance that the Company’s wafer suppliers will not experience future manufacturing problems, including delays in the realization of advanced process technologies. The Company is also dependent on subcontractors to provide semiconductor assembly services. Any prolonged inability to obtain wafers or assembly services with competitive performance and cost attributes, adequate yields or timely deliveries from these manufacturers/subcontractors, or any other circumstance that would require the Company to seek alternative sources of supply, could delay shipments, and have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s long-term growth will depend in large part on the Company’s ability to obtain increased wafer fabrication capacity from suppliers. A significant increase in general industry demand or any interruption of supply could reduce the Company’s supply of wafers or increase the Company’s cost of such wafers, thereby materially adversely affecting the Company’s financial condition and results of operations.

In order to secure additional wafer capacity, the Company from time to time considers alternatives, including, without limitation, equity investments in, or loans, deposits, or other financial commitments to, independent wafer manufacturers to secure production capacity, or the use of contracts which commit the Company to purchase specified quantities of wafers over extended periods. Although the Company is currently able to obtain wafers from existing suppliers in a timely manner, the Company has at times been unable, and may in the future be unable, to fully satisfy customer demand because of production constraints, including the ability of suppliers and subcontractors to provide materials and services in satisfaction of customer delivery dates, as well as the ability of the Company to process products for shipment. The Company’s future growth will depend in part on its ability to locate and qualify additional suppliers and subcontractors and to increase its own capacity to ship products, and there can be no assurance that the Company will be able to do so. Any increase in these constraints on the Company’s production could result in a material adverse impact on the Company’s financial condition and results of operations. In this regard, the Company has entered into the USI joint venture with UMC and other parties to obtain wafer capacity from a new wafer fabrication facility. However, there are many risks associated with the construction of a new facility, and there can be no assurance that such facility will become operational and/or cost effective in a timely manner. In addition, the Company has entered into an agreement with Seiko Epson to obtain additional capacity from a facility currently under construction and expected to provide wafers in calendar 1998. If the Company requires additional capacity and such capacity is unavailable, or unavailable on reasonable terms, the Company’s financial condition and results of operations could be materially adversely affected.

Litigation

The Company is currently engaged in patent litigation with Altera Corporation ("Altera"). See "Legal Proceedings" in Part II.

Dependence on New Products

The Company’s future success depends in large part on its ability to develop and introduce on a timely basis new products which address customer requirements and compete effectively on the basis of price and performance. The success of new product introductions is dependent upon several factors, including timely completion of new product designs, the ability to utilize advanced process technologies, achievement of acceptable yields, availability of supporting design software and market acceptance. No assurance can be given that the Company’s product development efforts will be successful or that its new products will achieve market acceptance. Revenues relating to the Company’s mature FPGA products are expected to continue to decline in the future as a percentage of aggregate revenues, and the Company will be increasingly dependent on revenues derived from newer product generation FPGAs, other existing products and future generation products. In addition, the average selling price for any particular product tends to decrease rapidly over the product’s life. To offset such decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and other price/performance factors such that higher average selling prices and higher margins are achievable relative to mature product lines. To the extent that such cost reductions and new product introductions do not occur in a timely manner, or the Company’s products do not achieve market acceptance at prices with higher margins, the Company’s financial condition and results of operations could be adversely affected.

Competition

The Company’s FPGA and CPLD products compete in the programmable logic marketplace, with a substantial majority of the Company’s revenues derived from its FPGA product families. The industries in which the Company competes are intensely competitive and are characterized by rapid technological change, rapid product obsolescence and continuous price erosion. The Company expects significantly increased competition both from existing competitors and from a number of companies that may enter its market.

Xilinx believes that important competitive factors in the programmable logic market include price, product performance and reliability, adaptability of products to specific applications, ease of use and functionality of design software, and the ability to provide timely customer service and support. The Company’s strategy for expansion in the programmable logic market includes continued price reductions commensurate with the ability to lower the cost of manufacture for established products and continued introduction of new product architectures which address high volume, low cost applications as well as high performance, leading edge density applications. However, there can be no assurance that the Company will be successful in achieving these strategies.

The Company’s major sources of competition are comprised of three elements: the manufacturers of custom CMOS gate arrays, providers of high density programmable logic products characterized by FPGA-type architectures and other providers of programmable logic products. The Company competes with custom gate array manufacturers on the basis of lower design costs, shorter development schedules and reduced inventory risks. The primary attributes of custom gate arrays are high density, high speed and low production costs in high volumes. The Company continues to develop lower cost architectures intended to narrow the gap between current custom gate array production costs (in high volumes) and FPGA production costs. The Company competes with high density programmable logic suppliers on the basis of performance, the ability to deliver complete solutions to customers and customer support, taking advantage of the primary characteristics of flexible, high speed implementation and quick time-to-market capabilities of the Company’s PLD product offerings. In addition, the Company competes with manufacturers of other programmable logic products on the basis of price, performance, design and software utility. Some of the Company's current or potential competitors have substantially greater financial, manufacturing, marketing and technical resources than Xilinx. To the extent that such efforts to compete are not successful, the Company’s financial condition and results of operations could be materially adversely affected.

Intellectual Property

The Company relies upon patent, trademark, trade secret and copyright law to protect its intellectual property. There can be no assurance that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. From time to time, third parties, including competitors of the Company, have asserted exclusive patent, copyright and other intellectual property rights to technologies that are important to the Company. There can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertions by third parties will not result in costly litigation or that the Company would prevail in such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of its outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially, adversely affect the Company’s financial condition and results of operations.

Financial Condition, Liquidity and Capital Resources

The Company’s financial condition at September 27, 1997 remained strong. Total current assets exceeded total current liabilities by 5.6 times, compared to 6.2 times at March 29, 1997. Since its inception, the Company has used a combination of equity and debt financing and cash flow from operations to support on-going business activities, make acquisitions and investments in complementary technologies, obtain facilities and capital equipment and finance inventory and accounts receivable.

The Company continued to generate positive cash flow from operations during the first six months of fiscal 1998. As of September 27, 1997, the Company had cash, cash equivalents and short-term investments of $434.6 million and working capital of $523.1 million. Cash generated by operations of $116.4 million for the first six months of fiscal 1998 was $36.1 million higher than the $80.4 million generated for the first six months of fiscal 1997. The increase in cash generated by operations during the first six months of fiscal 1998 over the comparable fiscal 1997 period resulted primarily from the favorable cash flow impact of net income, changes in deferred income on shipments to distributors and reduced inventories, which were partially offset by the unfavorable cash flow impact of changes in accounts payable, accrued liabilities and income taxes payable.

Cash flows used for investing activities for the six months ended September 27, 1997, included an additional equity investment of $67.4 million in the USI joint venture (see Note 3 of Notes to Consolidated Condensed Financial Statements), a $30.0 million advance to Seiko Epson for wafer purchases, and $10.6 million of property, plant and equipment acquisitions, which were partially offset by the net maturities of $35.7 million in short-term investments. In the first six months of fiscal 1997, investing activities used funds for an advance to Seiko Epson for wafer purchases of $30.0 million, in addition to net purchases of $43.1 million in short-term investments, and acquisitions in property, plant and equipment of $17.2 million. Capital additions in the first six months of fiscal 1998 decreased $6.6 million from the comparable fiscal 1997 period, primarily due to reduced expenditures relating to the Company’s facility constructed last year in Boulder, Colorado.

Net cash flows provided by financing activities were $0.4 million in the first six months of fiscal 1998 as the proceeds from the issuance of common stock under employee stock plans of $15.5 million were almost completely offset by the acquisition of Treasury Stock during the six month period of $15.2 million. For the comparable fiscal 1997 period, financing activities included $13.6 million in proceeds from issuance of common stock under corporate stock plans.

Stockholders’ equity increased by $71.4 million at September 27, 1997, principally as a result of the net income for the six months ended September 27, 1997. In addition, proceeds from the issuance of common stock under employee stock plans and related tax benefits from stock options contributed to the increase in equity, which was partially offset by the foreign exchange cumulative translation adjustment in the period. The increase during the first six months of fiscal 1998 of $3.6 million in the cumulative translation adjustment resulted primarily from changes in the exchange rate of the New Taiwan dollar and the resulting impact on the USI financial statements upon translation from New Taiwan dollars into U.S. dollars.

The Company has available credit line facilities for up to $46.2 million of which $6.2 million is intended to meet occasional working capital requirements for the Company’s wholly owned Irish subsidiary. At September 27, 1997, no borrowings were outstanding under the lines of credit.

In July 1997, the Company invested additional equity of $67.4 million towards the construction of the USI wafer fabrication facility in Taiwan. UMC has committed to supply the Company with wafers manufactured in an existing facility until capacity is available in the new facility. Subsequent to September 27, 1997, a fire occurred at a UMC related facility. The Company currently does not anticipate that this event will have an adverse effect on its ability to obtain wafers from UMC in the near future, nor that this event will adversely impact the USI joint venture, although there can be no assurance of this.

In addition, during the second quarter of fiscal 1997, the Company entered into an agreement with Seiko Epson. The agreement provides for an advance to Seiko Epson of up to $200.0 million to be used in the construction of a wafer fabrication facility in Japan. Through September 27, 1997, the Company has advanced a total of $90.0 million to Seiko Epson under the agreement. Additional $30.0 million installments are currently scheduled for November 1, 1997 and February 1, 1998 or upon the start of mass production, whichever is later. The final installment for the advance payment of $50.0 million is due on or after the later of April 1, 1998 or the date the outstanding balance of the advance payment is less than $125.0 million, as a function of wafer deliveries against the amounts advanced. In addition to the advance payments, the Company may also provide further funding to Seiko Epson in the amount of $100.0 million. This additional funding would be paid after the final installment of the advance and the form of the additional funding will be negotiated at that time.

The Company anticipates that existing sources of liquidity and cash flow from operations will be sufficient to satisfy the Company’s cash needs for the foreseeable future. The Company will continue to evaluate opportunities for investments to obtain additional wafer supply capacity, procure additional capital equipment and facilities, develop new products, and potential acquisitions of businesses, products or technologies that would complement the Company’s businesses and may use available cash or other sources of funding for such purposes.

There are no other pending legal proceedings of a material nature to which the Company is a party or of which any of its property is the subject.

Item 4. Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote of security holders in conjunction with the Annual Meeting of Stockholders of Xilinx held on August 7, 1997.

44,112,354 16,290,413 564,893 5,823,409

59,295,963 1,524,118 147,579 5,823,409

64,476,331 2,162,711 152,027 --

66,672,104 45,652 73,313 --

Item 6. Exhibits and Reports on Form 8-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date November 7, 1997 XILINX, INC.

/s/ Gordon M. Steel

Gordon M. Steel

Senior Vice President of Finance and Chief Financial Officer

(as principal accounting and financial officer and on behalf of Registrant)

EXHIBIT 10.17

Parties: This Lease, executed in duplicate at Cupertino, California, on October 8, 1997, by and between Berg & Berg Enterprises, Inc., a California Corporation, and Xilinx, Inc., a Delaware Corporation, hereinafter called respectively Lessor and Lessee, without regard to number or gender.

Use: Witnesseth: That Lessor hereby leases to Lessee, and Lessee hires from Lessor, for the purpose of conducting therein office, research and development, light manufacturing, and warehouse activities, and any other legal activity; and for no other purpose without obtaining the prior written consent of Lessor.

Premises: The real property with appurtenances as shown on Exhibit A (the "Premises") situated in the City of San Jose, County of Santa Clara, State of California, and more particularly described as follows:

Rent: Base rent shall be payable in monthly installments as follows:

Base rent

Months 1 through 12 $253,350

Monthly base rent to increase by 3% on the annual anniversary of the Commencement Date each year during the Lease Term over the prior year's rent.

Base rent as scheduled above shall be payable in advance on or before the first day of each calendar month during the Lease Term. The term "Rent," as used herein, shall be deemed to be and to mean the base monthly rent and all other sums required to be paid by Lessee pursuant to the terms of this Lease. Rent shall be paid in lawful money of the United States of America, without offset or deduction, and shall be paid to Lessor at such place or places as may be designated from time to time by Lessor. Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment. Upon execution of this Lease, Lessee shall deposit with Lessor the sum of Two Million Nine Hundred Forty-Nine Thousand Dollars ($2,949,000) representing full payment of the first year’s rent, discounted to present value.

Late Charges: Lessee hereby acknowledges that a late payment made by Lessee to Lessor of Rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges, which may be imposed on Lessor according to the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of Rent or any other sum due from Lessee is not received by Lessor or Lessor's designee within ten (10) days after such amount is due, Lessee shall pay to Lessor a late charge equal to five (5%) percent of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payments made by Lessee. Acceptance of such late charges by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor shall it prevent Lessor from exercising any of the other rights and remedies granted hereunder. Notwithstanding the above, Lessee shall not be required to pay a late charge if it is the result of a non-recurring unusual event such as a accounting error.

Security Deposit: Lessee shall deposit with Lessor the sum of Two Hundred Fifty-Three Thousand Three Hundred Fifty Dollars ($253,350) (the "Security Deposit"). The Security Deposit shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions of this Lease applicable to Lessee. If Lessee commits a default as provided for herein, including but not limited to a default with respect to the provisions contained herein relating to the condition of the Premises, Lessor may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any amount which Lessor may spend by reason of default by Lessee. If any portion of the Security Deposit is so used or applied, Lessee shall, within ten days after written demand therefor, deposit cash with Lessor in an amount sufficient to restore the Security Deposit to its original amount. Lessee's failure to do so shall be a default by Lessee. Any attempt by Lessee to transfer or encumber its interest in the Security Deposit shall be null and void. Upon execution of this Lease, Lessee shall deposit with Lessor the Security Deposit. Notwithstanding the above, Lessor agrees to waive the requirement for Lessee to make a Security Deposit provided Lessee's shareholder's equity exceeds $100 million. If at any time during this Lease, Lessee's shareholder's equity is less than $100 million, Lessee shall deposit with Lessor the Security Deposit referenced above within ten days after the issuance of Lessee's financial statements indicating the reduction in shareholder's equity below $100 million. If Lessee fails to make the Security Deposit as required, Lessee shall be deemed to be in default per Section 14.1 (a) of this Lease.

Quiet Enjoyment: Lessor covenants and agrees with Lessee that upon Lessee paying Rent and performing its covenants and conditions under this Lease, Lessee shall and may peaceably and quietly have, hold and enjoy the Premises for the Lease Term, subject, however, to the rights reserved by Lessor hereunder.

It Is Further Mutually Agreed Between The Parties As Follows:

1. Possession: Possession shall be deemed tendered and the term shall commence upon the first to occur of the following (the "Commencement Date"): (i) the Premises are Substantially Complete or (ii) Lessee occupies the Premises and commences to conduct business operations or (iii) if Lessor is prevented from or delayed in completing its work under this Lease due to Lessee Delays, such work will be deemed Substantially Complete as of the date on which it would have been Substantially Complete had it not been for such Lessee Delays or (iv) 90 days after Lessee is advised in writing that the Lessee Interior Improvements as defined in Section 2 may be started by Lessee. It is the intention of Lessee and Lessor that the Commencement Date shall be no later than July 31, 1998.

"Substantially Complete" shall mean that: (i) Lessor has tendered possession of Premises to Lessee, (ii) Lessor has met all legal requirements for occupancy, (iii) The Lessee Interior Improvements are materially complete per the approved plans, exclusive of telephone or other communication systems, punchlist items and there remains no incomplete or defective items of work which would materially adversely affect Lessee's intended use of the Premises, and (iv) said interior of the building is in a "broom clean" condition.

1.1 Commencement Date Memorandum: When the actual Commencement Date is determined, the parties shall execute a Commencement Date Memorandum setting forth the Commencement Date, the expiration date of the Lease Term and the actual square footage of the Premises and any required adjustments to base rent and CAC, but failure to do so shall not affect the continuing validity and enforceability of this Lease, which shall remain in full force and effect.

2. Building Shell: The "Building Shell", as defined in the attached Exhibit B shall be constructed at Lessor's sole cost and expense by independent contractors to be employed by and under the supervision of Lessor in accordance with the site plan, elevations, plans, specifications, and working drawings to be prepared by Lessor, approved by Lessee, and thereafter attached hereto as Exhibit C (collectively the "Shell Plans"). Lessor shall be obligated to finish all of the Building Shell prior to the Commencement Date. Lessee and its designated representatives, shall at all times during the construction of the Building Shell have access to the Premises to monitor the progress of construction and Lessor's compliance with its obligation hereunder; provided however, that such access shall not unreasonably interfere with the activities of Lessor or its contractors. Lessor shall be responsible for ensuring that the Building Shell conforms to the approved plans and all applicable statutes, rules, regulations, ordinances, and San Jose Building Department interpretations necessary for occupancy. Lessor shall assign all its normal material and construction warranties from sub-contractors to Lessee.

2.1 Lessee’s Interior Improvements:

Lessee and Lessor agree to the following with respect to Lessee Interior Improvements to be constructed by Lessee at the Premises:

3. Uses Prohibited: Lessee shall not commit, or suffer to be committed, any waste upon the Premises, or any nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the buildings in which the subject Premises are located or allow any sale by auction upon the Premises, or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, or place any loads upon the floor, walls, or ceiling which may endanger the structure, or use any machinery or apparatus which will in any manner vibrate or shake the Premises or the building of which it is a part, or place any harmful liquids in the drainage system of the building. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises outside of the building proper. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain on any portion of the Premises outside of the building structure, unless approved by the local, state federal or other applicable governing authority. Lessor consents to Lessee's use of materials which are incidental to the normal, day-to-day operations of any office user, such as copier fluids, cleaning materials, etc., but this does not relieve Lessee of any of its obligations not to contaminate the Premises and related real property or violate any Hazardous Materials Laws.

4. Alterations And Additions: Lessee shall not make, or suffer to be made, any alteration or addition to said Premises, or any part thereof, without the express, advance written consent of Lessor; any addition or alteration to said Premises, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Lessor at the end of the Lease Term or earlier termination of this Lease. Alterations and additions which are not deemed as trade fixtures shall include HVAC systems, lighting systems, electrical systems, partitioning, carpeting, or any other installation which has become an integral part of the Premises. Lessee agrees that it will not proceed to make such alterations or additions until all required government permits have been obtained and after having obtained consent from Lessor to do so, until five (5) days from the receipt of such consent, so that Lessor may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Lessee's improvements. Lessee shall at all times permit such notices to be posted and to remain posted until the completion of work. At the end of the Lease Term or earlier termination of this Lease, Lessee shall remove and shall be required to remove its special tenant improvements, all related equipment, and any additions or alterations installed by Lessee at or during the Lease Term and Lessee shall return the Premises to the condition that existed before the installation of the tenant improvements. Notwithstanding the above, Lessor agrees to allow any reasonable alterations and improvements and will use its best efforts to notify Lessee at the time of approval if such improvements or alterations are to be removed at the end of the Lease Term or earlier termination of this Lease. Notwithstanding the above, Lessee shall have the right, during the term of this Lease, to make improvements to the Premises at their sole cost and expense of Five Hundred Thousand Dollars ($500,000) with no approval from Lessor, provided they are not structural and subject to the requirement to remove the subject improvements at the end of the Lease Term.

5. Maintenance Of Premises:

Lessor and Lessee hereby waive any rights each may have against the other related to any loss or damage caused to Lessor or Lessee as the case may be, or to the Premises or its contents, and which may arise from any risk generally covered by all risk insurance policy. The parties shall provide that their respective insurance policies insuring the property or the personal property include a waiver of any right of subrogation which said insurance company may have against Lessor or Lessee, as the case may be.

7. Abandonment: Lessee shall not vacate or abandon the Premises at any time during the Lease Term; and if Lessee shall abandon, vacate or surrender said Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the Premises shall be deemed to be abandoned, at the option of Lessor. Notwithstanding the above, the Premises shall not be considered vacated or abandoned if Lessee maintains the Premises in Good Condition and Repair, provides security and is not in default.

8. Free From Liens: Lessee shall keep the subject Premises and the property in which the subject Premises are situated, free from any and all liens including but not limited to liens arising out of any work performed, materials furnished, or obligations incurred by Lessee. However, the Lessor shall allow Lessee to contest a lien claim, so long as the claim is discharged prior to any foreclosure proceeding being initiated against the property and provided Lessee provides Lessor a bond if the lien exceeds $5,000.

9. Compliance With Governmental Regulations: Lessee shall, at its sole cost and expense, comply with all of the requirements of all local, municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and shall faithfully observe in the use and occupancy of the Premises all local and municipal ordinances and state and federal statutes now in force or which may hereafter be in force.

10. Intentionally Omitted.

11. Advertisements And Signs: Lessee shall not place or permit to be placed, in, upon or about the Premises any unusual or extraordinary signs, or any signs not approved by the city, local, state, federal or other applicable governing authority. Lessee shall not place, or permit to be placed upon the Premises, any signs, advertisements or notices without the written consent of the Lessor, and such consent shall not be unreasonably withheld. A sign so placed on the Premises shall be so placed upon the understanding and agreement that Lessee will remove same at the end of the Lease Term or earlier termination of this Lease and repair any damage or injury to the Premises caused thereby, and if not so removed by Lessee, then Lessor may have the same removed at Lessee's expense.

12. Utilities: Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities supplied to the Premises. Any charges for sewer usage, PG&E, and telephone site service or related fees shall be the obligation of Lessee and paid for by Lessee. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion of all charges which are jointly metered, the determination to be made by Lessor acting reasonably and on any equitable basis. Lessor and Lessee agree that Lessor shall not be liable to Lessee for any disruption in any of the utility services to the Premises.

13. Attorney's Fees: In case suit should be brought for the possession of the Premises, for the recovery of any sum due hereunder, because of the breach of any other covenant herein, or to enforce, protect, or establish any term, conditions, or covenant of this Lease or the right of either party hereunder, the losing party shall pay to the Prevailing Party reasonable attorney's fees which shall be deemed to have accrued on the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. The term "Prevailing Party" shall mean the party that received substantially the relief requested, whether by settlement, dismissal, summary judgment, judgment, or otherwise.

14.1 Default: The occurrence of any of the following shall constitute a default and breach of this Lease by Lessee: a) Any failure by Lessee to pay Rent or to make any other payment required to be made by Lessee hereunder when due if not cured within ten (10) days after written notice thereof by Lessor to Lessee; b) The abandonment or vacation of the Premises by Lessee except as provided in Section 7; c) A failure by Lessee to observe and perform any other provision of this Lease to be observed or performed by Lessee, where such failure continues for thirty days after written notice thereof by Lessor to Lessee; provided, however, that if the nature of such default is such that the same cannot be reasonably cured within such thirty (30) day period, Lessee shall not be deemed to be in default if Lessee shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; d) The making by Lessee of any general assignment for the benefit of creditors; the filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy; e) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets or Lessee's interest in this Lease, or the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease.

14.2 Surrender Of Lease: In the event of any such default by Lessee, then in addition to any other remedies available to Lessor at law or in equity, Lessor shall have the immediate option to terminate this Lease before the end of the Lease Term and all rights of Lessee hereunder, by giving written notice of such intention to terminate. In the event that Lessor terminates this Lease due to a default of Lessee, then Lessor may recover from Lessee: a) the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus b) the worth at the time of award of unpaid Rent which would have been earned after termination until the time of award exceeding the amount of such rental loss that the Lessee proves could have been reasonably avoided; plus c) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; plus d) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform his obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and e) at Lessor's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. As used in (a) and (b) above, the "worth at the time of award" is computed by allowing interest at the rate of Wells Fargo’s prime rate plus two percent (2%) per annum. As used in (c) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

14.3 Right of Entry and Removal: In the event of any such default by Lessee, Lessor shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Lessee.

14.4 Abandonment: In the event of the vacation or abandonment, except as provided in Section 7, of the Premises by Lessee or in the event that Lessor shall elect to re-enter as provided in paragraph 14.3 above or shall take possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, and Lessor does not elect to terminate this Lease as provided in Section 14.2 above, then Lessor may from time to time, without terminating this Lease, either recover all Rent as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental rates and upon such other terms and conditions as Lessor, in its sole discretion, may deem advisable with the right to make alterations and repairs to the Premises. In the event that Lessor elects to relet the Premises, then Rent received by Lessor from such reletting shall be applied; first, to the payment of any indebtedness other than Rent due hereunder from Lessee to Lessor; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises; fourth, to the payment of Rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied to the payment of future Rent as the same may become due and payable hereunder. Should that portion of such Rent received from such reletting during any month, which is applied by the payment of Rent hereunder according to the application procedure outlined above, be less than the Rent payable during that month by Lessee hereunder, then Lessee shall pay such deficiency to Lessor immediately upon demand therefor by Lessor. Such deficiency shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon as ascertained, any costs and expenses incurred by Lessor in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

14.5 No Implied Termination: No re-entry or taking possession of the Premises by Lessor pursuant to Section 14.3 or Section 14.4 of this Lease shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Lessee or unless the termination thereof is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Lessor because of any default by Lessee, Lessor may at any time after such reletting elect to terminate this Lease for any such default.

15. Surrender Of Lease: The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subleases or sub tenancies, or may, at the option of Lessor, operate as an assignment to him of any or all such subleases or sub tenancies.

16. Taxes: Lessee shall pay and discharge punctually and when the same shall become due and payable without penalty, all real estate taxes, personal property taxes, taxes based on vehicles utilizing parking areas in the Premises, taxes computed or based on rental income (other than federal, state and municipal net income taxes), environmental surcharges, privilege taxes, excise taxes, business and occupation taxes, school fees or surcharges, gross receipts taxes, sales and/or use taxes, employee taxes, occupational license taxes, water and sewer taxes, assessments (including, but not limited to, assessments for public improvements or benefit), assessments for local improvement and maintenance districts, and all other governmental impositions and charges of every kind and nature whatsoever, regardless of whether now customary or within the contemplation of the parties hereto and regardless of whether resulting from increased rate and/or valuation, or whether extraordinary or ordinary, general or special, unforeseen or foreseen, or similar or dissimilar to any of the foregoing (all of the foregoing being hereinafter collectively called "Tax" or "Taxes") which, at any time during the Lease Term, shall be applicable or against the Premises, or shall become due and payable and a lien or charge upon the Premises under or by virtue of any present or future laws, statutes, ordinances, regulations, or other requirements of any governmental authority whatsoever. The term "Environmental Surcharge" shall include any and all expenses, taxes, charges or penalties imposed by the Federal Department of Energy, Federal Environmental Protection Agency, the Federal Clean Air Act, or any regulations promulgated thereunder, or any other local, state or federal governmental agency or entity now or hereafter vested with the power to impose taxes, assessments or other types of surcharges as a means of controlling or abating environmental pollution or the use of energy in regard to the use, operation or occupancy of the Premises. The term "Tax" shall include, without limitation, all taxes, assessments, levies, fees, impositions or charges levied, imposed, assessed, measured, or based in any manner whatsoever (i) in whole or in part on the Rent payable by Lessee under this Lease, (ii) upon or with respect to the use, possession, occupancy, leasing, operation or management of the Premises, (iii) upon this transaction or any document to which Lessee is a party creating or transferring an interest or an estate in the Premises, (iv) upon Lessee's business operations conducted at the Premises, (v) upon, measured by or reasonably attributable to the cost or value of Lessee's equipment, furniture, fixtures and other personal property located on the Premises or the cost or value of any leasehold improvements made in or to the Premises by or for Lessee, regardless of whether title to such improvements shall be in Lessor or Lessee, or (vi) in lieu of or equivalent to any Tax set forth in this Section 16. In the event any such Taxes are payable by Lessor and it shall not be lawful for Lessee to reimburse Lessor for such Taxes, then the Rent payable thereunder shall be increased to net Lessor the same net rent after imposition of any such Tax upon Lessor as would have been payable to Lessor prior to the imposition of any such Tax. It is the intention of the parties that Lessor shall be free from all such Taxes and all other governmental impositions and charges of every kind and nature whatsoever. However, nothing contained in this Section 16 shall require Lessee to pay any Federal or State income, franchise, estate, inheritance, succession, transfer or excess profits tax imposed upon Lessor. If any general or special assessment is levied and assessed against the Premises, Lessor agrees to use its best reasonable efforts to cause the assessment to become a lien on the Premises securing repayment of a bond sold to finance the improvements to which the assessment relates which is payable in installments of principal and interest over the maximum term allowed by law. It is understood and agreed that Lessee's obligation under this paragraph will be prorated to reflect the Commencement Date and the end of the Lease Term. It is further understood that if Taxes cover the Premises and Lessee does not occupy the entire Premises, the Taxes will be allocated to the portion of the Premises occupied by Lessee based on a pro-rata square footage or other equitable basis, as determined by Lessor.

Subject to any limitations or restrictions imposed by any deeds of trust or mortgages now or hereafter covering or affecting the Premises, Lessee shall have the right to contest or review the amount or validity of any Tax by appropriate legal proceedings but which is not to be deemed or construed in any way as relieving, modifying or extending Lessee's covenant to pay such Tax at the time and in the manner as provided in this Section 16. However, as a condition of Lessee's right to contest, if such contested Tax is not paid before such contest and if the legal proceedings shall not operate to prevent or stay the collection of the Tax so contested, Lessee shall, before instituting any such proceeding, protect the Premises and the interest of Lessor and of the beneficiary of a deed of trust or the mortgagee of a mortgage affecting the Premises against any lien upon the Premises by a surety bond, issued by an insurance company acceptable to Lessor and in an amount equal to one and one-half (1 1/2) times the amount contested or, at Lessor's option, the amount of the contested Tax and the interest and penalties in connection therewith. Any contest as to the validity or amount of any Tax, whether before or after payment, shall be made by Lessee in Lessee's own name, or if required by law, in the name of Lessor or both Lessor and Lessee. Lessee shall defend, indemnify and hold harmless Lessor from and against any and all costs or expenses, including attorneys' fees, in connection with any such proceedings brought by Lessee, whether in its own name or not. Lessee shall be entitled to retain any refund of any such contested Tax and penalties or interest thereon which have been paid by Lessee. Nothing contained herein shall be construed as affecting or limiting Lessor's right to contest any Tax at Lessor's expense.

17. Notices: Unless otherwise provided for in this Lease, any and all written notices or other communication (the "Communication") to be given in connection with this Lease shall be given in writing and shall be given by personal delivery, facsimile transmission or by mailing by registered or certified mail with postage thereon or recognized overnight courier, fully prepaid, in a sealed envelope addressed to the intended recipient as follows:

(a) to the Lessor at: 10050 Bandley Drive

Cupertino, California 95014

Attention: Carl E. Berg

Fax No: (408) 725-1626

(b) to the Lessee at: 2100 Logic Drive

San Jose, California

Attention: David Granoff

Fax No: (408) 377-6137

or such other addresses, facsimile number or individual as may be designated by a Communication given by a party to the other parties as aforesaid. Any Communication given by personal delivery shall be conclusively deemed to have been given and received on a date it is so delivered at such address provided that such date is a business day, otherwise on the first business day following its receipt, and if given by registered or certified mail, on the day on which delivery is made or refused or if given by recognized overnight courier, on the first business day following deposit with such overnight courier and if given by facsimile transmission, on the day on which it was transmitted provided such day is a business day, failing which, on the next business day thereafter.

18. Entry By Lessor: Lessee shall permit Lessor and its agents to enter into and upon said Premises at all reasonable times using the minimum amount of interference and inconvenience to Lessee and Lessee's business, subject to any security regulations of Lessee, for the purpose of inspecting the same or for the purpose of maintaining the building in which said Premises are situated, or for the purpose of making repairs, alterations or additions to any other portion of said building, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, without any rebate of Rent and without any liability to Lessee for any loss of occupation or quiet enjoyment of the Premises; and shall permit Lessor and his agents, at any time within ninety (90) days prior to the end of the Lease Term, to place upon said Premises any usual or ordinary "For Sale" or "For Lease" signs and exhibit the Premises to prospective tenants at reasonable hours.

19. Destruction Of Premises: In the event of a partial destruction of the said Premises during the Lease Term from any cause which is covered by Lessor's property insurance, Lessor shall forthwith repair the same, provided such repairs can be made within ninety (90) days after receipt of building permit under the laws and regulations of State, Federal, County, or Municipal authorities, but such partial destruction shall in no way annul or void this Lease, except that Lessee shall be entitled to a proportionate reduction of Rent while such repairs are being made to the extent of payments received by Lessor under its Loss of Rents Insurance coverage. With respect to any partial destruction which Lessor is obligated to repair or may elect to repair under the terms of this paragraph, the provision of Section 1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of the State of California are waived by Lessee. In the event that the building in which the subject Premises may be situated is destroyed to an extent greater than thirty-three and one-third percent (33 1/3%) of the replacement cost thereof, Lessor may, at its sole option, elect to terminate this Lease, whether the subject Premises is insured or not. A total destruction of the building in which the subject Premises are situated shall terminate this Lease. Notwithstanding the above, Lessor is only obligated to repair or rebuild to the extent of available insurance proceeds including any deductible amount. Should Lessor determine that insufficient or no insurance proceeds are available for repair or reconstruction of Premises, Lessor, at its sole option, may terminate the Lease. Lessee shall have the option of continuing this Lease by agreeing to pay all repair costs to the subject Premises.

20. Assignment And Subletting: Lessee shall not assign this Lease, or any interest therein, and shall not sublet the said Premises or any part thereof, or any right or privilege appurtenant thereto, or cause any other person or entity (a bona fide subsidiary or affiliate of Lessee excepted) to occupy or use the Premises, or any portion thereof, without the advance written consent of Lessor. Any such assignment or subletting without such consent shall be void, and shall, at the option of the Lessor, terminate this Lease. This Lease shall not, or shall any interest therein, be assignable, as to the interest of Lessee, by operation of law, without the written consent of Lessor. Notwithstanding Lessor’s obligation to provide reasonable approval, Lessor reserves the right to withhold its consent for any proposed sublessee or assignee of Lessee if the proposed sublessee or assignee is a user or generator of Hazardous Materials. If Lessee desires to assign its rights under this Lease or to sublet, all or a portion of the subject Premises to a party other than a bona fide subsidiary or affiliate of Lessee, Lessee shall first notify Lessor of the proposed terms and conditions of such assignment or subletting. Lessor shall have the right of first refusal to enter into a direct Lessor-lessee relationship with such party under such proposed terms and conditions, in which event Lessee shall be relieved of its obligations hereunder to the extent of the Lessor-lessee relationship entered into between Lessor and such third party. Notwithstanding the foregoing, Lessee may assign this Lease to a successor in interest, whether by merger or acquisition, provided there is no substantial reduction in the net worth of the resulting entity and the resulting entity is not a user or generator of Hazardous Materials. Whether or not Lessor's consent to a sublease or assignment is required, in the event of any sublease or assignment, Lessee shall be and shall remain primarily liable for the performance of all conditions, covenants, and obligations of Lessee hereunder and, in the event of a default by an assignee or sublessee, Lessor may proceed directly against the original Lessee hereunder and/or any other predecessor of such assignee or sublessee without the necessity of exhausting remedies against said assignee or sublessee. Notwithstanding the above, Lessor hereby agrees that Lessee may sublease up to 90,000 square feet of the Premises without Lessor’s approval on a one time basis for a maximum period of sixty (60) months with no extensions.

21. Condemnation: If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and a part thereof remains which is susceptible of occupation hereunder, this Lease shall as to the part so taken, terminate as of the date title vests in the condemnor or purchaser, and the Rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the Lease Term only that portion of Rent as the value of the part remaining. The rental adjustment resulting will be computed at the same Rental rate for the remaining part not taken; however, Lessor shall have the option to terminate this Lease as of the date when title to the part so taken vests in the condemnor or purchaser. If all of the Premises, or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this Lease shall thereupon terminate. If a part or all of the Premises be taken, all compensation awarded upon such taking shall be payable to the Lessor. Lessee may file a separate claim and be entitled to any award granted to Lessee.

22. Effects Of Conveyance: The term "Lessor" as used in this Lease, means only the owner for the time being of the land and building constituting the Premises, so that, in the event of any sale of said land or building, or in the event of a Lease of said building, Lessor shall be and hereby is entirely freed and relieved of all covenants and obligations of Lessor hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser of any such sale, or the Lessor of the building, that the purchaser or lessor of the building has assumed and agreed to carry out any and all covenants and obligations of the Lessor hereunder. If any security is given by Lessee to secure the faithful performance of all or any of the covenants of this Lease on the part of Lessee, Lessor may transfer and deliver the security, as such, to the purchaser at any such sale of the building, and thereupon the Lessor shall be discharged from any further liability.

23. Subordination: This Lease, in the event Lessor notifies Lessee in writing, shall be subordinate to any ground lease, deed of trust, or other hypothecation for security now or hereafter placed upon the real property at which the Premises are a part and to any and all advances made on the security thereof and to renewals, modifications, replacements and extensions thereof. Lessee agrees to promptly execute any documents which may be required to effectuate such subordination. Notwithstanding such subordination, if Lessee is not in default and so long as Lessee shall pay the Rent and observe and perform all of the provisions and covenants required under this Lease, Lessee's right to quiet possession of the Premises shall not be disturbed or effected by any subordination.

24. Waiver: The waiver by Lessor of any breach of any term, covenant or condition, herein contained shall not be construed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition therein contained. The subsequent acceptance of Rent hereunder by Lessor shall not be deemed to be a waiver of Lessee's breach of any term, covenant, or condition of the Lease.

25. Holding Over: Any holding over after the end of the Lease Term requires Lessor’s written approval prior to the end of the Lease Term, which, notwithstanding any other provisions of this Lease, Lessor may withhold. Such holding over shall be construed to be a tenancy at sufferance from month to month. Lessee shall pay to Lessor monthly base rent equal to one and one-half (1.5) times the monthly base rent installment due in the last month of the Lease Term and all other additional rent and all other terms and conditions of the Lease shall apply, so far as applicable. Holding over by Lessee without written approval of Lessor shall subject Lessee to the liabilities and obligations provided for in this Lease and by law, including, but not limited to those in Section 2 of this Lease. Lessee shall indemnify and hold Lessor harmless against any loss or liability resulting from any delay caused by Lessee in surrendering the Premises, including without limitation, any claims made or penalties incurred by any succeeding lessee or by Lessor. No holding over shall be deemed or construed to exercise any option to extend or renew this Lease in lieu of full and timely exercise of any such option as required hereunder.

26. Lessor's Liability: If Lessee should recover a money judgment against Lessor arising in connection with this Lease, the judgment shall be satisfied only out of the Lessor's interest in the Premises and neither Lessor or any of its partners shall be liable personally for any deficiency.

27. Estoppel Certificates: Lessee shall at any time during the Lease Term, upon not less than ten (10) days prior written notice from Lessor, execute and deliver to Lessor a statement in writing certifying that, this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification) and the dates to which the Rent and other charges have been paid in advance, if any, and acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder or specifying such defaults if they are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Lessee's failure to deliver such a statement within such time shall be conclusive upon the Lessee that (a) this Lease is in full force and effect, without modification except as may be represented by Lessor; (b) there are no uncured defaults in Lessor's performance.

28. Time: Time is of the essence of the Lease.

29. Captions: The headings on titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part thereof. This instrument contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner than by an agreement in writing signed by all of the parties hereto or their respective successors in interest.

30. Party Names: Landlord and Tenant may be used in various places in this Lease as a substitute for Lessor and Lessee respectively.

31. Earthquake Insurance: As a condition of Lessor agreeing to waive the requirement for earthquake insurance, Lessee agrees that it will pay, as additional Rent, which shall be included in the monthly CAC, an amount not to exceed Seventy-Two Thousand Dollars ($72,000) per year for earthquake insurance if Lessor desires to obtain some form of earthquake insurance in the future, if and when available, on terms acceptable to Lessor as determined in the sole and absolute discretion of Lessor.

32. Habitual Default: Notwithstanding anything to the contrary contained in Section 14 herein, Lessor and Lessee agree that if Lessee shall have defaulted in the payment of Rent for three or more times during any twelve month period during the Lease Term, then such conduct shall, at the option of the Lessor, represent a separate event of default which cannot be cured by Lessee. Lessee acknowledges that the purpose of this provision is to prevent repetitive defaults by the Lessee under the Lease, which constitute a hardship to the Lessor and deprive the Lessor of the timely performance by the Lessee hereunder.

33. Hazardous Materials

33.1 Definitions: As used in this Lease, the following terms shall have the following meaning:

33.3 Lessor’s Representations: Lessor hereby represents and warrants to the best of Lessor’s knowledge that the Premises are, as of the date of this Lease, in compliance with all Hazardous Material Laws.

33.4 Lessee's Obligation to Indemnify: Lessee, at its sole cost and expense, shall indemnify, defend, protect and hold Lessor and Lessor’s Agents harmless from and against any and all cost or expenses, including those described under subparagraphs i, ii and iii herein below set forth, arising from or caused in whole or in part, directly or indirectly by:

33.6 Obligation to Notify: Lessor and Lessee shall each give written notice to the other as soon as reasonably practical of (i) any communication received from any governmental authority concerning Hazardous Material which related to the Premises and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any Hazardous Material Laws.

33.7 Survival: The obligations of Lessee under this Section 33 shall survive the Lease Term or earlier termination of this Lease.

33.8 Certification and Closure: On or before the end of the Lease Term or earlier termination of this Lease, Lessee shall deliver to Lessor a certification executed by Lessee stating that, to the best of Lessee's knowledge, there exists no violation of Hazardous Material Laws resulting from Lessee's obligation in Paragraph 33. If pursuant to local ordinance, state or federal law, Lessee is required, at the expiration of the Lease Term, to submit a closure plan for the Premises to a local, state or federal agency, then Lessee shall furnish to Lessor a copy of such plan.

33.9 Prior Hazardous Materials: Lessee shall have no obligation to clean up or to hold Lessor harmless with respect to, any Hazardous Material or wastes discovered on the Premises which were not introduced into, in, on, about, from or under the Premises during the Lease Term or ground water contamination from other parcels where the source is from off the Premises not arising from or caused by Lessee or Lessee's Agents.

34. Brokers: Lessor and Lessee represent that they have not utilized or contacted a real estate broker or finder with respect to this Lease and Lessee agrees to indemnify and hold Lessor harmless against any claim, cost, liability or cause of action asserted by any broker or finder claiming through Lessee. Lessor shall pay no brokerage commission in connection with this transaction. Lessor represents and warrants that it has not utilized or contacted a real estate broker or finder with respect to this Lease and Lessor agrees to indemnify and hold Lessee harmless against any claim, cost, liability or cause of action asserted by any broker or finder claiming through Lessor.

35. Option to Extend

A. Option: Lessor hereby grants to Lessee one (1) option to extend the Lease Term, with the extended term to be for a period of five (5) years, on the following terms and conditions:

36. Approvals: Whenever in this Lease the Lessor's or Lessee's consent is required, such consent shall not be unreasonably or arbitrarily withheld or delayed. In the event that the Lessor or Lessee does not respond to a request for any consents which may be required of it in this Lease within ten business days of the request of such consent in writing by the Lessee or Lessor, such consent shall be deemed to have been given by the Lessor or Lessee.

37. Authority: Each party executing this Lease represents and warrants that he or she is duly authorized to execute and deliver the Lease. If executed on behalf of a corporation, that the Lease is executed in accordance with the by-laws of said corporation (or a partnership that the Lease is executed in accordance with the partnership agreement of such partnership), that no other party’s approval or consent to such execution and delivery is required, and that the Lease is binding upon said individual, corporation (or partnership) as the case may be in accordance with its terms.

38. Indemnification of Lessor: Except to the extent caused by the sole negligence or willful misconduct of Lessor or Lessor's Agents, Lessee shall defend, indemnify and hold Lessor harmless from and against any and all obligations, losses, costs, expenses, claims, demands, attorney’s fees, investigation costs or liabilities on account of, or arising out of the use, condition or occupancy of the Premises or any act or omission to act of Lessee or Lessee's Agents or any occurrence in, upon, about or at the Premises, including, without limitation, any of the foregoing provisions arising out of the use, generation, manufacture, installation, release, discharge, storage, or disposal of Hazardous Materials by Lessee or Lessee's Agents. It is understood that Lessee is and shall be in control and possession of the Premises and that Lessor shall in no event be responsible or liable for any injury or damage or injury to any person whatsoever, happening on, in, about, or in connection with the Premises, or for any injury or damage to the Premises or any part thereof. This Lease is entered into on the express condition that Lessor shall not be liable for, or suffer loss by reason of injury to person or property, from whatever cause, which in any way may be connected with the use, condition or occupancy of the Premises or personal property located herein. The provisions of this Lease permitting Lessor to enter and inspect the Premises are for the purpose of enabling Lessor to become informed as to whether Lessee is complying with the terms of this Lease and Lessor shall be under no duty to enter, inspect or to perform any of Lessee's covenants set forth in this Lease. Lessee shall further indemnify, defend and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation to Lessee's part to be performed under the terms of this Lease. The provisions of Section 38 shall survive the Lease Term or earlier termination of this Lease with respect to any damage, injury or death occurring during the Lease Term.

40. Option to Purchase: Lessor grants to Lessee an option to purchase the Premises in accordance with the following terms and conditions:

(a) In order to exercise this option to purchase, Lessee must notify Lessor in writing of such exercise between the sixth and twelfth months following the Commencement Date of the initial Lease Term of any property. This option shall be null and void if not exercised as stated herein before the expiration of the twelfth month of the initial Lease Term.

(b) The purchase price shall be payable in cash or other immediately available funds, at close of escrow, which shall occur on a date chosen by Lessor but in any event (i) no earlier than thirty (30) days after Lessee has exercised its option to purchase and (ii) not later than the sixth month after Lessee has exercised its option to purchase.

(c) Upon payment of said purchase price, Lessor shall deliver title to Lessee by grant deed, free and clear of all claims, liens, restrictions and encumbrances, other than current taxes, assessments, easements (all as of the date of Lessee's exercise of its option) and anything of record or not of record resulting from the acts or omissions of Lessee, and such other matters as Lessor and Lessee may mutually agree upon.

(d) Upon execution of this Lease, Lessee shall deposit with Lessor an amount equal to Twenty-Eight Million Three Hundred Fifty-One Thousand Dollars ($28,351,000) (the "Option Deposit"). This deposit shall be in addition to all other deposits required hereunder. If Lessee elects to exercise this option to purchase, the purchase price shall be $28,351,000, and Lessor shall credit the Option Deposit against such purchase price as payment in full. In addition, if Lessee elects to exercise this option to purchase, the prepaid first year’s rent shall be forfeited to Lessor, and Lessor shall have no obligation to refund any of such prepaid rent to Lessee regardless of when the close of escrow shall occur. If Lessee elects not to exercise the option to purchase, Lessor shall refund the Option Deposit in full to Lessee on the first anniversary of the Commencement Date, without interest.

(e) Both Lessor and Lessee agree to cooperate with each other in effectuating a tax-deferred exchange of the Property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. Each party agrees to fully cooperate with any such exchange, provided that each party's obligation to the other shall be limited to its purchase or sale of the Property, as the case may be, in accordance with this paragraph 40 and the purchase and sale agreement to be executed by the parties as herein provided; neither party shall have any greater or different obligations and no lesser or different rights from those set forth in this paragraph and such purchase and sale agreement; neither party shall be put to any additional cost or expense on account of any such exchange undertaken by the other party; and neither party shall have any responsibility whatsoever for the tax or nontax consequences of an exchange undertaken by the other party, or any liability arising out of holding title to facilitate such exchange (for which the exchanging party shall indemnify the cooperating party), including without limitation whether the tax effects of any such exchange contemplated by such party and/or any third party to the exchange are in fact successfully realized. No such exchange shall delay or excuse any of the time periods specified in this paragraph or in the purchase and sale agreement to be executed by the parties as herein provided. Accordingly, if an exchange is contemplated but is not, for whatever reason, completed on the closing date agreed upon by the parties for the consummation of the sale of the Premises, the party which has undertaken such exchange (or both parties, if both parties have undertaken exchanges) nevertheless shall be obligated to close on the purchase and sale of the Premises at the time and in the manner such close would have occurred had such party (or both parties, if both parties have undertaken an exchange) not undertaken an exchange.

(f) There shall be no prorations as of the close of escrow and Lessee shall assume any assessments and Lessee shall pay all closing costs, transfer taxes, and escrow fees.

(g) Lessee shall purchase the Premises in an "as is" condition without warranty or representation from Lessor.

(h) Concurrently herewith Lessee and Lessor have entered an Option to Purchase which will be recorded by Lessor.

40. Successors And Assigns: The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder.

41. Miscellaneous Provisions: All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law and are in addition to all other rights or remedies in law and in equity.

42. Choice of Law: This lease shall be construed and enforced in accordance with the substantive laws of the State of California. The language of all parts of this lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Lessor or Lessee.

43. Entire Agreement: This Lease is the entire agreement between the parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided for herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto.

In Witness Whereof, Lessor and Lessee have executed these presents, the day and year first above written.

 

Lessor Berg & Berg Enterprises, Inc.				Lessee Xilinx, Inc.
By:	/s/ Carl E. Berg			By:	/s/ Willem P. Roelandts
signature of authorized representative				signature of authorized representative
Carl E. Berg				Willem P. Roelandts
printed name				printed name
President				CEO, President
Title				Title
October 8, 1997				October 8, 1997
date				date

Three Months Ended Six Months Ended

Sept. 27, Sept. 28, Sept. 27, Sept. 28,

	1997	1996	1997	1996
Primary
Weighted average number of
common shares outstanding	73,921	72,853	73,708	72,515
Incremental common shares
attributable to outstanding options	7,495	6,525	7,663	6,646
Total shares	81,416	79,378	81,371	79,161
Net income	$ 30,950	$ 21,218	$ 64,394	$ 53,710
Net income per share	$ 0.38	$ 0.27	$ 0.79	$ 0.68
Fully Diluted
Weighted average number of
common shares outstanding	73,921	72,853	73,708	72,515
Incremental common shares
attributable to outstanding options	7,495	6,874	7,663	6,821
Total shares	81,416	79,727	81,371	79,336
Net income	$ 30,950	$ 21,218	$ 64,394	$ 53,710
Net income per share	$ 0.38	$ 0.27	$ 0.79	$ 0.68

 

Note: The convertible debt is not included in the calculation of fully diluted net income per share since its inclusion would have had an anti-dilutive effect.

Three Months Ended Six Months Ended

Sept. 27, Sept. 28, Sept. 27, Sept. 28,

	1997	1996	1997	1996
Income before taxes	$ 44,855	$ 31,434	$ 94,401	$ 81,809
Add fixed charges	3,679	3,616	7,359	7,254
Earnings (as defined)	$ 48,534	$ 35,050	$ 101,760	$ 89,063
Fixed charges
Interest expense	$ 3,278	$ 3,219	$ 6,551	$ 6,471
Amortization of debt issuance costs	218	218	436	441
Estimated interest component of rent expenses	183	179	372	342
Total fixed charges	$ 3,679	$ 3,616	$ 7,359	$ 7,254
Ratio of earnings to fixed charges	13.2	9.7	13.8	12.3

 

 
 

© 1998 Xilinx, Inc. All rights reserved Trademarks and Patents