FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-5631
WATKINS-JOHNSON COMPANY
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 Hillview Avenue, Palo Alto, California 94304-1223
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Address of principal executive offices) (Zip Code)
(650) 493-4141
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
--- ---
Common stock, no par value, outstanding as of September 24, 1999 6,627,000
shares
Page 1
<PAGE>
*Caution Regarding Forward-looking Statements
All statements in this quarterly report, other than statements of historical
facts, are forward-looking statements. By way of example only, those include
statements about Watkins-Johnson Company's (the company) strategies, objectives,
plans, expectations and anticipated results, and expectations for the economy
generally or for the company's specific industries. The words "expect",
"anticipate", "looking forward" and other similar expressions used in this Form
10-Q are intended to identify forward-looking statements that involve risks and
uncertainties that may cause actual results and expectations to differ
materially from those expressed. Such risks and uncertainties include, but are
not limited to: product demand and market acceptance risks, the effect of
economic conditions, the impact of competitive products and pricing, product
development, commercialization and technological difficulties, capacity and
supply constraints or difficulties, business cycles, dependence on single large
customers, the results of financing efforts, actual purchases under agreements,
the effect of the company's accounting policies, U.S. Government export
policies, governmental budgeting and spending cycles, results of restructuring
efforts, geographic market concentrations, natural disasters, risks of foreign
business, risks related to "Year 2000 Compatibility", the risk that the company
will not be able to complete the pending sale of its Telecommunications Group
and its strategy for the sale of the entire company, and other risks including
those detailed in the company's 1998 Form 10-K/A filed with the Securities and
Exchange Commission. Investors and prospective investors are cautioned not to
place undue reliance on these forward-looking statements. The company undertakes
no obligation to announce any revisions to its forward-looking statements to
reflect events or circumstances as they actually develop or occur in the future.
Page 2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial statements are unaudited. However the
company believes that all adjustments necessary to present a
fair statement of results for such interim periods have been
included and all such adjustments are of a normal recurring
nature. The results for the nine months ended September 24,
1999, are not necessarily indicative of the results for the
full year 1999.
The consolidated financial statements required by Rule 10-01
of Regulation S-X are included in this report beginning on the
next page.
Page 3
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended September 24, 1999 and September 25, 1998
<CAPTION>
Three Months Ended Nine Months Ended
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(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 28,791 $ 19,069 $ 98,311 $ 75,910
Costs and expenses:
Cost of goods sold 17,348 17,640 60,995 52,531
Cost of goods sold-write down of
discontinued products 3,399 3,399
Research and development 4,991 5,412 15,078 16,715
Selling and administrative 5,275 4,670 14,848 15,761
Restructuring 2,700 2,700
Divestiture 1,639 1,639
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29,253 33,821 92,560 91,106
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Income (loss) from operations (462) (14,752) 5,751 (15,196)
Interest income 1,084 1,420 2,708 4,677
Interest expense (134) (152) (380) (449)
Other income (expense)--net 1 312 192 953
Gain on real property 9,686 9,686 14,783
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Income (loss) from continuing operations before
income tax 10,175 (13,172) 17,957 4,768
Income tax expense (benefit) 3,316 (4,281) 5,836 1,550
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Net income (loss) from continuing operations 6,859 (8,891) 12,121 3,218
Discontinued operations:
Income (loss), net of taxes (45,523) 3,811 (54,138)
Gain on disposition, net of taxes 7,318
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Net income (loss) $ 6,859 $ (54,414) $ 23,250 $ (50,920)
===================================================================================================================================
Basic per share amounts:
Net income (loss) from continuing operations $ 1.04 $ (1.13) $ 1.84 $ .40
Discontinued operations:
Income (loss), net of taxes (5.80) 0.58 (6.67)
Gain on disposition, net of taxes 1.12
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Net income (loss) $ 1.04 $ (6.93) $ 3.54 $ (6.27)
====================================================================================================================================
Basic average common shares 6,603,000 7,857,000 6,576,000 8,122,000
Diluted per share amounts:
Net income (loss) from continuing operations $ 1.00 $ (1.13) $ 1.80 $ .39
Discontinued operations:
Income (loss), net of taxes (5.80) 0.57 (6.55)
Gain on disposition, net of taxes 1.09
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Net income (loss) $ 1.00 $ (6.93) $ 3.46 $ (6.16)
===================================================================================================================================
Diluted average common shares 6,841,000 7,857,000 6,724,000 8,271,000
<FN>
*Unaudited
</FN>
</TABLE>
Page 4
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME*
For the periods ended September 24, 1999 and September 25, 1998
<CAPTION>
Three Months Ended Nine Months Ended
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(Dollars in thousands) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income (loss) $ 6,859 $ (54,414) $ 23,250 $ (50,920)
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (expense), net of tax:
Net unrealized holding gains (losses) on
securities, arising during period (1) 338 (304) 289
Less reclassification adjustment for losses
on securities included in net income (10)
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Other comprehensive income (expense) (1) 338 (304) 279
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Comprehensive income (loss) $ 6,858 $ (54,076) $ 22,946 $ (50,641)
====================================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
Page 5
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS*
As of September 24, 1999 and December 31, 1998
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(Dollars in thousands) 1999 1998
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ASSETS
Current assets:
Cash and equivalents $ 66,212 $ 19,271
Short-term investments 44,678 45,353
Receivables 16,927 19,588
Inventories:
Finished goods 1,262 875
Work in process 3,767 3,167
Raw materials and parts 5,039 5,664
Deferred income tax 25,100 32,288
Net current assets from discontinued operations 16,954 7,453
Other 3,559 17,449
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Total current assets 183,498 151,108
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Property, plant, and equipment 65,803 68,420
Accumulated depreciation and amortization (41,599) (44,829)
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Property, plant, and equipment--net 24,204 23,591
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Net non-current assets of discontinued operations 16,965
Other assets 4,255 10,716
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$ 211,957 $ 202,380
================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 5,709 $ 9,685
Accrued liabilities 44,249 50,405
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Total current liabilities 49,958 60,090
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Long-term obligations 5,868 8,611
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Shareowners' equity:
Common stock 36,331 34,454
Retained earnings 119,952 99,073
Accumulated comprehensive income (loss) (152) 152
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Total shareowners' equity 156,131 133,679
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$ 211,957 $ 202,380
================================================================================
*Unaudited
Page 6
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended September 24, 1999 and September 25, 1998
<CAPTION>
Nine Months Ended
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(Dollars in thousands) 1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 23,250 $ (50,920)
Reconciliation of net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 2,919 3,074
(Gain) loss on disposal of property, plant and
equipment (9,523) (14,719)
Deferred income taxes 7,407 (16,160)
Results of discontinued operations and gain on
disposal (11,129) 54,138
Net changes in:
Receivables 2,661 7,324
Inventories (362) 1,976
Other assets 13,932 (6,177)
Accruals and payables (12,764) (24,816)
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Net cash provided (used) by continuing operating activities 16,391 (46,280)
Net cash provided (used) by discontinued operations (1,286) 3,255
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Net cash provided (used) by operating activities 15,105 (43,025)
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INVESTING ACTIVITIES:
Additions of property, plant, and equipment (4,179) (3,075)
Proceeds from sale of short-term investments 44,664 32,461
Purchases of short-term investments (44,512) (94,938)
Proceeds from sale of discontinued operations 19,878
Proceeds from sale of real property 16,875 15,892
Proceeds on asset retirements and other (283) 5
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Net cash provided (used) by investing activities 32,443 (49,655)
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FINANCING ACTIVITIES:
Payments on long-term borrowing (113) (103)
Proceeds from issuance of common stock 1,877 1,459
Repurchase of common stock (22,963)
Dividends paid (2,371) (2,899)
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Net cash used by financing activities (607) (24,506)
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Net increase (decrease) in cash and equivalents 46,941 (117,186)
Cash and equivalents at beginning of period 19,271 134,462
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Cash and equivalents at end of period $ 66,212 $ 17,276
===========================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
Page 7
<PAGE>
Item 1. Financial Statements (continued)
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Supplementary information to the financial statements:
A dividend of twelve cents per share was declared and paid
during the third quarter of 1999 and 1998.
Per share amounts are computed based on the weighted average
number of basic and diluted (dilutive stock options) common
and common equivalent shares outstanding during the period.
<TABLE>
Earnings per share computation for continuing operations:
<CAPTION>
Dollars in thousands,
except per share amounts Three Months Ended Nine Months Ended
- ---------------------------------------------------------------------------------------------------
September 24, September 25, September 24, September 25,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Denominator for basic per share:
Weighted average shares outstanding 6,603,000 7,857,000 6,576,000 8,122,000
---------- ---------- ---------- ----------
Denominator for diluted per share:
Weighted average shares outstanding 6,603,000 7,857,000 6,576,000 8,122,000
Effect of dilutive stock options 238,000 148,000 149,000
---------- ---------- ---------- ----------
Diluted average common shares 6,841,000 7,857,000 6,724,000 8,271,000
---------- ---------- ---------- ----------
Net income from continuing operations
(numerator) $ 6,859 $ (8,891) $ 12,121 $ 3,218
========== ========== ========== ==========
Basic net income per share
from continuing operations 1.04 $ (1.13) $ 1.84 $ 0.40
Diluted net income per share from
continuing operations 1.00 $ (1.13) $ 1.80 $ 0.39
</TABLE>
The calculation is submitted in accordance with Regulation S-K, Item
601 (b)(11).
For the three months ended September 25, 1998, the incremental shares from
the assumed exercise of 149,000 stock options, are not included in
computing the dilutive per share amounts because continuing operations
resulted in a loss and such assumed conversion would be antidilutive.
The weighted average options outstanding to purchase 392,000 and 1,194,000
shares of common stock were not included in the computation of diluted per
share amounts for the three months ended September 24, 1999 and September
25, 1998, respectively, because the weighted average exercise prices were
greater than the average market prices of the common shares. Weighted
Page 8
<PAGE>
Item 1. Financial Statements (continued)
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average exercise prices of $39.91 in 1999 and $30.82 in 1998
exceeded the average market prices of $32.84 and $21.68,
respectively.
The weighted average options outstanding to purchase 436,000
and 862,000 shares of common stock were not included in the
computation of diluted per share amounts for the nine months
ended September 24, 1999 and September 25, 1998, respectively,
because the weighted average exercise prices were greater than
the average market prices of the common shares. Weighted
average exercise prices of $39.43 in 1999 and $33.84 in 1998
exceeded the average market prices of $27.32 and $24.64,
respectively.
Business Segment Reporting -- Prior to the second quarter of
1999, the company operated in two segments: Semiconductor
Equipment and Wireless Communications. In July 1999 the
company completed the sale of its Semiconductor Equipment
Group (SEG) business, which was included in the second quarter
1999 financial results as a discontinued operation. In
addition, the company's remaining business, Wireless
Communications, was separated into two reportable business
segments: Wireless Products Group (WPG) and Telecommunications
Group (TG).
WPG designs, manufactures and services radio frequency (RF)
components, subassemblies, repeaters and related equipment
with applications for commercial wire-line and wireless
telecommunications infrastructure networks. TG designs,
manufactures and services equipment and related processes with
applications in government intelligence, signal surveillance
and military communications.
WPG and TG became significant relative to the continuing
operations after the divestiture of the SEG business. Going
forward, each Group is expected to focus on its respective
core products and markets. Each Group's progress and
performance will be reviewed separately based on its
respective strategic and tactical plans.
<TABLE>
Sales to external customers and pre-tax profit (loss) from
continuing operations by business segment are as follows:
<CAPTION>
Three months ended September 24,1999 and September 25, 1998
Sales Pre-tax income (loss)
-----------------------------------------------------------
(in thousands) 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wireless Products Group $ 16,524 $ 11,556 $ 125 $ (2,118)
Telecommunications Group 12,267 7,513 1,053 (12,634)
Corporate (1,640)
---------------------------------------------------------------------------------------------------
Income from continuing operations (462) (14,752)
Other income (expense)-net 10,637 1,580
---------------------------------------------------------------------------------------------------
Total $ 28,791 $ 19,069 $ 10,175 $(13,172)
===================================================================================================
Nine months ended September 24,1999 and September 25, 1998
Sales Pre-tax income (loss)
-----------------------------------------------------------
(in thousands) 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------
Wireless Products Group $ 63,740 $ 34,579 $ 4,461 $ (2,206)
Telecommunications Group 34,571 41,331 2,930 (12,990)
Corporate (1,640)
---------------------------------------------------------------------------------------------------
Income from continuing operations 5,751 (15,196)
Other income (expense)-net 12,206 19,964
---------------------------------------------------------------------------------------------------
Total $ 98,311 $ 75,910 $ 17,957 $ 4,768
===================================================================================================
</TABLE>
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<PAGE>
Item 1. Financial Statements (continued)
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<TABLE>
Discontinued Product Line and Related Restructuring Charges --
During the third quarter of 1998, the TG segment discontinued
its Base2(TM) base-station product line after reassessing key
customer needs and market conditions. Inventory, demo
equipment, and specialized fixed assets associated with the
discontinued product were written down in the restructuring.
The company recorded charges of $6.1 million related to fixed
assets, inventory, severance and other exit costs as follows:
<CAPTION>
Accrued
Severance,
Benefits, and Write Down of Write Down
(in thousands) Other Costs Fixed Assets of Inventory
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restructuring provision $448 $2,252 $3,399
=======================================
Amount paid in 1998 213
Amount paid in 1999 235
====================================================================
Balance at September 24, 1999 $ 0
====================================================================
</TABLE>
Subsequent Events -- On October 1, 1999, the company completed
the sale of one of its long-term lease interests in Palo Alto
to Stanford University resulting in net proceeds of about
$54.0 million. This transaction and any resulting gain will be
reported in the company's fourth quarter financial results.
On October 26, 1999, the company announced it has entered into
a definitive merger agreement with FP-WJ Acquisition Corp., a
new company formed by certain investment funds managed by Fox
Paine & Company, LLC ("FP-WJ"). Under the terms of the merger
agreement, the company's outstanding common shares would be
converted into the right to receive $41.125 per share in cash.
This transaction is not yet complete and is subject to certain
conditions in addition to the receipt of funding under
financing commitments, approval by the company's shareowners
and customary government approvals, and the completion of the
sale of TG to Marconi North America, Inc. See Part I, Item 2,
under "Divestiture Activities".
There can be no assurance that the pending sale of TG or the
merger with FP-WJ will be completed nor can there be any
assurance that the company will be able to complete its
strategy for the sale of the entire company.
Subsequent to the third quarter and in connection with the
pending merger transaction with an FP-WJ, four purported
shareholder class action lawsuits have been filed against the
company and its directors in the California Superior Court for
the County of Santa Clara: Rosenzweig v. Watkins-Johnson
Company, et al., Case No CV7885528; Soshtain v.
Watkins-Johnson Co., et al., Case No CV785560; Leong v.
Watkins-Johnson Company, et al., Case No CV785617; and Fong v.
Watkins-Johnson Co., et al., Case No. CV785683. These lawsuits
allege essentially the same ground for relief, namely that the
individual defendants breached their fiduciary duty to the
company's shareowners in connection with the merger by failing
to maximize the value of the company through an approprate
process for eliciting and evaluating bids in order to entrench
themselves in office and serve their personal interests. Three
of the four lawsuits include, in the relief sought,
preliminary and permanent injunctions against the completion
of the merger. Two of the four lawsuits also seek an order
permitting a stockholder's committee comprised exclusively of
members of the purported class and their representative to
establish procedures, and independent input by the plaintiffs
and the classes they purportedly represent in connection with
any proposed transction for WJ shares. To the company's
knowledge no motion has been filed for injunctive relief in
any of these lawsuits. WJ considers that these lawsuits are
without merit and intends to defend against all of them
vigoursly.
Recently Issued Accounting Standard--In June 1998, the FASB
issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." In June 1999, the FASB issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of
Page 10
<PAGE>
Item 1. Financial Statements (continued)
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SFAS 133." These Statements require companies to record
derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains and losses resulting from
changes in the fair market values of those derivative
instruments would be accounted for depending on the use of the
instrument and whether it qualifies for hedge accounting. SFAS
133 will be effective for the company's year ending December
31, 2001. The company enters into forward exchange contracts
to hedge sales transactions and firm commitments denominated
in foreign currencies. Management does not expect these
Statements to have a significant impact on the company's
financial condition or results of operations.
Page 11
<PAGE>
PART I--FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Conditions
and Results of Operations
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The following discussion should be read in conjunction with
the company's consolidated financial statements and related
disclosures included elsewhere in this quarterly report.
Except for historic actual results reported, the following
discussion may contain predictions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties. See "Caution Regarding Forward-looking
Statements" included above for a discussion of certain factors
that could cause future actual results to differ from those
described in the following discussion.
Financial Condition and Liquidity
On September 24, 1999, cash and equivalents and short-term
investments totaled $110.9 million, an increase of $46.3
million from the year-end balance of $64.6 million. The
increase is attributable mostly to the following transactions:
Net proceeds of $19.9 million from sale of a discontinued
operation--SEG business, and $16.9 million from sale of the
remaining San Jose, California facility. See a more detailed
discussion of these completed transactions under "Divestiture
Activities" below. In addition, the company's cash position
was improved by an income tax refund of $12.0 million received
in 1999 as a result of the 1998 net operating loss.
At the end of the third quarter, the company's principal
source of liquidity consisted of $66.2 million in cash and
equivalents plus short-term investments valued at $44.7
million. The company invests its excess cash and equivalents
in securities with maturity periods exceeding 90 days to take
advantage of the higher yields. These short-term investments,
which consist primarily of high grade debt securities, are
subject to interest rate risk and rise and fall in value as
market interest rates change.
At the end of the third quarter, there were no material
commitments for capital expenditures. Based on current plans
and business conditions, the company believes that its
existing cash and equivalents, short-term investments and cash
generated from operations will satisfy anticipated cash and
working capital requirements for the next twelve months.
Divestiture Activities
On March 31, 1999, the company sold the high-density plasma
chemical vapor deposition (HDPCVD) intellectual property
assets and related hardware of SEG. In July 1999, the company
sold the remainder of its SEG business, consisting of
atmospheric pressure chemical vapor disposition products
(APCVD). These transactions completed the divestiture of SEG
resulting in a net gain of $7.3 million included in the
company's second quarter financial results as a disposition of
a discontinued operation.
On August 18, 1999, the company announced a definitive
agreement to sell substantially all of TG's assets to a unit
of Marconi North America, Inc., a subsidiary of the General
Electric Company p.l.c. of the United Kingdom. The sale is not
yet complete and is subject to certain conditions in addition
to approval by the company's shareowners and government
approvals.
On September 16, 1999, the company completed the sale of its
remaining San Jose, California facility including a 190,000
square foot building resulting in a pre-tax gain of $9.7
million. This transaction was included in the company's third
quarter financial results.
On October 1, 1999, the company completed the sale of one of
its long-term lease interests in Palo Alto to Stanford
University resulting in net proceeds of about $54.0 million.
This transaction and any resulting gain will be reported in
the company's fourth quarter financial results.
On October 26, 1999, the company announced it has entered into
a definitive merger agreement with FP-WJ Acquisition Corp., a
new company formed by certain investment funds managed by Fox
Paine
Page 12
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Conditions
and Results of Operations (continued)
- --------------------------------------------------------------------------------
& Company, LLC ("FP-WJ"). Under the terms of the merger
agreement, the company's outstanding common shares would be
converted into the right to receive $41.125 per share in cash.
This transaction is not yet complete and is subject to certain
conditions in addition to the receipt of funding under
financing commitments, approval by the company's shareowners
and customary government approvals, and the completion of the
sale of TG to Marconi North America, Inc.
There can be no assurance that the pending sale of TG or the
merger with FP-WJ will be completed nor can there be any
assurance that the company will be able to complete its
strategy for the sale of the entire company.
Current Operations and Business Outlook
During the third quarter 1999, WPG received $23.5 million of
new orders, an increase 49% from the $15.8 million received in
the second quarter and an increase of 3.5% from the $22.7
million during the same quarter one year ago. New orders
received by WPG included key orders from communication
equipment leaders such as Lucent Technologies, Inc. and Nortel
Networks. Approximately 20% of the orders were received for
WPG's components and repeater products.
During the third quarter 1999, TG received $14.5 million of
new orders, an increase of 2.8% from the second quarter of
$14.1 million and 59% more than the $9.1 million during the
same quarter one year ago. Larger than expected orders were
received from U.S. government agencies.
At the end of the third quarter, the company's total backlog
was $77.9 million. This was about 13% higher than the $68.7 at
the end of the second quarter, and about 18% higher than the
$66.0 million of a year ago. Of the total $77.9 million
backlog, WPG's was $43.4 million while TG's was $34.5 million.
Since the company's backlog can be canceled or rescheduled,
backlog is not necessarily a meaningful indicator for future
revenue.
With the divestiture of the SEG business completed in the
second quarter, the company has been focusing on the WPG and
TG businesses. Based on current quarter and year-to-date
results, both businesses are on track to exceed their targeted
profit plans for the year. Although long-term prospects for
both businesses appeared positive, it should be noted that
short-term demand variations by key customers may affect
short-term quarterly results. In addition, the wireless and
telecommunications industries are subject to various
regulatory agencies of federal, foreign, state and local
governments which can affect market dynamics, causing
unforeseen ebb and flow of orders and delivery requirements.
Domestic and international competition from a number of firms,
some of whom are larger than the company, is intense. Other
risks and factors discussed in the company's 1998 Form 10-K/A
could significantly affect the company's future operating
results.
Third Quarter 1999 Compared to Third Quarter 1998
Sales for WPG increased to $16.5 million in 1999 from $11.6
million in 1998, or 42%. Sales continued to grow compared to
1998, but grew at a slower rate when compared to the first
half of 1999. The increase in sales was from various product
areas including radio frequency (RF) devices and
subassemblies, repeaters and PCS converters.
Sales for TG increased to $12.3 million in 1999 compared to
$7.5 million in 1998, or 64%. The 1998 third quarter was a low
period for TG as a key product line, Base2(TM), was
discontinued and TG refocused on its core products and
customers.
Gross margin for WPG increased to 41% in 1999 from 27% in 1998
mostly due to higher volume. Also in 1998, start-up costs
related to a wireless-local-loop product were incurred.
Gross margin for TG increased to 37% in 1999 compared to a
loss in 1998. TG's 1999 third quarter results continued to
indicate that the 1998 restructuring and realignment were
positive relative
Page 13
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Conditions
and Results of Operations (continued)
- --------------------------------------------------------------------------------
to current business conditions. Included in the 1998 third
quarter was a $3.4 million inventory write down associated
with the discontinued Base2 product line, and $6.7 million of
charges for problem contracts and slow-moving inventory.
WPG research and development expenses were $4.4 million in
1999 or 27% of sales, compared to $3.9 million in 1998, or 34%
of sales. Research and development activities are expected to
remain at the current level for the rest of 1999. WPG has been
focused on bringing new products to market efficiently to take
advantage of the growing market.
TG research and development expenses decreased from 20% of
sales in 1998 to 5% in 1999 as the group halted its spending
on the discontinued Base2 product in September 1998. Actual
expenses decreased from $1.5 million in 1998 to $0.6 million
in 1999. TG believes the current level of research and
development activity is sufficient in sustaining its refocused
core business.
WPG's selling and administrative expenses increased to $2.3
million or 14% of sales in 1999, from $1.3 million or 11% of
sales in 1998. For the full year 1999, WPG's selling and
administrative expenses are expected to be within planned
levels at about 11% of sales.
Excluding the 1998 restructuring charges of $2.7 million, TG's
selling and administrative expenses were $2.9 million in 1999
compared to $3.4 million in 1998, or a 15% decline. The
decline was attributable to the restructuring actions taken in
1998.
The company incurred additional expenses totaling $1.6 million
related to the pending transactions as discussed under
"Divestiture Activities" in this Part I, Item 2. Although the
transactions are pending, the related expenses must be charged
against earnings as they are incurred.
Interest income decreased to $1.1 million in 1999 compared to
$1.4 million in 1998 mostly due to higher funds available for
investment in the third quarter of 1998. In 1999, the sale of
the company's remaining San Jose, California facility was
completed in the third quarter resulting in $9.7 million of
pre-tax gain.
Due to the combined effect of the above, net income from
continuing operations in 1999 was $6.9 million, or $1.00 per
diluted share, compared to a net loss of $8.9 million in 1998,
or $1.13 loss per diluted share.
Year-to-date 1999 Compared to Year-to-date 1998
WPG sales increased 84% to $63.7 million in 1999 from $34.6
million in 1998. WPG continued to grow in all product areas
particularly with strong shipments of wireless-local-loop
products in the first half of 1999.
Although TG sales decreased from $41.3 million in 1998 to
$34.6 million in 1999, or 16%, it was in line with TG's
expectations after restructuring in 1998. TG's efforts in
refocusing on its core products and customers have been
positive as its orders and sales have been stabilized for the
first three quarters of 1999.
Gross margin for WPG improved to 38% in 1999 from 32% in 1998
as the group continued to benefit from higher volume and
economies of scale.
Gross margin for TG was 38% in 1999 compared to 21% in 1998.
Included in 1998 was a $3.4 million inventory write down
associated with the discontinued Base2 product line, and $6.7
million of charges for problem contracts and slow-moving
inventory.
WPG research and development expenses increased from $9.1
million in 1998 to $13.0 million in 1999. The expenditures
were within WPG's plans. WPG's product development activities
are
Page 14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- --------------------------------------------------------------------------------
expected to continue at its current pace as it is committed to
introduce new quality products to its rapidly growing market
in a timely manner.
TG research and development expenses decreased substantially
from $7.6 million in 1998 to $2.1 million in 1999. The drop
was mostly due to spending being curbed on the discontinued
Base2 product line since third quarter 1998.
WPG selling and administrative expenses decreased from 12% of
sales in 1998 to 11% of sales in 1999 as expected due to
higher business volume. Actual expenses increased from $4.2
million to $6.8 million and were within WPG's plans.
Excluding 1998 restructuring charges of $2.7 million, TG
selling and administrative expenses decreased from $11.5
million in 1998 to $8.1 million in 1999. Based on the results
of the first three quarters of 1999, the decrease was mostly
due to the resizing of the TG business in 1998.
The company incurred additional expenses totaling $1.6 million
related to a number of pending transactions as discussed in
this Part I, Item 2, under "Divestiture Activities". Although
some of the transactions are still pending, the related
expenses have to be charged against earnings as they are
incurred.
Interest income decreased to $2.7 million in 1999 compared to
$4.7 million in 1998 mostly due to higher funds available for
investment in 1998 than in 1999. In 1999, the sale of the
company's remaining San Jose, California facility was
completed in the third quarter resulting in $9.7 million of
pre-tax gain. In 1998, the sale of about 15 acres of
undeveloped land adjacent to the San Jose, California facility
was sold resulting in about $15.0 million of pre-tax gain.
Due to the combined effect of the above, net income from
continuing operations in 1999 was $12.1 million, or $1.80 per
diluted share, compared to $3.2 million in 1998, or $0.39 per
diluted share.
Year 2000 Compatibility
The Year 2000 (Y2K) issue involves the ability of computer
software to properly utilize dates for years after the year
1999. Computers have traditionally used the last two digits of
the year for date calculations and could interpret the year
2000 as the year 1900. The critical areas being addressed by
the company are its internal computer systems, products made
by the company and relationships with external organizations.
The company is addressing both information technology ("IT")
and non-IT systems which typically include embedded technology
such as microcontrollers.
The company regularly updates its information systems
capabilities, and has evaluated significant computer software
applications for compatibility with the year 2000. Several
years ago the company adopted a strategic plan for its
internal computer systems with the goal of going to an
off-the-shelf real time system. As a result, the company's
operations run all financial and manufacturing business
applications on an Oracle database with the associated Oracle
application modules. Oracle's stated solution to Y2K is its
version 10.7 of the application software. As of June 1998, the
company's operations are on Oracle version 10.7. There are no
known non-IT issues that will adversely impact the company's
information systems capabilities. With the system changes
implemented to date and other planned changes, the company
anticipates that its internal computer software applications
will be compatible with the year 2000. In the event of any Y2K
disruptions, the company will follow the software vendors'
contingency directives.
The Y2K issue (both IT and non-IT) for company products is
being addressed by WPG and TG, respectively. The company
believes the Y2K situation is an issue for only certain
non-core products. Customers have been notified as to what
effect, if any, Y2K will have on their products and solutions
developed as needed. The respective business units have also
addressed non-IT issues with respect to
Page 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- --------------------------------------------------------------------------------
their manufacturing facilities and there are no known non-IT
issues that will adversely impact the company's operations.
The company is dependent on numerous vendors and customers
which may incur disruptions as a result of year 2000 software
issues. Accordingly, no assurance can be given that the
company's operations will not be impacted by this
industry-wide issue. The company is addressing the Y2K issues
with external organizations. This involves customers,
suppliers and service providers. Although the initial review
does not indicate any significant risk, this will be an
ongoing effort. The company is considering alternative vendors
as a contingency plan.
With the actions that have been taken and the other planned
activities, the company is not anticipating any significant
disruption of business. However, no absolute assurances can be
given. The most likely disruption that could occur is where
the company uses wire transfers to move funds to vendors, some
of which are located in foreign countries. Since the status of
all banking systems in the world cannot be determined in
advance, there may be minor disruption in the ability to
transfer funds in real time along the current routes.
Contingency plans, which include alternative banks and standby
letters of credit, are in place to address what is needed to
minimize any business interruption.
Expenditures specifically related to software modifications
for year 2000 compatibility are not expected to have a
material effect on the company's operations or financial
position. The cost to address and remedy the company's Y2K
issues was less than $100,000 for the years 1997 and 1998 and
is expected to be the same in 1999.
Page 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- --------------------------------------------------------------------------------
Single European Currency Conversion
The company has addressed the Single European Currency (Euro)
for initial implementation as of January 1, 1999, and through
the transition period to January 1, 2002. The company believes
it has met the related legal requirements effective for
January 1, 1999, and it expects to be able to meet the legal
requirements through the transition period. The company does
not expect the cost of any system modifications to be material
and does not currently expect that introduction and use of the
Euro will materially affect its foreign exchange and hedging
activities or will result in any material increase in costs to
the company. While the company will continue to evaluate the
impact of the Euro, based on current available information
management does not believe that the Euro will have a material
adverse impact on the company's financial condition or the
overall trends in results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
- --------------------------------------------------------------------------------
The following discussion about the company's market risk
disclosures involves forward-looking statements. Actual
results could differ materially from those projected in the
forward-looking statements. The company is exposed to market
risk related to changes in interest rates and foreign currency
exchange rates. The company does not use derivative financial
instruments for speculative or trading purposes.
Short-Term Investments--The company maintains a short-term
investment portfolio consisting mainly of debt securities with
an average maturity of less than two years. These
available-for-sale securities are subject to interest rate
risk and rise or fall in value as market interest rates
change. The company has the ability to hold its fixed income
investments until maturity, and therefore the company would
not expect its operating results or cash flows to be affected
to any significant degree by the effect of a sudden change in
market interest rates on its investment portfolio.
<TABLE>
The following table provides information about the company's
investment portfolio and constitutes a "forward-looking
statement." For investment securities, the table presents
principal cash flows and related weighted average interest
rates by expected maturity dates.
<CAPTION>
Expected Maturity Weighted Average
Amounts Interest
Expected Maturity Dates (in thousands) Rate
------------------------------------- --------------------- -------------------
<S> <C> <C>
Cash and equivalents:
1999 $ 6,212 4.83%
========
Short-term investments:
1999 1,973 5.39%
2000 27,774 5.74%
2001 10,966 5.74%
2002 3,965 5.61%
--------
Fair value at
September 24, 1999 $ 44,678
========
</TABLE>
Page 17
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risks
(continued)
- --------------------------------------------------------------------------------
Foreign Exchange Risks--The company has limited involvement
with derivative financial instruments and does not use such
instruments for trading purposes. The derivative financial
instruments are used to manage foreign currency exchange risk.
The company enters into foreign exchange forward contracts to
hedge certain balance sheet exposures and specific
transactions denominated in a foreign currency. Gains and
losses on the forward contracts are largely offset by the
underlying transactions' exposure and consequently a sudden or
significant change in foreign exchange rates is not expected
to have a material impact on future net income or cash flows.
The company is exposed to credit-related losses in the event
of nonperformance by counter parties to these financial
instruments, but does not expect any counter party to fail to
meet its obligation.
Additional information regarding market risks is disclosed in
Notes 1, 2 and 3 to the consolidated financial statements
included in Part II, Item 8 of the company's Form 10-K/A for
the year ended December 31, 1998.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
- -----------------------------------
See Part I, Item 1, under "Subsequent Events".
Item 2. Changes in Securities and Use of Proceeds
- ------------------------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
- --------------------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- ----------------------------------------------------------------------
Not applicable.
Item 5. Other Information
- -----------------------------------
See Part I, Item 1, under "Subsequent Events" and Part I, Item
2, under "Divestiture Activities".
Page 18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
a) A list of the exhibits required to be filed as part
of this report is set forth in the Exhibit Index,
which immediately precedes the exhibits. The exhibits
are numbered according to Item 601 of Regulation S-K.
b) A Form 8-K filing was filed on July 21, 1999
reporting the completion of the divestiture of the
company's Semiconductor Equipment Group business on
July 6, 1999.
Form 8-K's were filed on August 18,1999 and September
27, 1999 reporting that the company had entered into
a definitive agreement, and an amended and restated
agreement, respectively, to sell its
Telecommunication Group business to a subsidiary of
Marconi North America, Inc.
Page 19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATKINS-JOHNSON COMPANY
(Registrant)
Date November 8, 1999 By: /s/ W. Keith Kennedy, Jr.
-------------------------- ---------------------------------------
W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date November 8, 1999 By: /s/ Scott G. Buchanan
-------------------------- ---------------------------------------
Scott G. Buchanan
Executive Vice President,
Chief Financial Officer
and Treasurer
Page 20
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
- ------ -------
3.1 * Articles of Incorporation of Watkins-Johnson Company, as amended May
8, 1989
3.2 * By-Laws of Watkins-Johnson Company, as amended and restated on
December 10, 1998 (Exhibit 3(ii) to Form 8-K filed on December 14,
1998, Commission File No. 1-5631).
4.1 * Shareowners' Rights Agreement dated as of September 30, 1996 Between
Watkins-Johnson Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (Report on Form 8-K, filed on October 1,
1996, Commission File No.1-5631).
4.2 * Amendment No. 1 to Rights Agreement, dated as of December 10, 1998,
to Rights Agreement, dated as of September 30, 1996, between
Watkins-Johnson Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent. (Filed as Exhibit 4.1 to Form 8-K filed on
December 14, 1998, Commission File No. 1-5631).
10 Material Contracts
10.1 * Lease and Agreement between Lindco Properties Company and
Watkins-Johnson Company commencing May 1, 1969 (Exhibit (b) I to
Form 10-K for 1969, Commission File No. 2-22436).
10.2 * Lease and Agreement between Morrco Properties Company and
Watkins-Johnson Company dated October 31, 1975 (Exhibit 2(c) to Form
10-K for 1976, Commission File No. 1-5631).
10.3 * Watkins-Johnson Company 1976 Stock Option Plan, as amended September
28, 1987 (Appendix A to the company's definitive proxy statement
dated March 1, 1988 filed with the Commission pursuant to Regulation
14A).
10.4 * Watkins-Johnson Company 1989 Stock Option Plan for nonemployee
directors (Appendix A to the company's definitive proxy statement
dated February 28, 1990 filed with the Commission pursuant to
Regulation 14A).
10.5 * Watkins-Johnson Company 1976 Stock Option Plan amended and renamed
as the 1991 Stock Option and Incentive plan (Appendix A to the
company's definitive proxy statement dated February 28, 1991 filed
with the commission pursuant to Regulation 14A).
10.6 Deleted
10.7 Deleted
10.8 Deleted
Page 21
<PAGE>
Exhibit
Number Exhibit
- ------ -------
10.9 Deleted
10.10 Deleted
10.11 * Stock Purchase Agreement dated as of August 29, 1997 by and among
Registrant and SMS and TSMD Acquisition Corp. (original agreement
filed as Exhibit 99.1 of Report on Form 8-K, filed on November 14,
1997, reporting the disposition of assets effective October 31,
1997, Commission File No. 1-5631).
10.12 * Watkins-Johnson Company Unaudited Pro Forma Condensed Consolidated
Financial Information filed as an amendment to Report on Form 8-K,
filed on November 14, 1997, reporting the disposition of assets
effective October 31, 1997 and Stock Purchase Agreement dated as of
August 29, 1997 by and among Registrant and SMS and TSMD Acquisition
Corp., Commission File No. 1-5631 (Exhibit 10-x originally filed as
Report on Form 8-K/A, filed on January 13, 1998, Commission File No.
1-5631).
10.13 * Asset Purchase Agreement between Watkins-Johnson Company and Samsung
Semiconductor, Inc. dated as of December 31, 1997. (Filed as Exhibit
10-y to the 1997 Form 10-K, Commission File No. 1-5631).
10.14 * Assignment of Lease Agreement by and between Taylor Woodrow Property
Company, Inc. ("Assignor") and Watkins-Johnson Company ("Assignee")
dated as of December 30, 1997. (Filed as Exhibit 10-z to the 1997
Form 10-K, Commission File No. 1-5631).
10.15 * Form 8-K filed on September 10, 1998. The report contains
disclosures regarding the company's announcement of restructuring
plans and related third quarter 1998 charges. (Commission File No.
1-5631).
10.16 * Form 8-K filed on December 14, 1998. The report contains disclosures
regarding the December 10, 1998 Board of Director approval to amend
and restate the company By-Laws and to amend the Rights Agreement,
dated September 30, 1996, between the company and ChaseMellon.
(Commission File No. 1-5631).
10.17 * Form 8-A/A filed on December 14, 1998. Form 8-A/A was filed for the
registration of the amended common stock purchase rights approved by
the Board of Directors on December 10, 1998 (Commission File No.
1-5631).
10.18 ** Purchase and Sale Agreement, dated May 2, 1997, by and among
Watkins-Johnson Company and CarrAmerica Realty for sale of
undeveloped land in San Jose, California, including the August 15,
1997 First Amendment to and Reaffirmation of Purchase and Sale
Agreement.
10.19 ** Resolution of the Board of Directors of Watkins-Johnson, effective
December 31, 1998, for the termination of the company's 1994 Top
Management Deferred Compensation Plan and the company's Top
Management Incentive Bonus Plan.
10.20 ** Form of Severance Agreement, dated September 28, 1998, by and
between Watkins-Johnson Company and the following officers of the
company: Dr. Patrick J. Brady, Malcolm J. Caraballo, and Robert G.
Hiller.
Page 22
<PAGE>
Exhibit
Number Exhibit
- ------ -------
10.21 ** Amended and Restated Employment Agreement made as of March 2, 1998
and amended and restated in its entirety effective as of January 25,
1999 by and between W. Keith Kennedy and Watkins-Johnson Company.
10.22 ** Form of employment Agreement, dated February 22, 1999, by and
between Watkins-Johnson Company and the following officers of the
company: Scott G. Buchanan, Dr. Frank E. Emery, Darryl T. Quan and
Claudia D. Kelly.
10.24 ** Amended and Restated Severance Agreement originally dated September
28, 1998 and amended and restated in its entirety effective as of
January 25, 1999 by and between Watkins-Johnson Company and Scott G.
Buchanan.
10.25 ** Terms of Employee Rentention Program dated March 1, 1999.
10.26 Form of Amended and Restated Severance Agreement originally dated
September 28, 1998 and amended and restated in its entirety
effective January 25, 1999 and July 9, 1999 by and between
Watkins-Johnson Company and the following officers of the company:
Dr. Frank E. Emery, Darryl T. Quan and Claudia Kelly.
10.27 Amended and Restated Severance Agreement originally dated September
28, 1998 and amended and restated in its entirety effective January
25, 1999 and July 9, 1999 by and between Watkins-Johnson Company and
Scott G. Buchanan.
10.28 Remediation Agreement entered into on July 13, 1999 by and between
SECOR International Incorporated ("SECOR"), a Delaware corporation
and Watkins-Johnson Company, for professional environmental services
for 3333 Hillview Avenue, Palo Alto, California.
10.29 Purchase and Sale Agreement entered into August 21, 1999 by and
between Watkins-Johnson Company and Lincoln Property Company
Commercial Inc for the sale of land and building at 2525 North First
Street, San Jose, California.
10.30 Agreement for Assignment of Leasehold Interest, Sublease of
Property, Leaseback of Real Property, and Joint Escrow Instructions
entered into on September 30, 1999 by and between the Board of
Trustees of the Leland Stanford Junior University and
Watkins-Johnson company for buildings 3, 4 and 5 located at 3333
Hillview Avenue, Palo Alto, California.
10.31 * Watkins-Johnson Company Unaudited ProForma Condensed Consolidated
Financial Information on Form 8-K, filed on July 21, 1999 reporting
the completion of the divestiture of the company's Semiconductor
Equipment Group business on July 6, 1999 and related amendment to
the Securities Purchase Agreement dated April 30, 1999 between
Silicon Valley Group, Inc. and Watkins-Johnson Company (Commission
File No. 1-5631).
10.32 * Purchase Agreement, dated August 18, 1999, between Watkins-Johnson
Company and Tracor, Inc. providing for the sale of the company's
Telecommunications Group (filed as Exhibit 2.1 to Form 8-K filed on
August 18, 1999, Commission File No. 1-5631).
Page 23
<PAGE>
Exhibit
Number Exhibit
- ------ -------
10.33 * Amended and Restated Purchase Agreement, dated August 18, 1999,
between Watkins-Johnson Company and Tracor, Inc., with Marconi
Aerospace Electronics Systems, Inc. as Assignee of the rights and
obligations of Tracor, Inc. (filed as Exhibit 10.1 to Form 8-K filed
on October 7, 1999, Commission File No. 1-5631).
10.34 Resolution passed by the Board of Directors on July 2, 1999 to
provide compensation to retired directors.
27.1 Financial Data Schedule for the quarter ended September 24, 1999
27.2 Restated Financial Data Schedule for the quarter ended September 25,
1998.
27.3 Restated Financial Data Schedule for the year ended December 31,
1998.
27.4 Restated Financial Data Schedule for the year ended December 31,
1997.
27.5 Restated Financial Data Schedule for the year ended December 31,
1996.
* Incorporated by reference to exhibits indicated for each item.
** Incorporated by reference to the company's Form 10K/A filed on
November 2, 1999 for the fiscal year ended December 31, 1998.
Page 24
Exhibit 10.26
AMENDED AND RESTATED SEVERANCE AGREEMENT
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"),
originally dated September 28, 1998, and amended and restated in its entirety
effective as of January 25, 1999, and July 9, 1999, is entered into by and
between Watkins-Johnson Company, a California corporation (the "Company"), and -
________________ ("Employee").
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including Employee, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a Change in Control (as defined herein) of the Company.
This Agreement sets forth the severance compensation which the Company
agrees to pay to Employee if Employee's employment with the Company terminates
under one of the circumstances described herein.
1. Term.
(a) This Agreement shall terminate, except for any unpaid
obligation of the Company, upon the earliest of (i) three years from September
28, 1998, if a Change in Control has not
<PAGE>
occurred within such three-year period; (ii) the termination of Employee's
employment based on death, Disability (as defined in Section 2(c)) or Cause (as
defined in Section 2(d)) or by Employee other than for Good Reason (as defined
in Section 2(e)); or (iii) three years from the date of a Change in Control.
(b) Nothing in this Agreement shall confer upon Employee any
right to continue in the employ of the Company prior to or following a Change in
Control or shall in any way limit the rights of the Company, which are hereby
expressly reserved, to discharge Employee at any time prior to or following the
date of a Change in Control for any reason whatsoever, with or without Cause.
2. Certain Definitions.
(a) Change in Control. A Change in Control shall be deemed to
have occurred if (i) there shall be consummated (x) any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation, (y) any other consolidation or merger to which the Company is a
party, regardless of whether shares of the Company's Common Stock would be
converted into cash, securities or other property, other than
2
<PAGE>
a merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock (or the equivalent fully voting securities) of the surviving corporation
or other entity immediately after the merger, or (z) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company, or (ii) the Company
consummates (in one or a series of transactions) the disposition of
substantially all of its business operations, or (iii) any "person" (as defined
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended,
shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 30% or more of the Company's outstanding Common
Stock, or (iv) during any period of two consecutive years, individuals who at
the beginning of such period constitute the entire Board of Directors of the
Company shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
3
<PAGE>
(b) Triggering Event. A "Triggering Event" shall be deemed to
have occurred if either (i) (A) a Change in Control occurs while Employee is
still employed by the Company or any of its subsidiaries and (B) Employee's
employment is thereafter terminated (x) by the Company other than for death,
Disability or Cause, (y) by Employee for Good Reason or (z) by Employee pursuant
to the last paragraph of Section 3, or (ii) a Change in Control occurs after the
date on which Employee's employment with the Company or any of its subsidiaries
was terminated (A) by the Company other than for death, Disability or Cause or
(B) by Employee for Good Reason, and such termination is effected by the Company
(or the actions or decisions giving rise to Employee's termination for Good
Reason are taken or made by the Company) in anticipation of a Change in Control
(any such termination, action or decision effected, taken or made within 90 days
prior to the date of any such Change in Control shall be conclusively deemed to
be in anticipation of a Change in Control).
(c) Disability. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent from duties with
the Company on a full-time basis for
4
<PAGE>
six consecutive months and within 30 days after written Notice of Termination
(as required by Section 9(b)) is thereafter given by the Company, Employee shall
not have returned to the full-time performance of Employee's duties, the Company
may terminate this Agreement for "Disability."
(d) Cause. For purposes of this Agreement only, the Company
shall have "Cause" to terminate Employee's employment hereunder only on the
basis of fraud, misappropriation, embezzlement or willful engagement by Employee
in misconduct which is demonstrably and materially injurious to the Company and
its subsidiaries taken as a whole. An act, or omission of Employee shall not be
considered "willful" unless done, or omitted to be done, by Employee without
good faith and a reasonable belief that the act or omission was in the best
interests of the Company and its subsidiaries. Employee may not be terminated
for Cause unless and until there shall have been delivered to Employee a copy of
a resolution duly adopted by affirmative vote of not less than three-quarters of
the entire membership of the Company's Board of Directors at a meeting of the
Board called and held for that purpose (after reasonable notice to Employee and
an opportunity for Employee, together with
5
<PAGE>
Employee's counsel, to be heard before the Board), finding Employee was guilty
of the conduct set forth in the first sentence of this Section, and specifying
the particulars thereof in detail. Notwithstanding the foregoing, Employee shall
have the right to contest such termination for Cause (for purposes of this
Agreement) by arbitration in accordance with the provisions of Section 8.
(e) Good Reason. After a Change in Control, Employee may
terminate employment for Good Reason at any time during the term of this
Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Employee's express written consent):
(i) the assignment to Employee by the Company of
duties inconsistent with, or a substantial alteration in the nature or status
of, Employee's responsibilities immediately prior to a Change in Control other
than any such alteration primarily attributable to the fact that the Company's
securities are no longer publicly traded;
(ii) a reduction by the Company in Employee's base
salary in effect on the date of a Change in Control or as the same may be
increased from time to time during the term of this Agreement;
6
<PAGE>
(iii) failure by the Company to continue in effect
without substantial change any compensation, incentive, welfare or benefit plan
or arrangement, as well as any plan or arrangement whereby Employee may acquire
securities of the Company, in which Employee is participating at the time of a
Change in Control (or any other plans providing Employee with substantially
similar benefits, hereinafter referred to as "Benefit Plans"), or the taking of
any action by the Company which would adversely affect Employee's participation
in or materially reduce Employee's benefits under any such Benefit Plan or
deprive Employee of any material fringe benefit enjoyed by Employee at the time
of a Change in Control; unless an equitable substitute arrangement (embodied in
an ongoing substitute or alternative Benefit Plan) has been made for the benefit
of Employee with respect to the Benefit Plan in question. For purposes of the
foregoing, Benefit Plans shall include, but not be limited to, the Company's
Employee Stock Ownership Plan, Employees' Profit Sharing and Investment Plan,
Deferred Compensation (401K) Plan, 1991 Stock Option and Incentive Plan, Top
Management Incentive Bonus Plan, and/or any other plan or arrangement to receive
and exercise stock options or stock appreciation rights, incentive, bonus or
other award plans, group
7
<PAGE>
life insurance plans, medical, dental, accident and disability plans;
(iv) a relocation of the Company's principal
executive offices to a location outside the San Francisco-Oakland-San Jose Bay
Area, or Employee's relocation to any place other than the principal executive
offices of the Company, except for required travel by Employee on Company
business to an extent substantially consistent with Employee's business travel
obligations at the time of a Change in Control;
(v) any material breach by the Company of any
provision of this Agreement;
(vi) any failure by the Company to obtain the
assumption of this Agreement by any successor or assign of the Company as
required in Section 6;
(vii) any purported termination of Employee's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 9(b) below. For purposes of this Agreement, no such
purported termination shall be effective.
8
<PAGE>
(f) Date of Termination. "Date of Termination" shall mean (i)
for Disability, 30 days after Notice of Termination is given to Employee
(provided Employee has not returned to the performance of Employee's duties on a
full-time basis during such 30-day period), or (ii) if Employee's employment is
terminated for any other reason, the date on which notice is given by the
Company or Employee, as the case may be.
3. Severance Compensation upon Termination of Employment in Connection
with a Change in Control. No compensation shall be payable under this Agreement
unless and until a Triggering Event has occurred. Upon the occurrence of a
Triggering Event, the Company shall:
(a) pay to Employee as severance pay in a lump sum, in cash,
on the fifth day following the Date of Termination, an amount equal to 299.999%
of Employee's "Base Compensation" (as defined below); provided, however, that if
the lump sum severance payment under this Section 3, either alone or together
with other payments (or the value of benefits) which Employee has the right to
receive from the Company in connection with a Change in Control, would not be
deductible (in whole or in part) by the Company as a result of such lump sum
payment constituting a "parachute payment" (as defined in Section 280G of the
Internal
9
<PAGE>
Revenue Code of 1986, as amended (collectively the "Code")), such lump sum
severance payment (or, at Employee's election, such other payments and/or
benefits, or a combination of such other payments and/or benefits and such lump
sum severance payment) shall be reduced to the largest amount as will result in
no portion of the lump sum severance payment under this Section 3 not being
fully deductible by the Company as a result of Section 280G of the Code. The
determination of the amount of any such required reduction pursuant to the
foregoing provision, or the valuation of any non-cash benefits for purposes of
such determination, shall be made exclusively by the firm that was acting as the
Company's auditors prior to the Change in Control (whose fees and expenses shall
be borne by the Company), and such determination shall be conclusive and
binding. The term "Base Compensation" shall mean an average of the annual cash
compensation paid to Employee by the Company and any of its subsidiaries in the
form of salary or bonuses (including any amount that is the subject of an
elective deferral by Employee) during the five taxable years (or such lesser
period as Employee was employed by the Company or any of its subsidiaries)
immediately preceding the Change in Control which was includable in gross income
(or would have been so included but for any such elective deferral) by Employee
for federal income tax reporting purposes; and
10
<PAGE>
(b) arrange to provide Employee, for a six-month period (or
such shorter period as Employee may elect), with disability, accident, group
life, medical and dental insurance, all of which shall be prepaid, substantially
similar to those insurance benefits which Employee is receiving immediately
prior to the Notice of Termination. Benefits otherwise receivable by Employee
pursuant to this Section 3(b) shall be reduced to the extent comparable benefits
are actually received by Employee during such six-month period following
termination (or such shorter period elected by Employee), and any such benefits
actually received by Employee shall be reported by Employee to the Company.
Notwithstanding any other provision of this Agreement:
(x) if a Change in Control occurs while Employee is still an Employee
of the Company, Employee may, after 90 days and within 120 days of the Change in
Control and upon written notice given in accordance with Section 9(b), terminate
employment without Good Reason, and shall thereupon be entitled to one-half
(1/2) of the compensation described in this Section 3, or
(y) if, during the term of this Agreement and while Employee is
employed by Company, (A) any persons shall enter into any agreement one of the
purposes of which is to effect a transaction or transactions (the "Transaction")
that would constitute, or be part of, a Change in Control and (B) Employee is
not provided, on
11
<PAGE>
or before seven calendar days prior to the consummation of the Transaction, a
binding offer of continued employment following the consummation of the
Transaction on terms which would not give rise to Good Reason, the Company shall
be obligated unconditionally to pay or provide to Employee the severance pay in
Section 3(a) and the benefits in Section 3(b) on the date of the consummation of
the Transaction (whether or not the Employee is then employed by Company and
without regard to the reasons for any termination of Employee's employment,
provided that such payments and benefits shall not be paid or provided if
Employee is terminated for cause prior to the consumation of the Transaction)
and such funds shall be deposited in an escrow account seven calendar days prior
to the consumation of the Transaction with irrevocable instructions to pay such
funds to Employee on the consumation of the Transaction.
4. No Obligation to Mitigate Damages. Employee shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Employee as a result of employment by another employer or by retirement benefits
after the Date of Termination, or otherwise, except to the extent provided in
Section 3 above.
12
<PAGE>
5. No Effect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish Employee's existing rights, or rights
which would accrue solely as a result of the passage of time, under any Benefit
Plan, employment agreement or other contract, plan or arrangement, except that
the provisions of this Agreement and any payment provided for hereunder, shall
be in lieu of payments otherwise due to Employee under any of the Company's
severance pay policies on account of Employee's termination of employment upon
(or in anticipation of, as set forth in Section 2(b)) the occurrence of a Change
in Control.
6. Successor to the Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement satisfactory to Employee, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets which executes and delivers the agreement
provided for in this Section 6 or which otherwise
13
<PAGE>
becomes bound by all the terms and provisions of this Agreement by operation of
law.
7. Heirs of Employee. This Agreement shall inure to the benefit of and
be enforceable by Employee's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amounts are still payable to Employee hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Employee's devisee, legatee, or other
designee or, if there be no such designee, to Employee's estate.
8. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach hereof, shall be settled
exclusively by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect. Judgment upon the award
rendered by Arbitrator(s) may be entered in any court having jurisdiction
thereof. Any arbitration held pursuant to this Section 8 shall take place in San
Francisco, California.
9. Notice.
(a) General. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when
14
<PAGE>
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, as follows:
If to the Company:
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attention: President of the Company
If to Employee:
___________________
___________________
___________________
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
(b) Notice of Termination. Any purported termination of
employment shall be communicated by a written Notice of Termination to Employee
in accordance with paragraph (a) of this Section 9, and shall state the specific
termination provisions in this Agreement relied upon, and set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee's employment.
10. Nonwaiver, Complete Agreement, Governing Law. No provisions of this
Agreement may be modified, waived or discharged unless in writing signed by both
parties. No waiver by either party hereto at any time of any breach by the other
15
<PAGE>
party of, or compliance with, any condition or provision of this agreement shall
be deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of California.
11. Legal Fees and Expenses. The Company shall pay all reasonable legal
fees and expenses which Employee may incur as a result of the Company's
contesting the validity, enforceability or Employee's good faith interpretation
of, or good faith determinations under, this Agreement; provided, however, that
the Company shall not pay any legal fees and expenses incurred by Employee in
contesting the termination of Employee's employment for Cause if, as a result of
such contest, it is determined that Employee was in fact terminated for Cause.
12. Confidentiality. Employee shall retain in confidence any and all
confidential information known to Employee concerning the Company and its
business so long as such information is not otherwise publicly disclosed.
13. Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or
16
<PAGE>
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WATKINS-JOHNSON COMPANY, a
California corporation
By ____________________________
President and CEO
_______________________________
(Employee)
17
Exhibit 10-27
AMENDED AND RESTATED SEVERANCE AGREEMENT
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"),
originally dated September 28, 1998, and amended and restated in its entirety
effective as of January 25, 1999, and July 9, 1999, is entered into by and
between Watkins-Johnson Company, a California corporation (the "Company"), and
Scott Buchanan ("Employee").
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of Employee to
his assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a Change in Control (as defined in Section 2(a))
of the Company.
This Agreement sets forth the severance compensation which the Company
agrees to pay to Employee if Employee's employment with the Company terminates
under one of the circumstances described herein.
<PAGE>
1. Term.
(a) This Agreement shall terminate, except for any unpaid
obligation of the Company, upon the earliest of (i) three years from September
28, 1998, if a Change in Control has not occurred within such three-year period;
(ii) the termination of Employee's employment by the Company based on death,
Disability (as defined in Section 2(c)) or Cause (as defined in Section 2(d)) or
by Employee other than for Good Reason (as defined in Section 2(e); or (iii)
three years from the date of a Change in Control.
(b) Nothing in this Agreement shall confer upon Employee any
right to continue in the employ of the Company prior to or following a Change in
Control or shall in any way limit the rights of the Company, which are hereby
expressly reserved, to discharge Employee at any time prior to or following the
date of a Change in Control for any reason whatsoever, with or without Cause.
2. Certain Definitions.
(a) Change in Control. A "Change in Control" shall be deemed
to have occurred if (i) there shall be consummated (x) any consolidation or
merger of the Company in which the Company is
2
<PAGE>
not the continuing or surviving corporation, (y) any other consolidation or
merger to which the Company is a party, regardless of whether shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock (or the equivalent fully voting
securities) of the surviving corporation or other entity immediately after the
merger, or (z) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the assets
of the Company, or (ii) the Company consummates (in one or a series of
transactions) the disposition of substantially all of its operating businesses,
or (iii) any "person" (as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, shall become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or
more of the Company's outstanding Common Stock, or (iv) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of
3
<PAGE>
Directors of the Company shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
(b) Triggering Event. A "Triggering Event" shall be deemed to
have occurred if either (i) a Change in Control occurs while Employee is still
an employee of the Company or any of its subsidiaries or (ii) a Change in
Control occurs after the date on which Employee's employment with the Company or
any of its subsidiaries was terminated (x) by the Company other than for death,
Disability or Cause or (y) by Employee for Good Reason, and such termination is
effected by the Company (or the actions or decisions giving rise to Employee's
termination for Good Reason are taken or made by the Company) in anticipation of
a Change in Control (any such termination, action or decision effected, taken or
made within 90 days prior to the date of any such Change in Control shall be
conclusively deemed to be in anticipation of a Change in Control).
(c) Disability. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have
4
<PAGE>
been absent from duties with the Company on a full-time basis for six
consecutive months and within 30 days after written Notice of Termination (as
required by Section 9(b)) is thereafter given by the Company, Employee shall not
have returned to the full-time performance of Employee's duties, the Company may
terminate this Agreement for "Disability."
(d) Cause. For purposes of this Agreement only, the Company
shall have "Cause" to terminate Employee's employment hereunder only on the
basis of fraud, misappropriation, embezzlement or willful engagement by Employee
in misconduct which is demonstrably and materially injurious to the Company and
its subsidiaries taken as a whole. An act, or omission of Employee shall not be
considered "willful" unless done, or omitted to be done, by Employee without
good faith and a reasonable belief that the act or omission was in the best
interests of the Company and its subsidiaries. Employee may not be terminated
for Cause unless and until there shall have been delivered to Employee a copy of
a resolution duly adopted by affirmative vote of not less than three-quarters of
the entire membership of the Company's Board of Directors at a meeting of
5
<PAGE>
the Board called and held for that purpose (after reasonable notice to Employee
and an opportunity for Employee, together with Employee's counsel, to be heard
before the Board), finding Employee was guilty of the conduct set forth in the
first sentence of this Section, and specifying the particulars thereof in
detail. Notwithstanding the foregoing, Employee shall have the right to contest
such termination for Cause (for purposes of this Agreement) by arbitration in
accordance with the provisions of Section 8.
(e) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean any of the following (without Employee's express written consent):
(i) the assignment to Employee by the Company of
duties inconsistent with, or a substantial alteration in the nature or status
of, Employee's responsibilities immediately prior to a Change in Control other
than any such alteration primarily attributable to the fact that the Company's
securities are no longer publicly traded;
(ii) a reduction by the Company in Employee's base
salary in effect on the date of a Change in Control or as the same may be
increased from time to time during the term of this Agreement;
6
<PAGE>
(iii) failure by the Company to continue in effect
without substantial change any compensation, incentive, welfare or benefit plan
or arrangement, as well as any plan or arrangement whereby Employee may acquire
securities of the Company, in which Employee is participating at the time of a
Change in Control (or any other plans providing Employee with substantially
similar benefits, hereinafter referred to as "Benefit Plans"), or the taking of
any action by the Company which would adversely affect Employee's participation
in or materially reduce Employee's benefits under any such Benefit Plan or
deprive Employee of any material fringe benefit enjoyed by Employee at the time
of a Change in Control; unless an equitable substitute arrangement (embodied in
an ongoing substitute or alternative Benefit Plan) has been made for the benefit
of Employee with respect to the Benefit Plan in question. For purposes of the
foregoing, Benefit Plans shall include, but not be limited to, the Company's
Employee Stock Ownership Plan, Employees' Profit Sharing and Investment Plan,
Deferred Compensation (401K) Plan, 1991 Stock Option and Incentive Plan, Top
Management Incentive Bonus Plan, and/or any other plan or arrangement to receive
and exercise stock options or stock appreciation rights, incentive, bonus or
other award plans, group life insurance plans, medical, dental, accident and
disability plans;
7
<PAGE>
(iv) a relocation of the Company's principal
executive offices to a location outside the San Francisco-Oakland-San Jose Bay
Area, or Employee's relocation to any place other than the principal executive
offices of the Company, except for required travel by Employee on Company
business to an extent substantially consistent with Employee's business travel
obligations at the time of a Change in Control;
(v) any material breach by the Company of any
provision of this Agreement;
(vi) any failure by the Company to obtain the
assumption of this Agreement by any successor or assign of the Company as
required in Section 6;
(vii) any purported termination of Employee's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 9(b) below. For purposes of this Agreement, no such
purported termination shall be effective.
(f) Date of Termination. "Date of Termination" shall mean (i)
for Disability, 30 days after Notice of Termination is given to Employee
(provided Employee has not returned to the performance of Employee's duties on a
full-time basis during such 30-day period), or (ii) if Employee's employment is
terminated
8
<PAGE>
for any other reason, the date on which notice is given by the Company or
Employee, as the case may be.
3. Severance Compensation upon Termination of Employment in Connection
with a Change in Control. No compensation shall be payable under this Agreement
unless and until a Triggering Event has occurred. Upon the occurrence of a
Triggering Event, the provisions of this Agreement shall be binding on and shall
inure to the benefit of the surviving or resulting corporation, or (in the case
of a Change in Control of the kind referred to in Section 2(a)(i)(y)) the
corporation to which the applicable assets of the Company have been transferred;
provided, however, that (a) Employee may treat the occurrence of a Triggering
Event as a material breach of this Agreement and may terminate this Agreement
upon written notice given (in accordance with Section 9(b)) within 120 days of
the occurrence of a Change in Control, unless Employee's employment has
theretofore been terminated for death, Disability or Cause, and (b) Employee may
terminate this Agreement for Good Reason at any time prior to the second
anniversary of a Change in Control and during the remainder of the term of this
Agreement as specified in Section 1(a). Upon such termination by Employee under
this Section 3, or upon the termination of Employee's employment by the Company
without Cause at any time prior to the second anniversary of a Change in
Control, the Company shall:
9
<PAGE>
(i) pay to Employee as severance pay in a lump sum, in cash,
on the fifth day following the Date of Termination, an amount equal to the
aggregate of (x) 299.999% of Employee's "Base Compensation" (as defined below),
plus (y) an amount equal to (A) the amount previously determined by the Board as
Employee's target bonus for the calendar year in which Notice of Termination is
given by Employee or the Company, as the case may be, multiplied by (B) a
fraction, the numerator of which shall be the number of days that have elapsed
during such calendar year, through and including the date on which such Notice
of Termination is given, and the denominator of which shall be 365; provided,
however, that if the lump sum severance payment under this Section 3, either
alone or together with other payments (or the value of other benefits) which
Employee has the right to receive from the Company in connection with a Change
in Control, would not be deductible (in whole or in part) by the Company as a
result of such lump sum payment constituting a "parachute payment" (as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (collectively
the "Code")), such lump sum severance payment (or, at Employee's election, such
other payments and/or benefits, or a combination of such other payments and/or
benefits and such lump sum severance payment) shall be reduced to the largest
amount as will result in no portion of the lump sum severance payment under this
Section 3 not being fully deductible by the Company as a result of Section 280G
of the
10
<PAGE>
Code. The determination of the amount of any such required reduction pursuant to
the foregoing provision, and the valuation of any non-cash benefits for purposes
of such determination, shall be made exclusively by the firm that was acting as
the Company's auditors prior to the Change in Control (whose fees and expenses
shall be borne by the Company), and such determination shall be conclusive and
binding. The term "Base Compensation" shall mean an average of the annual cash
compensation paid to Employee by the Company and any of its subsidiaries in the
form of salary or bonuses (including any amount that is subject of an elective
deferral by Employee) during the five taxable years immediately preceding the
Change in Control which was includable in gross income (or would have been so
included but for any such elective deferral) by Employee for federal income tax
reporting purposes; and
(ii) arrange to provide Employee, for a thirty-six month
period (or such shorter period as Employee may elect), with disability,
accident, group life, medical and dental insurance, all of which shall be
prepaid, substantially similar to those insurance benefits which Employee is
receiving immediately prior to a termination by Employee under this Section 3.
Benefits otherwise receivable by Employee pursuant to this Section 3 shall be
reduced to the extent comparable benefits are actually received by Employee
during such thirty-six month period (or such shorter period elected by
Employee), and any such benefits
11
<PAGE>
actually received by Employee shall be reported by Employee to the Company.
Notwithstanding any other provision of this Agreement, if during the
term of this Agreement and while Employee is employed by Company, any persons
shall enter into any agreement one of the purposes of which is to effect a
transaction or transactions (the "Transaction") that would constitute, or be
part of, a Change in Control, the Company shall be obligated unconditionally to
pay or provide to Employee the severance pay in Section 3(i) and the benefits in
Section 3(ii) on the date of the consumation of the Transaction (whether or not
Employee is then employed by the Company and without regard to the reason for
any termination of Employee's employment, provided that such payments and
benefits shall not be paid or provided if Employee is terminated for cause prior
to the consumation of the Transaction) and such funds shall be deposited in an
escrow account seven calendar days prior to the consumation of the Transaction
with irrevocable instructions to pay such funds to Employee on the consumation
of the Transaction.
4. No Obligation to Mitigate Damages. Employee shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Employee
12
<PAGE>
as a result of employment by another employer or by retirement benefits after
the Date of Termination, or otherwise, except to the extent provided in Section
3 above.
5. No Effect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish Employee's existing rights, or rights
which would accrue solely as a result of the passage of time, under any Benefit
Plan, employment agreement or other contract, plan or arrangement, except that
the provisions of this Agreement and any payment provided for hereunder, shall
be in lieu of payments otherwise due to Employee under any of the Company's
severance pay policies on account of Employee's termination of employment upon
(or in anticipation of, as set forth in Section 2(b)) the occurrence of a Change
in Control.
6. Successor to the Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement satisfactory to Employee, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. As used in this Agreement,
"Company" shall mean the
13
<PAGE>
Company as hereinbefore defined and any successor or assign to its business
and/or assets which executes and delivers the agreement provided for in this
Section 6 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
7. Heirs of Employee. This Agreement shall inure to the benefit of and
be enforceable by Employee's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amounts are still payable to Employee hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Employee's devisee, legatee, or other
designee or, if there be no such designee, to Employee's estate.
8. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach hereof, shall be settled
exclusively by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect. Judgment upon the award
rendered by Arbitrator(s) may be entered in any court having jurisdiction
thereof. Any arbitration held pursuant to this Section 8 shall take place in San
Francisco, California.
14
<PAGE>
9. Notice.
(a) General. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attention: President of the Company
If to Employee:
Scott Buchanan
5144 Independence Drive
Pleasanton, California 94566
or such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
(b) Notice of Termination. Any purported termination of
employment shall be communicated by a written Notice of Termination to Employee
in accordance with paragraph (a) of this Section 9, and shall state the specific
termination provisions in this Agreement relied upon, and set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee's employment.
15
<PAGE>
10. Nonwaiver, Complete Agreement, Governing Law. No provisions of this
Agreement may be modified, waived or discharged unless in writing signed by both
parties. No waiver by either party hereto at any time of any breach by the other
party of, or compliance with, any condition or provision of this agreement shall
be deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of California.
11. Legal Fees and Expenses. The Company shall pay all reasonable legal
fees and expenses which Employee may incur as a result of the Company's
contesting the validity, enforceability or Employee's good faith interpretation
of, or good faith determinations under, this Agreement; provided, however, that
the Company shall not pay any legal fees and expenses incurred by Employee in
contesting the termination of Employee's employment for Cause if, as a result of
such contest, it is determined that Employee was in fact terminated for Cause.
12. Confidentiality. Employee shall retain in confidence any and all
confidential information known to Employee concerning
16
<PAGE>
the Company and its business so long as such information is not otherwise
publicly disclosed.
13. Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WATKINS-JOHNSON COMPANY, a
California corporation
By /s/ W. Keith Kennedy
-----------------------
President and CEO
/s/ Scott G. Buchanan
-----------------------
Scott G. Buchanan
17
Execution Copy
Exhibit 10.28
REMEDIATION AGREEMENT
3333 Hillview Avenue, Palo Alto, California
and
Hillview Porter Regional Site
---------------------------
This Remediation Agreement (the "Agreement") is entered into by and
between SECOR International Incorporated ("SECOR"), a Delaware corporation and
Watkins-Johnson Company, a California corporation, on behalf of itself and its
successors and assignees (collectively referred to as "Watkins-Johnson") (SECOR
and Watkins-Johnson collectively referred to as the "Parties") for professional
environmental services, as more specifically set forth in this Agreement. This
Agreement is effective and binding on the Parties upon its execution by both
Parties and issuance by AIG Environmental of signed coverage binders for both
the Cleanup Cost Cap Insurance Policy and the Pollution Legal Liability
Insurance Policy, as provided in Paragraphs 5.F. and 5.G., respectively, of this
Agreement, and the date upon which the last of all of these actions is completed
shall be the Effective Date of the Agreement.
RECITALS
WHEREAS, Watkins-Johnson is the sub-lessee of property owned by Leland
Stanford Junior University ("Stanford") located at 3333 Hillview Avenue, Palo
Alto, California ("the Hillview Ave. Property") under two (2) separate lease
arrangements more specifically described in Exhibit A, attached hereto and made
a part hereof for all purposes, which property is subject to two separate
environmental cleanup orders issued by government agencies, as described more
specifically below; and
WHEREAS, the Parties acknowledge that Watkins-Johnson intends to sell
its leasehold interests in the Hillview Ave. Property and further acknowledge
that Watkins-Johnson intends to sell the company in its entirety and that any
and all rights and obligations under this Agreement shall inure to the benefit
of and shall bind Watkins-Johnson's successors and assignees; and
WHEREAS, pursuant to an Imminent Or Substantial Endangerment Order and
Remedial Action Order of the State of California Health and Welfare Agency,
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Department of Health Services, Toxic Substances Control Program, HSA-89/90-012,
issued on May 2, 1990 to Watkins-Johnson and Stanford (collectively referred to
from time to time as the "Responsible Parties"), as amended by Amendment to
Order HSA 89/90-012, transmitted by letter dated February 21, 1996 from the
State of California Department of Toxic Substances Control ("DTSC") to
Watkins-Johnson (the "Amendment") (collectively, the "Hillview Avenue Order"), a
copy of which Hillview Avenue Order is appended hereto as Exhibit B,
Watkins-Johnson and Stanford are ordered to undertake numerous obligations, to
finance and perform numerous tasks, and to submit to certain procedures with
respect to Environmental Conditions (as defined below) at the Hillview Ave.
Property (in the context of the Hillview Avenue Order, referred to hereafter as
the "Hillview Avenue Site"), and are decreed to remain liable for such
obligations and subject to such procedures notwithstanding its conveyance of any
interest in the Hillview Ave. Property, or in any part thereof, to another
party; and
WHEREAS, the procedures, activities, and obligations required by the
Hillview Avenue Order included, among numerous others and without limitation,
implementation of certain prescribed procedures and activities regarding "Public
Participation" (Section 15.4, at p. 1 of the Amendment); preparation of a
Remedial Action Plan ("RAP"), (Section 15.5, at pp. 21-23); preparation of a
Remedial Design and Implementation Plan, (Section 15.5.2, at p. 22);
implementation of an Operation and Maintenance Manual, (Section 15.5.4, at p. 2
of the Amendment to Order); implementation of certain Reporting Requirements
(Section 15.8, at pp. 5-7 of the Amendment); securing of certain DTSC
authorizations and approvals, (e.g., among others, Section 15.5.5, at p. 2 of
the Amendment; Section 15.5.6, at p. 4 of the Amendment; and Section 15.12, at
pp. 8-9 of the Amendment); certain "Compliance With Applicable Laws" (Section
15.13 at p. 9 of the Amendment); reimbursement of certain of the DTSC's "costs
incurred in responding to the contamination at the [Hillview Ave.] Site,"
including DTSC's oversight costs, and "Future Costs" (Section 15.22, at p. 11 of
the Amendment, and Section 15.23 at p. 30); and implementation of a Final
Remedial Action Plan ("Hillview Ave. Final RAP"), including certification by
DTSC that certain criteria specified in the Final RAP for discontinuation of
remedial action (Section 15.5.3, at p. 23) have been met (collectively, the
"Hillview Ave. Order Obligations"); and
WHEREAS, Watkins-Johnson and Stanford entered into (1) an Environmental
Access Agreement (the "Access Agreement") effective November 1, 1994 pursuant to
which Stanford, as fee owner of the Hillview Ave. Property, granted access to
Watkins-Johnson, its agents, contractors, subcontractors, and other
representatives, in order to allow Watkins-Johnson to conduct the investigation
and/or remedial work and activities required by the Hillview Ave. Final RAP and
Remedial Design and Implementation Plan under the Hillview Ave. Order, which
Environmental Access Agreement remains in force and effect, and is assignable
with the prior written consent of Stanford; and (2) a Confidential Environmental
Settlement, Release and Covenant Not to Sue, dated
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September 17, 1997, under which Watkins-Johnson agreed to assume responsibility
for, and to release and discharge Stanford, its trustees, officers and directors
from any and all claims for, response costs (as defined) relating to the
Hillview Avenue Order incurred by Watkins-Johnson; and
WHEREAS, pursuant to a Remedial Action Order of the State of California
Health and Welfare Agency, Department of Health Services, Toxic Substances
Control Division [predecessor to the current Department of Toxic Substances
Control] HSA-88/89-016, issued on December 9, 1990 to sixteen (16) different
Respondents (the "Regional Order Respondents"), including Watkins-Johnson and
Stanford, as amended on July 7, 1990 (collectively, the "Regional Order"), which
Regional Order was captioned "In the Matter of: Hillview-Porter Area, Barron
Park Neighborhood & Matadero Creek, Palo Alto, California" (collectively, the
"Regional Site"), a copy of which Regional Order is appended hereto as Exhibit
C, Watkins-Johnson and the other Respondents are ordered to undertake numerous
obligations, to finance and perform numerous tasks, and to submit to certain
procedures with respect to environmental conditions at the Regional Site, and
are decreed to remain liable for such obligations and subject to such procedures
notwithstanding conveyance of any interest in their properties within the
Regional Site, or in any part thereof, to another party (collectively, the
"Regional Order Obligations"); and
WHEREAS, the procedures, activities, and obligations required of the
Regional respondents by the Hillview Avenue Order included, among numerous
others and without limitation, implementation of certain prescribed procedures
and activities regarding preparation of a Remedial Investigation and Feasibility
Study (Regional Order, Section V., Paragraphs 2-8, at pp. 42-44), including,
among other elements, a Community Relations Plan, (Regional Order, Section V.,
Paragraphs 2-8, at pp. 42-44), a Final Remedial Action Plan (Section V.,
Paragraphs 9-10, at pp. 44-45) (the "Regional Final RAP"), and Monthly Summary
Reports (Regional Order, Section V., Paragraph 14, at pp. 46); and
WHEREAS, in response to the Regional Order the sixteen Regional Order
Respondents thereto prepared, and the DTSC adopted, the Regional Final RAP on
March 31, 1998; and
WHEREAS, in response to the Regional Order the sixteen Regional Order
Respondents thereto have made certain agreements among themselves (collectively
the "Regional Agreements", a list of which are attached hereto as Exhibit D)
providing for the implementation of the Regional Order Obligations, including
without limitation implementation of investigatory and remedial work for the
Regional Site, access agreements (including an access agreement to the Hillview
Ave. Property allowing activities on the Hillview Ave. Property to be carried
out in response to the Regional Order), creation of a Management Committee to
provide for cost-effective management
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of the investigatory and remedial work, and the allocation and settlement of the
costs thereof, including, among other agreements, a "Memorandum of Agreement for
Final Cost Sharing and Implementation of the Remedial Action Plan," effective as
of October 1, 1993, for the performance of Remedial Action Plan work, and a
"Memorandum of Final Allocation," effective as of April 15, 1994, pursuant to
which Watkins-Johnson has been assigned a specific percentage allocation share
of the overall costs of remediation of the Regional Site going forward and
through completion of the Regional Final RAP; and
WHEREAS, the Hillview Ave. Site and Regional Site from time to time
hereafter will be referred to collectively as "the Sites" or "the Two Sites";
the Hillview Ave. Order and Regional Order will be referred to collectively as
"the Orders"; and the Hillview Ave. Final RAP and the Regional Final RAP will be
referred to collectively as "the Final RAPs"; and
WHEREAS, all of the Hillview Ave. Order Obligations of the Responsible
Parties, and all of the Regional Order Obligations of Watkins-Johnson,
collectively shall be termed herein the "Work"; and
WHEREAS, Watkins-Johnson desires, for the purposes of enhancing the
marketability of its leasehold interests in the Hillview Ave. Property and the
ability to attract financing to those leasehold interests, (i) to assure
satisfactory completion of all of the Work required of the Responsible Parties
under the Hillview Avenue Order and not yet completed by the Responsible
Parties, and all other remaining obligations of Responsible Parties under the
Hillview Avenue Order (hereinafter "Other Hillview Avenue Order Obligations"),
necessary to achieve formal approval of the DTSC or successor agency to
discontinue the remedial action; (ii) to provide for orderly compliance with the
Sampling, Data and Document Availability provision of the Hillview Avenue Order,
as set forth therein (Section 15.17, at p. 10); (iii) to undertake any and all
other response or remedial activities related to Environmental Conditions at the
Hillview Ave. Site necessary to satisfy the requirements of any governmental
agency, entity, or instrumentality having jurisdiction over the Site other than
the DTSC ("Other Regulatory Agency"); and (iv) to assure satisfactory completion
of all of the Work related to the Regional Order, and all of Watkins-Johnson's
remaining obligations under the Regional Order and related documents
(hereinafter "Other Regional Order Obligations") and the Regional Agreements
necessary (A) to help the Management Committee achieve formal approval of the
DTSC or successor agency to discontinue the remedial action, and (B) to fulfill
any and all cost obligations under the Regional Order and Regional Agreements to
Watkins-Johnson; and
WHEREAS, Watkins-Johnson desires to retain a qualified, experienced,
and competent professional environmental engineering firm, insured by one or
more qualified insurance companies with respect to certain risks described in
this Agreement, to perform
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the Services (as defined in Paragraph 1.A. below) required by the DTSC and any
applicable Other Regulatory Agency pursuant to the Hillview Avenue Order and the
Regional Order, and by this Agreement; and
WHEREAS, Watkins-Johnson has made available to SECOR, and SECOR
acknowledges it has had access to, either through Watkins-Johnson or through its
own activities, and is familiar with the following: (i) with respect to the
Hillview Avenue Site and the Hillview Avenue Order: the Hillview Avenue Order
itself, the Remedial Design and Implementation Plan, the Operation and
Maintenance Manual, the Hillview Ave. Final RAP, the most recent monitoring
report and other documentation relating to the Hillview Ave. Site requested by
the SECOR and in Watkins-Johnson's possession; and (ii) with respect to the
Regional Site and the Regional Order: the Regional Order itself, the Regional
Agreements, and the Regional Final RAP, the most recent Monthly Summary Report,
and the most recent monitoring report and other documentation relating to the
Regional Site requested by SECOR, and SECOR has had an adequate opportunity to
visit the Hillview Ave. Site and the Regional Site, and to conduct such other
activities and inquiries as SECOR regarding the two Sites as SECOR has deemed
prudent to adequately assess the Environmental Conditions at the Two Sites; and
WHEREAS, SECOR is qualified and competent to perform Services required
by this Agreement and is experienced in providing similar services at similar
sites involving similar contamination; and
WHEREAS, SECOR, insured by AIG Environmental, Incorporated ("AIG
Environmental"), has allied itself with AIG Environmental (the "SECOR/AIG
Environmental team") to develop and offer to the Responsible Parties an
insurance-backed remediation program intended to provide (i) the technical and
management resources required to perform the Services hereunder, and (ii) the
financial backing, in the form of insurance policies for the benefit of the
Responsible Parties, necessary to insure both payment of the expected costs of
the Services and coverage of related contingencies that could result in cost
overruns in performance of the Services; and
WHEREAS, the insurance policies the SECOR/AIG Environmental team has
proposed to provide include, in addition to certain standard insurance policies
prescribed herein, (i) an Errors and Omissions Liability Policy as described
herein; (ii) a Cleanup Cost Cap Insurance Policy for the Hillview Avenue Site
and the Regional Site (the "CCC Policy"), which shall be effective on or prior
to the Effective Date; which, with respect to the Hillview Avenue Site, would
pay, on behalf of SECOR as the Named Insured and Watkins-Johnson and Stanford as
Additional Insureds, for the expected on-going remedial activities and
monitoring, as well as related contingencies that might result in cost overruns,
at or related to the Hillview Avenue Site; and which, with respect to the
Regional Site, would pay, on behalf of SECOR as the Named Insured and
Watkins-
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Execution Copy 6
Johnson as Additional Insured, for the expected on-going remedial activities and
monitoring, as well as related contingencies that might result in cost overruns,
at or related to the Regional Site; (iii) a Pollution Legal Liability Insurance
Policy (the "PLL Policy") providing other coverages related to the Environmental
Conditions or other Pollution Conditions (as defined in the PLL Policy), which
shall be effective on or prior to the Effective Date; and which shall name
Watkins-Johnson as First Named Insured, SECOR as Additional Named Insured, and
Stanford and any assignees and sublessees of Watkins-Johnson, and their lenders
and equity partners, as Additional Insureds, as described herein;
WHEREAS, SECOR agrees to perform all of the obligations and
responsibilities of the Responsible Parties, who are "Respondents" under the
Hillview Avenue Order, and all of the obligations and responsibilities of
Watkins-Johnson, who is one of the sixteen named Respondents under the Regional
Site Order;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the Parties hereby agree as follows:
1. Services
A. SECOR Services. SECOR shall perform or cause to be performed,
with diligence and in a good and workmanlike manner and in
accordance with all applicable federal, state, and local laws,
rules, regulations, permits, ordinances, orders, decrees,
codes, governmental authority directives and other such
requirements, and the Access Agreement (collectively,
"Applicable Requirements"), the Services, which are defined as
(i) all the Work, (ii) all Other Order Obligations at both
Sites, (iii) any and all other tasks required by any Other
Regulatory Agency relating to, or arising out of Environmental
Conditions (as defined below) at both Sites, and (iv) any and
all other tasks agreed to hereunder by the Parties, necessary
to achieve Project Completion (collectively, the "Services").
"Environmental Conditions" is defined as those environmental
conditions (including, without limitation, the contamination
of soil, groundwater or surface water) at each of the Sites,
response to which is required by the corresponding Order.
"Project Completion" is defined, with respect to the Two
Sites, as (i) completion of all Work and fulfillment of all
Other Order Obligations set forth in the Orders, in the
Hillview Ave. Remedial Design and Implementation Plan, and the
Final RAPs, to the satisfaction of the DTSC
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Execution Copy 7
(or "successor agency," defined for the purposes of this
Agreement as any government agency that succeeds to DTSC's
authority to enforce the Order) such that SECOR satisfies all
of Watkins-Johnson's obligations under the Orders to achieve
formal approval of DTSC or successor agency to discontinue the
remedial action; (ii) completion of any and all other
response, remedial, or other activities related to
Environmental Conditions necessary (a) to satisfy any
requirements of DTSC in addition to those set forth in the
Order, and any requirements of any Other Regulatory Agency in
accordance with applicable laws, and (b) to secure, as
appropriate, documentation from DTSC or any Other Regulatory
Agency of case closure, certificate of completion, written
concurrence for no further action, or other equivalent
documentation of satisfaction of any such requirements; (iii)
remediation of any contamination other than Environmental
Conditions discovered in areas to be remediated as part of the
Services; and (iv) completion of any and all other tasks
agreed to hereunder by the Parties as necessary to finish
activities related to Environmental Conditions.
The Services to be provided shall include with respect to each
of the Sites, without limitation, all labor, materials,
subcontractor charges, laboratory charges, drilling fees,
disposal charges, and permitting fees incurred by SECOR in
achieving Project Completion, as well as any and all costs
associated with SECOR's (or any representative or agent of
SECOR's) negotiations with DTSC and any applicable Other
Regulatory Agencies with respect to the Services and Project
Completion.
The Services include, with respect to the Hillview Avenue
Site, any further subsurface investigation activities as SECOR
deems necessary to further define the Environmental Conditions
at that Site, and abandonment or removal of existing
monitoring wells, remediation wells and any wells that are
installed by SECOR, in accordance with Applicable
Requirements, to the extent required by any Regulatory Agency
at that Site or required by Stanford under the Access
Agreement, and, with respect to the Regional Site, (A) receipt
of all invoices issued by the Management Committee for
Watkins-Johnson's allocated share of the costs of Work carried
out pursuant to the Regional Order; (B) review and evaluation
of all such invoices to confirm that (1) the Work invoiced was
reasonably required under the Regional Order and was
competently performed, and (2) that the invoice is consistent
in all respects with the terms of the Agreement for Final Cost
Sharing and Implementation of the Remedial Action Plan, and
the Memorandum of Final Allocation, as modified or amended;
(C) timely notification of Watkins-Johnson and, as
appropriate, the Management Committee, regarding any reason
such invoice should not be paid; (D)
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Execution Copy 8
timely payment of each invoice consistent with applicable
agreements among the Respondents, provided, however, that
SECOR's payment obligation hereunder shall in no event exceed
the 7.131% Adjusted Final Allocation Percentage of the costs
of the Regional Site IRM and RAP Work for which
Watkins-Johnson is responsible as of the date of this
Agreement under Exhibit C, entitled "Adjusted Final Allocation
Percentages," of the document entitled "Memorandum of Final
Allocation," the effective date of which is April 15, 1994;
(E) submittal of SECOR's claims to AIG Environmental based on
payment of such invoices; and (F) performance, on behalf of
Watkins-Johnson and with prior notice to Watkins-Johnson, of
any other responsibilities of Watkins-Johnson reasonably
arising under the Regional Order, the Agreement for Final Cost
Sharing, and/or the Memorandum of Final Allocation.
B. Changes to Hillview Ave. Order or Hillview Ave. Remedial
Design and Implementation Plan, Operation and Maintenance
Manual, or Final RAP. The Parties acknowledge that deviations
from the Hillview Ave. Order, or to the Hillview Ave. Remedial
Design and Implementation Plan, Operation and Maintenance
Manual, or Final RAP may become necessary as the remediation
proceeds, and that, upon approval of the DTSC in accordance
with the Hillview Ave. Order, upon approval of any applicable
Other Regulatory Agency, and upon approval of Watkins-Johnson
and, to the extent the approved cleanup standards are
different from the Final RAP, the approval of Stanford (which
approval shall not be unreasonably withheld or delayed), SECOR
shall be permitted to make such deviations in order to
cost-effectively and expeditiously achieve Project Completion
with respect to the Hillview Ave. Site. Watkins-Johnson's
approval may only be withheld in the event SECOR's proposed
deviation: (i) will materially interfere with operations on
the Site as reasonably determined by Watkins-Johnson; (ii)
will not be reasonably likely to achieve Project Completion;
(iii) will be likely to cause the cost of Project Completion
to exceed the amount of the Remediation Cost Program as set
forth hereinafter; or (iv) will violate any provision of this
Agreement or Applicable Requirements. The Parties acknowledge
that SECOR may determine that additional investigation and
evaluation work is necessary before SECOR can determine the
specific technical approach that is appropriate in order to
achieve Project Completion with respect to the Hillview Ave.
Site. In the event such additional investigation and
evaluation is undertaken, SECOR shall strictly comply with the
terms and conditions of the Hillview Ave. Order, Hillview Ave.
Remedial Design and Implementation Plan, and Hillview Ave.
Final RAP, and all Applicable Requirements; and in the
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event such additional investigation or evaluation will have an
adverse impact on the use or operation of the Site (as
reasonably determined by Watkins-Johnson), no such work shall
be performed without the approval of Watkins-Johnson and, to
the extent the approved cleanup standards are different from
the Final RAP, the approval of Stanford (which approval shall
not be unreasonably withheld or delayed). SECOR shall
negotiate the technical approach with the DTSC and shall
develop revisions to the Hillview Ave. Order, the Hillview
Ave. Remedial Design and Implementation Plan, or the Hillview
Ave. Final RAP if required. Any such revisions to the Hillview
Ave. Order, Hillview Ave. Remedial Design and Implementation
Plan, or Hillview Ave. Final RAP shall require the approval in
writing of Watkins-Johnson (which approval shall not be
unreasonably withheld or delayed. Watkins-Johnson's approval
may only be withheld in the event such revisions: (i) will
materially interfere with operations on the Site as reasonably
determined by Watkins-Johnson; (ii) will not be reasonably
likely to achieve Project Completion; (iii) will be likely to
cause the cost of Project Completion to exceed the Remediation
Cost Program as set forth hereinafter; or (iv) will violate
any provision of this Agreement or Applicable Requirements.
Watkins-Johnson shall deliver a written response to SECOR's
written request for such revisions within thirty (30) days
following receipt of such request. Failure of Watkins-Johnson
to deny approval within such thirty (30) day period shall be
deemed an approval. SECOR shall consult with Watkins-Johnson
on any proposed revisions to the technical approach, including
the use of any institutional controls, prior to any meeting
with the Regulatory Agency to discuss such revisions.
SECOR shall negotiate any changes to the technical and
regulatory approach for the Hillview Ave. Site with the DTSC
and any other applicable Other Regulatory Agencies. The
revised regulatory approach might include active remediation,
and/or risk assessment and/or establishment of institutional
controls.
C. Institutional Controls/Deed Restrictions Related to the
Hillview Ave. Site. SECOR shall use reasonable efforts to
avoid or minimize the need for deed restrictions, or any other
restrictions inconsistent with planned future use, as part of
institutional controls with respect to the Hillview Ave. Site.
SECOR shall negotiate with the DTSC or Other Regulatory Agency
to include in any management plan the provision for the future
removal of any deed or use restrictions. No deed restrictions
or any other restrictions inconsistent with planned future use
shall be permitted on any off-Hillview Ave. Site properties as
part of institutional controls, unless specifically
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Execution Copy 10
required by DTSC or any Other Regulatory Agency; provided,
however, that to the extent such deed restrictions are
required by DTSC or any Other Regulatory Agency, any such deed
or use restrictions shall not prevent Project Completion.
D. Electrical and Compressed Air Costs. SECOR will be responsible
for obtaining and shall pay for electrical power and
compressed air required to operate the vacuum-enhanced
groundwater extraction and treatment system at the Hillview
Ave. Site. Watkins-Johnson will use its best efforts to obtain
for the benefit of SECOR access to an on-Hillview Ave. Site
electrical power and compressed air source from any
assignee(s) and/or sublessee(s) of Watkins-Johnson's leasehold
interests in the Hillview Ave. Site.
E. Water Costs and Discharge, Hillview Ave. Site. SECOR shall be
responsible for obtaining and paying for any and all required
permits for pumping water and/or for extraction of water by
the vacuum-enhanced groundwater extraction and treatment
system on the Hillview Ave. Site and for discharging
contaminated water related to operation of the vacuum-enhanced
groundwater extraction and treatment system, including but not
limited to groundwater discharge permits issued by the City of
Palo Alto's Public Works Department. SECOR shall be
responsible and shall pay for any and all costs associated
with the testing or processing of contaminated water prior to
discharge into the City of Palo Alto's sewer collection system
or any other disposal site.
F. Demobilization, Hillview Ave. Site. SECOR will, in accordance
with Applicable Requirements, demobilize and remove the
vacuum-enhanced groundwater extraction and treatment system
and all appurtenant above-ground, and (subject to Paragraph
1.I.) below-ground piping systems and wells upon closure of
the Hillview Ave. Site.
G. Waste Manifesting. The Parties anticipate that the only waste
generated from performance of the Services at the Hillview
Ave. Site is carbon used in the Granular Activated Carbon
Absorption groundwater treatment system. SECOR will be listed
as owner and generator of such carbon waste generated as part
of the Services, and will sign all manifests required for the
transportation and disposition (via recycling) of same. The
fees for transportation and recycling of such carbon waste
shall be borne by SECOR, and shall be included as part of
payment of the Contract Price.
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The Parties also recognize that Watkins-Johnson intends to
assign and/or sublease its leasehold interests in the Hillview
Ave. Site, and any assignee(s) and/or sublessee(s) may elect
to conduct development activities on the Hillview Ave. Site,
including without limitation demolition, grading, re-grading,
construction, development or redevelopment, and any such
development activities may cause contaminated soils to be
exposed or generated ("Development Waste"). Watkins-Johnson
and SECOR agree that, absent the express written agreement and
consent by SECOR, SECOR shall not be listed as the owner and
generator of Development Waste in the event such Development
Waste must be disposed of in a location other than the
Hillview Ave. Site.
Finally, the Parties acknowledge the possibility that, during
the course of performing its Services, SECOR could encounter
waste, the discovery of which is neither known nor
foreseeable. Within five (5) days after such unknown and
unforeseeable waste is discovered, the Parties will discuss,
in good faith, and agree upon the appropriate disposition of
such waste. The Parties agree that in the event DTSC or Other
Regulatory Agency requires off-Site disposition of such waste
and the Parties mutually agree to transport such waste to a
qualified, licensed facility for destruction (e.g.,
incineration), then SECOR shall be listed as owner and
generator of such waste on all manifests required for the
transportation and disposition of same, and shall sign all
such manifests, and SECOR shall submit the cost of same as a
covered "Cleanup Cost" for reimbursement under the CCC Policy
and/or as a covered "Loss" under the PLL Policy. To the extent
the costs of transportation and destruction of such waste are
not covered and reimbursed under the CCC or PLL Policies, then
SECOR and Watkins-Johnson shall bear equal responsibility for
payment of such costs. The Parties further agree that in the
event DTSC or Other Regulatory Agency requires off-Site
disposition of such waste, and destruction of such waste (i)
is not covered by the CCC or PLL Policies and is economically
infeasible to the Parties, or (ii) is not permitted under any
applicable law or regulation, then SECOR shall not be listed
as the owner and generator of such waste and shall not be
required to sign manifests required for transportation and
disposition of same.
H. Scheduling, Reporting, and Coordination. During the
performance of Services, SECOR shall submit to Watkins-Johnson
periodic progress reports on the actual progress and updated
schedules for the Two Sites, and, within fifteen (15) days of
SECOR's receipt, copies of all correspondence, reports
(including, without limitation, the semi-annual reports on the
Regional Site activities commissioned and issued by the
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Management Committee), and any other materials delivered to or
received from the DTSC (pursuant to the Orders or otherwise)
or any Other Regulatory Agency. SECOR recognizes that
Watkins-Johnson and other contractors and subcontractors may
be working concurrently at the Hillview Ave. Site. SECOR
agrees to cooperate with Watkins-Johnson and other contractors
so that the performance of the Services as a whole will
progress with a minimum of interruption to SECOR,
Watkins-Johnson, other contractors, tenants, licensees and
invitees. SECOR shall be entitled to rely on Watkins-Johnson's
reasonable cooperation and the reasonable cooperation of
Watkins-Johnson's other contractors, while SECOR attempts to
complete this Agreement in a timely, orderly and efficient
manner.
In the event that SECOR believes at any time that
Watkins-Johnson is failing to cooperate with SECOR, SECOR
shall notify Watkins-Johnson in writing and describe with
adequate specificity the actions that SECOR would like
Watkins-Johnson to take. Thereafter, Watkins-Johnson and SECOR
shall meet to mutually agree on the measures that
Watkins-Johnson is willing to take.
With respect to the Hillview Ave. Site, SECOR shall submit
drafts of all reports, work plans, remedial action plans, and
any revisions requested for the Hillview Ave. Order to
Watkins-Johnson prior to submission to the DTSC or applicable
Other Regulatory Agency. Watkins-Johnson shall have fifteen
(15) days in which to review the document and provide comments
to SECOR. SECOR shall incorporate such comments when feasible
and consistent with the technical and regulatory approach of
SECOR and shall explain to Watkins-Johnson the reasons for any
decision by SECOR not to incorporate any of Watkins-Johnson's
comments. Upon request of Watkins-Johnson, SECOR shall meet
Watkins-Johnson, as applicable, at the Hillview Ave. Site or
at another mutually agreeable location to discuss such
comments. Subject to Paragraph 1.B. hereof, SECOR reserves the
right to make the final decision on the contents of all
documents submitted to the Regulatory Agency to the extent
such contents are required with respect to the Services or
Project Completion. Watkins-Johnson shall have the right to
dispute such contents before the DTSC or any applicable Other
Regulatory Agency. Notwithstanding the foregoing, or anything
to the contrary contained herein, Watkins-Johnson shall make
the final decision on the contents of all documents submitted
to the DTSC or any Other Regulatory Agency to the extent such
comments relate to contamination outside the scope of the
Environmental Conditions or matters not required to be
reported for the purpose of performing the Services or
achieving Project Completion.
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I. Hillview Ave. Site Maintenance, Restoration and Closure. SECOR
shall keep its work area for Services at the Hillview Ave.
Site in a neat, clean and safe condition, in compliance with
all Applicable Requirements, and shall remove from the
Hillview Ave. Site, and properly dispose of, all wastes
generated by SECOR's operations. Within seven (7) days
following completion of the Services for the Hillview Ave.
Site, SECOR shall remove from the Hillview Ave. Site all of
SECOR's equipment and material, and all equipment and material
comprising the vacuum-enhanced groundwater extraction and
treatment system owned by Watkins-Johnson (except as otherwise
determined by Watkins-Johnson, in its sole discretion). SECOR
shall repair any and all damage caused to the Hillview Ave.
Property as a result of the removal of Equipment, other
closure activities, and other activities of SECOR in
connection with the Services hereunder and shall leave the
Hillview Ave. Site in a condition as close as is reasonably
practicable to its condition prior to the installation of such
Equipment and conduct of Service-related activities,
reasonable wear and tear excepted.
J. Authorization to Proceed. SECOR shall be authorized to
commence performance of the Services upon execution of this
Agreement.
K. Independent Contractor. SECOR shall be fully independent in
performing the Services and shall not act as Watkins-Johnson's
agent or employee, but rather as an independent contractor
retained by Watkins-Johnson to perform the Services. SECOR
shall not take any action or omit to take any action that is
inconsistent with its status as an independent contractor
under this Agreement. SECOR shall be responsible for all
governmental fees and regulatory oversight or other costs,
charges, or fees accruing during the term of the Agreement and
during its performance of the Services, for payment of any
penalties that may be imposed upon it in performance of the
Services, and for payment of all compensation, benefits,
contributions, and taxes, if any, due its employees, agents,
contractors, and subcontractors.
L. Subcontracts. SECOR shall be entitled to subcontract
performance of any portion of the Services under this
Agreement, provided that such shall not in any manner relieve
SECOR of responsibility for undertaking, conducting and
completing the Services in a manner consistent in all respects
with this Agreement or of responsibility for the actions of
its subcontractors, and provided that SECOR's insurance,
including the policies itemized in Paragraphs 5.A (1) through
(3) hereof, is endorsed to respond as if SECOR had not so
subcontracted. Notwithstanding the foregoing, in no event
shall SECOR assign this Agreement without the express written
consent of
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Execution Copy 14
Watkins-Johnson, which consent may be granted or denied at the
sole discretion of Watkins-Johnson.
M. Authorized Representative. SECOR and Watkins-Johnson shall
each direct their communications with the others through one
designated representative ("Authorized Representative"). The
initial Authorized Representatives of the Parties shall be:
For SECOR:
Name: Bruce Scarbrough
Address: SECOR International Incorporated
360 - 22nd Street
Oakland, CA 94612
Phone: (510) 285-2556
Fax: (510) 285-2568
E-Mail: [email protected]
For Watkins-Johnson:
Name: Scott G. Buchanan
Address: Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Phone: (650) 813-2480
Fax: (650) 813-2960
E-mail: [email protected]
Each Party may change its Authorized Representative by giving
written notice to the other Party.
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Execution Copy 15
N. Notices to Authorized Representatives. SECOR shall notify
Watkins-Johnson's Authorized Representative within three (3)
business days after becoming aware of the occurrence of an
event described below:
(1) SECOR or any agent or subcontractor receives notice
of violation (or threat that such notice may be
issued) of the Orders or of any Applicable Law which
relates to the performance of Services under this
Agreement or to the Hillview Ave. Site;
(2) Proceedings are commenced or threatened which could
lead to revocation or abeyance of permits, licenses,
or other governmental authorizations which relate to
the Services with respect to either of the Sites;
(3) A permit, license, or other governmental
authorization relating to the Services with respect
to either of the Sites is revoked;
(4) Litigation is commenced or threatened concerning or
impacting the Services with respect to either of the
Sites or the Hillview Ave. Property or the Hillview
Ave. off-Site property; or
(5) Any other condition occurs or is threatened to occur
which may have a material and adverse effect on the
use and occupancy of the Hillview Ave. Property, the
timely performance of the Services with respect to
either of the Sites under this Agreement, or the
timely performance of any duties SECOR or the
Responsible Parties may have under any Applicable
Law.
O. Conflicts. SECOR, its agents, and subcontractors shall not,
during the term of this Agreement, undertake any employment or
engagement, or, except as required by law, perform any act or
allow any omission, which may result in a conflict with any of
their respective obligations pursuant to this Agreement. In
the event SECOR, its agents, or subcontractors are called upon
under a purported requirement of law to do or omit anything
that may be in violation of the foregoing, SECOR shall give
Watkins-Johnson's Authorized Representative sufficient advance
written notice thereof to allow Watkins-Johnson to contest or
take such action as Watkins-Johnson deems necessary.
2. Responsibilities of Watkins-Johnson
A. Hillview Ave. Site Access; Other Cooperation. Watkins-Johnson
shall provide access to the Hillview Ave. Property to allow
SECOR to carry out
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Execution Copy 16
the Services, and shall otherwise reasonably cooperate with
SECOR in carrying out the Services, in obtaining access for
SECOR's activities in connection with the Services in the
vicinity of the project Hillview Ave. Site, and in supporting
SECOR in SECOR's negotiation of the technical remediation
approach, regulatory approach and scope and level of
remediation with the DTSC or applicable Other Regulatory
Agency. Watkins-Johnson shall provide in any assignment of its
interests hereunder, or in any transfer of its leasehold
interests in the Hillview Ave. Property, that any assignee(s)
and/or sublessee(s) of Watkins-Johnson shall comply with the
terms and obligations under this Paragraph 2.A, including,
without limitation, providing access to SECOR as required
hereunder.
B. Hillview Ave. Site Development. The Parties acknowledge that
Watkins-Johnson intends to assign and/or sublease its
leasehold interests in the Hillview Ave. Site, and any
assignee(s) and/or sublessee(s) may elect to conduct
development activities on the Hillview Ave. Site, including
without limitation demolition, grading, re-grading,
construction, development or redevelopment. The Parties agree
that SECOR shall not pay the costs of such development
activities, except to the extent any such development
activities (i) are required or are included as part of the
Services, or (ii) result from the negligence, recklessness, or
willful misconduct of, or from the violation of any Applicable
Law by, SECOR, its employees, agents, representatives,
contractors, subcontractors, successors, or assigns. The
Parties contemplate that the term "costs associated with such
development activities" includes the development and
implementation of construction worker health and safety plans,
the design and installation of vapor barriers or other
engineering controls under new buildings, and the treatment or
disposal of soil (and associated de-watering) that is
excavated as a result of such demolition, grading,
development, or redevelopment activities.
C. Regional Site Responsibilities. Watkins-Johnson acknowledges
that it will retain its responsibilities and obligations under
the Regional Order and the Regional Agreements.
Watkins-Johnson will take such actions as are required to have
the Management Committee for the Regional Site recognize SECOR
as Watkins-Johnson's designated representative for (1)
receiving correspondence, reports, and other communications
from the Management Committee, (2) representing
Watkins-Johnson in any meetings or group communications of the
Management Committee or of any subgroup of the Management
Committee that Watkins-Johnson would be entitled or obligated
to attend or participate in, and (3) conveying to the
Management Committee payments and communications required of
Watkins-Johnson, among other activities that may be required
of SECOR
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Execution Copy 17
relative to the Management Committee in performing the
Services hereunder.
3. Contract Price and Payment
A. Contract Price. SECOR shall complete all the Services, achieve
Project Completion with respect to both Sites, and arrange for
purchase of the CCC Policy set forth in Paragraph 5.F., for
the total fixed price of $2,024,900 ("Contract Price").
Watkins-Johnson shall pay the Contract Price directly to AIG
Environmental within 14 days of execution of this Agreement.
Watkins-Johnson also shall pay directly to AIG Environmental
the premium necessary to purchase the PLL Policy set forth in
Paragraph 5.G. within 14 days of execution of this Agreement.
B. Additional Contract Payments By Watkins-Johnson. In addition
to the amounts paid by Watkins-Johnson to AIG Environmental
set forth in Paragraph 3.A., Watkins-Johnson shall pay
directly to SECOR, following execution of this Agreement and
within ten (10) days of receipt an invoice from SECOR for such
amounts, (1) the amount of $140,000, as SECOR's risk transfer
and signing fee for entering into this Agreement, and (2) the
amount of $39,715, as the amount the Parties have agreed
Watkins-Johnson is to pay SECOR to fund SECOR's ability to
extend the PLL policy described in Section 5.G. of this
Agreement for up to an additional ten-year period.
C. Disbursement and Reporting of Funds. SECOR will arrange with
AIG Environmental that upon execution of this Agreement,
execution of the CCC Policy, and payment of the Contract Price
by Watkins-Johnson, and pursuant to the terms of the CCC
Policy, AIG Environmental will undertake (1) disbursement of
funds to SECOR necessary to complete the Services, including
achievement of Project Completion with respect to both Sites,
on an invoiced basis as further described below; and (2)
preparation and circulation of reports at regular intervals to
SECOR and Watkins-Johnson regarding SECOR's activities and
aggregate funds disbursed to SECOR for performance of Services
and all other payments charged against the cost coverage cap
at each of the Sites to that date.
D. Payment of SECOR. Under the terms of the CCC Policy, SECOR
shall be paid by AIG Environmental on the following basis:
(1) Payments Related to Hillview Ave. Site. Prior to
execution of the Agreement, and from time to time
during the term of the Agreement
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Execution Copy 18
as may be agreed by the Parties, but in no event at
less than annual intervals, SECOR shall prepare and
present to Watkins-Johnson for its review and
approval, a Planned Services and Annual Estimated
Payment Schedule (attached hereto as Exhibit E) for
the Hillview Ave. Site, setting forth the planned
activities related to performance of the Services
related to the Site for the next one-year period.
SECOR shall submit Invoices for its Services
consistent with the procedures set forth in paragraph
3.C.(3) directly below.
(2) Payments Related to the Regional Site. From time to
time during the term of the Agreement as may be
agreed by the Parties, but in no event at less than
annual intervals, SECOR shall prepare and present to
Watkins-Johnson a report on the planned activities of
the Management Committee at the Regional Site and
SECOR's own planned activities, if any, in relation
to the Management Committee's activities at that
Site, for the next one-year period. Whenever SECOR
receives an invoice from the Management Committee for
Watkins-Johnson's assessed share of costs for the
activities at the Regional Site, SECOR shall be
entitled to submit such invoice, together with an
invoice for any of its own Services related to review
of such invoice, for payment consistent with the
procedures set forth in the Paragraph 3.C.(3)
directly below.
(3) Procedures for Payment of SECOR
(a) SECOR shall perform the Services and, in
accordance with the Planned Services
Schedule and Schedule of Payments submitted
and approved for the respective period as
described in Paragraphs 3.C.(1) and (2),
invoice AIG for payment of its Services in
accordance with the Schedule of Costs set
forth on Exhibit F attached hereto, as may
be amended from time to time.
(b) SECOR shall arrange for, and the terms of
the CCC Policy shall require, preparation by
AIG Environmental and delivery by AIG
Environmental to SECOR and Watkins-Johnson
of quarterly statements showing all payment
activity occurring with respect to the
Services both during the subject quarter and
cumulatively since execution of the
Agreement and the CCC Policy.
(c) If, based upon the AIG Environmental
quarterly statements described in Paragraph
3.C.(3)(b), SECOR at any time has
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Execution Copy 19
received 125 percent (125%) or more of the
approved Schedule of Payments amount for the
approved Planned Service Schedule period,
then Watkins-Johnson may, at its sole
discretion, notify SECOR and AIG
Environmental in writing of
Watkins-Johnson's election to activate the
"Watkins-Johnson Invoice Approval Mechanism"
described in Paragraph 3.C.(3)(d), and SECOR
shall, for the remainder of that Planned
Service Schedule period (unless the Parties
negotiate a mutually acceptable revised
Planned Service Schedule and revised
Schedule of Payments), be obligated to
conform to the Watkins-Johnson Invoice
Approval Mechanism set forth in Paragraph
3.C.(3)(d) as a condition of further
payment.
(d) Watkins-Johnson Invoice Approval Mechanism.
In the event the conditions of subsection
3.C.(3)(c) are satisfied and Watkins-Johnson
elects to activate the "Watkins-Johnson
Invoice Approval Mechanism," SECOR, prior to
submitting any invoice to AIG Environmental
for payment of Services, shall prepare and
submit any invoice related to the Hillview
Ave. Site or to the Regional Site to
Watkins-Johnson's Authorized Representative,
by Federal Express overnight service ("SECOR
Invoice").
Watkins-Johnson shall have fourteen (14)
days from the receipt (deemed to be the day
after SECOR's timely deposit of the invoice
into Federal Express overnight service) of
each SECOR Invoice within which to send to
SECOR written objections concerning such
SECOR Invoice. Written objections shall be
sent to SECOR by Federal Express overnight
service, but additional transmittals of
objections may be via facsimile or same-day
messenger service. If SECOR has not received
a written objection to the invoice by the
end of business on the fifteenth day (15th)
day following Watkins-Johnson's receipt of
the invoice, the invoice shall be deemed
approved in all respects, and SECOR may
submit the invoice to AIG Environmental
<PAGE>
Execution Copy 20
for payment. Each objection shall set forth
with specificity the nature of the
objection. In the event notice of objection
to a SECOR Invoice is provided as required
herein, Watkins-Johnson and SECOR shall use
their best efforts to resolve the objection
to the disputed SECOR Invoice. SECOR may
submit to AIG Environmental for payment any
undisputed portion of a disputed SECOR
Invoice. All objections to SECOR Invoices
that have not been resolved within sixty
(60) days following receipt of the SECOR
Invoice shall be subject to binding
arbitration as provided herein. Objections
to payment of SECOR Invoices must be based
on one or more of the following reasons:
1. SECOR has deviated materially from
the Final RAPs or related
requirements of the Orders, or from
this Agreement, including the
applicable approved Planned Services
Schedule as may be modified from
time to time pursuant to Paragraphs
3.C.(1) and (2) hereof, without
approval of Watkins-Johnson;
2. SECOR has failed to make payments in
accordance with the terms of SECOR's
contracts with its subcontractors or
for labor, materials, or equipment
supplied to the Site, resulting in
placement of liens or other
encumbrances on the Property;
3. SECOR's negligence or willful
misconduct relating to or arising
out of the Services performed or to
be performed by SECOR has resulted
in loss or damage to a third party,
which loss or damage SECOR refuses
or is unable to repair or remedy;
4. SECOR or its agent, subcontractor,
or materials supplier has caused
material damage to Watkins-Johnson
or the Property, which loss or
damage SECOR refuses or is unable to
repair or remedy; or
5. SECOR is otherwise failing to comply
with a material provision of the
Agreement.
4. Representations and Warranties by SECOR
A. Applicability. All representations and warranties of SECOR
contained herein are made to and for the benefit of
Watkins-Johnson.
B. Qualifications. SECOR represents and warrants that it is
familiar with the geological and environmental conditions at
the Sites. SECOR represents and warrants that it has had an
adequate opportunity to visit the Hillview Ave. Site and the
Regional Site, to study the documents concerning the Two
Sites, and to conduct such other activities and inquiries
regarding the two
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Execution Copy 21
Execution Copy 21 Sites as SECOR has deemed prudent to
adequately assess the Environmental Conditions at the Two
Sites. SECOR represents and warrants that it has the necessary
skills, training, and expertise required to perform the
Services consistent with this Agreement. SECOR represents and
warrants that it shall perform the Services in compliance with
this Agreement and all Applicable Requirements, and with the
standards of care and diligence practiced by nationally
recognized professional firms performing services of a similar
nature during the same time and in the same or similar
locality.
C. Remediation Cost Program. SECOR agrees to pay for all costs,
including without limitation labor, materials, laboratory
charges, drilling fees, and permitting fees incurred by SECOR
in performing all Services and achieving Project Completion up
to a limit of $10,000,000 in the aggregate for the Two Sites.
Notwithstanding any other provision, covenant, warranty,
guarantee, term or condition of this Agreement, SECOR's
responsibility for and/or liability to pay for the costs,
including time and expenses, of activities necessary to
provide all Services and achieve Project Completion under this
Agreement shall not, in any event, extend beyond or exceed
$10,000,000 in the aggregate; except that this $10,000,000
limit shall not apply to any costs (including any costs that
exceed $10,000,000) that result from the negligence,
recklessness, or willful misconduct of, or from the violation
of any Applicable Law by, SECOR, its employees, agents,
representatives, contractors, subcontractors, successors, or
assigns and SECOR shall remain liable for any such costs
resulting from the negligence, recklessness, or willful
misconduct of, or from the violation of any Applicable Law,
except to the extent such costs are paid under the CCC Policy
or PLL Policy. Except as otherwise set forth herein, after
such $10,000,000 threshold is reached, Watkins-Johnson agrees
that SECOR shall be released and discharged of any obligation,
duty, promise, covenant, or condition of this Agreement, and
the Agreement shall be deemed terminated by consent of the
Parties.
For the purposes of this Agreement, project costs,
including time and expenses, shall be accounted for on the
basis of the Schedule of Costs attached hereto as Exhibit F.
SECOR shall be permitted to increase the amounts set forth in
the Schedule of Costs on an annual basis by an amount not to
exceed the Consumer Price Index. The term "Consumer Price
Index" shall mean the Consumer Price Index, for All Urban
Consumers, Subgroup "All Items", for the San
Francisco-Oakland-San Jose Metropolitan Area published by the
U.S. Department of Labor. If such index is discontinued,
"Consumer Price Index" shall thereafter refer to the most
nearly comparable
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Execution Copy 22
official price index of the United States Government as
reasonably determined by SECOR.
D. Financial Resources. SECOR represents and warrants that it has
the financial resources, as augmented by AIG Environmental and
the CCC Policy and PLL Policy, to prosecute this Agreement
with diligence to Project Completion with respect to both
Sites, even if the nature or extent of Environmental
Conditions, and thus, the cost estimate thereof, exceeds
SECOR's estimate thereof, and SECOR pledges to use such
resources as necessary to diligently achieve Project
Completion at both Sites.
5. Insurance
A. SECOR's Required Insurance. SECOR shall maintain at its own
expense, and shall, upon request, provide to DTSC,
Watkins-Johnson, and Stanford, certificates of insurance
demonstrating that it maintains the following insurance
coverage, underwritten by companies and on coverage forms
acceptable to Watkins-Johnson, in the following amounts:
(1) Worker's compensation and employer's liability
insurance in an amount not less than the greater of
$1,000,000 or that amount prescribed by law;
(2) Comprehensive automobile liability insurance (owned,
non-owned, and hired) with limits of one million
dollars ($1,000,000) per occurrence and one million
dollars ($1,000,000) in the aggregate and umbrella
and excess coverage, with a limit of nine million
dollars ($9,000,000) each occurrence and in the
aggregate (as long as such limit is commercially,
reasonably available, but in no event less than
$5,000,000 each occurrence and $9,000,000 in the
aggregate);
(3) Commercial General Liability insurance with limits of
one million dollars ($1,000,000) per occurrence and
two million dollars ($2,000,000) in the aggregate
which policy shall have broad-form contractual
liability coverage and such endorsements as may be
reasonably acceptable to Watkins-Johnson and umbrella
and excess coverage also having broad form
contractual liability coverage and such endorsements
as may be reasonably acceptable to Watkins-Johnson
with a total limit of nine million dollars
($9,000,000) each occurrence and in the aggregate (as
long as such limit is commercially, reasonably
available, but in no event less than $5,000,000 each
occurrence and $9,000,000 in the aggregate); and
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Execution Copy 23
(4) Professional errors and omissions and contractors
pollution legal liability insurance with limits of
two million dollars ($2,000,000) per incident and in
the aggregate.
SECOR's Commercial General Liability, comprehensive automobile
liability insurance and professional errors and omissions and
pollution legal liability coverage may be provided under one
policy.
B. Term of Coverage for SECOR's Insurance. With respect to
Paragraph 5.A, insurance of a sufficient magnitude to satisfy
the foregoing shall be maintained without a reduction in or
narrowing of coverage at all times during the course of the
Services and for at least four years following the termination
of the Agreement or the completion of all Services under this
Agreement. The required insurance shall provide coverage for
the negligent acts and omissions of SECOR, its agents,
employees, contractors, and subcontractors, and shall contain
broad form contractual liability coverage. All policies shall
require that Watkins-Johnson be provided with thirty (30) days
advance written notice of cancellation, reduction, change, or
renewal of each such policy. Proof of insurance shall be
provided by SECOR prior to execution of this Agreement and
will be kept up to date at all times by SECOR. In the event a
professional errors and omissions and contractor's pollution
legal liability insurance policy is to be terminated, SECOR
shall prevent any gap in coverage during the course of the
Services and for four (4) years thereafter by extending the
present policy to cover the time period before a new policy is
obtained. The provisions of this Section 5 shall survive the
completion of the Services or termination of this Agreement.
In the event that SECOR fails to maintain the required
coverage hereunder, Watkins-Johnson shall have the right,
after thirty (30) days written notice to SECOR, to obtain such
coverage as is reasonably necessary to replace the coverage
not maintained by SECOR and to be reimbursed for the costs of
such insurance directly by SECOR.
C. Copy of SECOR's Policy. SECOR shall provide a current copy of
its Professional Errors and Omissions and Contractor's
Pollution Legal Liability Insurance policy, as it exists at
the inception of this Agreement, to Watkins-Johnson. SECOR
represents and warrants that, except as described in detail in
Exhibit G, attached and made a part hereof for all purposes,
SECOR is not the subject of or a party to any claim, demand,
mediation, arbitration, lawsuit, or judgment as would threaten
availability of insurance coverage made a part of this
Agreement. SECOR shall notify Watkins-Johnson in writing of
any change in such representation and warranty within fourteen
(14) days following the discovery of such change.
<PAGE>
Execution Copy 24
D. Additional Insureds on SECOR's Policy. On all insurance
coverage provided by SECOR per Paragraph 5.A except worker's
compensation coverage, errors and omissions and contractor's
pollution legal liability insurance coverage, or except where
Watkins-Johnson shall decline same in advance and in writing,
Watkins-Johnson, any successors of Watkins-Johnson and their
lenders and equity partners (and, if requested by
Watkins-Johnson, any assignee(s) and/or sublessee(s) of
Watkins-Johnson and their lenders and equity partners) and
Stanford shall be named as Additional Insureds (under an
endorsement at least as broad as CG 20-10-11-85 issued by the
Insurance Services Office, Inc.), with waiver of subrogation
rights.
E. Waiver of Rights. Watkins-Johnson and SECOR waive all rights
against one another for all losses and damages to the extent
covered and actually paid by the policies of insurance
provided for herein and any other property insurance
applicable to the Services except that with respect to
coverage for events or circumstances arising out of or
relating to the performance of the Services, the CCC Policy
and the PLL policy shall be primary, followed by SECOR's other
insurance coverages. Each subcontract between SECOR and a
subcontractor will contain similar waiver provisions by the
subcontractor in favor of Watkins-Johnson and all other
parties named as Additional Insureds.
F. Cleanup Cost Cap Insurance. On or prior to the Effective Date,
SECOR shall arrange for issuance by AIG Environmental, and AIG
Environmental shall have issued, the CCC Policy, which shall
name and pay on behalf of SECOR as Named Insured, and which
shall be in the form attached hereto as Exhibit H, or in such
other form as agreed to by the parties. The CCC Policy shall
name Watkins-Johnson and Stanford, as Additional Insureds, and
shall expressly provide for assignment of the Additional
Insureds' rights under the CCC Policy to their successors and
assigns (whether or not this Agreement is in effect). Coverage
under the CCC Policy shall commence and be effective as of the
Effective Date and shall terminate on the earlier of Project
Completion or thirty (30) years from the Effective Date, with
a limit of ten million dollars ($10,000,000). Watkins-Johnson
shall pre-pay for the CCC Policy in a lump sum as set forth in
Paragraph 3.A. of this Agreement. Proof of Insurance under
this Paragraph 6.F. shall be provided by AIG Environmental on
or before the Effective Date and thereafter upon request by
SECOR, Watkins-Johnson, and any Additional Insured, its lender
or equity partner, or DTSC. In the event that SECOR causes the
termination of the CCC Policy hereunder, Watkins-Johnson shall
have the right, after thirty (30) days written notice to
SECOR, to obtain
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Execution Copy 25
such coverage as is reasonably necessary to replace the
coverage and to be reimbursed for the costs of such insurance
directly from SECOR.
G. Pollution Legal Liability Insurance. Prior to or on the
Effective Date, AIG Environmental shall issue the PLL Policy,
which shall name Watkins-Johnson as First Named Insured, and
which shall be in the form attached hereto as Exhibit I, or in
such other form as agreed to by the parties. The PLL Policy
shall name SECOR as Additional Named Insured, and Stanford
(and, if requested by Watkins-Johnson, any successors of
Watkins-Johnson and their lenders and equity partners) as
Additional Insured. The PLL Policy shall expressly provide for
assignment of the First Named Insured's rights under the PLL
Policy to its successors and assigns as otherwise described in
this Paragraph 5.G. (whether or not this Agreement is in
effect). The PLL Policy shall have a policy term of ten (10)
years following the Effective Date, with a limit of ten
million dollars ($10,000,000). In the event Watkins-Johnson or
its successor or assign, elects to increase the limits of the
PLL Policy, then SECOR shall be named as an Additional Named
Insured, up to the increased policy limits, but not to exceed
Twenty Million Dollars ($20,000,000). Watkins-Johnson shall
pre-pay for the PLL Policy in a lump sum. Proof of Insurance
under this Paragraph 5.G. shall be provided by AIG
Environmental on or before the Effective Date and thereafter
upon request by any Named Insured, Additional Insured, or the
DTSC. In the event that SECOR causes the termination of the
PLL Policy hereunder, Watkins-Johnson shall have the right,
after thirty (30) days written notice to SECOR, to obtain such
coverage as is reasonably necessary to replace the coverage
and to be reimbursed for the costs of such insurance directly
from SECOR.
6. Financial
A. Maintenance of Financial Standards. SECOR shall be solely
responsible for and Watkins-Johnson shall have no right in
respect to the management of SECOR's own internal affairs,
including, without limitation, those relating to its
compliance with laws, regulations and rules governing its
formation, preservation and functioning as a corporation and
its management, accounting policies, insurance programs,
shareholder and labor relations, for purposes of SECOR's
performance of activities related to Services or Project
Completion under this Agreement, and otherwise.
B. Financial Statements. At any time during the term of this
Agreement, within three (3) business days following receipt of
Watkins-Johnson's
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Execution Copy 26
written request SECOR shall provide Watkins-Johnson with such
audited financial statements as are necessary to assure
Watkins-Johnson of the financial ability of SECOR to perform
the Services under this Agreement. Such audited financial
statements may reflect SECOR's relationship with AIG
Environmental. Watkins-Johnson shall maintain the
confidentiality of, and not disclose to anyone (other than
officers, counsel, lenders, or those who have a need to know
as provided in this Agreement) the contents of same,
consistent with the provisions of Section 13 of this
Agreement.
C. Financial Ability. At all times during the term of this
Agreement, SECOR shall maintain the financial resources
necessary to meet its obligations hereunder and satisfy all of
its other obligations and liabilities.
7. Assignment of Watkins-Johnson's Rights to a Third Party
The Parties expressly agree that Watkins-Johnson may convey or assign
its rights under this Agreement (provided the duties and obligations
hereunder of Watkins-Johnson as transferor or assignor are delegated to
and assumed in full by the transferee or assignee) to any third party,
including, without limitation, under any of the following
circumstances: (i) to any third party in conjunction with a subsequent
sale, assignment, or sublease of all or a portion of the Hillview Ave.
Site; (ii) to a subsidiary, affiliate, division or corporation
controlling, controlled by or under common control with
Watkins-Johnson; (iii) to a successor corporation related to
Watkins-Johnson by merger, consolidation, nonbankruptcy reorganization,
or government action; or (iv) to a purchaser of Watkins-Johnson's
assets located on the Site ("Permitted Assignee"). In the event of an
assignment of this Agreement by Watkins-Johnson to a Permitted
Assignee, SECOR agrees that the transferee or assignee, or a
foreclosing lender or other party, shall succeed to the rights of
Watkins-Johnson in connection with the project, subject to additional
conditions that (1) SECOR's rights and obligations shall remain
substantially intact and unaffected by any such transfer or assignment
or any disposition of the Sites or portion thereof, and (2)
transferee's or assignee's rights shall not be any greater than
Watkins-Johnson's hereunder, or enlarged with respect to enforcement or
carrying-out of any corresponding obligations of SECOR vis-a-vis the
rights and privileges of Watkins-Johnson. Nothing in this Paragraph 7
is intended to or in fact affects or diminishes SECOR's rights under
Paragraph 8.C. ("Termination for Cause by SECOR"), Subsection (3).
<PAGE>
Execution Copy 27
8. Termination
A. Termination for Cause. Watkins-Johnson or SECOR may only
terminate this Agreement for "cause," as defined in Paragraphs
8.B. and 8.C. The definition of "cause" as set forth in
Paragraphs 8.B. and 8.C. shall be strictly construed. In no
event shall Watkins-Johnson or SECOR have the right to
terminate this Agreement for convenience or for any other
reason not strictly constituting "cause" herein (such as
economic/business or legal/regulatory considerations affecting
use or disposition of the property). Termination for cause
shall be initiated by written notice ("Termination Notice")
from the terminating party delivered to the allegedly
defaulting party at least sixty (60) days prior to the
termination date, or three (3) days in case of emergency
("Termination Date"). The allegedly defaulting party shall
have until the Termination Date to cure the alleged default.
If the default giving rise to "cause" is cured prior to the
Termination Date, the Termination Notice shall automatically
be deemed of no further force or effect. The CCC Policy shall
expressly contemplate and allow that upon termination of this
Agreement by Watkins-Johnson pursuant to this Paragraph 8.A.,
a settlement of claims of SECOR and Watkins-Johnson, shall be
made as follows:
(1) In the event of such termination by Watkins-Johnson,
Watkins-Johnson shall, at its discretion: (i) take
possession of any or all materials and equipment,
tools, and construction equipment owned by SECOR at
the Site; (ii) finish the Services by whatever method
Watkins-Johnson may deem expedient; and (iii) shall
be assigned, at Watkins-Johnson's option, any and all
contracts or subcontracts relating to the performance
of the Services.
(2) In the event of termination by Watkins-Johnson, SECOR
shall, upon request by Watkins-Johnson, promptly
advise Watkins-Johnson of all outstanding unperformed
or uncompleted subcontracts, rental agreements, and
purchase orders which SECOR has with others
pertaining to performance of the Services, and shall
furnish Watkins-Johnson with complete copies thereof.
(3) SECOR shall, no later than thirty (30) days following
the Termination Date, deliver to Watkins-Johnson a
final invoice for Services rendered to the
Termination Date, which invoice shall be subject to
the objection and payment procedures set forth in
Paragraph 3.C. hereof ("Final Invoice").
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(4) Upon termination for cause by Watkins-Johnson, SECOR
shall, upon Watkins-Johnson's written request,
perform such Services as Watkins-Johnson reasonably
deems necessary to preserve and protect the Services
already in progress and to dispose of any property as
reasonably requested by Watkins-Johnson or its
Authorized Representative ("Disengagement Services").
The cost and expense of such Disengagement Services
shall be borne equally by SECOR and Watkins-Johnson.
(5) Watkins-Johnson shall have the right to waive an
event of default or an event giving rise to
termination for cause provided such waiver is in
writing and signed by Watkins-Johnson.
B. Termination for Cause by Watkins-Johnson. With respect to
termination for "cause" by Watkins-Johnson, "cause" shall be
defined as any of the following circumstances that cause
Watkins-Johnson material harm:
(1) If the Services have not been or are not being
performed in accordance with the provisions of this
Agreement so as to materially and adversely affect
Watkins-Johnson with respect to either the Hillview
Ave. Site or the Regional Site;
(2) If SECOR has materially violated or is materially
violating either of the Orders, the Final RAPs, or
any requirements thereunder, or any other Applicable
Requirements pertaining to the Services;
(3) If SECOR refuses or otherwise fails in a material
manner or degree to supply enough properly skilled
labor or proper equipment or materials to accomplish
the Services;
(4) If any voluntary or involuntary proceedings in
bankruptcy or insolvency have been commenced by or
against SECOR (in which event Watkins-Johnson may
immediately terminate this Agreement, notwithstanding
Paragraph 8.A above);
(5) If SECOR has committed or is committing any act of
bankruptcy or has become insolvent or unable to meet
its debts as they mature (in which event
Watkins-Johnson may immediately terminate this
Agreement, notwithstanding Paragraph 8.A above);
(6) If SECOR fails to maintain any insurance required
under Paragraph 5.A., and does not, within thirty
(30) calendar days after written notice of such
failure provide proof to Watkins-Johnson that such
insurance has been obtained and that any such policy
provides equal
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coverage during the period of any "gap" between the
expiration of the old policy and the effective date
of the new policy.
If SECOR is in default under this Agreement, Watkins-Johnson
shall have, in addition to the termination rights set forth
herein, all rights and remedies available to it at law or in
equity, including, without limitation, the right to seek
specific performance to enforce this Agreement. Nothing
contained in the foregoing sentence shall be deemed to imply
that Watkins-Johnson shall have the right to terminate this
Agreement for any reason other than "cause" or prior to the
Termination Date (except as provided in this Paragraph 8.B.,
Subparagraphs (4) through (6) above).
C. Termination for Cause by SECOR. With respect to termination
for "cause" by SECOR, "cause" shall be defined as any of the
following circumstances that cause SECOR material harm:
(1) If Watkins-Johnson wrongfully prevents payment to
SECOR of any amounts owed to SECOR by Watkins-Johnson
hereunder (excluding the failure of AIG Environmental
to pay any amount due through no fault or act of
Watkins-Johnson) and such amounts have not been paid
within ten (10) days following receipt by
Watkins-Johnson of written notice from SECOR that
such amounts are due; and/or
(2) If Watkins-Johnson wrongfully and materially prevents
SECOR from performing its material duties and
obligations under this Agreement.
(3) If Watkins-Johnson's successor and/or assignee does
not provide to SECOR, upon SECOR's written request,
reasonable financial assurances, in the form of (i)
audited financial statements that demonstrate a net
worth of at least ten million dollars ($10,000,000),
(ii) a Letter of Credit (evidencing five hundred
thousand dollars ($500,000) in credit), (iii) a
surety bond (evidencing five hundred thousand dollars
($500,000) in surety), (iv) one or more certificates
of insurance evidencing the same types and levels of
insurance required of SECOR under Paragraph 5.A (1),
(2), and (3), for the same duration and under the
same terms as set forth in 5.B., and providing SECOR
rights to terminate "for cause" in the event the
successor and/or assignee fails to maintain the
insurance under the same terms and conditions as set
forth in 8.B.(6), or (v) some other evidence of
financial assurance, the form of which shall be
acceptable to SECOR, which demonstrates financial
ability comparable to the levels of ability necessary
to satisfy item (i), (ii), or
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(iii), in this subsection (3), provided, however,
that (a) SECOR must provide to such successor and/or
assignee written notice, consistent with the
provisions of Section 17 of this Agreement, that
SECOR requires such financial assurances or that the
financial assurances already offered are
insufficient, and (b) such successor and/or assignee
may have forty-five (45) days from the date such
notice is received to provide such financial
assurance, during which period SECOR may not
terminate this Agreement.
If Watkins-Johnson is in default under this Agreement, SECOR
shall, in addition to the termination rights set forth herein,
have all rights and remedies available to it at law or in
equity, including, without limitation, the right to seek
specific performance to enforce this Agreement. Nothing
contained in the foregoing sentence shall be deemed to imply
that SECOR shall have the right to terminate this Agreement
for any reason other than "cause" or prior to the Termination
Date.
D. Additional Watkins-Johnson Remedies
(1) In the event a Termination Notice is delivered to
SECOR by Watkins-Johnson, Watkins-Johnson may order
SECOR to immediately stop performance of such
Services, or any portion of such services, until the
cause for such failure to perform has been eliminated
by SECOR at SECOR's cost and expense. However, the
right of Watkins-Johnson to order SECOR to stop the
provision of Services at either Site shall not give
rise to a duty on the part of Watkins-Johnson to
exercise this right for the benefit of SECOR or any
other person or entity.
(2) In the event of a termination of this Agreement by
any party hereto, the following shall apply with
respect to either or both of the Two Sites and the
Services related to either or both of the Two Sites:
(a) Watkins-Johnson may find a new third party
contractor to either complete performance of
the Services at either or both of the Two
Sites, and assume the obligations of SECOR
hereunder with respect to the Site or Sites,
or to enter into a new contract with
Watkins-Johnson for Services related to the
Site or Sites on the same terms and
conditions as set forth herein ("New
Contractor").
(c) In the event: (i) Watkins-Johnson is unable
to locate a New Contractor willing to assume
SECOR's obligations hereunder
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for either Site or both Sites or to enter
into a new contract on the same terms and
conditions as set forth herein; (ii)
performance of Services at either Site or
both of the Sites is required before a New
Contractor is selected as a result of a
pending or threatened violation of either
Order or both of the Orders or other
Applicable Law; or (iii) in the event
performance of Services at either Site or
both of the Sites is required to minimize
adverse consequences of the Environmental
Conditions at either Site or both of the
Sites, Watkins-Johnson shall have the right
(until such time as a New Contractor is
selected) to perform such Services.
9. Change Orders
A. Parties' Intent. It is the intent of the Parties that this
Agreement eliminates as far as reasonably possible the
potential for additional charges or change orders to the
general scope of Services.
B. Hillview Ave. Site
(1) With respect to the Hillview Ave. Site, circumstances
could arise, caused by the actions or requests of
Watkins-Johnson, its successors, or its assigns or
sublessees, in which a change order may be warranted,
which change order would be paid for by
Watkins-Johnson, its successor, assignee, or its
sublessee without any claim against, or any
reimbursement from SECOR or the CCC Policy. Such
circumstances include, but are not limited to the
following: (i) the situation where Watkins-Johnson,
its successor, assignee, or sublessee chooses to have
SECOR remove and relocate a remediation system in
order to accommodate a revision to a redevelopment
plan that was not disclosed to SECOR as of the
Effective Date of this Agreement or at the time SECOR
installed the remediation system, or (ii) the
situation where Watkins-Johnson's, its successor's,
assignee's, or sublessee's other contractors damage
SECOR's equipment or remediation installation.
Another circumstance that might warrant a change
order would be any request by Watkins-Johnson, its
successor, assignee, or sublessee to address
environmental conditions that are not Environmental
Conditions hereunder, the remediation of which would
require additional costs and expenses beyond what
would be required for the remediation of the
Environmental Conditions pursuant to Hillview
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Ave. Order and the Final RAP for the Hillview Ave.
Site. The costs for remediation of such environmental
conditions shall be paid by Watkins-Johnson within
thirty (30) days of receipt of invoice(s) from SECOR
for services performed pursuant to any Change
Order(s) executed by the Parties under this Section
9.
(2) Upon mutual agreement of Watkins-Johnson and SECOR,
upon approval of the DTSC as required under the terms
of the Hillview Ave. Order and Final RAP, upon
approval of any Other Regulatory Agency to the extent
applicable, and subject to execution of a Change
Order as herein described, SECOR may perform services
in addition to the Services described under Paragraph
1.A. for the Hillview Ave. Site. In no event shall
execution of a Change Order limit, impair, or affect
SECOR's obligations to perform the Services, except
to the extent expressly set forth in such Change
Order.
C. Regional Site
(1) With respect to the Regional Site, Watkins-Johnson
and SECOR do not anticipate any Change Orders to be
required except to the extent that the Management
Committee for the Regional Site undertakes
modifications in the approved plan of remediation or
in operations of the Management Committee such that
SECOR's obligations hereunder at the Regional Site
are significantly changed.
(2) With respect to the Regional Site, circumstances
could arise, caused by the actions or requests of
Watkins-Johnson, in which a Change Order may be
warranted, which Change Order would be paid for by
Watkins-Johnson, its successor, or assignee, without
any claim against, or any reimbursement from SECOR or
the CCC Policy. Such circumstances include, but are
not limited to the situation where (i)
Watkins-Johnson, its successor, or assignee chooses
to have SECOR remove and relocate all or part of the
Regional Site remediation system in order to
accommodate a revision to a redevelopment plan that
was not disclosed to SECOR as of the Effective Date
of this Agreement or at the time the remediation
system was installed, or (ii) Watkins-Johnson's, its
successor's, or assignee's other contractors damage
the equipment or remediation installation being used
in the Regional Site remediation, such that the
equipment or installation must be replaced.
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(3) Upon mutual agreement of Watkins-Johnson and SECOR,
upon approval of the DTSC, if such approval is
required under the terms of the Regional Order and
Final RAP, upon approval of the Management Committee
or of any Other Regulatory Agency to the extent
applicable, and subject to execution of a Change
Order as herein described, SECOR may perform services
in addition to the Services described under Paragraph
1.A. for the Regional Site. Watkins-Johnson shall pay
SECOR for the costs for such additional services
performed pursuant to any Change Order(s) executed by
the Parties under this Section 9 within thirty (30)
days of receipt of invoice(s) from SECOR. In no event
shall execution of a Change Order limit, impair, or
affect SECOR's obligations to perform the Services,
except to the extent expressly set forth in such
Change Order.
D. Preparation of Change Orders. Change Orders for either Site
shall be prepared as follows:
(1) Change Order Requirements. A "Change Order" shall be
a written agreement between Watkins-Johnson and
SECOR, which shall be expressly designated "Change
Order." A Change Order may be proposed by
Watkins-Johnson or SECOR, or either of their
Authorized Representatives. Upon execution by both
Watkins-Johnson and SECOR, the Change Order shall be
put in effect and paid for by Watkins-Johnson.
Watkins-Johnson's Authorized Representative is hereby
authorized to prepare, review, and execute Change
Orders on behalf of Watkins-Johnson.
At a minimum, each Change Order shall state the
following:
(1) the nature of the change to be addressed;
(2) a description of the means by which the
change shall be addressed;
(3) a fixed price or time-and-materials estimate
as agreed upon by the Parties; and
(4) the amount of any change in the time frame
for completion required to address the
change.
(2) Change Order Requested by Watkins-Johnson. If a
request for a Change Order is initiated by
Watkins-Johnson or its Authorized Representative,
SECOR shall promptly provide, as appropriate, the
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information required as described in Paragraph
9.D.(1), and any other relevant information
requested.
(3) Change Order Requested by SECOR. Change Orders
proposed by SECOR shall be in writing and shall be
promptly forwarded to Watkins-Johnson's Authorized
Representative for review and comment. SECOR's
response to such review and comment by the
Watkins-Johnson's Authorized Representatives shall be
provided promptly by SECOR to Watkins-Johnson's
Authorized Representative.
(4) Performance. SECOR shall perform the Services as
modified by any executed Change Orders. In the event
Watkins-Johnson and SECOR fail to agree to a proposed
Change Order, unless otherwise directed by
Watkins-Johnson, SECOR may not suspend performance of
the Services and Watkins-Johnson and SECOR shall
submit the disputed Change Order for resolution by
binding arbitration as provided for herein.
10. Indemnities
A. Indemnity by SECOR. SECOR agrees to indemnify, hold harmless,
and defend (with attorneys reasonably acceptable to the
applicable indemnified party) Watkins-Johnson and
Watkins-Johnson's directors, officers, employees, agents,
representatives, shareholders, partners, investors,
affiliates, parents, subsidiaries, successors, and assigns
from and against, whether direct or indirect, consequential or
otherwise, any and all damages, interest, liabilities,
proceedings, causes of action, claims, suits, demands,
actions, judgments, costs, and expenses (hereinafter
collectively referred to as "Claims"), which any or all of
them may incur to the extent resulting from or arising out of:
(1) Any negligence, recklessness or willful misconduct by
SECOR or its employees, agents, representatives,
contractors, subcontractors, successors, or assigns
arising with respect to this Agreement or the
performance of the Services, or
(2) Any violation of either Order or both the Orders or
other Applicable Requirements, by SECOR or its
employees, agents, representatives, contractors,
subcontractors, successors, or assigns, provided the
party seeking indemnity is not then in default
hereunder.
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Execution Copy 35
B. Indemnity by Watkins-Johnson. Watkins-Johnson agrees to
indemnify, hold harmless, and defend (with attorneys
reasonably acceptable to the applicable indemnified party)
SECOR, and its respective directors, officers, employees,
agents, representatives, shareholders, partners, affiliates,
parents, subsidiaries, successors, and assigns from and
against Claims which any or all of them may incur to the
extent such Claims do not result from or arise out of:
(1) Any negligence, recklessness or willful misconduct by
SECOR or its employees, agents, representatives,
contractors, subcontractors, successors, or assigns
arising with respect to this Agreement or the
performance of the Services; or
(2) Any violation of either Order or both the Orders or
other Applicable Requirements, by SECOR or its
employees, agents, representatives, contractors,
subcontractors, successors, or assigns, provided the
party seeking indemnity is not then in default
hereunder;
C. Claim by Agent or Subcontractor. In the event of claims
against any person or entity indemnified above brought by any
direct or indirect agent or employee of SECOR, or of its
subcontractor, or of anyone for whose acts or omissions SECOR
or its subcontractor may be liable, the indemnification
obligation under this Section 10 shall not be limited by a
limitation of any amount or type of damages, compensation, or
benefits payable to said employee or agent contained in any
worker's compensation acts, disability benefit acts, or other
employee benefit acts or in any subcontract.
D. Survival of Indemnities. The indemnities under this Section 10
shall survive the termination of this Agreement.
11. Force Majeure
A. Force Majeure Event. Neither SECOR nor Watkins-Johnson shall
be deemed in default of this Agreement to the extent that any
delay or other failure to perform their obligations as
required pursuant to the Agreement results without fault or
negligence from an event of "Force Majeure." For purposes of
this Agreement, the term "Force Majeure" shall be defined as
follows: any event, arising from causes beyond the reasonable
control of the Parties (other than a Party's lack of or
inability to obtain funds to fulfill its obligations or
undertakings under this Agreement), that delays or prevents
the performance of any obligation arising under this
Agreement, such as, without limitation, acts of God, labor
disputes, strikes, vandalism, fires,
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Execution Copy 36
floods, or weather conditions which would prevent or impair
the performance of the Services. Upon the occurrence of any
event claimed by a Party to be Force Majeure, the claiming
Party shall notify the other Party promptly of the occurrence
of such event, followed by written notification thereof given
within three (3) calendar days after the date the claiming
Party discovered or should have discovered the event of Force
Majeure has occurred. The written notification shall contain
any information which may be required to be disclosed to an
applicable regulatory agency under any administrative or court
order affecting the Services. Failure to notify the other
parties either orally or in writing in accordance with this
Section shall constitute a waiver of such claim of Force
Majeure, provided, however, no modification of the Services
shall be made unless and until written notice is provided. If
the Parties cannot agree that the reason for delay or failure
of performance is a Force Majeure, the Parties shall submit
such issue to arbitration in accordance with Section 17
hereof. In no event shall any event of Force Majeure relieve
either SECOR or Watkins-Johnson of any obligation hereunder
other than to extend the time of performance required of such
Party.
12. Compliance with Training Requirements
A. Compliance and Training. SECOR covenants that it and its
employees, agents, contractors, subcontractors, and those
under its management or supervision, including, without
limitation, those with whom SECOR has contracted and their
employees, agents, contractors, and subcontractors:
(1) Shall comply with all applicable environmental,
health and safety and work plans, orders and decrees,
and with all applicable laws; and
(2) Shall be properly trained, registered, and certified
as appropriate or required.
B. Safety. SECOR shall take reasonable safety and other
precautions in the performance of the Services. SECOR shall
comply with all Applicable Requirements, including, without
limitation, the Occupational Safety and Health Act of 1970 (84
U.S. Statutes 1590), as amended, and regulations thereunder,
to the extent applicable, and SECOR warrants the compliance
thereof of materials, equipment, and facilities, whether
temporary or permanent, furnished by SECOR in connection with
the performance of the Services.
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Execution Copy 37
13. Confidentiality, Records Retention and Reporting
A. Treatment of Confidential Information. SECOR shall ensure that
it and its employees, agents, contractors, and subcontractors
shall treat as confidential any information, whether verbal or
written or of any description whatsoever, developed or
obtained in performing the Services or in any way relating to
the Site or this Agreement ("Confidential Information").
Confidential Information shall not include any periodic
reports or data required to be submitted pursuant to the
Orders or otherwise required to be submitted to the DTSC or
Other Regulatory Agency to achieve Project Completion. The
confidentiality obligation required by this Section 13 shall
not apply to information which (I) is in the public domain,
(II) is disclosed to SECOR by a third party without
restriction, (III) is independently developed by SECOR apart
from this Agreement, (IV) was in SECOR's possession prior to
entering into this Agreement, or (V) is required to be
publicly disclosed under operation of law. Such Confidential
Information shall not be disclosed to anyone other than
Watkins-Johnson or its Authorized Representatives, except for
disclosure to governmental authorities and subcontractors when
required to perform the Services and only: (i) in the case of
a subcontractor, agent or representative of SECOR, upon
receipt by SECOR of a written acknowledgment from such
subcontractor, agent or representative that it will comply
with the provisions of this Paragraph 13.A. in the same manner
as SECOR and shall assume the same rights and obligations as
SECOR as set forth in this Paragraph 13.A., and (ii) in the
case of governmental authorities, after SECOR has provided
Watkins-Johnson with written notice, no later than ten (10)
days prior to the submission of such Confidential Information
to a governmental authority, that such information shall be
submitted. To the extent disclosure of Watkins-Johnson's
Confidential Information is mandated by law, Watkins-Johnson
shall have the right to exhaust all challenges to the
disclosure prior to SECOR's disclosing the Confidential
Information, but only within the time period prior to when
such law mandates disclosure. To the extent challenges to the
disclosure of Watkins-Johnson's Confidential Information
involve additional expenses to SECOR for costs of testimony
and assistance of counsel, such costs as are reasonably
incurred shall promptly be reimbursed by Watkins-Johnson, as
applicable. In the event SECOR is ordered to disclose the
Confidential Information by any governmental authority and
Watkins-Johnson has either exhausted its challenges to such
disclosure obligation or has otherwise waived such challenges,
SECOR shall only disclose that portion of the Confidential
Information that is required to be disclosed. It is further
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Execution Copy 38
understood and agreed that money damages would not be
sufficient remedy for any breach of this Paragraph 13.A. and
that, in addition to all other remedies available at law to
Watkins-Johnson, Watkins-Johnson shall be entitled to
injunctive relief and specific performance as a remedy for a
breach of this Paragraph by SECOR.
The confidentiality obligations set forth in this Paragraph
shall survive termination or completion of this Agreement.
B. Disclosure of SECOR's Confidential Information.
Watkins-Johnson shall have the right to disclose documents and
information (including financial information of SECOR and any
financial information related to CCC Policy, its status, or
any of the insurance policies hereunder) related to the
Services to actual and prospective lenders, buyers, investors,
insurance companies, and tenants. Tenants are not to receive
proprietary or financial information of SECOR without SECOR's
prior written approval, which SECOR shall not unreasonably
withhold. In the event Watkins-Johnson plans to submit any
confidential information of SECOR to any governmental agency,
SECOR shall have the same rights with respect to such
confidential information as are granted to Watkins-Johnson
paragraph 13.A hereof. This Paragraph 13.B. shall survive
termination or completion of this Agreement.
C. Use of Project Information. SECOR agrees that any promotional
material disseminated in the course of its business may not
disclose the specific name, location, and scope of Services to
be provided under this Agreement at either Site. SECOR agrees
further that any statement of qualifications submitted to any
third party in connection with potential projects or business
relationships shall disguise the Services to be provided under
this Agreement in such a manner that its location, as well as
the environmental condition of the Sites, cannot be
ascertained or determined. Watkins-Johnson can, in
Watkins-Johnson's sole and absolute discretion, allow SECOR to
identify the location of the Project and/or the identification
of Watkins-Johnson in such materials. Watkins-Johnson must
agree to such disclosures in writing before any dissemination
by SECOR may occur, which agreement shall not be unreasonably
withheld.
14. Staffing
A. Adequate Staffing. SECOR shall furnish a competent and
adequate staff as necessary for the proper and diligent
administration, performance, coordination, and supervision of
the Services; organize the procurement of
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all materials and equipment so that they will be available at
the time they are needed for timely completion and performance
of the Services; and keep an adequate force of skilled staff
on the job to complete the Services in accordance with all
provisions of this Agreement. SECOR shall supply a statement
of qualifications for those specific persons who shall perform
the Services.
B. Subcontractors. SECOR shall properly pay all subcontractors
for all amounts due and payable and shall indemnify, defend,
and hold Watkins-Johnson harmless from any claims or liens of
subcontractor. Without limitation on the foregoing, in the
event that any such lien is filed against the Hillview Ave.
Property and upon adjudication of the lien or obligation in
favor of the subcontractor, Watkins-Johnson is hereby
authorized to submit invoices directly to AIG Environmental to
satisfy such lien and any other costs incurred by
Watkins-Johnson with respect to such lien, provided
Watkins-Johnson provides SECOR 30 days' prior written notice
of its intent to do so.
C. Supervision. SECOR shall supervise and direct the Services,
using that skill and attention ordinarily exercised by members
of the profession practicing under similar conditions at the
same time and in the same or similar locality. Subject to the
provisions hereof, SECOR shall, with respect to its
subcontractors, agents, employees and representatives, be
responsible for: (1) construction means, methods, techniques,
sequences, and procedures, (2) health or safety precautions
and programs in connection with the Services, and (3)
coordinating the Services under the Agreement, unless directed
otherwise by Watkins-Johnson or its Authorized Representative.
15. Watkins-Johnson's Site Activities
A. Watkins-Johnson Activities at the Site. Watkins-Johnson
reserves the right to perform construction, operations, or
other activities at the Site outside the scope of Services, or
not related to the Services, through Watkins-Johnson's own
forces or through award of separate contracts to other
contractor or contractors. Upon written request from SECOR,
Watkins-Johnson shall provide information reasonably requested
by SECOR with respect to such activities. Watkins-Johnson
shall provide a representative to meet with representatives of
SECOR to coordinate the Services with construction activities
at the Site.
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B. Cooperation by SECOR. SECOR shall afford Watkins-Johnson and
any of Watkins-Johnson's separate contractors reasonable
opportunity for performance of such other activities at the
Site and shall reasonably coordinate the Services with such
other activities. Upon written request from Watkins-Johnson,
SECOR shall promptly provide any Watkins-Johnson contractor
with instructions and other information reasonably requested
by Watkins-Johnson, such as maps showing the location of
monitoring wells, recovery wells, and any other equipment used
for or in connection with the Services and remediation of the
Environmental Conditions (collectively, the "Equipment"), in
order to identify the location of any Equipment to enable such
contractors to avoid impeding or delaying any construction
activities at the Site and avoiding any damage or destruction
of the Equipment. SECOR shall provide a representative to meet
with representatives of Watkins-Johnson or Watkins-Johnson's
contractors from time to time as necessary to coordinate the
Services with construction activities at the Site. SECOR shall
relocate all Equipment to the extent necessary to accommodate
any redevelopment plans for the Site, provided such plans are
disclosed to SECOR no less than thirty (30) days prior to any
planned redevelopment in a manner sufficient to identify the
location, layout, and depth of redevelopment construction and
Watkins-Johnson shall reimburse SECOR for its costs associated
with relocation of the Equipment.
16. Claims
A. Notice of Claim. Any claim against a Party pursuant to this
Agreement must be in writing, must set forth the facts upon
which it is based, and except as expressly provided to the
contrary herein, must be received by the non-claiming Party at
least thirty (30) days prior to the filing of any demand for
arbitration involving such claims and such notice; which
notice, the Parties agree, shall be a jurisdictional
prerequisite to bringing any claim.
B. Arbitration of Disputes. Claims, disputes and other matters in
question between the Parties to this Agreement arising out of
or relating to this Agreement or the Services shall be
submitted to and settled by arbitration conducted in the
County of Santa Clara, California, in accordance with the
rules then in effect of the American Arbitration Association
by three (3) arbitrators appointed in accordance with such
rules. The award rendered by the arbitrators shall be final
and binding, and judgment may be entered upon it in any court
having jurisdiction thereof. Notwithstanding the foregoing,
the Parties may apply to any court of competent jurisdiction
for a
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Execution Copy 41
temporary restraining order, preliminary injunction, or other
interim or conservatory relief, as necessary, without breach
of this arbitration agreement and without any abridgment of
the powers of the arbitrators. No arbitration arising out of
or relating to this Agreement or the Services shall include,
by consolidation or joinder or in any other manner, an
additional person not a party hereto, except by written
consent signed by the Parties and any other person sought to
be joined. Consent to arbitration involving an additional
person or persons shall not constitute consent to arbitration
of a dispute not described or with a person not named therein.
This provision shall be specifically enforceable in any court
of competent jurisdiction.
Notice of demand for arbitration shall be filed in writing
with the other Party to this Agreement and with the American
Arbitration Association. The demand shall be made within a
reasonable time after the written notice of claim above. In no
event shall the demand for arbitration be made after the date
when the applicable statute of limitations would bar
institution of a legal or equitable proceeding based on such
claim, dispute, or other matter in question. However, once a
claim is made, the statute of limitations shall be tolled
during the thirty (30) day period from the time the claim is
filed until the demand for arbitration is filed.
If agreed to in writing by Watkins-Johnson, and unless this
Agreement has been terminated in accordance with the terms
hereof, SECOR shall carry on the Services and maintain its
progress during any claim filing and arbitration proceedings,
and SECOR shall be entitled to continue to receive payments in
accordance with this Agreement; provided, however, that if
Watkins-Johnson does not agree to the continued performance of
the Services by SECOR, such Services shall cease and no
invoices shall be submitted to the AIG Environmental for the
contested payment pending the completion of the arbitration
proceeding.
This Paragraph 16.B. shall survive Project Completion or
termination of this Agreement.
17. Notices
All notices and other communications required to be made under this
Agreement shall be made by hand delivery or by overnight mail and shall
be deemed to have been made as of the time and date of receipt. All
such notices and communications to SECOR shall be addressed for
delivery to SECOR's Authorized Representative identified in Paragraph
1.M.. All such notices and communications to Watkins-
<PAGE>
Execution Copy 42
Johnson shall be addressed for delivery to Watkins-Johnson's Authorized
Representative identified in Paragraph 1.M..
18. Miscellaneous
A. Entire Agreement. This Agreement represents the final
embodiment of the Parties' intentions and understandings with
respect to the subject matter hereof. It supersedes any prior
understandings, whether written or oral, or of any description
whatsoever.
B. Modification. No modification of this Agreement shall be
binding upon all Parties except by a written instrument
executed by Watkins-Johnson and SECOR.
C. Conflict. In the event of any conflict among or between the
applicable provisions of the documents comprising this
Agreement, SECOR shall immediately notify Watkins-Johnson's
Authorized Representative of such conflict or potential
conflict among or between the applicable provisions of the
above Agreement and any other parts of this Agreement.
Watkins-Johnson's Authorized Representative shall make a good
faith effort to resolve the disputed with SECOR within fifteen
(15) days, and if such dispute is not resolved after fifteen
(15) days, then the Parties shall submit the dispute for
resolution by binding arbitration as provided for herein.
D. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of (1) Watkins-Johnson, including,
but not limited to, its successors and their lenders and
equity partners, and any assignees and/or sublessees of
Watkins-Johnson, and their lenders and equity partners,
irrespective of whether a particular provision of the
Agreement refers simply to "Watkins-Johnson" or refers as well
to such additional entities; and (2) SECOR, and its successors
and assigns. SECOR shall be responsible for its
representations, warranties, duties, obligations, and
responsibilities under the Agreement. Notwithstanding anything
to the contrary contained herein, SECOR may not assign its
rights or obligations under this Agreement without the prior
written consent of Watkins-Johnson, which consent may be not
be unreasonably withheld.
E. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California.
F. Captions and Headings. The captions and headings throughout
this Agreement are for convenience and reference only, and the
words contained
<PAGE>
Execution Copy 43
therein shall in no way be held or deemed to define, limit,
describe, modify, or add to the interpretation, construction,
or meaning of any provision of or scope or intent of this
Agreement.
G. Severability.
(1) General. If any provision of this Agreement, or
application thereof to any person or circumstance,
shall to any extent be determined to be invalid, then
such provision shall be modified, if possible, to
fulfill the intent of the Parties as reflected in the
original provision. The remainder of this Agreement,
or the application of such provision to persons or
circumstances other than those as to which it is held
invalid, shall not be affected thereby, and each
provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
(2) Agreement Addresses Two Separate Sites. It is
understood and acknowledged by the Parties to this
Agreement that the Agreement addresses SECOR's
obligations and rights with respect to two different
Sites, and termination of this Agreement with respect
to rights and obligations of the Parties in
connection with one of the Two Sites shall not
automatically result in termination of the Agreement
with respect to rights and obligations of the Parties
in connection with the other of the Two Sites.
H. No Waiver. No waiver by any Party of any default by another
Party in the performance of any provision of this Agreement
shall operate as or be construed as a waiver of any future
default, whether like or different in character.
I. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one
original Agreement.
J. Rule of Construction. The Parties hereto acknowledge that they
each enter into this Agreement after having had an opportunity
for thorough review by, and on advice of, their respective
legal counsel. The judicial rule of construction requiring or
allowing an instrument to be construed to the detriment of or
against the interests of the maker thereof shall not apply to
this Agreement.
K. Attorneys Fees. In the event of any dispute between or among
the Parties hereto not involving third party claims to which
the indemnity applies, the Prevailing Party in such dispute
shall be entitled to recover from the other
<PAGE>
Execution Copy 44
or others reasonable attorneys fees, disbursements, and costs
incurred directly in connection with such dispute and the
resolution thereof. The "Prevailing Party," for purposes of
this agreement, shall be deemed to be the Party which obtains
substantially all of the result sought, whether by dismissal,
award or judgment. In no event shall a Party bringing any
claim, demand, arbitration or suit for monetary damages be
entitled to recover attorneys fees where any final award or
judgment does not exceed a bona-fide offer of settlement or
judgment made by the other party.
Executed by the undersigned duly authorized representatives to be
effective as of the Effective Date as set forth above.
SECOR International, Inc.
By: /s/ James Vain
Title: President
Date: July 13, 1999
Watkins-Johnson Company
By: /s/ Scott G. Buchanan
Title: Executive Vice President and CFO
Date: July 13, 1999
<PAGE>
Execution Copy 45
List of Exhibits to Remediation Agreement
-----------------------------------------
Exhibit A: Description of Watkins-Johnson Lease Arrangements, 3333
Hillview Ave., Palo Alto, CA
Exhibit B: Hillview Avenue Order for Watkins-Johnson Company Site, 3333
Hillview Avenue, Palo Alto, CA
Exhibit C: Regional Order for Hillview-Porter Area, Barron Park
Neighborhood & Matadero Creek, Palo Alto, California
Exhibit D: List of the "Regional Agreements"
Exhibit E: SECOR Planned Services and Annual Estimated Payment Schedule
Exhibit F: SECOR Schedule of Costs
Exhibit G: Schedule of Pending Claims Against SECOR
Exhibit H: Form of Cleanup Cost Cap ("CCC") Insurance Policy
Exhibit I: Form of Pollution Legal Liability ("PLL") Insurance Policy
Exhibit 10.29
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement") is entered into as
of the 21 day of August, 1999, by and among Watkins-Johnson Company, a
California Corporation ("Seller"), and Lincoln Property Company Commercial,
Inc., a Texas Corporation, and/or its assigns ("Buyer") and is as follows:
Terms and Conditions of Sale
1. Sale. Seller agrees to sell and convey to Buyer "As Is" (as defined
in paragraph 26 below), and Buyer agrees to purchase from Seller "As Is", for
the purchase price set forth below, the land and buildings and other real
property improvements thereon, and easements, entitlements, privileges, and
other appurtenances thereto, located at 2525 North First Street, San Jose, Santa
Clara County, California, A.P.N. 97-45-40, comprising approximately 14.19 acres,
as set forth in Exhibit "A" attached hereto, with certain easements as set forth
in the Preliminary Report as hereinafter defined (the "Property"), on all of the
terms and conditions set forth in this Agreement. There is no personal property
associated with this sale except as specifically set forth in this Agreement.
2. Purchase Price and Terms of Payment. The Purchase Price for the
Property shall be Seventeen Million Five Hundred Thousand and no/100 Dollars
($17,500,000.00) (the "Purchase Price").
2.1. Within one (1) business day after the date hereof, Buyer
shall deposit with Escrow Holder (as defined below) a deposit of One Million and
no/100 Dollars ($1,000,000.00) to be placed into an interest-bearing account,
with interest for the benefit of Buyer's application to the Purchase Price
("Deposit").
2.2 On or before the Closing Date (as defined below), Buyer
shall deposit with Escrow Holder the balance of the Purchase Price, as well as
Buyer's share of closing costs.
3. Escrow and Closing.
3.1. Opening of Escrow. Within one (1) business day after the
date hereof the parties shall open escrow with Alliance Title Company, 701
Miller Street, San Jose, California 95110 (the "Escrow Holder"), escrow officer,
Liz Zankich, by the deposit of a copy of this Agreement with the Escrow Holder.
Seller and Buyer agree to prepare and execute such joint escrow instructions as
may be necessary and appropriate to close the
<PAGE>
transaction in accordance with the terms of this Agreement, provided that
neither party shall be obligated to execute escrow instructions that are
inconsistent with the terms of this Agreement. Should said instructions fail to
be executed as required, Escrow Holder shall be and hereby is directed to close
escrow pursuant to the terms and conditions of this Agreement.
3.2. Close of Escrow. The closing of the escrow ("Close of
Escrow"), which shall mean the date on which the deed transferring title is
recorded (the "Closing Date"), and shall occur on or before September 15, 1999
(the "Final Closing Date").
3.3 Delivery of Seller's Documents. On or before the Closing
Date, Seller shall deposit with Escrow Holder all of the following: (i) the Deed
described in Paragraph 5.1.1 below; (ii) the Assignment of Permits described in
Paragraph 5.1.3 below, if any; (iii) Seller's escrow instructions (or an
original set of joint escrow instructions executed by Seller) sufficient to
enable Escrow Holder to close the escrow in accordance with the terms of this
Agreement; (iv) the FIRPTA affidavit and other documents described in Paragraph
5.3 hereof.
3.4. Delivery of Buyer's Documents and Funds. On or before the
Closing Date, Buyer shall deposit with Escrow Holder all of the following: (i)
balance of the purchase price as well as Buyer's share of closing costs; (ii)
Buyer's escrow instructions sufficient to enable Escrow Holder to close the
escrow in accordance with the terms of this Agreement; and (iii) any other
documents, records, agreements, or funds called for hereunder that have not
previously been delivered.
3.5. Prorations. Escrow holder shall prorate the following
between the parties as of the Close of Escrow: real estate taxes and
assessments. All prorations shall be based on a thirty (30) day month.
3.6. Utilities and Service Contracts. Seller shall cause all
meters read and final bills rendered for all utilities and Service Contracts
servicing the Property, including, without limitation, water, sewer, gas,
electricity, and elevator and HVAC Service Contracts for the period to and
including the day preceding the Close of Escrow, and Seller shall pay such bills
and terminate such Service Contracts effective as of Close of Escrow. Buyer
shall arrange for utility service and Service Contracts to the Property after
the Closing Date.
3.7. Closing Costs. Each party shall pay its own attorney's
fees associated with the negotiation of this Agreement. Recording and Escrow
fees and the cost of the Title Policy (as hereinafter defined) shall be paid by
Seller. The County transfer tax shall be paid by Seller and the City transfer
tax shall be paid fifty percent (50%) each by Buyer and Seller. All other
closing costs not specifically allocated hereafter to Buyer or Seller shall be
divided and paid fifty percent (50%) each by Buyer and Seller.
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<PAGE>
4. Title and Other Contingencies.
4.1. Title to be Conveyed. Seller shall convey a fee title
interest in the Property, by grant deed to Buyer at Close of Escrow, subject
only to the Approved Exceptions (as hereinafter defined).
4.2. Title Insurance and Survey. Buyer acknowledges the
receipt of that certain Preliminary Title Report No. 99006567-004, issued by
Alliance Title, dated July 15, 1999 (the "Title Report") and the survey prepared
by Kier & Wright, dated July 16, 1999 (the "Survey") concerning the Property.
Buyer hereby accepts the Title Report, except for items 12 and 14 of Schedule B
thereof, and the Survey. All of the fourteen (14) exceptions to title set forth
in the Title Report with the exception of items 12 and 14 of Schedule B thereof,
shall be hereinafter collectively referred to as the "Approved Exceptions."
4.3. [Intentionally omitted]
4.4. Form of Title Policy. Upon the Close of Escrow, Title
Company shall issue its ALTA Extended Coverage owner's policy of title insurance
(the "Title Policy") in the face amount of the Purchase Price, insuring that fee
title to the Property is vested in Buyer subject only to the Approved
Exceptions. Seller shall pay that portion of the premium which would be payable
for a CLTA Standard policy without extended coverage and Buyer shall pay the
excess premium. Buyer shall also pay for the cost of any endorsements or further
coverage in excess of the cost of the Title Policy, provided, however, that
Seller shall pay the cost of any endorsements which Seller agrees to cause the
Title Company to issue to cure title exceptions which are disapproved by Buyer.
The unwillingness of Title Company to issue the Title Policy shall not
constitute an event of default hereunder by Seller, except to the extent such
unwillingness is solely caused by the breach of any Seller's obligations
hereunder, but shall entitle the Buyer to terminate this Agreement pursuant to
Paragraph 5.6 hereof, if the Title Company is unable to deliver the Title Policy
except for any special endorsements that may be requested by Buyer. Seller
hereby covenants and agrees that from and after the date of this Agreement,
Seller shall not sell, assign, encumber, or create any right, title, or interest
in the Property, or any part thereof, or permit to exist any lien, encumbrance,
or charge thereon, not shown on the Preliminary Report, without the prior
written consent of Buyer. Seller will give the necessary information, at no cost
to Seller, for the issuance of an ALTA policy.
4.5. [Intentionally omitted]
4.6. Delivery of Certain Documents. Seller has delivered to
Buyer true copies of the following documents: (i) Post-closure report to San
Jose Fire Department Permit No. CR 361012595, prepared by C.H.A.S.E. dated July
1995 and a Phase II Investigation Report dated September 11, 1992 by
Watkins-Johnson Environmental; (ii) copies of all maintenance agreements and/or
service contracts in effect relating to the
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<PAGE>
Property (the "Service Contracts"); (iii) each permit issued by any governmental
entity(ies) having jurisdiction over the Property (the "Permits"), if any, and
in Seller's possession.
4.7. [Intentionally omitted]
5. Buyer's Conditions to Close. For Buyer's sole benefit, Buyer's
obligation to complete the purchase of the Property is subject to satisfaction
of the following condition at or prior to the Closing Date, unless waived by
Buyer in writing:
5.1. Delivery of Title Documents.
5.1.1. Grant Deed. Seller shall have executed,
acknowledged and delivered into Escrow for recording and subsequent delivery to
Buyer, a grant deed ("Deed") to the Property in recordable form, conveying
Seller's fee title to the Property to Buyer, subject only to the Approved
Exceptions.
5.1.2. [Intentionally omitted]
5.1.3. Assignment of Permits. Seller shall have
executed, acknowledged and delivered into Escrow for delivery to Buyer, an
assignment of all of Seller's right, title, and interest, in and to each of the
Permits, if any and/or if assignable and Seller's intangible rights to the
Property, if any exist (the "Assignment of Permits").
5.1.4. [Intentionally omitted]
5.2. Title Policy. Title Company shall be irrevocably
committed to issue the Title Policy.
5.3. FIRPTA Affidavit. Seller shall have executed and
delivered to Escrow Holder an affidavit satisfying the requirements of Section
1445 of the Internal Revenue Code of 1986, as amended (the "FIRPTA Affidavit"),
as well as the appropriate California documents contemplated under California
Revenue and Tax Code Sections 18805 and 26131.
5.4. Seller's Performance. Seller shall have performed all of
the other material terms and conditions to be performed by Seller prior to the
Close of Escrow under the terms of this Agreement, including but not limited to
that Seller's representations and warranties in Paragraph 8 and elsewhere in
this Agreement, if any, are true and correct as of the Close of Escrow.
5.5. Condition of Property. Except as otherwise provided in
Paragraph 10, the physical condition of the Property shall be substantially the
same on the day of Closing as at the date of execution of this Agreement, unless
caused by Buyer or its agents.
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<PAGE>
5.6. Termination of Escrow. If any condition described in this
Paragraph 5 is not timely satisfied (or waived by Buyer in writing) on or prior
to the Close of Escrow, then (i) the Escrow shall terminate immediately upon
receipt by Escrow Holder of notification from Buyer of the failure of such
condition, and Buyer and Seller shall share equally any applicable escrow
cancellation fees, (ii) Escrow Holder shall return all instruments and documents
deposited into the Escrow to the parties depositing the same, (iii) Escrow
Holder shall return to Buyer any funds in Escrow Holder's possession deposited
by Buyer including the Deposit to the extent delivered to Escrow by Buyer, and
interest collected thereon, less only Buyer's share of applicable escrow
cancellation fees, if any, and (iv) neither party shall have any further rights
or obligations under this Agreement, except to the extent that the failure of a
condition also constitutes a default by Seller with respect to any of Seller's
covenants or obligations under this Agreement and in that case, Buyer shall have
the rights and remedies set forth in Paragraph 12.
6. Seller's Conditions to Close. For Seller's sole benefit, Seller's
obligation to complete the sale of the Property is subject to satisfaction of
the following conditions at or prior to the Closing Date, unless waived by
Seller in writing:
6.1. Delivery of Documents. Buyer shall have timely performed
its obligations under Paragraph 3.4 hereof.
6.2. Receipt of Purchase Price. Title Company, and/or Seller,
shall have received the Purchase Price for the Property.
6.3. Buyer's Performance. Buyer shall have performed all of
the other material terms and conditions to be performed by Buyer prior to the
Close of Escrow under the terms of this Agreement, including but not limited to
that Buyer's representations and warranties in Paragraph 7 are true and correct
as of the Close of Escrow.
6.4. Termination of Escrow. If any condition described in this
Paragraph 6 is not timely satisfied (or waived by Seller in writing) on or prior
to Closing Date and the Paragraph 5 conditions have been satisfied, (i) the
Escrow shall terminate immediately upon receipt by Escrow Holder of notification
from Seller of the failure of such condition, (ii) Escrow Holder shall return
all instruments and documents deposited into the Escrow to the parties
depositing the same, (iii) neither party shall have any further rights or
obligations to the other under this Agreement, except to the extent that a
failure of a condition also constitutes a default by Buyer with respect to any
of Buyer's covenants or obligations under this Agreement, and (iv) the
provisions of Paragraph 13 apply.
7. Buyer's Representations and Warranties. Buyer hereby represents and
warrants to Seller, effective both as of the date of this Agreement and as of
Close of Escrow:
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<PAGE>
7.1. Buyer's Due Organization and Authorization. Buyer and
those individuals and entities signing this Agreement on behalf of Buyer,
respectively have the right, power, and authority to make and perform their
obligations under this Agreement. The execution, delivery, and performance of
this Agreement does not violate any contract, agreement, or commitment to which
any party comprising Buyer is a party or by which any party comprising Buyer is
bound.
7.2. Inspection and Feasibility. Buyer represents, warrants
and acknowledges that prior to the date of execution of this Agreement, Buyer
conducted all inspections and investigations with respect to the Property that
Buyer deemed necessary and that Buyer waives, denies, and disclaims any
inspection or feasibility contingency with respect to the Property.
7.3. Seller to Deliver Documents. Except for the documents set
forth in Paragraph 3.3, Buyer represents, warrants and acknowledges that Seller
has delivered all documents required by Buyer pertaining to the Property.
7.4. Zoning. Buyer represents, warrants and acknowledges that
it accepts the zoning and the status of all permits regulatory requirements of
the Property.
7.5. Buyer's Knowledge. If Buyer has knowledge of the
incorrectness of any representation or warranty made by Seller in the Agreement
prior to Close of Escrow and fails to so notify Seller prior to the Closing
Date, then such representation or warranty shall be deemed to be stricken from
this Agreement ab initio and shall be of no further force or effect. Seller
shall have the right to qualify such representations and warranties with any
information it receives concerning such representations and warranties after the
date of this Agreement by written notice to Buyer. Seller shall not take or
knowingly permit any action after the date of this Agreement which would cause
any representation or warranty made by Seller in the Agreement to be untrue or
inaccurate, and Seller's taking of or knowingly permitting any such action shall
be a breach of this Agreement by Seller. If Seller qualifies a representation
such that it materially affects the value of the Property, Buyer's sole remedy
is to terminate this Agreement pursuant to Paragraph 5.6.
8. Seller's Representations and Warranties. Seller hereby represents
and warrants to Buyer, effective both as of the date of this Agreement and as of
Close of Escrow:
8.1. Seller's Due Organization and Authorization. Seller and
those individuals and entities signing this Agreement on behalf of Seller,
respectively have the right, power, and authority to make and perform their
obligations under this Agreement. The execution, delivery, and performance of
this Agreement does not violate any contract, agreement, judicial order, or
commitment to which any party comprising Seller is a party or by which any party
comprising Seller is bound.
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<PAGE>
8.2. No Litigation or Proceeding. Seller represents and
warrants that there is, to its knowledge, no litigation or governmental or
agency investigation or governmental or agency proceeding including condemnation
pending, nor, to the knowledge of Seller, threatened against Seller or the
Property which would impair or adversely affect the property or Seller's ability
to perform its obligations under this Agreement.
8.3. Documents. All documents delivered to Buyer by Seller
pursuant to this Agreement are or will be to Seller's knowledge true and correct
copies of originals, to the extent not the originals thereof, and any and all
information supplied to Buyer by Seller in accordance with this Agreement and
all statements or representations made by Seller herein are and will be to
Seller's reasonable knowledge true, complete, and accurate in all material
respects except as specifically qualified otherwise in this Agreement.
8.4. Tax Withholding. Seller is not subject to tax withholding
in connection with this transaction under the Internal Revenue Code or other
federal or state law. Seller agrees to furnish to Buyer at least ten (10) days
prior to the Close of Escrow appropriate exemption certificates under the
Internal Revenue Code and the California Revenue and Taxation Code.
8.5. Bankruptcy or Insolvency. Seller has not made a general
assignment for the benefit of creditors, filed any voluntary petition in
bankruptcy or suffered the filing of an involuntary petition by its creditors,
suffered the appointment of a receiver to take possession of substantially all
of its assets, suffered the attachment or other judicial seizure of
substantially all of its assets, admitted its inability to pay its debts as they
come due, or made an offer of settlement, extension, or compromise to its
creditors generally.
8.6. No Leases, etc. There are no leases of the Property, no
management or leasing agreements, and to Seller's knowledge no other contracts
or permits that affect the Property other than those provided pursuant to
Paragraph 4.6 of this Agreement.
8.7. Hazardous Materials. To Seller's knowledge and except as
disclosed by Seller to Buyer in writing, there are no Hazardous Materials (as
defined in Paragraph 26 below) located on or under the Property.
8.8. Seller's Knowledge. The term "Seller's knowledge" or
similar phrases, as used in this Agreement, shall refer to the actual, present
knowledge of Scott Buchanan, V.P. and CFO and Keith Kennedy, CEO for Seller, as
of the date of this Agreement and as of Close of Escrow without any duty of
investigation or inquiry of any kind or nature whatsoever. There are no
individual employees of Seller that to Seller's reasonable knowledge are more
knowledgeable about the Property than the above listed individual.
8.9. Violation of Law: Notices: To Seller's knowledge, no part
of the Property is in violation of any governmental order, regulation, statute,
ordinance, rule or
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<PAGE>
restriction dealing with the use, operation, safety or maintenance thereof, and
Seller has received no notices from any governmental authority or insurance
carriers requiring repairs or alterations to the Property.
9. Indemnity. Each party hereby agrees to indemnify, defend, and hold
the other party harmless from and against any and all claims, demands,
liabilities, costs, expenses, damages, and loss (including, without limitation,
attorneys' fees and costs) resulting from any misrepresentation or breach of
warranty made by such party in this Agreement. This indemnity shall continue in
effect and survive Close of Escrow, the waiver of any conditions to Closing set
forth herein, and the conveyance and delivery of title, or, if title is not
transferred pursuant to this Agreement, beyond any termination of this
Agreement, except as otherwise provided in Paragraph 12 below.
10. Risk of Loss. The parties agree in the event that, prior to
Closing, any improvements located on the Property, or any part thereof, are
destroyed or materially damaged, the transaction shall go forward without any
adjustment to the Purchase Price, but Buyer shall be entitled to any available
insurance proceeds resulting from such damage or destruction to be paid to Buyer
by Seller at the Close of Escrow (if received by Seller prior to Close of
Escrow), or after the Close of Escrow by Seller or the insurer ("Insurance
Proceeds") and a credit for Seller's insurance deductible. Seller agrees to
maintain its property damage insurance on the Property up through the Closing
Date.
11. Possession. Seller shall deliver possession of the Property to
Buyer, free and clear of any tenancies or contracts or rights of third parties
not previously approved in writing by Buyer as a part of this Agreement as well
as cleared of all vehicles and personal property upon Close of Escrow.
12. Default. In the event that the sale of the Property fails to close
as a result of a default of Seller, Buyer may, as its sole and exclusive remedy,
elect to either: (a) enforce the terms of this Agreement by action for specific
performance, but with no reduction in the Purchase Price; provided, however,
that no action for specific performance shall compel Seller to commence
litigation or cure or deal with any matters outside of its reasonable control or
expend funds as to such matters; or (b) terminate this Agreement, in which event
the Deposit shall be returned to Buyer, and the parties shall be released from
all further obligations and liability under this Agreement except as otherwise
specifically provided in this Agreement and Buyer's right to seek reimbursement
of its due diligence costs not to exceed One Hundred Thousand and no/100 Dollars
($100,000.00). Under no circumstances of any nature whatsoever shall Buyer have
any right to collect damages, whether actual, punitive, consequential or
otherwise, from Seller under this Agreement except actual damages for breach of
representations or warranties under this Agreement discovered after the Close of
Escrow or covenants expressly intended to survive Close of Escrow. In the event
that the sale of the Property fails to close on or before the Closing Date for
any reason other than default on the part of Seller, or a failure of a Buyer
condition set forth in
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<PAGE>
Paragraph 5, Seller shall retain the Deposit and all interest earned thereon as
liquidated damages, it being understood that Seller's actual damages in such
event are difficult to ascertain and that such proceeds represent the parties'
best current estimate of such damages.
13. Liquidated Damages. BY PLACING THEIR INITIALS IMMEDIATELY BELOW,
BUYER AND SELLER AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO
FIX ACTUAL DAMAGES IN THE EVENT ESCROW FAILS TO CLOSE ON ACCOUNT OF A DEFAULT BY
BUYER, THAT THE SUM OF BUYER'S DEPOSIT IS THE PARTIES' REASONABLE ESTIMATE OF
SELLER'S DAMAGES IN THE EVENT OF BUYER'S DEFAULT, AND THAT IN THE EVENT BUYER
FAILS TO TIMELY PURCHASE THE PROPERTY IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT BECAUSE OF A DEFAULT BY BUYER, SELLER SHALL BE RELEASED FROM ITS
OBLIGATION TO SELL THE PROPERTY, AND SELLER SHALL BE ENTITLED TO RETAIN BUYER'S
DEPOSIT AND ALL INTEREST EARNED THEREON AS LIQUIDATED DAMAGES.
SELLER'S INITIALS ___ BUYER'S INITIALS ___
14. No Commissions. Except as to Mark T. Ziemendorf and James Beeger of
Cornish & Carey Commercial, Santa Clara, California ("Broker"), representing
Seller, neither party has had any contact or dealings regarding the Property, or
any communication in connection with the subject matter of this transaction,
through any licensed real estate broker or other person who can claim a right to
a commission or finder's fee as a procuring cause of the sale contemplated
herein. Seller shall be responsible for any commission to Broker. In the event
that any broker or finder other than Broker asserts a claim for a commission or
a finder's fee based upon any contract, dealings, or communication, the party
through whom the broker or finder makes his claim for a commission or fee shall
be responsible for said commission or fee and shall indemnify and hold harmless
as to all claims, liabilities, costs, and expenses (including without limitation
as to attorneys' fees and court costs) suffered or incurred by the other party
in defending against same.
15. Assignment. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
16. Attorneys' Fees. In the event either party hereto fails to perform
any of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement, the
defaulting party or the party not prevailing in such dispute, as the case may
be, shall pay any and all costs and expenses incurred by the other party in
enforcing or establishing its rights hereunder, including, without limitation,
court costs and attorneys' fees.
17. Time. Time is of the essence of this Agreement as to each and every
provision hereof.
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<PAGE>
18. Notices. All notices or other communications to be given hereunder
shall be in writing and shall be deemed received when personally delivered by
commercial courier, including an overnight courier such as Federal Express, or
upon confirmation of receipt when given by telecopy or facsimile to the
addressee and facsimile number(s) set forth below or otherwise, or three (3)
business days after deposit in the United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Seller: Copy to:
Watkins-Johnson Company Garth E. Pickett, Esq.
Stanford Research Park Hopkins & Carley
3333 Hillview Avenue 2 West Santa Clara Street, 6th Flr.
Palo Alto, California 94304-1223 San Jose, California 95113-1824
Attn: Scott Buchanan Tele: (408) 286-9800
Tele: (650) 813-2742 Fax: (408) 998-4790
Fax: (650) 813-2545
If to Buyer: Copy to:
Lincoln Property Company William D. Powell, Esq.
Commercial Inc. Powell, Sweet & Coleman
1750 Montgomery Street 8080 North Central Expressway
San Francisco, CA 94111 Suite 1380
Attention: John S. Herr Dallas, TX 75206
Tele: (415) 788-3000 Tele: (214) 373-8781
Fax: (415) 954-8586 Fax: (214) 373-8768
Lincoln Property Company
500 North Akard
Suite 3300
Dallas, TX 75201
Attention: Gregory Courtwright
Tele: (214) 740-3300
FAX: (214) 740-3460
Any party may change its address for the purpose of this paragraph by
giving written notice of such change to the other party in the manner herein
provided.
19. Entire Agreement. This Agreement expresses the entire agreement of
the parties and supersedes any and all previous agreements between the parties
with regard to the Property. There are no other understandings, oral or written,
which in any way alter or enlarge its terms, and there are no warranties or
representations of any nature whatsoever,
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<PAGE>
either express or implied, except as set forth herein. Any future modification
of this Agreement will be effective only if it is in writing and signed by the
party to be charged.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
21. Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not be deemed a continuing waiver or a waiver of any
subsequent breach, whether of a like nature or otherwise.
22. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but such counterparts together shall
constitute only one agreement.
23. Headings. The paragraph and subparagraph headings throughout this
Agreement are for convenience and reference only, and the words contained
therein shall not be held to expand, modify, amplify or aid in the
interpretation, construction or meaning of this Agreement.
24. Survival. All representations and warranties by the respective
parties contained herein or made in writing pursuant to this Agreement are
intended to and shall remain true and correct as of the Closing, shall be deemed
material and shall survive the execution and delivery of this Agreement, the
Closing, the delivery of the Grant Deed and the transfer of title, or, if title
is not transferred pursuant to this Agreement, beyond any termination of this
Agreement.
25. Further Assurances. Each party hereto agrees to execute such other
documents or instruments as are necessary or appropriate to effectuate this
Agreement and consummate the transaction provided herein promptly upon request
therefor.
26. "As Is" Clause. EXCEPT AS TO THOSE SPECIFIC REPRESENTATIONS AND
WARRANTIES BY SELLER IN THIS AGREEMENT, BUYER SPECIFICALLY ACKNOWLEDGES THAT
SELLER IS SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN "AS IS WITH ALL
FAULTS" BASIS AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES
OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS
AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION: (i) the
quality, nature, adequacy, and physical condition of the Property, including,
but not limited to, the quality, nature, adequacy, and physical condition of
soils, geology and any groundwater, (ii) the existence, quality, nature,
adequacy, and physical condition of utilities serving the Property, (iii) the
development potential of the Property, and the Property's use, habitability,
merchantability, or fitness, suitability, value or adequacy of the Property for
any particular purpose, (iv) the zoning or other legal status of
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the Property or any other public or private restrictions on use of the Property,
(v) the compliance of the Property or its operation with any applicable codes,
laws, regulations, statutes, ordinances, covenants, conditions and restrictions
of any governmental or quasi-governmental entity or of any other person or
entity, (vi) the presence or removal of Hazardous Materials under or about the
Property or the adjoining or neighboring property; and (vii) the condition of
title to the Property. The term "Hazardous Materials" shall mean any hazardous
or toxic materials, substances or wastes, such as (A) those materials identified
in Sections 66680 through 66685 and Sections 66693 through 66740 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, as amended from time
to time, (B) those materials defined in Section 25501 of the California Health
and Safety Code, (C) any materials, substances or wastes which are toxic,
ignitable, corrosive or reactive and which are regulated by any local
governmental authority, any agency of the state of California or any agency of
the United States Government, (D) asbestos, (E) petroleum and petroleum based
products, (F) urea formaldehyde foam insulation, (G) polychlorinated biphenyls
(PCBs), and (H) freon and other chlorofluorocarbons. Buyer further represents
and warrants that it has performed to the extent it deems appropriate
investigations and inspections of the Property, and has satisfied itself to the
extent it deems appropriate as to the condition of the Property and its
suitability for the purposes intended by Buyer. "As Is" shall include but not be
limited to, except as to any representation or warranty set forth in the
Agreement, the Property's present state and condition, including, without
limitation, as to toxic or hazardous materials, and that any and all
improvements and utilities required within the perimeter of the Property
("On-site") and any and all improvements, utilities, and utility extensions
outside the perimeter of the Property ("Off-site") required to serve the
Property, and all costs and expenses thereof, shall be the sole responsibility
of Buyer. In purchasing the Property, Buyer is relying solely upon its own
inspection and investigation of the Property, including, without limitation, as
to toxic or hazardous materials contamination, and except as expressly provided
in or pursuant to this Agreement, not upon any representation, warranty,
statement, study, report, description, guideline, or other information or
material made or furnished by Seller or any of its officers, employees, agents,
brokers, attorneys, or representatives, whether written or oral, express or
implied, of any nature whatsoever.
27. Condition of Property. Buyer acknowledges and understands that
Seller's Broker has disclosed that the Property may be situated within (i) an
Earthquake Fault Zone as so designated under the Alquist-Priolo Earthquake Fault
Zoning Act, Section 2621 et. seq. of the California Public Resources Code;
and/or (ii) a Seismic Hazards Zone as so designated under the Seismic Hazards
Mapping Act, Section 2690 et. seq. of the California Public Resources Code
(collectively herein referred to as the "Seismic Disclosure Acts"); and (iii) a
100 year flood zone or potentially other special flood hazard area. Buyer
acknowledged that it has had delivered by Seller's agents the Commercial
Property Owner's Guide to Earthquake Safety, published by the State of
California Seismic Safety Commission. Buyer hereby waives any seismic or flood
zone disclosure requirements imposed on Seller by California law.
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<PAGE>
28. Limited Liability. Buyer and Seller, on behalf of their respective
partners, directors, officers, representatives, successors, and assigns, hereby
agrees that in no event or circumstance shall any of the partners, members,
directors, officers, representatives or employees of the other party and/or any
related or affiliated entities thereof, have any personal liability under or in
connection with this Agreement, to the other party or its creditors in
connection with Buyer's purchase of the Property, or this Agreement.
29. Confidentiality. Prior to Closing, each party agrees to keep the
terms of this Agreement confidential except that Buyer may disclose the terms
hereof to its consultants and advisors and further as required to be disclosed
in connection with its inspection and development approvals or by applicable
laws and to its investors and lender and prospective tenants.
30. Exclusive Period. Seller agrees not to negotiate with any other
party as a back up offer to the purchase and sale of the Property so long as
Buyer is proceeding with and not in breach of the terms of this Agreement,
except that if unsolicited requests for information occur, Seller may provide an
offering package and if an offer is submitted, Seller will respond to the offer
that the offer, if acceptable, will be considered as a backup offer to this
Agreement.
31. Road Dedication. The Property has a portion of a road known as
Component Drive which will eventually be dedicated to the City of San Jose.
Buyer agrees as the owner of the Property to honor this obligation agreed to by
Seller to dedicate to the City of San Jose that portion of Component Drive as
set forth in Exhibit B attached hereto.
32. Approval. Upon Buyer's execution of this Agreement, Seller shall
have two (2) business days in which to approve this Agreement. Failure to timely
delivery of an executed agreement by Seller to Buyer shall be deemed rejected
and Buyer's offer will be deemed withdrawn as of the rejection by Seller if no
election by Buyer within two (2) business days thereafter.
33. Business Days. If the final day of any period or any date of
performance under this Agreement falls on a Saturday, Sunday or legal holiday
under the laws of the State of California or the United States, then the final
day of the period or the date of performance shall be extended to the second
consecutive day which is not a Saturday, Sunday or legal holiday.
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Executed as of the date first set forth above.
SELLER BUYER
WATKINS-JOHNSON COMPANY, LINCOLN PROPERTY
a California Corporation COMPANY COMMERCIAL, INC.,
a Texas Corporation
/s/ Scott G. Buchanan /s/ John S. Herr
- ----------------------------------- -----------------------------------
By: Scott B. Buchanan By: John S. Herr
Its: Vice President and Its: Executive Vice President
Chief Financial Officer
By: /s/ W. Keith Kennedy By: /s/ John S. Herr
---------------------------- ----------------------------
Its: President and CEO Its: Executive Vice President
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Exhibit 10.30
AGREEMENT FOR ASSIGNMENT OF LEASEHOLD INTEREST,
SUBLEASE OF PROPERTY, LEASEBACK OF REAL PROPERTY
AND JOINT ESCROW INSTRUCTIONS
This AGREEMENT FOR ASSIGNMENT OF LEASEHOLD INTEREST, SUBLEASE OF
PROPERTY, LEASEBACK OF REAL PROPERTY, AND JOINT ESCROW INSTRUCTIONS (the
"Agreement") is made and entered into as of this 30th day of September, 1999, by
and between the Board of Trustees of the Leland Stanford Junior University, a
body having corporate powers under the laws of the State of California ("Buyer")
and WATKINS-JOHNSON COMPANY, a California corporation, whose address is Stanford
Research Park, 3333 Hillview Avenue, Palo Alto, California, 94304-1204,
Attention: Scott G. Buchanan, CFO, Facsimile No. (650) 813-2960 ("Seller").
R E C I T A L S:
A. By that certain Lease dated November 1, 1959, as amended (the
"Master Lease") Buyer leased certain unimproved real property consisting of
approximately sixteen and three hundred five-one thousandths (16.305) acres,
located in the City of Palo Alto, County of Santa Clara, identified as Santa
Clara County Assessor's Parcel Number 142-17-014, commonly known as 3333
Hillview Avenue, Buildings 3, 4, and 5, and more particularly described in
Exhibit A, which is attached hereto and incorporated herein by reference (the
"Leased Land"), to Kern County Land Company, a California corporation,
predecessor in interest to Seller. Under Section 31 of the Master Lease (as
amended by Section 6 of the Agreement Amending Ground Lease dated September 15,
1997) Buyer has a right of first refusal with respect to any proposed assignment
or sublease to a third party of Seller's rights thereunder (the "Stanford First
Refusal"). A copy of the Master Lease is attached hereto as Exhibit B and
incorporated herein by reference.
B. Seller has caused to be constructed upon the Leased Land certain
improvements consisting of three (3) light industrial buildings containing in
the aggregate approximately one hundred fifty-five thousand (155,000) gross
square feet (collectively referred to herein as the "Buildings").
C. By that certain Commercial Sub-Sublease (Buildings 3/4/5), dated as
of ___________________, 1997, as amended (the "Sublease"), Seller has subleased
portions of the Leased Land and the Buildings (the "Subleased Premises") to W-J
TSMD, INC., a California corporation, doing business as Stellex. A copy of the
Sublease is attached hereto as Exhibit C and incorporated herein by reference.
<PAGE>
D. By that certain Lease and Agreement, dated October 31, 1975 (the
"Morrco Lease"), Seller is also the tenant in possession of that certain
improved real property located adjacent to the Leased Land in the City of Palo
Alto, County of Santa Clara, consisting of approximately eight and four hundred
forty-three one thousandths (8.443) acres, which property is identified as Santa
Clara County Assessor's Parcel Number 142-17-020, commonly known as 3333
Hillview Avenue, Building 6, and more particularly described in Exhibit D, which
is attached hereto and incorporated herein by reference (the "Building 6
Property").
E. Seller has entered into a contract to assign its rights under the
Master Lease to Higgins Development Partners, LLC ("Higgins") under an Agreement
for Assignment for Leasehold Interest, Sublease of Property, Leaseback of Real
Property and Joint Escrow Instructions dated August 25, 1999 as amended on
September 13, 1999 ("Higgins Agreement"), subject to the Stanford First Refusal.
F. Pursuant to notice from Susan B. Meaney, Managing Director of Real
Estate, Stanford Management Company, dated September 27, 1999 Buyer has
exercised the Stanford First Refusal.
G. Accordingly, Seller desires to assign its rights under the Master
Lease to Buyer and Buyer desires to assume all of Seller's obligations under the
Master Lease. In connection with the foregoing, commencing upon the Closing and
continuing for a period of two (2) years thereafter (the "License Term"), Seller
desires to grant to Buyer, and Buyer's successors and assigns, and Buyer desires
to grant to Seller, and Seller's successors and assigns, a mutual and
reciprocal, revocable, non-exclusive license to use those portions of the
driveway described in Exhibit E attached hereto and incorporated herein by
reference (the "Driveway"), which are located on the Building 6 Property for
purposes of ingress and egress to the Leased Land and those portions of the
Driveway that are located on the Leased Land for purposes of ingress and egress
to the Building 6 Property.
H. Seller has entered into a Remediation Agreement dated July 13, 1999
(the "Remediation Agreement") with SECOR International Incorporated
("Consultant") under the terms of which Consultant will provide professional
environmental services fulfilling Seller's obligations with respect to site
remediation and closure of the Property. A copy of the Remediation Agreement is
attached hereto as Exhibit F and incorporated herein by reference. In connection
with the foregoing, Seller has purchased "Cleanup Cost Cap" insurance and
"Pollution Legal Liability" insurance (collectively referred to herein as the
"Environmental Insurance") for the benefit of Seller, Seller's successors in
interest to the Property, Consultant, and Buyer.
I. Subject to Seller's Option to Terminate (as defined in Section 4(c)
below), Seller desires to assign its rights under the Master Lease to Buyer,
whereupon Seller shall be released and relieved from further liability under the
Master Lease, and to thereupon leaseback the Leased Land and the Buildings from
Buyer until October 31, 2000 (the
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"Leaseback Expiration Date"), and Buyer desires to assume all of Seller's
obligations under the Master Lease and to leaseback the Property to Seller, upon
the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree that
the terms and conditions of this Agreement and the instructions to First
American Title Guaranty Company ("Escrow Holder") with regard to the escrow
("Escrow") created pursuant hereto are as follows:
AGREEMENT:
1. Certain Basic Definitions. For purposes of this Agreement, the
following terms shall have the following definitions:
(a) "Business Day" means any day that is not (i) a Saturday,
Sunday, (ii) a holiday as defined in the California Government Code, or (iii) an
optional bank holiday as defined in Section 7.1 of the California Civil Code.
(b) "Closing Date" means the date upon which the "Close of
Escrow" (as defined in Section 1(c) below) shall occur.
(c) "Close of Escrow" means the date that the documents
evidencing the transfers contemplated by this Agreement are recorded in the
Official Records and/or delivered to the parties entitled thereto.
(d) "Contingency Period" means the period commencing upon the
date of full execution of this Agreement and ending upon the first of the
following dates to occur (the "Contingency Removal Date"): (i) the date of
Buyer's removal of the due diligence contingency (the "Early Contingency Removal
Date"); or (ii) 5:00 p.m. on September 20, 1999 (the "Final Contingency Removal
Date"). (The actual date of the removal of contingencies by Buyer, whether upon
an Early Contingency Removal Date or upon the Final Contingency Removal Date,
shall be referred to herein as the "Contingency Removal Date").
(e) "Deposit" means the amount of two million five hundred
thousand dollars and no cents ($2,500,000.00).
(f) "Escrow Holder" or "Title Company" means First American
Title Guaranty Company.
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(g) "Escrow Holder's Address" means:
Escrow Number 516364
Attention: Ms. Peg Larkin
First American Title Guaranty Company
1737 North First Street
San Jose, California 95112
Facsimile No.: (408) 451-7836
Telephone No.: (408) 451-7828
(h) "Final Closing Date" shall mean the later to occur of the
following dates: (i) September 30, 1999.
(i) "Property" means, except as set forth in the next
sentence, all of Seller's rights to the Leased Land and to the Buildings,
together with all rights, title, and interest possessed by Seller pertaining to
the Leased Land and/or the Buildings in each of the following: (i) legal and
equitable rights of way, easements, servitudes, appurtenances, mineral rights,
licenses, development rights, air rights, and water rights; (ii) improvements
other than the Buildings, if any; and (iii) all licenses, permits, consents,
entitlements, and approvals issued by authorized governmental entities.
Notwithstanding the foregoing, Buyer's right to enter the Building 6 Property
for purposes of ingress and egress to the Leased Land shall be only as set forth
in the Driveway License (as defined in Section 13(g) of this Agreement).
(j) "Purchase Price" means the sum of fifty-nine million
dollars and no cents ($59,000,000.00), unless Seller fails to timely exercise
the Early Exit Option (as defined in Section 8(c) below), in which case the
Purchase Price shall be fifty-six million dollars and no cents ($56,000,000.00)
(the "Adjusted Purchase Price").
(k) "Official Records" means the office of the County Recorder
of Santa Clara, State of California.
(l) "Opening of Escrow" shall have the meaning set forth in
Section 4(a) below.
(m) "Seller's Counsel's Address" means:
Garth E. Pickett, Esq.
Hopkins & Carley, ALC
PO Box 1469
San Jose, California 95109-1469
Facsimile No.: (408) 998-4790
Telephone No.: (408) 286-9800
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(n) "Buyer's Counsel's Address" means:
Carol K. Dillon, Esq.
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, CA 94304
Facsimile No.: (650) 849-4800
Telephone No.: (650) 849-4812
(o) "Hazardous Materials" means any hazardous or toxic
materials, substances or wastes, as so defined or classified as of the date of
execution of this Agreement, including without limitation: (i) those materials
identified in Sections 66260.1, et seq. of Title 22 of the California
Administrative Code, Division 4.5, Chapters 10 and 11, as amended from time to
time, (ii) those materials defined in Section 25501 of the California Health and
Safety Code, (iii) any materials, substances or wastes which are toxic,
ignitable, corrosive or reactive and which are regulated by any local
governmental authority, any agency of the State of California or any agency of
the United States Government, (iv) asbestos, (v) petroleum and petroleum based
products, (vi) urea formaldehyde foam insulation, (vii) polychlorinated
biphenyls (PCBs), and (viii) freon and other chlorofluorocarbons.
(p) "Site Closure Certification" means and shall collectively
refer to any site closure certification(s) concerning the Property that Seller
and/or Stellex is required to obtain from the City of Palo Alto Fire Department
and any other governmental agency having jurisdiction thereof (collectively
referred to herein as the "Certifying Agencies") before possession of the
Property, and/or any portions thereof, may legally be surrendered by Seller.
(q) "Closure Certification Date" means either: (i) the date
upon which all Site Closure Certification(s) shall have been obtained by Seller
and/or Stellex; or (ii) if a Site Closure Certification is not legally required
in connection with the surrender of possession of the Property to Buyer by
Seller and Stellex, then Closure Certification Date shall mean the date upon
which Seller and/or Consultant (as defined herein) shall have delivered to Buyer
and to any Certifying Agencies a letter from Consultant certifying same.
2. Sale of Property; Consideration. At the Close of Escrow, the
Purchase Price shall be delivered to Seller, Seller shall transfer, assign, and
convey the Property to Buyer, and Buyer shall acquire the Property from Seller
on the terms and conditions set forth in this Agreement.
3. Payment of Purchase Price. The Purchase Price shall be paid by Buyer
as follows:
(a) Deposit. Simultaneous with Buyer's execution of this
Agreement, Buyer shall deliver the Deposit, or cause the Deposit to be
delivered, to the Escrow Holder,
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in either of the following forms: (i) in cash, by certified or bank cashier's
check made payable to Escrow Holder, or by a confirmed wire transfer of funds
(hereinafter referred to as "Immediately Available Funds"); or (ii) an
unconditional irrevocable special Letter of Credit made payable to Escrow Holder
(the "Letter of Credit").
1. Interest On Deposit. If Buyer elects to deliver
the Deposit to Escrow Holder in the form of Immediately Available Funds, Escrow
Holder shall place such funds into an interest bearing account approved by
Buyer. Any interest earned on the Deposit shall be added to the principal amount
of the Deposit and become part of the Deposit and shall be credited towards the
Purchase Price upon the Close of Escrow.
2. Terms of the Letter of Credit. The Letter of
Credit shall be (i) in a form reasonably satisfactory to Seller; (ii) shall not
terminate or expire prior to July 31, 2000; and (iii) shall be issued by a bank
authorized to do business in the State of California, which (x) is a member of
the Federal Reserve banking system, (y) has a teller window for receiving cash
deposits located within the County of Santa Clara, California, and (z) is
otherwise reasonably acceptable to Seller. Escrow Holder shall hold the Letter
of Credit for the benefit of both Seller and Buyer, subject to the terms of this
Agreement.
3. Escrow Holder to Draw Upon Letter of Credit. If
Buyer elects to deliver the Deposit to Escrow Holder in the form of a Letter of
Credit, unless this Agreement shall have previously been terminated on or before
the Final Contingency Removal Date in accordance with the terms of this
Agreement, Escrow Holder shall, on the first (1st) business day following the
Contingency Removal Date, at the sole cost and expense of Buyer, submit the
Letter of Credit to the issuing bank thereof for payment in full of the face
amount thereof. All funds received by Escrow Holder in satisfaction of the
Letter of Credit shall replace the Letter of Credit as the Deposit herein, and
shall be held by the Escrow Holder subject to the terms of this Agreement.
4. Buyer's Right to Substitute Immediately Available
Funds. Buyer shall have the right, at any time prior to the Contingency Removal
Date, to replace the Letter of Credit by delivering to the Escrow Holder
Immediately Available Funds in the amount of the Deposit, whereupon Escrow
Holder shall deliver the original Letter of Credit to Buyer free from any claim
by Escrow Holder or Seller.
5. Deposit Non-Refundable on Contingency Removal
Date. Upon the Contingency Removal Date, the Deposit shall become
non-refundable, except as otherwise provided in this Agreement. Failure to
timely pay any installment of the Deposit when due shall be an event of default
by Buyer under this Agreement.
6. Deposit as Liquidated Damages. The Deposit
(including any interest accrued thereon) shall be retained by Seller as
liquidated damages pursuant to Section 16 hereof, if the Close of Escrow does
not occur by the Final Closing Date as a result
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<PAGE>
of Buyer's default. If the Close of Escrow does not occur for any reason other
than Buyer's default, the Deposit shall be returned to the Buyer.
(b) Closing Funds. At least one (1) business day prior to the
Close of Escrow, Buyer shall deposit or cause to be deposited with Escrow
Holder, in Immediately Available Funds, the balance of the Purchase Price, plus
Escrow Holder's estimate of Buyer's share of closing costs, prorations, and
charges payable by Buyer pursuant to this Agreement.
4. Escrow.
(a) Opening of Escrow. For purposes of this Agreement, the
Escrow shall be deemed opened on the date Escrow Holder shall have received a
fully executed original or originally executed counterparts of this Agreement
from Buyer and Seller (the "Opening of Escrow"), together with Buyer's payment
of the Deposit. Buyer and Seller agree to execute, deliver and be bound by any
reasonable supplemental escrow instructions of Escrow Holder or other
instruments as may reasonably be required by Escrow Holder in order to
consummate the transactions contemplated by this Agreement. Any such
supplemental instructions shall not conflict with, amend or supersede any
portions of this Agreement unless expressly consented or agreed to in writing by
Buyer and Seller.
(b) Close of Escrow. The Close of Escrow shall occur not later
than the Final Closing Date.
(c) Seller's Option to Terminate. Seller, in Seller's sole and
absolute discretion, shall have the option to terminate this contract and cancel
the escrow established herein ("Seller's Option to Terminate") by delivering
written notice thereof to Buyer and Escrow Holder (the "Termination Option
Notice"), whereupon escrow shall cancel and this contract shall terminate,
without further obligation to Buyer on the part of Seller, upon the following
terms and conditions:
1. Time for Exercise of Option. Seller's Option to
Terminate shall expire at 6:00 p.m. Pacific Daylight Time upon the first to
occur of the following dates (the "Option Expiration Date"): (i) the first (1st)
business day following the Final Contingency Removal Date (whether or not there
shall have been established an Early Contingency Removal Date); or (ii) the
second (2nd) business day immediately preceding the Final Closing Date.
2. Effect of Exercise of Option. Notwithstanding any
other provision of this Agreement, if Seller shall exercise Seller's Option to
Terminate, the Escrow Holder shall refund to Buyer all deposits theretofore paid
by Buyer pursuant to this Agreement and Seller shall pay any fees charged by
Escrow Holder as the result of the cancellation of escrow.
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<PAGE>
3. Payment of Buyer's Inspection Costs. If this
Agreement should be terminated and escrow canceled prior to the Contingency
Removal Date for any reason other than default hereunder on the part of Buyer,
Seller shall pay to Buyer the amount of one hundred thousand dollars and no
cents ($100,000.00).
5. Condition of Title. Buyer shall accept title to the Property subject
to the standard printed exceptions to such title policy and the following
matters ("Approved Conditions of Title"):
(a) Any lien to secure payment of general and special real
property taxes and assessments, not delinquent (collectively, "Special Taxes");
(b) All exceptions which are disclosed by the Preliminary
Report Number 516364 ("Preliminary Report") dated as of July 20, 1999 at 7:30
a.m. prepared by Title Company. A copy of the Preliminary Report is attached
hereto as Exhibit G and incorporated herein by reference;
(c) The Master Lease;
(d) The New Lease (as defined in Section 8(c));
(e) The Sublease; and
(f) All matters created by or with the written consent of
Buyer.
6. Title Policy.
(a) Owner's Policy. It shall be a condition to the Close of
Escrow for Buyer's benefit, upon Buyer's sole election, that the Title Company
shall be irrevocably committed to issue, upon payment of its normal premium, its
CLTA Leaseholder's Form Policy of Title Insurance or binder with a CLTA
Endorsement 116.7 or its equivalent, in the amount of the Purchase Price,
insuring that the Property does not violate the California Subdivision Map Act
or any local ordinances adopted pursuant thereto ("Buyer's Title Policy")
showing the lessee's interest under the Master Lease in the Leased Land vested
in Buyer free and clear of any interest of Seller, and otherwise in the Approved
Condition of Title.
(b) Additional Coverage. Buyer may, at its option, request an
Extended Coverage ALTA Leaseholder's Form Policy of Title Insurance with
additional endorsements that may be required ("ALTA Policy") and endorsements,
provided that the issuance of said ALTA Policy or endorsements does not extend
or delay the Contingency Period or the Close of Escrow, and any additional
costs, including, but not limited to, title and endorsement fees and ALTA survey
costs incurred in connection with the issuance of such ALTA Policy shall be the
requesting party's sole responsibility. The willingness to issue or issuance by
the Title
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Company of Buyer's Title Policy shall be conclusive evidence that Seller has
complied with the obligation to convey good and marketable title to the
Property.
7. Conditions to Close of Escrow.
(a) Conditions to Buyer's Obligations. Buyer's obligation to
consummate the transaction contemplated by this Agreement is subject to the
satisfaction of the following conditions on or prior to the dates designated
below for the satisfaction of such conditions (or Buyer's written waiver
thereof, it being agreed that Buyer may waive any or all of such conditions).
(i) Inspection and Studies. Buyer's approval of the
physical and environmental condition of the Property, in its sole and absolute
discretion, and the results of any architectural, engineering, geologic, use,
development or other feasibility studies that Buyer chooses to perform, at
Buyer's sole cost and expense, prior to the expiration of the Contingency Period
as follows:
(A) Buyer and its representatives shall have
the right to carry out physical inspections of the Property and to undertake any
architectural, engineering, environmental, soils or other studies of the
Property immediately after the Opening of Escrow, provided that Buyer gives
Seller not less than twenty-four (24) hours prior notice of its intended
inspection(s). Buyer's physical inspection of and/or testing on the Property
shall be conducted during normal business hours at times mutually acceptable to
Buyer and Seller. No invasive testing or boring shall be done without prior
written notification to Seller and Seller's written permission of the same,
which Seller may withhold in its reasonable discretion. Notwithstanding any
other provision of this Agreement, not less than three (3) days prior to
commencing any such investigations or inspections, Buyer shall submit to Seller
for review and approval a work plan (the "Work Plan") describing any and all
proposed environmental due diligence work to be conducted on the Property by
Buyer or Buyer's authorized representatives (such as the collection of soil or
groundwater samples or similar tests involving the penetration of the surface or
subsurface of the Property) and any testing of the Buildings or other
improvements for environmental considerations or otherwise, (all hereinafter the
"Work"), and shall secure any permits required for such Work. It shall be
reasonable for Seller to withhold its consent to any proposed Work Plan, which
does not require Buyer and/or Buyer's representatives to carry the insurance
required in Section 7(a)(i)(D) below. In addition, Seller, in its reasonable
discretion, shall have the right to request in writing modifications to the Work
Plan within two (2) business days of its receipt thereof. Seller's failure to
request in writing modifications in the Work Plan within said two (2) business
day period shall be deemed Seller's approval of the Work Plan. If Buyer and
Seller are unable to agree upon the scope and content of the Work Plan, Buyer
may terminate this Agreement in the manner provided below. Buyer shall not enter
the Property or commence the Work prior to Seller's approval of the Work Plan.
Any material modification of, or deviation from, the approved Work Plan shall
require Seller's prior written consent. Seller shall have the right to be
present during Work on the Property and
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Buyer shall provide Seller with split samples of all samples taken for testing,
at Seller's request. Promptly following completion of the Work, Buyer shall, at
its sole cost and expense, remove from the Property any and all wastes or drill
cuttings generated from its activities and restore the Property to its condition
as it existed immediately prior to Buyer's entry to the Property, to the extent
reasonably practicable. Buyer shall use reasonable care and consideration in
connection with any of the Work.
(B) Buyer shall protect, indemnify, defend
(with counsel reasonably acceptable to Seller) and hold Seller and Seller's
officers, directors and employees, free and harmless from and against any and
all claims, damages, liens, stop notices, liabilities, losses, costs and
expenses, including reasonable attorneys' fees and court costs, resulting from
Buyer's entry onto the Property and inspection and testing pursuant to Section
7(a)(i)(A), including, without limitation, repairing any and all physical damage
to any portion of the Property caused by Buyer or its representatives. Buyer's
indemnification obligations set forth herein shall survive the Close of Escrow
and shall survive the termination of this Agreement and Escrow prior to the
Close of Escrow.
(C) Immediately after the Opening of Escrow,
Buyer and its representatives shall be provided with reasonable access to
Seller's files and documents pertaining to or affecting the physical and
environmental condition of the Property, which Seller will make available to
Buyer and its representatives (including environmental reports, if any), except
for appraisals and financial analyses generated by or made on behalf of Seller
and those documents which are protected by the attorney-client and/or attorney
work product privileges. Such files and documents shall be made available to
Buyer and its representatives, upon reasonable prior notice to Seller, during
normal business hours. Buyer shall rely solely upon its own independent
investigation concerning matters contained in such files and/or documents.
Without limiting the provisions of this section or Section 13 below, Buyer
acknowledges and agrees that Seller does not make any representation or
warranty, express or implied, as to the accuracy, content, or completeness of
any information contained in Seller's files or in the documents produced by
Seller, including, without limitation, any environmental audit or report (if
any); provided, however, that to the actual knowledge of Seller (as defined in
Section 13 below), none of Seller's files or documents are false or misleading
in any material respect.
(D) Prior to any entry upon the Property by
Buyer or Buyer's agents, contractors, subcontractors or employees, Buyer shall
deliver to Seller evidence that Buyer is carrying a commercial general liability
insurance policy (including contractual liability) and builder's risk insurance
with a financially responsible insurance company acceptable to Seller, covering
the activities of Buyer, and Buyer's agents, contractors, subcontractors and
employees on or upon the Property. Such insurance policy shall have a per
occurrence limit of at least two million dollars and no cents ($2,000,000).
If, during the Contingency Period, Buyer
determines that it is satisfied, in Buyer's sole and absolute discretion, with
all aspects of the Property, and/or its
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condition or suitability for Buyer's proposed use or development, then Buyer
shall deliver written notice thereof to Seller and Escrow Holder on or before
the expiration of the Contingency Period. If Buyer fails to deliver any such
written notice to Seller and Escrow Holder on or before the expiration of the
Contingency Period, then Buyer shall be conclusively deemed to be dissatisfied
with the Property and both Seller and Buyer shall be relieved of all further
obligations and liabilities under this Agreement, except for the respective
rights and obligations of Buyer and Seller set forth in Section 7(a)(i)(B),
Section 20, Section 21, Section 22, Section 23(a), and Section 24, which shall
survive such termination.
(ii) Buyer's Review of Title. As of the Closing Date,
Title Company shall be irrevocably committed to issue upon payment of its normal
premium Buyer's Title Policy as set forth in Section 6(a).
(iii) No Action. As of the Closing Date, no suit,
action or other proceeding shall be pending or threatened which seeks, nor shall
there exist any judgment the effect of which is, to restrain the transfers
hereunder.
(iv) Seller's Obligations. As of the Closing Date,
Seller shall have performed each and all of its covenants and obligations under
this Agreement, within the times provided therefor.
(v) Consent of Master Landlord. Intentionally
Omitted.
(vi) No Material Change. Between the date of this
Agreement and the Closing Date, no material change shall have occurred in the
environmental or physical condition of the Property.
(vii) Reaffirmation of Representations and
Warranties. One (1) business day prior to the Closing Date, Seller shall have
delivered to Buyer or to Escrow Holder a statement that, as of said date, Seller
reaffirms all of its representations and warranties set forth in this Agreement
(the "Seller Certificate"), provided that, if matters have come to Seller's
attention following the date of execution hereof that result in any of Seller's
representations or warranties being false or misleading in any respect, the
Seller Certificate may be amended to include such matters coming to Seller's
attention (the "Seller Amended Certificate"). Except as otherwise set forth in
this Agreement, if the Seller Amended Certificate alters matters set forth in
the Seller Certificate in any material respect in Buyer's reasonable discretion,
Buyer may elect to treat such condition as having not been satisfied.
(b) Conditions to Seller's Obligations. For the benefit of
Seller, the Close of Escrow shall be subject to the satisfaction of the
following conditions (or Seller's written waiver thereof, it being agreed that
Seller may waive any or all of such conditions):
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(i) Buyer's Obligations. As of the Closing Date,
Buyer shall have performed all of its covenants and obligations required to be
performed by Buyer under this Agreement, within the time periods provided
therefor.
(ii) Reaffirmation of Representations and Warranties.
One (1) business day prior to the Closing Date, Buyer shall have delivered to
Seller a statement that, as of said date, Buyer reaffirms all of its
representations and warranties set forth in this Agreement (the "Buyer
Certificate") or, if matters have come to Buyer's attention following the date
hereof that result in any of Buyer's representations or warranties being false
or misleading in any respect, such certificate, amended by such matters coming
to Buyer's attention (the "Buyer Amended Certificate").
(c) Deliverables. If the Close of Escrow does not occur for
any reason other than a default by Seller, Buyer shall promptly deliver to
Seller (no later than fourteen (14) days after the termination of this
Agreement) at no cost or expense to Seller (except as otherwise provided in this
Agreement), all of the engineering, architectural, and other studies, drawings,
reports, surveys, entitlement applications (including but not limited to
subdivision and zoning applications and information, if any) of any kind or
nature, and similar materials prepared by or on behalf of Buyer with respect to
the Property and/or Buyer's proposed use or development of the Property
("Deliverables"), but only to the extent Buyer has any ownership interest in the
Deliverables and is not prohibited from providing such copies to third parties
pursuant to the provisions of any applicable contracts respecting the
Deliverables. Buyer's provision of the Deliverables to Seller shall be without
any representation or warranty as to accuracy or correctness of the Deliverables
and subject to the agreement of Seller not to rely on the Deliverables.
8. Deposits by Seller. At least one (1) business day prior to the Close
of Escrow, Seller shall deposit or cause to be deposited with Escrow Holder the
following documents and instruments:
(a) Deed to the Buildings. A quitclaim deed to the Buildings
(the "Deed") and/or such other title documents as may be reasonably requested by
Title Company in order to issue Buyer's Title Policy, duly executed by Seller
and acknowledged;
(b) The Master Lease Assignment Agreement. An assignment and
assumption agreement relating to the Master Lease, in substantially the form
attached hereto as Exhibit H and incorporated herein by reference (the "Master
Lease Assignment Agreement") duly executed by Seller and acknowledged, whereby
Seller assigns to Buyer all of Seller's leasehold interest under the Master
Lease and Buyer assumes all of such obligations. Except as otherwise set forth
in this Agreement and/or the New Lease, Seller shall indemnify, defend, and hold
Buyer harmless from any injury, loss, claims, or damage, including, without
limitation, attorneys fees and court costs, arising from obligations under the
Master Lease to be performed by Seller prior to the Close of Escrow.
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(c) The New Lease. Seller, as Tenant, shall have executed and
delivered into Escrow for delivery to Buyer, as Landlord, a Facility Leaseback
Agreement (the "New Lease"), relating to the Property, which shall be in
substantially the form attached hereto as Exhibit I and incorporated herein by
reference. The New Lease shall be for a term commencing on the Closing Date and
expiring on the Leaseback Expiration Date, and shall provide for the payment by
Seller of base rent in the amount of one dollar and no cents ($1.00) per year,
together with such additional costs and expenses as are provided therein.
Notwithstanding the foregoing, Seller shall have the option for a period of
sixty (60) days following the Closing Date to shorten the term of the New Lease,
by providing written notice thereof to Buyer and Escrow Holder, whereupon the
term of the New Lease shall expire on July 1, 2000 (the "Early Exit Option").
The New Lease shall provide that upon commencement of the term of the New Lease,
Seller shall deposit with Escrow Holder a security deposit in the amount of five
million dollars and no cents ($5,000,000.00) (the "Security Deposit") as
security for the faithful performance by Seller of all of the terms, covenants,
and conditions of the New Lease applicable to Seller. Seller shall have the
right to deliver the Security Deposit in the form of an irrevocable Letter of
Credit (i) in form reasonably satisfactory to Buyer, (ii) which provides that it
shall not terminate or expire until the latest to occur of (a) ninety (90) days
after the expiration or earlier termination of the New Lease after Tenant has
vacated the Property, (b) ninety (90) days after the Closure Certification Date,
or (c) the completion of the Additional Environmental Work, as hereinafter
defined; (iii) which is issued by a bank authorized to do business in the State
of California, which (x) is a member of the Federal Reserve banking system, (y)
has a teller window for receiving cash deposits located within the County of
Santa Clara, California, and (z) is otherwise reasonably acceptable to Buyer
(the "Security Deposit LC"). The Security Deposit LC shall state on its face
that is payable to Escrow Holder upon Buyer's certificate to the issuing bank
that an event of material default exists under the New Lease beyond applicable
cure periods, if any. From time to time throughout the term of the New Lease,
Seller may replace and/or renew the Security Deposit LC then acting as the
Security Deposit pursuant to this section, with Immediately Available Funds
and/or a replacement Security Deposit LC, provided that: (i) such replacement
Security Deposit LC or renewal shall be delivered to Escrow Holder on or before
the thirtieth (30th) day prior to the expiration of the Security Deposit LC then
held by Escrow Holder as the Security Deposit under this section; and (ii) such
replacement Security Deposit LC or renewal shall otherwise comply with all terms
and conditions of this paragraph pertaining to the original Security Deposit LC.
Failure to deliver such a replacement Security Deposit LC and/or renewal within
thirty (30) days prior to the expiration of the Security Deposit LC then held as
the Security Deposit (except where Seller shall have no remaining monetary
obligation to Buyer under the terms of the New Lease) shall constitute an event
of default under the New Lease. If Seller defaults under the New Lease, Buyer
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 Buyer may spend by reason
of such Seller's default or to compensate Buyer for any loss or damage which
Buyer may suffer by reason of Seller's default. The rights of Buyer with respect
to the Security Deposit shall be in addition to any other rights or remedies
which Buyer may possess
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pursuant to the terms of the New Lease or this Agreement. If Seller elects to
deposit the Security Deposit with Escrow Holder in the form of Immediately
Available Funds, Escrow Holder shall deposit the Security Deposit into an
interest bearing account for the benefit of Seller at a member bank of the
Federal Deposit Insurance Corporation with a teller window for the acceptance of
deposits located in the county wherein the Property is situated. All interest
earned upon the Security Deposit shall be added to principal and become part of
the Security Deposit. The Security Deposit, or any remaining balance thereof
shall be returned to Seller upon the latest to occur of (i) ninety (90) days
after the expiration or earlier termination of the New Lease after Tenant has
vacated the Property, (ii) ninety (90) days after the Closure Certification
Date, and (iii) the completion of the Additional Environmental Work, as
hereinafter defined.
(d) The Subordination Agreement. The Subordination Agreement
(as defined in Section 14(c) below) duly executed by Seller;
(e) Seller's Non-Foreign Status Certificates. A federal FIRPTA
Certificate and a California Form 590 (collectively, "Seller's Non-Foreign
Status Certificates"), duly executed by Seller; and
(f) Other Instruments. Such other instruments and documents as
are required under this Agreement.
(g) Assignment of Remediation Agreement and Insurance Policy.
An assignment of the Remediation Agreement as described in Section 24 in the
form attached hereto as Exhibit M and incorporated herein by reference (the
"Environmental Assignment") duly executed by Seller.
(h) Acknowledgment of Merger of Estates and Termination Lease.
Buyer and Seller acknowledge that the Landlord and Tenant Estates under the
Master Lease have merged and that effective on the Final Closing Date, the
Master Lease shall terminate. An Acknowledgment of Merger of Estates and
Termination of Lease Agreement as described herein is in the form attached
hereto as Exhibit N and incorporated herein by reference (the "Merger
Acknowledgment").
9. Deposits by Buyer. At least one (1) business day prior to the Close
of Escrow, Buyer shall deposit or cause to be deposited with Escrow Holder:
(a) Purchase Price. The Purchase Price, less the amount of any
deposits previously paid and the accrued interest thereon;
(b) Assumption of the Master Lease. The Assignment of Master
Lease Agreement duly executed by Buyer and acknowledged;
(c) The New Lease. Buyer, as Landlord, shall have executed and
delivered into Escrow the New Lease.
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(d) The Subordination Agreement. The Subordination Agreement
(as defined in Section 14(c) below) duly executed by Buyer; and
(e) Other Instruments. Such other fees, documents and
instruments as are required under this Agreement.
(f) Assignment of Remediation Agreement and Insurance Policy.
The Environmental Assignment duly executed by Buyer.
(g) Acknowledgment of Merger of Estates and Termination Lease.
Buyer and Seller acknowledge that the Landlord and Tenant Estates under the
Master Lease have merged and that effective on the Final Closing Date, the
Master Lease shall terminate. An Acknowledgment of Merger of Estates and
Termination of Lease Agreement as described herein is in the form attached
hereto as Exhibit N and incorporated herein by reference (the "Merger
Acknowledgment").
Buyer shall be responsible for filing all transfer tax affidavits,
preliminary change of ownership reports, and other similar documents, relating
to the transfer of the Property to Buyer, and Buyer shall indemnify, defend and
hold harmless Seller from and against any and all claims, damages, expenses,
penalties, and other liabilities resulting from the valuation or other
statements contained in such documents. The foregoing obligations of Buyer shall
survive the Close of Escrow.
10. Costs and Expenses. The escrow fee of Escrow Holder shall be split
50/50 between Buyer and Seller. Seller shall pay the premium for a Standard Form
CLTA owner's policy of title insurance on the Property in the amount of the
Purchase Price. Any extra costs arising from additional coverage(s) requested by
Buyer, including, without limitation, the extra cost of the premium for an ALTA
policy (if requested by Buyer) and/or any special endorsements, shall be paid by
Buyer. Any County transfer tax respecting the transfers contemplated herein
shall be paid by Seller and any City transfer tax respecting the transfers
contemplated herein shall be split 50/50 between Buyer and Seller. Buyer and
Seller shall pay, respectively, Escrow Holder's customary charges for document
drafting and miscellaneous charges for services requested by such party. If, due
to no fault on the part of either Buyer or Seller, Escrow fails to close, Buyer
and Seller shall share equally all of Escrow Holder's fees and charges. The
parties will cooperate to mitigate the costs of the transfer taxes.
11. Prorations.
(a) The following prorations shall be made between Seller and
Buyer as of the Close of Escrow on the basis of a thirty (30) day month: None
(b) Escrow Statement. At least one (1) business day prior to
the Close of Escrow the parties shall agree upon all of the prorations,
including rent, to be made and
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submit a statement to the Escrow Holder (or sign a statement prepared by Escrow
Holder) setting forth the same. In the event that any prorations, apportionments
or computations made under this section shall require final adjustment, then the
parties shall make the appropriate adjustments promptly when accurate
information becomes available and either party shall be entitled to an
adjustment to correct the same. Any corrected adjustment or proration will be
paid in cash to the party entitled thereto.
12. Disbursements and Other Actions by Escrow Holder. Upon the Close of
Escrow, Escrow Holder shall perform all of the following in the manner
indicated:
(a) Prorations. Prorate all matters referenced in Section 11
based upon the statement delivered into escrow signed by the parties.
(b) Recording. Cause all recordable documents to be recorded
in the Official Records in the order required to issue Buyer's Title Policy and
Seller's Title Policy.
(c) Funds. Disburse from funds deposited by Buyer with Escrow
Holder payment of all items chargeable to the account of Buyer pursuant hereto,
including, without limitation, the payment of the Purchase Price to Seller, and
disburse the balance of such funds, if any, to Buyer.
(d) Title Policies. Issue Buyer's Title Policy to Buyer.
(e) Documents to Seller. Deliver to Seller any documents to be
delivered to Seller hereunder.
(f) Documents to Buyer. Deliver to Buyer the Seller's
Non-Foreign Status Certificates, and any other documents to be delivered to
Buyer hereunder.
(g) The Price Adjustment Account. Upon the Close of Escrow,
the Escrow Holder shall withhold the amount of three million dollars and no
cents ($3,000,000.00) from the proceeds payable to Seller, which amount shall be
deposited into an interest bearing account for the benefit of Seller (the "Price
Adjustment Account"). If Seller shall timely provide written notice to Buyer and
Escrow Holder that Seller has elected to exercise the Early Exit Option, then
the entire balance of the Price Adjustment Account, including all interest
earned thereon, shall immediately be paid to Seller out of escrow by the Escrow
Holder on account of the Purchase Price, without the necessity of further
instruction from either Buyer or Seller, and there shall be no adjustment to the
Purchase Price. If Seller fails to timely exercise the Early Exit Option, then
Buyer shall so notify Seller and Escrow Holder, whereupon: (i) the entire
balance of the Price Adjustment Account, including all interest earned thereon,
shall immediately be refunded to Buyer out of escrow by the Escrow Holder,
without the necessity of further instruction from either Buyer or Seller; (ii)
the Adjusted Purchase Price shall be deemed to be the Purchase Price of the
Property for all purposes; and (iii) Escrow Holder shall immediately prepare
revised Settlement Statements
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for execution by both Buyer and Seller reflecting the Adjusted Purchase Price.
Buyer and Seller shall take all further actions as may be reasonably requested
of them in order to effectuate properly the purpose and intent of this section,
including, without limitation approving any escrow instructions which are not
inconsistent with this Agreement in connection with distribution of the Price
Adjustment Account.
13. Seller's Covenants, Representations, and Warranties. Seller hereby
makes the following representations and warranties to Buyer as of the date of
this Agreement, each of which is material and being relied upon by Buyer and
shall survive the Close of Escrow. The term "actual knowledge of Seller," or
similar phrases, as used in this Agreement shall refer to the actual, present
knowledge of Scott Buchanan and Roy Smith [Head of Facilities] as of the date of
this Agreement without any duty of investigation or inquiry of any kind or
nature whatsoever, and "written notice" shall mean written notice actually
received at Seller's office. Seller further represents and warrants that the
individuals named above are familiar with the Property and likely to have had
information relating to the Property come to their attention.
(a) Authority. Seller is duly organized and validly existing
and in good standing under the laws of the State of California. Seller has the
legal right, power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby, and the execution, delivery and
performance of this Agreement have been duly authorized and no other action by
Seller is requisite to the valid and binding execution, delivery and performance
of this Agreement. Neither the execution and delivery of this Agreement by
Seller, nor performance of any of its obligations hereunder, nor consummation of
the transactions contemplated hereby shall conflict with, result in a breach of,
or constitute a default under, the terms and conditions of the organizational
documents of Seller, or any indenture, mortgage, agreement, instrument or
document to which Seller is a party or is bound, or any order or regulation of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over Seller. All the documents executed by Seller which are to be
delivered at the Close of Escrow will be duly authorized, executed, and
delivered by Seller.
(b) Foreign Person Affidavit. Seller is not a foreign person
as defined in Section 1445 of the Internal Revenue Code or Section 18662(e) of
the California Revenue and Taxation Code.
(c) Actions. Seller has no actual knowledge of and has
received no written notice of any pending or threatened actions, suits, claims
or proceedings affecting Seller's ability to fulfill its obligations under this
Agreement or which adversely affect the Property or its value, use, or
operation, except as set forth in Section 24 below.
(d) Hazardous Materials. To Seller's actual knowledge, except
as otherwise disclosed in this Agreement and collateral documentation,
including, without
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limitation, the Remediation Agreement, there are no Hazardous Materials present
in, on or under the Property, except in accordance with applicable laws.
(e) No Encumbrances. To Seller's actual knowledge, there are
no unrecorded encumbrances, liens or claims against the Property other than the
Sublease.
(f) No Contracts. To Seller's knowledge, except as otherwise
disclosed in this Agreement and collateral documentation delivered to Buyer
prior to the Contingency Removal Date, there are no contracts or other
agreements for services, supplies or materials relating to the use, operation or
management of the Property which will be binding on Buyer after expiration or
earlier termination of the New Lease.
(g) The Driveway License. During the License Term, Buyer, and
Buyer's successors, assigns, invitees, and guests, shall have a revocable,
non-exclusive license to enter those portions of the Building 6 Property upon
which the Driveway is located and Seller and Seller's successors, assigns,
invitees, and guests, shall have a revocable, non-exclusive license to enter
those portions of the Property upon which the Driveway is located (the "Driveway
License"). During the License Term, Buyer shall maintain the Driveway in good
condition and repair. The cost of maintaining and repairing the Driveway shall
be shared between Buyer and Seller proportionately according to the use made of
the Driveway by each party and its designees. Upon expiration of the License
Term or earlier termination of the Driveway License, all rights of Buyer, and
Buyer's successor and assigns, to enter the Building 6 Property and/or to use
all or any portion of the Driveway located within the Building 6 Property, all
rights of Seller, and Seller's successor and assigns, to enter the Property
and/or to use all or any portion of the Driveway located within the Property,
shall immediately terminate. The rights, duties, and obligations of the parties
set forth in this section shall survive the Close of Escrow. In connection with
the foregoing, Seller may revoke the Driveway License at any time, with or
without cause and with or without prior notice to Buyer.
(h) The Demolition Plan. Not later than one (1) month
following the expiration or earlier termination of the New Lease and surrender
of possession of the Property by the tenant thereunder, Seller, at Seller's sole
cost and expense, shall complete, or cause to be completed, all asbestos removal
work (the "Demolition Work") required to be performed by Seller concerning the
Buildings under the demolition plan dated June 15, 1999 prepared by E2C, Inc.
(the "Demolition Plan"). A copy of the Demolition Plan is attached hereto as
Exhibit J, and incorporated herein by reference. The Demolition Work shall be
performed by persons duly qualified and licensed to perform such work and in
accordance with all applicable laws, rules, ordinances, and regulations. In
connection with the foregoing, upon the Closing, the Escrow Holder shall
withhold the amount of five hundred thousand dollars and no cents ($500,000.00)
from the proceeds payable to Seller, which amount shall be deposited into an
interest bearing account for the benefit of Seller (the "Demolition Withhold
Account"). The Escrow Holder shall be authorized and directed to administer and
disburse the Demolition Withhold Account for the benefit of both Seller and
Buyer as
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a construction escrow according to escrow instructions mutually acceptable to
Seller, Buyer, and the Escrow Holder, in order to fund the completion of the
Demolition Work; provided, however that if, in the reasonable determination of
the Escrow Holder, Buyer, and Seller, the balance of the Demolition Escrow
Account shall be insufficient to pay all remaining anticipated costs of the
Demolition Work, Seller shall pay any such deficiency to the Escrow Holder
within ten (10) days after receipt of notice of the amount of such deficiency;
and, provided further that upon completion of the Demolition Work, any unused
balance of the Demolition Withhold Account shall be disbursed to Seller by the
Escrow Holder. The initial deposit into the Demolition Withhold Account is a
good faith estimate of the anticipated costs of the Demolition Work, but shall
not be construed as a cap upon the obligation of Seller to pay the reasonable
cost of the Demolition Work. In connection with the foregoing, Buyer and Seller
agree to execute any escrow instructions reasonably requested by the Escrow
Holder, in order to carry into effect the purposes of this section.
Seller shall not be entitled to an extension of time for the completion
of the Demolition Work as a result of any holdover by Subtenant under the
Sublease. Seller and Buyer acknowledge and agree that both Seller and Buyer may
be performing work on the Property at the same time and shall cooperate to
minimize interference with work being performed by each on the Property. Seller
shall obtain and maintain during the time it is conducting the Demolition Work
commercial general liability insurance and all-risk insurance with a financing
responsible insurance company acceptable to Buyer, covering the activities of
Seller, and Sellers agents, contractors, subcontractors and employees on or upon
the Property. Such insurance policy shall have a per occurrence limit of at
least two million dollars ($2,000,000). Seller shall protect, indemnify, defend
(with counsel reasonably acceptable to Buyer) and hold Buyer and Buyer's
officers, directors and employees harmless from and against any and all claims,
damages, liens, stop notices, liabilities, losses costs and expenses, including
reasonable attorneys fees and court costs, resulting from Seller's entry on the
Property and the Demolition Work. Seller's indemnification obligations set forth
in this paragraph shall survive the Close of Escrow and the termination of the
New Lease. In the event that Seller has not timely completed the Demolition
Work, Buyer may, at its option, elect to cause the Demolition Work to be
performed and shall be entitled to recover all costs and expenses incurred in
connection with such completion from Seller.
(i) No Undisclosed Violations of Law. Except as otherwise
disclosed in this Agreement and collateral documentation delivered to Buyer
prior to the Contingency Removal Date, Seller has not received any notice that
the Property is in violation of any applicable building codes, environmental,
zoning or land use laws, or other applicable local, state and federal laws and
regulations including, without limitation, The Americans with Disabilities Act
of 1990.
(j) Status of the Master Lease. Seller is the lessee or tenant
under the Master Lease. To the actual knowledge of Seller, no party to the
Master Lease is in default thereunder.
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(k) No Current Construction. At the time of Closing there will
be no outstanding written or oral contracts made by Seller or, to Seller's
knowledge, any other party for any improvements to the Property which have not
been fully paid for and Seller shall cause to be discharged any mechanics' and
materialmen's liens arising from any labor or materials furnished to the
Property at the request of Seller or Stellex prior to the time of Closing,
including, without limitation pursuant to any leases affecting the Property.
(l) No Undisclosed Option Rights. Except as otherwise
disclosed in this Agreement and collateral documentation delivered to Buyer
prior to the Contingency Removal Date, Seller has not granted any option or
right of first refusal or first opportunity to any party to acquire any interest
in any of the Property.
(m) No Undisclosed Occupants. No person or entity other than
Seller and Subtenant has any right to use or occupy all or any portion of the
Property. To Seller's knowledge, except for Seller and Subtenant, no person or
entity is currently occupying all or any portion of the Property.
14. Buyer's Covenants, Representations and Warranties. Buyer makes the
following covenants, representations and warranties, as of the date of this
Agreement, each of which is material and is being relied upon by Seller and
shall survive the Close of Escrow:
(a) Authority. Buyer is duly organized and validly existing
and in good standing under the laws of the State of California. Buyer has the
legal right, power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby, and the execution, delivery and
performance of this Agreement have been duly authorized and no other action by
Buyer is requisite to the valid and binding execution, delivery and performance
of this Agreement, except as otherwise expressly set forth herein. Neither the
execution and delivery of this Agreement by Buyer, nor performance of any of its
obligations hereunder, nor consummation of the transactions contemplated hereby
shall conflict with, result in a breach of, or constitute a default under, the
terms and conditions of the organizational documents of Buyer, or any indenture,
mortgage, agreement, instrument or document to which Buyer is a party or is
bound, or any order or regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over Buyer. All the documents
executed by Buyer which are to be delivered at the Close of Escrow will be duly
authorized, executed, and delivered by Buyer.
(b) Seller's Environmental Inquiry. Buyer acknowledges that
Seller has advised Buyer of the Order and the Remediation Agreement (as each is
defined in Section 24(a) below) in connection with the environmental condition
of the Property and that the delivery of any reports referenced in connection
with this Agreement constitutes written notice thereof to Buyer.
(c) The Subordination Agreement. Buyer acknowledges that
Seller shall not assign to Buyer any of Seller's rights or obligations with
respect to the Sublease, and all
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such rights and obligations belong exclusively to Seller. In connection with the
foregoing, Buyer shall execute a subordination agreement and consent in
substantially the form attached hereto as Exhibit K, and incorporated herein by
reference (the "Subordination Agreement") confirming that, effective upon the
Close of Escrow, the Sublease is a sublease of (and subordinate to) the New
Lease.
(d) Performance by Buyer. Buyer shall take all actions
required of it in order to effectuate properly the purpose and intent of this
section including, without limitation approving any reasonable construction
escrow instructions which are not inconsistent with this Agreement in connection
with the Demolition Work, and making all deliveries required of it at the Close
of Escrow.
(e) The Driveway License Agreement. During the License Term,
Buyer shall perform Buyer's proportionate share of maintenance and repair
obligations with respect to those portions of the Building 6 Property Driveway
located on the Building 6 Property. Buyer acknowledges as follows: (i) neither
Seller nor any successor owner of the Building 6 Property shall be required to
maintain any portion of the Driveway located exclusively within the Leased Land;
and (ii) upon expiration of the License Term or earlier termination of the
Driveway License, all rights of Buyer, and Buyer's successor and assigns, to
enter the Building 6 Property and/or to use all or any portion of the Driveway
located within the Building 6 Property shall immediately terminate;
15. Condition of the Property.
(a) Except as otherwise set forth in this Agreement, Buyer
acknowledges and agrees that (i) Buyer is acquiring the Property based solely
upon Buyer's inspection and investigation of the Property and all documents
related thereto, including, without limitation the Remediation Agreement, and
(ii) Buyer is acquiring the Property in "AS IS" condition without relying upon
any representations or warranties, express, implied or statutory, of any kind.
Except as otherwise specifically set forth in this Agreement without limiting
the above, Buyer acknowledges that neither Seller, nor any person or entity
acting on behalf of Seller has made any representations or warranties, express
or implied, on which Buyer is relying as to any matters, directly or indirectly,
concerning the Property including, but not limited to, the land, the area of the
Leased Land, the Buildings, and/or the Subleased Premises, improvements and
infrastructure, if any, development rights and exactions, expenses associated
with any taxes, assessments, bonds, permissible uses, title exceptions, water or
water rights, topography, utilities, zoning, soil, subsoil, the purposes for
which the Property is to be used, drainage, environmental or building laws,
rules or regulations, the presence or removal of toxic waste or Hazardous
Materials on, under, or about the Property or any adjoining or neighboring
property, or any other matters affecting or relating to the Property. Buyer
hereby expressly acknowledges that no such representations have been made. Buyer
shall perform and rely solely upon its own investigation concerning its intended
use of the Property, the fitness therefor of the Property, and the availability
of such intended use under applicable statutes, ordinances, and regulations.
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(b) Natural Hazards Report. Buyer acknowledges and understands
that the Property may be situated within (i) an Earthquake Fault Zone as so
designated under the Alquist-Priolo Earthquake Fault Zoning Act, Sections 2621
et seq. of the California Public Resources Code; and/or (ii) a Seismic Hazards
Zone as so designated under the Seismic Hazards Mapping Act, Sections 2690 et
seq. of the California Public Resources Code (collectively herein referred to as
the "Seismic Disclosure Acts"). If so situated, the Property may be particularly
exposed to the risks of seismic activity by reason of its close proximity to
earthquake faults or other geologic hazards, and any future construction or
development of the Property may be restricted. Buyer acknowledges that Buyer has
received a copy of the Commercial Property Owner's Guide to Earthquake Safety,
published by the State of California Seismic Safety Commission, which informs
property owners generally of the risks attendant to earthquakes and the effect
earthquakes could have on their property. Seller is making and has made no
representations regarding the seismic or other geologic hazards affecting the
Property, or the effect thereof on the future use or development of the Leased
Land and/or the Buildings. Further, Buyer hereby waives, to the fullest extent
permitted by law, any seismic disclosure requirements imposed upon Seller by
California law, including without limitation, the requirements contained in the
Seismic Disclosure Acts. Notwithstanding the foregoing, Buyer acknowledges that
Buyer has received a copy of The JCP Report Natural Hazard Disclosure Statement,
dated 05/19/1999, Report Number 1999051800050 (the "Natural Hazards Report"),
which was prepared by JCP GEOLOGISTS, INC. with respect to the Property, and
that Buyer has reviewed and does approve the Natural Hazards Report. A copy of
the Natural Hazards Report is attached hereto as Exhibit L and incorporated
herein by reference.
16. LIQUIDATED DAMAGES. IF BUYER COMMITS A DEFAULT UNDER THIS AGREEMENT
NOT WAIVED BY SELLER AND CLOSING DOES NOT OCCUR ON OR BEFORE THE FINAL CLOSING
DATE AS A RESULT OF SUCH DEFAULT, THEN IN SUCH EVENT, THE ESCROW HOLDER SHALL BE
INSTRUCTED BY SELLER TO CANCEL THE ESCROW AND SELLER SHALL THEREUPON BE RELEASED
FROM ITS OBLIGATIONS HEREUNDER. BUYER AND SELLER AGREE THAT BASED UPON THE
CIRCUMSTANCES NOW EXISTING, KNOWN AND UNKNOWN, IT WOULD BE IMPRACTICAL OR
EXTREMELY DIFFICULT TO ESTABLISH SELLER'S DAMAGE BY REASON OF BUYER'S DEFAULT
UNDER THIS AGREEMENT. ACCORDINGLY, BUYER AND SELLER AGREE THAT IN THE EVENT OF
DEFAULT BY BUYER UNDER THIS AGREEMENT, IT WOULD BE REASONABLE AT SUCH TIME TO
AWARD SELLER, AS SELLER'S SOLE AND EXCLUSIVE REMEDY, "LIQUIDATED DAMAGES" EQUAL
TO THE AMOUNT REPRESENTED BY THE DEPOSIT PLUS ANY AND ALL ACCRUED INTEREST
THEREON. THEREFORE, IF BUYER COMMITS A DEFAULT UNDER THIS AGREEMENT NOT WAIVED
IN WRITING BY SELLER AND CLOSING DOES NOT OCCUR ON OR BEFORE THE FINAL CLOSING
DATE AS A RESULT OF SUCH DEFAULT, SELLER SHALL INSTRUCT THE ESCROW HOLDER TO
CANCEL THE ESCROW WHEREUPON ESCROW HOLDER SHALL IMMEDIATELY PAY OVER TO
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SELLER THE DEPOSIT, IF HELD BY ESCROW HOLDER, AND SELLER SHALL BE RELIEVED FROM
ALL OBLIGATIONS AND LIABILITIES HEREUNDER, AND, PROMPTLY FOLLOWING ESCROW
HOLDER'S RECEIPT OF SUCH INSTRUCTION, ESCROW HOLDER SHALL CANCEL THE ESCROW.
NOTHING CONTAINED IN THIS SECTION SHALL SERVE TO WAIVE OR OTHERWISE
LIMIT SELLER'S REMEDIES OR DAMAGES FOR CLAIMS OF SELLER AGAINST BUYER ARISING
OUT OF SECTIONS 7(a)(i)(B), 7(a)(i)(D) AND 24 HEREOF OR WAIVE OR OTHERWISE LIMIT
SELLER'S RIGHTS TO OBTAIN FROM BUYER ALL COSTS AND EXPENSES OF ENFORCING THIS
LIQUIDATED DAMAGES PROVISION, INCLUDING ATTORNEYS' FEES AND EXPERT COSTS AND
FEES, PURSUANT TO SECTION 22, AND SPECIFIC PERFORMANCE OF SECTIONS 23(a) AND
23(b) OF THIS AGREEMENT.
SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE
PROVISIONS OF THIS SECTION 16 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO
BE BOUND BY ITS TERMS.
---------------- ----------------
Seller's Initials Buyer's Initials
17. BUYER'S REMEDIES. IF SELLER SHALL FAIL TO PERFORM ANY OBLIGATION IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND SUCH FAILURE CONSTITUTES A
DEFAULT ON THE PART OF SELLER HEREUNDER, THEN BUYER, AS BUYER'S SOLE REMEDY
HEREUNDER, MAY PURSUE AN ACTION FOR SPECIFIC PERFORMANCE OF THE TRANSFERS
DESCRIBED IN SECTIONS 2 AND 23(b) OF THIS AGREEMENT. SELLER AND BUYER
ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION 17
AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
---------------- ----------------
Seller's Initials Buyer's Initials
18. Damage and/or Destruction or Condemnation Prior to Close of Escrow.
If prior to Closing, any improvements located on the Property, or any part
thereof, are destroyed or materially damaged, the transaction shall go forward
without any adjustment to the Purchase Price, but Buyer shall be entitled to any
available insurance proceeds resulting from such damage or destruction. In
connection with the foregoing, during the period from the date of full execution
of this Agreement through and including the Closing Date, Seller shall not
cancel, nor allow to be canceled, any policies of property insurance carried by
Seller with respect to the Property.
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19. Notices. All notices, approvals, demands, or other communications
required or permitted hereunder shall be in writing, and shall be personally
delivered or sent by a nationally recognized overnight courier or sent by
registered or certified mail, postage prepaid, return receipt requested, or
delivered or sent by telecopy and shall be deemed received upon the earlier of
(i) if personally delivered or sent by overnight courier, the date of delivery
to the address of the person to receive such notice, (ii) if mailed, three (3)
Business Days after the date of posting by the United States post office, or
(iii) if given by telecopy or facsimile, when sent with confirmation of receipt.
Any notice, request, demand, direction or other communication sent by cable,
telex or telecopy must be confirmed within forty-eight (48) hours by letter
mailed or delivered in accordance with the foregoing. All notices to Seller
shall be sent to Seller's Address with a copy to Seller's Counsel's Address. All
notices to Buyer shall be sent to Buyer's Address with a copy to Buyer's
Counsel's Address. All notices to Escrow Holder shall be sent to Escrow Holder's
Address. If the date on which any notice to be given hereunder falls on a
Saturday, Sunday or legal holiday, then such date shall automatically be
extended to the next Business Day immediately following such Saturday, Sunday or
legal holiday. Notice of change of address shall be given by written notice in
the manner detailed in this section. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to constitute receipt of the notice, demand, request or
communication sent.
20. Brokers. Neither party has dealt with any person or entity who may
have a claim to be paid a commission or finder's fee as the result of this
transaction other than Colliers Parrish International, Inc., who has represented
Seller in this transaction ("Seller's Broker") Upon the Close of Escrow, Seller
shall pay any real estate brokerage commission due to Seller's Broker, with
respect to this transaction in accordance with a separate listing agreement with
Seller's Broker. Seller's Broker shall pay any commission due to any
corresponding Broker as the result of this transaction. Except as set forth in
this section, if any claim(s) for commissions or finders' fees should arise as
the result of the consummation of the transactions contemplated in this
Agreement, then Buyer shall indemnify, save harmless and defend Seller from and
against such claims if they shall be based upon any action, statement,
representation or agreement by Buyer, and Seller shall indemnify, save harmless
and defend Buyer from and against such claims if they shall be based upon any
action, statement, representation or agreement made by Seller. The provisions of
this Section 20 shall survive the Closing or the termination of this Agreement.
21. Legal Fees. In the event of the bringing of any action or suit by a
party hereto against another party hereunder by reason of any breach of any of
the covenants or agreements or any inaccuracies in any of the representations
and warranties on the part of the other party arising out of this Agreement,
then in that event, the prevailing party in such action or dispute, whether by
final judgment or out of court settlement, shall be entitled to have and recover
of and from the other party all costs and expenses of suit, including actual
attorneys' fees. Any judgment or order entered in any final judgment shall
contain a specific provision providing for the recovery of all costs and
expenses of suit, including actual
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attorneys' fees (collectively "Costs") incurred in enforcing, perfecting and
executing such judgment. For the purposes of this section, Costs shall include,
without limitation, attorneys' and experts' fees, costs and expenses incurred in
the following: (i) post judgment motions; (ii) contempt proceeding; (iii)
garnishment, levy, and debtor and third party examination; (iv) discovery; and
(v) bankruptcy litigation. This section shall survive any termination of this
Agreement prior to the Close of Escrow and the Close of Escrow and shall not be
deemed merged into such upon their recordation.
22. Confidentiality. Except as specifically provided herein, Buyer and
Seller shall exercise reasonable efforts not to disclose any of the terms or
provisions of this Agreement prior to the Close of Escrow to any person or
entity not a party to this Agreement, nor shall Buyer or Seller issue any press
releases or make any public statements relating to this Agreement or Buyer's
intended use of the Property prior to Close of Escrow, except for disclosures
required by law. In addition, Buyer shall exercise reasonable efforts to keep
all materials provided or made available to Buyer by Seller, and all materials
generated by Buyer in the course of conducting its inspections, review of books
and records, and other due diligence activities relating to the Property
(including, without limitation, matters relating to the environmental condition
of the Property), whether obtained through documents, oral or written
communications, or otherwise, but excluding information that has entered the
public domain (collectively, the "Confidential Information"), in the strictest
confidence until the Close of Escrow. Notwithstanding the foregoing, Buyer and
Seller may make necessary disclosures to potential lenders, partners, attorneys,
consultants, brokers, tenants, accountants, SEC disclosures and purchasers that
likewise are advised not to disclose the Agreement to the market but limit
disclosure of the Confidential Information to their respective potential
lenders, partners, attorneys, consultants, brokers, tenants, accountants and
purchasers. Except as required by law, under no circumstances shall any of the
Confidential Information be used for any purpose other than the investigation of
the Property in connection with its purchase by Buyer as contemplated under this
Agreement. Within fourteen (14) days of any termination of this Agreement for
any reason, Buyer shall return to Seller all original materials, together with
any copies made by Buyer, and all copies of any reports or compilations of data
generated from Confidential Information provided by Seller to Buyer, except for
appraisals and financial analyses generated by or made on behalf of Buyer and
those documents which are protected by attorney-client and/or attorney work
product privileges, and Buyer will use reasonable efforts to cause third parties
acting on behalf of Buyer to deliver to Seller all such materials in their
possession.
23. Miscellaneous.
(a) Survival of Covenants. The covenants, representations and
warranties of Buyer and Seller set forth in this Agreement shall survive the
Close of Escrow and shall not be deemed merged upon their recordation.
(b) Required Actions of Buyer and Seller. Buyer and Seller
agree to execute such instruments and documents and to diligently undertake such
actions as may be
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required in order to consummate the transfers herein contemplated and shall use
good faith efforts to accomplish the Close of Escrow in accordance with the
provisions hereof.
(c) Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision hereof. All references herein to a
particular time of day shall be deemed to refer to California time.
(d) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
(e) Captions. Any captions to, or headings of, the sections or
subsections of this Agreement are solely for the convenience of the parties
hereto, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
(f) No Obligations to Third Parties. Except as otherwise
expressly provided herein, the execution and delivery of this Agreement shall
not be deemed to confer any rights upon, nor obligate any of the parties
thereto, to any person or entity other than the parties hereto.
(g) Exhibits. The Exhibits attached hereto are hereby
incorporated herein by this reference for all purposes.
(h) Amendment to this Agreement. The terms of this Agreement
may not be modified or amended except by an instrument in writing executed by
each of the parties hereto.
(i) Waiver. The waiver or failure to enforce any provision of
this Agreement shall not operate as a waiver of any future breach of any such
provision or any other provision hereof.
(j) Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California.
Any action or proceeding brought to enforce or interpret this Agreement shall be
commenced within the County of Santa Clara, California.
(k) Fees and Other Expenses. Except as otherwise provided
herein, each of the parties shall pay its own fees and expenses in connection
with this Agreement.
(l) Entire Agreement. This Agreement supersedes any prior
agreements, negotiations and communications, oral or written, and contains the
entire agreement between Buyer and Seller as to the subject matter hereof. No
subsequent agreement, representation, or promise made by either party hereto, or
by or to an employee, officer, agent or
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representative of either party shall be of any effect unless it is in writing
and executed by the party to be bound thereby.
(m) Successors and Assigns. Subject to the assignment
provisions of this Agreement, this Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of the parties hereto.
(n) Independent Counsel. Buyer and Seller each acknowledge
that: (i) they have been represented by independent counsel in connection with
this Agreement; (ii) they have executed this Agreement with the advice of such
counsel; and (iii) this Agreement is the result of negotiations between the
parties hereto and the advice and assistance of their respective counsel. The
fact that this Agreement was prepared by Seller's counsel as a matter of
convenience shall have no import or significance. Any uncertainty or ambiguity
in this Agreement shall not be construed against Seller because Seller's counsel
prepared this Agreement in its final form.
(o) This Instrument. Seller's delivery of unsigned copies of
this Agreement (and unsigned copies of documents referred to in this Agreement)
is solely for the purpose of review by the party to whom delivered, and neither
the delivery nor any prior communications between the parties, whether oral or
written, shall in any way be construed as an offer by Seller, nor in any way
imply that Seller is under any obligation to enter the transaction which is the
subject of this Agreement. This instrument, once it has been signed by Seller
and Buyer and a duplicate original thereof delivered by Seller and Buyer, shall
contain the entire and only agreement between the parties, and no oral
statements, representations, or prior written matter not contained in this
instrument shall have any force or effect.
(p) Delivery of Possession. Upon the Close of Escrow, Seller
shall deliver possession of the Property to Buyer, free and clear of any
tenancies or contracts or rights of third parties not previously disclosed in
writing by Seller to Buyer. For purposes of this Agreement, delivery of
possession of the Property shall mean the assignment by Seller to Buyer of
Seller's interest in the Master Lease.
24. Environmental Provisions.
(a) Site Cleanup. The Property is subject to: (i) an Imminent
Or Substantial Endangerment Order and Remedial Action Order issued by the State
of California, Health and Welfare Agency, Department of Health Services, Toxic
Substances Control Program ("DTSC"), HSA-89/90-012, as amended (the "Hillview
Avenue Order"); and (ii) a Remedial Action Order of the State issued by the
State of California, Health and Welfare Agency, Department of Health Services,
Toxic Substances Control Division [predecessor to the DTSC] HSA88/89-016, as
amended (the "Regional Order"). (The Hillview Avenue Order and the Regional
Order are sometimes collectively referred to herein as the "Order"). In
addition, Seller and Buyer have entered into that certain Confidential
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Environmental Settlement Agreement, Release and Covenant Not To Sue, dated
September 17, 1997 (the "Covenant Not To Sue").
(b) Assignment of Seller's Rights Under The Remediation
Agreement. In lieu of any other right or remedy (whether under this Agreement,
at law, or in equity), which might otherwise have been possessed by Buyer as the
result of the presence of Hazardous Materials on the Property whenever
occurring, upon the Close of Escrow, Seller shall, and does hereby: (i) grant,
assign, and convey to Buyer the non-exclusive right, in common with Seller, to
assert Seller's rights and remedies under the Remediation Agreement and the
Environmental Insurance; and (ii) delegate to Buyer all of Seller's duties
arising under the Remediation Agreement after the Close of Escrow. In connection
with the foregoing, Buyer acknowledges that Buyer is familiar with the terms and
conditions of the Remediation Agreement, and, effective upon the Close of
Escrow, Buyer shall, and does hereby, assume and agree to perform all of the
obligations of Seller arising after the Close of Escrow under the Remediation
Agreement, including, without limitation (and subject to the terms of the New
Lease) the obligation to provide Consultant, and Consultant's employees, agents,
and contractors, with access to the Property as set forth therein.
Notwithstanding the foregoing, Buyer shall timely execute any assignment and/or
assumption agreement reasonably requested by Consultant and/or Seller in
connection with such assumption. Seller represents and warrants to Buyer that,
to the best of Seller's knowledge, on the date of execution of this Agreement:
(i) Seller has performed all obligations of Seller to be performed under the
Remediation Agreement on or before the date of execution of this Agreement; and
(ii) no event of default exists under the Remediation Agreement on the part of
either party and no condition exists that, with the passage of time or
otherwise, would give rise to an event of default under the Remediation
Agreement. Buyer acknowledges and agrees that performance of Consultant's
obligations under the Remediation Agreement will continue in, on, under, and/or
about the Property after the Close of Escrow and may continue after the
expiration or earlier termination of the New Lease. Buyer further acknowledges
and agrees that neither Seller nor Consultant can accurately estimate the time
for completion of performance of Consultant's obligations under the Remediation
Agreement.
(c) Waiver of Hazardous Materials Claims Against Seller. Buyer
shall have the right for a period of ninety (90) days following the latest of
the following to occur ("Inspection Period"): (i) the Closure Certification
Date; (ii) the expiration or earlier termination of the New Lease; or (iii)
surrender of possession of the Property by Seller; to conduct such testing and
inspections as Buyer reasonably deems necessary or appropriate in order to
determine whether or not any Hazardous Materials (other than those previously
disclosed to Buyer, including, without limitation, those subject to the
Remediation Agreement, the Hillview Avenue Order, and the Regional Order) are
then present in the soil beneath the pads of the Buildings in sufficient
quantities to require remediation under applicable environmental laws, and to
provide written notice of the presence of such Hazardous Materials to Seller
(such additional remediation shall be referred to herein as the "Additional
Environmental Work"). If Buyer reasonably determines that any Additional
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Environmental Work is required, all such Additional Environmental Work shall be
done at the reasonable direction of Buyer, but at Seller's reasonable cost and
expense. Seller acknowledges and agrees that the cost of such work may be paid
through the Environmental Insurance or otherwise deducted from the Security
Deposit given by Seller pursuant to the New Lease. Buyer shall notify Seller in
writing not less than two (2) business days prior to Buyer and/or Buyer's
representatives conducting any excavations, investigations, sampling, testing,
analysis (collectively referred to herein as the "Investigation Activities")
and/or remediation activity relating to the Property, whether such Investigation
Activities are conducted in, on, under, or off the Property, and Seller and/or
Seller's representatives shall have the right to be present during any such
Investigation Activities and/or remediation activity conducted by Buyer and/or
Buyer's representatives. In addition, during the Inspection Period, Seller may
conduct independent testing of any areas of the Property which could be subject
to Additional Environmental Work and any samples obtained by Buyer ("Seller's
Investigation Activities"). Upon request from Seller, Buyer shall provide Seller
with "split" samples of any samples taken from any location as part of
Investigation Activities conducted by Buyer and/or Buyer' representatives in
accordance with this section. Seller shall notify Buyer in writing not less than
two (2) business days prior to conducting any Seller's Investigation Activities
relating to the Property, whether such Seller's Investigation Activities are
conducted in, on, under, or off the Property, and Buyer and/or Buyer's
representatives shall have the right to be present during any such Seller's
Investigation Activities conducted by Seller and/or Seller's representatives.
Upon request from Buyer, Seller shall provide Buyer with "split" samples of any
samples taken from any location as part of Investigation Activities conducted by
Seller and/or Seller's representatives in accordance with this section. Other
than with respect to claims arising: (i) under the Remediation Agreement; (ii)
in connection with obtaining any Site Closure Certification; (iii) which are
required to be remediated as Additional Environmental Work; or (iv) in
connection with a breach by Seller of Seller's obligations under the New Lease,
Buyer shall have no right to assert any claim(s) against Seller, and/or any of
Seller's directors, officers, shareholders, employees, agents, or contractors
(other than Consultant and the Environmental Insurers), and/or any of their
respective successors and assigns, arising from the presence of Hazardous
Materials in, on, under, or about the Property, whenever occurring, whether
presently known or unknown, and Buyer does hereby waive, deny, disclaim, and
release any and all such claims, liabilities, charges, costs, damages, and/or
expenses (including without limitation reasonable attorneys' fees and costs). In
connection with the foregoing, Buyer waives the protections of Section 1542 of
the California Civil Code, which states as follows: "General Release--Claims
Extinguished. A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement with
the debtor."
(d) Site Closure. Buyer acknowledges that the Property, and/or
portions thereof, may require a Site Closure Certification. Seller, at its sole
cost and expense, shall take all action required to obtain such Site Closure
Certification, if required, prior to the
-29-
<PAGE>
expiration of the term of the New Lease. If Seller determines that a Site
Closure Certification is not required, Seller shall deliver evidence reasonably
satisfactory to Buyer that a Site Closure Certification is not required. For
purposes of this paragraph, a letter signed by Consultant delivered to Buyer and
to any Certifying Agencies certifying that a Site Closure Certification is not
required with respect to surrender of the Property to Buyer by Seller and/or
Stellex shall be deemed satisfactory to Buyer.
25. Consent of Master Landlord. Intentionally Omitted
26. Post Closing Indemnity. Buyer shall indemnify, defend, and hold
Seller harmless from and against any and all liabilities, charges, claims,
costs, damages, and expenses (including, without limitation, reasonable
attorneys' fees and costs) arising out of any failure or alleged failure by
Buyer to perform any of the obligations of Buyer relating to the Property,
including, without limitation, all obligations of Buyer as successor tenant
under the Master Lease, and, except as set forth in the Remediation Agreement,
all other documents and agreements in effect concerning the Property, and as
tenant in possession under all laws affecting the Property, as well as any
Hazardous Materials contamination of the Property, whenever occurring, unless
such contamination was not disclosed by Seller to Buyer prior to the Close of
Escrow, and such contamination is shown by Buyer through clear and convincing
evidence to have resulted from the sole active negligence or intentional act of
Seller and/or Seller's employees, agents, or contractors. This indemnity shall
survive the Close of Escrow and recordation of the deed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
SELLER: BUYER:
WATKINS-JOHNSON COMPANY, THE BOARD OF TRUSTEES OF THE LELAND
a California corporation STANFORD JUNIOR UNIVERSITY, a body
having corporate powers under the
laws of the State of California
/s/ Scott G. Buchanan /s/ L. R. Hoagland, Jr.
- --------------------------------------- -----------------------------------
By: Scott G. Buchanan By: Stanford Management Company
- --------------------------------------- Its: President
Its: Executive Vice President and CFO
---------------------------------
-30-
<PAGE>
ACCEPTANCE BY ESCROW HOLDER
The undersigned First American Title Guaranty Company hereby
acknowledges receipt of a fully executed original of the foregoing Agreement for
Assignment of Leasehold Interest, Sublease of Property, Leaseback of Real
Property, and Joint Escrow Instructions, or a true copy thereof, and agrees to
act as the Escrow Holder for the transactions contemplated thereunder.
ESCROW HOLDER:
FIRST AMERICAN
TITLE GUARANTY COMPANY
Dated: September 30, 1999 /s/ P. J. Larkin
----------------------------------
By: P. J. Larkin
----------------------------------
Its: Assistant Secretary
----------------------------------
<PAGE>
AGREEMENT FOR ASSIGNMENT OF LEASEHOLD INTEREST,
SUBLEASE OF PROPERTY, LEASEBACK OF REAL PROPERTY
AND JOINT ESCROW INSTRUCTIONS
SCHEDULE OF EXHIBITS
EXHIBIT A - Legal Description of the Leased Land
EXHIBIT B - The Master Lease
EXHIBIT C - The Sublease
EXHIBIT D - Legal Description of the Building 6 Property
EXHIBIT E - Legal Description of the Driveway
EXHIBIT F - The Remediation Agreement
EXHIBIT G - The Preliminary Report
EXHIBIT H - Master Lease Assignment Agreement
EXHIBIT I - The New Lease
EXHIBIT J - The Demolition Plan
EXHIBIT K - The Subordination Agreement
EXHIBIT L - The Natural Hazards Report
EXHIBIT M Environmental Assignment
EXHIBIT N Merger Acknowledgment
Exhibit 10.34
RESOLUTION PASSED BY UNANIMOUS CONSENT OF THE
BOARD OF DIRECTORS ON JULY 2, 1999
RESOLUTION OF THE BOARD OF DIRECTORS OF
WATKINS-JOHNSON COMPANY
The undersigned constitute all the directors of Watkins-Johnson Company (the
"Company"). In that capacity, they hereby adopt the following resolutions:
WHEREAS, Watkins-Johnson Company has determined that it is in the best interest
of shareowners to seek to sell the Company or all of its assets either in its
entirety or in separate transactions, and
WHEREAS, on April 8, 1995 the Directors adopted a resolution providing
compensation to retired directors who would have served at least five years as
director after April 8, 1995;
NOW THEREFORE BE IT RESOLVED, that upon the sale of the final portion of
Watkins-Johnson Company each director shall receive an amount equal to the
amount each would have received had he or she retired on April 8, 2000.
RESOLVED FURTHER, that the appropriate officers of the Company are, and each of
them is, hereby authorized and directed to ensure that the necessary funds be
deposited in an escrow account to pay such funds to these directors on the
consumation of a Change in Control of Watkins-Johnson Company.
Dated as of July 2, 1999
/s/ Dean A. Watkins
----------------------------
Dean A Watkins
/s/ H. Richard Johnson
----------------------------
H. Richard Johnson
/s/ W. Keith Kennedy
----------------------------
W. Keith Kennedy
/s/ John J. Hartmann
----------------------------
John J. Hartmann
/s/ Raymond F. O'Brien
----------------------------
Raymond F. O'Brien
/s/ William R. Graham
----------------------------
William R. Graham
/s/ Gary M. Cusumano
----------------------------
Gary M. Cusumano
/s/ Robert L. Prestel
----------------------------
Robert L. Prestel
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