SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended: December 31, 1995
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: 1-9813
GENENTECH, INC.
A Delaware Corporation 94-2347624
(I.R.S. employer identification number)
460 Point San Bruno Boulevard (415) 225-1000
South San Francisco, California 94080-4990 (telephone number)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Redeemable Common Stock, New York Stock Exchange
$.02 par value Pacific Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The approximate aggregate market value of voting stock held by nonaffiliates
of the registrant is $1,965,462,444 as of March 15, 1996. (A)
Number of shares of Common Stock outstanding as of March 15, 1996:
76,621,009
Number of shares of Special Common Stock outstanding as of March 15, 1996:
43,496,307
Number of shares of Redeemable Common Stock outstanding as of March 15, 1996:
None
Documents incorporated by reference:
PARTS INCORPORATED
DOCUMENT BY REFERENCE
(1) Annual Report to stockholders for the year ended II
December 31, 1995 (specified portions)
(2) Definitive Proxy Statement with respect to the 1996 III
Annual Meeting of Stockholders filed by Genentech, Inc.
(SEC file No. 1-9813) with the Securities and Exchange
Commission (hereinafter referred to as "Proxy Statement")
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(A) Excludes 82,768,861 shares of Common Stock and Special Common Stock
held by Directors, Officers and stockholders whose ownership exceeds five
percent of either the Common Stock or Special Common Stock outstanding at
March 15, 1996. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of
the registrant, or that such person is controlled by or under common control
with the registrant.
PART I
ITEM 1. BUSINESS
Genentech, Inc. (the Company) is a biotechnology company that discovers,
develops, manufactures and markets human pharmaceuticals produced by
recombinant DNA technology for significant unmet medical needs. The Company
manufactures and markets five products directly in the United States and to
F. Hoffmann-La Roche Ltd. (HLR) for sales outside of the United States, and
receives royalties from sales of five other products which originated from the
Company's technology.
Cautionary Statement Identifying Important Factors that Could Cause the
Company's Actual Results to Differ from those Projected in Forward Looking
Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Genentech, Inc. is hereby filing a cautionary
statement identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward looking
statements of the Company made by, or on behalf of, the Company.
The following factors could affect Genentech's actual future results,
including its product sales, royalties, expenses and net income, and could
cause them to differ from any forward looking statements made by or on behalf
of the Company:
- Decisions by HLR to exercise its rights to develop and sell products and
potential products of the Company in non-U.S. markets or, alternatively, to
not exercise such rights.
- Increased competition in the growth hormone market. Three companies
received Food and Drug Administration (FDA) approval in 1995 to market their
growth hormone products for treatment of growth hormone inadequacy in
children, and a fourth company is seeking approval to sell human growth
hormone to treat AIDS wasting. The Company expects competition to have an
adverse effect on its sales of Protropin, registered trademark, and Nutropin,
registered trademark. Other factors that may influence sales of these products
include the availability of third party reimbursement for the cost of growth
hormone therapy and the outcome of litigation involving the Company's patents
for growth hormone and related processes, including that referred to above.
- Acceptance of Pulmozyme, registered trademark, as a treatment for cystic
fibrosis. Factors that may influence the future sales of Pulmozyme include
physician perception of the number and kinds of patients who will benefit from
such therapy, the availability of third party reimbursement for the costs of
therapy, the timing of the development of alternative therapies for the
treatment and care of cystic fibrosis, whether and when additional indications
are approved for Pulmozyme, and the cost of Pulmozyme therapy.
- Variation of royalty, contract and other revenues. These revenues will
continue to fluctuate due to the timing of non-U.S. approvals, if any, for
products licensed to HLR, whether and when contract benchmarks are achieved,
the initiation of new contractual arrangements, including the exercise of
product options by HLR, and the conclusion of existing arrangements with other
companies and HLR.
- Successful development of products. The Company intends to continue to
develop new products. Successful pharmaceutical product development is highly
uncertain and is dependent on numerous factors, many of which are beyond the
Company's control. Products that appear promising in the early phases of
development may fail to reach market for numerous reasons. They may be found
to be ineffective or to have harmful side effects in clinical or preclinical
testing, may fail to receive necessary regulatory approvals, may turn out to
be uneconomical because of manufacturing costs or other factors, or they may
be precluded from commercialization by the proprietary rights of others.
Success in preclinical and early clinical trials does not ensure that large
scale clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations which may delay, limit or prevent
regulatory approvals. The length of time necessary to complete clinical trials
and from submission of an application for marketing approval to a final
decision by a regulatory authority varies significantly and may be difficult
to predict.
- Uncertainties surrounding proprietary rights. The patent positions of
pharmaceutical and biotechnology companies can be highly uncertain and involve
complex legal and factual questions. Accordingly the breadth of claims allowed
in such company's patents cannot be predicted. Patent disputes are frequent
and can preclude commercialization of products. The Company has in the past
and may in the future be involved in material patent litigation. Such
litigation is costly in its own right and could subject the Company to
significant liabilities to third parties and, if decided adversely, the
Company may need to obtain third party licenses or cease using the technology
or product in dispute. As discussed above, the presence of patent or other
proprietary rights belonging to other parties may lead to the termination of
research and development of a particular product.
Agreement with Roche Holdings, Inc.
On October 25, 1995, a new agreement (the Agreement) with Roche Holdings, Inc.
(Roche) was approved by Genentech's non-Roche stockholders to extend for four
years Roche's option to cause Genentech to redeem (call) the outstanding
callable putable common stock (special common stock) of the Company at
predetermined prices. In conjunction with that Agreement, HLR was granted an
option at terms discussed below for ten years for licenses to use and sell
certain of Genentech's products in non-U.S. markets. As a general matter,
such option for a Genentech product must be exercised at, or prior to if
Genentech mutually agrees, the conclusion of phase II clinical trials for each
product. In general, for each product for which HLR exercises its option
(option product), the Company and HLR will share equally all development
expenses, including preclinical, clinical, process development and related
expenses, incurred by the Company through that date and prospectively, with
respect to the development of the product in the United States. HLR will pay
all non-U.S. development expenses. In general, Genentech will supply HLR's
clinical requirements of option products at cost and its commercial
requirements at cost plus 20%. In general, HLR will pay a royalty of 12.5%
until a product reaches $100 million in aggregate sales outside of the United
States, at which time the royalty rate increases to 15%. In addition, HLR has
exclusive rights to, and pays the Company 20% royalties on, Canadian sales of
the Company's existing approved products in Canada, and European sales of
Pulmozyme, registered trademark. Consequently, in the fourth quarter of 1995,
the Company transferred to HLR the rights to its Canadian product sales, and
its European sales of Pulmozyme, and commenced recording royalty revenue from
HLR on such sales. The Company supplies its products to HLR, and has agreed
to supply products for which HLR exercises its option, for sales outside of
the United States at cost plus 20%. In 1995, the Company recorded special
charges totaling $25 million, of which $21 million related to expenses
associated with the Agreement. Depending on whether HLR does or does not
exercise its option to develop and sell each of the Company's future products,
future levels of the Company's product sales, royalties and contract revenue,
as well as R&D and other expenses, could vary significantly from 1995 levels
both on an annual and quarter-to-quarter basis.
Products
Genentech has developed and currently manufactures and markets five products
in the United States: Activase, registered trademark, (Alteplase, recombinant)
recombinant tissue plasminogen activator; Protropin, (somatrem for injection)
recombinant growth hormone; Nutropin, [somatropin (rDNA origin) for injection]
human growth hormone; Pulmozyme, (dornase alfa) inhalation solution; and
Actimmune, registered trademark, (Interferon gamma-1b) recombinant interferon
gamma.
Activase: Tissue plasminogen activator (t-PA) is an enzyme that is produced
naturally by the body to dissolve blood clots. However, when a blood clot
obstructs blood flow in the coronary artery and causes a heart attack, the
body is unable to produce enough t-PA to dissolve the clot rapidly enough to
prevent damage to the heart. Through recombinant DNA technology, Genentech
produces Activase, a recombinant form of t-PA, in sufficient quantity for
therapeutic use. The United States Food and Drug Administration (FDA)
approved Activase for marketing in the United States in 1987 for the treatment
of acute myocardial infarction (AMI or heart attack) and in 1990 for use in
the treatment of acute pulmonary embolism (blood clots in the lungs).
Genentech submitted a Product License Application in March 1996, for Activase
for treatment of patients suffering from acute ischemic stroke, based on
results of a multi-year Phase III clinical study conducted by the National
Institute of Neurological Disorders and Stroke (NINDS).
Phase II studies are being performed to evaluate a second generation of t-PA
which is anticipated to be easier to administer, work faster, cause less
unwanted bleeding and require smaller doses than Activase.
In exchange for royalty payments, Genentech has licensed marketing rights to
recombinant t-PA in Japan to Kyowa Hakko Kogyo, Ltd. (Kyowa) and Mitsubishi
Kasei Corporation (Mitsubishi). Kyowa and Mitsubishi are marketing forms of
recombinant t-PA under the trademarks Activacin, registered trademark, and
GRTPA, registered trademark, respectively. In a number of countries outside
of the United States, Canada and Japan, Genentech has licensed t-PA marketing
and manufacturing rights to Boehringer Ingelheim International GmbH
(Boehringer). Genentech has also licensed certain rights to Boehringer
regarding future sales of the second generation of t-PA, which is currently
under development. Boehringer markets recombinant t-PA under the trademark
Actilyse, registered trademark. Prior to February 1995 t-PA was marketed in
Canada by Genentech under the Activase trademark and by Boehringer under the
trademark Lysatec. In February 1995, Genentech purchased all t-PA Canadian
marketing rights from Boehringer. Pursuant to the Agreement with Roche,
Genentech subsequently granted these rights to HLR, which began selling
Activase in Canada on December 1, 1995, and Genentech began receiving a
royalty on such sales.
Protropin: Human growth hormone is a naturally occurring human protein
produced in the pituitary gland. It regulates metabolism and is responsible
for growth in children. A recombinant growth hormone product developed by
Genentech, Protropin was approved by the FDA in 1985 for marketing in the
United States for the treatment of growth hormone inadequacy in children.
In exchange for royalty payments, Genentech licensed rights to recombinant
growth hormone outside the United States and Canada to Pharmacia & Upjohn,
which manufactures and markets recombinant growth hormone under the trademarks
Somatonorm, registered trademark, and Genotropin, registered trademark. Under
the terms of the agreement with Pharmacia & Upjohn, and effective in late
1995, Genentech now has the right to sell growth hormone in certain European
countries and Pharmacia & Upjohn have the right to sell their own growth
hormone in the United States and Canada. Pursuant to the Agreement with
Roche, Genentech granted exclusive rights to sell Protropin in Canada to HLR,
which began selling Protropin in Canada on December 1, 1995, and Genentech
receives a royalty on such sales.
Nutropin: Nutropin is a human growth hormone similar to Protropin; however,
it does not have the additional amino acid, methionine, found in the Protropin
chemical structure. It was approved by the FDA in March 1994 for marketing
for the treatment of growth hormone inadequacy in children. Nutropin was
approved in November 1993 and launched in January 1994 for marketing in the
United States for the treatment of growth hormone inadequacy in children due
to chronic renal insufficiency (CRI). CRI causes irreversible damage to the
kidneys and a variety of other medical problems, including growth hormone
inadequacy. The condition affects an estimated 3,000 children in the United
States. Nutropin has been designated an Orphan Drug for treatment of growth
hormone inadequacy in children with CRI in the United States. In December
1995, the Company received regulatory approval to market Nutropin AQ,
trademark, [somatropin (rDNA origin) injection], a liquid formulation of
Nutropin, aimed at providing improved convenience in administration. In
October 1995, Genentech submitted a New Drug Application for approval to
market Nutropin human growth hormone for the treatment of growth failure
associated with Turner syndrome. Phase II clinical trials are currently
underway with Nutropin to treat growth hormone inadequacy in adults. Pursuant
to the Agreement with Roche, Genentech granted the right to sell Nutropin in
Canada to HLR, and Genentech will receive a royalty on any such sales.
Pulmozyme: Pulmozyme is marketed in the United States for the management of
cystic fibrosis, for which it has Orphan Drug designation in the United
States. There are an estimated 22,000 patients with cystic fibrosis in the
U.S., a significant portion of whom are expected to be candidates for
treatment. Pursuant to the Agreement with Roche, and effective during the
fourth quarter of 1995, the Company granted Roche the exclusive right to sell
Pulmozyme in Europe and Canada in return for a royalty on such sales.
The Data Safety Monitoring Board for the trial recommended in July 1995 to
terminate the Phase III trial of Pulmozyme in patients hospitalized for acute
episodes of chronic obstructive pulmonary disease, due to lack of demonstrable
benefit shown in the interim analysis of the study. Genentech accepted this
recommendation and halted enrollment.
Actimmune: Actimmune is approved in the United States for the treatment of
chronic granulomatous disease (CGD), a rare, inherited disorder of the immune
system which affects an estimated 250 to 400 Americans. Actimmune received
designation by the FDA in 1990 as an Orphan Drug for the treatment of CGD in
the United States. Phase III clinical trials are ongoing to investigate the
use of Actimmune to treat renal cell carcinoma, a cancer of the kidneys.
Depending on clinical trial results, the Company hopes to expand the market
potential of Actimmune over time by obtaining new approvals for indications
with larger populations, but such expansion is not assured. Additionally, the
Company receives royalty payments from Boehringer from the sale of interferon
gamma in certain countries outside of the United States, Canada and Japan.
Licensed Products:
In addition to the royalties mentioned above, the Company also receives
royalties on the following products:
Product Trademark Company
____________________________ ____________ ______________________________
Recombinant human insulin Humulin Eli Lilly and Company (Lilly)
Human growth hormone Humatrope Eli Lilly and Company
Recombinant interferon alpha Roferon-A Hoffmann-La Roche, Inc.
Hepatitis B vaccine Recombivax Merck and Company, Inc.
Hepatitis B vaccine Engerix-B Smith-Kline Beecham
Pharmaceuticals (SKB)
Factor VIII Kogenate Bayer Corporation
Bovine growth hormone Posilac Monsanto Corporation
In December 1994, the Company and Lilly reached an agreement regarding all
patent infringement and contract actions then pending between the two parties.
Under the terms of the settlement, Lilly agreed to pay the Company up to $145
million ($25 million in 1994, and 16 quarterly payments of $7.5 million, $30.0
million of which was received and recorded as revenue by Genentech in 1995),
subject to possible offsets and contingent upon Humulin continuing to be
marketed in the United States, and the Company granted Lilly licenses, options
to licenses, or immunities from suit for certain of the Company's patents.
Future payments are required from Lilly on sales of these products.
Products in Development: As part of Genentech's program of research and
development, a number of other products are in various stages of development.
Product development efforts cover a wide range of disorders or medical
conditions, including cancer, respiratory disorders, cardiovascular diseases,
endocrine disorders, inflammatory and immune problems, and neurological
disorders.
In addition to the new indications for existing products discussed above,
below is a summary of products in clinical development:
<TABLE>
<CAPTION>
Product Description
- -------------------------------- ------------------------------------------------
<S> <C>
Phase III
- ---------
Anti-HER2 Humanized Monoclonal A humanized monoclonal antibody targeted against
Antibody a protein receptor, which may be useful in the
treatment of breast cancer.
Auriculin (registered trademark) A hormone that occurs naturally in the heart
Anaritide which may be useful in treating acute renal
failure (being developed under a collaboration
between the Company and Scios Nova Inc.).
IDEC-C2B8 A monoclonal antibody which may be useful
in the treatment of non-Hodgkin's B-cell
lymphomas (being developed under a collaboration
between the Company and IDEC Pharmaceuticals, Inc.).
Phase II
- --------
Anti-IgE Humanized Monoclonal A humanized IgE monoclonal antibody designed to
Antibody interfere early in the process that leads to
symptoms of allergy such as allergic rhinitis
and asthma.
Nerve Growth Factor A protein that may aid the treatment of peripheral
neuropathy.
IGF-I A protein that is being studied to determine if
it can improve blood glucose control in type I and
II diabetics (type I trials are in phase III).
Oral IIbIIIa antagonist An inhibitor of platelet aggregation that may
be useful in the prevention of unwanted
clotting in certain cardiovascular conditions
(being developed under a collaboration between
the Company and Roche).
Phase I
- -------
Thrombopoietin (TPO) A protein that is being studied for treatment of
thrombocytopenia, a reduction in clot-inducing
platelets, in cancer patients treated with
chemotherapy.
</TABLE>
In conjunction with the Agreement with Roche, HLR was granted an option for
ten years for licenses to use and sell certain of Genentech's products in non-
U.S. markets. As a general matter, such option for a Genentech product must
be exercised at, or prior to if Genentech mutually agrees, the conclusion of
phase II clinical trials for each product. In general, for each product for
which HLR exercises its option, the Company and HLR will share equally all
development expenses, including preclinical, clinical, process development and
related expenses, incurred by the Company through that date and prospectively,
with respect to the development of the product in the United States. HLR will
pay all non-U.S. development expenses. In the past Genentech has licensed the
foreign rights to some of its products to major foreign pharmaceutical
companies and actively coordinated development and clinical programs with
these partners. In some cases Genentech has retained manufacturing rights to
the licensed products. The Company has retained United States marketing rights
for its products currently under development.
In March 1995, Genentech entered into a collaboration with IDEC
Pharmaceuticals Corp. (IDEC) to develop IDEC's anti-CD20 monoclonal antibody,
IDEC-C2B8, for the treatment of non-Hodgkin's B-cell lymphomas. A Phase III
clinical trial has begun. Under the terms of the agreement, Genentech and
IDEC have agreed to copromote IDEC-C2B8 in the United States and Canada, with
IDEC receiving a share of the profits. Genentech has commercialization rights
throughout the rest of the world except Japan. Genentech exercised its option
rights regarding Asia (except Japan) during the fourth quarter of 1995. In
conjunction with the Agreement with Roche, Genentech has granted an option to
HLR to use and sell IDEC-C2B8 in all countries, except the United States, in
which Genentech has rights under its agreement with IDEC. HLR exercised that
option. IDEC will receive royalties on sales outside the United States and
Canada. In connection with the collaboration, Genentech provided $9 million
in preferred equity investments and licensing fees, and will provide $17.5
million in additional equity funding prior to U.S. approval ($2.5 million of
which was provided in 1995), and up to $30.5 million in milestone and option
payments. In February 1996, Genentech expanded its collaboration with IDEC to
include IDEC-Y2B8, a complementary radioisotopic version of the drug, for the
treatment of more severe forms of B-cell lymphomas. Genentech's equity
investment in IDEC at December 31, 1995 has a book value, which equals market
value, of $28.8 million.
In February 1996, the Company agreed to invest in Genenvax, Inc., a new
company created to develop gp120, Genentech's potential vaccine for the
prevention of HIV. Genentech will provide an initial equity investment of $1
million and then an additional $1 million along with other private investors.
After the close of private financing, Genentech will have the right to
maintain a 25% equity investment in Genenvax. Genenvax will receive exclusive
rights to gp120.
Genentech has a collaboration with Scios Nova Inc. (Scios Nova) for the
development of Scios Nova's Auriculin for the treatment of acute renal failure
in the United states and Canada. The results of the Phase III trial announced
in May 1995 were equivocal in all primary endpoints with the exception of a
prospectively defined endpoint relating to Oliguric (low urine output)
patients. Scios Nova is pursuing another Phase III trial for acute renal
failure in relation to this sub-population of oliguric patients. Under terms
of the collaboration, the companies have agreed to copromote Auriculin in the
United States and Canada, sharing profits from its commercialization. The
Company received exclusive rights to all markets outside the United States and
Canada subject to a royalty obligation to Scios Nova. In connection with the
collaboration, Genentech purchased Scios Nova non-voting preferred stock for
$20 million, which is convertible into shares of Scios Nova common stock. A
portion of this preferred stock was subsequently sold. Genentech's equity
holding in Scios Nova at December 31, 1995 has a book value, which equals
market value, of $7.6 million. The Company established a line of credit for
$30 million that Scios Nova may draw down at Scios Nova's discretion through
December 31, 1997 directly from the bank with immediate repayment of the funds
due to the bank by the Company. Amounts drawn by Scios Nova under the bank
letter of credit or directly from the Company are repayable in the form of
cash or Scios Nova common stock (at the market price prevailing on the date of
repayment) at Scios Nova's option any time through December 30, 2002.
Interest on amounts borrowed by Scios Nova accrue to the Company at the prime
rate of interest. At December 31, 1995, no amounts were drawn. In addition
the Company agreed to pay $50 million in benchmark payments, conditional on
achieving certain predetermined commercialization goals. Under the Roche
Agreement, HLR has an option with respect to the development and non-U.S.
sales of Auriculin.
Distribution
Genentech has a marketing department and a United States-based pharmaceutical
sales and distribution organization for its human pharmaceuticals.
Genentech's sales efforts are focused on specialist physicians based at major
medical centers in the United States. In general, products are sold to
distributors or directly to hospital pharmacies or medical centers. Genentech
utilizes common pharmaceutical company marketing techniques, including
advertisements, direct mail, and other methods.
Genentech's products are available at no charge to qualified patients under
Genentech's uninsured patient programs in the United States. Genentech has
established the Genentech Endowment for Cystic Fibrosis so qualified cystic
fibrosis patients in the United States who need Pulmozyme can gain assistance
in obtaining it.
During 1995, Genentech provided certain marketing programs relating to
Activase. The Activase Stocking Assistance Program provided extended payment
terms, up to 195 days, to wholesalers on certain orders, subject to certain
restrictions on the timing and quantities of the orders. Additionally, a
comprehensive wastage replacement program exists for Activase which, subject
to specific conditions, provides customers the right to return Activase to
Genentech for replacement related to both patient related product wastage and
product expiry. Genentech maintains the right to renew, modify or discontinue
the above programs.
As discussed in the "Notes to Consolidated Financial Statements" in the
Company's 1995 Annual Report to Stockholders (Part II, Item 8 of the Form
10-K), the Company has certain customers who provided over 10% of total
revenues. Also discussed in the note are revenues from foreign customers in
1995, 1994 and 1993.
Raw Materials
Raw materials and supplies required for the production of Genentech's
principal products are generally available in quantities adequate to meet the
Company's needs.
Proprietary Technology - Patents and Trade Secrets
Genentech has a policy of seeking patents on inventions arising from its
ongoing research and development activities. Patents issued or applied for
cover inventions ranging from basic recombinant DNA techniques to processes
relating to specific products and to the products themselves. The Company has
either been granted patents or has patent applications pending which relate to
a number of current and potential products, including products licensed to
others. Genentech considers that in the aggregate its patent applications,
patents and licenses under patents owned by third parties are of material
importance to its operations. Important legal issues remain to be resolved as
to the extent and scope of available patent protection for biotechnology
products and processes in the United States and other important markets
outside of the United States. Genentech expects that litigation will likely
be necessary to determine the validity and scope of certain of its proprietary
rights. Genentech is currently involved in a number of patent lawsuits, as
either a plaintiff or defendant, and administrative proceedings relating to
the scope of protection of its patents and those of others. These lawsuits
and proceedings may result in a significant commitment of Company resources in
the future. There can be no assurance that the patents Genentech obtains or
the unpatented proprietary technology it holds will afford Genentech
significant commercial protection.
In general, Genentech has obtained licenses from various parties which it
deems to be necessary or desirable for the manufacture, use or sale of its
products. These licenses (both exclusive and non-exclusive) generally require
Genentech to pay royalties to the parties on product sales.
The Company's trademarks, ACTIVASE, PROTROPIN, NUTROPIN, NUTROPIN AQ,
PULMOZYME and ACTIMMUNE in the aggregate are considered to be of material
importance and are registered in the United States Patent and Trademark Office
and in other countries throughout the world.
Royalty income recognized by the Company during 1995, 1994 and 1993 for patent
licenses, know-how and other related rights amounted to $190.8 million, $126.0
million and $112.9 million, respectively. In 1995, 1994 and 1993 the Company
incurred royalty expenses amounting to $54.8 million, $50.5 million and $41.9
million, respectively, under licenses from others.
Competition
Genentech faces competition, and believes significant long-term competition
can be expected, from large pharmaceutical and chemical companies as well as
biotechnology companies. This competition can be expected to become more
intense as commercial applications for biotechnology products increase. Some
competitors, primarily large pharmaceutical companies, have greater clinical,
regulatory and marketing resources and experience than Genentech. Many of
these companies have commercial arrangements with other companies in the
biotechnology industry to supplement their own research capabilities.
The introduction of new products or the development of new processes by
competitors or new information about existing products may result in price
reductions or product replacements, even for products protected by patents.
However, the Company believes its competitive position is enhanced by its
commitment to research leading to the discovery and development of new
products and manufacturing methods. Other factors which should help the
Company meet competition include ancillary services provided to support its
products, customer service, and dissemination of technical information to
prescribers of its products and to the health care community including payers.
Over the longer term, the Company's (and its partners') ability to successfully
market current products, expand their usage and bring new products to the
marketplace will depend on many factors, including the effectiveness and safety
of the products, FDA and foreign regulatory agencies' approvals for new
indications, the degree of patent protection afforded to particular products,
and the effect of the advent of managed care as an important purchaser of
pharmaceutical products. The Company believes it has strong patent protection
or the potential for strong patent protection for a number of its products that
generate sales and royalty revenue or that it is developing; however, the
courts will determine the ultimate strength of patent protection of the
Company's products and those on which the Company earns royalties.
Activase: In 1990, the Company began co-sponsorship of a major comparative
mortality trial in AMI known as GUSTO (Global Utilization of Streptokinase and
Activase for Occluded coronary arteries). The GUSTO trial results, as
reported in the "New England Journal of Medicine" in 1993, demonstrated that
the use of an accelerated administration of Activase with intravenous heparin
is a key to saving more lives following a heart attack than the use of
streptokinase. The GUSTO trial showed that among patients receiving treatment
using an accelerated dose of Activase, combined with the blood thinning agent
heparin, administered intravenously, heart attack patient mortality was
reduced by as much as 14% over other thrombolytic regimens studied in the
trial. The positive results from the GUSTO trial have helped increase
Activase's market share in 1995 to 75% in the United States for the treatment
of AMI. In April 1995, the FDA approved for marketing the accelerated dosage,
allowing revised labeling for Activase incorporating data from the GUSTO
study. Factors which may influence future Activase sales include: the
increase in market demand for thrombolytic therapies; the continued impact of
the GUSTO trial results; physicians' personal experiences in the
administration of thrombolytic therapy; and the increased use of angioplasty
as an alternative to thrombolytic therapy.
Genentech is aware of other companies actively pursuing the development for
the United States market of nonrecombinant or recombinant t-PA or derivatives
of that substance, and additional companies or combinations of companies
pursuing the development of other types of potentially competitive
thrombolytic agents. Genentech is conducting Phase II clinical trials on a
second generation of t-PA which, subject to the ultimate outcome of the
studies, could have a favorable impact on the Company's competitive position.
Although Genentech believes it will have a strong patent position with respect
to t-PA, its patents may not cover products with similar functions which are
not based on t-PA, and competitors have been and may continue to be successful
in developing effective thrombolytic agents which are not covered by
Genentech's patents.
Protropin and Nutropin: Protropin was approved in late 1985 and was
designated an Orphan Drug which provided seven years of market exclusivity for
its use in the treatment of growth hormone inadequacy in children. In 1987, a
product similar to Nutropin, produced by Lilly and marketed under the
trademark Humatrope, was approved for treatment of growth hormone inadequacy
in children and was designated an Orphan Drug. Protropin was protected from
some possible additional competition until March 1994, by virtue of the
designation of Lilly's Humatrope as an Orphan Drug. Three other companies -
Bio-Technology General, Novo Nordisk and Pharmacia & Upjohn - received FDA
approval in 1995 to market their growth hormone products for the treatment of
growth hormone inadequacy in children. Pharmacia & Upjohn initiated product
launch activities in late 1995. On December 29, 1995, Genentech received
clearance from the FDA to market Nutropin AQ, the first and only liquid
(aqueous) recombinant human growth hormone product available. Nutropin AQ is
approved for the same indications as Nutropin.
Based on information currently available, Protropin and Nutropin have
approximately a 66% share of the United States market for treatment of
children with growth hormone inadequacy. It is expected that new and potential
competition in the growth hormone market discussed above will have an adverse
effect on the Company's Protropin and Nutropin sales which, depending on the
extent and type of competition, could be material to the Company's total
growth hormone sales. Other factors that may influence future growth hormone
sales include the availability of third party reimbursement for the costs of
such therapies, and the outcome of litigation involving the Company's patents
for growth hormone and related processes, including actions described above.
Pulmozyme: Sales of Pulmozyme for the management of cystic fibrosis in the
United States, Canada and some countries in Europe began in early 1994. In
accordance with the Agreement with Roche, in the fourth quarter of 1995, HLR
obtained exclusive rights to sell Pulmozyme outside of the United States, and
Genentech receives a royalty on such sales. Factors which may influence
future sales of Pulmozyme for the management of cystic fibrosis include: the
number and kinds of patients benefiting from such therapy; physicians'
personal experiences in the use and administration of the therapy; the
availability of third party reimbursement for the cost of such therapy; the
development of alternative therapies for the treatment and cure of cystic
fibrosis; the development of additional indications for using Pulmozyme; and
the cost of Pulmozyme therapy.
Actimmune: Actimmune received designation as an Orphan Drug by the FDA in
1990 for the treatment of CGD.
Government Regulation
The pharmaceutical industry is subject to stringent regulation with respect to
product safety and efficacy by various federal, state and local authorities.
Of particular significance are the FDA's requirements covering research and
development, testing, manufacturing, quality control, labeling and promotion
of drugs for human use. A pharmaceutical product cannot be marketed in the
United States until it has been approved by the FDA, and then can only be
marketed for the indications and claims approved by the FDA. As a result of
these requirements, the length of time, the level of expenditures and the
laboratory and clinical information required for approval of an NDA (New Drug
Application), a PLA (Product License Application) or an ELA (Establishment
License Application) are substantial and can require a number of years,
although recently revised regulations are designed to reduce somewhat the time
for approval of new products.
Although it is difficult to predict the ultimate effect, if any, these matters
or any other pending or future legislation, regulations or government actions
may have on its business, the Company believes that the development of new and
improved products which address unmet medical needs should enable it to
compete effectively within this environment.
Research and Development
A major portion of the Company's operating expenses to date have been related
to the research and development of products either on its own behalf or under
contracts. During 1995, 1994 and 1993 the Company's research and development
expenses were $363.0 million, $314.3 million and $299.4 million, respectively.
The Company has sponsored approximately 95%, 98% and 99% of its research and
development for the years 1995, 1994 and 1993, respectively.
The Company's research efforts have been the primary source of the Company's
products. The Company intends to maintain its strong commitment to research
as an essential component of its product development effort. In the future,
licensed technology developed by outside parties could become an additional
source of potential products.
Human Resources
As of December 31, 1995 Genentech had 2,842 employees in the United States,
Europe, Canada and Japan.
Environment
Genentech seeks to comply with all applicable statutory and administrative
requirements concerning environmental quality. The Company has made, and will
continue to make, the necessary expenditures for environmental compliance and
protection. Expenditures for compliance with environmental laws have not had
and are not expected to have a material effect on the Company's capital
expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
Genentech's major facilities are located in a research and industrial park in
South San Francisco, California in both leased and owned properties. The
Company currently utilizes approximately 1.6 million square feet of its
facilities for research and development, manufacturing, marketing and
administrative activities. Approximately two-thirds of the square footage is
in owned property, a portion of which is subject to a $0.4 million mortgage,
and the remainder is leased. The Company has made and continues to make
improvements to these properties to accommodate its growth. In addition, the
Company owns approximately 16 acres adjacent to its current facilities that
may be used for future expansion. In 1995, the Company began development of a
new manufacturing facility of approximately 0.4 million square feet in
Vacaville, California under a leasing arrangement. Completion of the project
is expected in three years. The Company also has leases for certain
additional office facilities in several locations in the United States.
Genentech believes its facilities are in good operating condition and that the
real property owned or leased, combined with the new Vacaville site, are
adequate for all present and foreseeable future uses. Genentech believes any
additional facilities could be obtained or constructed with the Company's
capital resources.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings including patent
infringement cases involving human growth hormone products and Activase; a
patent infringement and trade secret misappropriation case involving
antibodies to IgE; product liability cases; and employment related cases.
The Company and its directors are defendants in two suits filed in California
challenging their actions in connection with the Company's 1990 merger with a
wholly owned subsidiary of Roche Holdings, Inc. (Roche). There has been no
activity in these actions since 1990 and no further reference will be made to
them in future filings unless they again become active. In addition, the
Company, its directors, two former directors and Roche are defendants in a
number of suits filed in Delaware, which have been consolidated in a single
action, by certain individual stockholders purporting to represent
stockholders as a class alleging, in general, breach of their fiduciary duties
to the Company in connection with the then proposed extension of Roche's
option to cause the Company to redeem the outstanding non-Roche owned
redeemable common stock and transactions related thereto. The Company, Roche
and the attorneys representing the plaintiff stockholders have entered into a
memorandum of understanding settling all claims against the defendants in
these actions except the 1990 suits. In connection with the settlement, if
approved by the court, Roche would increase the prices at which it could cause
Genentech to redeem the non-Roche owned special common stock by $0.50 per
share per quarter, to a final price of $82.50 in the quarter ending June 30,
1999, and Genentech would pay the plaintiffs' attorneys up to $3.5 million in
attorneys' fees, and in connection with the then proposed merger, Genentech
would absorb the termination costs of up to six Europe-based Genentech
employees.
On June 28, 1995 and August 10, 1995 the U.S. District Court for the Southern
District of New York issued preliminary injunctions against Novo Nordisk A/S
and certain of its affiliates (Novo) and Bio-technology General Corporation
and its affiliate (BTG), respectively, which prohibit each of them, pending
the Court's final determination of the action, from importing, making, using
and selling their human growth hormone products in the United States. Each of
Novo and BTG appealed the Court's decision. On February 26, 1996, the U.S.
Court of Appeals for the Federal Circuit overturned the preliminary injunction
against Novo, but has not yet ruled on BTG's appeal. Future court decisions
will determine whether Novo's and BTG's products will be permanently enjoined
from the U.S. market.
The Company has received and responded to grand jury document subpoenas from
the United States District Court for the Northern District of California for
documents relating to Genentech's clinical, sales, and marketing activities
associated with human growth hormone.
On August 19, 1994 and August 30, 1994 two class action suits were filed in
the U.S. District Court for the District of Minnesota against Genentech, one
of its executives, Caremark International, Inc. (Caremark), certain of its
executives and Dr. David R. Brown alleging, in general, causes of action under
the Racketeer Influenced and Corrupt Organizations Act and various state
statutory and common law theories. In addition, the suits allege that the
defendants made improper payments to Dr. Brown in connection with Dr. Brown's
prescription of Protropin for the plaintiffs rather than a competing product,
and that the plaintiffs were injured by purchasing Protropin at costs
approximately 30% higher than a competing product. A similar suit was filed
in the U.S. District Court for the District of South Dakota, Southern
Division, on July 13, 1995 against Genentech, Caremark and Dr. Brown, alleging
the same causes of action as above as well as intentional infliction of
emotional distress but not state and common law claims. The two Minnesota
actions and the South Dakota action are in the discovery phase.
Based upon the nature of the claims made and the investigations completed to
date by the Company and its counsel, the Company believes the outcome of the
above actions will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company. However, were
an unfavorable ruling to occur in any quarterly period, there exists the
possibility of a material impact on the net income of that period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders on October 25, 1995, one matter was voted
upon. The Company's non-Roche stockholders approved the transaction with
Roche. A tabulation of the votes is as follows:
For: 28,448,215
Against: 449,603
Abstain: 133,568
Broker non-votes: 1,204,212
See also the section "Agreement with Roche Holdings, Inc." under Item 1.
"BUSINESS" for a further discussion of the transaction with Roche.
<TABLE>
<CAPTION>
GENENTECH, INC.
EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages and positions
with the Company are as follows:
Name Age Position
<S> <C> <C>
Arthur D. Levinson, Ph.D. 45 President and Chief Executive Officer
John P. McLaughlin 44 Executive Vice President and Secretary
William D. Young 51 Executive Vice President
Louis J. Lavigne, Jr. 47 Senior Vice President and Chief Financial Officer
Barry M. Sherman, M.D. 54 Senior Vice President and Chief Medical Officer
Gregory Baird 45 Vice President - Corporate Communications
R. Jerald Beers 47 Vice President - Marketing
David W. Beier 47 Vice President - Government Affairs
Robert Garnick, Ph.D. 46 Vice President - Quality
Marty Glick 46 Vice President and Treasurer
Bradford S. Goodwin 41 Vice President and Controller
Dennis J. Henner, Ph.D. 44 Vice President - Research Technology
Paul F. Hohenschuh 53 Vice President - Manufacturing
Edmon R. Jennings 48 Vice President - Corporate Development
Stephen G. Juelsgaard 47 Vice President, General Counsel and
Assistant Secretary
Cynthia J. Ladd 40 Vice President - Corporate Law
M. David MacFarlane, Ph.D. 55 Vice President - Regulatory Affairs
Polly Moore, Ph.D. 48 Vice President - Information Resources
James P. Panek 42 Vice President - Engineering and Facilities
Kim Popovits 37 Vice President - Sales
Stephen Raines, Ph.D. 58 Vice President - Intellectual Property and
Assistant Secretary
Nicholas J. Simon 41 Vice President - Business and Corporate
Development
David Stump, M.D. 46 Vice President and Genentech Fellow
<FN>
All officers are elected annually by the Board of Directors. There is no
family relationship among any of the officers or directors.
</TABLE>
Business Experience
Dr. Levinson was appointed President and Chief Executive Officer in July 1995.
He was elected Senior Vice President in December 1992. Dr. Levinson has held
a number of other positions, including Vice President of Research, subsequent
to joining the Company in May 1980 as a Senior Scientist.
Mr. McLaughlin was appointed Executive Vice President in January 1996. He had
served as Senior Vice President and Secretary since July 1994. He was elected
Senior Vice President, General Counsel and Secretary in 1993, and elected Vice
President, General Counsel and Secretary in 1989. He joined the Company as
Vice President of Government Affairs in September 1987 from Royer, Shacknai &
Mehle, a Washington, D.C. law firm, where he was a partner. Mr. McLaughlin
was Counsel to the House Energy and Commerce Subcommittee on Health and the
Environment and earlier served as counsel to the House Subcommittee on
Consumer Protection and Finance.
Mr. Young was appointed Executive Vice President in January 1996. He was
elected Senior Vice President in August 1988. He was Vice President of
Manufacturing and Process Science from April 1983 until 1988. Mr. Young
joined the Company in September 1980 as Director of Manufacturing from Eli
Lilly and Company.
Mr. Lavigne was elected Senior Vice President in July 1994. He was elected
Chief Financial Officer in August 1988 and elected Vice President in July
1986. Mr. Lavigne joined the Company in July 1982, became Controller in May
1983 and an officer of the Company in February 1984.
Dr. Sherman was elected Senior Vice President and Chief Medical Officer in
February 1995 and had served as Vice President of Medical Affairs since
February 1989. He joined the Company in 1985 as Director of Clinical
Research. Prior to joining the Company, he was Professor of Medicine,
Associate Chairman of the Department of Internal Medicine and Director of the
Clinical Research Center at the University of Iowa.
Mr. Baird joined the Company in February 1992 as Vice President of Corporate
Communications. Prior to joining Genentech, Mr. Baird was employed by G.D.
Searle & Co. for five years as Vice President of Corporate Communications.
Mr. Beers was elected Vice President of Marketing in October 1995. He joined
the Company in November 1989 as Director of Marketing and New Product
Planning. In 1994, he was promoted to General Manager, Genentech Canada, Inc.
Prior to joining Genentech, Mr. Beers held various positions in sales,
marketing and business development in the pharmaceuticals industry for about
twenty years, most recently at Dupont Pharmaceuticals, Inc.
Mr. Beier joined the Company in March 1989 as Vice President of Government
Affairs. Prior to joining Genentech, Mr. Beier spent 10 years as counsel to
the Committee on the Judiciary of the United States House of Representatives
where he was responsible for intellectual property and international trade
issues.
Dr. Garnick was elected Vice President of Quality in April 1994. He was
Senior Director of Quality Control from 1990 to 1994 and Director of Quality
Control from 1988 to 1990. Dr. Garnick joined the Company in August 1984 from
Armour Pharmaceutical.
Mr. Glick was elected Vice President in July 1991. He joined the Company in
June 1987 as Director of Tax and was elected Treasurer in July 1990. Before
joining Genentech, Mr. Glick was employed by Levi Strauss & Co. for seven
years, most recently as Director of Tax Planning.
Mr. Goodwin was promoted to Controller in June 1989 and elected Vice President
in July 1993. Previously he was the Director of Financial Planning and
Analysis, the Assistant Controller and the General Auditor. He joined
Genentech in April 1987.
Dr. Henner was elected Vice President of Research Technology in July 1994.
From 1990 to 1994 he was Senior Director of Research Technology. Dr. Henner
joined the Company in 1981 as a Scientist in Research. Prior to joining
Genentech, Dr. Henner was at Scripps Clinic and Research Foundation.
Mr. Hohenschuh was elected Vice President of Manufacturing in September 1989.
He was Vice President of Biochemical Manufacturing from July 1986 until 1989
and Senior Director of Biochemical Manufacturing from June 1985 to June 1986.
Mr. Hohenschuh joined the Company in October 1982 as Director of Biochemical
Manufacturing.
Mr. Jennings transferred to Business and Corporate Development as Vice
President of Corporate Development in December 1995. He was elected to Vice
President of Sales and Marketing in January 1994 and had served as Vice
President of Sales since December 1990. He joined the Company in September
1985 as Western Area Sales Manager. Prior to joining Genentech, Mr. Jennings
was Western Region Sales Manager of Bristol-Myers' Oncology Division. Mr.
Jennings held various sales and management positions during his twelve-year
career with Bristol-Myers.
Mr. Juelsgaard was elected Vice President, General Counsel and Assistant
Secretary in July 1994, and was elected Vice President of Corporate Law in
February 1993. He joined the Company in 1985 as Corporate Counsel and
subsequently held the positions of Senior Corporate Counsel and Chief
Corporate Counsel.
Ms. Ladd was appointed Vice President of Corporate Law in February 1996.
Previously she was Chief Corporate Counsel. She joined the Company in 1989 as
Corporate Counsel.
Dr. MacFarlane joined the Company in August 1989 as Vice President of
Regulatory Affairs. Dr. MacFarlane was employed by Glaxo, Inc. from 1978
until he joined Genentech. At Glaxo, Dr. MacFarlane had served as Vice
President of Regulatory Affairs, Director of Regulatory Affairs, and Director
of Research and Professional Services.
Dr. Moore was elected Vice President of Information Resources in April 1994.
She was Senior Director of Information Resources from July 1992 to 1994 and
Director of Computer Resources from November 1987 to June 1992. Dr. Moore
joined Genentech in August 1982 as a Senior Systems Analyst in Scientific
Computing.
Mr. Panek was elected Vice President of Engineering and Facilities in July
1993. He joined the Company in 1982 and held a number of positions in the
manufacturing division before becoming Director of Engineering and Facilities
in 1988. Prior to joining Genentech, Mr. Panek was employed by Eli Lilly and
Company for six years.
Ms. Popovits was elected Vice President of Sales in October 1994. She was
Director of Field Sales from January 1993 to 1994 and Regional Manager of the
Sales Department from October 1989 to December 1992. Ms. Popovits was at
Dupont Critical Care for six years prior to joining the Company in November
1987 as Division Manager in the Southeast region.
Dr. Raines was elected Vice President of Intellectual Property in March 1989
and Assistant Secretary in April 1989. He joined the Company as Vice
President of Patents in May 1988. Dr. Raines was employed by Warner-Lambert
Company from 1973 to 1988 holding numerous positions in the Legal Division and
ultimately acted as Counsel for the Intellectual Property Department.
Mr. Simon was appointed Vice President of Business and Corporate Development
in December 1995, and was elected Vice President of Business Development in
December 1994. He was Senior Director of Business Development from December
1993 to 1994. Mr. Simon joined Genentech as a Director in Business
Development in December 1989 from Xoma Corporation.
Dr. Stump was named a Genentech Fellow in January 1996, and was elected Vice
President of Clinical Research in 1995. He was Senior Director of Clinical
Research from 1991 to 1995, and joined the Company as Director of Clinical
Research in 1989. Prior to joining Genentech, Dr. Stump was an Associate
Professor of Medicine and Biochemistry at the University of Vermont.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The section labeled "Common Stock, Special Common Stock and Redeemable Common
Stock Information", and footnotes labeled "Merger and New Agreement with Roche
Holdings, Inc." and "Capital Stock" in the Notes to Consolidated Financial
Statements, appearing on pages 66, 56 through 57, and 58 through 60,
respectively, of the Company's 1995 Annual Report to Stockholders are
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The section labeled "11-Year Financial Summary" appearing on pages 64 and 65
of the Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The section labeled "Financial Review" appearing on pages 33 through 39 of the
Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements appearing on pages 41 through 62, the Report of Ernst & Young LLP,
Independent Auditors, appearing on page 63 and the section entitled "Quarterly
Financial Data (unaudited)" appearing on page 63 of the Company's 1995 Annual
Report to Stockholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The sections labeled "Nominees" and "Section 16 Reporting" appearing on
pages 3 through 6 and 16 of the Company's Proxy Statement in connection with
the 1996 Annual Meeting of Stockholders are incorporated herein by reference.
(b) Information concerning the Company's Executive Officers is set forth in
Part I of the Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The sections labeled "Executive Compensation", "Compensation of Directors",
"Compensation of Executive Officers", "Summary of Compensation", "Stock Option
Grants and Exercises", "Employment Agreements", "Loans and Other Compensation"
and "Compensation Committee Interlocks and Insider Participation" appearing on
pages 16 through 24 and 26 of the Company's Proxy Statement in connection with
the 1996 Annual Meeting of Stockholders are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections labeled "Merger with Roche Holdings, Inc.", "Principal
Stockholders of Genentech" and "Security Ownership of Management" appearing on
pages 1 through 3 and 14 through 15 of the Company's Proxy Statement in
connection with the 1996 Annual Meeting of Stockholders are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Relationships and Related Transactions" appearing
on pages 27 through 29 of the Company's Proxy Statement in connection with the
1996 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
The following Financial Statements and supplementary data are included in
the Company's 1995 Annual Report to Stockholders and are incorporated herein
by reference pursuant to Item 8 of this Form 10-K.
Page(s) in
1995 Annual
Report to Stockholders
----------------------
Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1995 41
Consolidated Statements of Cash Flows for each
of the three years in the period ended
December 31, 1995 42
Consolidated Balance Sheets at December 31,
1995 and 1994 43
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended
December 31, 1995 44
Notes to Consolidated Financial Statements 45-62
Report of Ernst & Young LLP, Independent Auditors 63
Quarterly Financial Data (unaudited) 63
2. Financial Statement Schedule
The following schedule is filed as part of this Form 10-K:
Schedule II- Valuation and Qualifying Accounts for each of the three years in
the period ended December 31, 1995.
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation.(2)
3.2 By-laws.(2)
3.3 Amended Certificate of Incorporation.(13)
3.4 Restated By-Laws.(7)
4.1 Indenture, dated March 27, 1987 ("Indenture") for U.S. $150,000,000
5% Convertible Subordinated Debentures due 2002.(3)
4.2 First Supplemental to Indenture, dated August 17, 1990.(7)
4.3 Second Supplemental to Indenture, dated October 18, 1995. (14)
10.1* Agreements dated February 12, 1985 and May 14, 1985 between the
Company and G. Kirk Raab.(1)
10.2 Patent License Agreement with Columbia University dated October 12,
1988.(3)
10.3 Amended and Restated Contract for the Sale and Distribution of
Protropin dated as of March 1, 1991.(8)
10.4* Agreement dated April 15, 1988 between the Company and G. Kirk
Raab.(5)
10.5* Employment Agreement, dated October 25, 1989, between the Company
and G. Kirk Raab.(6)
10.6 Agreement and Plan of Merger, dated as of May 23, 1995, as amended
and restated, among the Company, Roche Holdings, Inc. and HLR
(U.S.) II, Inc. with exhibits.(13)
10.7* Agreements dated June 27, 1989 between the Company and G. Kirk
Raab.(6)
10.8* Amended Employment Agreement, dated July 31, 1990, between the
Company and G. Kirk Raab.(7)
10.9 Amended Governance Agreement, dated September 7, 1990, between the
Company and Roche Holdings, Inc.(13)
10.10 Heads of Agreement, dated as of February 11, 1992, between the
Company and F. Hoffmann-LaRoche Ltd.(8)
10.11 Agreement dated June 6, 1991 between the Company and Grandview
Drive Joint Venture.(8)
10.12* Agreements dated October 17, 1990 between the Company and G. Kirk
Raab.(8)
10.13* Agreement dated March 17, 1992 between the Company and Robert A.
Swanson.(8)
10.14* Letter Agreement, dated July 7, 1995, between the Company
and G. Kirk Raab.(14)
10.15 Agreement between Genentech and F. Hoffman-La Roche Ltd.
regarding commercialization of Genentech's products outside the
United States dated as of October 25, 1995.(13)
10.16 Guaranty Agreement between Genentech and Roche Holding, Ltd. dated
as of October 25, 1995.(13)
10.17* Agreement between the Company and G. Kirk Raab dated April 14,
1995.(14)
10.18 Amended and Restated Lease Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation.(14)
10.19 Amended and Restated Purchase Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation.(14)
13.1 1995 Annual Report to Stockholders.(14)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(14)
27.1 Financial Data Schedule.(14)
28.1 Description of the Company's capital stock.(2)
99.1* 1984 Incentive Stock Option Plan, as amended and restated as of
October 25, 1995.(12)
99.2* Restated 1984 Non-Qualified Stock Option Plan, as amended and
restated as of October 25, 1995.(12)
99.3* Restated Relocation Loan Program.(8)
99.4* Restated 401(k) Plan.(14)
99.5* 1991 Employee Stock Plan, as amended and restated as of October
25, 1995.(9)
99.6* 1990 Stock Option/Stock Incentive Plan, as amended and restated
as of October 25, 1995.(11)
99.7* Supplemental Plan.(8)
99.8* 1994 Stock Option Plan, as amended and restated as of October 25,
1995.(10)
99.9* 1996 Stock Option/Stock Incentive Plan.(14)
* As required by Item 14(a)(3) of Form 10-K, the Company identifies this
Exhibit as a management contract or compensatory plan or arrangement of the
Company.
- --------------------
(1) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1985 and incorporated herein by reference.
(2) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1986 and incorporated herein by reference.
(3) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference.
(4) Filed as an exhibit to Form 8-K dated May 3, 1988 and incorporated
herein by reference.
(5) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1988 and incorporated herein by reference.
(6) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference.
(7) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference.
(8) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.
(9) Filed as an exhibit to Form S-8 dated October 25, 1995 (registration
statement no. 33-59949-01) and incorporated herein by reference.
(10) Filed as an exhibit to Form S-3 dated October 25, 1995 (registration
statement no. 33-59949-02) and incorporated herein by reference.
(11) Filed as an exhibit to Form S-3 dated October 25, 1995 (registration
statement no. 33-59949-03) and incorporated herein by reference.
(12) Filed as an exhibit to Form S-3 dated October 25, 1995 (registration
statement no. 33-59949-04) and incorporated herein by reference.
(13) Filed as an exhibit to Form S-4 dated October 25, 1995 (registration
statement no. 33-59949) and incorporated herein by reference.
(14) Filed with this document.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended December 31,
1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENENTECH, INC.
Registrant
Date: March 29, 1996
By: /S/BRADFORD S. GOODWIN
----------------------------------
Bradford S. Goodwin
Vice President and Controller
(Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Lavigne, Jr., Senior Vice President
and Chief Financial Officer, and Bradford S. Goodwin, Vice President and
Controller, his attorney-in-fact, with the full power of substitution, for him
in any and all capacities, to sign any amendments to this report, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
Chief Executive Officer:
/S/ARTHUR D. LEVINSON President, Chief Executive March 29, 1996
- --------------------------- Officer and Director
Arthur D. Levinson
Principal Financial Officer:
/S/LOUIS J. LAVIGNE, JR. Senior Vice President and March 29, 1996
- --------------------------- Chief Financial Officer
Louis J. Lavigne, Jr.
Director:
/S/HERBERT W. BOYER Director March 29, 1996
- ---------------------------
Herbert W. Boyer
/S/JURGEN DREWS Director March 29, 1996
- ---------------------------
Jurgen Drews
/S/FRANZ B. HUMER Director March 29, 1996
- ---------------------------
Franz B. Humer
/S/LINDA F. LEVINSON Director March 29, 1996
- ---------------------------
Linda F. Levinson
/S/J. RICHARD MUNRO Director March 29, 1996
- ---------------------------
J. Richard Munro
/S/DONALD L. MURFIN Director March 29, 1996
- ---------------------------
Donald L. Murfin
/S/JOHN T. POTTS, JR. Director March 29, 1996
- ---------------------------
John T. Potts, Jr.
/S/C. THOMAS SMITH, JR. Director March 29, 1996
- ---------------------------
C. Thomas Smith, Jr.
/S/ROBERT A. SWANSON Director March 29, 1996
- ---------------------------
Robert A. Swanson
/S/DAVID S. TAPPAN, JR. Director March 29, 1996
- ---------------------------
David S. Tappan, Jr.
<TABLE>
SCHEDULE II
GENENTECH, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Deductions(1) Period
---------- ---------- ---------- ----------
Allowance for doubtful accounts
and returns:
<S> <C> <C> <C> <C>
Year Ended December 31, 1995: $ 4,422 $ 10,972 $ (8,722) $ 6,672
========== ========== ========== ==========
Year Ended December 31, 1994: $ 3,572 $ 5,583 $ (4,733) $ 4,422
========== ========== ========== ==========
Year Ended December 31, 1993: $ 2,220 $ 4,003 $ (2,651) $ 3,572
========== ========== ========== ==========
Inventory reserves:
Year Ended December 31, 1995: $ 13,008 $ 3,690 $ (9,789) $ 6,909
========== ========== ========== ==========
Year Ended December 31, 1994: $ 2,606 $ 11,940 $ (1,538) $ 13,008
========== ========== ========== ==========
Year Ended December 31, 1993: $ 3,094 $ 1,194 $ (1,682) $ 2,606
========== ========== ========== ==========
Reserve for non-marketable
equity securities:
Year Ended December 31, 1995: $ 4,623 $ 468 $ - $ 5,091
========== ========== ========== ==========
Year Ended December 31, 1994: $ 3,875 $ 748 $ - $ 4,623
========== ========== ========== ==========
Year Ended December 31, 1993: $ 3,275 $ 600 $ - $ 3,875
========== ========== ========== ==========
<FN>
(1) Represents amounts written off or returned against the allowance or reserves.
</TABLE>
<TABLE>
INDEX OF EXHIBITS FILED WITH FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.3 Second Supplemental to Indenture, dated October 18, 1995
10.14 Letter Agreement, dated July 7, 1995, between the Company
and G. Kirk Raab
10.17 Agreement between the Company and G. Kirk Raab dated
April 14, 1995
10.18 Amended and Restated Lease Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation
10.19 Amended and Restated Purchase Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation
13.1 1995 Annual Report to Stockholders
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
99.4 Restated 401(k) Plan
99.9 1996 Stock Option/Stock Incentive Plan
</TABLE>
2
26
GENENTECH, INC.
460 Point San Bruno Boulevard
South San Francisco, CA 94080
As of July 7, 1995
Mr. G. Kirk Raab
2250 Reddington Road
Hillsborough, CA
Dear Kirk:
This Letter Agreement sets forth certain changes to the letter agreement
between you and Genentech, Inc. (the "Company") dated October 25, 1989 (the
"1989 Letter"), as amended by the letter agreement between you and the
Company dated July 31, 1990 (the "1990 Letter") and the letter agreement
between you and the Company dated October 17, 1991 (the "1991 letter") (the
1989 Letter, as amended by the 1990 letter and the 1991 Letter, being
hereinafter referred to as the "Prior Letter Agreement"). These changes are
being made in connection with your resignation, effective as of today, from
your employment with the Company and from the Board of Directors of the
Company. It is agreed that this resignation will be treated as an Involuntary
Termination under the Prior Letter Agreement occurring on the date of this
Letter Agreement.
1. The last sentence of Paragraph 3.A.(b) of the Prior Letter Agreement is
amended to read in its entirety as follows:
Such health and life insurance coverage will continue through the earlier of
(i) the date of your death and (ii) any date on which you breach either of the
Covenants (as defined below).
2. Paragraph 3.A.(c) of the Prior Letter Agreement (as set forth in the 1991
Letter Agreement) is amended to read in its entirety as follows:
Loan Payments. You have currently outstanding from the Company the following
loans (the "Loans"): a loan in the principal amount of $1.5 million pursuant
to a promissory note dated April 14, 1995 (the "Note") and a loan from the
Company in the principal amount of $450,000 pursuant to a memorandum to you
from Bob Swanson dated May 14, 1985, as amended February 7, 1995 (the "Amended
Memo"). The first sentence of Paragraph 1 of the Note is hereby amended to
read in its entirety as follows: "Unless extended by Genentech's Board of
Directors, the entire principal amount of this promissory note and any accrued
but unpaid interest ("Note") shall be due and payable on the earliest of (i)
April 15, 1998, (ii) any date on which the undersigned breaches either of the
Covenants (as defined in the Letter Agreement dated July 7, 1995 between
Genentech and the undersigned), and (iii) the date Roche Holdings, Inc. or any
affiliate thereof causes Genentech to redeem its Special Common Stock ("SCS")
or any other security issued in exchange for such SCS." Paragraph 4 of the
Amended Memo is hereby deleted and Paragraph 3 of the Amended Memo is hereby
amended to read in its entirety as follows: "The loan described in paragraph
2 above shall be repaid on the earliest of: (1) the date Roche Holdings, Inc.
or any affiliate thereof causes Genentech to redeem its Special Common Stock
("SCS") or any other security issued in exchange for such SCS, (2) April 15,
1998, and (3) any date on which you breach either of the Covenants (as defined
in the Letter Agreement dated July 7, 1995, between Genentech and you)." In
consideration of such extension of the terms of the Loans, you agree that with
respect to such of your stock options as may vest after the Involuntary
Termination of your employment (the "Pledged Options"), (i) you will give the
Company a security interest for repayment of the Loans, in a form satisfactory
to the Company, in all stock acquired by exercise of the Pledged Options and
shall not dispose of such stock unless you simultaneously repay to the Company
the lesser of (x) the excess of the then fair market value of such stock over
the aggregate exercise price paid by you to acquire such stock (the "Spread")
and (y) the then outstanding balance of the Loans (including accrued
interest), and (ii) if as of the close of business on the date the Loans
become due and payable there is an outstanding balance (including accrued
interest) due with respect thereto, the Company shall have the right, at its
election, to take immediate possession of any stock then in your possession
that you acquired by exercise of the Pledged Options having a fair market
value equal to such balance, or cancel any then outstanding Pledged Options
(whether then vested or unvested) having a Spread equal to such unpaid
balance, or a combination thereof, in satisfaction of such balance. In
addition, you further agree that if any payments are made or other
consideration given in respect of a cancellation or disposition of any of the
Pledged Options, such payments or other consideration shall, if requested by
the Company, be applied to the reduction of the Loans. Without limiting the
foregoing, the Company shall be entitled to place a legend on the certificates
representing shares issued upon exercise of Pledged Options and/or upon the
Pledged Options to reflect the foregoing and any such security interest and/or
to make arrangements in connection with any disposition of such shares and/or
Pledged Options to assure the application of the proceeds thereof as
aforesaid.
3. The following additional provisions are added to the Prior Letter
Agreement:
(a) Following the Involuntary Termination of your employment, the Company
shall provide you with outplacement services, consistent with its past
practice with other departing executives of the Company, for a period not
greater than six months and at a cost to the Company not to exceed $50,000;
provided, that such coverage shall cease in any event upon the earliest of (i)
the date you obtain new employment, (ii) any date on which you breach either
of the Covenants (as defined below) and (iii) the Company's incurring expenses
of $50,000 for such purposes as aforesaid.
(b) For a period of five years following the Involuntary Termination of your
employment, you shall be subject to the following covenants (the "Covenants")
in the manner set forth below: (i) you will not in any capacity work for, or
knowingly acquire or maintain a financial interest, over which you have
investment control, that is in excess of 5% of the outstanding equity in, any
business or entity, wherever located, that (1) markets or is developing a
product that is or competes with one of the following, or any analogs thereof:
human growth hormone; tPA; DNase; and gamma interferon; (2) markets or is
developing one of the following that Genentech markets or is developing, or
any analogs thereof: inhibitors of the gP IIbIIIa receptor; IGF-1; anti-HER2;
ANP; anti-CD2O; nerve growth factor; anti-IgE; gP120 vaccine; TNF; and TNF
receptor-IgG; or (3) markets or is developing (including research activities)
one of the following that Genentech markets or is developing (including
research activities), or any analogs thereof: VEGF; anti-VEGF; lymphotoxin;
TNK; anti-CD11a; and thrombopoietin (the "Noncompetition Covenant") (for
purposes of the foregoing, an "analog" shall mean: (a) in the instance of
nonproteinous molecules, two or more chemical compounds each sharing a core
chemical structure that is the same or substantially and functionally similar;
and (b) in the instance of proteinous molecules, any compound with either (i)
greater than eighty-five (85%) amino acid sequence homology and specificity
for the same binding site(s) or (ii) with respect to an antibody to a
molecule, the receptor to that molecule and with respect to a receptor to a
molecule, the antibody to that molecule); (ii) you will not (1) solicit,
attempt to solicit, induce or otherwise cause any person who is at that time
an employee of the Company to terminate his or her employment in order to
become an employee, consultant, or independent contractor to or for any entity
by whom you are employed, with whom you are affiliated, or in whom you or any
entity with which you are affiliated, have any financial interest or with whom
you or any entity with which you are affiliated are discussing the possibility
of taking a financial interest, or (2) use, reproduce, or disclose to any
other person or company any confidential or proprietary information belonging
to the Company that would enable or assist that person or company to solicit,
attempt to solicit, induce or otherwise cause any person who is at the time an
employee of the Company to terminate his or her employment with the Company
(the "No-Raid Covenant"). From and after any date on which you breach the
Non-competition Covenant, the cessation of health and life insurance coverage
and outplacement services and the acceleration of your loans set forth above
in this Letter Agreement shall occur, but the Company's other obligations to
you under the Prior Letter Agreement as amended by this Letter Agreement
(including without limitation the obligation to provide you with severance pay
and benefits and to permit the continued vesting and exercisability of your
options) shall continue in effect. From and after any date on which you
breach the No-Raid Covenant, the cessation of health and life insurance
coverage and outplacement services and the acceleration of your loans set
forth above in this Letter Agreement shall occur, and in addition the
Company's other obligations to you under the Prior Letter Agreement as amended
by this Letter Agreement (including without limitation the obligation to
provide you with severance pay and benefits and to permit the continued
vesting and exercisability of your options) shall cease and be of no further
force and effect. In addition, you and the Company agree that your breach of
either of the Covenants would cause harm to the Company that is not capable of
remedy through money damages and accordingly that the Company shall be
entitled to injunctive relief from a court of competent jurisdiction against
such a breach. Notwithstanding anything else in this Letter Agreement, the
Company shall not assert that you have breached either of the Covenants unless
its Board of Directors so determines. The Company shall give you oral or
written notice either (i) that management is considering recommending to the
Board that the Board make such a determination, or (ii) that the Board is
considering whether to make such a determination, which notice shall describe
the breach or possible breach in question and shall give you at least three
business days to provide a response to such notice and/or propose a remedy for
such breach or possible breach to the Chief Executive Officer of the Company
(in the case of a notice described in clause (i) above) or the Board (in the
case of a notice described in clause (ii) above). Notwithstanding the
foregoing, in no event shall any failure or alleged failure of the Company to
comply with the requirements of the preceding sentence or any aspect thereof
preclude the Company from enforcing, or delay the enforcement of, any remedy
for such breach to which it may otherwise be entitled, or relieve you of any
obligation for any such breach; except that the Company shall not enforce the
remedies set forth in the second and third sentences of this paragraph until
the expiration of three business days from the date on which it gives you
notice pursuant to the preceding sentence.
(c) Counsel for the parties in In Re Genentech Shareholder Litigation, C.A.
No. 14265 (Cons.) (the "Actions"), have today entered into a Memorandum of
Understanding with respect to the settlement of the Actions, which Memorandum
of Understanding provides for the entry of judgment and a release of all
claims against you and other defendants. The provisions of this paragraph
shall not become effective unless and until you are released from the claims
asserted in the Actions pursuant to final court approval of the proposed
settlement. In consideration of the Company's execution of this Letter
Agreement, and except with respect to such obligations as the Company may have
(i) pursuant to the Prior Letter Agreement as amended by this Letter
Agreement, (ii) your stock option agreements, (iii) the Company's Tax
Reduction Investment Plan, (iv) the Company's Supplemental Plan, (v) to
indemnify you pursuant to its charter, by-laws or Delaware law, (vi) under any
other existing written agreement pursuant to which it may be obligated to pay
you any compensation for services and (vii) with respect to Directors and
Officers insurance, you hereby waive and release any common law, statutory or
other complaints, claims, charges or causes of action, both known and unknown,
in law or in equity, which you may now have or ever had against the Company,
any directors or officers of the Company, and any of their respective
predecessors, successors, parents, subsidiaries, affiliates and agents
(including, without limitation, any investment bankers or attorneys)
("Claims"). You and the Company stipulate and agree that you shall be deemed
to have, and by operation of the releases contemplated hereby shall have,
waived and relinquished, to the fullest extent permitted by law, the
provisions, rights, and benefits of section 1542 of the California Civil Code,
which provides
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.
You shall be deemed to have, and by operation of the releases contemplated
hereby shall have, waived any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or equivalent to
section 1542 of the California Civil Code. You acknowledge that you may
hereafter discover facts in addition to or different from those which you
now know or believe to be true with respect to the subject matter of the
releases contemplated hereby, but you shall be deemed to have, and by
operation of the releases contemplated hereby shall have, fully, finally,
and forever settled and released any and all Claims, known or unknown,
suspected or unsuspected, contingent or non-contingent, whether or not
concealed or hidden, which now exist, or heretofore have existed upon any
theory of law or equity now existing or coming into existence in the
future, including, but not limited to, claims arising under the Age
Discrimination in Employment Act, conduct which is negligent, intentional,
with or without malice, or a breach of any duty, law or rule, without
regard to the subsequent discovery or existence of such different or
additional facts. You acknowledge that the foregoing waiver was separately
bargained for and is an integral element of this Letter Agreement of which
this release is a part and that you were represented by counsel in
connection with your execution of this Letter Agreement.
4. Any notice by the Company to you pursuant to paragraph 3(b) of this
Letter Agreement shall be given orally by telephone or in person, or in
writing as set forth below. Any notice by you to the Company or by you to
the Company designating a different facsimile number or address shall be
given in writing as set forth below. Written notices to either party to
this Letter Agreement shall be given:
(i) by facsimile to the party's facsimile number set forth below, or such
other facsimile number as such party may designate in accordance with this
paragraph 4, in which event such notice shall be considered to have been
given at the time it is transmitted by the party giving notice;
(ii) by U.S. mail to the party's address set forth below, or such other
address as such may designate in accordance with this paragraph 4, in which
event such notice shall be considered to have been given two business days
after it is sent;
(iii) by Federal Express or another overnight courier service to the
party's address set forth below, or such other address as such party may
designate in accordance with this paragraph 4, in which event such notice
shall be considered to have been given one business day after it is sent;
or
(iv) by hand delivery to the party's address at the address set forth
below, or such other address as such party may designate in accordance with
this paragraph 4, in which event such notice shall be considered to have
been given when delivered to such address.
Your present address and facsimile number are:
Mr. G. Kirk Raab
999 Mountain Home Rd.
Woodside, CA 94062
Facsimile number: (415)
The Company's present address and facsimile number are:
Genentech, Inc.
460 Point San Bruno Boulevard
South San Francisco, CA 94080
Facsimile number: (415) 952-9881
Attention: General Counsel
5. Except as modified by this Letter Agreement, the terms and provisions
of the Prior Letter Agreement will continue in full force and effect.
Please indicate your acceptance of the foregoing by signing and dating the
enclosed copy of this Letter Agreement and returning it to the Company at
your earliest convenience.
Very truly yours,
GENENTECH, INC.
/S/ JOHN P. MCLAUGHLING
_______________________
By: John P. McLaughlin
AGREED TO AND ACCEPTED BY:
/S/ G. KIRK RAAB
__________________
G. Kirk Raab
Dated: As of July 7, 1995
- - 6 -
FINANCIAL REVIEW
(dollars in millions, except per share amounts)
MAJOR EVENTS AFFECTING FINANCIAL RESULTS AND POSITION
The major events described below affected Genentech's financial results and
position in 1995 and have prospective implications as indicated:
On October 25, 1995, a new agreement (the Agreement) with Roche Holdings, Inc.
(Roche) was approved by Genentech's non-Roche stockholders to extend for four
years Roche's option to cause Genentech (the Company) to redeem (call) the
outstanding callable putable common stock (special common stock) of the Company
at predetermined prices. Should the call be exercised, Roche will concurrently
purchase from the Company a like number of common shares, for a price equal to
Genentech's cost to redeem the special common stock. The special common stock
is subject to redemption at the option of Roche at prices beginning at $62.50
during the quarter ended December 31, 1995, and increasing $1.25 per quarter
for six quarters, then increasing $1.50 per quarter for the following eight
quarters to $82.00 in the quarter ending June 30, 1999 (with each such
redemption price being increased by $0.50, to a final price of $82.50, upon
final court settlement of certain stockholder litigation). If Roche does not
cause the redemption as of June 30, 1999, Genentech's stockholders will have
the option (the put) to cause the Company to redeem none, some, or all of their
shares of special common stock at $60.00 per share (and Roche will concurrently
provide the necessary redemption funds to the Company by purchasing a like
number of shares of common stock at $60.00 per share) within thirty business
days commencing July 1, 1999 (such dates subject to acceleration in certain
insolvency events). The Company's obligation to redeem these shares is
contingent upon the contribution by Roche of the necessary redemption funds for
the put. Roche Holding Ltd., a Swiss corporation, has guaranteed Roche's
obligation under the put. In 1995, the Company recorded special charges
totaling $25 million, of which $21 million related to expenses associated with
the Agreement.
In conjunction with that Agreement, F. Hoffmann-La Roche Ltd. (HLR) was granted
an option at terms discussed below for ten years for licenses to use and sell
certain of Genentech's products in non-U.S. markets. As a general matter, such
option for a Genentech product must be exercised at, or prior to if Genentech
mutually agrees, the conclusion of phase II clinical trials for each product.
In general, for each product for which HLR exercises its option (option
product), the Company and HLR will share equally all development expenses,
including preclinical, clinical, process development and related expenses,
incurred by the Company through that date and prospectively, with respect to
the development of the product in the United States. HLR will pay all non-U.S.
development expenses. In general, Genentech will supply HLR clinical
requirements of option products at cost and its commercial requirements at cost
plus 20%. In general, HLR will pay a royalty of 12.5% until a product reaches
$100 million in aggregate sales outside of the United States, at which time the
royalty rate increases to 15%. In addition, HLR has exclusive rights to, and
pays the Company 20% royalties on, Canadian sales of the Company's existing
approved products in Canada, and European sales of Pulmozyme, registered
trademark. Consequently, in the fourth quarter of 1995, the Company
transferred to HLR the rights to its Canadian product sales, and its European
sales of Pulmozyme, and commenced recording royalty revenue from HLR on such
sales. The Company supplies its products to HLR, and has agreed to supply
products for which HLR has exercised its option, for sales outside of the
United States at cost plus 20%. Depending on whether HLR does or does not
exercise its option to develop and sell each of the Company's future products,
future levels of the Company's product sales, royalties and contract revenue,
as well as R&D and other expenses, could vary significantly from 1995 levels
both on an annual and quarter-to-quarter basis.
Upon completion of the Agreement with Roche, Genentech has implemented a new
strategy focused on building the value of the Company and positioning Genentech
for ongoing growth into the 21st century. As part of the implementation of
that strategy, the Company expects to increase research and development
expenses in 1996 by approximately 20%.
The Company previously announced possible impending competition regarding sales
of its two human growth hormone products - Protropin, registered trademark and
Nutropin, registered trademark. Three companies received FDA approval in 1995
to market their growth hormone products for the treatment of growth hormone
inadequacy in children. However, as a result of the assertion of certain
Genentech patents, a court temporarily prohibited two of these products from
entering the market pending a full trial. The two companies appealed the
decision, which was subsequently overruled by the appellate court for one of
the companies. Future court decisions will determine whether these two products
will be permanently enjoined from the market. The third company initiated
product launch activities in late 1995. On December 29, 1995, Genentech
received clearance from the Food and Drug Administration (FDA) to market
Nutropin AQ, registered trademark [somatropin (rDNA origin) injection], the
first and only liquid (aqueous) recombinant human growth hormone product
available. Nutropin AQ is approved for the same indications as Nutropin.
In December 1994, the Company and Eli Lilly and Company (Lilly) reached an
agreement regarding all patent infringement and contract actions between the
two parties, which included the Company granting to Lilly licenses, options to
license, or immunities from suit for certain of the Company's patents.
Payments are required from Lilly on sales of these products. The Company
expects to record, and receive in cash, $7.5 million of royalty revenues per
quarter through 1998, subject to possible offsets and contingent upon Humulin
continuing to be marketed in the United States. Accordingly, $30.0 million of
such payments were received and recorded as royalty revenue in 1995.
RESULTS OF OPERATIONS
(dollars in millions)
Annual % Change
Revenues 1995 1994 1993 95/94 94/93
______________________________________________________________________________
Revenues $ 917.8 $ 795.4 $ 649.7 15% 22%
The increase in revenues in 1995 resulted primarily from higher royalty income
and product sales. The 1994 increase resulted from higher product sales,
royalty income and contract revenues.
Annual % Change
Product Sales 1995 1994 1993 95/94 94/93
______________________________________________________________________________
Activase $ 301.0 $ 280.9 $ 236.3 7% 19%
Protropin and
Nutropin 219.4 225.4 216.8 (3) 4
Pulmozyme 111.3 88.3 - 26 -
Actimmune 3.6 6.4 4.3 (44) 49
__________________________________________________________
Total product
sales $ 635.3 $ 601.0 $ 457.4 6% 31%
% of revenues 69% 76% 70%
Activase: The continued increase in Activase, registered trademark, sales in
1995 and 1994 is attributable to growth in market share and an increase in the
number of patients receiving thrombolytic therapy in the United States. During
1995, Activase market share increased to 75% from approximately 70% and 66% in
1994 and 1993, respectively, in the United States. In April 1995, the FDA
approved for marketing an accelerated infusion of Activase, allowing revised
labeling for the product incorporating data from the Global Utilization of
Activase and Streptokinase in Occluded Coronary Arteries (GUSTO) study. Also
during 1995, an analysis of the GUSTO trial, published in the New England
Journal of Medicine, determined that Activase is cost-effective relative to
other medical treatments. Pursuant to the Agreement with Roche, Genentech
transferred the rights to sell Activase in Canada to HLR during the fourth
quarter of 1995, and began receiving royalties on such sales.
Protropin and Nutropin: Net sales of Protropin and Nutropin decreased in 1995
compared to 1994 due to a slight volume increase in sales being offset by the
impact of pricing programs for distribution channels and for the managed care
sector. 1994 sales increased compared to 1993 due primarily to the
introduction of Nutropin for the treatment of chronic renal insufficiency and
to more growth hormone inadequate patients starting treatment. The Company
faces new competition in the growth hormone market from one new competitor
which entered the market in late 1995, and potential competition from three
other companies, and expects that such competition will have an adverse effect
on its sales of Protropin and Nutropin which, depending on the extent and type
of competition, could be material to the Company's total growth hormone sales.
Pursuant to the Agreement with Roche, Genentech transferred the rights to sell
its growth hormone in Canada to HLR during the fourth quarter of 1995, and
began receiving royalties on such sales. Other factors that may influence
future Protropin and Nutropin sales include: the availability of third party
reimbursement for the costs of such therapies and the outcome of litigation
involving the Company's patents for growth hormone and related processes.
Pulmozyme: The increase in the sales of Pulmozyme (launched in 1994) in 1995
is attributable to market launches in additional European countries and
continued adoption of the product by physicians to treat cystic fibrosis
patients. Pursuant to the Agreement with Roche, Genentech transferred rights
to sell Pulmozyme in Europe and Canada to HLR during the fourth quarter of 1995
and, instead of recording sales of Pulmozyme, began receiving royalties on such
sales. Additional factors that may influence future sales of Pulmozyme for the
management of cystic fibrosis include: the number and kinds of patients
benefiting from such therapy; the availability of third party reimbursement for
the costs of such therapies; physicians' personal experiences in the use and
results of the therapy; the development of alternate therapies for the
treatment and cure of cystic fibrosis; the development of additional
indications for using Pulmozyme; and the cost of Pulmozyme therapy.
Royalties, Contract and Other, and Interest Income Annual % Change
1995 1994 1993 95/94 94/93
_______________________________________________________________________________
Royalties $ 190.8 $ 126.0 $ 112.9 51% 12%
Contract and other 31.2 25.6 37.9 22 (32)
Interest income 60.5 42.7 41.5 42 3
The Company receives royalty payments from the sales of various health care
products. These payments have increased in each of the past three years
primarily due to increases in product sales by the Company's licensees and new
royalty arrangements. In 1995, the largest dollar increase was attributable to
the receipt and recognition of $30.0 million of royalty revenue relating to the
December 1994 settlement with Lilly regarding certain of the Company's patents.
In 1994, the largest dollar increase was attributable to royalties earned from
the sales of recombinant human insulin. As discussed above, HLR has been
granted options for licenses to use and sell certain of Genentech's products in
non-U.S. markets. As a result of this arrangement, the Company expects such
royalty revenue to increase in future years, although it is not certain for
which products HLR will exercise its option. Cash flows from royalty income
include non-dollar denominated revenues. The Company currently purchases simple
foreign currency put options (options) and enters into foreign currency forward
exchange contracts (forward contracts) to hedge these cash flows. All options
expire within the next two years. All forward contracts are less than 90 days
in duration, and there are no outstanding balances at the end of any quarter.
In 1996, the Company has entered into forward contracts with various durations
that will expire by the end of the year. In addition, the Company plans to
enter into new simple purchased put options that will expire within the next
five years to hedge non-U.S. dollar denominated royalties during this period.
Contract and other revenues increased in 1995 primarily due to $6.4 million of
gains recorded from sales of biotechnology equity securities. 1994 revenue
decreased compared to 1993 because 1993 included $18.2 million related to fixed
license fees receivable through 1996 from Schering Corporation and its
affiliates for a world-wide license to certain patented technology and
processes used to produce recombinant interferon alpha. Contract and other
revenues will continue to fluctuate due to variations in the timing of contract
benchmark achievements; the initiation of new contractual arrangements,
including the potential exercise of product options by HLR; and the conclusion
of existing arrangements.
Interest income was higher in 1995 due to a larger investment portfolio in 1995
and a higher average portfolio yield. In 1994, the increase was due to a
larger investment portfolio in 1994 compared to 1993, which more than offset
the decline in the average portfolio yield. The Company enters into interest
rate swaps as part of its overall strategy of managing the duration of its
investment portfolio. See the "Financial Instruments" footnote in the "Notes to
Consolidated Financial Statements" for further information.
Annual % Change
Costs and Expenses 1995 1994 1993 95/94 94/93
______________________________________________________________________________
Cost of sales $ 97.9 $ 95.8 $ 70.5 2% 36%
Research and
development 363.0 314.3 299.4 15 5
Marketing, general and
administrative 251.7 248.6 214.4 1 16
Special charge 25.0 - - - -
Interest expense 8.0 7.1 6.5 13 9
_________________________________________________________
Total costs
and expenses $ 745.6 $ 665.8 $ 590.8 12% 13%
% of revenues 81% 84% 91%
Cost of sales as % of
product sales 15% 16% 15%
R&D as % of revenues 40 40 46
MG&A as % of revenues 27 31 33
Cost of sales: Cost of sales in 1995 increased over 1994 due to higher product
sales. This increase was partly offset by a decrease in inventory reserves
provided, from $11.9 million in 1994 to $3.7 million in 1995. The 1995
reserves were primarily for expected product expiration of certain Nutropin and
Activase inventories. The reserves recorded in 1994 were primarily for the
likely expiration of Pulmozyme and Nutropin product prior to sale. These
products were launched in the beginning of 1994 and did not meet the Company's
initial expectations for sales that year. The increase in cost of sales in
1994 compared to 1993 was primarily due to increased product sales and the
$11.9 million addition to reserves discussed above.
Research and Development: The increase in R&D expenses in 1995 and 1994
reflects the Company's continued commitment to developing new products and new
indications for existing products. Overall increases resulted from the higher
level of activity and associated costs of products in the later stages of
clinical trials and the manufacture of products for clinical trials. Expenses
as a percentage of revenues were unchanged at 40% from 1994 to 1995. The
percentage declined in 1994 compared to 1993 due to increasing revenues
combined with the Company's disciplined approach to managing its research and
development investment.
To gain additional access to potential new products and technologies, the
Company has established research collaborations, including equity investments,
with companies developing technologies that fall outside the Company's research
focus and with companies having the potential to generate new products through
technology exchanges and investments. The Company has also entered into
product-specific collaborations to acquire development and marketing rights for
products. In March 1995, Genentech entered into a collaboration with IDEC
Pharmaceuticals Corp. (IDEC) to develop IDEC's CD20 monoclonal antibody for the
treatment of non-Hodgkin's B-cell lymphomas. A phase III clinical trial has
begun. In January 1996, HLR exercised its option, pursuant to the terms of the
Agreement, to IDEC-C2B8. In February 1996, Genentech expanded its
collaboration with IDEC to include IDEC-Y2B8, for the treatment of the more
severe forms of B-cell lymphomas. In February 1996, the Company agreed to
invest in Genenvax, Inc., a new company created to develop gp120, Genentech's
potential vaccine for the prevention of HIV. Genenvax will receive exclusive
rights to gp120. See the "Research and Development" footnote in the "Notes to
Consolidated Financial Statements" for a further description of these
collaborations.
Marketing, General and Administrative: Marketing, general and administrative
expenses in 1995 were comparable to the 1994 level of expenses. The increase
in 1994 compared to 1993 was primarily due to additional Activase marketing
expenses, Pulmozyme marketing costs in preparation for the anticipated U.S. and
European product launches in 1994, and increased growth hormone marketing
expenses in anticipation of future competition.
Special Charge: The Company recorded a special charge of $25.0 million in
1995, which includes $21.0 million related to the new merger Agreement with
Roche and $4.0 million associated with the resignation of the Company's former
President and Chief Executive Officer. The merger expenses include investment
banking fees, legal expenses, filing fees and other costs related to the
Agreement, as well as charges associated with the proposed settlement of
stockholder lawsuits filed after the transaction was announced.
Interest Expense: Interest expense in 1995, 1994, and 1993, net of amounts
capitalized, relates primarily to interest on the Company's 5% convertible
subordinated debentures. In 1995, it also includes interest on a $25.0 million
borrowing arrangement which commenced in February 1995 and was paid in December.
Income Before Taxes and Income Taxes 1995 1994 1993
_____________________________________________________________________________
Income before taxes $ 172.3 $ 129.6 $ 58.9
Income tax provision 25.8 5.2 -
Effective tax rate 15% 4% -
Deferred tax assets less
deferred tax liabilities $ 130.8 $ 118.6 $ 123.0
Valuation allowance (74.0) (84.4) (123.0)
________________________________
Total net deferred taxes $ 56.8 $ 34.2 $ -
================================
Approximately $30 million of the valuation allowance at December 31, 1995,
relates to the tax benefits of stock option deductions which will be credited
to additional paid-in capital when realized.
Realization of the net deferred taxes, future effective tax rates, and future
reversals of the valuation allowance (that is, recognition of deferred tax
assets) depend on future earnings from existing and new products and new
indications for existing products. The timing and amount of future earnings
will depend on continued success in marketing and sales of the Company's
current products, as well as scientific success, results of clinical trials and
regulatory approval of products under development.
The net increase in the effective tax rate from 1994 to 1995 was primarily
related to limitations on the utilization of existing carryforwards related to
the U.S. alternative minimum tax. Future effective tax rates are expected to
increase following the recognition of the balance of the Company's credit
carryforwards.
Annual % Change
Net Income 1995 1994 1993 95/94 94/93
_______________________________________________________________________________
Net income $ 146.4 $124.4 $ 58.9 18% 111%
Net income per share $ 1.21 $ 1.04 $ 0.50
LIQUIDITY AND CAPITAL RESOURCES 1995 1994 1993
_______________________________________________________________________________
Cash, cash equivalents, short-term investments
and long-term marketable debt and equity
securities $1,096.8 $ 920.9 $ 719.8
Working capital 812.0 776.6 694.6
Cash provided by (used in):
Operating activities 133.9 200.4 114.5
Investing activities (117.7) (322.3) (121.3)
Financing activities 54.1 71.2 49.9
Capital expenditures
(included in investing activities above) (70.2) (82.8) (87.5)
Current ratio 4.5:1 4.5:1 4.6:1
The Company believes that its cash, cash equivalents, and short-term and long-
term investments, together with funds provided by operations and leasing
arrangements, will be sufficient to meet its operating cash requirements,
including capital expenditures and the development of existing and new products
through internal research and development activities, selective product in-
licensing, research collaborations and equity investments.
Cash generated from operations, the maturity of investments and stock issuances
was used to purchase marketable securities and make capital additions in 1995.
Capital expenditures in 1995 primarily include costs incurred for additional
office buildings and enhancements to existing manufacturing facilities.
Capital expenditures decreased in 1995 compared to 1994 primarily due to the
completion in 1994 of a central process utility plant and additional
manufacturing facilities.
In 1995, the Company entered into an arrangement with a lessor for a new
manufacturing facility which will be subject to an operating lease and is
expected to become operational in three years.
ADDITIONAL PROSPECTIVE INFORMATION
Market Potential/Risk: Over the longer term, the Company's (and its partners')
ability to successfully market current products, expand their usage, and bring
new products to the marketplace will depend on many factors, including the
effectiveness and safety of the products, FDA and foreign regulatory agencies'
approvals for new products and new indications, and the degree of patent
protection afforded to particular products. The Company believes it has strong
patent protection or the potential for strong patent protection for a number of
its products that generate sales and royalty revenue or that the Company is
developing; however, the courts will determine the ultimate strength of patent
protection of the Company's products and those on which the Company earns
royalties.
Roche Holdings, Inc.: At December 31, 1995, Roche held approximately 64% of
the Company's outstanding equity securities. The Company expects to continue
to have material transactions with Roche, including royalty income, contract
development revenues, product sales and joint product development.
Foreign Exchange: The Company receives revenues from countries throughout the
world. As a result, risk exists that revenues may be impacted by changes in the
exchange rates between the U.S. dollar and foreign currencies. To mitigate this
risk, the Company hedges certain of these anticipated revenues as discussed in
the "Financial Instruments" footnote in the "Notes to Consolidated Financial
Statements."
Legal Proceedings: The Company is a party to various legal proceedings
including a stockholder suit involving the new Agreement with Roche and the
1990 merger with Roche; patent infringement cases; and various cases involving
product liability and other matters. See the "Legal Proceedings" footnote in
the "Notes to Consolidated Financial Statements" for further information.
Future Accounting Changes: In March 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which requires the Company to review for impairment long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In certain situations, an
impairment loss would be recognized. FAS 121 is effective for the Company's
1996 fiscal year. The Company is evaluating the impact of the new standard on
its financial position, results of operations, and cash flows and expects the
effect to be immaterial.
In October 1995, the FASB issued FAS 123 "Accounting for Stock-Based
Compensation" which also will be effective for the Company's 1996 fiscal year.
FAS 123 allows companies which have stock-based compensation arrangements with
employees to adopt a new fair-value basis of accounting for stock options and
other equity instruments, or to continue to apply the existing accounting rules
under APB Opinion 25 "Accounting for Stock Issued to Employees" but with
additional financial statement disclosure. The Company expects to continue to
account for stock-based compensation arrangements under APB Opinion 25,
therefore does not expect FAS 123 to have a material impact on its financial
position, results of operations, and cash flows.
REPORT OF MANAGEMENT
Genentech, Inc. is responsible for the preparation, integrity and fair
presentation of its published financial statements. The Company has prepared
the financial statements, presented on pages 41 to 62, in accordance with
generally accepted accounting principles. As such, the statements include
amounts based on judgments and estimates made by management. The Company also
prepared the other information included in the annual report and is responsible
for its accuracy and consistency with the financial statements.
The financial statements have been audited by the independent auditing firm,
Ernst & Young LLP, which was given unrestricted access to all financial records
and related data, including minutes of all meetings of stockholders, the Board
of Directors and committees of the Board. The Company believes that all
representations made to the independent auditors during their audit were valid
and appropriate. Ernst & Young LLP's audit report appears on page 63.
Systems of internal accounting controls, applied by operating and financial
management, are designed to provide reasonable assurance as to the integrity
and reliability of the financial statements and reasonable, but not absolute,
assurance that assets are safeguarded from unauthorized use or disposition, and
that transactions are recorded according to management's policies and
procedures. The Company continually reviews and modifies these systems, where
appropriate, to maintain such assurance. Through the Company's general audit
activities, the adequacy and effectiveness of the systems and controls are
reviewed and the resultant findings are communicated to management and the
Audit Committee of the Board of Directors.
The selection of Ernst & Young LLP as the Company's independent auditors has
been approved by the Company's Board of Directors and ratified by the
stockholders. An Audit Committee of the Board of Directors, composed of four
non-management directors, meets regularly with, and reviews the activities of,
corporate financial management, the general audit function and the independent
auditors to ascertain that each is properly discharging its responsibilities.
The independent auditors separately meet with the Audit Committee, with and
without management present, to discuss the results of their work, the adequacy
of internal accounting controls and the quality of financial reporting.
Arthur D. Levinson, Ph.D. Louis J. Lavigne, Jr. Bradford S. Goodwin
President and Senior Vice President and Vice President and
Chief Executive Officer Chief Financial Officer Controller
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share amounts)
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
__________________________________________________________________________________
<S> <C> <C> <C>
Revenues
Product sales $ 635,263 $ 601,064 $ 457,360
Royalties (including amounts
from related parties: 1995-$12,492;
1994-$8,454; 1993-$5,488) 190,811 126,022 112,872
Contract and other (including amounts
from related parties: 1995-$13,448;
1994-$17,106; 1993-$8,869) 31,209 25,556 37,957
Interest 60,562 42,748 41,560
_____________________________________
Total revenues 917,845 795,390 649,749
Costs and expenses
Cost of sales 97,930 95,829 70,514
Research and development (including
contract related: 1995-$17,124;
1994-$7,584; 1993-$4,235) 363,049 314,322 299,396
Marketing, general and administrative 251,653 248,604 214,410
Special charge (primarily merger related) 25,000 -- --
Interest 7,940 7,058 6,527
____________________________________
Total costs and expenses 745,572 665,813 590,847
Income before taxes 172,273 129,577 58,902
Income tax provision 25,841 5,183 --
____________________________________
Net income $146,432 $124,394 $ 58,902
====================================
Net income per share $ 1.21 $ 1.04 $ .50
====================================
Weighted average number of shares used
in computing per share amounts 121,220 119,465 117,106
====================================
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
<CAPTION>
Increase (Decrease) in Cash and
Cash Equivalents
YEAR ENDED DECEMBER 31 1995 1994 1993
____________________________________________________________________________________________
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 146,432 $ 124,394 $ 58,902
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 58,421 53,452 44,003
Writedown of securities available-for-sale 6,609 12,590 -
Gain on sales of securities available-for-sale (7,432) - -
Deferred income taxes (22,655) (34,193) -
Loss on fixed asset dispositions
(including merger related in 1995) 1,032 5,510 1,652
Writedown of non-marketable equity securities 469 748 600
Gain on sale of a non-marketable equity security (703) - -
Changes in assets and liabilities:
Net cash flow from trading securities (50,014) (4,634) -
Receivables and other current assets (28,446) (11,937) (20,212)
Inventories 9,552 (18,475) (19,410)
Accounts payable, other current
liabilities and other long-term
liabilities 20,682 72,901 48,995
___________________________________
Net cash provided by operating activities 133,947 200,356 114,530
Cash flows from investing activities:
Purchases of securities held-to-maturity (682,396) (1,088,737) (564,855)
Proceeds from maturities of securities
held-to-maturity 924,345 877,139 535,089
Purchases of securities available-for-sale (353,118) (22,644) (8,222)
Proceeds from sales of securities available-
for-sale 101,591 - -
Purchases of non-marketable equity securities - (4,000) -
Proceeds from sale of a non-marketable equity
security 703 - -
Capital expenditures (70,166) (82,837) (87,461)
Proceeds from sale of fixed assets - - 26,316
Change in other assets (38,651) (1,198) (22,181)
____________________________________
Net cash used in investing activities (117,692) (322,277) (121,314)
Cash flows from financing activities:
Stock issuances 54,946 71,955 50,582
Reduction in long-term debt,
including current portion (871) (794) (721)
____________________________________
Net cash provided by financing activities 54,075 71,161 49,861
____________________________________
Increase (decrease) in cash and cash equivalents 70,330 (50,760) 43,077
Cash and cash equivalents at beginning of year 66,713 117,473 74,396
____________________________________
Cash and cash equivalents at end of year $137,043 $ 66,713 $ 117,473
====================================
Supplemental cash flow data:
Cash paid during the year for:
Interest, net of portion capitalized $ 7,917 $ 7,058 $ 6,527
Income taxes 44,699 4,099 2,194
<FN>
Non-cash activity: Income tax benefits of $7,204 in 1995 and $26,038 in 1994 realized from
employee stock option exercises were recorded as an increase in stockholders' equity.
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
DECEMBER 31 1995 1994
________________________________________________________________________________
Assets:
Current assets:
Cash and cash equivalents $ 137,043 $ 66,713
Short-term investments 603,296 652,461
Accounts receivable (including amounts from
related parties: 1995-$19,281;1994-$13,184;
less allowances of: 1995-$6,672;1994-$4,422) 172,160 146,267
Inventories 93,648 103,200
Prepaid expenses and other current assets 39,267 28,475
______________________________
Total current assets 1,045,414 997,116
Long-term marketable securities 356,475 201,726
Property, plant and equipment, at cost:
Land 57,313 55,998
Buildings 258,717 245,871
Equipment 383,387 331,392
Leasehold improvements 12,508 11,988
Construction in progress 60,480 55,299
______________________________
772,405 700,548
Less: accumulated depreciation 268,751 215,255
______________________________
Net property, plant and equipment 503,654 485,293
Other assets 105,452 60,989
______________________________
Total assets $ 2,010,995 $ 1,745,124
==============================
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $ 37,101 $ 30,963
Accrued compensation 36,945 36,939
Accrued royalties 23,159 25,864
Accrued marketing and promotion costs 18,863 27,463
Accrued clinical and other studies
(including amounts due to related
parties: 1995-$6,331;1994-$0) 33,621 36,277
Income taxes payable 14,329 17,839
Other accrued liabilities (including amounts
due to related parties: 1995-$2,414;
1994-$2,280) 69,068 44,283
Current portion of long-term debt 358 871
_____________________________
Total current liabilities 233,444 220,499
Long-term debt 150,000 150,358
Other long-term liabilities 25,504 25,483
_____________________________
Total liabilities 408,948 396,340
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.02 par value; authorized
100,000,000 shares, none issued - -
Special common stock, $.02 par value;
authorized 100,000,000 shares, outstanding:
1995 - 42,646,958; No shares authorized or
outstanding in 1994 853 -
Redeemable common stock, $.02 par value;
no shares authorized or outstanding in 1995;
1994-50,105,925 shares outstanding - 1,002
Common stock, $.02 par value; authorized
200,000,000 shares, outstanding:
1995-76,621,009; 1994-67,133,409 1,532 1,343
Additional paid-in capital 1,281,640 1,207,720
Retained earnings (since October 1, 1987
quasi-reorganization in which a deficit
of $329,457 was eliminated) 263,749 129,127
Net unrealized gain on securities
available-for-sale 54,273 9,592
_______________________________
Total stockholders' equity 1,602,047 1,348,784
_______________________________
Total liabilities and stockholders' equity $ 2,010,995 $ 1,745,124
===============================
See notes to consolidated financial statements.
<TABLE>
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
(thousands)
<CAPTION>
1995 1994 1993
___________________ ___________________ ___________________
Shares Amount Shares Amount Shares Amount
________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Special common stock
Beginning balance - - - - - -
Issuance of stock upon exercise
of options and warrants 298 $ 6 - - - -
Conversion of common stock
to special stock 42,349 847 - - - -
_______________________________________________________________
Ending balance 42,647 853 - - - -
_______________________________________________________________
Redeemable common stock
Beginning balance 50,106 1,002 47,690 $ 954 45,744 $ 915
Issuance of stock upon exercise
of options and warrants 679 14 1,905 38 1,385 28
Issuance of stock under
employee stock plan 322 6 511 10 561 11
Conversion of redeemable
common stock to common stock (51,107) (1,022) - - - -
_______________________________________________________________
Ending balance - - 50,106 1,002 47,690 954
_______________________________________________________________
Common stock
Beginning balance 67,133 1,343 67,133 1,343 67,133 1,343
Issuance of stock upon exercise
of options and warrants 512 10 - - - -
Issuance of stock under
employee stock plan 218 4 - - - -
Conversion of redeemable
common stock to common stock 51,107 1,022 - - - -
Conversion of common stock
to special common stock (42,349) (847) - - - -
_______________________________________________________________
Ending balance 76,621 1,532 67,133 1,343 67,133 1,343
_______________________________________________________________
Additional paid-in capital
Beginning balance 1,207,720 1,070,121 998,962
Issuance of stock upon exercise
of options and warrants 37,087 56,133 37,125
Issuance of stock under
employee stock plan 17,819 15,774 13,418
Income tax benefits
realized from employee
stock option exercises 7,204 26,038 -
Tax benefits arising prior
to quasi-reorganization 11,810 39,654 20,616
__________ __________ ___________
Ending balance 1,281,640 1,207,720 1,070,121
__________ __________ ___________
Retained earnings
Beginning balance 129,127 44,387 6,101
Net income 146,432 124,394 58,902
Tax benefits arising prior
to quasi-reorganization (11,810) (39,654) (20,616)
__________ __________ ___________
Ending balance 263,749 129,127 44,387
__________ __________ ___________
Net unrealized gain on securities
Beginning balance 9,592 - -
Net unrealized gain on
securities available-for-sale 44,681 9,592 -
__________ __________ __________
Ending balance 54,273 9,592 -
__________ __________ __________
Total stockholders' equity $1,602,047 $1,348,784 $1,116,805
========== ========== ==========
<FN>
See note to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Genentech, Inc. (the Company) is a biotechnology
company that discovers, develops, manufactures and markets human
pharmaceuticals produced by recombinant DNA technology for significant unmet
medical needs. The Company manufactures and markets five products directly in
the United States and to F. Hoffmann-La Roche Ltd. (HLR) for sales outside of
the United States, and receives royalties from sales of five other products
which originated from the Company's technology.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and all significant subsidiaries and collaborations.
Material intercompany balances and transactions are eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Short-term Investments and Long-term Marketable Securities: The Company
invests its excess cash balances in short-term and long-term marketable
securities. These investments primarily include corporate notes, certificates
of deposit and treasury notes.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (FAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The effect of adopting this new standard was not material to net
income. FAS 115 requires that all investment securities be classified into one
of three categories: held-to-maturity, available-for-sale, or trading.
Securities are considered held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity. These securities are
recorded as either short-term investments or long-term marketable securities on
the balance sheet depending upon their contractual maturity date. Held-to-
maturity securities are stated at amortized cost, adjusted for amortization of
premiums and accretion of discounts. Securities are considered trading when
bought principally for the purpose of selling in the near term. These
securities are recorded as short-term investments and are carried at market
value. Unrealized holding gains and losses on trading securities are included
in interest income. Securities not classified as held-to-maturity or as trading
are considered available-for-sale. These securities are recorded as long-term
marketable securities and are carried at market value with unrealized gains and
losses included in stockholders' equity. If a decline in fair value below cost
is considered other than temporary, such securities are written down to
estimated fair value with a charge to marketing, general and administrative
expenses. Prior to adopting FAS 115, marketable debt securities were carried at
amortized cost that approximated fair value. Marketable equity securities were
carried at the lower of cost or market. The cost of all securities sold is
based on the specific identification method.
Property, Plant and Equipment: The costs of buildings and equipment are
depreciated using the straight-line method over the following estimated useful
lives of the assets: buildings - 25 years; certain manufacturing equipment -
15 years; other equipment - 4 or 8 years; leasehold improvements - length of
applicable lease. Expenditures for maintenance and repairs are expensed as
incurred. Interest on construction-in-progress of $1.5 million in 1995, $0.6
million in 1994, and $1.3 million in 1993 has been capitalized and is included
in property, plant and equipment.
Patents: As a result of its research and development (R&D) programs, the
Company owns or is in the process of applying for patents in the United States
and other countries which relate to products and processes of significant
importance to the Company. Costs of patents and patent applications are
capitalized and amortized for financial reporting purposes on a straight-line
basis over their estimated useful lives of approximately 12 years.
Other Intangible Assets: In 1995, the Company repurchased from a licensee for
approximately $25 million the right to sell Activase in Canada. The asset is
being amortized on a straight-line basis over ten years, and is expected to be
recovered through royalties received from HLR on their product sales in Canada.
Contract Revenue: Contract revenue for R&D is recorded as earned based on the
performance requirements of the contract. In return for contract payments,
contract partners may receive certain marketing and manufacturing rights,
products for clinical use and testing, or R&D services.
Royalty Expenses: Royalty expenses directly related to product sales are
classified in cost of sales. Other royalty expenses, relating to royalty
revenue, totaled $30.2 million, $26.5 million and $22.6 million in 1995, 1994
and 1993, respectively, and are classified in marketing, general and
administrative expenses.
Advertising Expenses: The Company expenses the costs of advertising as
incurred. Advertising expenses for the years ended December 31, 1995, 1994 and
1993 were $29.2 million, $44.2 million and $45.7 million, respectively.
Income Taxes: The Company accounts for income taxes in accordance with FAS
109, "Accounting for Income Taxes," which requires the asset and liability
approach for the financial accounting and reporting for income taxes.
Accounting for operating loss and tax credit carryforwards arising prior to the
date of the Company's quasi-reorganization in 1987 is more fully described in
the "Quasi-Reorganization" footnote.
Net Income Per Share: Net income per share is computed based on the weighted
average number of shares of the Company's special common stock, redeemable
common stock, common stock and common stock equivalents, if dilutive.
Financial Instruments: Certain of the Company's revenues are earned outside of
the United States. Because the Company's foreign currency denominated revenues
exceed its foreign currency denominated expenses, risk exists that net income
may be impacted by changes in the exchange rates between the U.S. dollar and
foreign currencies. To mitigate this risk, the Company purchases simple foreign
currency put options (options) with expiration dates and amounts of currency
that are the same as a portion of probable revenues so that the adverse impact
of movements in currency exchange rates on the non-dollar denominated revenues
will be largely offset by an associated increase in the value of the options.
At the time the options are purchased they have little or no intrinsic value.
Realized and unrealized gains related to the options are deferred until the
designated hedged revenues are recorded. The associated costs, which are
deferred and classified as other current assets, are amortized over the term of
the options and recorded as a reduction of the hedged revenues. The Company
also enters into foreign currency forward contracts as hedging instruments.
All forward contracts are less than 90 days in duration, and there are no
outstanding balances at the end of any quarter. These contracts are recorded
at fair value, and any gains and losses from these contracts are recorded in
the income statement with the related hedged revenues. Financial instruments,
such as forward contracts, not qualifying as hedges of firm commitments, if
any, are marked to market with gains or losses recorded in income as they
occur.
Interest income is subject to fluctuations as U.S. interest rates change. To
manage this risk, the Company periodically establishes duration targets for its
investment portfolio that reflect its anticipated use of cash and fluctuations
in market rates of interest. Interest rate swaps have been used and may be used
in the future to adjust the duration of the investment portfolio in order to
meet these duration targets. Interest rate swaps are contracts in which two
parties agree to swap future streams of payments over a specified period. By
designating a swap with a pool of short-term securities equal in size to the
notional amount of the swap, an instrument with an effective interest rate and
maturity equal to the term of the swap is created. The characteristics of the
instrument (including interest rate, maturity and fair value) are similar to
the characteristics of a high grade corporate security which could be purchased
at the same time the instrument is created. LIBOR payments received on swaps
are highly correlated to interest collection on short-term investments.
Increases (decreases) in swap variable payments caused by rising (falling)
interest rates will be essentially offset by increased (reduced) interest
income on the related short-term investments, while the fixed rate payments
received from the swap counterparty establishes the Company's interest income.
Net payments made or received on swaps are included in interest income as
adjustments to the interest received on invested cash. Amounts deferred on
terminated swaps are classified as other assets and are amortized to interest
income over the original contractual term of the swaps by a method that
approximates the level yield method.
401(k) Plan: The Company's 401(k) Plan covers substantially all its U.S.
employees. Under the 401(k) Plan, eligible employees may contribute up to 15%
of their eligible compensation, subject to certain Internal Revenue Service
restrictions. The Company matches a portion of employee contributions, up to a
maximum of 4% of each employee's eligible compensation. The match is effective
December 31 of each year and is fully vested when made. During 1995, 1994, and
1993, the Company provided $5.6 million, $5.2 million, and $4.4 million,
respectively, for the Company match under the 401(k) Plan.
Future Accounting Changes: In March 1995, the Financial Accounting Standards
Board (FASB) issued FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires the Company
to review for impairment long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain situations, an impairment loss would be recognized.
FAS 121 is effective for the Company's 1996 fiscal year. The Company is
evaluating the impact of the new standard on its financial position, results of
operations, and cash flows, and expects the effect to be immaterial.
In October 1995, the FASB issued FAS 123 "Accounting for Stock-Based
Compensation" which also will be effective for the Company's 1996 fiscal year.
FAS 123 allows companies which have stock-based compensation arrangements with
employees to adopt a new fair-value basis of accounting for stock options and
other equity instruments, or to continue to apply the existing accounting rules
under APB Opinion 25 "Accounting for Stock Issued to Employees" but with
additional financial statement disclosure. The Company expects to continue to
account for stock-based compensation arrangements under APB Opinion 25,
therefore does not expect FAS 123 to have a material impact on its financial
position, results of operations and cash flows.
SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
One major customer in 1995, 1994 and 1993 contributed 10% or more of the
Company's total revenues. The portions of revenues attributable to this
customer were 18% in 1995, 21% in 1994 and 26% in 1993. This customer
distributes Protropin, Nutropin, Pulmozyme and Actimmune through its extensive
branch network, and is then reimbursed through a variety of sources. A second
customer, a wholesale distributor of all of the Company's products, contributed
11% of revenues in both 1995 and 1994.
Approximate foreign sources of revenues were as follows (millions):
1995 1994 1993
_____________________________________________________
Europe $112.0 $81.8 $41.0
Asia 23.6 19.5 22.2
Canada 25.0 9.7 12.2
The Company currently sells primarily to distributors and hospitals throughout
the United States, performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral. In 1995, 1994 and
1993 the Company did not record any material additions to, or losses against,
its provision for doubtful accounts.
RESEARCH AND DEVELOPMENT ARRANGEMENTS
To gain access to potential new products and technologies, the Company has
established research collaborations, including the acquisition of both
marketable and non-marketable equity investments, with companies developing
technologies that fall outside the Company's research focus and with companies
having the potential to generate new products through technology exchanges and
investments. Potential future payments may be due to selective collaborative
partners if the partners achieve certain benchmarks as defined in the
collaborative agreements. The Company has also entered into product-specific
collaborations to acquire development and marketing rights for products. In
addition to the collaboration with HLR discussed in the "Related Parties"
footnote, in March 1995 the Company entered into a collaboration with IDEC
Pharmaceuticals Corp. (IDEC) to develop IDEC's anti-CD20 monoclonal antibody,
IDEC-C2B8, for the treatment of non-Hodgkin's B-cell lymphomas. A phase III
clinical trial has begun. Under the terms of the agreement, Genentech and IDEC
have agreed to copromote IDEC-C2B8 in the United States and Canada, with IDEC
receiving a share of the profits. Genentech has commercialization rights
throughout the rest of the world except Japan. Genentech exercised its option
rights regarding Asia (except Japan) during the fourth quarter of 1995. In
conjunction with the Agreement with Roche, Genentech has granted an option to
HLR to use and sell IDEC-C2B8 in all countries, except the United States, in
which Genentech has rights under its agreement with IDEC. HLR exercised that
option in January 1996. IDEC will receive royalties on sales outside the
United States and Canada. In connection with the collaboration, Genentech
provided $9 million in preferred equity investments and licensing fees, and
will provide $17.5 million in additional equity funding prior to U.S. approval
($2.5 million of which was provided in 1995), and up to $30.5 million in
milestone and option payments. In February 1996, Genentech expanded its
collaboration with IDEC to include IDEC-Y2B8, a complementary radioisotopic
version of the drug, for the treatment of more severe forms of B-cell
lymphomas. In February 1996, the Company agreed to invest in Genenvax, Inc.,
a new company created to develop gp120, Genentech's potential vaccine for the
prevention of HIV. Genentech will provide an initial equity investment of $1
million and then an additional $1 million along with other private investors.
After the close of private financing, Genentech will have the right to maintain
a 25% equity investment in Genenvax. Genenvax will receive exclusive rights to
gp120.
SPECIAL CHARGE
The $25.0 million special charge in 1995 includes $21.0 million related to the
merger agreement with Roche Holdings, Inc. (Roche) discussed in the footnote
"Merger and New Agreement with Roche Holdings, Inc.," and $4.0 million of
charges associated with the resignation of the Company's former President and
Chief Executive Officer. The merger expenses include legal expenses,
investment banking fees, filing fees and other costs related to the Agreement,
as well as charges associated with the proposed settlement of stockholder
lawsuits filed after the transaction was announced.
INCOME TAXES
The income tax provision consists of the following amounts (thousands):
1995 1994 1993
_________________________________________________________________
Current:
Federal $ 43,997 $ 38,331 $ -
State 4,467 1,016 -
Foreign 32 29 -
_____________________________________
Total current 48,496 39,376 -
_____________________________________
Deferred:
Federal (12,319) (34,193) -
State (10,336) - -
_____________________________________
Total deferred (22,655) (34,193) -
_____________________________________
Total $ 25,841 $ 5,183 $ -
=====================================
Actual current tax liabilities are lower than reflected above by $7.2 million
in 1995 and $26.0 million in 1994 due to employee stock option related tax
benefits which were credited to stockholders' equity.
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate follows:
1995 Amount Tax Rate
(thousands) 1995 1994 1993
______________________________________________________________________________
Tax at U.S. statutory rate $ 60,296 35.0% 35.0% 35.0%
Operating losses utilized - - (45.6) (35.0)
Research and development
credits realized (27,312) (15.9) - -
Alternative minimum tax liability - - 24.6 -
Adjustment of deferred tax assets
valuation allowance (22,655) (13.1) (26.4) -
Foreign losses not benefited 4,842 2.8 15.0 -
State taxes 4,467 2.6 0.8 -
Other 6,203 3.6 0.6 -
________________________________________________
Income tax provision $ 25,841 15.0% 4.0% -
================================================
The components of deferred taxes consist of the following at December 31
(thousands):
1995 1994
_______________________________________________________________________________
Deferred tax liabilities:
Depreciation $ 50,010 $ 42,109
Other 3,109 19,928
__________________________
Total deferred tax liabilities 53,119 62,037
Deferred tax assets:
Federal net operating loss (NOL) carryforward - 43,027
Federal credit carryforward 107,350 86,804
Reserves not currently deductible 39,433 31,688
State credit carryforward 32,147 11,324
Other 5,058 7,839
__________________________
Total deferred tax assets 183,988 180,682
Valuation allowance (74,021) (84,452)
__________________________
Total net deferred tax assets 109,967 96,230
__________________________
Total net deferred taxes $ 56,848 $ 34,193
==========================
Total tax credit carryforwards of $139 million expire in the years 1996 through
2010, except for $37 million of alternative minimum tax credits which have no
expiration date. Approximately $30 million of the valuation allowance at
December 31, 1995 reflected above relates to the tax benefits of stock option
deductions which will be credited to additional paid-in capital when realized.
The valuation allowance decreased by $10.4 million in 1995 and $38.5 million in
1994. Realization of net deferred taxes, as well as future reversals of the
valuation allowance (that is, recognition of deferred tax assets), depend on
future earnings from existing and new products and new indications for existing
products. The timing and amount of future earnings will depend on continued
success in marketing and sales of the Company's current products, as well as
the scientific success, results of clinical trials and regulatory approval of
products under development.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
a weighted-average approach which approximates the first-in, first-out method.
Inventories at December 31, 1995 and 1994 are summarized below (thousands):
1995 1994
__________________________________________________________________
Raw materials and supplies $ 12,808 $ 13,145
Work in process 67,239 76,974
Finished goods 13,601 13,081
______________________
Total $ 93,648 $103,200
======================
The decrease in inventories in 1995 compared to 1994 is primarily attributable
to a decrease in the inventories of Pulmozyme.
INVESTMENT SECURITIES
Securities classified as trading, available-for-sale and held-to-maturity at
December 31, 1995 are summarized below. Estimated fair value is based on quoted
market prices for these or similar investments.
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
______________________________________________________________________________
(thousands)
TOTAL TRADING SECURITIES
(carried at estimated
fair value) $135,325 $ 1,314 $ (1,328) $135,311
==============================================
SECURITIES AVAILABLE-FOR-SALE
(carried at estimated
fair value):
Equity securities $ 22,423 $ 45,894 $ (350) $ 67,967
U.S. Treasury securities
and obligations of other
U.S. government agencies
maturing within:
1 year 7,503 17 - 7,520
1-5 years 162,322 7,103 - 169,425
5-10 years 83,188 437 - 83,625
Other debt securities
maturing within
1-5 years 29,868 1,172 - 31,040
----------------------------------------------
TOTAL AVAILABLE-FOR-SALE $305,304 $ 54,623 $ (350) $359,577
==============================================
SECURITIES HELD-TO-MATURITY*
(carried at amortized cost)
maturing within 1 year:
U.S. Treasury securities
and obligations of other
U.S. government agencies $219,267 $ 318 $ (53) $219,532
Other debt securities 236,870 95 (297) 236,668
______________________________________________
TOTAL HELD-TO-MATURITY $456,137 $ 413 $ (350) $456,200
==============================================
* Interest rate swap arrangements are used to modify the duration of certain
held-to-maturity securities. See "Financial Instruments" footnote for
further information.
The carrying value of all investment securities held at December 31, 1995 and
1994 is summarized below (thousands):
Security 1995 1994
_______________________________________________________________________________
Trading securities $135,311 $ 85,297
Securities available-for-sale maturing within one year 7,520 -
Securities held-to-maturity maturing within one year 456,137 559,916
Accrued interest 4,328 7,248
-------- --------
Total short-term investments $603,296 $652,461
======== ========
Securities available-for-sale maturing within 1-10 years $352,057 $ 35,660
Securities held-to-maturity maturing within 1-3 years - 164,429
Accrued interest 4,418 1,637
-------- --------
Total long-term marketable securities $356,475 $201,726
======== ========
In 1995, proceeds from sales of available-for-sale securities totaled $101.6
million; gross realized gains totaled $7.6 million and gross realized losses
totaled $0.2 million. During 1994, no available-for-sale securities were sold.
The Company recorded charges in 1995 and 1994 of $6.6 million and $12.6
million, respectively, to write-down certain available-for-sale biotechnology
equity securities for which the decline in fair value below cost was other than
temporary.
During the year ended December 31, 1995, the unrealized holding losses on
trading securities included in net income were not material.
Marketable debt securities held by the Company are issued by a diversified
selection of institutions with strong credit ratings. The Company's investment
policy limits the amount of credit exposure with any one institution. These
debt securities are generally not collateralized. The Company has not
experienced any material losses due to credit impairment on its investments in
marketable debt securities in the years 1995, 1994 and 1993.
FINANCIAL INSTRUMENTS
Foreign Currency Instruments: As discussed above, to hedge anticipated non-
dollar denominated net revenues, the Company currently purchases simple foreign
currency put options (options) and enters into foreign currency forward
exchange contracts (forward contracts). All forward contracts are less than 90
days in duration, and there are no outstanding balances at the end of any
quarter. At December 31, 1995 and 1994, the Company had hedged approximately
80% and 85%, respectively, of net foreign revenues anticipated within 12 months
and 50% and 35%, respectively, of net foreign revenues anticipated in the
following 12 months. At December 31, 1995 and 1994, the notional amount of the
options totaled $72.8 million and $78.3 million, respectively, and consisted of
the following currencies: Australian dollars, Canadian dollars, German marks,
Spanish pesetas, French francs, British pounds, Italian lira, Japanese yen, and
Swedish krona. All option contracts mature within the next two years. The fair
value of the options, which is based on exchange rates and market conditions at
December 31, 1995 and 1994, totaled $6.3 million and $1.6 million,
respectively. Forward contracts open at December 31, 1994 were closed out by
entering into offsetting contracts with the counterparty, so that the net
notional amount denominated in foreign currencies was zero. At December 31,
1994, the U.S. dollar equivalent of the notional amount of the forward sell
contracts totaled $28.3 million; the forward buy contracts totaled $29.8
million. The difference, an unrealized loss of $1.5 million, was recorded as a
reduction of net income in 1994 as a charge to marketing, general and
administrative expenses. At December 31, 1995, the U.S. dollar equivalent of
the notional amount of the remaining forward sell contracts was $6.0 million,
and the remaining forward buy contracts totaled $6.2 million.
Credit exposure is limited to the unrealized gains on these contracts. All
agreements are with a diversified selection of institutions with strong credit
ratings which minimizes risk of loss due to nonpayment from the counterparty.
The Company has not experienced any material losses due to credit impairment of
its foreign currency instruments.
Interest Rate Swaps: The Company enters into interest rate swaps (swaps) as
part of its overall strategy of managing the duration of its cash portfolio.
For each swap, the Company receives interest based on fixed rates and pays
interest to counterparties based on floating rates (three or six month LIBOR)
on a notional principal amount. By designating a swap with a pool of short-
term securities equal in size to the notional amount of the swap, an instrument
with an effective interest rate and maturity equal to the term of the swap is
created. LIBOR payments received on swaps are highly correlated to interest
collections on short-term investments. The use of swaps in this manner
generates net interest income on the swap and associated pool of short-term
securities equivalent to interest income that would be earned from a high grade
corporate security of the same maturity as the swap, while reducing credit risk
(there is no principal invested in a swap). The Company's credit exposure on
swaps is limited to the value of the interest rate swaps that have become
favorable to the Company and any net interest earned but not yet received. The
Company's swap counterparties have strong credit ratings which minimize the
risk of non-performance on the swaps. The Company has not experienced any
material losses due to credit impairment. The Company's credit exposure on
swaps as of December 31, 1995 and 1994 was $24.1 million and $19.9 million,
respectively. The carrying amount of the swaps, which reflects the net
interest accrued for such swaps, totaled $7.2 million and $6.2 million at
December 31, 1995 and 1994, respectively, and is included in accounts
receivable.
The Company targets the average maturity of its investment portfolio (including
swaps) based on its anticipated use of cash and fluctuations in the market
rates of interest. The maturity of the investment portfolio (including swaps)
ranges from overnight funds used for near-term working capital purposes to
investments maturing within the next one to ten years for future working
capital, capital expenditures, strategic investments and debt repayment. The
Company gradually increased the average effective maturity of its investment
portfolio (including swaps) from 1.9 years at December 31, 1994, to 2.7 years
at December 31, 1995, to better match the duration of the portfolio to expected
cash needs.
The notional amount of each swap is equal to the amount of designated high
quality short-term investments which either mature or reprice within the next
six months. The investments include U.S. Treasury securities, U.S. government
agency securities, commercial paper and corporate debt obligations. Swaps are
used to extend the maturity of the investment portfolio; no speculative
activity occurs.
For the years ended December 31, 1995 and 1994, the weighted average rate
received on swaps was 7.29% and 6.30%, respectively, and the weighted average
rate paid on swaps was 6.56% and 4.81%, respectively. Net interest income
(loss) from swaps, including amortization of net losses on terminated swaps,
totaled ($0.7) million in 1995 and $4.3 million in 1994.
During 1995 and 1994, to reduce the average effective maturity of its
portfolio, the Company terminated certain swap agreements prior to maturity and
is amortizing the realized gains and losses over the original contractual term
of the swaps as a reduction of interest income. At December 31, 1995, net
losses of $2.4 million remained unamortized; $1.7 million will be recognized in
1996 and $0.7 million will be recognized during the following two years.
The tables below outline specific information for the swaps outstanding at
December 31, 1995 and 1994. The fair value is based on market prices of similar
agreements. Dollars are in millions.
<TABLE>
<CAPTION>
Interest Rate Swaps Short-term Investments
___________________________ _______________________________
Fixed Average
Rates Variable Effective
Notional To Be Rates To Carrying Average Interest
December 31, 1995: Amounts Received Be Paid* Value Maturity** Rate
_____________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Swaps matched
to investments
to meet maturity
target comparable
to outstanding debt 3 or 6
[Maturing on: 7.68%- month
1/2/02] $150 7.71% LIBOR $150 118 days 5.52%
Swaps matched to
other investments
to meet specific
maturity targets 3 or 6
[Ending dates: 6.09%- month
8/12/97 - 9/20/99] 80 7.20% LIBOR 80 93 days 5.85%
Other short-term
investments - 373
________ ________
Total $230 $603
======== ========
December 31, 1994:
____________________
Swaps matched
to investments
to meet maturity
target comparable
to outstanding debt 3 or 6
[Maturing on: 7.68%- month
1/2/02] $150 7.92% LIBOR $150 84 days 5.45%
Swaps matched to
other investments
to meet specific
maturity targets 3 or 6
[Ending dates: 4.08%- month
12/29/95 - 9/20/99] 180 7.20% LIBOR 180 35 days 5.34%
Other short-term
investments - 322
________ ________
Total $330 $652
======== ========
<FN>
* 3 and 6-month LIBOR rates are reset every 3 or 6 months. At December 31,
1995, the 3-month LIBOR rate was 5.6% and the 6-month LIBOR rate was 5.5%. At
December 31, 1994, the 3-month LIBOR rate was 6.5% and the 6-month LIBOR rate
was 7.0%.
** Average maturity reflects either the maturity date or, for a floating
investment, the next reset date.
</TABLE>
Financial Instruments Held for Trading Purposes: As part of its overall
investment strategy, in 1994 the Company contracted with two external money
managers to manage part of its investment portfolio. One portfolio, which had a
carrying value of $34.9 million at December 31, 1995 and $31.0 million at
December 31, 1994, consisted of both U.S. dollar and non-dollar denominated
investments. To hedge the non-dollar denominated investments, the money manager
enters into forward contracts. The fair value at December 31, 1995 and 1994, of
the forward contracts totaled $0.1 million and ($0.5) million, respectively.
The average fair value during 1995 and 1994 totaled $0.1 million and ($0.5)
million, respectively. Net realized and unrealized trading gains on the
portfolio totaled approximately $3.8 million in 1995 and $0.4 million in 1994,
and are included in interest income. Counterparties have strong credit ratings
which minimizes the risk of non-performance from the counterparties.
Summary of Fair Values: The table below summarizes the carrying value and fair
value at December 31, 1995 and 1994, of the Company's financial instruments.
The fair value of the long-term debt was estimated based on the quoted market
price at year end.
1995 1994
___________________ __________________
Carrying Fair Carrying Fair
Financial Instrument Value Value Value Value
_____________________________________________________________________________
(thousands)
Assets:
Investment securities
(including accrued interest
and traded forward contracts) $959,771 $959,834 $854,187 $855,060
Options 2,345 6,300 1,646 1,600
Outstanding swaps 7,194 23,940 6,165 (2,044)
Liabilities:
Short-term and long-term
debt 150,358 147,750 151,229 125,250
Forward contracts 237 237 1,500 1,500
LONG-TERM DEBT
Long-term debt consists of the following (thousands):
1995 1994
_______________________________________________________________________________
Convertible subordinated debentures, interest at 5%,
due in 2002 $ 150,000 $ 150,000
Mortgage note payable on buildings and land,
interest at 9.5%, due 1996 358 1,229
______________________
150,358 151,229
Less current maturities 358 871
______________________
Total long-term debt $ 150,000 $ 150,358
======================
Convertible subordinated debentures are convertible at the option of the holder
into shares of the Company's special common stock at a conversion price of
$74 in principal amount of the debenture. Upon conversion, the holder receives,
for each $74 in principal amount of the debenture converted, one-half share of
special common stock and $18 in cash. The $18 in cash is reimbursed by Roche to
the Company. Generally, the Company may redeem the debentures until maturity.
LEASES, COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under operating leases at December 31, 1995 are
as follows (thousands):
______________________________________________________________________
1996 $ 6,028
1997 2,374
1998 1,829
1999 2,000
2000 2,000
Thereafter 5,833
_________
Total minimum lease payments $20,064
=========
The Company leases various real property under operating leases that generally
require the Company to pay taxes, insurance and maintenance. Rent expense was
approximately $9.5 million, $6.5 million and $5.1 million for the years 1995,
1994 and 1993 respectively. Sublease income was not material in each year
presented.
Under three of the lease agreements, the Company has an option to purchase the
properties at an amount that does not constitute a bargain. Alternatively, the
Company can cause the property to be sold to a third party. The Company is
contingently liable, under residual value guarantees, for approximately $119
million. The Company also is required to maintain certain financial ratios and
is limited to the amount of additional debt it can assume. Securities with a
carrying amount of $74 million have been pledged as collateral with regards to
one of the three leases.
Pursuant to its research and development collaboration agreement with Scios
Nova, Inc. (Scios Nova), the Company established a line of credit for $30
million that Scios Nova may draw down at Scios Nova's discretion through 2002.
This commitment is supported through December 31, 1997, by a bank letter of
credit under which Scios Nova may draw up to $30 million directly from the
bank, with immediate repayment of the funds due to the bank by the Company.
Amounts drawn by Scios Nova under the bank letter of credit or directly from
the Company are repayable in the form of cash or Scios Nova common stock (at
the average market price over the thirty day period before the date of
repayment) at Scios Nova's option any time through December 30, 2002. Interest
on amounts borrowed by Scios Nova accrue to the Company at the prime rate of
interest. At December 31, 1995, no amounts were drawn.
MERGER AND NEW AGREEMENT WITH ROCHE HOLDINGS, INC.
The Company's merger (Merger) with a wholly owned subsidiary of Roche Holdings,
Inc. (Roche) was consummated on September 7, 1990. The Company's stockholders
of record on that date received, for each share of common stock that they
owned, $18 in cash from Roche and one-half share of newly issued redeemable
common stock from the Company. In the Merger, Roche acquired one half of the
Company's outstanding common stock for $1,537.2 million. The redeemable common
stock was substantially identical to the common stock previously held by
stockholders, except that it was redeemable by the Company at the election of
Roche. Roche had the right to require the Company to exercise its redemption
right, providing it did so for all shares of outstanding redeemable common
stock. The redemption right was not exercised and expired on June 30, 1995.
After the close of business on that date, each share of redeemable common stock
automatically converted to one share of Genentech common stock.
On October 25, 1995, the Company's non-Roche stockholders approved a new
agreement (the Agreement) with Roche. Each share of the Company's common
stock not held by Roche or its affiliates on that date automatically converted
to one share of callable putable common stock (special common stock). The
Agreement extends for four years Roche's option to cause Genentech to redeem
(call) the outstanding special common stock of the Company at predetermined
prices. Should the call be exercised, Roche will concurrently purchase from
the Company a like number of common shares, for a price equal to Genentech's
cost to redeem the special common stock. During the quarter beginning January
1, 1996, the option price is $63.75 per share, and it increases by $1.25 per
share each quarter through June 30, 1997, thereafter escalating at $1.50 per
share each quarter, to $82.00 per share at the end of the option period on
June 30, 1999. As part of an agreement in principle to settle stockholder
lawsuits, as more fully discussed in the "Legal Proceedings" footnote, the
call price at which Roche may cause Genentech to redeem the special common
stock will be increased, upon approval of the settlement agreement by the
Delaware Chancery Court, by $0.50 per share each quarter with a final
redemption price of $82.50. The put price will remain unchanged at $60.00 per
share. If Roche does not cause the redemption as of June 30, 1999,
Genentech's stockholders will have the option (the put) to cause the Company
to redeem none, some, or all of their shares of special common stock at $60.00
per share (and Roche will concurrently provide the necessary redemption funds
to the Company by purchasing a like number of shares of common stock at $60.00
per share) within thirty business days commencing July 1, 1999 (such dates
subject to acceleration in certain insolvency events). The Company's
obligation to redeem these shares is contingent upon the contribution by Roche
of the necessary redemption funds for the put. Roche Holding Ltd., a Swiss
corporation, has guaranteed Roche's obligation under the put.
In conjunction with the Agreement, HLR was granted an option at terms
discussed below for ten years for licenses to use and sell certain of
Genentech's products in non-U.S. markets. As a general matter, such option
for a Genentech product must be exercised at, or prior to if Genentech
mutually agrees, the conclusion of phase II clinical trials for each
product. In general, for each product for which HLR exercises its option,
the Company and HLR will share equally all development expenses, including
preclinical, clinical, process development and related expenses, incurred by
the Company through that date and prospectively, with respect to the
development of the product in the United States. HLR will pay all non-U.S.
development expenses. In general, HLR will pay a royalty of 12.5% until a
product reaches $100 million in aggregate sales outside of the United
States, at which time the royalty rate increases to 15%. In addition, HLR
has exclusive rights to, and pays the Company 20% royalties on, Canadian
sales of the Company's existing products and European sales of Pulmozyme.
Consequently, in the fourth quarter of 1995, the Company transferred to HLR
the rights to its Canadian product sales and European sales of Pulmozyme,
and commenced recording royalty revenue from HLR on such sales. The Company
supplies its products to HLR, and has agreed to supply products for which
HLR has exercised its option, for sales outside of the United States at cost
plus 20%.
Under the Agreement, independent of its right to cause the Company to redeem
the special common stock, Roche may increase its ownership of the Company up to
79.9% by making purchases on the open market. Roche holds approximately 64% of
the outstanding common equity of the Company as of December 31, 1995.
RELATED PARTY TRANSACTIONS
The Company has transactions with Roche and its affiliates in the ordinary
course of business. Pursuant to contracts, principally regarding R&D projects
and product licensing agreements as described below, the Company recorded
revenue of approximately $27.7 million in 1995, $25.6 million in 1994 and $14.4
million in 1993 from HLR (a wholly owned subsidiary of Roche; two officers of
HLR serve on the Company's Board of Directors). The Company has also developed
a mammalian cell line for HLR. During 1995, 1994 and 1993, the Company has
collaborated with HLR on four projects, including oral antagonists to platelet
gpIIb/IIIa, IL-8, LFA/ICAM and ras farnesyltransferase.
CAPITAL STOCK
Common Stock, Special Common Stock and Redeemable Common Stock
After the close of business on June 30, 1995, each share of the Company's
redeemable common stock automatically converted to one share of Genentech
common stock. The conversion was in accordance with the terms of the
redeemable common stock put in place at the time of its issuance in 1990 and as
described in Genentech's Certificate of Incorporation. On October 25, 1995,
the Company's non-Roche stockholders approved a new Agreement with Roche.
Pursuant to the Agreement, each share of the Company's common stock not held by
Roche or its affiliates automatically converted to one share of callable
putable common stock (special common stock). See the footnote "Merger and New
Agreement with Roche Holding, Inc." for a complete discussion of these
transactions.
Stock Option Plans
1984 PLANS: The 1984 Plans are the 1984 Incentive Stock Option Plan and the
1984 Non-Qualified Stock Option Plan (1984 Plans). Options granted under the
1984 Incentive Stock Option Plan and the 1984 Non-Qualified Stock Option Plan
have a maximum term of ten and 20 years, respectively, from the date of grant.
The options generally become exercisable in increments over a period of four
years from the date of grant, with the first increment vesting after one year.
As of December 31, 1995, there are no shares remaining for further grants under
the 1984 Plans.
1990 PLAN: The 1990 Stock Option/Stock Incentive Plan (1990 Plan) permits the
granting of options intended to qualify as incentive stock options and the
granting of options that do not so qualify. The Company may only grant
incentive options to employees (including officers and employee-directors). The
Company may only grant the non-qualified options and other non-option stock
incentives under the 1990 Plan to employees (including officers and employee-
directors) and consultants of the Company. All non-qualified options have a
maximum term of 20 years and all incentive options have a maximum term of ten
years. The options generally become exercisable in increments over a period of
four years from the date of grant, with the first increment vesting after one
year. The Company may grant options with different vesting terms from time to
time. The 1990 Plan includes an Automatic Grant Program whereby each individual
who was a non-employee member of the Board on July 18, 1990, and/or on April
30, 1992, was automatically granted, on each of those dates, a non-statutory
option to purchase 15,000 shares of redeemable common stock. These options have
a term of ten years from the date of grant and vest in equal increments over a
three-year period from the date of grant. Each non-employee member of the Board
who was elected to that position after April 30, 1992 but before April 30,
1995, was automatically granted such an option as was any employee member of
the Board who became a non-employee member of the Board, immediately upon the
change in status from employee to non-employee.
In addition, the 1990 Plan permits the Company to grant stock appreciation
rights in connection with non-qualified options or incentive options and issue
shares of special common stock, either fully vested at the time of issuance or
vesting according to a pre-determined schedule. The Company may grant three
types of stock appreciation rights under the 1990 Plan: tandem stock
appreciation rights, concurrent stock appreciation rights and limited stock
appreciation rights. At December 31, 1995, no stock appreciation rights for
special common stock have been granted under the 1990 Plan.
1994 PLAN: The 1994 Stock Option Plan (1994 Plan) permits the granting of
options intended to qualify as incentive stock options and the granting of
options that do not so qualify. Incentive options may only be granted to
employees (including officers and employee-directors). The non-qualified
options may only be granted under the 1994 Plan to employees (including
officers and employee-directors) and consultants of the Company. All non-
qualified options have a maximum term of 20 years and all incentive options
have a maximum term of ten years. Options have been granted with varying
vesting schedules, becoming exercisable in increments over periods of up to six
years from the date of grant, with the first increment vesting after periods of
up to two years. Options may be granted with different vesting terms from time
to time. The 1994 Plan includes an Automatic Grant Program whereby each
individual who was a non-employee member of the Board on April 30, 1995, was
granted a non-statutory option to purchase 15,000 shares of redeemable common
stock. These options have a term of ten years from the date of grant and vest
in equal increments over a three-year period from the date of grant. Each non-
employee member of the Board who is elected to that position after April 30,
1995 will be automatically granted such an option as will any employee member
of the Board who becomes a non-employee member of the Board, immediately upon
the change in status from employee to non-employee. Beginning on April 30,
1995, non-employee members of the Board no longer receive automatic option
grants under the 1990 Plan.
Transactions for the stock option plans for the year ended December 31, 1995,
were as follows:
Price
Shares Per Share
________________________________________________________________________________
Options outstanding - beginning of year 15,980,807 $14.08-50.75
Grants 1,303,800 48.13-51.63
Exercises (1,472,759) 14.08-50.75
Cancellations (602,774) 15.63-50.75
_______________________________
Options outstanding - end of year 15,209,074 14.08-51.63
Options available for future grant 1,508,820
at December 31 _____________
Total shares reserved under the Plans
at December 31 16,717,894
=============
Shares reserved under options exercisable
at December 31 7,265,254 $14.08-51.63
===============================
Employee Stock Plans
The Company adopted the 1991 Employee Stock Plan (1991 Plan) on December 4,
1990, and amended it during 1993 and 1995. All full-time employees of the
Company are eligible to participate in the 1991 Plan. Of the 3,800,000 shares
of special common stock reserved for issuance under the 1991 Plan, 2,444,491
shares have been issued as of December 31, 1995. During 1995, 2,534 of the
eligible employees participated in the 1991 Plan.
Warrants
In consideration of the grant to the Company by certain limited partners of
Genentech Clinical Partners IV (GCP IV) of an option to purchase all of such
limited partners' interests in GCP IV, the Company issued warrants with each
partnership interest to purchase an aggregate of 2,639,250 shares of common
stock (subsequently converted to 1,319,625 shares of redeemable common stock
under the terms of the 1990 Merger, and to special common stock pursuant to the
1995 Agreement). All previously unexercisable warrants held by non-defaulted
limited partners became exercisable upon termination of GCP IV's research
program in September 1992. The warrants are exercisable through July 31, 1996.
Special common stock activity during 1995 related to the warrants is reflected
in the following table:
Shares Price
Per Share
_______________________________________________________________________________
Shares subject to exercisable
warrants - beginning of year 138,915 $ 27.57-28.26
Shares issued upon exercise
of warrants (17,470) 27.57-28.26
__________________________________________
Shares subject to exercisable
warrants - end of year 121,445 $ 27.57-28.26
Shares reserved for issuance =========== ===============
under warrant agreements 121,445
===========
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings including patent
infringement cases involving human growth hormone products and Activase; a
patent infringement and trade secret misappropriation case involving antibodies
to IgE; product liability cases involving Activase and Protropin; and
employment related cases.
The Company and its directors are defendants in two suits filed in California
challenging their actions in connection with the Company's 1990 merger with a
wholly owned subsidiary of Roche. There has been no activity in these actions
since 1990 and no further reference will be made to them in the future unless
they again become active. In addition, the Company, its directors, two former
directors and Roche are defendants in a number of suits filed in Delaware,
which have been consolidated in a single action, by certain individual
stockholders purporting to represent stockholders as a class alleging, in
general, breach of their fiduciary duties to the Company in connection with the
then proposed extension of Roche's option to cause the Company to redeem the
outstanding non-Roche owned redeemable common stock and transactions related
thereto. The Company, Roche and the attorneys representing the plaintiff
stockholders have entered into a memorandum of understanding settling all
claims against the defendants in these actions except the 1990 suits. In
connection with the settlement, if approved by the court, Roche would increase
the prices at which it could cause Genentech to redeem the non-Roche owned
special common stock by $0.50 per share per quarter, to a final price of $82.50
in the quarter ending June 30, 1999, and Genentech would pay the plaintiffs'
attorneys up to $3.5 million in attorneys' fees, and in connection with the
then proposed merger, Genentech would absorb the termination costs of up to six
Europe-based Genentech employees.
On June 28, 1995 and August 10, 1995, the U.S. District Court for the Southern
District of New York issued preliminary injunctions against Novo Nordisk A/S
and certain of its affiliates (Novo) and Bio-technology General Corporation and
its affiliate (BTG), respectively, which prohibited each of them, pending the
Court's final determination of the action, from importing, making, using and
selling their human growth hormone products in the United States. Each of Novo
and BTG appealed the Court's decision. On February 26, 1996, the U.S. Court of
Appeals for the Federal Circuit overruled the preliminary injunction against
Novo, but has not yet ruled on BTG's appeal. Future court decisions will
determine whether Novo's and BTG's products will be permanently enjoined from
the U.S. market.
The Company has received and responded to grand jury document subpoenas from
the United States District Court for the Northern District of California for
documents relating to Genentech's clinical, sales and marketing activities
associated with human growth hormone.
On August 19, 1994 and August 30, 1994, two class action suits were filed in
the U.S. District Court for the District of Minnesota against Genentech, one of
Genentech's executives, Caremark International, Inc. (Caremark), certain of
Caremark's executives and Dr. David R. Brown alleging, in general, causes of
action under the Racketeer Influenced and Corrupt Organizations Act and various
state statutory and common law theories. In addition, the suits allege that
the defendants made improper payments to Dr. Brown in connection with Dr.
Brown's prescription of Protropin for the plaintiffs rather than a competing
product, and that the plaintiffs were injured by purchasing Protropin at costs
approximately 30% higher than a competing product. A similar suit was filed in
the U.S. District Court for the District of South Dakota, Southern Division, on
July 13, 1995, against Genentech, Caremark and Dr. Brown, alleging the same
causes of action as above as well as intentional infliction of emotional
distress but not state and common law claims. The two Minnesota actions and
the South Dakota action are in the discovery phase.
Based upon the nature of the claims made and the investigations completed to
date by the Company and its counsel, the Company believes the outcome of the
above actions will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company. However, were an
unfavorable ruling to occur in any quarterly period, there exists the
possibility of a material impact on the net income of that period.
QUASI-REORGANIZATION
On February 18, 1988, the Company's Board of Directors approved the elimination
of the Company's accumulated deficit through an accounting reorganization of
its stockholders' equity accounts (a quasi-reorganization) effective October 1,
1987, that did not involve any revaluation of assets or liabilities. The
Company eliminated the accumulated deficit of $329.5 million by a transfer from
additional paid-in capital in an amount equal to the accumulated deficit.
The Company has been reporting in income the recognition of operating loss and
tax credit carryforward items arising prior to the quasi-reorganization due to
the Company's adoption of its quasi-reorganization in the context of the
accounting and quasi-reorganization literature existing at the date the quasi-
reorganization was effected. If the provisions of the subsequently issued Staff
Accounting Bulletin 86 (SAB 86) had been applied, net income for the year ended
December 31, 1995, would have been reduced by $11.8 million or $.10 per share
(1994 net income would have been reduced by $39.7 million or $.33 per share;
1993 net income would have been reduced by $20.6 million or $.18 per share),
because SAB 86 would require that the tax benefits of prior operating loss and
tax credit carryforwards be reported as a direct addition to additional paid-in
capital rather than being recorded in the income statement. The Securities and
Exchange Commission staff has indicated that it would not object to the
Company's accounting for such tax benefits.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Genentech, Inc.
We have audited the accompanying consolidated balance sheets of Genentech, Inc.
as of December 31, 1995 and 1994, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Genentech, Inc.
at December 31, 1995 and 1994, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Jose, California
January 17, 199
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(thousands, except per share amounts)
<CAPTION>
1995 Quarter Ended
_______________________________________________
December 31 September 30 June 30 March 31
________________________________________________________________________________
<S> <C> <C> <C> <C>
Total revenues $ 221,914 $223,911 $233,053 $238,967
Product sales 153,482 158,478 161,236 162,067
Gross margin from product sales 130,983 134,109 136,924 135,317
Net income 25,636 40,229 37,163 43,404
Net income per share .21 .33 .31 .36
</TABLE>
<TABLE>
<CAPTION>
1994 Quarter Ended
_______________________________________________
December 31 September 30 June 30 March 31
________________________________________________________________________________
<S> <C> <C> <C> <C>
Total revenues $ 207,760 $ 193,838 $ 194,922 $ 198,870
Product sales 158,137 142,555 152,574 147,798
Gross margin from product sales 133,464 118,095 128,009 125,667
Net income 18,566 33,586 33,387 38,855
Net income per share .15 .28 .28 .33
</TABLE>
<TABLE>
<CAPTION>
11-YEAR FINANCIAL SUMMARY (UNAUDITED)
(millions, except per share and employee data)
1995 1994 1993 1992
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Total revenues $ 917.8 $ 795.4 $ 649.7 $ 544.3
Product sales 635.3 601.0 457.4 391.0
Royalties 190.8 126.0 112.9 91.7
Contract & other 31.2 25.6 37.9 16.7
Interest 60.5 42.7 41.5 44.9
______________________________________________
Total costs and expenses $ 745.6 $ 665.8 $ 590.8 $ 522.3
Cost of sales 97.9 95.8 70.5 66.8
Research & development 363.0 314.3 299.4 278.6
Marketing, general & administrative 251.7 248.6 214.4 172.5
Special charge 25.0(1) - - -
Interest 8.0 7.1 6.5 4.4
_____________________________________________
Income data
Income (loss) before taxes $ 172.3 $ 129.6 $ 58.9 $ 21.9
Income tax provision 25.8 5.2 - 1.1
Net income (loss) 146.4 124.4 58.9 20.8
Net income (loss) per share 1.21 1.04 0.50 0.18
_____________________________________________
Selected balance sheet data
Cash & marketable securities $1,096.8 $ 920.9 $ 719.8 $ 646.9
Accounts receivable 172.2 146.3 130.5 93.9
Inventories 93.6 103.2 84.7 65.3
Property, plant & equipment, net 503.7 485.3 456.7 432.5
Other long-term assets 105.5 61.0 64.1 37.1
Total assets 2,011.0 1,745.1 1,468.8 1,305.1
Total current liabilities 233.4 220.5 190.7 133.5
Long-term debt 150.0 150.4 151.2 152.0
Total liabilities 408.9 396.3 352.0 297.8
Total stockholders' equity 1,602.0 1,348.8 1,116.8 1,007.3
_____________________________________________
Other data
Depreciation and amortization expense $ 58.4 $ 53.5 $ 44.0 $ 52.2
Capital expenditures 70.2 82.8 87.5 126.0
_____________________________________________
Share information
Shares used to compute EPS 121.2 119.5 117.1 114.0
Actual year-end 119.3 117.2 114.8 112.9
_____________________________________________
Per share data
Market price: High $ 53.00 $ 53.50 $ 50.50 $ 39.50
Low $ 44.50 $ 41.75 $ 31.25 $ 25.88
Book value $ 13.43 $ 11.50 $ 9.73 $ 8.92
_____________________________________________
Number of employees 2,842 2,738 2,510 2,331
_____________________________________________
<FN>
The Company has paid no dividends.
The Financial Summary above reflects adoption of FAS 115 in 1994, FAS 109 in 1992 and
FAS 96 in 1988.
All share and per share amounts reflect two-for-one split in 1986, two-for-one split in
1987.
*Redeemable common stock began trading September 10, 1990; prior to that date
all shares were common stock. Pursuant to the Merger agreement with Roche, all
shareholders as of effective date September 7, 1990, received for each common
share owned, $18 in cash from Roche and one-half share of newly issued
redeemable common stock from the Company.
(1) Charges related to 1995 merger and new Agreement with Roche ($21 million) and
resignation of the Company's former CEO ($4 million).
(2) Charges primarily related to 1990 Roche merger.
(3) Primarily inventory-related charge.
(4) Charge for purchase of in-process R&D.
</TABLE>
1991 1990 1989 1988 1987 1986 1985
______________________________________________________________________________
$ 515.9 $ 476.1 $ 400.5 $ 334.8 $ 230.5 $ 134.0 $ 89.6
383.3 367.2 319.1 262.5 141.4 43.6 5.2
63.4 47.6 36.7 26.7 20.1 12.9 5.3
20.4 31.9 27.5 33.5 57.1 70.9 71.1
48.8 29.4 17.2 12.1 11.9 6.6 8.0
______________________________________________________________________________
$ 469.8 $ 572.7 $ 352.9 $ 311.7 $ 186.6 $ 484.6 $ 83.0
68.4 68.3 60.6 46.9 23.8 10.8 1.7
221.3 173.1 156.9 132.7 96.5 79.8 64.9
175.3 158.1 127.9 101.9 59.5 27.3 16.4
- 167.7(2) - 23.3(3) - 366.7(4) -
4.8 5.5 7.5 6.9 6.8 - -
______________________________________________________________________________
$ 46.2 $ (96.6) $ 47.5 $ 23.1 $ 43.9 $ (350.6) $ 6.6
1.8 1.5 3.6 2.5 1.7 2.4 0.5
44.3 (98.0) 44.0 20.6 42.2 (353.0) 6.1
0.39 (1.05) 0.51 0.24 0.50 (5.10) 0.10
______________________________________________________________________________
$ 711.4 $ 691.3 $ 205.0 $ 152.5 $ 158.3 $ 84.3 $ 99.8
69.0 58.8 66.8 63.9 92.2 24.5 26.2
56.2 39.6 49.3 63.4 58.0 14.7 4.6
342.5 300.2 299.1 289.4 195.7 133.1 87.9
42.7 61.7 85.0 89.7 108.7 114.9 16.6
1,231.4 1,157.7 711.2 662.9 619.0 376.0 238.6
118.6 101.4 75.9 95.4 82.8 37.8 27.2
152.9 153.5 154.4 155.3 168.1 31.6 6.0
281.7 264.5 242.2 263.6 263.6 83.3 35.7
949.7 893.2 469.0 399.3 355.4 292.6 202.9
______________________________________________________________________________
$ 46.9 $ 47.6 $ 44.6 $ 38.3 $ 23.5 $ 8.1 $ 5.7
71.3 36.0 37.2 110.9 65.3 46.3 20.2
______________________________________________________________________________
112.5 93.0 86.0 84.5 84.4 69.3 64.0
111.3 110.6 84.3 82.9 78.7 67.0 65.6
______________________________________________________________________________
$ 36.25 $ 30.88 $ 23.38 $ 47.50 $ 64.75 $ 49.38 $ 18.81
$ 27.50*
$ 20.75 $ 20.13 $ 16.00 $ 14.38 $ 28.00 $ 16.44 $ 8.56
$ 21.75*
$ 8.53 $ 8.08 $ 5.56 $ 4.82 $ 4.52 $ 4.37 $ 3.09
______________________________________________________________________________
2,202 1,923 1,790 1,744 1,465 1,168 893
______________________________________________________________________________
COMMON STOCK, SPECIAL COMMON STOCK AND REDEEMABLE COMMON STOCK INFORMATION
Stock Trading Symbol GNE
Stock Exchange Listings
The Company's callable putable common stock (special common stock) has traded
on the New York Stock Exchange and the Pacific Stock Exchange under the symbol
GNE since October 26, 1995. On October 25, 1995, the Company's non-Roche
stockholders approved a new agreement with Roche Holdings, Inc. (Roche).
Pursuant to the agreement, each share of the Company's common stock not held by
Roche or its affiliates automatically converted to one share of special common
stock. From July 3, 1995 through October 25, the Company's common stock was
traded under the symbol GNE. After the close of business on June 30, 1995,
each share of the Company's redeemable common stock automatically converted to
one share of Genentech common stock. The conversion was in accordance with the
terms of the redeemable common stock put in place at the time of its issuance
on September 7, 1990, when the Company's merger with a wholly owned subsidiary
of Roche was consummated. The Company's stockholders of record on September 7,
1990, received, for each share of common stock owned, $18 in cash from Roche
and one-half share of newly issued redeemable common stock from the Company.
The redeemable common stock of the Company traded under the symbol GNE from
September 10, 1990 to June 30, 1995. The Company's common stock was traded on
the New York Stock Exchange under the symbol GNE from March 2, 1988, until
September 7, 1990, and on the Pacific Stock Exchange under the symbol GNE from
April 12, 1988, until September 7, 1990. The Company's common stock was
previously traded in the NASDAQ National Market System under the symbol GENE.
No dividends have been paid on the common stock, special common stock or
redeemable common stock. See the footnotes to the consolidated financial
statements for a further description of the 1995 agreement with Roche and the
1990 merger transaction.
Special Common Stockholders
As of December 31, 1995, there were approximately 19,021 stockholders of
record of the Company's special common stock.
Stock Prices Special Common/Redeemable Common/Common Stock
1995 1994
__________________________________________________________________________
High Low High Low
_________________________________________________
4th Quarter $ 53 $ 47 7/8 $ 53 1/2 $ 42 1/8
3rd Quarter 49 1/4 46 5/8 52 1/2 48 1/8
2nd Quarter 52 46 3/8 51 5/8 43 1/4
1st Quarter 51 44 1/2 51 3/8 41 3/4
35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 137,043
<SECURITIES> 959,771
<RECEIVABLES> 178,832
<ALLOWANCES> 6,672
<INVENTORY> 93,648
<CURRENT-ASSETS> 1,045,414
<PP&E> 772,405
<DEPRECIATION> 268,751
<TOTAL-ASSETS> 2,010,995
<CURRENT-LIABILITIES> 233,444
<BONDS> 150,000
0
0
<COMMON> 2,385
<OTHER-SE> 1,599,662
<TOTAL-LIABILITY-AND-EQUITY> 2,010,995
<SALES> 635,263
<TOTAL-REVENUES> 917,845
<CGS> 97,930
<TOTAL-COSTS> 97,930
<OTHER-EXPENSES> 363,049
<LOSS-PROVISION> 10,972
<INTEREST-EXPENSE> 7,940
<INCOME-PRETAX> 172,273
<INCOME-TAX> 25,841
<INCOME-CONTINUING> 146,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,432
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 0
</TABLE>
$330,000,000.00
AMENDED AND RESTATED LEASE AGREEMENT
BETWEEN
BNP LEASING CORPORATION,
AS LANDLORD
AND
GENENTECH, INC.,
AS TENANT
EFFECTIVE AS OF DECEMBER 8, 1995
(Vacaville Biopharmaceutical Manufacturing Facility)
This Agreement is being facilitated by the following banks:
Banque Nationale de Paris
Credit Suisse
Mellon Bank, N.A.
Union Bank of Switzerland
Swiss Bank Corporation
TABLE OF CONTENTS
Page
1 Definitions . . . . . . . . . . . . . . . . . . . . . 2
(a) Active Negligence . . . . . . . . . . . . . . 2
(b) Additional Rent . . . . . . . . . . . . . . . 2
(c) Advance Date . . . . . . . . . . . . . . . . 3
(d) Affiliate . . . . . . . . . . . . . . . . . . 3
(e) Agency Fees . . . . . . . . . . . . . . . . . 3
(f) Applicable Laws . . . . . . . . . . . . . . . 3
(g) Applicable Purchaser . . . . . . . . . . . . . 3
(h) Appraised Value . . . . . . . . . . . . . . . 3
(I) Attorneys' Fees . . . . . . . . . . . . . . . 3
(j) Base Rent . . . . . . . . . . . . . . . . . . 3
(k) Base Rental Commencement Date . . . . . . . . 3
(l) Base Rental Date . . . . . . . . . . . . . . 4
(m) Base Rental Period . . . . . . . . . . . . . . 4
(n) Business Day . . . . . . . . . . . . . . . . . 4
(o) Capital Adequacy Charges . . . . . . . . . . . 4
(p) Capital Lease . . . . . . . . . . . . . . . . 4
(q) Carrying Costs . . . . . . . . .. . . . . . . 4
(r) Code . . . . . . . . . . . . . . . .. . . . . 4
(s) Commitment Fee . . . . . . . . . . .. . . . . 4
(t) Consolidated Current Liabilities . . . . . . . 4
(u) Consolidated Quick Assets . . .. . . . . . . . 4
(v) Consolidated Subsidiary . . . . . .. . . . . . 4
(w) Consolidated Tangible Net Worth . . . . . . . 4
(x) Consolidated Total Assets . . . . .. . . . . . 5
(y) Consolidated Total Liabilities . .. . . . . . 5
(z) Current Liabilities . . . . . . . .. . . . . . 5
(aa) Construction Advances . . . . . .. . . . . . 5
(ab) Construction Allowance . . . .. . . . . . . . 5
(ac) Construction Documents . . . .. . . . . . . . 5
(ad) Construction Period . . . . . . . . . . . . 5
(ae) Construction Project . . . . . . . . . . . . 5
(af) Debt . . . . . . . . . . . . . . . . .. . . . 6
(ag) Default . . . . . . . . . . . . . .. . . . . 6
(ah) Default Rate . . . . . . . . . . . . . . . . 6
(ai) Designated Payment Date . . . . . . . . . . . 6
(aj) Development Contracts . . . . . . . . . . . . 6
(ak) Effective Rate . . . . . . . . . . . . . . . . 6
(al) Environmental Cutoff Date . . . . . . . . . . 7
(am) Environmental Indemnity Agreement . . . . . . 7
(an) Environmental Laws . . . . . . . . . . . . . . 7
(ao) Environmental Losses . . . . . . . . . . . . . 7
(ap) Environmental Report . . . . . . . . . . . . . 7
(aq) ERISA . . . . . . . . . . . . . . . . . . . . 7
(ar) ERISA Affiliate . . . . . . . . . . . . . . . 7
(as) Escrowed Proceeds . . . . . . . . . . . . . . 8
(at) Eurocurrency Liabilities . . . . . . . . . . . 8
(au) Eurodollar Rate Reserve Percentage . . . . . . 8
(av) Event of Default . . . . . . . . . . . . . . . 8
(aw) Excluded Taxes . . . . . . . . . . . . . . . . 8
(ax) Fed Funds Rate . . . . . . . . . . . . . . . . 9
(ay) Funding Advances . . . . . . . . . . . . . . . 9
(az) GAAP . . . . . . . . . . . . . . . . . . . . . 9
(ba) Hazardous Substance . . . . . . . . . . . . . 9
(bb) Hazardous Substance Activity . . . . . . . . . 9
(bc) Hazardous Substance Claims . . . . . . . . . . 9
(bd) Impositions. . . . . . . . . . . . . . . . . . 9
(be) Improvements . . . . . . . . . . . . . . . . . 10
(bf) Indemnified Party . . . . . . . . . . . . . . 10
(bg) Initial Funding Advances . . . . . . . . . . . 10
(bh) Intangible Assets . . . . . . . . . . . . . . 10
(bi) Landlord's Parent . . . . . . . . . . . . . . 11
(bj) LIBOR . . . . . . . . . . . . . . . . . . . . 11
(bk) Lien . . . . . . . . . . . . . . . . . . . . . 11
(bl) Losses . . . . . . . . . . . . . . . . . . . . 11
(bm) Maximum Construction Allowance . . . . . . . . 11
(bn) Multiemployer Plan . . . . . . . . . . . . . . 12
(bo) Outstanding Construction Allowance . . . . . . 12
(bp) Participant . . . . . . . . . . . . . . . . . 12
(bq) PBGC . . . . . . . . . . . . . . . . . . . . . 12
(br) Permitted Encumbrances . . . . . . . . . . . . 12
(bs) Permitted Hazardous Substance Use . . . . . . 12
(bt) Permitted Hazardous Substances . . . . . . . . 13
(bu) Permitted Transfer . . . . . . . . . . . . . . 13
(bv) Person . . . . . . . . . . . . . . . . . . . . 13
(bw) Plan . . . . . . . . . . . . . . . . . . . . . 13
(bx) Potential Lien Claimants . . . . . . . . . . . 13
(by) Prime Rate . . . . . . . . . . . . . . . . . . 13
(bz) Purchase Agreement . . . . . . . . . . . . . . 14
(ca) Qualified Affiliate . . . . . . . . . . . . . 14
(cb) Qualified Payments . . . . . . . . . . . . . . 14
(cc) Quick Assets . . . . . . . . . . . . . . . . . 14
(cd) Remaining Proceeds . . . . . . . . . . . . . . 15
(ce) Rent . . . . . . . . . . . . . . . . . . . . . 15
(cf) Scope Change . . . . . . . . . . . . . . . . . 15
(cg) Special Participation Fees . . . . . . . . . . 15
(ch) Spread . . . . . . . . . . . . . . . . . . . . 15
(ci) Stipulated Loss Value . . . . . . . . . . . . 16
(cj) Subsidiary . . . . . . . . . . . . . . . . . . 16
(ck) Tenant's Agents . . . . . . . . . . . . . . . 16
(cl) Term . . . . . . . . . . . . . . . . . . . . . 16
(cm) Term Sheet . . . . . . . . . . . . . . . . . . 16
(cn) Transaction Expenses . . . . . . . . . . . . . 16
(co) Unfunded Benefit Liabilities . . . . . . . . . 16
(cp) Upfront Fee . . . . . . . . . . . . . . . . . 16
(cq) Other Terms and References . . . . . . . . . . 16
2 Term. . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Scheduled Term . . . . . . . . . . . . . . . . 17
(b) Early Termination By Tenant . . . . . . . . . 17
3 Rental. . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Base Rent . . . . . . . . . . . . . . . . . . 17
(b) Upfront Fee . . . . . . . . . . . . . . . . . 18
(c) Agency Fee . . . . . . . . . . . . . . . . . . 18
(d) Special Participation Fee . . . . . . . . . . 18
(e) Commitment Fees . . . . . . . . . . . . . . . 18
(f) Additional Rent . . . . . . . . . . . . . . . 18
(g) Interest and Order of Application . . . . . . 18
(h) Net Lease . . . . . . . . . . . . . . . . . . 18
(I) No Demand or Setoff . . . . . . . . . . . . . 19
4 Application of Insurance, Condemnation and
Other Proceeds; Waiver of Insured Claims;
Determination of Appraised Value . . . . . . . . . . 19
5 No Lease Termination. . . . . . . . . . . . . . . . . 22
(a) Status of Lease . . . . . . . . . . . . . . . 22
(b) Waiver By Tenant . . . . . . . . . . . . . . . 23
6 Construction Allowance . . . . . . . . . . . . . . . 23
(a) Advances; Outstanding Construction Allowance . 23
(b) Construction Projects . . . . . . . . . . . . 24
(i) Preconstruction Approvals. . . . . . . 24
(ii) Scope Changes . . . . . . . . . . . . 24
(iii) Responsibility for Construction. . . . 24
(iv) Value Added. . . . . . . . . . . . . . 25
(v) Estoppel Letters Required. . . . . . . 25
(vi) Advances Not a Waiver. . . . . . . . . 26
(c) Conditions to Construction Advances . . . . . 26
(i) Prior Notice . . . . . . . . . . . . . 26
(ii) Amount of the Advances . . . . . . . . 26
(iii) Insurance. . . . . . . . . . . . . . . 26
a) Title Insurance . . . . . . . . . 26
b)Builder's Risk Insurance. . . . . . 26
(iv) Progress of Construction . . . . . . . 27
(v) Evidence of Costs and Expenses
to be Reimbursed. . . . . . . . . . . 27
(vi) No Event of Default. . . . . . . . . . 27
(vii) No Sale of Landlord's Interest . . . . 27
(viii) Certificate of No Default and
Other Matters . . . . . . . . . . . 27
(ix) Payments by Participants . . . . . . . 27
(x) Execution of Participation Agreements
With Participants . . . . . . . . . 29
7 Purchase Agreement and Environmental Indemnity
Agreement . . . . . . . . . . . . . . . . . . . . . 29
8 Use and Condition of Leased Property . . . . . . . . 29
(a) Use . . . . . . . . . . . . . . . . . . . . . 29
(b) Condition . . . . . . . . . . . . . . . . . . 29
(c) Consideration for and Scope of Waiver . . . . 30
9 Other Representations, Warranties
and Covenants of Tenant . . . . . . . . . . . . . . 30
(a) Financial Matters . . . . . . . . . . . . . . 30
(b) The Contract and Other Development Contracts . 30
(c) No Default or Violation . . . . . . . . . . . 31
(d) Compliance with Covenants and Laws . . . . . . 31
(e) Environmental Representations . . . . . . . . 31
(f) No Suits . . . . . . . . . . . . . . . . . . . 31
(g) Condition of Property . . . . . . . . . . . . 32
(h) Organization . . . . . . . . . . . . . . . . . 32
(I) Enforceability . . . . . . . . . . . . . . . . 32
(j) Not a Foreign Person . . . . . . . . . . . . . 32
(k) Omissions . . . . . . . . . . . . . . . . . . 32
(l) Existence . . . . . . . . . . . . . . . . . . 32
(m) Tenant Taxes . . . . . . . . . . . . . . . . . 32
(n) Operation of Property . . . . . . . . . . . . 33
(o) Debts for Construction . . . . . . . . . . . . 34
(p) Impositions . . . . . . . . . . . . . . . . . 34
(q) Repair, Maintenance, Alterations
and Additions . . . . . . . . . . . . . . . 35
(r) Insurance and Casualty . . . . . . . . . . . . 35
(s) Condemnation . . . . . . . . . . . . . . . . . 36
(t) Protection and Defense of Title Against Liens
and Other Encumbrances or Defects . . .. . . 36
(u) Books and Records . . . . . . . . . . . . . . 37
(v) Financial Statements; Required Notices;
Certificates . . . . . . . . . . . . . . . . 37
(w) Further Assurances . . . . . . . . . . . . . . 38
(x) Fees and Expenses; Indemnification; Increased
Costs; and Capital Adequacy Charges . . .. . 39
(y) Liability Insurance . . . . . . . . . . . . . 40
(z) Permitted Encumbrances . . . . . . . . . . . . 41
(aa) Environmental Covenants . . . . . . . . . . . 41
(ab) Affirmative Financial Covenants . . . . . . . 42
(i) Minimum Tangible Net Worth . . . . . . 42
(ii) Leverage Ratio . . . . . . . . . . . . 42
(iii) Quick Ratio . . . . . . . . . . . . . . 42
(ac) Negative Covenants . . . . . . . . . . . . . . 42
(i) Liens . . . . . . . . . . . . . . . . . 42
(ii) Transactions with Affiliates . . . . . 44
(ad) ERISA . . . . . . . . . . . . . . . . . . . . 44
(ae) Assignment of Certain Rights . . . . . . . . . 44
10 Other Representations and Covenants of Landlord . . 45
(a) Title Claims By, Through or Under Landlord . . 45
(b) Actions Required of the Title Holder . . . . . 45
(c) Actions Permitted by Tenant Without
Landlord's Consent . . . . . . . . . . . . . 47
(d) No Default or Violation . . . . . . . . . . . 47
(e) No Suits . . . . . . . . . . . . . . . . . . . 48
(f) Organization . . . . . . . . . . . . . . . . . 48
(g) Enforceability . . . . . . . . . . . . . . . . 48
(h) Existence . . . . . . . . . . . . . . . . . . 48
(i) Not a Foreign Person . . . . . . . . . . . . . 48
(j) Responding to Requests for Information . . . . 48
11 Assignment and Subletting . . . . . . . . . . . . . 48
(a) Consent Required . . . . . . . . . . . . . . . 48
(b) Standard for Landlord's Consent to Assignments
and Certain Other Matters . . . . . . . . . 49
(c) Consent Not a Waiver . . . . . . . . . . . . . 49
(d) Landlord's Assignment . . . . . . . . . . . . 49
12 Environmental Indemnification . . . . . . . . . . . 49
(a) Indemnity . . . . . . . . . . . . . . . . . . 49
(b) Assumption of Defense . . . . . . . . . . . . 49
(c) Notice of Environmental Losses . . . . . . . . 50
(d) Rights Cumulative . . . . . . . . . . . . . . 50
(e) Survival of the Indemnity . . . . . . . . . . 50
13 Inspections and Right of Landlord to Perform,
Generally . . . . . . . . . . . . . . . . . . . . 50
14 Events of Default . . . . . . . . . . . . . . . . . 51
(a) Definition . . . . . . . . . . . . . . . . . . 51
(b) Remedies . . . . . . . . . . . . . . . . . . . 53
(c) Enforceability . . . . . . . . . . . . . . . . 54
(d) Remedies Cumulative . . . . . . . . . . . . . 54
15 No Implied Waiver . . . . . . . . . . . . . . . . . 55
16 Default by Landlord . . . . . . . . . . . . . . . . 55
17 Quiet Enjoyment . . . . . . . . . . . . . . . . . . 55
18 Surrender Upon Termination . . . . . . . . . . . . . 55
19 Holding Over by Tenant . . . . . . . . . . . . . . . 55
20 Miscellaneous . . . . . . . . . . . . . . . . . . . 56
(a) Notices . . . . . . . . . . . . . . . . . . . 56
(b) Severability . . . . . . . . . . . . . . . . . 57
(c) No Merger . . . . . . . . . . . . . . . . . . 58
(d) NO IMPLIED REPRESENTATIONS BY LANDLORD . . . . 58
(e) Entire Agreement . . . . . . . . . . . . . . . 58
(f) Binding Effect . . . . . . . . . . . . . . . . 58
(g) Time is of the Essence . . . . . . . . . . . . 58
(h) Governing Law . . . . . . . . . . . . . . . . 58
(i) Attorneys' Fees . . . . . . . . . . . . . . . 58
21 Waiver of Jury Trial . . . . . . . . . . . . . . . . 58
22 Tax Reporting . . . . . . . . . . . . . . . . . . . 59
23 Proprietary Information, Confidentiality
and Security . . . . . . . . . . . . . . . . . . . 59
Exhibits and Schedules
Exhibit A . . . . . . . . . . . . . . . . . . . . Legal Description
Exhibit B . . . . . . . . . . . . . . . . . . . . .Encumbrance List
Exhibit C . . . . . . . . . . . . . Estoppel Letter from Contractor
Exhibit D . . . . . . . . . . . . . .Estoppel Letter from Architect
Exhibit E . . . . . . . . . . . . . . . . . . . .Draw Request Forms
Exhibit F . . . . . . . . . . . . . . . . . . . Officer Certificate
Schedule 1. . . . . . . . . . . . . . . . . . .List of Participants
Schedule 2. . . . . . Documents Conveying Rights Assigned to Tenant
Schedule 3. . . . . Description of the initial Construction Projec
AMENDED AND RESTATED LEASE AGREEMENT
This AMENDED AND RESTATED LEASE AGREEMENT (as extended,
supplemented, amended, restated or otherwise modified from time to time,
hereinafter called this "Lease"), made to be effective as of December 8,
1995 (all references herein to the "date hereof" or words of like effect
shall mean such effective date), by and between BNP LEASING CORPORATION,
a Delaware corporation (hereinafter called "Landlord"), and GENENTECH,
INC., a Delaware corporation (hereinafter called "Tenant");
W I T N E S E T H T H A T:
WHEREAS, pursuant to a Property Sale Agreement dated as of May 24,
1995, as amended by Amendment No. 1 dated as of June 30, 1995, as
amended by Amendment No. 2 dated as of July 31, 1995, as amended by
Amendment No. 3 dated as of July 31, 1995, as amended by Amendment No. 4
dated as of July 31, 1995 and as amended by Amendment No. 5 dated as of
September 5, 1995 (hereinafter called the "Contract") covering the land
described in Exhibit A attached hereto (hereinafter called the "Land"),
Landlord acquired the Land and any existing improvements on the Land
from Chevron Land and Development Company, a Delaware corporation
(hereinafter called "Seller");
WHEREAS, contemporaneously with the closing of Landlord's purchase
of the Land, Landlord and Tenant entered into a Lease Agreement dated to
be effective as of August 1, 1995, as modified by First Amendment to
Lease Agreement dated as of September 7, 1995 (hereinafter called the
"Prior Lease"), a Purchase Agreement dated to be effective as of August
1, 1995 (hereinafter called the "Prior Purchase Agreement") and an
Environmental Indemnity Agreement dated to be effective as of August 1,
1995 (hereinafter called the "Environmental Indemnity Agreement");
WHEREAS, in anticipation of Tenant's construction of new
improvements on the Land and purchase of equipment and other personal
property for use in such improvements, Landlord and Tenant desire by
this Lease to evidence their agreement as to the terms and conditions
upon which Landlord is willing to provide funds for such construction
and purchase and upon which Tenant will continue to lease the Land and
improvements thereon and the equipment and other personal property
purchased with funds provided by Landlord; and
WHEREAS, Landlord and Tenant desire by this Lease to amend,
restate, replace and supersede the Prior Lease in its entirety,
effective as of the date hereof;
NOW, THEREFORE, in consideration of the rent to be paid and the
covenants and agreements to be performed by Tenant, as hereinafter set
forth, Landlord does hereby LEASE, DEMISE and LET unto Tenant for the
term hereinafter set forth the Land, together with:
(i) Landlord's interest in any and all buildings and other
real property improvements on the Land from time to time, including
improvements hereafter erected on the Land by Tenant, and including, but
not limited to, mechanical, electrical, HVAC and other building systems
attached to future buildings and improvements constructed on the Land by
Tenant (hereinafter called the "Improvements");
(ii) all easements and rights-of-way now owned or hereafter
acquired by Landlord for use in connection with the Land or Improvements
or as a means of access thereto;
(iii) all right, title and interest of Landlord, now owned or
hereafter acquired, in and to (A) any land lying within the right-of-way
of any street, open or proposed, adjoining the Land, (B) any and all
sidewalks and alleys adjacent to the Land and (C) any strips and gores
between the Land and abutting land (except strips and gores, if any,
between the Land and abutting land owned by Landlord, with respect to
which this Lease shall cover only the portion thereof to the center line
between the Land and the abutting land owned by Landlord).
The Land and all of the property described in items (i) through (iii)
above are hereinafter referred to collectively as the "Real Property".
In addition to conveying a leasehold in the Real Property as
described above, Landlord hereby grants, assigns and leases to Tenant
for the term of this Lease the right to use and enjoy (and, to the
extent the following consist of contract rights, to enforce) any
interests or rights of Landlord in, to or under the following, to the
extent, but only to the extent, that such interests or rights are
assignable and have been or will be transferred to Landlord by Seller
under the Contract, transferred to Landlord because of Tenant's purchase
thereof with funds advanced by Landlord as described in subparagraph
9(ae) below, assigned to Landlord by Tenant pursuant to subparagraph
9(af) of the Prior Lease or pursuant to subparagraph 9(ae) below or
otherwise transferred to Landlord by reason of Landlord's status as the
owner of the Real Property: (a) any goods, equipment, furnishings,
furniture, chattels and tangible personal property of whatever nature
that are located on the Real Property and all renewals or replacements
of or substitutions for any of the foregoing; (b) the rights of
Landlord, now existing or hereafter arising, under Permitted
Encumbrances (including the Development Contracts, as defined below),
and (c) any other general intangibles, permits, licenses, franchises,
certificates, and other rights and privileges related to the Real
Property that Tenant (rather than Landlord) would have acquired if
Tenant had itself acquired the Real Property as the purchaser under the
Contract. All of the property, rights and privileges described above in
this paragraph whether now existing or hereafter arising, are
hereinafter collectively called the "Personal Property". The Real
Property and the Personal Property are hereinafter sometimes
collectively called the "Leased Property."
Provided, however, the leasehold estate conveyed hereby and
Tenant's rights hereunder are expressly made subject and subordinate to
the Permitted Encumbrances (as hereinafter defined) and to any other
claims or encumbrances not asserted by Landlord itself or by third
parties lawfully claiming through or under Landlord.
The Leased Property is leased by Landlord to Tenant and is accepted
and is to be used and possessed by Tenant upon and subject to the
following terms, provisions, covenants, agreements and conditions:
1 Definitions. As used herein, the terms "Landlord," "Tenant,"
"Contract," "Seller," "Land," "Prior Lease," "Prior Purchase Agreement,"
"Environmental Indemnity Agreement," "Improvements," "Real Property,"
"Personal Property" and "Leased Property" shall have the meanings
indicated above and the terms listed immediately below shall have the
following meanings:
(a) Active Negligence. "Active Negligence" of an Indemnified
Party means, and is limited to, the negligent conduct of activities
actually on or about the Leased Property by the Indemnified Party or its
employees, agents or representatives in a manner that proximately causes
actual bodily injury or property damage to be incurred. "Active
Negligence" shall not include (1) any negligent failure of Landlord to
act when the duty to act would not have been imposed but for Landlord's
status as owner of the Leased Property or as a party to the transactions
described in this Lease, (2) any negligent failure of any other
Indemnified Party to act when the duty to act would not have been
imposed but for such party's contractual or other relationship to
Landlord or participation or facilitation in any manner, directly or
indirectly, of the transactions described in this Lease, or (3) the
exercise in a lawful manner by Landlord (or any party claiming through
or under Landlord) of any remedy provided herein or in the Purchase
Agreement.
(b) Additional Rent. "Additional Rent" shall have the meaning
assigned to it in subparagraph 3(f) below.
(c) Advance Date. "Advance Date" means, regardless of whether any
Construction Advance shall actually be made thereon, the first Business
Day of every calendar month, beginning with January 2, 1996 and
continuing regularly thereafter to and including the first Business Day
of the first calendar month upon which the then Outstanding Construction
Allowance (including any Construction Advance and Carrying Costs added
to the Outstanding Construction Advance on that Business Day) shall
equal or exceed the Maximum Construction Allowance available under this
Lease; provided, that if Landlord sells its interest in the Leased
Property pursuant to the Purchase Agreement before the Base Rental
Commencement Date, the last Advance Date shall be the Designated Payment
Date. An Advance Date under this definition may also be the Base Rental
Commencement Date or a Base Rental Date under the definitions below.
(d) Affiliate. "Affiliate" of any Person (including Tenant) means
any other Person controlling, controlled by or under common control with
such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through
the direct or indirect ownership of fifty percent (50%) or more of any
class of voting stock of a Person, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
(e) Agency Fees. "Agency Fees" shall have the meaning assigned to
it in subparagraph 3(c) below.
(f) Applicable Laws. "Applicable Laws" shall have the meaning
assigned to it in subparagraph 9(d) below.
(g) Applicable Purchaser. "Applicable Purchaser" means any third
party designated by Tenant to purchase the Landlord's interest in the
Leased Property and in any Escrowed Proceeds as provided in the Purchase
Agreement.
(h) Appraised Value. "Appraised Value" shall have the meaning
assigned to it in Paragraph 4 below.
(i) Attorneys' Fees. "Attorneys' Fees" means the reasonable
expenses and fees of counsel to the parties incurring the same, which
may include fairly allocated costs of in-house counsel, printing,
photostating, duplicating and other expenses, air freight charges, and
fees billed for law clerks, paralegals, librarians and others not
admitted to the bar but performing services under the supervision of an
attorney. Such terms shall also include, without limitation, all such
reasonable expenses and fees incurred with respect to appeals,
arbitrations and bankruptcy proceedings, and whether or not any manner
or proceeding is brought with respect to the matter for which the
expenses and fees were incurred.
(j) Base Rent. "Base Rent" means the rent payable by Tenant
pursuant to subparagraph 3(a) below.
(k) Base Rental Commencement Date. "Base Rental Commencement
Date" means the earlier of the first Business Day in June, 1998 or the
first Business Day of the first calendar month upon which any of the
following shall have occurred: (1) Tenant shall have substantially
completed the initial Construction Project described in subparagraph
6(b)(i), or (2) the then Outstanding Construction Allowance (including
any Construction Advance and Carrying Costs added to the Outstanding
Construction Advance on that Business Day) shall not be less than the
Maximum Construction Allowance available under this Lease. For example,
if on the first Business Day of April, 1998 construction of the initial
Construction Project is continuing, the Outstanding Construction
Allowance is $314,799,999 (before adding any Carrying Costs for the
preceding month) and the Maximum Construction Allowance is $314,800,000
(assuming the Initial Funding Advances are $15,200,000), and if Carrying
Costs of $1,500,000 would be added to the Outstanding Construction
Allowance on such day if the Construction Allowance were not limited to
the Maximum Construction Allowance, then such day shall be the Base
Rental Commencement Date and on such day $1 will be added to the
Outstanding Construction Allowance as Carrying Cost and $1,499,999 will
be payable as Base Rent pursuant to Paragraph 3(a).
(l) Base Rental Date. "Base Rental Date" means the first Business
Day of each calendar month, beginning with first Business Day of the
first calendar month after the Base Rental Commencement Date and
continuing regularly thereafter to and including the Designated Payment
Date.
(m) Base Rental Period. "Base Rental Period" means each
successive period of approximately one (1) month, with the first Base
Rental Period beginning on and including the Base Rental Commencement
Date and ending on but not including the first Base Rental Date. Each
successive Base Rental Period after the first Base Rental Period shall
begin on and include the day on which the preceding Base Rental Period
ends and shall end on but not include the next following Base Rental
Date. A Base Rental Period under this definition may also be a
Construction Period under the definition of Construction Period below.
(n) Business Day. "Business Day" means any day that is (1) not a
Saturday, Sunday or day on which commercial banks are generally closed
or required to be closed in New York City, New York or San Francisco,
California, and (2) a day on which dealings in deposits of dollars are
transacted in the London interbank market; provided that if such
dealings are suspended indefinitely for any reason, "Business Day" shall
mean any day described in clause (1).
(o) Capital Adequacy Charges. "Capital Adequacy Charges" means
any additional amounts Landlord's Parent or any Participant requires
Landlord to pay as compensation for an increase in required capital as
provided in subparagraph 9(x)(iv).
(p) Capital Lease. "Capital Lease" means any lease which has been
or should be capitalized on the books of the lessee in accordance with
GAAP or for federal income tax purposes.
(q) Carrying Costs. "Carrying Costs" means the charges (accruing
at the Effective Rate) and other fees added to and made a part of the
Outstanding Construction Allowance from time to time on or before the
Base Rental Commencement Date pursuant to and as more particularly
described in subparagraph 6(a)(ii) below.
(r) Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(s) Commitment Fee. "Commitment Fee" shall have the meaning
assigned to it in subparagraph 3(e) below.
(t) Consolidated Current Liabilities. "Consolidated Current
Liabilities" means Current Liabilities of Tenant and its Consolidated
Subsidiaries, as determined on a consolidated basis in accordance with
GAAP.
(u) Consolidated Quick Assets. "Consolidated Quick Assets" means
Quick Assets of Tenant and its Consolidated Subsidiaries, as determined
on a consolidated basis in accordance with GAAP (except as otherwise
provided in the definition of "Quick Assets" set forth in subparagraph
1(cc) below).
(v) Consolidated Subsidiary. "Consolidated Subsidiary" means any
Subsidiary of Tenant whose accounts are or are required to be
consolidated with the accounts of Tenant in accordance with GAAP.
(w) Consolidated Tangible Net Worth. "Consolidated Tangible Net
Worth" means, at any date of determination thereof, the excess of
Consolidated Total Assets on such date over Consolidated Total
Liabilities on such date; provided, however, that Intangible Assets on
such date shall be excluded from any determination of Consolidated Total
Assets on such date, but any after-tax charges previously taken in
connection with the acquisition of technology or distribution rights
shall be included in any determination of Consolidated Total Assets on
such date.
(x) Consolidated Total Assets. "Consolidated Total Assets" means,
as of the date of any determination thereof, the total assets of Tenant
and its Consolidated Subsidiaries, as determined on a consolidated basis
in accordance with GAAP.
(y) Consolidated Total Liabilities. "Consolidated Total
Liabilities" means, as of the date of any determination thereof, the
total liabilities of Tenant and its Consolidated Subsidiaries, as
determined on a consolidated basis in accordance with GAAP, and any and
all amounts guaranteed by Tenant not otherwise recorded in the financial
statements of Tenant and its Consolidated Subsidiaries as liabilities.
(z) Current Liabilities. "Current Liabilities" means, with
respect to any Person, all liabilities of such Person treated as current
liabilities in accordance with GAAP, including without limitation (a)
all obligations payable on demand or within one year after the date in
which the determination is made and (b) installment and sinking fund
payments required to be made within one year after the date on which
determination is made, but excluding all such liabilities or obligations
which are renewable or extendable at the option of such Person to a date
more than one year from the date of determination.
(aa) Construction Advances. "Construction Advances" means actual
advances of funds made by or on behalf of Landlord to Tenant pursuant to
Paragraph 6 below for Construction Projects.
(ab) Construction Allowance. "Construction Allowance" means the
allowance which is to be provided by Landlord for Construction Projects
as more particularly described in Paragraph 6 below.
(ac) Construction Documents. "Construction Documents" means all
construction contracts, architectural contracts, engineering contracts,
drawings, plans, specifications, change orders, budgets, surveys, soils
reports, environmental impact studies and other documents executed by or
prepared for Tenant with respect to the Construction Projects.
(ad) Construction Period. "Construction Period" means each
successive period of approximately one (1) month, except that the first
Construction Period shall be a shorter period beginning on and including
the effective date hereof and ending on but not including the first
Advance Date. Each successive Construction Period after the first
Construction Period shall begin on and include the day on which the
preceding Construction Period ends and shall end on but not include the
next following Advance Date.
(ae) Construction Project. Construction Projects include (1) the
"initial Construction Project" which means the construction of the
improvements described in Schedule 3 and contemplated by any plans,
renderings and budgets referenced therein (including site work done on
or about the Land by Tenant to prepare the Land for future
construction), the purchase of equipment and other personal property for
use in such improvements, and the provision of or payment for potable
and non-potable water, sewer and other infrastructure and utility
improvements related thereto, whether on-site or off-site, all
consistent with the uses permitted by this Lease, and (2) "subsequent
Construction Projects" which means any other project to be undertaken by
Tenant during the term of this Lease for the construction of new
Improvements or for the alteration of then existing Improvements. A
subsequent Construction Project may involve demolition of then existing
Improvements which are no longer needed or which must be removed to
accommodate new Improvements, subject to the requirements of Paragraph
6(b) below. All construction work planned or done contemporaneously
shall constitute a single Construction Project for purposes of this
Lease, notwithstanding that such work may be done in stages or performed
by more than one general contractor. However, it is understood that any
number of distinct Construction Projects may be undertaken by Tenant
during the term of (and in accordance with the provisions of) this
Lease.
(af) Debt. "Debt" means, with respect to any Person, (a)
indebtedness of such Person for borrowed money; (b) indebtedness of such
Person for the deferred purchase price of property or services (except
trade payables and accrued expenses constituting current liabilities in
the ordinary course of business); (c) the face amount of any outstanding
letters of credit issued for the account of such Person; (d) obligations
of such Person arising under acceptance facilities; (e) guaranties,
endorsements (other than for collection in the ordinary course of
business) and other contingent obligations of such Person to purchase,
to provide funds for payment, to provide funds to invest in any Person,
or otherwise to assure a creditor against loss; (f) obligations of
others secured by any Lien on property of such Person; and (g)
obligations of such Person as lessee under Capital Leases.
(ag) Default. "Default" means any event which, with the passage
of time or the giving of notice or both, would constitute an Event of
Default.
(ah) Default Rate. "Default Rate" means a floating per annum rate
equal to five percent (5%) above the Prime Rate in effect from time to
time. However, for purposes of computing interest on any past due
reimbursement which is payable by Tenant upon demand under this Lease,
the "Default Rate" for the first ten (10) Business Days after a demand
for such reimbursement is made upon Tenant shall (1) equal zero, if the
reimbursement required is $10,000 or less, and (2) if the required
reimbursement is more than $10,000, not exceed the Prime Rate in effect
on the date demand for such reimbursement is first made. Further, in no
event will the "Default Rate" charged on any past due amount exceed the
maximum interest rate permitted by law.
(ai) Designated Payment Date. "Designated Payment Date" shall
have the meaning assigned to it in the Purchase Agreement.
(aj) Development Contracts. "Development Contracts" means the
documents described in Schedule 2 attached hereto, as such documents may
be modified from time to time with the consent of Landlord pursuant to
subparagraph 10(b) below, and any applications, permits, contracts or
documents concerning the use or development of the Leased Property or
other Development Contracts that Landlord may hereafter execute or to
which Landlord may consent at the request of Tenant pursuant to
subparagraph 10(b) below.
(ak) Effective Rate. "Effective Rate" means, for each
Construction Period and Base Rental Period, the rate which equals the
Spread plus the rate per annum determined by dividing (A) LIBOR for such
Construction Period or Base Rental Period, as the case may be, by (B)
100% minus the Eurodollar Rate Reserve Percentage for such Construction
Period or Base Rental Period. If LIBOR or the Eurodollar Rate Reserve
Percentage changes from period to period, then the Effective Rate shall
be automatically increased or decreased as of the date of such change,
as the case may be. After the Base Rental Commencement Date, however,
Landlord will provide notice of any such change (as required by
Paragraph 3(a)) after the same shall take effect and at least five (5)
Business Days prior to the next following Base Rental Date. If for any
reason Landlord determines in good faith that it is impossible or
impractical to determine the Effective Rate with respect to a given
Construction Period or Base Rental Period in accordance with the
preceding sentences, then the "Effective Rate" for that Construction
Period or Base Rental Period shall equal the Spread plus any published
index or per annum interest rate determined in good faith by Landlord's
Parent to be comparable to LIBOR at the beginning of the first day of
that period. A comparable interest rate might be, for example, the then
existing yield on short term United States Treasury obligations (as
compiled by and published in the then most recently published United
States Federal Reserve Statistical Release H.15(519) or its successor
publication), plus or minus a fixed adjustment based on Landlord's
Parent's comparison of past eurodollar market rates to past yields on
such Treasury obligations. Any determination by Landlord of the
Effective Rate hereunder shall, in the absence of clear and demonstrable
error, be conclusive and binding.
(al) Environmental Cutoff Date. "Environmental Cutoff Date" means
the later of the dates upon which (i) this Lease terminates, or (ii)
Tenant surrenders possession and control of the Leased Property.
(am) Environmental Indemnity Agreement. "Environmental Indemnity
Agreement" means Environmental Indemnity Agreement dated as of August 1,
1995 executed by Tenant in favor of Landlord.
(an) Environmental Laws. "Environmental Laws" means any and all
existing and future Applicable Laws pertaining to safety, health or the
environment, or to Hazardous Substances or Hazardous Substance
Activities, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986 (as amended,
hereinafter called "CERCLA"), and the Resource Conservation and Recovery
Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid
Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984 (as amended, hereinafter called "RCRA").
(ao) Environmental Losses. "Environmental Losses" means Losses
suffered or incurred by any Indemnified Party, directly or indirectly,
relating to or arising out of, based on or as a result of any of the
following: (i) any Hazardous Substance Activity on or prior to the
Environmental Cutoff Date; (ii) any violation on or prior to the
Environmental Cutoff Date of any applicable Environmental Laws relating
to the Leased Property or to the ownership, use, occupancy or operation
thereof; (iii) any investigation, inquiry, order, hearing, action, or
other proceeding by or before any governmental or quasi-governmental
agency or authority in connection with any Hazardous Substance Activity
that occurs or is alleged to have occurred on or prior to the
Environmental Cutoff Date; or (iv) any claim, demand, cause of action or
investigation, or any action or other proceeding, whether meritorious or
not, brought or asserted against any Indemnified Party which directly or
indirectly relates to, arises from, is based on, or results from any of
the matters described in clauses (i), (ii), or (iii) of this
subparagraph 1(ao) or any allegation of any such matters. For purposes
of determining whether Losses constitute "Environmental Losses," as the
term is used in this Lease, any actual or alleged Hazardous Substance
Activity or violation of Environmental Laws relating to the Leased
Property will be presumed to have occurred prior to the Environmental
Cutoff Date unless Tenant establishes by clear and convincing evidence
to the contrary that the relevant Hazardous Substance Activity or
violation of Environmental Laws did not occur or commence prior to the
Environmental Cutoff Date. Environmental Losses incurred by or asserted
against a particular Indemnified Party shall include Losses relating to
or arising out of or as a result of any matters listed above even when
such matters are caused by the negligence of that particular Indemnified
Party or any other Indemnified Party. However, Losses incurred by or
asserted against a particular Indemnified Party and proximately caused
by (and attributed by any applicable principles of comparative fault to)
the wilful misconduct, Active Negligence or gross negligence of that
Indemnified Party or its Affiliates, agents or employees will not
constitute Environmental Losses of such Indemnified Party for purposes
of this Lease.
(ap) Environmental Report. "Environmental Report" means
collectively the following reports: the Phase I Environmental Site
Assessment Report, Vaca Valley Business Park, Genentech, Inc.,
Vacaville, California, dated June 16, 1995, prepared by SECOR
International Incorporated; and the Subsurface Soil and Ground Water
Investigation Letter Report, Proposed Genentech Parcel, Vaca Valley
Parkway and Akerly Drive, Vacaville California, dated July 21, 1995,
prepared by Tetra Tech, Inc.
(aq) ERISA. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, including any rules and
regulations promulgated thereunder.
(ar) ERISA Affiliate. "ERISA Affiliate" means any corporation or
trade or business which is a member of any group of organizations (i)
described in Section 414(b) or (c) of the Code of which Tenant is a
member, or (ii) solely for purposes of potential liability under Section
302(c) (11) of ERISA and Section 412(c) (11) of the Code and the lien
created under Section 302(f) of ERISA and Section 412(n) of the Code,
described in Section 414(m) or (o) of the Code of which Tenant is a
member.
(as) Escrowed Proceeds. "Escrowed Proceeds" shall mean any
proceeds that are received by Landlord from time to time during the Term
(and any interest earned thereon), which Landlord is holding for the
purposes specified in the next sentence, from any party (1) under any
casualty insurance policy as a result of damage to the Leased Property,
(2) as compensation for any sale of a Parcel pursuant to subparagraph
10(b) or for any restriction placed upon the use or development of the
Leased Property or for the condemnation of the Leased Property or any
portion thereof, (3) because of any judgment, decree or award for injury
or damage to the Leased Property or (4) under any title insurance policy
or otherwise as a result of any title defect or claimed title defect
with respect to the Leased Property; provided, however, in determining
"Escrowed Proceeds" there shall be deducted all expenses and costs of
every type, kind and nature (including Attorneys' Fees) incurred by
Landlord to collect such proceeds; and provided, further, "Escrowed
Proceeds" shall not include any payment to Landlord by a Participant or
an Affiliate of Landlord that is made to compensate Landlord for the
Participant's or Affiliate's share of any Losses Landlord may incur as a
result of any of the events described in the preceding clauses (1)
through (4). "Escrowed Proceeds" shall include only such proceeds as
are held by Landlord (A) pursuant to Paragraph 4 for the payment to
Tenant for the restoration or repair of the Leased Property or (B) for
application (generally, on the next following Advance Date or Base
Rental Date which is at least three (3) Business Days following
Landlord's receipt of such proceeds) as a Qualified Payment or as
reimbursement of costs incurred in connection with a Qualified Payment.
"Escrowed Proceeds" shall not include any proceeds that have been
applied as a Qualified Payment or to pay any costs incurred in
connection with a Qualified Payment. Until Escrowed Proceeds are paid
to Tenant pursuant to Paragraph below or applied as a Qualified Payment
or as reimbursement for costs incurred in connection with a Qualified
Payment, Landlord shall keep the same deposited in an interest bearing
account, and all interest earned on such account shall be added to and
made a part of Escrowed Proceeds.
(at) Eurocurrency Liabilities. "Eurocurrency Liabilities" has the
meaning assigned to that term in Regulation D of the Board of Governors
of the Federal Reserve System, as in effect from time to time.
(au) Eurodollar Rate Reserve Percentage. "Eurodollar Rate Reserve
Percentage" means, for purposes of determining the Effective Rate for
any Construction Period or Base Rental Period, the reserve percentage
applicable two (2) Business Days before the first day of such
Construction Period or Base Rental Period under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or
any successor) for determining the maximum reserve requirement
(including, but not limited to, any emergency, supplemental or other
marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with deposits exceeding One Billion Dollars with
respect to liabilities or deposits consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities by reference to which LIBOR is determined) having a term
comparable to such Construction Period or Base Rental Period.
(av) Event of Default. "Event of Default" shall have the meaning
assigned to it in subparagraph 14(a) below.
(aw) Excluded Taxes. "Excluded Taxes" shall mean all federal,
state and local income taxes (whether designated as income taxes or
franchise taxes) upon Base Rent, the Upfront Fee, Agency Fees, Special
Participation Fees, Commitment Fees and any interest paid to Landlord
pursuant to subparagraph 3(g). Further, "Excluded Taxes" will include
any transfer or change of ownership taxes assessed because of Landlord's
transfer or conveyance to any third party of any rights or interest in
this Lease, the Purchase Agreement or the Leased Property, but excluding
any such taxes assessed because of any Permitted Transfer under clauses
(1), (4) or (5) of subparagraph 1(bu) below.
(ax) Fed Funds Rate. "Fed Funds Rate" means, for any period, a
fluctuating interest rate (expressed as a per annum rate and rounded
upwards, if necessary, to the next 1/16 of 1%) equal for each day during
such period to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rates are not so published for any
day which is a Business Day, the average of the quotations for such day
on such transactions received by the Landlord's Parent from three
Federal funds brokers of recognized standing selected by Landlord's
Parent. All determinations of the Fed Funds Rate by Landlord's Parent
shall, in the absence of clear and demonstrable error, be binding and
conclusive upon Landlord and Tenant.
(ay) Funding Advances. "Funding Advances" means (1) the Initial
Funding Advances and (2) all future advances (which, together with
Initial Funding Advances, are expected to total but in no event exceed
$330,000,000) made by Landlord's Parent or any Participant to or on
behalf of Landlord to allow Landlord to provide the Construction
Allowance hereunder.
(az) GAAP. "GAAP" means generally accepted accounting principles
in the United States of America as in effect from time to time, applied
on a basis consistent with those used in the preparation of the
financial statements referred to in subparagraph 9(v) (except for
changes concurred in by Tenant's independent public accountants).
(ba) Hazardous Substance. "Hazardous Substance" means (i) any
chemical, compound, material, mixture or substance that is now or
hereafter defined or listed in, regulated under, or otherwise classified
pursuant to, any Environmental Laws as a "hazardous substance,"
"hazardous material," "hazardous waste," "extremely hazardous waste,"
"infectious waste," "toxic substance," "toxic pollutant," or any other
formulation intended to define, list or classify substances by reason of
deleterious properties, including, without limitation, ignitability,
corrosiveness, reactivity, carcinogenicity, toxicity or reproductive
toxicity; (ii) petroleum, any fraction of petroleum, natural gas,
natural gas liquids, liquified natural gas, synthetic gas usable for
fuel (or mixtures of natural gas and such synthetic gas), and ash
produced by a resource recovery facility utilizing a municipal solid
waste stream, and drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil,
natural gas or geothermal resources; (iii) asbestos and any asbestos
containing material; (iv) "waste" as defined in section 13050(d) of the
California Water Code; and (v) any other material that, because of its
quantity, concentration or physical or chemical characteristics, poses a
significant present or potential hazard to human health or safety or to
the environment if released into the workplace or the environment.
(bb) Hazardous Substance Activity. "Hazardous Substance Activity"
means any use, storage, holding, existence, location, release
(including, without limitation, any spilling, leaking, leaching,
pumping, pouring, emitting, emptying, dumping, disposing into the
environment, and the continuing migration into or through soil, surface
water, groundwater or any body of water), discharge, deposit, placement,
generation, processing, construction, treatment, abatement, removal,
disposal, disposition, handling or transportation of any Hazardous
Substance from, under, in, into or on the Leased Property, including,
without limitation, the movement or migration of any Hazardous Substance
from surrounding property, surface water, groundwater or any body of
water under, in, into or onto the Leased Property and any residual
Hazardous Substance contamination in, on or under the Leased Property.
(bc) Hazardous Substance Claims. "Hazardous Substance Claims"
shall have the meaning assigned to it in subparagraph 9(aa) below.
(bd) Impositions. "Impositions" shall have the meaning assigned
to it in subparagraph 9(p) below.
(be) Improvements. "Improvements," as defined in the recitals at
the beginning of this Lease, shall include not only existing
improvements to the Land as of the date hereof, if any, but also new
improvements or changes to existing improvements made by Tenant or
Tenant's Agents during the Term. Accordingly, all new improvements made
to the Leased Property by Tenant using the Construction Allowance as
contemplated in this Lease shall constitute "Improvements" as that term
is used herein.
(bf) Indemnified Party. "Indemnified Party" means each of (1)
Landlord and any of Landlord's successors and permitted assigns as to
all or any portion of the Leased Property or any interest therein, (2)
Landlord's Parent and each Participant, and (3) any Affiliate, officer,
agent, director, employee or servant of any of the parties described in
clause (1) or (2) preceding.
(bg) Initial Funding Advances. "Initial Funding Advances" means
the advances made by Landlord's Parent or Participants described in the
following subparagraphs:
(1) Landlord's Parent advanced $15,000,000 to or on behalf of Landlord
on or prior to the delivery of the executed Prior Lease to pay the cost
of Landlord's acquisition of the Leased Property pursuant to the
Contract, to provide the funds which Landlord advanced to Tenant for
purposes listed below and to pay Transaction Expenses incurred by
Landlord on or before the date the Prior Lease was delivered by Landlord
and Tenant. The portion of such advance from Landlord's Parent not used
by Landlord for the acquisition of the Leased Property pursuant to the
Contract or to pay Transaction Expenses incurred by Landlord was paid by
Landlord to Tenant contemporaneously with the delivery of the Prior
Lease, with the understanding (which continues under this Lease) that
Tenant would use the same for the following purposes: (A) to pay
certain fees and to provide certain reimbursements to Tenant as
described in the Prior Lease, (B) to pay Transaction Expenses incurred
by Tenant on or before the date the Prior Lease was delivered by
Landlord and Tenant, (C) as reimbursement to Tenant in the amount of
$750,000 for an initial deposit and additional deposit paid by Tenant to
Seller in connection with the Contract, plus accrued interest credited
on funds so deposited, and (D) as reimbursement to Tenant (or to pay
directly) for all actual costs and expenses (including soft costs and
hard costs and, in the case of Tenant only, Tenant's internal labor
costs) of Tenant or Tenant's Agents in connection with anticipated
Improvements, including subdivision, demolition and grading activities,
as appropriate, the planning, design, engineering and permitting of the
Improvements, and the maintenance of the Leased Property.
(2) Landlord's Parent or Participants are advancing to Landlord the
sum of $12,027,080 contemporaneously with the execution of this Lease to
provide the funds which Landlord is advancing to Tenant for purposes
listed below and to pay additional Transaction Expenses incurred by
Landlord on or before the date this Lease is signed by Landlord and
Tenant. Any portion of the such advance not used by Landlord to pay
Transaction Expenses incurred by Landlord is being paid by Landlord to
Tenant contemporaneously with the execution of this Lease, with the
understanding that Tenant shall use the same for the following purposes:
(A) to pay the Upfront Fee, the first Agency Fee and the Special
Participation Fees and to provide reimbursement to Tenant of the deposit
required of Tenant by the Term Sheet, (B) to pay Transaction Expenses
incurred by Tenant on or before the date this Lease is executed by
Landlord and Tenant, (C) as reimbursement to Tenant (or to pay directly)
for actual costs and expenses (including soft costs and hard costs and,
in the case of Tenant only, Tenant's internal labor costs) of Tenant or
Tenant's Agents in connection with anticipated Improvements, including
subdivision, demolition and grading activities, as appropriate, the
planning, design, engineering and permitting of the Improvements, and
the maintenance of the Leased Property, and (D) to pay any unpaid rent
or other charges which, at the time this Lease is executed, Landlord and
Tenant have identified as amounts due or scheduled to become due under
the Prior Lease on or before the effective date hereof.
(bh) Intangible Assets. "Intangible Assets" means, as of the date
of any determination thereof, the total amount of all assets of Tenant
and its Consolidated Subsidiaries that are properly classified as
"intangible assets" in accordance with GAAP and, in any event, shall
include, without limitation, goodwill, patents, trade names, trademarks,
copyrights, franchises, experimental expense, organization expense,
unamortized debt discount and expense, and deferred charges other than
prepaid insurance and prepaid taxes and current deferred taxes which are
classified on the balance sheet of Tenant and its Consolidated
Subsidiaries as a current asset in accordance with GAAP.
(bi) Landlord's Parent. "Landlord's Parent" means Banque
Nationale de Paris, a bank organized and existing under the laws of
France, together with any Affiliates of such bank that directly or
indirectly provided or hereafter during the Term provide or maintain any
part of the Funding Advances, and any successors of such bank and such
Affiliates.
(bj) LIBOR. "LIBOR" means, for purposes of determining the
Effective Rate for each Construction Period and Base Rental Period, the
rate determined by Landlord's Parent to be the average rate of interest
per annum (rounded upwards, if necessary, to the next 1/16 of 1%) of the
rates at which deposits of dollars are offered or available to
Landlord's Parent in the London interbank market at approximately 11:00
a.m. (London time) on the second Business Day preceding the first day of
such Construction Period or Base Rental Period. Landlord shall instruct
Landlord's Parent to consider deposits, for purposes of making the
determination described in the preceding sentence, that are offered: (i)
for delivery on the first day of such Construction Period or Base Rental
Period, (ii) in an amount equal or comparable to the total (projected on
the applicable date of determination by Landlord's Parent) Stipulated
Loss Value on the first day of such Construction Period or Base Rental
Period, and (iii) for a period of time equal or comparable to the length
of such Construction Period Base Rental Period. If Landlord's Parent so
chooses, it may determine LIBOR for any period by reference to the rate
reported by the British Banker's Association on Page 3750 of the
Telerate Service at approximately 11:00 a.m. (London time) on the second
Business Day preceding the first day of such period. If for any reason
Landlord's Parent in good faith determines that it is impossible or
impractical to determine LIBOR with respect to a given Construction
Period or Base Rental Period in accordance with the preceding sentences,
or if Landlord's Parent shall determine that it is unlawful (or any
central bank or governmental authority shall assert that it is unlawful)
for Landlord, Landlord's Parent or any Participant to maintain Funding
Advances hereunder during any Construction Period or Base Rental Period
for which Carrying Costs or Base Rent is computed by reference to LIBOR,
then "LIBOR" for that Construction Period or Base Rental Period shall
equal the rate which is fifty basis points (50/100 of 1%) above the Fed
Funds Rate for that period. All determinations of LIBOR by Landlord's
Parent shall, in the absence of clear and demonstrable error, be binding
and conclusive upon Landlord and Tenant.
(bk) Lien. "Lien" means any lien (statutory, constitutional,
contractual or otherwise), security interest, mortgage, deed of trust,
priority, pledge, charge, hypothecation, conditional sale, title
retention agreement, financing lease or other encumbrance or similar
right of others, or any agreement to give any of the foregoing. In
addition, for purposes of subparagraph 9(ad)(i)(8) below, "Lien"
includes any Liens under ERISA relating to Unfunded Benefit Liabilities
of which Tenant is required to notify Landlord under subparagraph
9(ae)(i) below (which shall be included hereunder irrespective of
whether Tenant actually notifies Landlord as required thereunder).
(bl) Losses. "Losses" means any and all losses, liabilities,
damages (whether actual, consequential, punitive or otherwise
denominated), demands, claims, actions, judgments, causes of action,
assessments, fines, penalties, costs, and out-of-pocket expenses
(including, without limitation, Attorneys' Fees, accountants' fees and
the reasonable fees of environmental consultants), of any and every kind
or character, foreseeable and unforeseeable, liquidated and contingent,
proximate and remote, known and unknown.
(bm) Maximum Construction Allowance. "Maximum Construction
Allowance" means an amount equal to the lesser of (i) $330,000,000, less
the Initial Funding Advances and less Qualified Payments, if any,
deducted in determining the Outstanding Construction Allowance, or (ii)
such amount (not less than the then Outstanding Construction Allowance)
as may be designated by Tenant to Landlord in a notice delivered
subsequent to substantial completion of the initial Construction
Project.
(bn) Multiemployer Plan. "Multiemployer Plan" means a
multiemployer plan as defined in Section 3(37) of ERISA to which
contributions have been made by Tenant or any ERISA Affiliate during the
preceding six years and which is covered by Title IV of ERISA.
(bo) Outstanding Construction Allowance. "Outstanding
Construction Allowance" shall have the meaning assigned to it in
subparagraph 6(a)(i).
(bp) Participant. "Participant" means (1) the Persons listed in
Schedule 1 attached hereto, each of which is executing a participation
agreement dated as of the effective date hereof, wherein each such
Person is agreeing with Landlord to participate in all or some of the
risks and rewards to Landlord of this Lease and the Purchase Agreement,
and (2) the successors and permitted assigns of each such Person under
the applicable participation agreement.
(bq) PBGC. "PBGC" means the Pension Benefit Guaranty Corporation
and any entity succeeding to any or all of its functions under ERISA.
(br) Permitted Encumbrances. "Permitted Encumbrances" means the
following and any future modifications of any of the following which
Landlord may execute or to which Landlord may give consent pursuant to
subparagraph 10(b): (i) the encumbrances and other matters affecting the
Leased Property that are set forth in Exhibit B attached hereto and made
a part hereof, (ii) the obligations imposed upon the buyer under the
Contract, if any, that survived the closing thereunder, (iii) any
easement agreement or other document affecting title to the Leased
Property that Landlord may execute, accept an assignment of or give its
consent to pursuant to the Contract or pursuant to a document executed
in accordance with the Contract or at the request of or with the consent
of Tenant (including any such easement agreement or other document
executed by Landlord or to which Landlord may give consent pursuant to
subparagraph 10(b)), (iv) Development Contracts, if any, in addition to
those included in the preceding clauses, (v) any Liens securing the
payment of Impositions which are not delinquent or claimed to be
delinquent or which are being contested in accordance with subparagraph
9(p) of this Lease; (vi) the Assessment District Lien (as defined in the
Contract); (vii) mechanics' and materialmen's liens for amounts not past
due or claimed to be past due or which are being contested in accordance
with subparagraph 9(o) of this Lease; and (viii) easements, rights-of-
way, restrictions and similar encumbrances which, in the aggregate, do
not significantly interfere with the occupation, use or enjoyment of or
ability to develop the Real Property in accordance with and for uses
permitted by Applicable Laws or impose any significant monetary
obligations on the Landlord or otherwise materially and adversely
decrease the fair market value of the Leased Property. Nothing in this
definition is intended to impair Tenant's rights under subparagraph
10(c) which may be exercised without notice to or the consent of
Landlord as provided therein.
(bs) Permitted Hazardous Substance Use. "Permitted Hazardous
Substance Use" means the use, storage and offsite disposal of Permitted
Hazardous Substances in strict accordance with applicable Environmental
Laws and with due care given the nature of the Hazardous Substances
involved; provided, the scope and nature of such use, storage and
disposal shall not include the use of underground storage tanks for any
purpose other than the storage of water for fire control, nor shall such
scope and nature:
(1) exceed that reasonably required for the construction and
operation of the Leased Property for the purposes permitted under
subparagraph 8(a); or
(2) include any disposal, discharge or other release of Hazardous
Substances in any manner that might allow such substances to reach the
surface water or groundwater, except (i) through a lawful and properly
authorized discharge (A) to a publicly owned treatment works or (B) with
rainwater or storm water runoff in accordance with Applicable Laws and
any permits obtained by Tenant that govern such runoff; or (ii) any such
disposal, discharge or other release of Hazardous Substances for which
no permits are required and which are not otherwise regulated under
applicable Environmental Laws.
Further, notwithstanding anything to the contrary herein contained,
Permitted Hazardous Substance Use shall not include any use of the
Leased Property as a treatment, storage or disposal facility (as defined
by federal Environmental Laws), including but not limited to a landfill,
incinerator or other waste disposal facility.
(bt) Permitted Hazardous Substances. "Permitted Hazardous
Substances" means Hazardous Substances used and reasonably required for
Tenant's operation of the Leased Property for the purposes permitted
under subparagraph 8(a) in strict compliance with all Environmental Laws
and with due care given the nature of the Hazardous Substances involved.
(bu) Permitted Transfer. "Permitted Transfer" means any one or
more of the following: (1) the creation or conveyance by Landlord of
rights and interests in favor of any Participant pursuant to the
original participation agreements they are entering into with Landlord
contemporaneously with this Lease; (2) the creation or conveyance of
rights and interests in favor of or to Banque Nationale de Paris
(through its San Francisco Branch or otherwise), as Landlord's Parent,
provided that Landlord must notify Tenant before any such conveyance to
Banque Nationale de Paris of (A) any interest in the Leased Property or
any portion thereof by an assignment or other document which will be
recorded in the real property records of Solano County, California or
(B) Landlord's entire interest in the Leased Property; (3) the creation
or conveyance of rights and interests in favor of or to Qualified
Affiliates of Landlord (other than Banque Nationale de Paris) with
Tenant's prior written consent, which consent shall not be unreasonably
withheld; (4) any assignment or conveyance by Landlord requested by
Tenant or required by any Permitted Encumbrance, by the Purchase
Agreement, by the Contract, by any other Development Contract or by
Applicable Laws; or (5) any assignment or conveyance after a Designated
Payment Date on which Tenant shall not have purchased or caused an
Applicable Purchaser to purchase Landlord's interest in the Leased
Property and, if applicable, after the expiration of the thirty (30) day
cure period specified in Paragraph 2(c) of the Purchase Agreement.
(bv) Person. "Person" means an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of
whatever nature, and shall include, but not be limited to, Tenant and
any Affiliates thereof, Landlord and any Affiliates thereof, Landlord's
Parent and any Affiliates thereof, and each Participant and any
Affiliates thereof.
(bw) Plan. "Plan" means any employee benefit or other plan
established or maintained, or to which contributions have been made, by
Tenant or any ERISA Affiliate of Tenant during the preceding six years
and which is covered by Title IV of ERISA, other than a Multiemployer
Plan.
(bx) Potential Lien Claimants. "Potential Lien Claimants" shall
have the meaning assigned to it in Paragraph 6(c)(viii).
(by) Prime Rate. "Prime Rate" means the higher of (1) the prime
interest rate or equivalent charged by Landlord's Parent in the United
States as announced or published by Landlord's Parent from time to time,
which need not be the lowest interest rate charged by Landlord's Parent,
or (2) the rate quoted by Landlord's Parent at approximately 11:00 a.m.
New York City time to dealers in the New York Federal Funds Market for
the overnight offering of dollars by Landlord's Parent, for deposit,
plus one-quarter of one percent (1/4%). If for any reason Landlord's
Parent does not announce or publish a prime rate or equivalent, the
prime rate or equivalent announced or published by either Citibank, N.A.
or Credit Commercial de France as selected by Landlord shall be used to
compute the rate describe in clause (1) of the preceding sentence. The
prime rate or equivalent announced or published by such bank need not be
the lowest rate charged by it. The Prime Rate may change from time to
time after the date hereof without notice to Tenant as of the effective
time of each change in rates described in this definition.
(bz) Purchase Agreement. "Purchase Agreement" means the Purchase
Agreement dated as of the date hereof between Landlord and Tenant
pursuant to which Tenant has agreed to purchase or to arrange for the
purchase by a third party of the Leased Property, as such Purchase
Agreement may be extended, supplemented, amended, restated or otherwise
modified from time to time.
(ca) Qualified Affiliate. "Qualified Affiliate" means any Person
that is one hundred percent (100%) owned, directly or indirectly, by
Banque Nationale de Paris or any successor of such bank, provided that
Landlord and such Person can (and each does in writing) represent to
Tenant as follows: (1) all parties to whom such Person has any material
obligations are (and are expected to be) Affiliates of Banque Nationale
de Paris or any successor of such bank, except for participants with
such Person in other leasing deals or loans made by such Person and
except for tenants or borrowers in such other leasing deals or loans;
(2) no material legal actions are pending or expected against such
Person and no material legal actions are pending by such Person; (3)
such Person is solvent; (4) such Person has substantial assets in
addition to the Leased Property, thereby making it inappropriate to
characterize such Person as a "special purpose entity" created to
accommodate only the transactions contemplated in this Lease and the
Purchase Agreement; and (5) such Person will notify Tenant immediately
in writing if any of the foregoing changes before the Designated Payment
Date.
(cb) Qualified Payments. "Qualified Payments" means all payments
received by Landlord from time to time during the Term from any party
(1) under any casualty insurance policy as a result of damage to the
Leased Property, (2) as compensation for any sale of a Parcel pursuant
to subparagraph 10(b) or for any restriction placed upon the use or
development of the Leased Property or for the condemnation of the Leased
Property or any portion thereof, (3) because of any judgment, decree or
award for injury or damage to the Leased Property or (4) under any title
insurance policy or otherwise as a result of any title defect or claimed
title defect with respect to the Leased Property; provided, however,
that (x) in determining "Qualified Payments", there shall be deducted
all expenses and costs of every kind, type and nature (including taxes
and Attorneys' Fees) incurred by Landlord with respect to the collection
of such payments, (y) "Qualified Payments" shall not include any payment
to Landlord by a Participant or an Affiliate of Landlord that is made to
compensate Landlord for the Participant's or Affiliate's share of any
Losses Landlord may incur as a result of any of the events described in
the preceding clauses (1) through (4) and (z) "Qualified Payments" shall
not include any payments received by Landlord that Landlord has paid to
Tenant for the restoration or repair of the Leased Property or that
Landlord is holding as Escrowed Proceeds. For purposes of computing the
total Qualified Payments (and other amounts dependent upon Qualified
Payments, such as Stipulated Loss Value) paid to or received by Landlord
as of any date, payments described in the preceding clauses (1) through
(4) will be considered as Escrowed Proceeds, not Qualified Payments,
until they are actually applied as Qualified Payments by Landlord, which
Landlord will do upon the first Advance Date or Base Rental Date which
is at least three (3) Business Days after Landlord's receipt of the same
unless postponement of such application is required by other provisions
of this Lease or consented to by Tenant in writing. Thus, for example,
condemnation proceeds actually received by Landlord in the middle of a
Base Rental Period will not be considered as having been received by
Landlord for purposes of computing the total Qualified Payments unless
and until actually applied by Landlord as a Qualified Payment on a
subsequent Advance Date or Base Rental Date in accordance with Paragraph
4 below.
(cc) Quick Assets. "Quick Assets" means the sum of the following
to the extent not encumbered by any Lien:
(1) cash on hand or on deposit in banks;
(2) readily marketable securities:
(A) issued by the United States of America or any agency
thereof and fully guaranteed by the United States Government and
reported for purposes of this Lease (i) as reported by Tenant on its
books and records in accordance with GAAP (regardless of whether GAAP
requires reporting at cost or at market value) if maturing no later than
three years after the applicable determination of Quick Assets, or (ii)
at not greater than fair market value if maturing more than three years
after the applicable determination of Quick Assets, regardless of
whether GAAP would permit reporting at a higher cost; or
(B) maturing within three years after the applicable
determination of Quick Assets and rated at least (i) A (in the case of
securities with an original maturity greater than one year) or A-2 (in
the case of securities with an original maturity of one year or less) or
the equivalent thereof by Standard and Poor's Corporation, or (ii) A-2
(in the case of securities with an original maturity greater than one
year) or P-2 (in the case of securities with an original maturity of one
year or less) or the equivalent thereof by Moody's Investor Service,
Inc.;
(3) certificates of deposit or banker's acceptances maturing
within three years and issued by commercial banks operating in the
United States of America having capital and surplus in excess of
$500,000,000; and
(4) accounts receivable of Tenant and its Consolidated
Subsidiaries (determined on a consolidated basis net of reserves for
uncollectible amounts in accordance with GAAP).
(cd) Remaining Proceeds. "Remaining Proceeds" shall have the
meaning assigned to it in Paragraph 4.
(ce) Rent. "Rent" means the Base Rent and all Additional Rent.
(cf) Scope Change. "Scope Change" means a change to a
Construction Project that, if implemented, will make the quality,
function or capacity of the Improvements affected by such Construction
Project "materially different" (as defined below in this paragraph) than
as described or inferred by plans or other items submitted to Landlord
by Tenant as described in subparagraph 6(b)(i). Notwithstanding the
foregoing, "Scope Change" shall not include refinement, correction and
detailing of plans or other items submitted to Landlord by Tenant. As
used in this definition, a "material difference" means a difference that
(a) could (after completion of the applicable Construction Project and
the funding of any Construction Advances required in connection
therewith) significantly reduce any excess of the fair market value of
the Leased Property over Stipulated Loss Value or significantly increase
any excess of Stipulated Loss Value over the fair market value of the
Leased Property, or (b) will change the general character of the
Improvements from that needed to accommodate the uses permitted by
subparagraph 8(a).
(cg) Special Participation Fees. "Special Participation Fees"
shall have the meaning assigned to it in subparagraph 3(d) below.
(ch) Spread. "Spread" means thirty-two and one-half basis points
(32.5/100 of 1%), for purposes of calculating the Effective Rate for any
period ending on or before the end of the thirtieth (30th) full calendar
month after the date hereof, and it means twenty-eight and one-half
basis points (28.5/100 of 1%) for purposes of calculating the Effective
Rate for any period beginning thereafter.
(ci) Stipulated Loss Value. "Stipulated Loss Value" as of any
date means an amount equal to the sum of the Initial Funding Advances,
plus the sum of all Construction Advances and Carrying Costs added to
the Outstanding Construction Allowance on or prior to such date, minus
all funds received by Landlord and applied as Qualified Payments on or
prior to such date. Under no circumstances will any payment of Base
Rent, the Upfront Fee, Agency Fees, Special Participation Fees or
Commitment Fees reduce Stipulated Loss Value.
(cj) Subsidiary. "Subsidiary" means, with respect to any Person,
any Affiliate of which at least a majority of the securities or other
ownership interests having ordinary voting power then exercisable for
the election of directors or other persons performing similar functions
are at the time owned directly or indirectly by such Person.
(ck) Tenant's Agents. "Tenant's Agents" shall mean collectively
any contractors, subcontractors and other agents that Tenant (or
Tenant's contractors, subcontractors or other agents) may hire from time
to time to perform construction or services related to any Construction
Project.
(cl) Term. "Term" shall have the meaning assigned to it in
Paragraph 2(a) below.
(cm) Term Sheet. "Term Sheet" means the letter dated October 4,
1995 from Landlord to Tenant, signed by Tenant on October 5, 1995, as
amended by a second letter dated October 16, 1995 from Landlord to
Tenant, signed by Tenant on October 17, 1995, and as amended by a third
letter dated November 17, 1995 from Landlord to Tenant, signed by Tenant
on November 21, 1995.
(cn) Transaction Expenses. "Transaction Expenses" means (a) the
sums actually paid by or for Landlord for costs and expenses incurred on
or before the date this Lease is signed by Landlord and Tenant in
connection with the preparation, negotiation and execution of the Prior
Lease, the Prior Purchase Agreement, the Environmental Indemnity
Agreement, this Lease, the Purchase Agreement or any related documents,
the acquisition of the Land and the obtaining of entitlements for the
initial Construction Project and (b) costs and expenses incurred by
Tenant in connection with the preparation, negotiation and execution of
the Prior Lease, the Prior Purchase Agreement, the Environmental
Indemnity Agreement, this Lease, the Purchase Agreement, the Contract,
the Development Contracts or any related documents, the acquisition of
the Land and the obtaining of entitlements for the initial Construction
Project.
(co) Unfunded Benefit Liabilities. "Unfunded Benefit Liabilities"
means, with respect to any Plan, the amount (if any) by which the
present value of all benefit liabilities (within the meaning of Section
4001(a)(16) of ERISA) under the Plan exceeds the fair market value of
all Plan assets allocable to such benefit liabilities, as determined on
the most recent valuation date of the Plan and in accordance with the
provisions of ERISA for calculating the potential liability of Tenant or
any ERISA Affiliate of Tenant under Title IV of ERISA.
(cp) Upfront Fee. "Upfront Fee" shall have the meaning assigned
to it in subparagraph 3(b) below.
(cq) Other Terms and References. Words of any gender used in this
Lease shall be held and construed to include any other gender, and words
in the singular number shall be held to include the plural and vice
versa, unless the context otherwise requires. References herein to
Paragraphs, subparagraphs or other subdivisions shall refer to the
corresponding Paragraphs, subparagraphs or subdivisions of this Lease,
unless specific reference is made to another document or instrument.
References herein to any Schedule or Exhibit shall refer to the
corresponding Schedule or Exhibit attached hereto, which shall be made a
part hereof by such reference. All capitalized terms used in this Lease
which refer to other documents shall be deemed to refer to such other
documents as they may be renewed, extended, supplemented, amended or
otherwise modified from time to time, provided such documents are not
renewed, extended or modified in breach of any provision contained
herein or therein or, in the case of any other document to which
Landlord is a party or of which Landlord is an intended beneficiary,
without the consent of Landlord. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. The words
"this Lease", "herein", "hereof", "hereby", "hereunder" and words of
similar import refer to this Lease as a whole and not to any particular
subdivision unless expressly so limited. The phrases "this Paragraph"
and "this subparagraph" and similar phrases refer only to the Paragraphs
or subparagraphs hereof in which the phrase occurs. The word "or" is
not exclusive. Other capitalized terms are defined in the provisions
that follow.
2 Term.
(a) Scheduled Term. The term of this Lease (herein called the
"Term") shall commence on and include the effective date hereof, and end
at 8:00 A.M. on December 1, 2003 (or the next following Business Day if
December 1, 2003 is not a Business Day), unless sooner terminated as
herein provided.
(b) Early Termination By Tenant. Provided that Tenant is still in
possession of the Leased Property and has not breached its obligation to
make or have made any payment required by Paragraph 2 of the Purchase
Agreement on any prior Designated Payment Date, Tenant may elect to
terminate this Lease, effective as of midnight of any Advance Date or
Base Rental Date, by giving Landlord (and Participants) an irrevocable
notice of such election at least ninety (90) days prior to the effective
date of the termination. If Tenant elects to so terminate this Lease,
then on the Advance Date or Base Rental Date on which this Lease is to
be terminated, not only must Tenant pay all unpaid Rent, Tenant must
also satisfy its obligations under the Purchase Agreement. The payment
of any unpaid Rent and satisfaction of Tenant's obligations under the
Purchase Agreement shall be a condition precedent to the effectiveness
of any early termination of this Lease by Tenant.
3 Rental.
(a) Base Rent. Tenant shall pay Landlord rent (herein called
"Base Rent") in arrears, in currency that at the time of payment is
legal tender for public and private debts in the United States of
America, in monthly installments on the Base Rental Commencement Date
and on each Base Rental Date through the end of the Term. Each payment
of Base Rent must be received by Landlord no later than 10:00 a.m. (San
Francisco time) on the date it becomes due; if received after 10:00 a.m.
(San Francisco time) it will be considered for purposes of this Lease as
received on the next following Business Day. Each installment of Base
Rent shall represent rent allocable to the Construction Period or Base
Rental Period ending on the date on which the installment is due.
Landlord shall notify Tenant in writing of the Base Rent due for the
Construction Period ending on the Base Rental Commencement Date (if any)
and of the Base Rent due for each Base Rental Period at least five (5)
Business Days prior to the Base Rental Commencement Date or Base Rental
Date on which such period ends, but any failure by Landlord to so notify
Tenant shall not constitute a waiver of Landlord's right to payment. If
Tenant or any Applicable Purchaser purchases Landlord's interest in the
Leased Property pursuant to the Purchase Agreement, any Base Rent for
the month ending on the date of purchase and all outstanding Additional
Rent shall be due on the Designated Payment Date in addition to the
purchase price and other sums due Landlord under the Purchase Agreement.
The Base Rent payable on the Base Rental Commencement Date shall equal
the difference (if any) between (a) total Carrying Costs that would have
been added to the Outstanding Construction Allowance on such date if the
Construction Allowance available hereunder were not limited to the
Maximum Construction Allowance, and (b) the Carrying Costs actually
added on such date to the Outstanding Construction Allowance. The Base
Rent for each Base Rental Period shall equal (A) Stipulated Loss Value
on the first day of such Base Rental Period, times (B) the Effective
Rate with respect to such Base Rental Period, times (C) the number of
days in such Base Rental Period, divided by (D) three hundred sixty
(360). Assume, only for the purpose of illustration: that a
hypothetical Base Rental Period contains exactly thirty (30) days; that
on the first day of such Base Rental Period Stipulated Loss Value is
$300,000,000; and that the Effective Rate computed with respect to the
applicable Base Rental Period is six percent (6%). Under such
assumptions, the Base Rent for the hypothetical Base Rental Period will
equal:
$300,000,000 x 6% x 30/360, or $1,500,000.
(b) Upfront Fee. As provided in the Term Sheet, upon execution
and delivery of this Lease by Landlord, Tenant shall pay Landlord an
upfront fee (herein called the "Upfront Fee") (less the deposit already
paid by Tenant pursuant to the Term Sheet). The Upfront Fee shall
represent Additional Rent for the first Construction Period.
(c) Agency Fees. Upon execution and delivery of this Lease by
Landlord, and on December 1 of 1996 and each calendar year thereafter
during the Term, Tenant shall pay Landlord an administrative fee (herein
called "Agency Fees") as provided in the Term Sheet; provided that if
December 1 of any calendar year during the Term does not fall on a
Business Day, the payment of Agency Fees otherwise then due shall become
due on the next following Business Day. Each payment of the Agency Fee
shall represent Additional Rent for the Construction Period or Base
Rental Period during which it is paid.
(d) Special Participation Fee. Upon execution and delivery of
this Lease by Landlord, Tenant shall also pay Landlord a fee (herein
called a "Special Participation Fee"), for the account of each
Participant who has committed by the terms of its participation
agreement with Landlord to provide or maintain Funding Advances of
$70,000,000 or more, assuming that the entire Maximum Construction
Allowance is used by Tenant. Such fee shall equal four basis points
(4/100 of 1%) times such Funding Advances which the Participant has
committed to provide or maintain. The Special Participation Fees shall
also represent Additional Rent for the first Construction Period.
(e) Commitment Fees. For each Construction Period during the Term
Tenant shall pay Landlord a fee (herein called a "Commitment Fee") equal
to (1) twelve basis points (12/100 of 1%), times (2) the difference at
the end of the first day of such Construction Period between (A) the
Maximum Construction Allowance and (B) the Outstanding Construction
Allowance, times (3) the number of days in such Construction Period,
divided by (4) three hundred sixty (360). Tenant shall pay Commitment
Fees in arrears on January 2, April 1, July 1 and October 1 of each
calendar year, beginning with January 2, 1996 and continuing regularly
throughout the Term so long as Commitment Fees accrue because of a
difference between the Maximum Construction Allowance and the
Outstanding Construction Allowance; provided that if any of such dates
does not fall on a Business Day, the payment of Commitment Fees
otherwise then due shall become due on the next following Business Day;
provided, further, if any Commitment Fees shall have accrued and remain
unpaid on the Designated Payment Date, such accrued unpaid Commitment
Fees shall be due on the Designated Payment Date; and provided, further,
that the first such Commitment Fee due on January 2, 1996 shall be
prorated to reflect a period commencing on the effective date of this
Lease and ending on December 31, 1995.
(f) Additional Rent. All amounts which Tenant is required to pay
to or on behalf of Landlord pursuant to this Lease, together with every
charge, premium, interest and cost set forth herein which may be added
for nonpayment or late payment thereof, shall constitute rent (all such
amounts, other than Base Rent, are herein called "Additional Rent").
(g) Interest and Order of Application. The Base Rent and all
Additional Rent shall bear interest, if not paid when first due, at the
Default Rate in effect from time to time from the date due until paid;
provided, that nothing herein contained will be construed as permitting
the charging or collection of interest at a rate exceeding the maximum
rate permitted under Applicable Laws. Landlord shall be entitled to
apply any amounts paid by or on behalf of Tenant hereunder against any
Rent then past due in the order the same became due or in such other
order as Landlord may elect.
(h) Net Lease. It is the intention of Landlord and Tenant that
the Base Rent and all other payments herein specified shall be
absolutely net to Landlord. Subject only to the other express
provisions of this Lease (including, without limitation, the express
limitations on the indemnification obligations set forth in subparagraph
9(x) below) Tenant shall pay all costs, expenses and obligations of
every kind relating to the Leased Property or this Lease which may arise
or become due, including, without limitation: (i) Impositions, including
any taxes payable by virtue of Landlord's receipt of amounts paid to or
on behalf of Landlord in accordance with this subparagraph 3(h), but not
including any Excluded Taxes; (ii) any Capital Adequacy Charges; (iii)
any amount for which Landlord is or becomes liable with respect to the
Permitted Encumbrances; and (iv) any costs incurred by Landlord
(including Attorneys' Fees) because of Landlord's acquisition or
ownership of the Leased Property or because of this Lease or the
transactions contemplated herein.
(i) No Demand or Setoff. The Base Rent and all Additional Rent
shall be paid without notice or demand and without abatement,
counterclaim, deduction, setoff or defense, except as expressly provided
herein.
4 Application of Insurance, Condemnation and Other Proceeds; Waiver
of Insured Claims; Determination of Appraised Value.
(a) This Paragraph 4 shall govern the application of proceeds
received by Landlord or Tenant during the Term from any third party (1)
under any casualty insurance policy as a result of damage to the Leased
Property, (2) as compensation for any restriction placed upon the use or
development of the Leased Property or for the condemnation of the Leased
Property or any portion thereof, or (3) because of any judgment, decree
or award for injury or damage to the Leased Property; excluding,
however, any funds paid to Landlord by Landlord's Parent or an Affiliate
of Landlord or any Participant that is made to compensate Landlord for
any losses Landlord may incur in connection with this Lease or the
Leased Property. Landlord and Tenant shall apply all insurance,
condemnation and other proceeds described in the preceding sentence
(including proceeds payable under any insurance policy covering the
Leased Property which is maintained by Tenant) as follows:
(i) First, any such proceeds shall be used to reimburse Landlord
for any costs and expenses, including Attorneys' Fees, incurred in
connection with the collection of such proceeds.
(ii) Second, unless otherwise required by this Paragraph 4, such
proceeds remaining after application in accordance with clause (a)(i)
above (hereinafter, the "Remaining Proceeds") will be applied by
Landlord as Qualified Payments. However, pending a determination of
whether Remaining Proceeds must be applied by Landlord to reimburse
Tenant for the cost of repairs or restoration of the Leased Property
pursuant to the following provisions, Landlord shall be entitled to hold
any Remaining Proceeds as Escrowed Proceeds. Until Remaining Proceeds
are paid to Tenant as reimbursement for repairs to or restoration of the
Lease Premises pursuant to this Paragraph 4 or applied as a Qualified
Payment or as reimbursement to Landlord for costs incurred in connection
with a Qualified Payment, Landlord shall keep the same as Escrowed
Proceeds deposited in an interest bearing account, and all interest
earned on such account shall be added to and made a part of such
Escrowed Proceeds.
(iii) Subject to the next clause (iv), after any taking by
condemnation of all or any portion of the Leased Property or any
casualty resulting in the diminution, destruction, demolition or damage
to all or any portion of the Leased Property, either Landlord or Tenant
may require a determination of whether Appraised Value immediately after
such condemnation or casualty event is less than, equal to or greater
than thirty percent (30%) of Stipulated Loss Value immediately after
such condemnation or casualty event, and:
(1) If Appraised Value is greater than or equal to thirty
percent (30%) of Stipulated Loss Value, then Landlord shall hold
Remaining Proceeds as Escrowed Proceeds and apply them to reimburse
Tenant for the actual cost of the repairs or restoration of the Leased
Property. Repairs or restoration for which Tenant shall be entitled to
reimbursement pursuant to the preceding sentence shall include any
repairs or restoration Tenant deems appropriate so long as the repairs
or restoration return the Leased Property to a safe and secure condition
and do not reduce its Appraised Value below thirty percent (30%) of
Stipulated Loss Value. Any Remaining Proceeds not used for such repairs
or restoration shall, after Tenant notifies Landlord that they are not
needed for repairs or restoration, be applied by Landlord as Qualified
Payments.
(2) If Appraised Value is less than thirty percent (30%) of
Stipulated Loss Value, then, either:
(A) Tenant must no later than the next Advance Date or
Base Rental Date after such condemnation or casualty event (1) cause
Stipulated Loss Value to be reduced to an amount no greater than three
and one-third (3.33) times Appraised Value by authorizing Landlord's
application of Remaining Proceeds as Qualified Payments and, if
necessary to so reduce Stipulated Loss Value, by making additional
payments to Landlord as Qualified Payments, and (2) do whatever is
necessary to make the Leased Property safe and secure without further
reducing its Appraised Value; or
(B) Tenant must elect no later than the next Advance
Date or Base Rental Date after such condemnation or casualty event to
terminate this Lease in accordance with Paragraph 2(b), and then Tenant
or an Applicable Purchaser must purchase (and Landlord must sell)
Landlord's interest in the Leased Property (even if Landlord can claim
no interest of any value because of a total taking by eminent domain) in
accordance with the Purchase Agreement, but for a net price to Landlord
(when taken together with any additional payments made by Tenant
pursuant to Paragraph 2(a)(ii) of the Purchase Agreement, in the case of
a purchase by an Applicable Purchaser) of not less than Stipulated Loss
Value, computed after the application of all Remaining Proceeds as
Qualified Payments (and pending such purchase Tenant must do whatever is
necessary to keep the Leased Property safe and secure); or
(C) Tenant must promptly restore the Leased Property or
the remainder thereof as necessary to raise its Appraised Value to no
less than thirty percent (30%) of Stipulated Loss Value as of the date
such restoration is complete and as necessary to make the Leased
Property safe and secure.
Tenant's (and Landlord's) obligations under this
clause (iii) with respect to any casualty or condemnation during the
Term shall survive the expiration of the Term.
(iv) If any taking by condemnation of any portion of the
Leased Property or any casualty resulting in the diminution,
destruction, demolition or damage to any portion of the Leased Property
shall reduce Appraised Value by less than $1,000,000 and shall result in
Remaining Proceeds of less than $1,000,000, then so long as no Event of
Default shall have occurred and be continuing Tenant shall be entitled
to collect the Remaining Proceeds resulting therefrom. Tenant shall
apply any such Remaining Proceeds to the repair or restoration of the
Leased Property to a safe and secure condition and to an Appraised Value
of no less than thirty percent (30%) of Stipulated Loss Value in such
manner as Tenant shall reasonably deem appropriate.
(v) As used herein, "Appraised Value" shall mean an amount
not less than the fair market value of the Leased Property (or any
applicable portion thereof) on the date in question as determined by
Landlord and Tenant, or if Landlord and Tenant cannot agree, determined
in accordance with the following procedure:
(A) Landlord and Tenant shall each, within ten (10) days
after written notice from either to the other, select an appraiser. If
either Landlord or Tenant fails to select an appraiser within the
required period, then the appraiser who has been timely selected shall
conclusively determine the fair market value of the Leased Property (or
applicable portion thereof) in accordance with this clause (v) within
forty-five (45) days after his or her selection.
(B) Upon the selection of the two appraisers as provided
above, such appraisers shall proceed to determine the fair market value
of the Leased Property (or applicable portion thereof) in accordance
with this clause (v). Such appraisals shall be submitted in writing no
later than forty-five (45) days after selection of the second appraiser.
If the fair market value as determined by such appraisers is identical,
such sum shall be Appraised Value. In the event the lower appraisal is
not lower than five percent (5%) below the higher appraisal, then
Appraised Value shall be the sum of the two appraisal figures divided by
two (2). If either appraiser fails to timely submit his or her
appraisal, the timely submitted appraisal shall be determinative of
Appraised Value.
(C) In the event the lower appraisal is lower than five
percent (5%) below the higher appraisal figure, then the two appraisers
previously selected shall select a third appraiser. The name of such
appraiser shall be submitted at the same time the written appraisals are
due. Such third appraiser shall then review the previously submitted
appraisals and select the one that, in his professional opinion, more
closely reflects the fair market value of the Leased Property (or
applicable portion thereof), such selection to be submitted in writing
no later than ten (10) days after selection of the third appraiser.
Such selection shall be determinative of Appraised Value.
(D) In making any such determination of fair market
value, the appraisers shall assume that any improvements then located on
the Leased Property (or applicable portion thereof) or under
construction constitute the highest and best use, that Tenant will
promptly complete all construction which this Lease obligates Tenant to
complete and that neither this Lease nor the Purchase Agreement add any
value to the Leased Property. Each appraiser selected hereunder shall
be an independent MAI-designated appraiser with not less than ten (10)
years' experience in industrial real estate appraisal in Solano County,
California and surrounding areas.
(vi) Notwithstanding the foregoing, following any Event of
Default, Landlord shall be entitled to receive and collect any Remaining
Proceeds and either, at the discretion of Landlord, hold such Remaining
Proceeds as Escrowed Proceeds to be applied to the repair, restoration
or replacement of the Leased Property in accordance with clause (b)
below, or retain such Remaining Proceeds (net of collection costs, as
set forth in clause (a)(i) above, and other appropriate deductions) as
Qualified Payments. Further, nothing contained in this Paragraph 4
shall excuse Tenant from Tenant's obligation for completing all
Construction Projects in accordance with the requirements of Paragraph
6(b).
(b) If, in accordance with any provision of this Paragraph 4,
Remaining Proceeds are to be held by Landlord for reimbursement to
Tenant of the cost of repair or restoration of the Leased Property: (a)
Landlord will hold such Remaining Proceeds as Escrowed Proceeds in an
interest bearing account as provided above and shall pay the same to
Tenant upon completion of the applicable repair or restoration of the
Leased Property and upon compliance by Tenant with such terms,
conditions and requirements as may be reasonably imposed by Landlord,
but in no such event shall Landlord be required to pay any Remaining
Proceeds to Tenant in excess of the actual cost to Tenant of the
applicable repair or restoration, it being understood that Landlord may
retain any such excess as a Qualified Payment; and (b) Tenant, in
accordance with the foregoing, will perform or cause to be performed the
actual repair or restoration of the Leased Property to a safe and secure
condition leaving the Leased Property with an Appraised Value of no less
than thirty percent (30%) of Stipulated Loss Value upon completion of
such repair or restoration. In any event, Tenant will not be entitled
to any abatement or reduction of the Base Rent or any other amount due
hereunder except to the extent that such insurance or condemnation
proceeds result in Qualified Payments which reduce Stipulated Loss Value
as provided in the definitions set out above.
(c) Nothing herein contained shall be construed to prevent Tenant
from obtaining a separate award from any condemning authority for a
taking of Tenant's personal property or for moving expenses or business
interruption, provided, such award is not combined with and does not
reduce the award for any taking of the Leased Property, including
Tenant's leasehold estate and any other interest therein.
(d) Landlord and Tenant each waive any right of recovery against
the other, and the other's agents, officers, or employees, for any
damage to the Leased Property or to the personal property situated from
time to time in or on the Leased Property resulting from fire or other
casualty covered by a valid and collectible insurance policy; provided,
however, that the waiver set forth in this subparagraph shall be
effective insofar, but only insofar, as compensation for such damage or
loss is actually recovered by the waiving party (net of costs of
collection) under the policy notwithstanding the waivers set out in this
paragraph. Tenant shall cause the insurance policies required of Tenant
by this Lease to be properly endorsed, if necessary, to prevent any loss
of coverage because of the waivers set forth in this paragraph. If such
endorsements are not available, the waivers set forth in this paragraph
shall be ineffective to the extent that such waivers would cause
required insurance with respect to the Leased Property to be impaired.
5 No Lease Termination.
(a) Status of Lease. Except as expressly provided herein, this
Lease shall not terminate, nor shall Tenant have any right to terminate
this Lease, nor shall Tenant be entitled to any abatement of the Rent,
nor shall the obligations of Tenant under this Lease be excused, for any
reason whatsoever, including without limitation any of the following:
(i) any damage to or the destruction of all or any part of the Leased
Property from whatever cause, (ii) the taking of the Leased Property or
any portion thereof by eminent domain or otherwise for any reason, (iii)
the prohibition, limitation or restriction of Tenant's use of all or any
portion of the Leased Property or any interference with such use by
governmental action or otherwise, (iv) any eviction of Tenant or of
anyone claiming through or under Tenant by paramount title or otherwise
(provided, if Tenant is wrongfully evicted by Landlord or by any third
party lawfully claiming through or under Landlord, other than Tenant or
a third party claiming through or under Tenant, then Tenant will have
the remedies described in Paragraph 16 below), (v) any default on the
part of Landlord under this Lease or under any other agreement to which
Landlord and Tenant are parties, (vi) the inadequacy in any way
whatsoever of the design or construction of any improvements included in
the Leased Property, it being understood that Landlord has not made and
will not make any representation express or implied as to the adequacy
thereof, or (vii) any other cause whether similar or dissimilar to the
foregoing, any existing or future law to the contrary notwithstanding.
It is the intention of the parties hereto that the obligations of Tenant
hereunder shall be separate and independent of the covenants and
agreements of Landlord, that the Base Rent and all other sums payable by
Tenant hereunder shall continue to be payable in all events and that the
obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall have been terminated or
limited pursuant to an express provision of this Lease. However,
nothing in this Paragraph shall be construed as a waiver by Tenant of
any right Tenant may have at law or in equity to (i) recover monetary
damages for any default under this Lease by Landlord that Landlord fails
to cure within the period provided in Paragraph 16, (ii) injunctive
relief in case of the violation, or attempted or threatened violation,
by Landlord of any of the express covenants, agreements, conditions or
provisions of this Lease (including the confidentiality provisions set
forth in Paragraph 23 below), or (iii) a decree compelling performance
of any of the express covenants, agreements, conditions or provisions of
this Lease.
(b) Waiver By Tenant. Without limiting the foregoing, Tenant
waives to the extent permitted by Applicable Laws, except as otherwise
expressly provided herein, all rights to which Tenant may now or
hereafter be entitled by law (including any such rights arising because
of any implied "warranty of suitability" or other warranty under
Applicable Laws) (i) to quit, terminate or surrender this Lease or the
Leased Property or any part thereof or (ii) to any abatement,
suspension, deferment or reduction of the Base Rent or any other sums
payable under this Lease.
6 Construction Allowance.
(a) Advances; Outstanding Construction Allowance.
(i) Subject to the conditions set forth below, Landlord shall
make advances (herein called "Construction Advances") on Advance Dates
from time to time as requested by Tenant to reimburse Tenant for the
cost of Construction Projects or to pay Commitment Fees or Agency Fees
then due. As used herein, references to the "Outstanding Construction
Allowance" shall mean the difference on the date in question (but not
less than zero) of (A) the total Construction Advances made by Landlord
on or prior to the date in question, less (B) any Qualified Payments
received on or prior to the date in question; provided, that Landlord
will not be under any obligation to readvance any portion of the
Construction Allowance repaid by Qualified Payments. Notwithstanding
the foregoing, if for any reason Stipulated Loss Value (and thus the
Outstanding Construction Allowance included as a component thereof) must
be determined under this Lease as of any date between Advance Dates, the
Outstanding Construction Allowance determined on such date shall equal
the Outstanding Construction Allowance on the immediately preceding
Advance Date computed in accordance with the preceding sentence, plus
Carrying Costs (if any) accruing on and after such preceding Advance
Date to but not including the date in question.
(ii) Charges accruing at the Effective Rate (herein
collectively called "Carrying Costs") for each Construction Period
ending on or prior to the Base Rental Commencement Date will be added to
(and thereafter be included in) the Outstanding Construction Allowance
on the last day of each such Construction Period (i.e., on the Advance
Date upon which such Construction Period ends). The amount of Carrying
Costs for each such Construction Period shall be equal to (A) Stipulated
Loss Value (including Carrying Costs added with respect to every
previous Construction Period, if any) as of the first day of such
Construction Period, times (B) the Effective Rate with respect to such
Construction Period, times (C) the number of days in such Construction
Period, divided by (D) 360; provided, however, that because the
Construction Allowance available under this Lease is limited to the
Maximum Construction Allowance, Carrying Costs added to the Outstanding
Construction Allowance on the Base Rental Commencement Date shall not
exceed the amount that can be added without causing the Outstanding
Construction Allowance to exceed the Maximum Construction Allowance.
(iii) For purposes of determining the Effective Rate to be
used in the calculation of Carrying Costs which will accrue during the
first short Construction Period ending on January 2, 1996, the
"comparable period" referred to in clause (iii) of the definition of
LIBOR above shall be thirty days. If, however, any Breakage Costs (as
defined below) are incurred in connection with the use of such an
Effective Rate for the first Construction Period, the Breakage Costs
will be included in Carrying Costs added to the Outstanding Construction
Allowance at the end of the first Construction Period. "Breakage Costs"
means losses, if any, incurred or sustained by Landlord's Parent and
Participants with respect to prior Funding Advances that they would not
have incurred or sustained but for a decline on the first Advance Date,
before the end of the LIBOR period used to compute LIBOR for the first
short Construction Period, in the LIBOR component of the Effective Rate.
Any determination by Landlord's Parent of Breakage Costs shall, in the
absence of clear and demonstrable error, be conclusive and binding upon
Landlord and Tenant.
(b) Construction Projects.
(i) Preconstruction Approvals. Prior to the execution of
this Lease, Tenant submitted and obtained Landlord's approval of plans
or renderings for, a construction budget for, and descriptions of the
initial Construction Project which Tenant expects to construct with the
Construction Allowance. Except as provided below in this subparagraph,
Tenant shall submit and obtain Landlord's written approval of plans or
renderings for any subsequent Construction Project prior to commencement
of the subsequent Construction Project. Landlord may disapprove of such
plans or other items if, but only if, Landlord believes in good faith
that the Construction Project proposed by Tenant will (1) fail to
satisfy the requirements set forth in subparagraph 6(b)(iv), (2) change
the general character of the Leased Property from that needed to
accommodate the uses permitted by subparagraph 8(a) or (3) cause Tenant
or the Leased Property to violate some other express provision of this
Lease; but no approval given by Landlord in connection with any
Construction Project, prior to or after the date hereof, shall
constitute a waiver of subparagraph 6(b)(iv) or of any other provision
of this Lease. Any items hereafter submitted by Tenant to satisfy this
subparagraph shall be sufficiently detailed to allow Landlord to make a
reasonable determination of whether the applicable Construction Project
will satisfy subparagraph 6(b)(iv), but need not include all detailed
construction specifications and drawings of the work to be included in
the Construction Project. All Construction Projects commenced by
Tenant, including the initial Construction Project which is described in
Schedule 3, and all Construction Documents executed or adopted by Tenant
in connection therewith, must be substantially consistent with the plans
or other items heretofore or hereafter submitted to and approved by
Landlord as described above in this subparagraph, except to the extent
otherwise provided by any Scope Changes approved as described below.
Before commencing any Construction Project subsequent to the initial
Construction Project, Tenant shall notify Landlord if Tenant believes
that, upon completion of such subsequent Construction Project, there
will be a substantial likelihood that the Leased Property will have an
Appraised Value of less than 30% of Stipulated Loss Value.
(ii) Scope Changes. Before making a Scope Change to any
Construction Project, Tenant shall provide to Landlord a reasonably
detailed written description of the Scope Change, a revised construction
budget (only if such Scope Change will require an increase in the
existing construction budget) and a copy of any changes to the drawings,
plans and specifications for the Improvements required in connection
therewith, all of which must be approved in writing by Landlord (or by
any construction representative appointed by Landlord from time to time)
before the Scope Change is implemented. Landlord may disapprove of any
Scope Change if, but only if, Landlord believes in good faith that the
Construction Project proposed by Tenant, as modified by the Scope
Change, will (1) fail to satisfy the requirements set forth in
subparagraph 6(b)(iv), (2) change the general character of the Leased
Property from that needed to accommodate the uses permitted by
subparagraph 8(a) or (3) cause Tenant or the Leased Property to violate
some other express provision of this Lease; but Landlord's approval
shall not constitute a waiver of subparagraph 6(b)(iv) or of any other
provision of this Lease.
(iii) Responsibility for Construction. Tenant shall have sole
responsibility for contracting for and administering all Construction
Projects, it being understood that Landlord's obligation with respect to
Construction Projects shall be limited to the making of advances under
and subject to the conditions set forth in this Paragraph 6. No
contractor or other third party shall be entitled to require Landlord to
make advances as a third party beneficiary of this Lease or otherwise.
Notwithstanding delays beyond Tenant's control, and even if the
Construction Allowance is not sufficient to pay for completion of any
Construction Project, Tenant warrants that on the Designated Payment
Date under the Purchase Agreement it shall have caused the initial
Construction Project and any subsequent Construction Projects which are
commenced during the Term to be completed in a good and workmanlike
manner, substantially in accordance with Applicable Laws, and otherwise
in compliance with the provisions of this Lease, unless Tenant or an
Applicable Purchaser has purchased the Leased Property pursuant to the
Purchase Agreement for a net price to Landlord (when taken together with
any additional payments made by Tenant pursuant to Paragraph 2(a)(ii) of
the Purchase Agreement, in the case of a purchase by an Applicable
Purchaser) of not less than Stipulated Loss Value.
(iv) Value Added. Each Construction Project, upon completion
and taken as a whole, must enhance the value of the Leased Property by
an amount commensurate with the Construction Advances made for such
Construction Project, and no Construction Project may significantly
reduce the fair market value of the Property; however:
(1) this subparagraph 6(b)(iv) will not preclude Tenant
from obtaining Construction Advances for soft costs (such as
architectural fees and design and permitting costs), Tenant's internal
labor costs, demolition costs or other costs that do not, individually,
add value to the Leased Property but that are incurred in connection
with a Construction Project which will in the aggregate satisfy this
subparagraph 6(b)(iv);
(2) to address any concerns Landlord may express about
Tenant's ability to satisfy this subparagraph 6(b)(iv) for a
Construction Project, Tenant may by a written notice to Landlord
stipulate a maximum amount of Construction Advances that Landlord will
be required to make for such Construction Project, in which case
Landlord shall not be required to make Construction Advances for such
project in excess of the amount so stipulated;
(3) if Landlord invokes this subparagraph 6(b)(iv) as
justification for disapproving of a Construction Project (or Scope
Change) or for declining to provide Construction Advances for a
Construction Project, then Tenant may satisfy this subparagraph 6(b)(iv)
by (A) stipulating a maximum amount of Construction Advances that
Landlord will be required to make for such Construction Project, and (B)
establishing that Appraised Value of the Leased Property (determined in
accordance with the procedures outlined in Paragraph 4) will be no less
than 30% of Stipulated Loss Value upon completion of the Construction
Project and after Landlord provides Construction Advances equal to the
maximum so stipulated;
(4) further, if Tenant ever does satisfy this
subparagraph 6(b)(iv) for a particular Construction Project by
establishing an Appraised Value of no less than 30% of Stipulated Loss
Value as described in the preceding clause (3), Landlord shall have no
further right, absent a subsequent Scope Change to such Construction
Project, to invoke this subparagraph 6(b)(iv) as justification for
disapproving of such Construction Project or for withholding
Construction Advances requested within the limit of the maximum
Construction Advances stipulated by Tenant.
(v) Estoppel Letters Required. Upon the execution of each
general construction contract for the initial Construction Project and
for any subsequent Construction Project expected to cost in excess of
$10,000,000, Tenant shall cause the contractor thereunder to execute and
deliver to Landlord an estoppel letter in the form of Exhibit C attached
hereto. Tenant shall also cause the architect and engineer under any
material architectural or engineering contract for such a Construction
Project to execute and deliver to Landlord an estoppel letter in the
form of Exhibit D attached hereto. Landlord shall consider in good faith
any changes to the estoppel letter forms attached hereto that Tenant may
reasonably request for a particular Construction Project, provided the
requested changes do not impair Landlord's rights or create or increase
any liability Landlord may have in connection with the Construction
Project.
(vi) Advances Not a Waiver. No funding of Construction
Advances and no failure of Landlord to object to any Construction
Project proposed or constructed by Tenant shall constitute a waiver by
Landlord of the requirements contained in this subparagraph 6(b).
(c) Conditions to Construction Advances. Landlord's obligation to
make Construction Advances from time to time under this Paragraph 6
shall be subject to the following terms and conditions, all of which are
intended for the sole benefit of Landlord:
(i) Prior Notice. Tenant must make a request in
substantially the form attached to this Lease as Exhibit E for any
Construction Advance at least ten (10) Business Days prior to the
Advance Date upon which the advance is to be paid. Landlord shall
consider in good faith any changes to the Construction Advance request
forms attached hereto that Tenant may reasonably request for a
particular Construction Project, provided the requested changes do not
impair Landlord's rights or create or increase any liability Landlord
may have in connection with the Construction Project.
(ii) Amount of the Advances. No Construction Advance shall
exceed the lesser of:
a) the Maximum Construction Allowance, less the then
Outstanding Construction Allowance (computed after adding any Carrying
Costs accrued for the month ending on the Advance Date upon which such
Construction Advance is to be made); or
b) (1) the actual costs and expenses previously incurred
or paid by Tenant for the preparation, negotiation and execution of this
Lease (other than expenses already included in Transaction Expenses),
for Construction Projects (including "soft costs"), for Agency Fees not
included in Transaction Expenses or for Commitment Fees, less (2) the
sum of the portion of the Initial Funding Advances provided for
construction of Improvements (or site work on the Land) as described in
the definition of Initial Funding Advances, plus all Construction
Advances made under this Paragraph 6 to Tenant as reimbursement for such
costs and expenses.
No Construction Advance (other than the final Construction Advance)
shall be requested for an amount less than the lesser of (A) the maximum
advance that may be required of Landlord under the preceding sentence,
and (B) $500,000.
(iii) Insurance. Tenant shall have obtained and provided
certificates (or, in the case of clause a) below, title policies or
binders) reasonably satisfactory to Landlord evidencing insurance
covering the Leased Property as follows (in addition to the liability
insurance required under subparagraph 9(y) below):
a) Title Insurance. An owner's title insurance policy
(or binder committing the applicable title insurer to issue an owner's
title insurance policy, without the payment of further premiums) in the
amount of $125,000,000, in form and substance reasonably satisfactory to
Landlord, written by Chicago Title Insurance Company or one or more
other title insurance companies reasonably satisfactory to Landlord and
insuring Landlord's ownership of fee title to the Leased Property,
including any new Improvements constructed by Tenant; and
b) Builder's Risk Insurance. Builder's Completed Value
Risk and such other hazard insurance as Landlord may require against all
risks of physical loss (including collapse and transit coverage, but not
including earthquake coverage) with deductibles not to exceed
$1,000,000, such insurance to be in amounts sufficient to cover the
total value of all Improvements under construction and to be maintained
in full force and effect at all times until completion of the initial
Construction Project or any subsequent Construction Projects.
(iv) Progress of Construction. Each Construction Project
which has commenced but not yet been completed shall be progressing
without any significant continuing interruption in a good and
workmanlike manner and substantially in accordance with Applicable Laws
and the requirements of this Lease, and Tenant shall have corrected or
be diligently pursuing the correction of any significant defect in the
construction thereof.
(v) Evidence of Costs and Expenses to be Reimbursed. To the
extent contemplated by the Construction Advance request forms attached
as Exhibit E and described in subparagraph 6(c)(i), or otherwise
reasonably required by Landlord at the time a Construction Advance is to
be made, Tenant shall have submitted invoices, requests for payment from
contractors and other evidence that all costs and expenses for which
Tenant requests reimbursement constitute actual costs and expenses
incurred by Tenant for a Construction Project.
(vi) No Event of Default. No Event of Default shall have
occurred and be continuing under this Lease.
(vii) No Sale of Landlord's Interest. No sale of Landlord's
interest in the Leased Property shall have occurred pursuant to the
Purchase Agreement.
(viii) Certificate of No Default and Other Matters. Landlord
shall have received, together with the notice requesting the
Construction Advance described in clause (i) above, a current
certificate of an officer of Tenant in the form included in Exhibit F
(a) certifying that no Event of Default has occurred and is continuing,
(b) certifying that the representations and warranties contained herein
are true and correct in all material respects on and as of the date of
such certificate as though made on and as of such date, subject only to
such exceptions as may be disclosed therein and as are acceptable to
Landlord, (c) certifying that each Construction Project which has
commenced but not yet been completed is progressing without any
significant continuing interruption in a good and workmanlike manner and
substantially in accordance with the requirements of this Lease and all
Applicable Laws and that Tenant has corrected or is diligently pursuing
the correction of any significant defect in the construction thereof,
(d) certifying that all costs and expenses for which Tenant is
requesting reimbursement by the Construction Advance constitute actual
costs and expenses incurred by Tenant for a Construction Project, and
(e) certifying that, to the knowledge of Tenant, any liens then being
asserted against the Leased Property by general contractors or other
parties who have filed a statutory Preliminary Notice to preserve their
right to a mechanic's or materialman's lien against the Leased Property
(collectively, "Potential Lien Claimants") do not in the aggregate
secure or allegedly secure more that $5,000,000 of claims. (As used in
this subparagraph a lien will be considered as "being asserted" if a
claim of lien relating thereto shall have been recorded and not
discharged by payment or settlement.) Further, a copy of the
certificate required by this clause shall have been furnished by Tenant
to each of the Participants, and the certificate shall be true and
correct. Without limiting the foregoing, Landlord may decline to
advance any amount when liens are being asserted against any part of or
interest in the Leased Property that in the aggregate secure or
allegedly secure more that $5,000,000 of claims by Potential Lien
Claimants, regardless whether any such liens have caused an Event of
Default to occur hereunder or are being contested by Tenant as permitted
by subparagraph 9(o).
(ix) Payments by Participants. None of the Participants or
their successors under their participation agreements with Landlord
shall have failed to advance to Landlord their pro rata shares of the
Construction Advance being requested. However, any such failure shall
excuse Landlord's obligation to provide the Construction Advance
requested only to the extent of the funds that the applicable
Participant or Participants should have advanced (but did not advance)
to Landlord, and in the event of any such failure:
a) Landlord will immediately notify Tenant if any
Participant refuses or fails to advance its pro rata share of any
Construction Advance, but Landlord will not in any event be liable to
Tenant for Landlord's failure to do so.
b) Landlord will, to the extent possible, postpone
reductions of Construction Advances because of the failure by any one or
more Participants ("Nonfunding Participants") to make required advances
under their participation agreements with Landlord (a "Participant
Default") by adjusting (and readjusting from time to time, as required)
the funding "Percentages" of other Participants, and by requesting the
other Participants to make advances to Landlord on the basis of such
adjusted Percentages, in each case as provided in the participation
agreements between the Participants and Landlord; however, so long as a
Participant Default continues, no Construction Advance shall be required
that would cause the Outstanding Construction Allowance to exceed (a)
the Maximum Construction Allowance available under this Lease, less (b)
all amounts that should have been, but because of a continuing
Participant Default have not been, advanced by any one or more of the
Participants to Landlord under their participation agreements with
Landlord with respect to Construction Advances.
c) Further, after a Participant Default, and so long as
no Event of Default has occurred and is continuing, Landlord shall do
the following as reasonably requested by Tenant, provided that nothing
in this provision shall require Landlord to take any action that would
violate Applicable Laws, that would constitute a breach of Landlord's
obligations under the participation agreements with the Participants, or
that would require Landlord to waive any rights or remedies it has under
this Lease, the Purchase Agreement or Landlord's other agreements with
Tenant concerning the Leased Property:
(1) Landlord shall promptly make a written demand
upon the Nonfunding Participants for the cure of the Participant
Default.
(2) Landlord shall, to the extent Landlord has
the right to do so under Landlord's participation agreements with the
Participants, decline to allow the Nonfunding Participants to exercise
voting, consent or notification rights under the participation
agreements.
(3) Landlord shall not unreasonably withhold its
approval for the substitution of any new participant proposed by Tenant
for Nonfunding Participants, if (A) the proposed substitution does not
require Landlord to waive rights against the Nonfunding Participants,
(B) the new participant will agree (by executing a participation
agreement that is consistent with and substantially similar to the
participation agreements that Landlord has entered into with the
Participants and that is otherwise in form reasonably satisfactory to
Landlord and Tenant) to provide funds to replace the payments that would
otherwise be required of the Nonfunding Participants with respect to
future Construction Advances, (C) the new participant (or Tenant)
provides the funds (if any) needed to terminate the Nonfunding
Participants' rights to receive payments of "Net Cash Flow" (as defined
in the participation agreements between with Landlord and the
Participants) that Landlord will be required to pay the new participant
under the terms of the substitution reasonably proposed by Tenant, (D)
the new participant (or Tenant) provides and agrees in writing to
provide funds needed to reimburse Landlord for any and all Losses
incurred by Landlord in connection with or because of the substitution
of the new participant for the Nonfunding Participants, including the
cost of preparing, negotiating and executing a new participation
agreement between Landlord and the new participant and including any
cost of defending and paying any claim asserted by Nonfunding
Participants because of the substitution (but not including any
liability of Landlord to the Nonfunding Participants for damages caused
by Landlord's bad faith or gross negligence in the performance of
Landlord's obligations to the Nonfunding Participants), (E) the
obligations of Landlord to the new participant per dollar of the new
participant's "investment" (it being understood that such investment
will be computed in a manner consistent with the examples set forth in
Exhibit A of the participation agreements between Landlord and the
Participants, but net of reimbursements to Landlord under clause (D)
preceding) shall not exceed the obligations per dollar of investment by
the Nonfunding Participants that Landlord would have had to the
Nonfunding Participants if there had been no Participant Default, and
(F) the new participant shall be a reputable financial institution
having a net worth of no less than seven and one half percent (7.5%) of
total assets and total assets of no less than $10,000,000,000.00 (all
according to then recent audited financial statements).
(x) Execution of Participation Agreements With Participants.
All of the Persons listed in Schedule 1 shall have entered into
participation agreements with Landlord which shall cause them to qualify
as Participants hereunder. Any such participation agreement executed
after this Lease is executed shall be subject to Tenant's prior
approval, and Landlord shall promptly furnish Tenant with a copy of any
such agreement.
7 Purchase Agreement and Environmental Indemnity Agreement. Tenant
acknowledges and agrees that nothing contained in this Lease shall
limit, modify or otherwise affect any of Tenant's obligations under the
Purchase Agreement or the Environmental Indemnity Agreement, which
obligations, to the maximum extent possible, shall be deemed to be
separate, independent and in addition to, and not in lieu of, the
obligations set forth herein. In the event of any inconsistency between
the terms and provisions of the Purchase Agreement or the Environmental
Indemnity Agreement and the terms and provisions of this Lease, the
terms and provisions of the Purchase Agreement or Environmental
Indemnity Agreement shall control.
8 Use and Condition of Leased Property.
(a) Use. Subject to the Permitted Encumbrances and the terms
hereof, Tenant may use, occupy and operate the Leased Property during
the Term so long as no Event of Default occurs hereunder, but only for
the following purposes and other lawful purposes incidental thereto:
(i) construction, development, testing and validation of
Construction Projects;
(ii) biotechnology/pharmaceutical manufacturing;
(iii) support functions for such manufacturing uses, including
processing, research, laboratory, development, distribution, warehousing
or similar uses;
(iv) administrative and office space; and
(v) cafeteria, library and facilities that Tenant may provide
to its employees.
(b) Condition. Tenant accepts the Leased Property (and will
accept the same upon any purchase of the Landlord's interest therein) in
its present state, AS IS, and without any representation or warranty,
express or implied, as to the condition of such property or as to the
use which may be made thereof. Tenant also accepts the Leased Property
without any representation or warranty, express or implied, by Landlord
regarding the title thereto or the rights of any parties in possession
of any part thereof, except as set forth in subparagraph 10(a).
Landlord shall not be responsible for any latent or other defect or
change of condition in the Land, Improvements, fixtures and personal
property forming a part of the Leased Property, and the Rent hereunder
shall in no case be withheld or diminished because of any latent or
other defect in such property, any change in the condition thereof or
the existence with respect thereto of any violations of Applicable Laws.
Further, though Tenant may obtain from third parties any facilities or
services to which Tenant is entitled by reason of the assignment and
lease of Personal Property set forth on page 2 of this Lease, Landlord
shall not itself be required to furnish to Tenant any facilities or
service of any kind, such as, but not limited to, water, steam, heat,
gas, hot water, electricity, light or power.
(c) Consideration for and Scope of Waiver. The provisions of
subparagraph 8(b) above have been negotiated by the Landlord and Tenant
after due consideration for the Rent payable hereunder and are intended
to be a complete exclusion and negation of any representations or
warranties of the Landlord, express or implied, with respect to the
Leased Property that may arise pursuant to any law now or hereafter in
effect, or otherwise. However, such exclusion of representations and
warranties by Landlord is not intended to impair any representations or
warranties made by other parties, including Seller, the benefit of which
may pass to Tenant during the Term because of the definition of Personal
Property and Leased Property above.
9 Other Representations, Warranties and Covenants of Tenant. Tenant
represents, warrants and covenants as follows:
(a) Financial Matters. Tenant is solvent and has no outstanding
liens, suits, garnishments or court actions which could render Tenant
insolvent. There has not been filed by or, to Tenant's knowledge,
against Tenant a petition in bankruptcy or a petition or answer seeking
an assignment for the benefit of creditors, the appointment of a
receiver, trustee, custodian or liquidator with respect to Tenant or any
significant portion of Tenant's property, reorganization, arrangement,
rearrangement, composition, extension, liquidation or dissolution or
similar relief under the federal Bankruptcy Code or any state law. (As
used in this Lease, "Tenant's knowledge" means the present actual
knowledge (with due investigation) of Daniel Spiegelman and Marty Glick
and, as to matters concerning the Leased Property only, James Panek and
George Mackey, all current employees of Tenant. However, to the extent
Tenant's knowledge after the date hereof may become relevant hereunder
or under any certificate or other notice provided by Tenant to Landlord
in connection with this Lease, "Tenant's knowledge" shall include the
then actual knowledge of other employees of Tenant (if any) that have
assumed responsibilities of the current employees listed in the
preceding sentence or that have replaced such current employees. None
of the employees of Tenant whose knowledge is now or may hereafter be
relevant shall be personally liable for the representations or
warranties of Tenant made herein.) The financial statements and all
financial data heretofore delivered to Landlord relating to Tenant are
true, correct and complete in all material respects. No material
adverse change has occurred in the financial position of Tenant as
reflected in Tenant's financial statements covering the fiscal period
ended September 30, 1995.
(b) The Contract and Other Development Contracts. Except to the
extent required of Landlord under subparagraph 10(b), Tenant shall
satisfy the surviving obligations, if any, of the "Buyer" (as the term
"Buyer" is used in the Contract) under the Contract and under all other
documents to which Landlord has become bound or subject because of
Landlord's acceptance of the assignment of the Contract or ownership of
the Leased Property, including without limitation the Development
Contracts listed in Schedule 2 attached hereto. Tenant agrees to
indemnify, defend and hold Landlord harmless from and against any and
all Losses imposed on or asserted against or incurred by Landlord at any
time and from time to time by reason of, in connection with or arising
out of any obligations imposed by the Contract or the other Development
Contracts. The indemnity set out in this subparagraph shall apply even
if the subject of the indemnification is caused by or arises out of the
negligence of Landlord; provided, such indemnity shall not apply to
Losses proximately caused by (and attributed by any applicable
principles of comparative fault to) the Active Negligence, gross
negligence or willful misconduct of Landlord, its Affiliates, agents or
employees. Because Tenant hereby assumes and agrees to satisfy all
surviving obligations of the Buyer under the Contract and any other
obligations imposed upon Landlord by reason of the Contract or the other
Development Contracts, no failure by Landlord to take any action
required by the Contract or the other Development Contracts (save and
except any actions required of Landlord under subparagraph 10(b) below)
shall, for the purposes of this indemnity, be deemed to be caused by the
Active Negligence, gross negligence or willful misconduct of Landlord,
its Affiliates, agents or employees. The foregoing indemnity is in
addition to the other indemnities set out herein and shall not terminate
upon the closing of any sale of Landlord's interest in the Leased
Property pursuant to the provisions of the Purchase Agreement or the
termination of this Lease.
(c) No Default or Violation. The execution, delivery and
performance by Tenant of this Lease and the Purchase Agreement do not
and will not constitute a breach or default under any other material
agreement or contract to which Tenant is a party or by which Tenant is
bound or which affects the Leased Property or which affects Tenant's
use, occupancy or operation of the Leased Property or any part thereof
and do not, to the knowledge of Tenant, violate or contravene any law,
order, decree, rule or regulation to which Tenant is subject. Further,
such execution, delivery and performance by Tenant will not result in
the creation or imposition of (or the obligation to create or impose)
any lien, charge or encumbrance on, or security interest in, Tenant's
property pursuant to the provisions of any of the foregoing in any
respect which would have a material adverse effect upon the properties,
assets, operations or businesses of Tenant and its Subsidiaries, taken
as a whole.
(d) Compliance with Covenants and Laws. To Tenant's knowledge,
the intended use of the Leased Property by Tenant complies, or will
comply after Tenant obtains readily available permits, in all material
respects with all applicable restrictive covenants, zoning ordinances
and building codes, flood disaster laws, applicable health, safety and
environmental laws and regulations, the Americans with Disabilities Act
and other laws pertaining to disabled persons, and all other applicable
laws, statutes, ordinances, rules, permits, regulations, orders,
determinations and court decisions (all of the foregoing are herein
sometimes collectively called "Applicable Laws"). Tenant has obtained
or will during the Term obtain on a timely basis all utility, building,
health and operating permits as may be required for Tenant's use of the
Leased Property during the Term by any governmental authority or
municipality having jurisdiction over the Leased Property.
(e) Environmental Representations. To Tenant's knowledge and
except as otherwise disclosed in the Environmental Report, as of the
date hereof: (i) no Hazardous Substances Activity (other than Permitted
Hazardous Substance Use by Tenant) has occurred prior to the date of
this Lease; (ii) neither Tenant nor any prior owner or operator of the
Leased Property has reported or been required to report any release of
any Hazardous Substances on or from the Leased Property pursuant to any
Environmental Law; (iii) neither Tenant nor any prior owner or operator
of the Leased Property has received any warning, citation, notice of
violation or other communication regarding a suspected or known material
release or discharge of Hazardous Substances on or from the Leased
Property or regarding any significant continuing or allegedly
continuing violation of Environmental Laws concerning the Leased
Property from any federal, state or local agency; and (iv) none of the
following are located on the Leased Property: asbestos; urea
formaldehyde foam insulation; transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls
in excess of fifty (50) parts per million; any other Hazardous
Substances other than Permitted Hazardous Substances; or any underground
storage tank or tanks. Further, Tenant represents that to the best of
its knowledge the Environmental Report is not misleading or inaccurate
in any material respect.
(f) No Suits. Other than as previously disclosed in Tenant's most
recent 10-K filings with the Securities and Exchange Commission (copies
of which have been delivered to Landlord), there are no judicial or
administrative actions, suits, proceedings or investigations pending or,
to Tenant's knowledge, threatened that are reasonably likely to affect
Tenant's intended use of the Leased Property or the validity,
enforceability or priority of this Lease, or Tenant's use, occupancy and
operation of the Leased Property or any part thereof, and Tenant is not
in default with respect to any order, writ, injunction, decree or demand
of any court or other governmental or regulatory authority that could
materially and adversely affect the business or assets of Tenant and its
Subsidiaries taken as a whole or Tenant's use, occupancy or operation of
the Leased Property. No condemnation or other like proceedings are
pending or, to Tenant's knowledge, threatened against the Leased
Property.
(g) Condition of Property. Adequate provisions have been made, or
during the Term adequate provision will be made by Tenant or Tenant's
Agents (pursuant to, without limitation, the Development Contracts), for
any existing or planned Improvements (other than grading or other site
work) to be served by electric, gas, storm and sanitary sewers, sanitary
water supply, telephone and other utilities and by streets, alleys and
easements necessary to serve such Improvements. Upon completion of the
initial Construction Project, the Leased Property will be in a condition
satisfactory for its use and occupancy as intended under this Lease. No
part of the Real Property is within an area identified by the Secretary
of Housing and Urban Development as an area having special flood
hazards.
(h) Organization. Tenant is duly incorporated and legally
existing under the laws of the State of Delaware and is duly qualified
to do business in the State of California. Tenant has all requisite
power and has procured or will procure on a timely basis all
governmental certificates of authority, licenses, permits,
qualifications and other documentation required to lease and operate the
Leased Property. Tenant has the corporate power and adequate authority,
rights and franchises to own Tenant's property and to carry on Tenant's
business as now conducted and is duly qualified and in good standing in
each state in which the character of Tenant's business makes such
qualification necessary (including, without limitation, the State of
California) or, if it is not so qualified in a state other than
California, such failure does not have a material adverse effect on the
properties, assets, operations or businesses of Tenant and its
Subsidiaries, taken as a whole.
(i) Enforceability. The execution, delivery and performance of
this Lease and the Purchase Agreement by Tenant are duly authorized, are
not in contravention of or conflict with any term or provision of
Tenant's articles of incorporation or bylaws and do not, to Tenant's
knowledge, conflict with any Applicable Laws or require the consent or
approval of any governmental body or other regulatory authority that has
not heretofore been obtained; provided, some consents or approvals which
are readily obtainable and which are required for Tenant's performance
hereunder (for example, building permits required for construction of
the initial Construction Project) may not have been heretofore obtained,
but Tenant shall obtain such consents or approvals as required in
connection with its performance of this Lease. This Lease and the
Purchase Agreement are valid, binding and legally enforceable
obligations of Tenant except as such enforcement is affected by
bankruptcy, insolvency and similar laws affecting the rights of
creditors, generally, and equitable principles of general application.
(j) Not a Foreign Person. Tenant is not a "foreign person" within
the meaning of Sections 1445 and 7701 of the Code (i.e., Tenant is not a
non-resident alien, foreign corporation, foreign partnership, foreign
trust or foreign estate as those terms are defined in the Code and
regulations promulgated thereunder).
(k) Omissions. None of Tenant's representations or warranties
contained in this Lease or in any other agreement between Tenant and
Landlord relating to the Leased Property or in any Tenant certificate
furnished to Landlord by or on behalf of Tenant in connection with the
Leased Property contains any untrue statement of a material fact or
omits a material fact necessary in order to make the statements
contained herein or therein (when taken in their entireties) not
misleading.
(l) Existence. During the Term, Tenant shall continuously
maintain its existence and its qualification to do business in the State
of California, and Tenant will not make any significant change in the
nature of the business of Tenant and its Subsidiaries, taken as a whole,
as presently conducted.
(m) Tenant Taxes. During the Term, Tenant shall comply with all
applicable tax laws and pay before the same become delinquent all taxes
imposed upon it or upon its property where the failure to so comply or
so pay would have a material adverse effect on the financial condition
or operations of Tenant and its Subsidiaries on a consolidated basis;
except that Tenant may in good faith by appropriate proceedings contest
the validity, applicability or amount of any such taxes and pending such
contest Tenant shall not be deemed in default under this subparagraph if
(1) Tenant diligently prosecutes such contest to completion in an
appropriate manner, and (2) Tenant promptly causes to be paid any tax
adjudged by a court of competent jurisdiction to be due, with all costs,
penalties, and interest thereon, promptly after such judgment becomes
final; provided, however, in any event such contest shall be concluded
and the tax, penalties, interest and costs shall be paid prior to the
date any writ or order is issued under which any of Tenant's property
that is material to the business of Tenant and its Subsidiaries taken as
a whole may be seized or sold because of the nonpayment thereof.
(n) Operation of Property. During the Term, Tenant shall operate
the Leased Property in a good and workmanlike manner and substantially
in compliance with all Applicable Laws and will pay or cause to be paid
all fees or charges of any kind in connection therewith. (If Tenant
does not promptly correct any failure of the Leased Property to comply
with Applicable Laws that is the subject of a written notice given to
Tenant or Landlord by any governmental authority, then for purposes of
the preceding sentence, Tenant shall be considered not to have
maintained the Leased Property "substantially in accordance with
Applicable Laws" whether or not the noncompliance would be substantial
in the absence of the notice.) During the Term, Tenant shall not use or
occupy, or allow the use or occupancy of, the Leased Property in any
manner which violates any Applicable Law or which constitutes a public
or private nuisance or which makes void, voidable or cancelable any
insurance then in force with respect thereto. During the Term, to the
extent that any of the following would, individually or in the
aggregate, materially and adversely affect the value of the Leased
Property or Tenant's use, occupancy or operations on the Leased
Property, Tenant shall not, without Landlord's prior consent: (i)
initiate or permit any zoning reclassification of the Leased Property;
(ii) seek any variance under existing zoning ordinances applicable to
the Leased Property; (iii) use or permit the use of the Leased Property
in a manner that would result in such use becoming a nonconforming use
under applicable zoning ordinances or similar laws, rules or
regulations; (iv) subject to Paragraph 10(b) below, execute or file any
subdivision plat affecting the Leased Property; or (v) consent to the
annexation of the Leased Property to any municipality. During the Term,
if (A) a change in the zoning or other Applicable Laws affecting the
permitted use or development of the Leased Property shall occur that
reduces Appraised Value, or (B) conditions or circumstances on or about
the Leased Property are discovered (such as the presence of an
endangered species) which substantially impede development and thereby
reduce Appraised Value, and if after any such reduction under clause (A)
or (B) above Appraised Value of the Leased Property is less than thirty
percent (30%) of Stipulated Loss Value, then Tenant shall pay Landlord
upon request the amount by which Appraised Value is less than thirty
percent (30%) of Stipulated Loss Value, for application as a Qualified
Payment. For purposes of determining Appraised Value under the
preceding sentence, the provisions of subparagraph 4(a)(v) shall apply.
During the Term, Tenant shall not cause or permit any drilling or
exploration for, or extraction, removal or production of, minerals from
the surface or subsurface of the Leased Property, and Tenant shall not
do any act whereby the market value of the Leased Property may
reasonably be expected to be materially lessened. Subject to Paragraph
23, during the Term, Tenant shall allow Landlord or its authorized
representative to enter the Leased Property at any reasonable time to
inspect the Leased Property and, after reasonable notice, to inspect
Tenant's books and records pertaining thereto, and Tenant shall assist
Landlord or Landlord's representative in whatever way reasonably
necessary to make such inspections. During the Term, if Tenant receives
a written notice or claim from any federal, state or other governmental
entity that the Leased Property is not in compliance in any material
respect with any Applicable Law, or that any action may be taken against
the owner of the Leased Property because the Leased Property does not
comply with Applicable Law, Tenant shall promptly furnish a copy of such
notice or claim to Landlord. Notwithstanding the foregoing, Tenant may
in good faith by appropriate proceedings contest the validity and
applicability of any Applicable Law with respect to the Leased Property,
and pending such contest Tenant shall not be deemed in default hereunder
because of a violation of such Applicable Law, if Tenant diligently
prosecutes such contest to completion in a manner reasonably
satisfactory to Landlord, and if Tenant promptly causes the Leased
Property to comply with any such Applicable Law upon a final
determination by a court of competent jurisdiction that the same is
valid and applicable to the Leased Property; provided, that in any event
such contest shall be concluded and the violation of such Applicable Law
must be corrected (in a manner that will not materially impede future
development of the Leased Property) and any claims asserted against
Landlord or the Leased Property because of such violation must be paid
by Tenant, all prior to (i) any Designated Payment Date on which neither
Tenant nor any Applicable Purchaser purchases the Leased Property
pursuant to the Purchase Agreement for a net price to Landlord (when
taken together with any additional payments made by Tenant pursuant to
Paragraph 2(a)(ii) of the Purchase Agreement, in the case of a purchase
by an Applicable Purchaser) of not less than Stipulated Loss Value, (ii)
the date any criminal charges may be brought against Landlord or any of
its directors, officers or employees because of such violation or (iii)
the date any action may be taken by any governmental authority against
Landlord or any property owned by Landlord (including the Leased
Property) because of such violation.
(o) Debts for Construction. During the Term, Tenant shall cause
all debts and liabilities incurred in the construction, maintenance,
operation and development of the Leased Property, including without
limitation all debts and liabilities for labor, material and equipment
and all debts and charges for utilities servicing the Leased Property,
to be promptly paid. Notwithstanding the foregoing, Tenant may in good
faith by appropriate proceedings contest the validity, applicability or
amount of any asserted mechanic's or materialmen's lien and pending such
contest Tenant shall not be deemed in default under this subparagraph
(or subparagraph 9(t)) because of the contested lien if (1) within sixty
(60) days after being asked to do so by Landlord, Tenant bonds over to
Landlord's satisfaction any contested liens alleged to secure an amount
in excess of $1,000,000 (individually or in the aggregate) (2) Tenant
diligently prosecutes such contest to completion in a manner reasonably
satisfactory to Landlord, and (3) Tenant promptly causes to be paid any
amount adjudged by a court of competent jurisdiction to be due, with all
costs and interest thereon, promptly after such judgment becomes final;
provided, however, that in any event each such contest shall be
concluded and the lien, interest and costs shall be paid prior to (i)
any Designated Payment Date on which neither Tenant nor any Applicable
Purchaser purchases the Leased Property pursuant to the Purchase
Agreement for a net price to Landlord (when taken together with any
additional payments made by Tenant pursuant to Paragraph 2(a)(ii) of the
Purchase Agreement, in the case of a purchase by an Applicable
Purchaser) of not less than Stipulated Loss Value, (ii) the date any
criminal action may be instituted against Landlord or its directors,
officers or employees because of the nonpayment thereof or (iii) any
writ or order is issued under which any property owned by Landlord
(including the Leased Property) may be seized or sold or any other
action may be taken against Landlord or any property owned by Landlord
because of the nonpayment thereof.
(p) Impositions. Tenant shall reimburse Landlord for (or, if
requested by Landlord, will pay or cause to be paid prior to
delinquency) all sales, excise, ad valorem, gross receipts, business,
transfer, stamp, occupancy, rental and other taxes, levies, fees,
charges, surcharges, assessments or penalties which arise out of or are
attributable to this Lease or which are imposed upon Landlord or the
Leased Property because of the ownership, leasing, occupancy, sale,
development or operation of the Leased Property, or any part thereof,
during the Term or which relate to or are required to be paid during the
Term by the terms of any of the Permitted Encumbrances (collectively,
herein called the "Impositions"), excluding only (and in every case)
Excluded Taxes. If Landlord requires Tenant to pay any Impositions
directly to the applicable taxing authority or other party entitled to
collect the same, Tenant shall furnish Landlord with receipts showing
payment of such Impositions and other amounts prior to delinquency;
except that Tenant may in good faith by appropriate proceedings contest
the validity, applicability or amount of any asserted Imposition, and
pending such contest Tenant shall not be deemed in default of this
subparagraph 9(p) (or subparagraph 9(t)) because of the contested
Imposition if (1) within sixty (60) days after being asked to do so by
Landlord, Tenant bonds over to the satisfaction of Landlord any lien
asserted against the Leased Property and alleged to secure an amount in
excess of $1,000,000 because of the contested Imposition (2) Tenant
diligently prosecutes such contest to completion in a manner reasonably
satisfactory to Landlord, and (3) Tenant promptly causes to be paid any
amount adjudged by a court of competent jurisdiction to be due, with all
costs, penalties and interest thereon, promptly after such judgment
becomes final; provided, however, that in any event each such contest
shall be concluded and the Impositions, penalties, interest and costs
shall be paid prior to (i) any Designated Payment Date on which neither
Tenant nor any Applicable Purchaser purchases the Leased Property
pursuant to the Purchase Agreement for a net price to Landlord (when
taken together with any additional payments made by Tenant pursuant to
Paragraph 2(a)(ii) of the Purchase Agreement, in the case of a purchase
by an Applicable Purchaser) of not less than Stipulated Loss Value, (ii)
the date any criminal action may be instituted against Landlord or its
directors, officers or employees because of the nonpayment thereof or
(iii) the date any writ or order is issued under which any property
owned by Landlord (including the Leased Property) may be seized or sold
or any other action may be taken against Landlord or any property owned
by Landlord because of the nonpayment thereof. As used herein,
"Impositions" shall include real estate taxes imposed because of a
change of use or ownership of the Leased Property, including, to the
extent attributable to the term of this Lease or any prior period, any
such real estate taxes imposed because of a change in use or ownership
after the term of this Lease expires or is terminated.
(q) Repair, Maintenance, Alterations and Additions. During the
Term, Tenant shall keep the Leased Property in good order, repair,
operating condition and appearance (subject to reasonable deviations
required to accommodate Construction Projects permitted by this Lease
and ordinary wear and tear) and shall cause all necessary repairs,
renewals, replacements, additions and improvements to the Leased
Property to be promptly made. Tenant shall not allow the Leased
Property to be materially misused, abused or wasted or to deteriorate
(subject to reasonable deviations required to accommodate Construction
Projects permitted by this Lease and ordinary wear and tear), and Tenant
shall promptly replace any worn-out fixtures and Personal Property with
fixtures and Personal Property comparable to the replaced items when
new. Tenant shall not, without the prior written consent of Landlord,
(i) remove from the Leased Property any fixture or Personal Property
having significant value except such as are replaced by Tenant by
fixtures or Personal Property of equal suitability and value, free and
clear of any lien or security interest (and for purposes of this clause
"significant value" will mean any fixture or Personal Property that has
a value of more than $100,000 or that, when considered together with all
other fixtures and Personal Property removed and not replaced by Tenant
by items of equal suitability and value, has an aggregate value of
$1,000,000 or more) or (ii) make or alter Improvements except as part of
Construction Projects meeting the requirements of Paragraph 6(b). At
any time requested by Landlord, Tenant shall deliver to Landlord an
inventory describing and showing the make, model, serial number and
location of each item of Personal Property having a significant value
with a certification by Tenant that such inventory is true and complete
and that all items specified in the inventory are free and clear of any
lien or security interest other than the Permitted Encumbrances
described in Exhibit B.
(r) Insurance and Casualty. Throughout the Term, Tenant shall
keep all Improvements (other than Improvements consisting only of
grading and other site work) and tangible Personal Property covered by
insurance against damage or destruction by fire or other casualty in the
amount of one hundred percent (100%) of the replacement value. The
policy or policies under which such insurance is maintained shall
include endorsements for contingent liability from operation of building
laws and increased cost of construction and demolition costs which may
be necessary to comply with building laws. Such insurance shall, except
to the extent provided under a builder's risk policy maintained as
required by subparagraph 6(c)(iii)b) above during the construction of
any Construction Project, be provided under an all-risk property
insurance policy (not excluding from coverage perils normally included
within the definitions of extended coverage, vandalism and malicious
mischief and flood, but not including earthquake coverage). Tenant will
be responsible for determining the amount of property insurance to be
maintained, but such coverage will be on an agreed value basis to
eliminate the effects of coinsurance. Such insurance shall be issued by
an insurance company or companies rated by the A.M. Best Company of
Oldwick, New Jersey as having a policyholder's rating of A or better and
a reported financial information rating of X or better. Any deductible
applicable to such insurance shall not exceed $1,000,000. Such
insurance shall cover not only the value of Tenant's interest in the
applicable Improvements and tangible Personal Property, but also the
interest of Landlord, and such insurance shall include provisions that
Landlord must be notified at least ten (10) days prior to any
cancellation or reduction of insurance coverage. With this Lease Tenant
shall deliver to Landlord a certificate from the applicable insurer or
its authorized agent evidencing the insurance required by this
subparagraph and any additional insurance which shall be taken out upon
any part of the Leased Property. Thereafter during the Term, Tenant
shall deliver to Landlord certificates from the applicable insurer or
its authorized agent in form reasonably satisfactory to Landlord
evidencing renewals or replacements of all such policies of insurance at
least fifteen (15) days before any such insurance shall expire. Tenant
further agrees that all such policies shall provide that proceeds
thereunder will be payable to Landlord as Landlord's interest may
appear, without reduction because of any negligence or other acts or
omissions of Tenant (including any use of the Leased Property by Tenant
for a purpose more hazardous than that permitted by the terms of the
applicable insurance policy). If Tenant fails to obtain any insurance
required by this Lease or to provide confirmation of any such insurance
as required by this Lease, Landlord shall be entitled (but not required)
to obtain the insurance that Tenant has failed to obtain or for which
Tenant has not provided the required confirmation and, without limiting
Landlord's other remedies under the circumstances, Landlord may require
Tenant to reimburse Landlord for the cost of such insurance and to pay
interest thereon computed at the Default Rate from the date such cost
was paid by Landlord until the date of reimbursement by Tenant. In the
event any of the Leased Property is destroyed or damaged by fire,
explosion, windstorm, hail or by any other casualty against which
insurance shall have been required hereunder, (i) Landlord may, but
shall not be obligated to, make proof of loss if not made promptly by
Tenant, (ii) each insurance company concerned is hereby authorized and
directed to make payment for such loss directly to Landlord for
application as required by Paragraph 4, and (iii) Landlord may settle,
adjust or compromise any and all claims for loss, damage or destruction
under any policy or policies of insurance (provided, that if any such
claim is for less than $10,000,000 and no Event of Default shall have
occurred and be continuing, Tenant shall have the right to settle,
adjust or compromise the claim as Tenant deems appropriate; and,
provided further, that so long as no Event of Default shall have
occurred and be continuing, Landlord must provide Tenant with at least
forty-five (45) days notice of Landlord's intention to settle any such
claim before settling it unless Tenant shall already have approved of
the settlement by Landlord). If any casualty shall result in damage to
or loss or destruction of the Leased Property in excess of $1,000,000,
Tenant shall give immediate notice thereof to Landlord and Paragraph 4
shall apply. In the event that insurance proceeds totaling not more
than $1,000,000 are collected as a result of a fire or other casualty
involving the Leased Property, Tenant may directly receive such proceeds
so long as no Event of Default shall have occurred and be continuing and
so long as Tenant applies such proceeds towards the restoration,
replacement and repair of the Leased Property as provided under
subparagraph 4(a)(iv).
(s) Condemnation. During the Term, immediately upon obtaining
knowledge of the institution of any proceedings for the condemnation of
the Leased Property or any portion thereof, or any other similar
governmental or quasi-governmental proceedings arising out of injury or
damage to the Leased Property or any portion thereof, Tenant shall
notify Landlord of the pendency of such proceedings. Tenant shall, at
its expense, diligently prosecute any such proceedings and shall consult
with Landlord, its attorneys and experts and cooperate with them as
reasonably requested in the carrying on or defense of any such
proceedings. All proceeds of condemnation awards or proceeds of sale in
lieu of condemnation with respect to the Leased Property and all
judgments, decrees and awards for injury or damage to the Leased
Property shall be paid to Landlord and applied as provided in Paragraph
4 above. Landlord is hereby authorized, in the name of Tenant, to
execute and deliver valid acquittances for, and to appeal from, any such
judgment, decree or award concerning condemnation of any of the Leased
Property. Landlord shall not be, in any event or circumstances, liable
or responsible for failure to collect, or to exercise diligence in the
collection of, any such proceeds, judgments, decrees or awards.
(t) Protection and Defense of Title Against Liens and Other
Encumbrances or Defects. If any encumbrance or title defect whatsoever
affecting the fee interest in the Leased Property is claimed or
discovered (including Liens against any part of or interest in the
Leased Property, whether or not expressly subordinate to this Lease or
Landlord's interest in the Leased Property, but excluding Permitted
Encumbrances, this Lease and any other encumbrance which is claimed by
Landlord or lawfully claimed through or under Landlord and which is not
claimed by, through or under Tenant) or if any legal proceedings are
instituted with respect to title to the Leased Property, Tenant shall
give prompt written notice thereof to Landlord and at Tenant's own cost
and expense will promptly cause the removal of any such encumbrance and
cure any such defect and will take all necessary and proper steps for
the defense of any such legal proceedings, including but not limited to
the employment of counsel, the prosecution or defense of litigation and
the release or discharge of all adverse claims. If Tenant fails to
promptly remove any such encumbrance or title defect, Landlord (whether
or not named as a party to legal proceedings with respect thereto) shall
be entitled to take such additional steps as in its judgment may be
necessary or proper to remove such encumbrance or cure such defect or
for the defense of any such attack or legal proceedings or the
protection of Landlord's fee interest in the Leased Property, including
but not limited to the employment of counsel, the prosecution or defense
of litigation, the compromise or discharge of any adverse claims made
with respect to the Leased Property, the removal of prior liens or
security interests, and all expenses (including Attorneys' Fees) so
incurred of every kind and character shall be a demand obligation owing
by Tenant.
For purposes of this subparagraph 9(t), Tenant shall be deemed to
be acting promptly to remove any encumbrance or to cure any title
defect, other than a Lien which Tenant has itself granted or authorized,
so long as Tenant is in good faith by appropriate proceedings contesting
the validity and applicability of the encumbrance or defect, and pending
such contest Tenant shall not be deemed in default under this
subparagraph because of the encumbrance or defect; provided, with
respect to a contest of any encumbrance or title defect which is the
subject of subparagraphs 9(o) or 9(p), Tenant must satisfy the
conditions and requirements for a permitted contest set forth in those
subparagraphs, and with respect to a contest of any other encumbrance or
title defect, Tenant must satisfy the following conditions and
requirements:
(1) Tenant must diligently prosecute the contest to completion
in a manner reasonably satisfactory to Landlord.
(2) Tenant must immediately remove the encumbrance or cure the
defect upon a final determination by a court of competent jurisdiction
that it is valid and applicable to the Leased Property.
(3) Tenant must in any event conclude the contest and remove
the encumbrance or cure the defect and pay any claims asserted against
Landlord or the Leased Property because of such encumbrance or defect,
all prior to (i) any Designated Payment Date on which neither Tenant nor
any Applicable Purchaser purchases the Leased Property pursuant to the
Purchase Agreement for a net price to Landlord (when taken together with
any additional payments made by Tenant pursuant to Paragraph 2(a)(ii) of
the Purchase Agreement, in the case of a purchase by an Applicable
Purchaser) of not less than Stipulated Loss Value, (ii) the date any
criminal charges may be brought against Landlord or any of its
directors, officers or employees because of such encumbrance or defect
or (iii) the date any action may be taken against Landlord or any
property owned by Landlord (including the Leased Property) by any
governmental authority or any other Person who has or claims rights
superior to Landlord because of the encumbrance or defect.
(u) Books and Records. During the Term Tenant shall keep books
and records that are accurate and complete in all material respects for
the operations affecting the Leased Property and shall, subject to
Paragraph 23, permit all such books and records (including without
limitation records which evidence the testing and validation of the
Leased Property required for the use thereof as described in
subparagraph 8(a), as well as all contracts, statements, invoices, bills
and claims for labor, materials and services supplied for the
construction and operation of Improvements) to be inspected and copied
by Landlord and its duly accredited representatives at all times during
reasonable business hours after five (5) Business Days advance written
notice and no more than twice in any twelve (12) month period (except
when an Event of Default has occurred and is continuing). This
subparagraph shall not be construed as requiring Tenant to regularly
maintain separate books and records relating exclusively to the Leased
Property; provided, however, that upon request, Tenant shall construct
or abstract from its regularly maintained books and records information
required by this subparagraph relating to the Leased Property.
(v) Financial Statements; Required Notices; Certificates. During
the Term, Tenant shall deliver to Landlord and to each Participant:
(i) as soon as available and in any event within one hundred
twenty (120) days after the end of each fiscal year of Tenant, a
consolidated balance sheet of Tenant and its Consolidated Subsidiaries
as of the end of such fiscal year and a consolidated income statement
and statement of cash flows of Tenant and its Consolidated Subsidiaries
for such fiscal year, all in reasonable detail and all prepared in
accordance with GAAP and accompanied by a report and opinion of
accountants of national standing selected by Tenant, which report and
opinion shall be prepared in accordance with generally accepted auditing
standards and shall not be subject to any qualifications or exceptions
as to the scope of the audit nor to any qualification or exception which
Landlord determines, in Landlord's reasonable discretion, is
unacceptable;
(ii) as soon as available and in any event within sixty (60)
days after the end of each of the first three quarters of each fiscal
year of Tenant, the consolidated balance sheet of Tenant and its
Consolidated Subsidiaries as of the end of such quarter and the
consolidated income statement and the consolidated statement of cash
flows of Tenant and its Consolidated Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the
end of such quarter, all in reasonable detail and all prepared in
accordance with GAAP and certified by the chief financial officer or
controller of Tenant (subject to year-end adjustments);
(iii) together with the financial statements furnished in
accordance with subparagraph 9(v)(ii) and 9(v)(i), a certificate of the
chief financial officer or controller of Tenant in substantially the
form attached hereto as Exhibit F: (i) certifying that to the knowledge
of Tenant no Default or Event of Default under this Lease has occurred
and is continuing or, if a Default or Event of Default has occurred and
is continuing, a brief statement as to the nature thereof and the action
which is proposed to be taken with respect thereto, (ii) certifying that
the representations of Tenant set forth in Paragraph 9 of this Lease are
true and correct in all material respects as of the date thereof as
though made on and as of the date thereof or, if not then true and
correct, a brief statement as to why such representations are no longer
true and correct, and (iii) with computations demonstrating compliance
with the financial covenants contained in subparagraph 9(ab);
(iv) promptly after the sending or filing thereof, copies of
all proxy statements, financial statements and reports which Tenant
sends to Tenant's stockholders, and copies of all regular, periodic and
special reports, and all registration statements (other than
registration statements on Form S-8 or any form substituted therefor)
which Tenant files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any
national securities exchange;
(v) upon request by Landlord, a statement in writing
certifying that this Lease is unmodified and in full effect (or, if
there have been modifications, that this Lease is in full effect as
modified, and setting forth such modifications) and the dates to which
the Base Rent has been paid and either stating that to the knowledge of
Tenant no Default or Event of Default under this Lease has occurred and
is continuing or, if a Default or Event of Default under this Lease has
occurred and is continuing, a brief statement as to the nature thereof;
it being intended that any such statement by Tenant may be relied upon
by any prospective purchaser or mortgagee of the Leased Property and by
the Participants; and
(vi) subject to Paragraph 23, such other information
respecting the condition or operations, financial or otherwise, of
Tenant, of any of its Subsidiaries or of the Leased Property as Landlord
or any Participant through Landlord may from time to time reasonably
request.
Landlord is hereby authorized to deliver a copy of any information or
certificate delivered to it pursuant to this subparagraph 9(v) to
Landlord's Parent, to the Participants and to any regulatory body having
jurisdiction over Landlord or Landlord's Parent or any Participant that
requires or requests it, but in connection therewith Landlord will, if
practicable, request confidential treatment of any information described
in clauses (iii) and (vi).
(w) Further Assurances. During the Term Tenant shall, on request
of Landlord, (i) promptly correct any defect or error which may be
discovered in the contents of this Lease or in any other instrument
executed in connection herewith or in the execution or acknowledgment
thereof as may be necessary, desirable or proper to carry out more
effectively the purposes of this Lease or such other document; (ii)
execute, acknowledge, deliver and record or file such further
instruments and do such further acts as may be necessary, desirable or
proper to carry out more effectively the purposes of this Lease and to
subject to this Lease any property intended by the terms hereof to be
covered hereby including specifically, but without limitation, any
renewals, additions, substitutions, replacements or appurtenances to the
Leased Property; (iii) execute, acknowledge, deliver, procure and record
or file any document or instrument deemed advisable by Landlord to
protect its rights in and to the Leased Property against the rights or
interests of third persons; and (iv) provide such certificates,
documents, reports, information, affidavits and other instruments and do
such further acts as may be necessary, desirable or proper in the
reasonable determination of Landlord to enable Landlord, Landlord's
Parent and Participants to comply with the requirements or requests of
any agency or authority having jurisdiction over them.
(x) Fees and Expenses; Indemnification; Increased Costs; and
Capital Adequacy Charges.
(i) Except for any costs and expenses paid by Landlord with
the proceeds of the Initial Funding Advances as part of the Transaction
Expenses, Tenant shall pay (and shall indemnify and hold harmless
Landlord, Landlord's Parent and any Person claiming through Landlord by
reason of a Permitted Transfer from and against) all Losses incurred by
Landlord or Landlord's Parent or any Person claiming through Landlord
through a Permitted Transfer in connection with or because of (A) the
ownership of any interest in or operation of the Leased Property, (B)
the negotiation or administration of this Lease or the Purchase
Agreement or the participation agreements concerning this Lease between
Landlord and Participants (excluding, however, any costs or expenses
incurred by Participants for the review, negotiation or administration
(absent an Event of Default) of this Lease, the Purchase Agreement or
such participation agreements and any costs or expenses incurred by
Landlord or any transferee to accomplish any Permitted Transfers
described in clauses (2), (3) or (5) of subparagraph 1(bu)), or (C)
Construction Projects, whether such Losses are incurred at the time of
execution of this Lease or at any time during the Term. Costs and
expenses included in such Losses may include, without limitation, all
appraisal fees, filing and recording fees, inspection fees, survey fees,
taxes (other than Excluded Taxes), brokerage fees and commissions,
abstract fees, title policy fees, Uniform Commercial Code search fees,
escrow fees, Attorneys' Fees and reasonable environmental consulting
fees incurred by Landlord with respect to the Leased Property. If
Landlord pays or reimburses Landlord's Parent for any such Losses,
Tenant shall reimburse Landlord for the same notwithstanding that
Landlord may have already received any payment from any Participant on
account of such Losses, it being understood that the Participant may
expect repayment from Landlord when Landlord does collect the required
reimbursement from Tenant. Tenant shall be entitled to pay any of the
foregoing Losses for which Tenant is responsible hereunder out of
Construction Advances, subject to all of the conditions to Construction
Advances set forth in Paragraph 6 hereof.
(ii) Tenant shall also pay (and indemnify and hold harmless
Landlord, Landlord's Parent and any Person claiming through Landlord by
reason of a Permitted Transfer from and against) all Losses, including
Attorneys' Fees, incurred or expended by Landlord or Landlord's Parent
or any Person claiming through Landlord through a Permitted Transfer in
connection with (A) the breach by Tenant of any covenant of Tenant
herein or in any other instrument executed in connection herewith or (B)
Landlord's exercise of any of Landlord's rights and remedies hereunder
or under Applicable Law or Landlord's protection of the Leased Property
and Landlord's interest therein as permitted hereunder or under
Applicable Law. (However, the indemnity in the preceding sentence shall
not be construed to make Tenant liable to both Landlord and any
Participant or other party claiming through Landlord for the same
damages. For example, so long as Landlord remains entitled to recover
any past due Base Rent from Tenant, no Participant shall be entitled to
collect a percentage of the same Base Rent from Tenant.) Tenant shall
further indemnify and hold harmless Landlord and all other Indemnified
Parties against, and reimburse them for, all Losses which may be imposed
upon, asserted against or incurred or paid by them by reason of, on
account of or in connection with any bodily injury or death or damage to
the property of third parties occurring in or upon or in the vicinity of
the Leased Property through any cause whatsoever. The foregoing
indemnity for injury, death or property damage shall apply even when
injury, death or property damage in, on or in the vicinity of the Leased
Property results in whole or in part from the negligence of an
Indemnified Party; provided, such indemnity shall not apply to Losses
suffered by an Indemnified Party that were proximately caused by (and
attributed by any applicable principles of comparative fault to) the
Active Negligence, gross negligence or wilful misconduct of such
Indemnified Party or its Affiliates, agents or employees.
(iii) If, after the date hereof, due to either (A) the
introduction of or any change (other than any change by way of
imposition or increase of reserve requirements included in the
Eurodollar Rate Reserve Percentage) in or in the interpretation of any
law or regulation or (B) the compliance with any guideline or request
from any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the cost to
Landlord's Parent or any Participant of agreeing to make or making,
funding or maintaining advances to Landlord in connection with the
Leased Property, then Tenant shall from time to time, upon demand by
Landlord pay to Landlord for the account of Landlord's Parent or such
Participant, as the case may be, additional amounts sufficient to
compensate Landlord's Parent or the Participant for such increased cost.
However, the aggregate of such additional amounts payable for the
account of any original Participant listed in Schedule 1 and all Persons
who may qualify as Participants through permitted assignments from such
original Participant shall not exceed the additional amounts that would
have been payable to such original Participant absent any assignments by
it of its rights under its participation agreement with Landlord. A
certificate as to the amount of such increased cost, submitted to
Landlord and Tenant by Landlord's Parent or the Participant, shall be
conclusive and binding for all purposes, absent clear and demonstrable
error.
(iv) If Landlord's Parent or any Participant determines that
any law or regulation or any guideline or request from any central bank
or other governmental authority (whether or not having the force of law)
affects the amount of capital to be maintained by it and that the amount
of such capital is increased by or based upon the existence of advances
made or to be made to Landlord to permit Landlord to maintain Landlord's
investment in the Leased Property, then to the extent that Landlord's
Parent or the Participant reasonably determines that the increase in
required capital is allocable to such advances, Tenant shall pay
Landlord additional amounts (herein called "Capital Adequacy Charges")
for the account of Landlord's Parent or the Participant, as the case may
be, as Landlord's Parent or the Participant may specify as sufficient to
compensate it in light of such circumstances.
(v) Any amount to be paid to Landlord, Landlord's Parent or
any Indemnified Party under this subparagraph 9(x) shall be a demand
obligation owing by Tenant. Tenant's indemnities and obligations under
this subparagraph 9(x) shall survive the termination or expiration of
this Lease with respect to any circumstance or event existing or
occurring prior to such termination or expiration.
(y) Liability Insurance. During the Term, Tenant shall maintain
commercial general liability insurance against claims for bodily injury
or death and property damage occurring or resulting from any occurrence
in or upon the Leased Property, in standard form and with an insurance
company or companies rated by the A.M. Best Company of Oldwick, New
Jersey as having a policyholder's rating of A or better and a reported
financial information rating of X or better, such insurance to afford
immediate protection, to the limit of not less than $10,000,000 combined
single limit for bodily injury and property damage in respect of any one
accident or occurrence, with not more than $1,000,000 self-insured
retention. Such commercial general liability insurance shall include
blanket contractual liability coverage which insures contractual
liability under the indemnifications set forth in this Lease (other than
the indemnifications set forth in Paragraph 12 concerning environmental
matters), but such coverage or the amount thereof shall in no way limit
such indemnifications. The policy evidencing such insurance shall name
as additional insureds Landlord, Landlord's Parent and the Participants.
Tenant shall maintain with respect to each policy or agreement
evidencing such commercial general liability insurance such endorsements
as may be reasonably required by Landlord and shall at all times deliver
and maintain with Landlord written certificates with respect to such
insurance from the applicable insurer or its authorized agent in form
satisfactory to Landlord, which certificates must provide that insurance
coverage will not be canceled or reduced without at least thirty (30)
days notice to Landlord. Not less than fifteen (15) days prior to the
expiration date of each policy of insurance required of Tenant pursuant
to this subparagraph, Tenant shall deliver to Landlord a certificate
evidencing a paid renewal policy or policies.
(z) Permitted Encumbrances. Except to the extent expressly
required of Landlord by subparagraph 10(b), Tenant shall during the Term
comply with and will cause to be performed all of the covenants,
agreements and obligations imposed upon the owner of the Leased Property
in the Permitted Encumbrances in accordance with their respective terms
and provisions. Tenant shall not modify or permit any modification of
any Permitted Encumbrance in any manner that could be binding upon
Landlord or any future owner of the Leased Property (other than Tenant
or an Applicable Purchaser or the successors or assigns of Tenant or an
Applicable Purchaser) without first requesting and obtaining the prior
written consent of Landlord. Whether Landlord must give or may withhold
any such consent will be governed by subparagraph 10(b).
(aa) Environmental Covenants. During the Term, Tenant shall not
cause or permit the Leased Property to be in violation of, or do
anything or permit anything to be done which will subject the Leased
Property to any remedial obligations under, any Environmental Laws,
including without limitation CERCLA and RCRA, assuming disclosure to the
applicable governmental authorities of all relevant facts, conditions
and circumstances pertaining to the Leased Property, and Tenant shall
promptly notify Landlord in writing of any existing, pending or, to the
knowledge of Tenant, threatened investigation or inquiry by any
governmental authority in connection with any suspected violation of the
Leased Property under any Environmental Laws. During the Term, Tenant
shall not conduct or permit Hazardous Substance Activities, except
Permitted Hazardous Substance Use. During the Term, Tenant shall keep
the Leased Property free of all Hazardous Substances (other than
Permitted Hazardous Substances) and will remove the same (or if removal
is prohibited by law, will take whatever action is required by law)
promptly upon Tenant's discovery at Tenant's sole expense. During the
Term, in the event Tenant fails to comply with or perform any of the
foregoing obligations concerning Hazardous Substance Activities and
Hazardous Substances, Landlord may, in addition to any other remedies
available to it, after notifying Tenant in writing in advance of the
remediation efforts Landlord believes are needed, cause the Leased
Property to be freed from all Hazardous Substances as provided above (or
if removal is prohibited by law, may take whatever action is required by
law) and take such other action as is necessary to cause the foregoing
obligations to be met, and the cost of the removal and any such other
action shall be a demand obligation owing by Tenant to Landlord. For
such removal and other action, Tenant grants to Landlord and Landlord's
agents and employees access to the Leased Property and the license to
remove Hazardous Substances as provided above (or if removal is
prohibited by law or otherwise deemed inadvisable by Landlord, to take
whatever action is required by law or otherwise deemed advisable by
Landlord) and take such other action as is necessary to cause the
foregoing obligations to be met, subject to Paragraph 23. Further,
subject to the provisions of subparagraph 12(c) below, Tenant agrees to
indemnify Landlord against all Losses incurred by or asserted or proven
against Landlord in connection therewith in accordance with Paragraph
12. During the Term, Tenant agrees to submit from time to time, if
requested by Landlord, a certificate of an officer of Tenant, certifying
that, except for Permitted Hazardous Substance Use, the Leased Property
is not being used for, nor to Tenant's knowledge (except as may be
described in the Environmental Report) has the Leased Property been used
in the past for, any Hazardous Substances Activities. Landlord reserves
the right to retain an independent professional consultant to review any
report prepared by Tenant or to conduct Landlord's own investigation to
confirm whether Hazardous Substances Activities or the discharge of
anything into groundwater or surface water has occurred, but Landlord's
right to reimbursement for the fees of such consultant shall be limited
to the following circumstances: (1) an Event of Default shall have
occurred and be continuing; (2) Landlord shall have retained the
consultant to establish the condition of the Leased Property just prior
to any conveyance thereof pursuant to the Purchase Agreement or just
prior to the expiration of this Lease; (3) Landlord shall have retained
the consultant to satisfy any regulatory requirements applicable to
Landlord or its Affiliates; or (4) Landlord shall have retained the
consultant because Landlord has been notified of a violation of
Environmental Laws concerning the Leased Property or Landlord otherwise
reasonably believes that Tenant has not complied with this subparagraph.
Subject to Paragraph 23, Tenant grants to Landlord and to Landlord's
agents, employees, consultants and contractors the right during
reasonable business hours and after reasonable advance written notice to
enter upon the Leased Property to inspect the Leased Property and to
perform such tests as are reasonably necessary or appropriate to conduct
a review or investigation of Hazardous Substances on, or discharged into
groundwater or surface water from, the Leased Property. Tenant further
agrees that Landlord will have the same right, power and authority to
enter and inspect the Leased Property as is granted to a secured lender
under Section 2929.5 of the California Civil Code. Tenant shall
promptly reimburse Landlord for the cost of any such inspections and
tests, but only when the inspections and tests are: (1) ordered by
Landlord after an Event of Default has occurred and is continuing; (2)
ordered by Landlord to establish the condition of the Leased Property
just prior to any conveyance thereof pursuant to the Purchase Agreement
or just prior to the expiration of this Lease; (3) ordered by Landlord
to satisfy any regulatory requirements applicable to Landlord or its
Affiliates; or (4) ordered because Landlord has been notified of a
violation of Environmental Laws concerning the Leased Property or
Landlord otherwise reasonably believes that Tenant has not complied with
this subparagraph. During the Term, Tenant shall immediately advise
Landlord of (i) Tenant's discovery of any event or circumstance which
would render any of the representations contained in subparagraph 9(e)
inaccurate in any material respect if made at the time of such
discovery, (ii) any remedial action taken by Tenant in response to any
(A) Hazardous Substances other than Permitted Hazardous Substances on,
under or about the Leased Property or (B) any claim for damages
resulting from Hazardous Substance Activities (herein called "Hazardous
Substance Claims"), and (iii) Tenant's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the
Leased Property which creates a material risk of causing the Leased
Property or any part thereof to be subject to significant ownership,
occupancy, transferability or use restrictions under Environmental Laws
or that could give rise to Hazardous Substance Claims. In such event,
Tenant shall deliver to Landlord within thirty (30) days after
Landlord's request, a preliminary written environmental plan setting
forth a general description of the action that Tenant proposes to take
with respect thereto to bring the Leased Property into compliance with
Environmental Laws (herein called a "Clean Up"), including, without
limitation, any proposed corrective work, the estimated cost and time of
completion, the name of the contractor and a copy of the construction
contract, if any, and such additional data, instruments, documents,
agreements or other materials or information as Landlord may reasonably
request. Tenant shall thereafter diligently and continuously pursue the
Clean Up of the Leased Property in strict compliance with all
Environmental Laws and shall inform Landlord monthly as to the status of
the Clean Up.
(ab) Affirmative Financial Covenants. During the Term:
(i) Minimum Tangible Net Worth. On the last day of each
fiscal quarter of Tenant, Consolidated Tangible Net Worth shall not be
less than the sum of $1,000,000,000.00.
(ii) Leverage Ratio. On the last day of each fiscal quarter
of Tenant the ratio of Consolidated Total Liabilities to Consolidated
Tangible Net Worth shall not be greater than 1.0 to 1.0.
(iii) Quick Ratio. On the last day of each fiscal quarter of
Tenant, the ratio of Consolidated Quick Assets to Consolidated Current
Liabilities shall not be less than 3.75 to 1.0.
(ac) Negative Covenants. During the Term, Tenant shall not,
without the prior written consent of Landlord in each case:
(i) Liens. Create, incur, assume or suffer to exist, or
permit any of its Consolidated Subsidiaries to create, incur, assume or
suffer to exist, any Lien, upon or with respect to any of its
properties, now owned or hereafter acquired, provided that the following
shall be permitted except to the extent that they would encumber any
interest in the Leased Property in violation of other provisions of this
Lease:
(1) Liens for taxes or assessments or other government
charges or levies if not yet due and payable or if they are being
contested in good faith by appropriate proceedings (including contests
expressly permitted by other provisions of this Lease) and for which
appropriate reserves are maintained;
(2) Liens imposed by law, such as mechanic's,
materialmen's, landlord's, warehousemen's and carrier's Liens, and other
similar Liens, securing obligations incurred in the ordinary course of
business which are not past due for more than thirty (30) days, or which
are being contested in good faith by appropriate proceedings (including
contests expressly permitted under other provisions of this Lease) and
for which appropriate reserves have been established;
(3) Liens under workmen's compensation, unemployment
insurance, social security or similar laws (other than ERISA);
(4) Liens, deposits or pledges to secure the performance
of bids, tenders, contracts (other than contracts for the payment of
money), leases, public or statutory obligations, surety, stay, appeal,
indemnity, performance or other similar bonds, or other similar
obligations arising in the ordinary course of business;
(5) judgment and other similar Liens against assets
other than the Leased Property or any part thereof in an aggregate
amount not in excess of $10,000,000 arising in connection with court
proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith by appropriate proceedings (including
contests permitted under other provisions of this Lease) ;
(6) easements, rights-of-way, restrictions and other
similar encumbrances which, in the aggregate, do not materially
interfere with the occupation, use and enjoyment by Tenant or any such
Consolidated Subsidiary of the property or assets encumbered thereby in
the normal course of its business or materially impair the value of the
property subject thereto;
(7) Liens securing obligations of such a Consolidated
Subsidiary to Tenant or to another such Consolidated Subsidiary;
(8) Liens not otherwise permitted by this subsection
9(ac)(i) (and not encumbering the Leased Property) incurred in
connection with the incurrence of additional Debt or asserted to secure
Unfunded Benefit Liabilities, provided that the sum of the aggregate
principal amount of all outstanding Debt and any Unfunded Benefit
Liabilities secured by Liens incurred pursuant to this clause (8) shall
not at any time exceed thirty percent (30%) of Consolidated Tangible Net
Worth at such time; and
(9) Liens incurred in connection with any renewals,
extensions or refundings of any Debt secured by Liens described in the
preceding clauses of this subsection 9(ac)(i), provided that there is no
increase in the aggregate principal amount of Debt secured thereby from
that which was outstanding as of the date of such renewal, extension or
refunding and no additional property is encumbered.
For purposes of this subparagraph 9(ac)(i), the following shall be
deemed not to constitute Liens: this Lease, the Purchase Agreement and
other documents being executed or accepted by Landlord in connection
with this Lease; and other lease agreements, purchase agreements and
similar documents executed or accepted by Landlord to evidence
agreements between Landlord and Tenant concerning properties owned by
Landlord and leased to Tenant, including but not limited to the existing
Lease Agreements and Purchase Agreements between Landlord and Tenant
dated November 19, 1993 and May 2, 1994, which concern properties leased
by Landlord to Tenant in Tenant's South San Francisco campus known as
Building 7 and Buildings 1 and 4, as the same may be renewed, increased,
reduced, amended and/or restated from time to time.
(ii) Transactions with Affiliates. Enter into or permit any
Consolidated Subsidiary of Tenant to enter into any material
transactions (including, without limitation, the purchase, sale or
exchange of property or the rendering of any service) with any
Affiliates of Tenant which would cause or result in a Default by Tenant
under the financial covenants set forth in subparagraph 9(ab).
(ad) ERISA.
(i) Each Plan, and, to the knowledge of Tenant, any
Multiemployer Plan, is in compliance with, and has been administered in
compliance with, the applicable provisions of ERISA, the Code and any
other applicable Federal or state law in all respects, the failure to
comply with which would have a material adverse effect upon the
properties, assets, operations or businesses of Tenant and its
Subsidiaries taken as a whole, and as of the date hereof no event or
condition is occurring or exists which would require a notice from
Tenant under clause 9(ad)(ii).
(ii) Tenant shall provide a notice to Landlord as soon as
possible after, and in any event within ten (10) days after Tenant
becomes aware that, any of the following has occurred, with respect to
which the potential aggregate liability to Tenant relating thereto is
$10,000,000 or more, and such notice shall include a statement signed by
a senior financial officer of Tenant setting forth details of the
following and the response, if any, which Tenant or its ERISA Affiliate
proposes to take with respect thereto (and a copy of any report or
notice required to be filed with or given to PBGC by Tenant or an ERISA
Affiliate with respect to any of the following or the events or
conditions leading up to the following): (A) the assertion, to secure
any Unfunded Benefit Liabilities, of any Lien against the assets of
Tenant, against the assets of any Plan of Tenant or any ERISA Affiliate
of Tenant or against any interest of Landlord or Tenant in the Leased
Property, or (B) the taking of any action by the PBGC or any other
governmental authority against Tenant to terminate any Plan of Tenant or
any ERISA Affiliate of Tenant or to cause the appointment of a trustee
or receiver to administer any such Plan.
(ae) Assignment of Certain Rights; Ownership of the Personal
Property Purchased With Funds Provided by Landlord. Subject in each
case to the assignment and lease back as set forth on page 2 of this
Lease and to subparagraph 10(c), and without limiting the obligations of
Landlord under subparagraph 10(b):
(i) Tenant hereby assigns to Landlord all of Tenant's right,
title and interest, whether now existing or hereafter arising during the
Term of this Lease, in and to (1) the Real Property itself, including
any legal or equitable interest therein, but not including any interest
created or arising under this Lease, the Purchase Agreement or the
Environmental Indemnity Agreement; (2) the Contract (including without
limitation, (A) the right upon valid tender to Seller to purchase the
Real Property pursuant to the Contract at the purchase price set forth
therein and the right to take title to the Real Property and be named
the purchaser in the deed to be delivered by Seller; (B) all claims for
damages in respect of the Contract, including, without limitation, all
warranty and indemnity provisions in the Contract; (C) any and all
rights of Tenant to compel performance of the terms of the Contract; and
(D) without limiting the foregoing, any and all rights and benefits,
including pursuant to representations, warranties, indemnities and
covenants, arising under the Contract); and (3) each of the other
Development Contracts, to the extent rights or interests under such
Development Contracts can be assigned by Tenant to Landlord and then
assigned and leased back hereunder as part of the Personal Property. To
the extent, if any, rights and interests of Tenant under any Development
Contract cannot be assigned by Tenant to Landlord and then assigned and
leased back as part of the Personal Property, Tenant will retain such
rights and interests and agrees to enforce and maintain such rights and
interests as Tenant would if it were the owner of the Leased Property.
Thus, without limiting the foregoing, Landlord acknowledges and agrees
that Tenant has not and cannot assign the "Financial Commitments" under
and as defined in the Development Agreement described in Schedule 2.
(ii) All goods, equipment, furnishings, furniture, chattels,
general intangibles, permits (to the extent assignable), licenses (to
the extent assignable), franchises, certificates and other personal
property of whatever nature and all renewals or replacements of or
substitutions for any of the foregoing shall have been purchased for
Landlord, be owned by Landlord and constitute Personal Property covered
by this Lease, to the extent heretofore or hereafter purchased by
Tenant, in whole or in part, with any portion of the Initial Funding
Advances provided to Tenant or with any Construction Advances or with
other funds for which Tenant has received or hereafter receives
reimbursement from the Initial Funding Advances or Construction
Advances.
10 Other Representations and Covenants of Landlord. Landlord
represents and covenants as follows:
(a) Title Claims By, Through or Under Landlord. Except by a
Permitted Transfer, Landlord shall not assign, transfer, mortgage,
pledge, encumber or hypothecate this Lease or any interest of Landlord
in and to the Leased Property during the Term without the prior written
consent of Tenant. Landlord further agrees that if any encumbrance or
title defect affecting the Leased Property is lawfully claimed through
or under Landlord, including any judgment lien lawfully filed against
Landlord, Landlord will at its own cost and expense promptly remove any
such encumbrance and cure any such defect; provided, however, Landlord
shall not be responsible for (i) any Permitted Encumbrances (regardless
of whether claimed through or under Landlord) or any other encumbrances
not lawfully claimed through or under Landlord, (ii) any encumbrances or
title defects claimed by, through or under Tenant, or (iii) any
encumbrance or title defect arising because of Landlord's compliance
with subparagraph 10(b) or any request made by Tenant.
(b) Actions Required of the Title Holder. So long as no Event of
Default shall have occurred and be continuing, Landlord shall take any
and all action required of Landlord by the Permitted Encumbrances or
otherwise required of Landlord by Applicable Laws or reasonably
requested by Tenant; provided, that (i) actions which Tenant may require
of Landlord under this subparagraph shall be limited to actions that can
only be taken by Landlord as the owner of the Leased Property, as
opposed to any action that can be taken by Tenant or any third party
(and the payment of any monetary obligation shall not be an action
required of Landlord under this subparagraph unless Landlord shall first
have received funds from Tenant, in excess of any other amounts due from
Tenant hereunder, sufficient to pay such monetary obligations), (ii)
Tenant requests the action to be taken by Landlord (which request must
be specific and in writing, if required by Landlord at the time the
request is made) and (iii) the action to be taken will not constitute a
violation of any Applicable Laws or compromise or constitute a waiver of
Landlord's rights hereunder or under the Environmental Indemnity
Agreement or the Purchase Agreement or otherwise be reasonably
objectionable to Landlord.
The actions Landlord shall perform if reasonably requested by
Tenant will include, without limitation, but subject to the conditions
set forth in the proviso of the preceding sentence, executing or
consenting to, or exercising or assisting Tenant to exercise rights
under any (I) grant of easements, licenses, rights of way, and other
rights in the nature of easements encumbering the Real Property, (II)
release or termination of easements, licenses, rights of way or other
rights in the nature of easements which are for the benefit of the Real
Property or any portion thereof, (III) dedication or transfer of
portions of the Real Property not improved with a building, for road,
highway or other public purposes, (IV) agreements for the use and
maintenance of common areas, for reciprocal rights of parking, ingress
and egress and amendments to any covenants and restrictions affecting
the Real Property or any portion thereof, (V) documents required to
create or administer a governmental special benefit district or
assessment district for public improvements and collection of special
assessments, (VI) instruments necessary or desirable for the exercise or
enforcement of rights or performance of obligations of the buyer under
the Contract or the exercise of rights or performance of obligations
under any Permitted Encumbrance or any contract, permit, license,
franchise or other right included within the term "Leased Property"
(including, without limitation, under the Development Contracts), (VII)
modifications of Permitted Encumbrances (including any Development
Contracts), (VIII) permit applications or other documents required to
accommodate Construction Projects permitted by this Lease, (IX)
confirmations of Tenant's rights under any particular provisions of this
Lease which Tenant may wish to provide to a third party or (X) execution
or filing of a tract or parcel map subdividing the Real Property into
lots or parcels. However, the determination of whether any such action
is reasonably requested or reasonably objectionable to Landlord may
depend in whole or in part upon the extent to which the requested action
shall result in a lien to secure payment or performance obligations
against Landlord's interest in the Leased Property, shall cause a
decrease in the value of the Leased Property to less than thirty percent
(30%) of Stipulated Loss Value after any Qualified Payments that may
result from such action are taken into account, or shall impose upon
Landlord any present or future obligations greater than the obligations
Landlord is willing to accept in reliance on the indemnifications
provided by Tenant hereunder.
So long as no Event of Default shall have occurred and be
continuing, Tenant shall have the option from time to time during the
Term to purchase or to designate one or more assignees to purchase one
or more undeveloped portions of the Real Property consisting of one or
more tracts or lots of the Land which can be sold under Applicable Laws
separate and apart from the rest of the Land (each, a "Parcel"), for an
amount equal to the Appraised Value thereof (such amount with respect to
each Parcel being referred to herein as the "Parcel Release Price").
Tenant may exercise such option by delivering to Landlord not less than
ninety (90) days prior written notice, which written notice shall
describe the Parcel or Parcels to be purchased, the date such Parcels
are to be conveyed by Landlord and whether the conveyance will be to
Tenant or an assignee designated in such notice. In each case
Landlord's obligation to convey such Parcels to Tenant or Tenant's
assignee shall be subject to Tenant's and/or such assignee's
satisfaction of each of the following conditions:
a) Landlord, Tenant and, if applicable, such assignee
shall have agreed upon, entered into and recorded such reciprocal
easements relating to the Land and the Parcel to be so sold as they
shall deem necessary or reasonably required to preserve usefulness of
the Parcels and the remaining Land after the conveyance;
b) It shall have been established that, following such
conveyance and the application of the Partial Release Price as a
Qualified Payment, Appraised Value of the Leased Property retained by
Landlord will be no less than thirty percent (30%) of Stipulated Loss
Value.
c) Tenant or such assignee shall have paid to Landlord
the Parcel Release Price for such Parcels; and
d) In addition to the Partial Release Price, Tenant or
such assignee shall have paid all costs and expenses necessary to
consummate the sale, including all legal fees of Landlord.
Upon Tenant's or such assignee's satisfaction of each of the foregoing
conditions, Landlord shall convey such Parcel or Parcels to Tenant or
such assignee pursuant to a quitclaim transfer of all of Landlord's
right, title and interest therein on as "as is, where is, with all
faults" basis free and clear of this Lease, the Purchase Agreement and
all encumbrances claimed by Landlord or lawfully claimed through or
under Landlord and which are not claimed by, through or under Tenant,
but otherwise without recourse, representation or warranty of any kind.
In any event, all claims, demands, liabilities, losses, damages,
judgments, penalties, costs and expenses incurred by Landlord because of
any action taken pursuant to this subparagraph shall be covered by the
indemnifications set forth in subparagraph 9(x). Further, for purposes
of such indemnification, any action taken by Landlord will be deemed to
have been made at the request of Tenant if made pursuant to any request
of Tenant's counsel or of any officer of Tenant (or with their
knowledge, and without their objection) in connection with the execution
of, closing under or enforcement of the Contract.
(c) Actions Permitted by Tenant Without Landlord's Consent. No
refusal by Landlord to execute or join in the execution of any
agreement, application or other document requested by Tenant pursuant to
the preceding subparagraph 10(b) shall preclude Tenant from itself
executing such agreement, application or other document; provided, that
in doing so Tenant is not purporting to act for Landlord and does not
thereby create any encumbrance or cloud on Landlord's title to the
Leased Property (other than any Permitted Encumbrance to which Landlord
shall have already given its written approval or consent). Further,
subject to the other terms and conditions of this Lease (including
subparagraph 9(z), which sets forth certain performance obligations of
Tenant with respect to the Permitted Encumbrances), Tenant shall be
entitled, because of the assignment and lease of Personal Property set
forth on page 2 of this Lease, to do any of the following in Tenant's
own name and to the exclusion of Landlord during the Term without any
notice to or consent of Landlord so long as no Event of Default has
occurred and is outstanding and so long as Tenant is not purporting to
act for Landlord and does not thereby create any encumbrance or cloud on
Landlord's title to the Leased Property (other than any Permitted
Encumbrance to which Landlord shall have already given its written
approval or consent):
(A) to perform obligations arising under and to exercise and
enforce the rights of the buyer under the Contract;
(B) to perform obligations arising under and to exercise and
enforce the rights of Tenant or the owner of the Real Property under the
Development Contracts and other Permitted Encumbrances (including,
without limitation, the exercise of all consent rights and voting rights
of said owner as a member of the Vaca Valley Business Park Association
under the Declaration of Covenants, Conditions and Restrictions for the
Vaca Valley Business Park described in Schedule 2 and any applicable by-
laws, articles of incorporation or similar documents of such
Association);
(C) to perform obligations arising under and to exercise and
enforce the rights of Tenant or the owner of the Real Property with
respect to the creation and operation of and obtaining of financing by
the Assessment District (as defined in the Contract);
(D) to perform obligations arising under and to exercise and
enforce the rights of Tenant or the owner of the Real Property with
respect to any other contracts or documents (such as plans and
specifications) included within the Personal Property; and
(E) to recover and retain any monetary damages or other
benefit inuring to Tenant or the owner of the Real Property through the
enforcement of any rights, contracts or other documents included within
the Personal Property (including without limitation the Contract, the
Development Contracts and other Permitted Encumbrances and any
agreements, ordinances, regulations and laws concerning any Assessment
District as defined in the Contract); provided, that to the extent any
such monetary damages may become payable as compensation for an adverse
impact on value of the Leased Property, the rights of Landlord and
Tenant hereunder with respect to the collection and application of such
monetary damages shall be the same as for condemnation proceeds payable
because of a taking of all or any part of the Leased Property.
(d) No Default or Violation. The execution, delivery and
performance by Landlord of this Lease and the Purchase Agreement do not
and will not constitute a breach or default under any material contract
or agreement to which Landlord is a party or by which Landlord is bound
or which affects the Leased Property and do not, to the knowledge of
Landlord, violate or contravene any law, order, decree, rule or
regulation to which Landlord is subject. (As used in this Paragraph 10,
"Landlord's knowledge" means the present actual knowledge of Lloyd Cox,
the current officer of Landlord having responsibility for the
negotiation of this Lease, with due investigation and after consultation
with Landlord's Parent's representative, Jennifer Cho; but neither Lloyd
Cox nor Jennifer Cho shall be personally liable for the representations
or warranties of Landlord made herein.)
(e) No Suits. There are no judicial or administrative actions,
suits, proceedings or investigations pending or, to Landlord's
knowledge, threatened that are reasonably likely to affect Landlord's
ownership of the Leased Property or the validity, enforceability or
priority of this Lease, and Landlord is not in default with respect to
any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority that could materially and adversely
affect the business or assets of Landlord or its ownership of the Leased
Property. To Landlord's knowledge, no condemnation proceedings are
pending or threatened against the Leased Property.
(f) Organization. Landlord is duly incorporated and legally
existing under the laws of Delaware and is duly qualified to do business
in the State of California. Landlord has or will obtain on a timely
basis, at Tenant's expense pursuant to the other provisions of this
Lease, all requisite power and all governmental certificates of
authority, licenses, permits, qualifications and other documentation
necessary to own and lease the Leased Property and to perform its
obligations under this Lease.
(g) Enforceability. The execution, delivery and performance of
this Lease and the Purchase Agreement by Landlord are duly authorized,
are not in contravention of or conflict with any term or provision of
Landlord's articles of incorporation or bylaws and do not, to Landlord's
knowledge, require the consent or approval of any governmental body or
other regulatory authority that has not heretofore been obtained or
conflict with any Applicable Laws. This Lease and the Purchase
Agreement are valid, binding and legally enforceable obligations of
Landlord except as such enforcement is affected by bankruptcy,
insolvency and similar laws affecting the rights of creditors,
generally, and equitable principles of general application; provided,
Landlord makes no representation or warranty that conditions imposed by
any state or local Applicable Laws to the purchase, ownership, lease or
operation of the Leased Property have been satisfied.
(h) Existence. During the Term, Landlord will continuously
maintain its existence and, after qualifying to do business in the State
of California if Landlord has not already done so, Landlord will
continuously maintain its right to do business in that state to the
extent necessary for the performance of Landlord's obligations
hereunder.
(i) Not a Foreign Person. Landlord is not a "foreign person"
within the meaning of Sections 1445 and 7701 of the Code (i.e., Landlord
is not a non-resident alien, foreign corporation, foreign partnership,
foreign trust or foreign estate as those terms are defined in the Code
and regulations promulgated thereunder).
(j) Responding to Requests for Information. Tenant shall have the
right ask Landlord questions from time to time concerning Landlord's
financial condition or Landlord's ability to perform under this Lease or
the Purchase Agreement, to which questions Landlord shall promptly
respond. (Such response, however, may be limited to a statement that
Landlord will not provide requested information.) Landlord shall notify
Tenant in writing if, at any time during the Term, Landlord ceases to be
100% owned, directly or indirectly, by Banque Nationale de Paris.
11 Assignment and Subletting.
(a) Consent Required. During the Term, without the prior written
consent of Landlord first had and received, Tenant shall not assign,
transfer, mortgage, pledge or hypothecate this Lease or any interest of
Tenant hereunder and shall not sublet all or any part of the Leased
Property, by operation of law or otherwise; provided, that subject to
subparagraph 11(c) below: (1) Tenant shall be entitled to sublet less
than twenty percent (20%) (computed on the basis of square footage) of
the useable space in then existing and completed building Improvements,
if any, so long as (i) any sublease by Tenant is made expressly subject
and subordinate to the terms hereof, and (ii) such sublease has a term
equal to or less than the remainder of the then effective Term of this
Lease; and (2) Tenant shall be entitled to assign or transfer this Lease
or any interest of Tenant hereunder to an Affiliate of Tenant if both
Tenant and its Affiliate confirm their joint and several liability
hereunder by written notice given to Landlord.
(b) Standard for Landlord's Consent to Assignments and Certain
Other Matters. Consents and approvals of Landlord which are required by
the preceding subparagraph will not be unreasonably withheld, but Tenant
acknowledges, without limiting the reasons why Landlord might reasonably
withhold such consents or approvals, that Landlord's withholding of such
consent or approval shall be reasonable if Landlord determines in good
faith that giving the consent or approval may significantly increase
Landlord's risk of liability for any existing or future environmental
problem relating to the Leased Property. Further, Tenant acknowledges
that Landlord's withholding of such consent or approval shall be
reasonable if Landlord determines in good faith that giving the consent
or approval would negate Tenant's representations in this Lease
regarding ERISA or cause this Lease, the Purchase Agreement or other
documents described herein or therein (or any exercise of Landlord's
rights hereunder or thereunder) to constitute a violation of any
provision of ERISA or of any applicable state statute regulating a Plan
or Multiemployer Plan.
(c) Consent Not a Waiver. No consent by Landlord to a sale,
assignment, transfer, mortgage, pledge or hypothecation of this Lease or
Tenant's interest hereunder, and no assignment or subletting of the
Leased Property or any part thereof in accordance with this Lease or
otherwise with Landlord's consent, shall release Tenant from liability
hereunder; and any such consent shall apply only to the specific
transaction thereby authorized and shall not relieve Tenant from any
requirement of obtaining the prior written consent of Landlord to any
further sale, assignment, transfer, mortgage, pledge or hypothecation of
this Lease or any interest of Tenant hereunder.
(d) Landlord's Assignment. Unless Tenant or an Applicable
Purchaser has failed to purchase the Leased Property in accordance with
the Purchase Agreement and Tenant is thereby in default under the terms
of the Purchase Agreement, Landlord shall have no right to transfer,
assign or convey, in whole or in part, the Leased Property or any of its
rights thereto or under this Lease except by a Permitted Transfer.
Further, notwithstanding anything to the contrary herein contained, if
withholding taxes are imposed on the rents and other amounts payable to
Landlord hereunder because of Landlord's assignment of this Lease to any
citizen of, or any corporation or other entity formed under the laws of,
a country other than the United States, Tenant shall not be required to
compensate Landlord or any such assignee for the withholding tax.
12 Environmental Indemnification.
(a) Indemnity. Tenant hereby agrees to assume liability for and
to pay, indemnify, defend, and hold harmless each and every Indemnified
Party from and against any and all Environmental Losses, subject only to
the provisions of subparagraph 12(c) below.
(b) Assumption of Defense.
(i) If an Indemnified Party notifies Tenant of any claim,
demand, action, administrative or legal proceeding, investigation or
allegation as to which the indemnity provided for in this Paragraph 12
applies, Tenant shall assume on behalf of the Indemnified Party and
conduct with due diligence and in good faith the investigation and
defense thereof and the response thereto with counsel selected by Tenant
but reasonably satisfactory to the Indemnified Party; provided, that the
Indemnified Party shall have the right to be represented by advisory
counsel of its own selection and at its own expense; and provided
further, that if any such claim, demand, action, proceeding,
investigation or allegation involves both Tenant and the Indemnified
Party and the Indemnified Party shall have been advised in writing by
counsel that there may be legal defenses available to it which are
inconsistent with or in addition to those available to Tenant, then the
Indemnified Party shall have the right to select separate counsel to
participate in the investigation and defense of and response to such
claim, demand, action, proceeding, investigation or allegation on its
own behalf, and Tenant shall pay or reimburse the Indemnified Party for
all Attorney's Fees incurred by the Indemnified Party because of the
selection of such separate counsel.
(ii) If any claim, demand, action, proceeding, investigation
or allegation arises as to which the indemnity provided for in this
Paragraph 12 applies, and Tenant fails to assume promptly (and in any
event within fifteen (15) days after being notified of the claim,
demand, action, proceeding, investigation or allegation) the defense of
the Indemnified Party, then the Indemnified Party may contest (or
settle, with the prior written consent of Tenant, which consent will not
be unreasonably withheld) the claim, demand, action, proceeding,
investigation or allegation at Tenant's expense using counsel selected
by the Indemnified Party; provided, that after any such failure by
Tenant which continues for forty-five (45) days or more no such contest
need be made by the Indemnified Party and settlement or full payment of
any claim may be made by the Indemnified Party without Tenant's consent
and without releasing Tenant from any obligations to the Indemnified
Party under this Paragraph 12 if, in the written opinion of reputable
counsel to the Indemnified Party, the settlement or payment in full is
clearly advisable.
(c) Notice of Environmental Losses. If Landlord receives a
written notice of Environmental Losses that Landlord believes are
covered by this Paragraph 12, then Landlord shall promptly furnish a
copy of such notice to Tenant. The failure to so provide a copy of the
notice to Tenant shall not excuse Tenant from its obligations under this
Paragraph 12; provided, that if none of the officers of Tenant and none
of the employees of Tenant in Tenant's Environmental Health & Safety
group or in Tenant's Facilities Engineering group (and, in the future,
no employees taking over responsibilities that such groups now have) are
aware of the matters described in the notice and such failure by
Landlord renders unavailable defenses that Tenant might otherwise
assert, or precludes actions that Tenant might otherwise take, to
minimize its obligations hereunder, then Tenant shall be excused from
its obligation to indemnify the Indemnified Parties against assessments,
fines, costs and expenses, if any, which would not have been incurred
but for such failure. For example, if Landlord fails to provide Tenant
with a copy of a notice of an obligation covered by the indemnity set
out in subparagraph 12(a) and Tenant is not otherwise already aware of
such obligation, and if as a result of such failure Landlord becomes
liable for penalties and interest covered by the indemnity in excess of
the penalties and interest that would have accrued if Tenant had been
promptly provided with a copy of the notice, then Tenant will be excused
from any obligation to Landlord to pay the excess.
(d) Rights Cumulative. The rights of each Indemnified Party under
this Paragraph 12 shall be in addition to any other rights and remedies
of such Indemnified Party against Tenant under the other provisions of
this Lease or under any other document or instrument now or hereafter
executed by Tenant, or under any Applicable Law or in equity (including,
without limitation, any right of reimbursement or contribution pursuant
to CERCLA).
(e) Survival of the Indemnity. Tenant's obligations under this
Paragraph 12 shall survive the termination or expiration of this Lease.
All obligations of Tenant under this Paragraph 12 shall be payable upon
written demand, and any amount due upon demand to any Indemnified Party
by Tenant which is not paid shall bear interest from the date of such
written demand at a floating interest rate equal to the Default Rate,
but in no event in excess of the maximum rate permitted by law.
13 Inspections and Right of Landlord to Perform, Generally.
(a) During the Term, Landlord and Landlord's representatives may
(subject to Paragraph 23) enter the Leased Property at any reasonable
time after five (5) Business Days advance written notice to Tenant for
the purpose of making inspections or performing any work Landlord is
authorized to undertake by the next subparagraph.
(b) If Tenant fails to perform any act or to take any action which
hereunder Tenant is required to perform or take, or to pay any money
which hereunder Tenant is required to pay, and if such failure or action
constitutes an Event of Default or renders Landlord or any director,
officer, employee or Affiliate of Landlord at risk of criminal
prosecution or renders Landlord's interest in the Leased Property or any
part thereof at risk of forfeiture by forced sale or otherwise, then in
addition to any other remedies specified herein or otherwise available,
Landlord may, in Tenant's name or in Landlord's own name, perform or
cause to be performed such act or take such action or pay such money.
Any expenses so incurred by Landlord, and any money so paid by Landlord,
shall be a demand obligation owing by Tenant to Landlord. Further,
Landlord, upon making such payment, shall be subrogated to all of the
rights of the person, corporation or body politic receiving such
payment. But nothing herein shall imply any duty upon the part of
Landlord to do any work which under any provision of this Lease Tenant
may be required to perform, and the performance thereof by Landlord
shall not constitute a waiver of Tenant's default. Landlord may during
the progress of any such work permitted by Landlord hereunder on or in
the Leased Property keep and store upon the Leased Property all
necessary materials, tools, and equipment. Landlord shall not in any
event be liable for inconvenience, annoyance, disturbance, loss of
business, or other damage to Tenant or the subtenants of Tenant by
reason of making such repairs or the performance of any such work on or
in the Leased Property, or on account of bringing materials, supplies
and equipment into or through the Leased Property during the course of
such work (except for liability in connection with death or injury or
damage to the property of third parties caused by the Active Negligence,
gross negligence or wilful misconduct of Landlord or its officers,
employees, or agents in connection therewith), and the obligations of
Tenant under this Lease shall not thereby be affected in any manner.
14 Events of Default.
(a) Definition. Each of the following events shall be deemed to
be an "Event of Default" by Tenant under this Lease:
(i) Tenant shall fail to pay when due any installment of Rent
due hereunder and such failure shall continue for three (3) Business
Days after Tenant is notified in writing thereof.
(ii) Tenant shall fail to cause any representation or warranty
of Tenant contained herein that is false or misleading in any material
respect when made to be made true and not misleading (other than as
described in the other clauses of this subparagraph 14(a)), or Tenant
shall fail to comply with any term, provision or covenant of this Lease
(other than as described in the other clauses of this subparagraph
14(a)), and in either case shall not cure such failure prior to the
earlier of (A) thirty (30) days after written notice thereof is sent to
Tenant or (B) the date any writ or order is issued for the levy or sale
of any property owned by Landlord (including the Leased Property) or any
criminal action is instituted against Landlord or any of its directors,
officers or employees because of such failure; provided, however, that
so long as no such writ or order is issued and no such criminal action
is instituted, if such failure is susceptible of cure but cannot with
reasonable diligence be cured within such thirty day period, and if
Tenant shall promptly have commenced to cure the same and shall
thereafter prosecute the curing thereof with reasonable diligence, the
period within which such failure may be cured shall be extended for such
further period (not to exceed an additional sixty (60) days) as shall be
necessary for the curing thereof with reasonable diligence.
(iii) Tenant shall fail to comply with any term, provision or
condition of the Purchase Agreement after the expiration of applicable
notice and cure periods set forth in the Purchase Agreement.
(iv) Tenant shall abandon any significant portion of the
Leased Property.
(v) Tenant shall fail to make any payment or payments of
principal, premium or interest, of Debt of Tenant described in the next
sentence when due (taking into consideration the time Tenant may have to
cure such failure, if any, under the documents governing such Debt). As
used in this clause 14(a)(v), "Debt" shall include only Debts of Tenant
now existing or arising in the future (a) payable to Landlord or any
Affiliate of Landlord, or (B) payable to any other Person and with
respect to which $10,000,000 or more is actually due and payable because
of acceleration or otherwise.
(vi) Tenant: (a) shall generally not, or be unable to, or
shall admit in writing its inability to, pay its debts as such debts
become due; or (b) shall make an assignment for the benefit of
creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its
assets; or (c) shall file any petition or application to commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (d) shall have had
any such petition or application filed against it; or (e) by any act or
omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its property; or (f) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more.
(vii) One or more final non-appealable judgments, decrees or
orders for the payment of money in excess of $10,000,000 in the
aggregate shall be rendered against Tenant and such judgments, decrees
or orders shall continue unsatisfied and in effect for a period of
thirty (30) consecutive days without Tenant's having obtained an
agreement (or after the expiration or termination of an agreement) of
the Persons entitled to enforce such judgment, decrees or orders not to
enforce the same pending negotiations with Tenant concerning the
satisfaction or other discharge of the same.
(viii) Tenant shall fail to comply with the covenants set forth
in subparagraph 9(ab) or subparagraph 9(ac).
(ix) Tenant shall merge into or consolidate with any other
entity or permit any other entity to merge into or consolidate with
Tenant, or Tenant shall directly or indirectly sell, lease, transfer,
abandon or otherwise dispose of in one or more transactions all or
substantially all of Tenant's properties other than the Leased Property;
except that the following shall not constitute an Event of Default: (a)
any corporation shall merge into or with Tenant and the continuing or
surviving corporation shall immediately after such event be in
compliance with the financial covenants set forth in subparagraph 9(ab),
shall be an Affiliate of F. Hoffmann La-Roche, Ltd., a Swiss corporation
("Roche"), or any successor of Roche and shall unconditionally assume in
writing Tenant's obligations under this Lease, the Environmental
Indemnity Agreement and the Purchase Agreement; and (b) the Tenant shall
sell, lease or otherwise transfer all or substantially all of Tenant's
properties other than the Leased Property to another party and the party
acquiring such properties shall immediately after such event be in
compliance with the financial covenants set forth in subparagraph 9(ab),
shall be an Affiliate of Roche or any successor of Roche and shall
unconditionally assume in writing Tenant's obligations under this Lease,
the Environmental Indemnity Agreement and the Purchase Agreement.
(x) as of the effective date of this Lease, any of the
representations or warranties of Tenant contained in subparagraph 9(a),
in subparagraph 9(c), in subparagraph 9(h), in subparagraph 9(i), in
subparagraph 9(l) or in subparagraph 9(ad)(i) is false or misleading in
any material respect.
(xi) Tenant shall fail to comply with any term, provision or
condition of any Vacaville Pledge Documents (as defined in the Purchase
Agreement) after the expiration of applicable notice and cure periods
set forth in such Vacaville Pledge Documents.
Notwithstanding the foregoing, any Default that could become an Event of
Default under clause 14(a)(ii) may be cured within the earlier of the
periods described in clauses (A) and (B) thereof by Tenant's delivery to
Landlord of a written notice irrevocably exercising Tenant's option
under the Purchase Agreement to purchase or have an Applicable Purchaser
purchase Landlord's interest in the Leased Property and designating as
the Designated Payment Date the next following date which is a Advance
Date or Base Rental Date and which is at least ten (10) days after the
date of such notice hereunder; provided, however, Tenant must, as a
condition to the effectiveness of its cure, on the date so designated as
the Designated Payment Date tender or have the Applicable Purchaser
tender to Landlord the full Purchase Price (as defined in the Purchase
Agreement) and all Rent and all other amounts then due or accrued and
unpaid hereunder on such Designated Payment Date (including
reimbursement for any costs incurred by Landlord in connection with the
applicable Default hereunder, regardless of whether Landlord shall have
been reimbursed for such costs in whole or in part by Participants or
any Affiliate of Landlord) and Tenant must also furnish written
confirmation to Landlord that all indemnities set forth herein
(including specifically, but without limitation, the indemnities set
forth in subparagraph 9(x) and the environmental indemnity set forth in
Paragraph 12 shall survive the payment of such amounts by Tenant to
Landlord and the conveyance of Landlord's interest in the Leased
Property to Tenant.
(b) Remedies. When any Event of Default has occurred and is
continuing, at Landlord's option and without limiting Landlord in the
exercise of any other right or remedy Landlord may have, and without any
further demand or notice except as expressly described in this
subparagraph 14(b), Landlord may institute any remedies available to
Landlord, which remedies will include the following:
(i) By written notice to Tenant, Landlord may terminate
Tenant's right to possession of the Leased Property. A notice given in
connection with unlawful detainer proceedings specifying a time within
which to cure an Event of Default shall terminate Tenant's right to
possession if Tenant fails to cure the Event of Default within the time
specified in the notice.
(ii) Upon termination of Tenant's right to possession and
without further demand or notice, Landlord may re-enter the Leased
Property and take possession of all improvements, additions,
alterations, equipment and fixtures thereon and remove any persons in
possession thereof. Any property in the Leased Property may be removed
and stored in a warehouse or elsewhere at the expense and risk of and
for the account of Tenant.
(iii) Upon termination of Tenant's right to possession, this
Lease shall terminate and Landlord may recover from Tenant:
a) The worth at the time of award of the unpaid Rent
which had been earned at the time of termination;
b) The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided;
c) The worth at the time of award of the amount by
which the unpaid Rent through the balance of the scheduled Term (or if
sooner, through the date a sale is consummated or required under the
Purchase Agreement) after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; and
d) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited
to, the costs and expenses (including Attorneys' Fees, advertising costs
and brokers' commissions) of recovering possession of the Leased
Property, removing persons or property therefrom, placing the Leased
Property in good order, condition, and repair, preparing and altering
the Leased Property for reletting, all other costs and expenses of
reletting, and any loss incurred by Landlord as a result of Tenant's
failure to perform Tenant's obligations under the Purchase Agreement.
The "worth at the time of award" of the amounts referred to in
subparagraph 14(b)(iii)a) and subparagraph 14(b)(iii)b) shall be
computed by allowing interest at ten percent (10%) per annum or such
other rate as may be the maximum interest rate then permitted to be
charged under California law at the time of computation. The "worth at
the time of award" of the amount referred to in subparagraph
14(b)(iii)c) shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time
of award plus one percent (1%).
e) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable California
law.
(iv) The Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue lease in force even after
lessee's breach and abandonment and recover rent as it becomes due, if
lessee has right to sublet or assign, subject only to reasonable
limitations). Accordingly, even though Tenant has breached this Lease
and abandoned the Leased Property, this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to possession,
and Landlord may enforce all of Landlord's rights and remedies under
this Lease, including the right to recover the Rent as it becomes due
under this Lease. Tenant's right to possession shall not be deemed to
have been terminated by Landlord except pursuant to subparagraph
14(b)(i) hereof. The following shall not constitute a termination of
Tenant's right to possession:
a) Acts of maintenance or preservation or efforts to
relet the Leased Property;
b) The appointment of a receiver upon the initiative of
Landlord to protect Landlord's interest under this Lease; or
c) Reasonable withholding of consent to an assignment
or subletting, or terminating a subletting or assignment by Tenant.
(c) Enforceability. This Paragraph shall be enforceable to the
maximum extent not prohibited by Applicable Law, and the
unenforceability of any provision in this Paragraph shall not render any
other provision unenforceable.
(d) Remedies Cumulative. No right or remedy herein conferred upon
or reserved to Landlord is intended to be exclusive of any other right
or remedy, and each and every right and remedy shall be cumulative and
in addition to any other right or remedy given hereunder or now or
hereafter existing under Applicable Law or in equity. In addition to
other remedies provided in this Lease, Landlord shall be entitled, to
the extent permitted by Applicable Law, to injunctive relief in case of
the violation, or attempted or threatened violation, of any of the
covenants, agreements, conditions or provisions of this Lease to be
performed by Tenant, or to a decree compelling performance of any of the
other covenants, agreements, conditions or provisions of this Lease to
be performed by Tenant, or to any other remedy allowed to Landlord under
Applicable Law or in equity. Nothing contained in this Lease shall
limit or prejudice the right of Landlord to prove for and obtain in
proceedings for bankruptcy or insolvency of Tenant by reason of the
termination of this Lease, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the
amount be greater, equal to, or less than the amount of the loss or
damages referred to above. Without limiting the generality of the
foregoing, nothing contained herein shall modify, limit or impair any of
the rights and remedies of Landlord under the Environmental Indemnity
Agreement or the Purchase Agreement.
15 No Implied Waiver. The failure of Landlord or Tenant to insist at
any time upon the strict performance of any covenant or agreement or to
exercise any option, right, power or remedy contained in this Lease
shall not be construed as a waiver or a relinquishment thereof for the
future. The waiver of or redress for any violation by Landlord or
Tenant of any term, covenant, agreement or condition contained in this
Lease shall not prevent a similar subsequent act from constituting a
violation. Any express waiver shall affect only the term or condition
specified in such waiver and only for the time and in the manner
specifically stated therein. A receipt by Landlord of any Base Rent or
other payment hereunder with knowledge of the breach of any covenant or
agreement of Tenant contained in this Lease shall not be deemed a waiver
of such breach, and no waiver by either party of any provision of this
Lease shall be deemed to have been made unless expressed in writing and
signed by that party.
16 Default by Landlord. If Landlord should default in the
performance of any of its obligations, covenants, agreements,
conditions, representations or warranties under this Lease, Landlord
shall have the time reasonably required, but in no event less than
thirty (30) days, to cure such default after receipt of written notice
from Tenant specifying such default and specifying what action Tenant
believes is necessary to cure the default. If Tenant prevails in any
litigation brought against Landlord because of Landlord's failure to
cure a default within the time required by the preceding sentence, then
Tenant shall be entitled to an award against Landlord for the damages
proximately caused to Tenant by such default.
17 Quiet Enjoyment. Provided Tenant pays the Base Rent and all
Additional Rent payable hereunder as and when due and payable and keeps
and fulfills all of the terms, covenants, agreements and conditions to
be performed by Tenant hereunder, neither Landlord nor any one claiming
through Landlord (excluding Tenant or anyone claiming through Tenant)
shall during the Term disturb Tenant's peaceable and quiet enjoyment of
the Leased Property; however, such enjoyment shall be subject to the
terms, provisions, covenants, agreements and conditions of this Lease
and the Permitted Encumbrances and any other claims or encumbrances not
lawfully asserted through or under Landlord, to which this Lease is
subject and subordinate as hereinabove set forth. Any breach by
Landlord of the foregoing covenant of quiet enjoyment shall, subject to
the other provisions of this Lease, render Landlord liable to Tenant for
any monetary damages proximately caused thereby, but as more
specifically provided in Paragraph 5 above, no such breach shall entitle
Tenant to terminate this Lease or excuse Tenant from its obligation to
pay Base Rent and other amounts hereunder.
18 Surrender Upon Termination. Unless Tenant or an Applicable
Purchaser purchases Landlord's entire interest in the Leased Property
pursuant to the terms of the Purchase Agreement, Tenant shall, upon the
termination of Tenant's right to occupancy, surrender to Landlord the
Leased Property, including any buildings, alterations, improvements,
fixtures, replacements or additions constructed or purchased by Tenant
with funds advanced by Landlord, but not including movable personal
property not covered by this Lease, free of all Hazardous Substances
(including Permitted Hazardous Substances) and tenancies and, to the
extent required by Landlord, with all Improvements and tangible Personal
Property in good repair and condition, excepting only (i) ordinary wear
and tear (provided that the Leased Property shall have been maintained
as required by the other provisions hereof) and (ii) demolition,
alterations and additions which are expressly permitted by the terms of
this Lease and which have been completed by Tenant in a good and
workmanlike manner in accordance with all Applicable Laws. Any movable
furniture or movable personal property belonging to Tenant or any party
claiming under Tenant, if not removed at the time of such termination
and if Landlord shall so elect, shall be deemed abandoned and become the
property of Landlord without any payment or offset therefor. If
Landlord shall not so elect, Landlord may remove such property from the
Leased Property and store it at Tenant's risk and expense. Tenant shall
bear the expense of repairing any damage to the Leased Property caused
by such removal by Landlord or Tenant.
19 Holding Over by Tenant. Should Tenant not purchase Landlord's
right, title and interest in the Leased Property as provided in the
Purchase Agreement, but nonetheless continue to hold the Leased Property
after the termination of this Lease without Landlord's written consent,
whether such termination occurs by lapse of time or otherwise, such
holding over shall constitute and be construed as a tenancy from day to
day only, at a daily Base Rent equal to: (i) Stipulated Loss Value on
the day in question, times (ii) the Default Rate for such day; divided
by (iii) three hundred sixty (360); subject, however, to all of the
terms, provisions, covenants and agreements on the part of Tenant
hereunder. No payments of money by Tenant to Landlord after the
termination of this Lease shall reinstate, continue or extend the Term
of this Lease and no extension of this Lease after the termination
thereof shall be valid unless and until the same shall be reduced to
writing and signed by both Landlord and Tenant.
20 Miscellaneous.
(a) Notices. Each provision of this Lease, or of any Applicable
Laws with reference to the sending, mailing or delivery of any notice or
with reference to the making of any payment by Tenant to Landlord, shall
be deemed to be complied with when and if the following steps are taken:
(i) All Rent required to be paid by Tenant to Landlord
hereunder shall be paid to Landlord in immediately available funds by
wire transfer to:
Federal Reserve Bank of San Francisco
Account: Banque Nationale de Paris
ABA #: 121027234
Reference: Genentech-Vacaville Facility.
or at such other place and in such other manner as Landlord may
designate in a notice to Tenant. Time is of the essence as to all
payments and other obligations of Tenant under this Lease.
(ii) All advances paid to Tenant by Landlord hereunder or in
connection herewith shall be paid to Tenant in immediately available
funds by wire transfer to:
Citibank, N.A.
Account Name: Genentech, Inc.
Account Number: 4052-7763
ABA #: 021-000-089
Reference: Genentech-Vacaville Facility.
or at such other place and in such other manner as Tenant may
designate in a notice signed by Tenant's Treasurer or Chief Financial
Officer to Landlord. Time is of the essence as to the payment of all
Construction Advances required of Landlord under this Lease.
(iii) All notices, demands and other communications to be made
hereunder to the parties hereto shall be in writing (at the addresses
set forth below, or in the case of communications to Participants, at
the addresses set forth in Schedule 1) and shall be given by any of the
following means: (A) personal service; (B) electronic communication,
whether by telex, telegram or telecopying (if confirmed in writing sent
by United States first class mail, return receipt requested); or (C)
registered or certified first class mail, return receipt requested.
Such addresses may be changed by notice to the other parties given in
the same manner as provided above. Any notice or other communication
sent pursuant to clause (A) or (B) hereof shall be deemed received upon
such personal service or upon dispatch by electronic means, and, if sent
pursuant to clause (C) shall be deemed received five (5) days following
deposit in the mail.
Address of Landlord:
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Telecopy: (214) 969-0060
With a copy to:
Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Jennifer Cho
Telecopy: (415) 296-8954
And with a copy to:
Clint Shouse
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Telecopy: (214) 969-1550
Address of Tenant:
Genentech, Inc.
Attn: Corporate Secretary
460 Point San Bruno Boulevard
South San Francisco, CA 94080
Telecopy: (415) 952-9881
With a copy to:
Morrison & Foerster
555 West Fifth Street
Los Angeles, CA 90013-1024
Attention: Tom Fileti
Telecopy: (213) 892-5454
(b) Severability. If any term or provision of this Lease or the
application thereof shall to any extent be held by a court of competent
jurisdiction to be invalid and unenforceable, the remainder of this
Lease, or the application of such term or provision other than to the
extent to which it is invalid or unenforceable, shall not be affected
thereby.
(c) No Merger. There shall be no merger of this Lease or of the
leasehold estate hereby created with the fee estate in the Leased
Property or any part thereof by reason of the fact that the same person
may acquire or hold, directly or indirectly, this Lease or the leasehold
estate hereby created or any interest in this Lease or in such leasehold
estate as well as the fee estate in the Leased Property or any interest
in such fee estate, unless all Persons with an interest in the Leased
Property that would be adversely affected by any such merger
specifically agree in writing that such a merger shall occur.
(d) NO IMPLIED REPRESENTATIONS BY LANDLORD. LANDLORD AND
LANDLORD'S AGENTS HAVE MADE NO REPRESENTATIONS OR PROMISES WITH RESPECT
TO THE LEASED PROPERTY EXCEPT AS EXPRESSLY SET FORTH HEREIN, AND NO
RIGHTS, EASEMENTS OR LICENSES ARE ACQUIRED BY TENANT BY IMPLICATION OR
OTHERWISE EXCEPT AS EXPRESSLY SET FORTH IN THE PROVISIONS OF THIS LEASE
AND THE PURCHASE AGREEMENT.
(e) Entire Agreement. This Lease and the instruments referred to
herein supersede any prior negotiations and agreements between the
parties concerning the Leased Property, including the Prior Lease and
the Prior Purchase Agreement, but not including the Environmental
Indemnity Agreement, and no amendment or modification of this Lease
shall be binding or valid unless expressed in a writing executed by both
parties hereto. Tenant ratifies and confirms the Environmental
Indemnity Agreement as a separate and independent continuing agreement.
(f) Binding Effect. All of the covenants, agreements, terms and
conditions to be observed and performed by the parties hereto shall be
applicable to and binding upon their respective successors and, to the
extent assignment is permitted hereunder, their respective assigns.
(g) Time is of the Essence. Time is of the essence as to all
obligations of Tenant and Landlord and all notices required of Tenant
and Landlord under this Lease.
(h) Governing Law. This Lease shall be governed by and construed
in accordance with the laws of the State of California without regard to
conflict or choice of laws.
(i) Attorneys' Fees. If either party to this Lease commences any
legal action or other proceeding to enforce any of the terms of this
Lease or the documents or agreements referred to herein, or because of
any breach of the other party or dispute hereunder or thereunder, the
successful or prevailing party shall be entitled to recover from the
nonprevailing party all Attorneys' Fees incurred in connection
therewith, whether or not such controversy, claim or dispute is
prosecuted to a final judgment. Any such Attorneys' Fees incurred by
either party in enforcing a judgment in its favor under this Lease shall
be recoverable separately from such judgment, and the obligation for
such Attorneys' Fees is intended to be severable from other provisions
of this Lease and not to be merged into any such judgment.
21 Waiver of Jury Trial. LANDLORD AND TENANT EACH HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS LEASE OR ANY OTHER DOCUMENT OR DEALINGS
BETWEEN THEM RELATING TO THIS LEASE OR THE LEASED PROPERTY. The scope
of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject
matter of this transaction, including, without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Tenant and Landlord each acknowledge that this waiver
is a material inducement to enter into a business relationship, that
each has already relied on the waiver in entering into this Lease and
the other documents referred to herein, and that each will continue to
rely on the waiver in their related future dealings. Tenant and
Landlord each further warrants and represents that it has reviewed this
waiver with its legal counsel, and that it knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE OR TO
ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS LEASE OR THE LEASED
PROPERTY. In the event of litigation, this Lease may be filed as a
written consent to a trial by the court.
22 Tax Reporting. Landlord and Tenant shall report this Lease and
the Purchase Agreement for federal income tax purposes as a conditional
sale unless prohibited from doing so by the Internal Revenue Service.
Similarly, Tenant shall report all interest earned on Escrowed Proceeds
as Tenant's income for federal and state income tax purposes. If the
Internal Revenue Service shall challenge Landlord's characterization of
this Lease and the Purchase Agreement as a conditional sale for federal
income tax reporting purposes, Landlord shall notify Tenant in writing
of such challenge and consider in good faith any reasonable suggestions
by Tenant about an appropriate response. In any event, Tenant shall
(subject only to the limitations set forth in this Paragraph) indemnify,
defend and hold harmless Landlord from and against all liabilities,
costs, additional taxes and other expenses, but in any case not any
Excluded Taxes, that may become due or be asserted because of such
challenge or because of any resulting recharacterization required by the
Internal Revenue Service, including any additional taxes that may become
due upon any sale under the Purchase Agreement to the extent (if any)
that such additional taxes are not offset by tax savings resulting from
additional depreciation deductions or other tax benefits to Landlord of
the recharacterization. If Landlord receives a written notice of any
challenge by the Internal Revenue Service that Landlord believes will be
covered by this Paragraph, then Landlord shall promptly furnish a copy
of such notice to Tenant. The failure to so provide a copy of the
notice to Tenant shall not excuse Tenant from its obligations under this
Paragraph; provided, that if none of the officers of Tenant and none of
the employees of Tenant responsible for tax matters are aware of the
challenge described in the notice and such failure by Landlord renders
unavailable defenses that Tenant might otherwise assert, or precludes
actions that Tenant might otherwise take, to minimize its obligations
hereunder, then Tenant shall be excused from its obligation to indemnify
Landlord against liabilities, costs, additional taxes and other
expenses, if any, which would not have been incurred but for such
failure. For example, if Landlord fails to provide Tenant with a copy
of a notice of a challenge by the Internal Revenue Service covered by
the indemnity set out in this Paragraph and Tenant is not otherwise
already aware of such challenge, and if as a result of such failure
Landlord becomes liable for penalties and interest covered by the
indemnity in excess of the penalties and interest that would have
accrued if Tenant had been promptly provided with a copy of the notice,
then Tenant will be excused from any obligation to Landlord to pay the
excess.
23 Proprietary Information, Confidentiality and Security.
(a) Tenant shall have no obligation to provide proprietary
information (as defined in the next sentence) to Landlord, except and to
the extent that (1) Landlord reasonably determines that Landlord cannot
accomplish the purposes of Landlord's inspection of the Leased Property
pursuant to the various provisions hereof without evaluating such
information, and (2) before conducting any inspections of the Leased
Property permitted hereunder Landlord shall, if requested by Tenant,
confirm and ratify the confidentiality agreements covering such
proprietary information set forth in the next subparagraph. For
purposes of this Lease "proprietary information" includes Tenant's
intellectual property, trade secrets and other confidential information
of value to Tenant about, among other things, Tenant's manufacturing
processes, products, marketing and corporate strategies, but in no event
will "proprietary information" include any disclosure of substances and
materials (and their chemical composition) which are or previously have
been present in, on or under the Leased Property at the time of any
inspections by Landlord, nor will "proprietary information" include any
additional disclosures reasonably required to permit Landlord to
determine whether the presence of such substances and materials has
constituted a violation of Environmental Laws. In addition, under no
circumstances shall Tenant have any obligation to disclose to Landlord
or any other party any proprietary information of Tenant (including,
without limitation, any pending applications for patents or trademarks,
any research and design and any trade secrets) except if and to the
limited extent reasonably necessary to comply with the express
provisions of this Lease.
(b) Landlord agrees to use reasonable precautions to keep
confidential any proprietary information that Landlord may receive from
Tenant or otherwise discover with respect to Tenant or Tenant's business
pursuant to this Lease or any investigation by Landlord hereunder,
except for disclosures: (i) specifically and previously authorized in
writing by Tenant; (ii) to any assignee of Landlord as to any interest
in the Leased Property so long as such assignee has agreed in writing to
use its reasonable efforts to keep such information confidential in
accordance with the terms of this paragraph; (iii) to legal counsel,
accountants, auditors, environmental consultants and other professional
advisors to Landlord so long as Landlord shall inform such persons in
writing (if practicable) of the confidential nature of such information
and shall direct them to treat such information confidentially; (iv) to
regulatory officials having jurisdiction over Landlord or Landlord's
Parent (provided that the disclosing party shall request confidential
treatment of the disclosed information, if practicable); (v) as required
by legal process (provided that the disclosing party shall request
confidential treatment of the disclosed information, if practicable);
(vi) of information which has previously become publicly available
through the actions or inactions of a person other than Landlord not, to
Landlord's knowledge, in breach of an obligation of confidentiality to
Tenant; and (vii) to any Participant so long as the Participant is bound
by and has not repudiated the confidentiality provision concerning
Tenant's proprietary information set forth in the participation
agreement between Landlord and such Participant.
(c) So long as Tenant remains in possession of the Leased
Property, Landlord or Landlord's representative will, before making any
inspection or performing any work on the Leased Property authorized by
this Lease, if then requested to do so by Tenant to maintain Tenant's
security: (i) sign in at Tenant's security or information desk if Tenant
has such a desk on the premises, (ii) wear a visitor's badge or other
reasonable identification, (iii) permit an employee of Tenant to observe
such inspection or work, and (iv) comply with other similar reasonable
nondiscriminatory security requirements of Tenant that do not,
individually or in the aggregate, significantly interfere with
inspections or work of Landlord authorized by this Lease.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Lease is hereby executed in multiple
originals as of the effective date above set forth.
"Landlord"
BNP LEASING CORPORATION
a Delaware corporation
By: /S/LLOYD G. COX
Name: Lloyd G. Cox
Title: Vice President
"Tenant"
GENENTECH, INC.
a Delaware corporation
By: /S/MARTY GLICK
Name: Marty Glick
Title: Vice President and Tresure
Exhibit A
PROPERTY DESCRIPTION
ALL THAT REAL PROPERTY SITUATED IN THE CITY OF VACAVILLE, COUNTY OF
SOLANO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL ONE:
PARCEL "4D", AS SHOWN ON THAT CERTAIN MAP ENTITLED: "PARCEL MAP, BEING A
RESUBDIVISION OF PARCEL 4, AS SHOWN IN BOOK 38 OF PARCEL MAPS, PAGE 35,
PARCELS 14-22, PORTIONS OF AKERLY DRIVE AND BARCAR DRIVE AS SHOWN IN
BOOK 39 OF MAPS, PAGE 74, AND PORTIONS OF LANDS DESCRIBED IN DEED
RECORDED MAY 13, 1982, PAGE 29409, AS INSTRUMENT NO. 17086 IN THE OFFICE
OF THE COUNTY RECORDER OF SOLANO COUNTY, STATE OF CALIFORNIA," FILED
JULY 31, 1995 IN THE OFFICE OF THE COUNTY RECORDER OF SOLANO COUNTY, IN
BOOK 39 OF PARCEL MAPS, PAGE 37.
EXCEPTING THEREFROM AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL
MINERALS, MINERAL DEPOSITS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES OF
EVERY KIND AND CHARACTER BELOW 500 FEET FROM THE SURFACE OF SAID LAND,
BUT WITHOUT, HOWEVER, THE RIGHT OF SURFACE ENTRY, AS EXCEPTED AND
RESERVED IN DEED FROM MARGARET JOSEPHINE SHELLHAMMER TO GERTRUDE M.
EAMES, DATED JUNE 8, 1956, RECORDED JUNE 12, 1956 IN BOOK 833 OF
OFFICIAL RECORDS, PAGE 480 AND IN DEED FROM MARGARET JOSEPHINE
SHELLHAMMER TO BARBARA C. SANTOS DATED DECEMBER 28, 1962, RECORDED
JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS, PAGE 520, AND IN DEED
FROM MARGARET JOSEPHINE SHELLHAMMER TO ROBERTA SANTOS, DATED DECEMBER
28, 1962, RECORDED JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS,
PAGE 529, SOLANO COUNTY RECORDS.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL OIL, GAS AND
OTHER HYDROCARBONS; NON-HYDROCARBON GASSES OR GASEOUS SUBSTANCES; ALL
OTHER MINERALS OF WHATSOEVER NATURE, WITHOUT REGARD TO SIMILARITY TO THE
ABOVE-MENTIONED SUBSTANCES; AND ALL SUBSTANCES THAT MAY BE PRODUCED
THEREWITH FROM SAID REAL PROPERTY AS RESERVED IN THE DEED FROM CHEVRON
U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987 PAGE
42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL GEOTHERMAL
RESOURCES, EMBRACING: INDIGENOUS STEAM, HOT WATER AND HOT BRINES; STEAM
AND OTHER GASSES, HOT WATER AND HOT BRINES RESULTING FROM WATER, GAS OR
OTHER FLUIDS ARTIFICIALLY INTRODUCED INTO SUBSURFACE FORMATIONS; HEAT OR
OTHER ASSOCIATED ENERGY FOUND BENEATH THE SURFACE OF THE EARTH; AND
BYPRODUCTS OF ANY OF THE FOREGOING SUCH AS MINERALS (EXCLUSIVE OF OIL OR
HYDROCARBON GAS THAT CAN BE SEPARATELY PRODUCED) WHICH ARE FOUND IN
SOLUTION OR ASSOCIATION WITH OR DERIVED FROM ANY OF THE FOREGOING, AS
RESERVED IN THE DEED FROM CHEVRON U.S.A. INC., A CORPORATION, RECORDED
APRIL 1, 1987 IN BOOK 1987 PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO.
21698.
ALSO THE SOLE AND EXCLUSIVE RIGHT FROM TIME TO TIME TO BORE OR DRILL AND
MAINTAIN WELLS AND OTHER WORKS INTO AND THROUGH SAID REAL PROPERTY AND
ADJOINING STREETS, ROADS AND HIGHWAYS BELOW A DEPTH OF FIVE HUNDRED
(500') FEET FROM THE SURFACE THEREOF FOR THE PURPOSE OF EXPLORING FOR
AND PRODUCING ENERGY RESOURCES; THE RIGHT TO PRODUCE, INJECT, STORE AND
REMOVE FROM AND THROUGH SAID BORES, WELLS OR WORKS, OIL, GAS, WATER AND
OTHER SUBSTANCES OF WHATEVER NATURE, INCLUDING THE RIGHT TO PERFORM
BELOW SAID DEPTH ANY AND ALL OPERATIONS DEEMED BY GRANTOR NECESSARY OR
CONVENIENT FOR THE EXERCISE OF SUCH RIGHTS, AS RESERVED IN THE DEED FROM
CHEVRON U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987
PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALL RIGHTS EXCEPTED AND RESERVED TO CHEVRON DO NOT INCLUDE AND DO NOT
EXCEPT OR RESERVE TO CHEVRON ANY RIGHT OF CHEVRON TO USE THE SURFACE OF
SAID PROPERTY OR THE FIRST FIVE HUNDRED (500') FEET BELOW SAID SURFACE
OR TO CONDUCT ANY OPERATIONS THEREON OR THEREIN.
APN: PORTION 133-080-290
PORTION 133-120-300
133-190-030 THRU 100
133-190-130
PARCEL TWO:
THOSE CERTAIN EASEMENTS GRANTED IN ARTICLE 8 OF THE DECLARATION OF
COVENANTS, CONDITIONS AND RESTRICTIONS FOR VACA VALLEY BUSINESS PARK,
DATED NOVEMBER 10, 1993, EXECUTED BY CHEVRON LAND AND DEVELOPMENT
COMPANY, A DELAWARE CORPORATION, RECORDED NOVEMBER 12, 1993 AS
INSTRUMENT NO. 1993-00107441 IN THE SOLANO COUNTY RECORDS, AS AMENDED BY
A FIRST AMENDMENT THERETO, RECORDED NOVEMBER 12, 1993 AS INSTRUMENT NO.
1993-00107445 IN THE SOLANO COUNTY RECORDS, AS FURTHER AMENDED BY A
SECOND AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056033 IN THE SOLANO COUNTY RECORDS AND AS FURTHER AMENDED BY A
THIRD AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056034 IN THE SOLANO COUNTY RECORDS
Exhibit B
PERMITTED ENCUMBRANCES
The leasehold and all rights conveyed to Tenant hereby are conveyed
subject to the Development Contracts described in Schedule 2 and to
other matters described hereinbelow to the extent such other matters are
still valid and in force.
(i) THE FACT THAT THE REAL PROPERTY IS WITHIN THE SOLANO IRRIGATION
DISTRICT AS ESTABLISHED BY THE BOARD OF SUPERVISORS OF SOLANO COUNTY,
CALIFORNIA ON MARCH 8, 1948, AND ANY TAXES OR ASSESSMENTS THEREOF WHICH
ARE NOT DELINQUENT OR CLAIMED TO BE DELINQUENT OR WHICH ARE BEING
CONTESTED IN ACCORDANCE WITH SUBPARAGRAPH 9(p) OF THIS LEASE.
(ii) THE FACT THAT THE OWNERSHIP OF SAID LAND DOES NOT INCLUDE ANY
RIGHTS OF ACCESS TO THE STATE FREEWAY (INTERSTATE 505), SAID RIGHTS
HAVING BEEN RELINQUISHED TOGETHER WITH A WAIVER OF CLAIMS FOR DAMAGES,
IN THE DEED
FROM : JAMES J. KILKENNY, A WIDOWER
TO : STATE OF CALIFORNIA
RECORDED : MARCH 21, 1946
IN BOOK : 344 PAGE 162
INSTRUMENT NO.: 7390, OFFICIAL RECORDS
(iii) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS SET FORTH IN A DOCUMENT
GRANTED TO: CITY OF VACAVILLE
PURPOSE: STORM DRAINAGE
RECORDED: MARCH 20, 1981 IN BOOK 1981 PAGE 19683 AS
INSTRUMENT NO. 11433, OFFICIAL RECORDS
AFFECTS: STRIP OF LAND RUNNING THROUGHOUT THE PREMISES
LOCATED AS SHOWN ON SURVEY PREPARED BY MOUNTAIN PACIFIC SURVEYS, DATED
JULY 31, 1995
(iv) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS SET FORTH IN A DOCUMENT
GRANTED TO: UNITED STATES OF AMERICA
PURPOSE: PIPELINES
RECORDED: OCTOBER 30, 1981 IN BOOK 1981 PAGE 79172 AS
INSTRUMENT NO. 45851, OFFICIAL RECORDS
AFFECTS: A 20' STRIP OF LAND RUNNING EAST/WEST THROUGH THE
MIDDLE PORTION OF THE PROPERTY, LOCATED AS SHOWN ON SURVEY PREPARED BY
MOUNTAIN PACIFIC SURVEYS, DATED JULY 31, 1995
(v) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS RESERVED IN A DOCUMENT
PURPOSE: WATER PIPELINE
RECORDED: APRIL 1, 1982 IN BOOK 1982 PAGE 20129 AS
INSTRUMENT NO. 11654, OFFICIAL RECORDS
AFFECTS: WESTERLY 20 FEET, LOCATES AS SHOWN ON SURVEY
PREPARED BY MOUNTAIN PACIFIC SURVEYS, DATED JULY 31, 1995.
(vi) THE FACT THAT SAID LAND IS INCLUDED WITHIN A PROJECT AREA OF THE
REDEVELOPMENT AGENCY SHOWN BELOW, AND THAT PROCEEDINGS FOR THE
REDEVELOPMENT OF SAID PROJECT HAVE BEEN INSTITUTED UNDER THE
REDEVELOPMENT LAW (SUCH REDEVELOPMENT TO PROCEED ONLY AFTER THE ADOPTION
OF THE REDEVELOPMENT PLAN) AS DISCLOSED BY A DOCUMENT.
REDEVELOPMENT AGENCY: THE REDEVELOPMENT PLAN FOR THE VACAVILLE
I-505/80 REDEVELOPMENT PROJECT
RECORDED: JULY 15, 1983 IN BOOK 1983 PAGE 55732,
INSTRUMENT NO. 29527 OFFICIAL RECORDS
(vii) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS SET FORTH IN A DOCUMENT
GRANTED TO: COUNTY OF SOLANO
PURPOSE: AVIGATION EASEMENT
RECORDED: MAY 31, 1989 IN BOOK 1989 AS INSTRUMENT NO.
890035033, OFFICIAL RECORDS
AFFECTS: THE HEREIN DESCRIBED PROPERTY
(viii) DEFERRED IMPROVEMENT AGREEMENT, UPON THE TERMS AND CONDITIONS
CONTAINED THEREIN
DATED: MAY 16, 1989
EXECUTED BY: THE CITY OF VACAVILLE AND CHEVRON LAND AND
DEVELOPMENT COMPANY, A DELAWARE CORPORATION
RECORDED: MAY 31, 1989
BOOK: 1989
INSTRUMENT NO.: 890035035, OFFICIAL RECORDS
AN AMENDMENT TO THE ABOVE WAS
DATED: OCTOBER 28, 1993
RECORDED: NOVEMBER 12, 1993
IN BOOK: 1993
INSTRUMENT NO.: 1993-00107440
NATURE OF CHANGES: IMPLEMENTATION PROCEDURES
NOTE: UPON COMPLETION OF REQUIREMENTS SET FORTH IN THE AGREEMENT
SHOWN IN EXCEPTION NO. XV SAID AGREEMENT WILL BE TERMINATED AND REPLACED
BY AGREEMENT SHOWN AS EXCEPTION NO. XV.
(IX) ASSESSMENT DISTRICT AND MAINTENANCE DISTRICT AGREEMENT, UPON THE
TERMS AND CONDITIONS CONTAINED THEREIN
DATED: OCTOBER 28, 1993
EXECUTED BY: THE CITY OF VACAVILLE AND CHEVRON LAND AND
DEVELOPMENT COMPANY
RECORDED: NOVEMBER 12, 1993
BOOK: 1993
INSTRUMENT NO.: 1993-00107439, OFFICIAL RECORDS
(x) COVENANTS, CONDITIONS AND RESTRICTIONS (DELETING THEREFROM ANY
RESTRICTIONS BASED ON RACE, COLOR, RELIGION, SEX, HANDICAP, FAMILIAL
STATUS OR NATIONAL ORIGIN, UNLESS AND ONLY TO THE EXTENT THAT SAID
COVENANT (A) IS EXEMPT UNDER CHAPTER 42, SECTION 3607 OF THE UNITED
STATES CODE OR (B) RELATES TO HANDICAP BUT DOES NOT DISCRIMINATE AGAINST
HANDICAPPED PERSONS) AS SET FORTH IN THE DOCUMENT
EXECUTED BY: CHEVRON LAND AND DEVELOPMENT COMPANY, A DELAWARE
CORPORATION
RECORDED: NOVEMBER 12, 1993
IN BOOK: 1993
INSTRUMENT NO.: 1993-00107441 OFFICIAL RECORDS
WHICH PROVIDE THAT A VIOLATION THEREOF SHALL NOT DEFEAT NOR RENDER
INVALID THE LIEN OF ANY MORTGAGE OR DEED OF TRUST MADE IN GOOD FAITH AND
FOR VALUE. SAID INSTRUMENT DOES NOT PROVIDE FOR REVERSION OF TITLE IN
THE EVENT OF A BREACH THEREOF.
MODIFICATION(S) OF SAID COVENANTS, CONDITIONS AND RESTRICTIONS
EXECUTED BY: CHEVRON LAND AND DEVELOPMENT COMPANY, A DELAWARE
CORPORATION
RECORDED: NOVEMBER 12, 1993
IN BOOK: 1993
INSTRUMENT NO.: 1993-00107445 OFFICIAL RECORDS
SAID COVENANTS, CONDITIONS AND RESTRICTIONS HAVE BEEN MODIFIED BY
AN INSTRUMENT
EXECUTED BY: CHEVRON LAND AND DEVELOPMENT COMPANY, A DELAWARE
CORPORATION
RECORDED: SEPTEMBER 13, 1995
BOOK: 1995
INSTRUMENT NO.: 1995-00056033, OFFICIAL RECORDS
SAID COVENANTS, CONDITIONS AND RESTRICTIONS HAVE BEEN MODIFIED BY
AN INSTRUMENT
EXECUTED BY: CHEVRON LAND AND DEVELOPMENT COMPANY, A DELAWARE
CORPORATION
RECORDED: SEPTEMBER 13, 1995
BOOK: 1995
INSTRUMENT NO.: 1995-00056034, OFFICIAL RECORDS
(xi) NOTICE OF ASSESSMENT, CITY OF VACAVILLE, NORTHEAST SECTOR
ASSESSMENT DISTRICT, RECORDED JULY 21, 1995 AS INSTRUMENT NO. 1995-
00043084, SOLANO COUNTY RECORDS.
(xii) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS SHOWN OR OFFERED FOR DEDICATION ON THE RECORDED MAP SHOWN
BELOW.
MAP OF: 39 PM 37
RECORDED: JULY 31, 1995
EASEMENT PURPOSE: PUBLIC UTILITIES, LANDSCAPE AND PUBLIC ACCESS
EASEMENT
AFFECTS: THE NORTHEASTERLY 25 FEET, THE SOUTHEASTERLY 30
FEET AND THE NORTHEASTERLY 30 FEET (ALONG THE MOST EASTERLY PORTION OF
THE PROPERTY) AND AS SHOWN ON SURVEY PREPARED BY MOUNTAIN PACIFIC
SURVEYS, DATED JULY 31, 1995.
(xiii) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS SHOWN OR AS OFFERED FOR DEDICATION ON THE RECORDED MAP SHOWN
BELOW.
MAP OF: 39 PM 37
RECORDED: JULY 31, 1995
EASEMENT PURPOSE: LANDSCAPE SIGNAGE AND PUBLIC UTILITY EASEMENT
AFFECTS: A 100 FT. X 100 FT. STRIP OF LAND IN THE
NORTHEASTERLY CORNER AND A STRIP OF LAND IN THE MOST EASTERLY
NORTHEASTERLY CORNER AND AS SHOWN ON SURVEY PREPARED BY MOUNTAIN PACIFIC
SURVEYS, DATED JULY 31, 1995.
(xiv) AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL
THERETO AS SHOWN OR AS OFFERED FOR DEDICATION ON THE RECORDED MAP SHOWN
BELOW.
MAP OF: 39 PM 37
RECORDED: JULY 31, 1995
EASEMENT PURPOSE: LANDSCAPING EASEMENT
AFFECTS: THE WESTERLY 30 FEET AND AS SHOWN ON SURVEY
PREPARED BY MOUNTAIN PACIFIC SURVEYS, DATED JULY 31, 1995.
(xv) AS SHOWN ON PARCEL MAP, BK 39 PM PAGE 37, NON-ACCESS ALONG THE
NORTHERLY PORTION OF THE PROPERTY (VACA VALLEY PARKWAY).
(xvi) DEFERRED IMPROVEMENT AGREEMENT, UPON THE TERMS AND CONDITIONS
CONTAINED THEREIN
DATED: JUNE 30, 1995
EXECUTED BY: THE CITY OF VACAVILLE AND CHEVRON LAND AND
DEVELOPMENT COMPANY, A DELAWARE CORPORATION
RECORDED: AUGUST 16, 1995
BOOK: 1995
INSTRUMENT NO.: 1995-00048797, OFFICIAL RECORDS
(xvii) AGREEMENT CONTAINING COVENANTS AFFECTING REAL PROPERTY
DATED: SEPTEMBER 11, 1995
BY AND BETWEEN: CHEVRON LAND AND DEVELOPMENT COMPANY, A DELAWARE
CORPORATION AND MISSION-VACAVILLE, LIMITED PARTNERSHIP, A CALIFORNIA
LIMITED PARTNERSHIP
RECORDED: SEPTEMBER 13, 1995
BOOK: 1995
INSTRUMENT NO.: 1995-00056036, OFFICIAL RECORDS
(xviii) DEVELOPMENT AGREEMENT, UPON THE TERMS AND CONDITIONS CONTAINED
THEREIN
EXECUTED BY: THE CITY OF VACAVILLE, THE REDEVELOPMENT AGENCY
OF THE CITY OF VACAVILLE AND GENENTECH, INC.
RECORDED: SEPTEMBER 28, 1995
BOOK: 1995
INSTRUMENT NO.: 1995-00059945, OFFICIAL RECORDS
Exhibit C
ESTOPPEL FROM CONTRACTORS
_________, 199__
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Re: Assignment of Construction Contract
Ladies and Gentlemen:
The undersigned hereby confirms, warrants and represents to BNP
Leasing Corporation, a Delaware corporation ("BNP"), and covenants with
BNP as follows:
1. The undersigned has entered into that certain [**Construction
Contract] (the "Construction Contract") by and between the undersigned
and Genentech, Inc. ("Tenant") dated, 199__ for the construction of the
manufacturing complex to be constructed on the Vacaville campus leased
by Tenant (the "Improvements") located on the land described in Exhibit
A attached hereto and made a part hereof for all purposes (the "Land"
and, together with the Improvements and any other improvements now on or
constructed in the future on the Land, being collectively herein
referred to as the "Project").
2. The undersigned has been advised that BNP owns the Land.
3. The undersigned has also received a copy of the Amended and
Restated Lease Agreement dated as of December 8, 1995 (the "Lease"),
pursuant to which BNP is leasing the Project to Tenant, and BNP has
agreed, subject to the terms and conditions of the Lease, to provide a
construction allowance for Tenant's construction of the Improvements.
The Lease also requires Tenant to fulfill all obligations of "Genentech"
under the Construction Contract and related documents and to indemnify
BNP against any liability arising thereunder, all as more particularly
provided in the Lease, reference to which is hereby made for all
purposes.
4. A complete and correct copy of the Construction Contract is
attached to this letter. The Construction Contract is in full force and
effect and has not been modified or amended.
5. The undersigned has not sent or received any notice of default to
or from Tenant or any other notice to or from Tenant for the purpose of
terminating the Construction Contract, nor is there any existing
circumstance or event which, but for the elapse of time or otherwise,
would constitute a default by the undersigned or "Genentech" under the
Construction Contract.
The undersigned acknowledges and agrees that:
a) BNP shall not be held liable for, and the undersigned shall not
assert, any claims, demands or liabilities against BNP or, except for
any statutory stop notice or lien rights, against the Project arising
under or in any way relating to the Construction Contract; provided,
this paragraph will not prohibit the undersigned from asserting any
claims or making demands under the Construction Contract if BNP elects
in writing, pursuant to Paragraph b) below, to assume the Construction
Contract in the event Tenant's right to possession of the Land is
terminated, in which event BNP shall be liable thereunder for (but only
for) any acts or omissions on the part of BNP occurring after the date
on which BNP notifies the undersigned of BNP's election to assume the
Construction Contract.
b) Upon any termination of Tenant's right to possession of the
Project under the Lease, including but not limited to any eviction of
Tenant resulting from an Event of Default (as defined in the Lease), BNP
may, by notice to the undersigned and without the necessity of the
execution of any other document, assume Tenant's rights and obligations
under the Construction Contract, cure any defaults by Tenant thereunder
and enforce the Construction Contract and all rights of "Genentech"
thereunder. Within ten (10) days of receiving notice from BNP that
Tenant's right to possession has been terminated, the undersigned shall
send to BNP a written estoppel letter stating: (i) that the undersigned
has not performed any act or executed any other instrument which
invalidates or modifies the Construction Contract in whole or in part
(or, if so, the nature of such modification); (ii) that the Construction
Contract is valid and subsisting and in full force and effect; (iii)
that there are no defaults or events of default then existing under the
Construction Contract and no event has occurred which with the passage
of time or the giving of notice, or both, would constitute such a
default or event of default under the Construction Contract (or, if
there is a default, the nature of such default in detail); (iv) that the
construction contemplated by the Construction Contract is proceeding in
a satisfactory manner in all material respects (or if not, a detailed
description of all significant problems with the progress of
construction); (v) a reasonably detailed report of the then critical
dates projected by the undersigned for work and deliveries required to
complete the Project; (vi) the total amount paid for construction
through the date of the letter; (vii) the estimated total cost of
completing such construction as of the date of the letter, together with
a current draw schedule; and (viii) any other information BNP may
request to allow it to decide whether to assume the Construction
Contract. BNP shall have thirty (30) days from receipt of such written
certificate containing all such requested information to decide whether
to assume the Construction Contract, but during such thirty (30) day
period Contractor may suspend work as reasonably required to mitigate
any further losses it may suffer under the Construction Contract until
such time as BNP provides written notice of BNP's election to assume the
Construction Contract. If BNP fails to provide written notice to
Contractor of BNP's election to assume the Construction Contract within
such thirty (30) day period, the undersigned agrees that BNP shall not
be liable for (and the undersigned shall not assert or bring any action
against BNP or, except for any statutory stop notice or lien rights not
waived, against the Land or improvements thereon for) any damages or
other amounts resulting from the breach or termination of the
Construction Contract or under any other theory of liability of any kind
or nature, but rather the undersigned shall look solely to Tenant and
any statutory stop notice or lien rights not waived for the recovery of
any such damages or other amounts.
c) Following the termination of Tenant's right to possession of
the Project under the Lease, if BNP notifies the undersigned that BNP
shall not assume the Construction Contract pursuant to the preceding
paragraph, or if BNP fails to provide written notice of its election to
assume the Construction Contract within the thirty (30) days described
in the preceding paragraph, the undersigned shall immediately
discontinue the work under the Construction Contract and remove its
personnel from the Project, and BNP shall be entitled to take exclusive
possession of the Project and all or any part of the equipment and
materials delivered or en route to the Project. The undersigned shall
also, upon request by BNP, deliver and assign to BNP all plans and
specifications and other contract documents previously delivered to the
undersigned, all other material relating to the work which belongs to
BNP or Tenant, and all papers and documents relating to governmental
permits, orders placed, bills and invoices, lien releases and financial
management under the Construction Contract; provided, that BNP pays or
reimburses Contractor for its copying costs and other reasonable out of
pocket expenses in complying with such request; and, provided, further,
that if Contractor has only one original counterpart of any contract or
other document that it needs in connection with any claim, demand, or
the exercise of any rights or remedies the undersigned may have against
the Tenant, whether provided by law, the Construction Contract or
otherwise, then Contractor may retain such original counterpart and
deliver only a copy of it to BNP. Notwithstanding the undersigned's
receipt of any notice from BNP that BNP declines to assume the
Construction Contract, the undersigned shall for a period not to exceed
fifteen (15) days after receipt of such notice take such steps, at BNP's
expense, as are reasonably necessary to preserve and protect work
completed and in progress and to protect materials, equipment and
supplies at the site or in transit.
d) No action taken by BNP or the undersigned with respect to the
Construction Contract shall prejudice any other rights or remedies of
BNP or the undersigned provided by law, by the Lease , by the
Construction Contract or otherwise against Tenant.
e) The undersigned agrees promptly to notify BNP of any aterial
default or claimed material default by Tenant under the Construction
Contract, describing with particularity the default and the action the
undersigned believes is necessary to cure the same. The undersigned
will send any such notice to BNP prominently marked "URGENT - NOTICE OF
TENANT'S DEFAULT UNDER CONSTRUCTION AGREEMENT WITH _______________ -
___________ CALIFORNIA" at the address specified for notice below (or at
such other addresses as BNP shall designate in notice sent to the
undersigned), by certified or registered mail, return receipt requested.
Following receipt of such notice, the undersigned will permit BNP or its
designee to cure any such default within the time period reasonably
required for such cure, but in no event less than thirty (30) days.
Pending any such cure by BNP, Contractor may, to the extent (if any)
permitted by the Construction Contract itself, suspend work under the
Construction Contract unless BNP elects to fund the ongoing construction
activities of Contractor during the period before the cure is complete.
If it is necessary or helpful to take possession of all or any portion
of the Project to cure a default by Tenant under the Construction
Contract, the time permitted by the undersigned for cure by BNP will
include the time necessary to terminate Tenant's right to possession of
the Project and evict Tenant, provided that BNP commences the steps
required to exercise such right within sixty (60) days after it is
entitled to do so under the terms of the Lease and applicable law. If
the undersigned incurs additional costs due to an extension of any cure
period under the Construction Contract by reason of the foregoing, the
undersigned shall be entitled to an equitable adjustment to the price of
the Construction Contract for such additional costs. Similarly, to the
extent that Contractor's work is actually delayed by the extension of
cure periods under the Construction Contract pursuant to the foregoing
provisions, Contractor shall be entitled to an equitable extension of
deadlines and time schedules established by the Construction Contract.
f) Any notice or communication required or permitted hereunder
shall be given in writing, sent by (a) personal delivery or (b)
expedited delivery service with proof of delivery or (c) United States
mail, postage prepaid, registered or certified mail or (d) telegram,
telex or telecopy, addressed as follows:
To the undersigned:
To BNP: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attn: Lloyd Cox
g) The undersigned acknowledges that it has all requisite
authority to execute this letter. The undersigned further acknowledges
that BNP has requested this letter, and is relying on the truth and
accuracy of the representations made herein, in connection with BNP's
decision to advance funds for construction under the Lease with Tenant.
Very truly yours,
_____________________________
By:
Name:
Title:
Tenant joins in the execution of this letter solely for the purpose
of evidencing its consent hereto, including its consent to the
provisions that would allow, but not require, BNP to assume the
Construction Contract in the event Tenant is evicted from the Project in
accordance with the Lease.
_____________________________
By:
Name:
Title:
Exhibit D
ESTOPPEL FROM ARCHITECTS/ENGINEERS
_________, 199__
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Re: Assignment of [Architects/Engineers Agreement]
Ladies and Gentlemen:
The undersigned hereby confirms, warrants and represents to BNP
Leasing Corporation, a Delaware corporation ("BNP"), and covenants with
BNP as follows:
1. The undersigned has entered into that certain
[**Architects/Engineers Agreement] (the "Agreement") by and between the
undersigned and Genentech, Inc. ("Tenant") dated, 199__ for the
[**design] of the manufacturing complex to be constructed on the
Vacaville campus leased by Applied (the "Improvements") located on the
land described in Exhibit A attached hereto and made a part hereof for
all purposes (the "Land" and, together with the Improvements and any
other improvements now on or constructed in the future on the Land,
being collectively referred to herein as the "Project").
2. The undersigned has been advised that BNP owns the Land.
3. The undersigned has also received a copy of the Amended and
Restated Lease Agreement dated as of December 8, 1995 (the "Lease"),
pursuant to which BNP is leasing the Project to Tenant, and BNP has
agreed, subject to the terms and conditions of the Lease, to provide a
construction allowance for Tenant's construction of the Improvements.
The Lease also requires Tenant to fulfill all obligations of "Genentech"
under the Agreement and related documents and to indemnify BNP against
any liability arising thereunder, all as more particularly provided in
the Lease, reference to which is hereby made for all purposes.
4. complete and correct copy of the Agreement is attached to this
letter. The Agreement is in full force and effect and has not been
modified or amended.
5. The undersigned has not sent or received any notice of default to
or from Tenant or any other notice to or from Tenant for the purpose of
terminating the Agreement, nor is there any existing circumstance or
event which, but for the elapse of time or otherwise, would constitute a
default by the undersigned or "Genentech" under the Agreement.
The undersigned acknowledges and agrees that:
a) BNP shall not be held liable for, and the undersigned shall not
assert, any claims, demands or liabilities against BNP or, except for
any statutory stop notice or lien rights, against the Project arising
under or in any way relating to the Agreement; provided, this paragraph
will not prohibit the undersigned from asserting any claims or making
demands under the Agreement if BNP elects in writing, pursuant to
Paragraph b) below, to assume the Agreement in the event Tenant's right
to possession of the Land is terminated, in which event BNP shall be
liable thereunder for (but only for) any acts or omissions on the part
of BNP occurring after the date on which BNP notifies the undersigned of
BNP's election to assume the Agreement.
b) Upon any termination of Tenant's right to possession of the
Project under the Lease, including but not limited to any eviction of
Tenant resulting from an Event of Default (as defined in the Lease), BNP
may, by notice to the undersigned and without the necessity of the
execution of any other document, assume Tenant's rights and obligations
under the Agreement, cure any defaults by Tenant thereunder and enforce
the Agreement and all rights of "Genentech" thereunder. Within ten (10)
days of receiving notice from BNP that Tenant's right to possession has
been terminated, the undersigned shall send to BNP a written estoppel
letter stating: (i) that the undersigned has not performed any act or
executed any other instrument which invalidates or modifies the
Agreement in whole or in part (or, if so, the nature of such
modification); (ii) that the Agreement is valid and subsisting and in
full force and effect; (iii) that there are no defaults or events of
default then existing under the Agreement and no event has occurred
which with the passage of time or the giving of notice, or both, would
constitute such a default or event of default under the Agreement (or,
if there is a default, the nature of such default in detail); (iv) that
the construction contemplated by the Agreement is proceeding in a
satisfactory manner in all material respects (or if not, a detailed
description of all significant problems with the progress of
construction); (v) a reasonably detailed report of the then critical
dates projected by the undersigned for work and deliveries required to
complete the Project; (vi) the total amount paid for construction
through the date of the letter; (vii) the estimated total cost of
completing such construction as of the date of the letter, together with
a current draw schedule; and (viii) any other information BNP may
request to allow it to decide whether to assume the Agreement. BNP
shall have thirty (30) days from receipt of such written certificate
containing all such requested information to decide whether to assume
the Agreement. If BNP fails to assume the Agreement within such time,
the undersigned agrees that BNP shall not be liable for (and the
undersigned shall not assert or bring any action against BNP or, except
for any statutory stop notice or lien rights not waived, against the
Land or improvements thereon for) any damages or other amounts resulting
from the breach or termination of the Agreement or under any other
theory of liability of any kind or nature, but rather the undersigned
shall look solely to Tenant and any statutory stop notice or lien rights
not waived for the recovery of any such damages or other amounts.
c) If BNP notifies the undersigned that BNP shall not assume the
Agreement pursuant to the preceding paragraph following the termination
of Tenant's right to possession of the Project under the Lease, the
undersigned shall immediately discontinue the work under the Agreement
and remove its personnel from the Project, and BNP shall be entitled to
take exclusive possession of the Project and all or any part of the
equipment and materials delivered or en route to the Project. The
undersigned shall also, upon request by BNP, deliver and assign to BNP
all plans and specifications and other contract documents previously
delivered to the undersigned (except that the undersigned may keep an
original set of the Agreement and other contract documents executed by
Tenant), all other material relating to the work which belongs to BNP or
Tenant, and all papers and documents relating to governmental permits,
orders placed, bills and invoices, lien releases and financial
management under the Agreement. Notwithstanding the undersigned's
receipt of any notice from BNP that BNP declines to assume the
Agreement, the undersigned shall for a period not to exceed fifteen (15)
days after receipt of such notice take such steps, at BNP's expense, as
are reasonably necessary to preserve and protect work completed and in
progress and to protect materials, equipment and supplies at the site or
in transit.
d) No action taken by BNP or the undersigned with respect to the
Agreement shall prejudice any other rights or remedies of BNP or the
undersigned provided by law, by the Lease, by the Agreement or otherwise
against Tenant.
e) The undersigned agrees promptly to notify BNP of any material
default or claimed material default by Tenant under the Agreement,
describing with particularity the default and the action the undersigned
believes is necessary to cure the same. The undersigned will send any
such notice to BNP prominently marked "URGENT - NOTICE OF TENANT'S
DEFAULT UNDER AGREEMENT WITH _______________ - ___________ CALIFORNIA"
at the address specified for notice below (or at such other addresses as
BNP shall designate in notice sent to the undersigned), by certified or
registered mail, return receipt requested. Following receipt of such
notice, the undersigned will permit BNP or its designee to cure any such
default within the time period reasonably required for such cure, but in
no event less than thirty (30) days. If it is necessary or helpful to
take possession of all or any portion of the Project to cure a default
by Tenant under the Agreement, the time permitted by the undersigned for
cure by BNP will include the time necessary to terminate Tenant's right
to possession of the Project and evict Tenant, provided that BNP
commences the steps required to exercise such right within sixty (60)
days after it is entitled to do so under the terms of the Lease and
applicable law.
f) Any notice or communication required or permitted hereunder
shall be given in writing, sent by (a) personal delivery or (b)
expedited delivery service with proof of delivery or (c) United States
mail, postage prepaid, registered or certified mail or (d) telegram,
telex or telecopy, addressed as follows:
To the undersigned:
To BNP: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attn: Lloyd Cox
g) The undersigned acknowledges that it has all requisite
authority to execute this letter. The undersigned further acknowledges
that BNP has requested this letter, and is relying on the truth and
accuracy of the representations made herein, in connection with BNP's
decision to advance funds for construction under the Lease with Tenant.
Very truly yours,
By:
Name:
Title:
Tenant joins in the execution of this letter solely for the purpose
of evidencing its consent hereto, including its consent to the
provisions that would allow, but not require, BNP to assume the
Agreement in the event Tenant is evicted from the Project in accordance
with the Lease.
_______________________
By:
Name:
Title:
Exhibit E
DRAW REQUEST FORMS
________, 199__
BNP Leasing Corporation
c/o Banque Nationale de Paris
180 Montgomery Street
San Francisco, California 94104
Attention: Ms. Jennifer Cho
Re: Construction Advance Request No. __________
by Genentech, Inc.
Ladies and Gentlemen:
Reference is made to the Amended and Restated Lease Agreement
between BNP Leasing Corporation (herein "Landlord") and Genentech, Inc.
(herein "Genentech") dated as of December 8, 1995 (herein "the Lease").
Capitalized terms defined in the Lease and used but not defined in this
letter are intended to have the meanings assigned to them in the Lease.
Genentech hereby makes request for a Construction Advance in the
amount of $________________ (herein the "Current Advance"). Included
herewith are:
1. An Application and Certificate for Payment based on AIA Form G702
(herein the "Contractor's Application") from Genentech's general
contractor or construction manager, attached to which is a schedule of
values listing all subcontractors, suppliers and other parties to whom
the general contractor or construction manager has or will make payments
from the draw requested in the Contractor's Application. The
Contractor's Application evidences an obligation incurred by (and
previously paid by) Genentech for construction of Improvements and for
which Genentech is entitled to reimbursement from the Current Advance.
2. A list of any costs paid by Genentech, other than to the general
contractor or construction manager, for which Genentech is entitled to
reimbursement from the proceeds of the Current Advance (herein the
"Other Costs List").
3. Invoices and requests for payments from the subcontractors and
others entitled to payment from the general contractor or construction
manager for construction and related work covered by the Contractor's
Application; excluding, however, invoices or requests from some or all
subcontractors and others that, according to the Contractor's
Application, are to be paid less than $500,000 from the draw requested
in Contractor's Application. Such invoices and requests for payments
are consistent with the detail shown in the schedule of values attached
to the Contractor's Application.
4. Invoices or other evidence of the costs (if any) included in the
Other Costs List.
5. A list of any "checks on hold" (i.e., payments withheld from
subcontractors or suppliers by Tenant's general contractor or
construction manager because of some defect or deficiency in the payee's
request for payment or in the work or materials provided by the payee)
in excess of $100,000.
6. An up-to-date list of the names and addresses of any
subcontractors that have actually filed a claim of lien against the
Leased Property, together with, to the extent not already provided with
a prior request for a Construction Advance, a copy of the claim of lien
filed.
7. A certification of an officer of Genentech as required by
Paragraph 6(c)(viii) of the Lease.
We hereby confirm that Landlord will not be responsible for the
application of any funds advanced to Genentech or to any other party at
our request.
Sincerely,
Genentech, Inc.
By:___________________________
Name:___________________________
Title:___________________________
cc: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Clint Shouse
Thompson & Knight,
a Professional Corporation
3300 First City Center
1700 Pacific Avenue
Dallas, Texas 75201
Tricia Borga
Genentech, Inc.
460 Point San Bruno Boulevard
South San Francisco, CA 9408
Construction Advance Certificate
Pursuant to Section 6(c)(viii) of the Lease dated December 8, 1995 (the
"Lease") between Genentech, Inc. ("Genentech") and BNP Leasing
Corporation ("Landlord"), Genentech does hereby represent, warrant and
certify to Landlord in connection with Genentech's request for
Construction Advance No. __________ that:
a) no Event of Default has occurred and is continuing,
b) the representations and warranties of Genentech contained in
the Lease are true and correct in all material respects on and as of the
date hereof as though made on and as of the date hereof, subject only to
the following exceptions:
[LIST EXCEPTIONS HERE, OR IF THERE ARE NO EXCEPTIONS, INSERT "NONE"]
c) each Construction Project which has commenced but not yet been
completed is progressing without any significant continuing interruption
in a good and workmanlike manner and substantially in accordance with
the requirements of the Lease and all Applicable Laws and Genentech has
corrected or is diligently pursuing the correction of any significant
defect in such construction,
d) all costs and expenses for which Genentech is requesting
reimbursement by the Construction Advance referenced above constitute
actual costs and expenses incurred by Genentech for a Construction
Project, and
e) to the knowledge of Genentech, liens (if any) now being
asserted against the Leased Property by Potential Lien Claimants do not
in the aggregate secure or allegedly secure more that $5,000,000 of
claims. (As used in this certificate a lien will be considered as
"being asserted" if a claim of lien relating thereto shall have been
recorded and not discharged by payment or settlement.)
Capitalized terms used herein which are defined in the Lease but not in
this Certificate shall have the meanings assigned to them in the Lease.
In witness whereof, this Certificate is executed by an officer of
Genentech, Inc. as of ______________, 19___.
Genentech, Inc.
By:____________________________
Name:____________________________
Title:____________________________
List of Liens For Which a Claim of Lien Has Actually Been Filed
(Construction Advance Request No. ________)
Liens for which a claim of lien has actually been filed are as follows:
1.
2.
3.
Other Costs List
(Construction Advance Request No. ________)
Costs paid - other than to Genentech's general contractor or
construction manager - by Genentech and for which Genentech is entitled
to reimbursement from the Current Advance being requested are as
follows:
1.
2.
3.
Exhibit F
FINANCIAL COVENANT COMPLIANCE CERTIFICATE
BNP Leasing Corporation
c/o Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Jennifer Cho
Re: Genentech Vacaville Facility
Gentlemen:
I, the undersigned, the chief financial officer or controller of
Genentech, Inc., do hereby certify, represent and warrant that:
1. This Certificate is furnished pursuant to subparagraph 9(v)(iii)
of that certain Amended and Restated Lease Agreement dated as of
December 8, 1995 (the "Lease Agreement," the terms defined therein being
used herein as therein defined) between Genentech, Inc. (the "Tenant"),
and you.
2. Annex 1 attached hereto sets forth financial data and computations
evidencing the Tenant's compliance with certain covenants of the Lease
Agreement, all of which data and computations are complete, true and
correct.
3. To the knowledge of Tenant no Default or Event of Default under
the Lease Agreement has occurred and is continuing.
4. The representations of Tenant set forth in Paragraph 9 of the
Lease Agreement are true and correct in all material respects as of the
date hereof as though made on and as of the date hereof.
Executed this _____ day of ______________, 19___.
______________________________
Name:_________________________
Title:________________________
Annex 1 To Compliance Certificate
For the _________________ Ended ________________, 19___
I. PARAGRAPH 9(ab)(i): Minimum Tangible Net Worth
A. Reported Consolidated Total Assets: $_____________
B. Intangible assets: $_____________
C. After-tax charges taken upon
the acquisition of technology
or distribution rights: $_____________
D. Reported Consolidated Total Liabilities: $_____________
E. Amounts guaranteed by Genentech, Inc.
or subsidiaries and not included in
Reported Consolidated Total Liabilities: $_____________
F. Consolidated Tangible Net Worth
(A - B + C - D - E): $_____________
E. Minimum: $1,000,000,000.00
II. PARAGRAPH 9(ab)(ii): Leverage Ratio
A. Reported Consolidated Total Liabilities: $_____________
B. Amounts guaranteed by Genentech, Inc.
or subsidiaries and not included in
Reported Consolidated Total Liabilities: $_____________
C. Consolidated Tangible Net Worth
(from calculation above): $_____________
D. Leverage Ratio (Ratio of [A+B] to C: _____ to ____
E. Maximum ratio: 1.0 to 1.0
III. PARAGRAPH 9(ab)(iii): Quick Ratio
A. Unencumbered Cash and Cash Equivalents
and other "Quick Assets" as defined in
clauses (1), (2) and (3) of
Paragraph 1(cc) of the Lease: $_____________
B. Unencumbered accounts receivable
(net of reserve for
uncollectible accounts): $_____________
C. A + B $_____________
D. Current Liabilities (as defined in
Subparagraph 1(z)): $_____________
E. Ratio of C to D: __.__ to __.__
F. Minimum ratio: 3.75 to 1.
Schedule 1
LIST OF PARTICIPANTS
Participant: SWISS BANK CORPORATION, SAN FRANCISCO BRANCH
Country Under Whose Laws Participant Exists: Switzerland
1. Amount of Participation: $ 50,000,000.00
2. Percentage Share: 15.15151515%
3. Address for Notices:
Swiss Bank Corporation
101 California Street
Suite 1700
San Francisco, Ca. 94111-5884
Attention: David L. Parrot
Telephone: (415) 774-3425
Facsimile: (415) 989-7570
4. Payment Instructions:
Bank: Swiss Bank Corporation, New York Branch
New York, New York
Account: Swiss Bank Corporation, San Francisco Branch
Account No.: WA-119997.000
ABA No.: 0260-0799-3
Reference: BNP Leasing/Genentech/Vacaville
5. Operations Contact:
Swiss Bank Corporation
101 California Street
Suite 1700
San Francisco, Ca. 94111-5884
Attention: William B. Walzer
Telephone: (415) 774-3329
Facsimile: (415) 956-3882
SCHEDULE 1
(cont.)
Participant: UNION BANK OF SWITZERLAND
Country Under Whose Laws Participant Exists: Switzerland
1. Amount of Participation: $ 70,000,000.00
2. Percentage Share: 21.21212121%
3. Address for Notices:
Union Bank of Switzerland, Los Angeles Branch
444 South Flower Street, 45th Floor
Los Angeles, Ca. 90071
Attention: Andres T. Brown
Telephone: (213) 489-0660
Facsimile: (213) 489-0697
4. Payment Instructions:
Bank: Union Bank of Switzerland
New York Branch
Fed Routing No.: 026008439
Favor of: UBS Los Angeles
Account No.: 40064502
Reference: Genentech, Inc.
5. Operations Contact:
Union Bank of Switzerland, Los Angeles Branch
444 South Flower Street, 45th Floor
Los Angeles, Ca. 90071
Attention: Susan U. Beltran
Telephone: (213) 489-0675
Facsimile: (213) 489-0637, -0690
SCHEDULE 1
(cont.)
Participant: CREDIT SUISSE
Country Under Whose Laws Participant Exists: Switzerland
1. Amount of Participation: $ 70,000,000.00
2. Percentage Share: 21.21212121%
3. Address for Notices:
Credit Suisse
50 California Street
San Francisco, Ca. 94111
Attention: Thomas Clausen
Tel No.: (415) 391-9590
Fax No.: (415) 362-1175
With a copy to:
Greenwich Funding Corporation
c/o Credit Suisse
12 East 49th
New York, NY 10017
Attention:Carin Okita
Tel No.: (213) 238-5366
Fax No.: (213) 238-5332
4. Payment Instructions:
Bank: Credit Suisse
New York
ABA #: 026009179
Account #: 339989-01
F/A GFC
Reference: Genentech - BNP Leasing Genentech/Vacaville
5. Operations Contact:
Greenwich Funding Corporation
c/o Credit Suisse
12 East 49th
New York, NY 10017
Attention: Carin Okita
Tel No.: (213) 238-5366
Fax No.: (213) 238-533
SCHEDULE 1
(cont.)
Participant: Mellon Bank, N.A.
Country Under Whose Laws Participant Exists: United States
1. Participation Amount: $ 70,000,000.00
2. Percentage Share: 21.21212121%
3. Address for Notices:
Mellon Bank, N. A.
300 South Grand Ave., Suite 3800
Los Angeles, Ca. 90071
Attention: R. Jane Westrich
Telephone: (213) 680-7353
Facsimile: (213) 626-3745
4. Payment Instructions:
Bank: Mellon Bank, N.A.
Pittsburgh, Pa.
Account: Loan Administration
Account No.: 990873800
ABA No.: 043000261
5. Operations Contact:
Mellon Bank, N.A.
3 Mellon Bank Center
Room 153-2300
Pittsburgh, Pa. 15259
Attention: Loan Administration
Telephone: (412) 236-3242
Facsimile: (412) 234-5049
Schedule 2
LIST OF EXISTING DEVELOPMENT CONTRACTS
1. Property Sale Agreement, dated May 24, 1995.
2. Amendment No. 1 to Property Sale Agreement, dated as of June 30, 1995.
3. Amendment No. 2 to Property Sale Agreement, dated as of July 31, 1995.
4. Amendment No. 3 to Property Sale Agreement, dated as of July 31, 1995.
5. Amendment No. 4 to Property Sale Agreement, dated as of July 31, 1995.
6. Amendment No. 5 to Property Sale Agreement, dated as of September 5,
1995.
7. Water Rights Agreement, dated May, 1987, between Chevron Land and
Development Co. and the City of Vacaville, California.
8. Wetlands Mitigation and Monitoring Plan for the Vaca Valley Business
Park, as approved by the Army Corps of Engineers in its Letter, dated March
31, 1995, and as modified pursuant to the Letter, dated June 7, 1995, from
Chevron Land and Development Co. to the Army Corps of Engineers and the
Letter, dated June 28, 1995, from the Army Corps of Engineers approving the
changes requested in Chevron Land and Development Co.'s June 7 letter.
9. Waiver letter, dated June 5, 1995, from the Regional Water Quality
Control Board.
10. Rights with respect to the Northeast Sector Assessment District.
11. Deferred Improvement Agreement between Chevron Land and Development
Company and the City of Vacaville, California.
12. Development Agreement among the City of Vacaville, California, the
Redevelopment Agency of the City of Vacaville, California and Genentech,
Inc.
13. Negative declaration (State Clearinghouse No. 95043004) for the
Genentech project.
14. Declaration of Covenants, Conditions and Restrictions for the Vaca
Valley Business Park, as amended by the First, Second and Third Amendments
thereto.
15. California Department of Fish and Game Section 1603 Permit applicable
to the Vaca Valley Business Park.
16. Agreement Containing Covenants Affecting Real Property dated September
11, 1995 between Chevron Land and Development Company and Mission-Vacaville
Limited Partnership.
17. Memorandum of Understanding dated as of September 7, 1995 between
Chevron Land and Development Company, Mission-Vacaville Limited Partnership
and Genentech, Inc.
Schedule 3
DESCRIPTION OF INITIAL CONSTRUCTION PROJECT
The following description has been provided by Tenant to Landlord:
GENERAL DESCRIPTION
The "initial Construction Project" will consist of the design,
construction, validation, start-up, and operation of a Bulk
Manufacturing Facility (hereafter referred to as the Manufacturing
Facility) for mammalian cell culture based products substantially in
accordance with the site plan attached to and made a part of this
Schedule. The Manufacturing Facility is being designed to use large-
scale cell culture (12,000 L production fermenters) and purification
technologies similar to those used at Genentech's South San Francisco
facilities. The facility will initially be licensed for the manufacture
of monoclonal antibody-based proteins which are intended for worldwide
distribution. The facility design criteria are based on the clinical
processes developed for rhuMAb HER2, rhuMAb-E25, TNFR-rigG, and C2B8
with batch sizes in the range of 1 to 9 kg. It is anticipated that the
Vacaville facility will be available for production of qualification
lots by mid-1998.
The site encompasses approximately 100 acres and the planned buildings
will occupy approximately 30 acres. The support buildings will include
a warehouse, a quality/administration building, a facility services
building, and a central processing utility plant.
The Vacaville location was chosen primarily because of the reduced risk
of earthquake potential, presence of skilled labor resources, adequate
space for future growth, and proximity to current Genentech operations.
The City of Vacaville has experience in working with biotechnology firms
as well as an established infrastructure required to support such an
endeavor.
Possible future requirements for the new site that have been identified
but will not be addressed at this time are: a bacterial manufacturing
facility; a second cell culture facility; pharmaceutical filling,
labeling, and packaging; and the expansion of the existing warehousing
and quality operations. No current provision is made for these future
requirements other than the purchase of land and some utility capacity.
MANUFACTURING FACILITY
The Manufacturing Facility is being designed for the production of
multiple products on a campaigned basis. The frozen bulk drug substance
will be transferred to Genentech facilities in South San Francisco for
further processing. The capacity will be approximately one- to two-fold
Genentech's current bulk product production capacity in South San
Francisco.
The Manufacturing Facility is planned to be approximately 170,000 ft2.
The facility will be a three floor building with dedicated manufacturing
areas. The utilities will be located in the center of the building
spanning the three floors, and will separate the various processing
areas.
WAREHOUSE
The warehouse will be a two-floor building of approximately 45,000 ft2,
and will be connected to the Manufacturing Facility on the second floor
by an environmentally controlled corridor to facilitate the movement of
raw materials and frozen bulk drug substance tanks. In addition to
storage of released raw materials the warehouse will include Raw
material weigh rooms.
QUALITY/ADMINISTRATION BUILDING
The quality/administration building will house Quality Assurance,
Quality Control laboratories, manufacturing science laboratory support,
and offices. The QC laboratories will perform in-process testing,
environmental monitoring and water analysis.
AMENDED AND RESTATED PURCHASE AGREEMENT
This AMENDED AND RESTATED PURCHASE AGREEMENT (this "Agreement") is
made as of December 8, 1995, by GENENTECH, INC., a Delaware corporation
("Genentech") and BNP LEASING CORPORATION, a Delaware corporation
("BNP").
R E C I T A L S
A. BNP has acquired the land described in Exhibit A attached hereto
and any improvements located thereon and is leasing the same to
Genentech pursuant to that certain Amended and Restated Lease Agreement
(as from time to time supplemented, amended or restated, the "Lease")
between Genentech and BNP dated as of the date hereof. (The land
described in Exhibit A and any and all other real or personal property
from time to time covered by the Lease and included within the "Leased
Property" as defined therein are hereinafter collectively referred to as
the "Property".)
B. The Lease amends, restates, replaces and supersedes a prior Lease
Agreement between BNP and Genentech dated as of August 1, 1995, as
modified by First Amendment to Lease Agreement dated as of September 7,
1995 (the "Prior Lease"), and as a condition to Landlord's agreement to
enter into the Lease, BNP requires the agreements set out herein. This
Agreement will amend, restate, replace and supersede a prior Purchase
Agreement between BNP and Genentech dated as of August 1, 1995 (the
"Prior Purchase Agreement").
NOW, THEREFORE, in consideration of the above recitals and other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Definitions. As used herein, the terms "Genentech", "BNP",
"Lease", "Property", "Prior Lease", and "Prior Purchase Agreement" shall
have the meanings indicated above; terms with initial capitals defined
in the Lease and used but not defined herein shall have the meanings
assigned to them in the Lease; and the terms listed immediately below
shall have the following meanings:
(a) Applicable Purchaser. "Applicable Purchaser" means any third
party designated by Genentech to purchase the interest of BNP in the
Property as provided in Paragraph 2(a) below.
(b) Calculation Date. "Calculation Date" means any Advance Date
or Base Rental Date under and as defined in the Lease.
(c) Deposit Taker. "Deposit Taker" means any of Banque Nationale
de Paris or its Affiliates authorized to take deposits and any of the
Participants or their Affiliates authorized to take deposits; provided,
an Affiliate of any Participant shall not qualify as a Deposit Taker
unless such Participant has guaranteed the return of any Restricted
Funds (and interest thereon) which BNP may have on deposit with such
Affiliate from time to time pursuant to a written guaranty in form and
substance approved by Genentech; and, provided further, that any Deposit
Taker other than an Affiliate of BNP must agree unconditionally
(pursuant to an agreement acceptable to Genentech) to remit all interest
earned on Restricted Funds deposited with it to BNP at least once each
calendar quarter, so that BNP may itself remit all such interest to
Genentech as provided in subparagraph 5(c)(ii) below.
(d) Designated Payment Date. "Designated Payment Date" means the
earlier of:
(1) the last Calculation Date under the Lease (whether the
last Calculation Date occurs on the last day of the scheduled Term of
the Lease or earlier because of an early termination of the Lease
pursuant to Paragraph 2 thereof or otherwise);
(2) any Calculation Date after an Event of Default or after a
breach by Genentech of any Vacaville Pledge Documents (and the
expiration of any cure or notice periods provided therein) has occurred,
provided such Calculation Date is designated as such in a written notice
given by BNP to Genentech when an Event of Default or such a breach by
Genentech is continuing and at least thirty (30) days before such
Calculation Date; or
(3) December 1, 2003, or if December 1, 2003 is not a Business
Day, then the next following Business Day.
(e) Fair Market Value. "Fair Market Value" means the fair market
value of the Property on or about the Designated Payment Date
(calculated under the assumptions, whether or not then accurate, that
Genentech has maintained the Property in compliance with all Applicable
Laws [including Environmental Laws]; that Genentech has completed all
Construction Projects, the construction of which was commenced prior to
the Designated Payment Date; that Genentech has repaired and restored
the Property after any damage following fire or other casualty; that
Genentech has restored the remainder of the Property after any partial
taking by eminent domain; that Genentech has completed any contests of
and paid any taxes due [other than Excluded Taxes] or other amounts
secured by or allegedly secured by a lien against the Property,
including any assessment liens, but not including any Prohibited
Encumbrances; that no conditions or circumstances on or about the
Property [such as the presence of an endangered species] is discovered
that will impede development of the Property; that development of the
Property will not be hindered or delayed because of the limited
availability of utilities or water; that any purchaser paying fair
market value for the Property will receive, upon its execution of a
Tranferee's Confidentiality Agreement in favor of Genentech, copies of
all of Genentech's books and records which are necessary or useful to a
future owner's or occupant's use of the Property in the manner permitted
by the Lease, including books and records evidencing the testing and
validation of the Property for the uses permitted by the Lease; that
without undue cost or delay any such purchaser can obtain any necessary
permits or licenses needed to use the Property for the purposes
permitted by the Lease; and that Genentech has cured any title defects
affecting the Property other than Prohibited Encumbrances, all in
accordance with the standards and requirements of the Lease as though
the Lease were continuing in force) as determined by an independent MAI
appraiser selected by BNP, which appraiser must have five (5) years or
more experience appraising similar properties in northern California.
(f) Genentech's PA Obligations. "Genentech's PA Obligations"
means the obligations of Genentech under this Agreement, including, but
not limited to, Genentech's obligations for payments required by or in
respect of Paragraph 2(a) and for any damages suffered by BNP because of
any breach of Paragraph 2.
(g) Purchase Price. "Purchase Price" means an amount equal to
Stipulated Loss Value outstanding on the Designated Payment Date, plus
all costs and expenses (including appraisal costs, withholding taxes (if
any) and reasonable Attorneys' Fees, as defined in the Lease) incurred
in connection with any sale of the Property by BNP hereunder or in
connection with collecting sales proceeds due hereunder.
(h) Prohibited Encumbrance. "Prohibited Encumbrance" means any
lien or other title defect encumbering the Property that is claimed by
BNP itself or lawfully claimed by a third party through or under BNP,
including any judgment lien lawfully filed against BNP and including any
tax lien assessed because of BNP's failure to pay Excluded Taxes, but
excluding the Lease and any lien or other title defect that (i) is a
Permitted Encumbrance (as defined in the Lease), regardless of whether
claimed by, through or under BNP, (ii) is claimed by, through or under
Genentech or any of the original Participants listed in Schedule 1 to
the Lease, or (iii) exists because of any breach by Genentech of the
Lease, because of anything done or not done by BNP in an effort to
satisfy subparagraph 10(b) of the Lease, or because of anything done or
not done by BNP at the request of Genentech.
(i) Qualified Securities. "Qualified Securities" means
unencumbered securities that have an aggregate value of no less than
Stipulated Loss Value, that when pledged to secure Genentech's PA
Obligations as provided in Paragraph 5 have a maturity of three years or
less and that evidence obligations of the United States Government.
(j) Remarketing Notice. "Remarketing Notice" shall have the
meaning assigned to it in Paragraph 2(b)(1) below.
(k) Required Documents. "Required Documents" means the grant deed
and other documents that BNP must tender pursuant to Paragraph 3 below.
(l) Restricted Funds. "Restricted Funds" shall have the meaning
assigned to it in Paragraph 5 below.
(m) Shortage Amount. "Shortage Amount" means any amount payable
to BNP by Genentech, rather than by the Applicable Purchaser, pursuant
to clause 2(a)(ii) below.
(n) Transferee's Confidentiality Agreement. "Transferee's
Confidentiality Agreement" means a written agreement in such form as
Genentech may reasonably require, executed by BNP or a future owner or
occupant of the Property, obligating the Person executing it to keep
confidential any proprietary information contained in books and records
which Genentech delivers to BNP pursuant to Paragraph 2(a)(ii).
Although any Transferee's Confidentiality Agreement must be in form
reasonably satisfactory to Genentech, it shall not prohibit, or impose a
license fee or other charge for, the use by the Person who executes such
agreement of any books and records described in Paragraph 2(a)(ii) in
connection with such Person's operation of the Property, nor will it
prohibit the delivery of such books and records or the disclosure of
information set forth therein (1) to any other future owner or occupant
of the Property who has itself executed a Transferee's Confidentiality
Agreement in favor of Genentech, or (2) required to any governmental
authority as a condition to the lawful use of the Property for the
purposes permitted in the Lease. As used in this definition,
"proprietary information" means Genentech's confidential scientific,
technical and/or business information, data or materials of Genentech
and its Affiliates (including without limitation Genentech's
intellectual property, trade secrets and other confidential information
of value to Genentech about, among other things, its manufacturing
processes, products, marketing and corporate strategies), but shall not
include any information, data or materials which a Person (whether a
future owner or occupant of the Property or any other transferee of BNP
hereunder) can demonstrate (a) is now or becomes public knowledge other
than by acts or omissions of such Person, (b) is lawfully obtained by
such Person from source(s) independent of Genentech hereunder (and not
to such Person's knowledge in breach of an obligation of confidentiality
in favor of Genentech), or (c) was previously known to such Person or is
subsequently developed by employees or agents of such Person
independently of any confidential information of Genentech delivered
pursuant to this Agreement or the Lease.
2. Genentech's Options and Obligations on the Designated Payment
Date.
(a) Choices. On the Designated Payment Date Genentech shall have
the right and the obligation to either:
(i) purchase or cause an Applicable Purchaser to purchase
BNP's interest in the Property and in Escrowed Proceeds, if any, for a
net cash price equal to the Purchase Price; or
(ii) cause an Applicable Purchaser who is not an Affiliate of
Genentech to purchase BNP's interest in the Property and in Escrowed
Proceeds, if any, for a net cash price not less than the lesser of (a)
the Fair Market Value of the Property or (b) eighteen percent (18%) of
Stipulated Loss Value outstanding immediately prior to the purchase.
If, however, the Fair Market Value is less than eighteen percent (18%)
of Stipulated Loss Value, BNP may elect to keep the Property and any
Escrowed Proceeds rather than sell to the Applicable Purchaser, in which
case Genentech shall (1) pay BNP an amount equal to (A) eighty-two
percent (82%) of Stipulated Loss Value, less (B) any Escrowed Proceeds
then held and to be retained by BNP, and (2) promptly deliver to BNP
(upon BNP's execution of a Transferee's Confidentiality Agreement in
favor of Genentech) copies of all plans and specifications for the
Property prepared in connection with the construction contemplated by
the Lease and all other books and records of Genentech which will be
necessary or useful to any future owner's or occupant's use of the
Property in the manner permitted by the Lease, including books and
records evidencing the testing and validation of Property for the uses
permitted by the Lease. Unless BNP elects to keep the Property pursuant
to the preceding sentence, Genentech must make a supplemental payment to
BNP on the Designated Payment Date equal to the excess (if any) of the
Purchase Price over the net cash price actually paid to BNP on the
Designated Payment Date by the Applicable Purchaser for BNP's interest
in the Property and in Escrowed Proceeds, if any. However, provided no
Event of Default has occurred and is continuing under the Lease, and
provided further that neither Genentech nor any Applicable Purchaser has
failed to pay any amount required to be paid by this Agreement on the
date such amount first became due, any supplemental payment required by
the preceding sentence shall not exceed eighty-two percent (82%) of
Stipulated Loss Value on the Designated Payment Date. Any supplemental
payment payable to BNP by Genentech, rather than by the Applicable
Purchaser, pursuant to this clause (ii) is hereinafter referred to as
the "Shortage Amount." If the net cash price actually paid by the
Applicable Purchaser to BNP exceeds the Purchase Price and all other
sums that are then due from Genentech to BNP, Genentech shall be
entitled to such excess.
(b) Election by Genentech. Genentech shall have the right to
elect whether it will satisfy the obligations set out in clause (i) or
(ii) of the preceding Paragraph 2(a); provided, however, that the
following conditions are satisfied:
(1) To give BNP the opportunity to have the Fair Market Value
determined by an appraiser before the Designated Payment Date, Genentech
must, unless Genentech agrees that Fair Market Value will not be less
than eighteen percent (18%) of Stipulated Loss Value on the Designated
Payment Date, provide BNP with a Remarketing Notice. "Remarketing
Notice" means a notice given by Genentech to BNP (and to each of the
Participants) no earlier than two hundred seventy (270) days before the
Designated Payment Date and no later than one hundred and eighty (180)
days before the Designated Payment Date, specifying that Genentech does
not agree that the Fair Market Value is equal to or greater than
eighteen percent (18%) of the Stipulated Loss Value. No Remarketing
Notice will be required unless Genentech does not agree that Fair Market
Value will equal or exceed eighteen percent (18%) of Stipulated Loss
Value on the Designated Payment Date. But if for any reason (including
but not limited to any acceleration of the Designated Payment Date
pursuant to clause (2) of the definition of Designated Payment Date
above) Genentech fails to provide a Remarketing Notice within the time
periods specified in the definition of Remarketing Notice above, Fair
Market Value shall, for purposes of this Agreement, be deemed to be no
less than eighteen percent (18%) of Stipulated Loss Value on the
Designated Payment Date.
(2) To give BNP the opportunity to prepare the Required
Documents before the Designated Payment Date, Genentech must, if it is
to satisfy the obligations set forth in Paragraph 2(a) by causing an
Applicable Purchaser to purchase Landlord's interest in the Leased
Property, irrevocably specify the Applicable Purchaser in notice to BNP
given at least seven (7) days prior to the Designated Payment Date. If
for any reason Genentech fails to so specify an Applicable Purchaser,
Genentech shall be deemed to have irrevocably elected to satisfy the
obligations set forth in clause (i) of Paragraph 2(a) by itself
purchasing the Landlord's interest in the Leased Property.
(c) Termination of Genentech's Option To Purchase. Without
limiting BNP's right to require Genentech to satisfy the obligations
imposed by Paragraph 2(a), Genentech shall have no further option
hereunder to purchase the Property if either:
(1) Genentech shall have elected to satisfy its obligations
under clause (ii) of Paragraph 2(a) on a Designated Payment Date and BNP
shall have elected to keep the Property on such Designated Payment Date
in accordance with clause (ii) of Paragraph 2(a); or
(2) Genentech shall have failed on a Designated Payment Date
to make or cause to be made all payments to BNP required by this
Agreement or by the Lease and such failure shall have continued beyond
the thirty (30) day period for tender specified in the next sentence.
If BNP does not receive all payments due under the Lease and all
payments required hereunder on a Designated Payment Date, Genentech may
nonetheless tender to BNP the full Purchase Price and all amounts then
due under the Lease, together with interest on the total Purchase Price
computed at the Default Rate from the Designated Payment Date to the
date of tender, and if presented with such a tender within thirty (30)
days after the applicable Designated Payment Date, BNP must accept it
and promptly thereafter deliver any Escrowed Proceeds and a deed and all
other Required Documents listed in Paragraph 3.
(d) Payment to BNP. All amounts payable under the preceding
Paragraphs 2(a) or 2(c) by Genentech and, if applicable, by the
Applicable Purchaser must be paid directly to BNP, and no payment to any
other party shall be effective for the purposes of this Agreement. In
addition to the payments required under Paragraph 2(a) hereunder, on the
Designated Payment Date Genentech must pay all amounts then due to BNP
under the Lease. BNP will remit any excess amounts due Genentech
pursuant to the last sentence of clause (ii) of Paragraph 2(a) promptly
after BNP's receipt of the same.
(e) Effect of Options on Subsequent Title Encumbrances. It is the
intent of BNP and Genentech that any conveyance of the Property to
Genentech or any Applicable Purchaser pursuant to this Agreement shall
cut off and terminate any interest in the Property claimed by, through
or under BNP, including the Participants (but not any unsatisfied
obligations of Genentech to BNP under the Lease, the Environmental
Indemnity Agreement or this Agreement), including but not limited to any
Prohibited Encumbrances and any leasehold or other interests conveyed by
BNP in the ordinary course of BNP's business. Anyone accepting or
taking any interest in the Property by or through BNP after the date of
this Agreement without the express prior written consent of Genentech
and with actual or constructive notice of this Agreement shall acquire
such interest subject to the rights and options granted Genentech
hereby. Further, Genentech and any Applicable Purchaser shall be
entitled to pay any payment required by this Agreement for the purchase
of the Property directly to BNP notwithstanding any prior conveyance or
assignment by BNP, voluntary or otherwise, of any right or interest in
this Agreement or the Property, and neither Genentech nor any Applicable
Purchaser shall be responsible for the proper distribution or
application of any such payments by BNP.
3. Terms of Conveyance Upon Purchase. Immediately after receipt of
all payments to BNP required pursuant to the preceding Paragraph 2, BNP
must, unless it is to keep the Property as permitted by Paragraph
2(a)(ii), deliver Escrowed Proceeds, if any, and convey all of its
right, title and interest in the Property by grant deed to Genentech or
the Applicable Purchaser, as the case may be, subject only to the
Permitted Encumbrances (as defined in the Lease) and any other
encumbrances that do not constitute Prohibited Encumbrances. However,
such conveyance shall not include the right to receive any payment under
the Lease then due BNP or that may become due thereafter because of any
expense or liability incurred by BNP resulting in whole or in part from
events or circumstances occurring before such conveyance. All costs of
such purchase and conveyance of every kind whatsoever, both foreseen and
unforeseen, shall be the responsibility of the purchaser, and the form
of grant deed used to accomplish such conveyance shall be substantially
in the form attached as Exhibit B. With such grant deed, BNP shall also
tender to Genentech or the Applicable Purchaser, as the case may be, the
following, each fully executed and, where appropriate, acknowledged on
BNP's behalf by an officer of BNP: (1) a Preliminary Change of Ownership
Report in the form attached as Exhibit C, (2) a Bill of Sale and
Assignment of Contract Rights and Intangible Assets in the form attached
as Exhibit D, (3) an Acknowledgment of Disclaimer of Representations and
Warranties, in the form attached as Exhibit E, which Genentech or the
Applicable Purchaser must execute and return to BNP, (5) a Documentary
Transfer Tax Request in the form attached as Exhibit F, (6) a
Secretary's Certificate in the form attached as Exhibit G, (7) a letter
to the title insurance company insuring title to the Property in the
form attached as Exhibit H, and (8) a certificate concerning tax
withholding in the form attached as Exhibit I.
4. Survival of Genentech's Obligations.
(a) Status of this Agreement. Except as expressly provided
herein, this Agreement shall not terminate, nor shall Genentech have any
right to terminate this Agreement, nor shall Genentech be entitled to
any reduction of the Purchase Price hereunder, nor shall the obligations
of Genentech to BNP under Paragraph 2 be affected by reason of (i) any
damage to or the destruction of all or any part of the Property from
whatever cause, (ii) the taking of or damage to the Property or any
portion thereof under the power of eminent domain or otherwise for any
reason, (iii) the prohibition, limitation or restriction of Genentech's
use of all or any portion of the Property or any interference with such
use by governmental action or otherwise, (iv) any eviction of Genentech
or any party claiming under Genentech by paramount title or otherwise,
(v) Genentech's prior acquisition or ownership of any interest in the
Property, (vi) any default on the part of BNP under this Agreement, the
Lease or any other agreement to which BNP is a party, or (vii) any other
cause, whether similar or dissimilar to the foregoing, any existing or
future law to the contrary notwithstanding. It is the intention of the
parties hereto that the obligations of Genentech to make payment to and,
if applicable, to cause the Applicable Purchaser to make payment to BNP
under Paragraph 2 shall be separate and independent covenants and
agreements from BNP's obligation under Paragraph 3 to convey the
Property pursuant to this Agreement; provided, however, that nothing in
this subparagraph shall excuse BNP from its obligation to tender a grant
deed and the other Required Documents in substantially the form attached
hereto as exhibits as required by Paragraph 3 upon the tender by
Genentech and/or the Applicable Purchaser of such payments and of the
other documents to be executed in favor of BNP at the closing of the
sale. Accordingly, the Purchase Price and the Shortage Amount, as the
case may be under Paragraph 2, shall continue to be payable in all
events, and the obligations of Genentech hereunder shall continue
unaffected. If for any reason BNP fails to tender the Required
Documents as required by Paragraph 3, BNP may cure such refusal at any
time before thirty (30) days after receipt of a written demand for such
cure from Genentech.
(b) Remedies Under the Lease and the Environmental Indemnity
Agreement. No repossession of or re-entering upon the Property or
exercise of any other remedies available under the Lease or the
Environmental Indemnity Agreement shall relieve Genentech of its
liabilities and obligations hereunder, all of which shall survive the
exercise of remedies under the Lease and Environmental Indemnity
Agreement. Genentech acknowledges that the consideration for this
Agreement is separate and independent of the consideration for the Lease
and the Environmental Indemnity Agreement, and Genentech's obligations
hereunder shall not be affected or impaired by any event or circumstance
that would excuse Genentech from performance of its obligations under
the Lease or the Environmental Indemnity Agreement.
5. Security for Genentech's PA Obligations.
(a) Covenant to Provide Security. To secure Genentech's PA
Obligations, Genentech must on or before December 1, 2000, unless BNP's
interest in the Property shall already have been sold to Genentech or an
Applicable Purchaser pursuant to Paragraph 2(a) and Genentech shall have
already paid to BNP all amounts required in connection with the sale, or
unless BNP and all Participants shall have waived in writing the
requirements of this Paragraph 5 (it being understood that any of BNP or
the Participants may decline to provide such a waiver in its sole and
absolute discretion), either:
(1) grant to BNP and thereafter maintain in favor of BNP, as
hereinafter provided, a first priority perfected security interest from
the date of the pledge thereof in Qualified Securities and the proceeds
thereof; or
(2) deliver immediately available funds to BNP in an amount
equal to Stipulated Loss Value ("Restricted Funds"), which BNP shall be
entitled to hold as security and apply as hereinafter provided.
(b) Conditions to the Use of Qualified Securities. If Genentech
chooses to grant and maintain a first priority perfected security
interest in Qualified Securities in lieu of delivering Restricted Funds
to BNP or as a replacement for previously provided Restricted Funds,
Genentech must satisfy the following conditions:
(i) No later than thirty days before the expected date
of the pledge of Qualified Securities, Genentech must have delivered a
fully executed pledge agreement, financing statements and other
documents (the "Vacaville Pledge Documents"), all in form and substance
satisfactory to Genentech and to each of BNP and the Participants and
their respective counsel, which will create, evidence and perfect BNP's
security interest in the Qualified Securities. The Vacaville Pledge
Documents may, among other things, establish (and evidence Genentech's
pledge to BNP of) one or more custodial accounts, in which the Qualified
Securities can be held, and appoint a custodian satisfactory to
Genentech, BNP and the Participants to maintain such accounts. The
Vacaville Pledge Documents will also provide that all pledged securities
shall either be newly acquired by BNP or such a custodian with funds
provided by Genentech (and thus not subject to possible prior
encumbrances) or be covered by certificates provided to BNP by the
custodian or by others satisfactory to BNP which certify facts necessary
to establish that the securities are unencumbered except by the pledge
to BNP. The Vacaville Pledge Documents will also provide for procedures
to allow the liquidation of Qualified Securities immediately prior to
the Designated Payment Date at the request of Genentech as needed to
provide funds for payments required of Genentech on the Designated
Payment Date, provided that such procedures can be established without
jeopardizing the perfection or priority of BNP's security interest. The
Vacaville Pledge Documents will also provide that Qualified Securities
(or proceeds thereof) remaining after Genentech's PA Obligations are
satisfied in full shall be promptly returned to Genentech, free from any
security interest or lien under the Vacaville Pledge Documents. To
facilitate Genentech's satisfaction of this condition, BNP will cause
its counsel to prepare and submit drafts of the Vacaville Pledge
Documents to Genentech and to the Participants, if Genentech requests
such drafts from BNP in a written notice given to BNP no later than
ninety days prior to the expected date of the pledge of Qualified
Securities, and if Genentech unconditionally confirms in such notice
that Genentech will pay BNP's reasonable legal fees and other costs of
preparing the drafts and otherwise responding to the request. Such
drafts are expected to be substantially similar to the Pledge Agreement,
Custodial Agreement and other documents executed by Genentech in favor
of BNP to be effective as of November 19, 1993 (the "Building 7 Pledge
Documents") in connection with another Purchase Agreement between BNP
and Genentech dated the same date; however, many of the Participants
have never seen or approved of the Building 7 Pledge Documents, and thus
Participants may require substantial changes to the Building 7 Pledge
Documents before approving the same as the Vacaville Pledge Documents
hereunder. Further, BNP itself may require substantial changes, thereby
rendering the Vacaville Pledge Documents less favorable to Genentech
than the Building 7 Pledge Documents, because of changes in the laws or
regulations governing such documents or the generally accepted
interpretations thereof, because of changes in Genentech's financial
condition, because of the greater dollar amount of the obligations to be
secured under the Vacaville Pledge Documents as compared to obligations
secured by the Building 7 Pledge Documents, because of the designation
of another custodian thereunder or because of other factors.
(ii) No later than five days prior to the expected date
of the pledge of Qualified Securities, Genentech must have delivered to
BNP or a custodian appointed under the Vacaville Pledge Documents (A)
unencumbered funds with which BNP or such custodian can purchase the
Qualified Securities to be pledged to BNP, or (B) Qualified Securities
to be pledged under the Vacaville Pledge Documents together with such
certificates and other documents as are required by the Vacaville Pledge
Documents to establish that such securities are subject to no prior
encumbrances.
(iii) No later than the effective date of the pledge of
Qualified Securities, Genentech must have provided, at its expense, one
or more written legal opinions, in form and substance approved by BNP
and the Participants before then, opining that the Vacaville Pledge
Documents are duly and authorized and executed by Genentech and other
parties thereto (other than BNP or any custodian who is an Affiliate of
BNP, a Participant or an Affiliate of a Participant), that the Vacaville
Pledge Documents are enforceable against Genentech, and that pursuant to
the Vacaville Pledge Documents BNP has a valid, first priority,
perfected security interest in Qualified Securities to secure
Genentech's PA Obligations. Such opinion or opinions must also cover
such other matters as BNP or any Participant deems to be customary in
such opinions, must be addressed to BNP and the Participants and must be
issued by one or more law firms reasonably acceptable to BNP and the
Participants with nationally recognized expertise in the subject matter
thereof.
To meet deadlines of Genentech for the execution of this Agreement, and
to save legal fees payable by Genentech in connection with the execution
of this Agreement, Genentech and BNP are postponing the negotiation and
delivery of the Vacaville Pledge Documents and related legal opinions by
the foregoing provisions. In doing so they recognize that the pledge of
Qualified Securities is not to become effective until years after the
date of this Agreement and that the law governing the pledge could
change between now and the time the pledge is to become effective.
Genentech and BNP do not, however, want to submit themselves to a risk
of liability or loss of rights hereunder for being judged unreasonable
with respect to the foregoing conditions. Accordingly, both Genentech
and BNP hereby disclaim any obligation express or implied to be
reasonable in negotiating the Vacaville Pledge Documents or the
requirements for related legal opinions, and in lieu of any such
obligation to be reasonable they are providing herein for the deposit of
Restricted Funds as an alternative to the pledge of Qualified
Securities. If for any reason whatsoever (including, but not limited
to, the failure of Genentech and BNP to agree upon the Vacaville Pledge
Documents or the refusal of any Participant to approve any Vacaville
Pledge Documents negotiated by BNP and Genentech) Genentech does not
satisfy the conditions listed above in this subparagraph (b) prior to
the deadlines specified above, then Genentech shall have the right and
the obligation to deliver the Restricted Funds rather than to pledge
Qualified Securities.
(c) Term and Conditions Relating to Restricted Funds. Any
Restricted Funds which Genentech does deliver will be held by BNP in
accordance with and governed by the following provisions:
(i) The Restricted Funds shall not be considered an advance
payment of amounts due under this Agreement or a measure of BNP's
damages should a breach of this Agreement by Genentech occur.
(ii) So long as Restricted Funds are in BNP's possession, BNP
shall keep the Restricted Funds deposited in one or more accounts (as
BNP shall from time to time determine to be appropriate in its sole
discretion) maintained by a Deposit Taker. Accounts into which
Restricted Funds are deposited shall be interest bearing, but BNP does
not guarantee a rate of interest or other earnings on such accounts, and
BNP shall not be required to place Restricted Funds into any account or
other investment in which BNP cannot obtain a perfected, first priority
security interest. Further, if Restricted Funds or any interest thereon
are lost because of any failure of a Deposit Taker to return the same,
whether caused by the insolvency of such Deposit Taker or otherwise, BNP
shall be responsible for such loss only if the Deposit Taker is an
Affiliate of BNP. However, at the time BNP deposits Restricted Funds
into any account maintained by a Deposit Taker that is not an Affiliate
of BNP: (1) such Deposit Taker must either be approved by Genentech or
be rated no lower than A or the equivalent thereof by Standard and
Poor's Corporation or A-2 or the equivalent thereof by Moody's Investor
Service, Inc; and (2) Genentech must have been provided with and
approved (a) the agreement concerning such Deposit Taker's obligation to
periodically remit interest to BNP as described in the definition of
Deposit Taker above, and (b) in the case of any Deposit Taker that is an
Affiliate of a Participant, the written guaranty of such Participant
described in the definition of Deposit Taker above. The interest
accruing on the accounts into which BNP deposits Restricted Funds from
time to time shall be reported by Genentech as Genentech's income for
income tax purposes. All interest earned on the Restricted Funds will
be added to and made a part of the Restricted Funds, but prior to any
Designated Payment Date, BNP shall remit all such interest to Genentech
no less often than once during each calendar quarter, whereupon such
interest shall be deemed released from the security interest hereinafter
granted. Except for interest remitted to Genentech by BNP pursuant to
the preceding sentence, Genentech shall have no right to withdraw or to
recover the Restricted Funds or to assign or encumber any interest
Genentech may have in the Restricted Funds until all payments to BNP
required by this Agreement are received by BNP.
(iii) As security for Genentech's PA Obligations Genentech
hereby grants to BNP a security interest, a lien and a right of offset,
each of which shall be in addition to BNP's rights at common law, in and
against all Restricted Funds, all investments made with Restricted
Funds, all interest and other earnings thereon (subject to the
provisions herein requiring periodic remittance of interest earned on
Restricted Funds to Genentech), and all deposit accounts and/or security
accounts into which such Restricted Funds, investments, interest and
other earnings are held at any time and all proceeds of the foregoing.
Genentech hereby authorizes and directs all Deposit Takers to allow BNP
to offset the Restricted Funds against any amount past due under this
Agreement and to reflect on their books and records the pledge to BNP of
all Restricted Funds they may hold on deposit from time to time. These
provisions are self-operative. No further instrument is required to
effect the security interest, lien and right of offset in and against
Restricted Funds as provided above. In confirmation thereof, however,
Genentech agrees to execute, acknowledge, and deliver promptly any
certificate, financing statement or other document requested by BNP as
necessary or helpful to evidence, perfect or preserve the security
interest, lien and right of set-off. Genentech also agrees to provide
to BNP contemporaneously with the delivery of any Restricted Funds one
or more written legal opinions in form and substance approved by BNP and
the Participants before then, opining that pursuant to this Agreement
(or other documents described in the preceding sentence) BNP has a
valid, first priority, perfected security interest in the Restricted
Funds to secure Genentech's PA Obligations. Such opinion or opinions
must also be addressed to BNP and the Participants and must be issued by
one or more law firms reasonably acceptable to BNP and the Participants
with nationally recognized expertise in the subject matter thereof.
(iv) Any Restricted Funds (including any interest accrued on
Restricted Funds that BNP has not yet remitted to Genentech as set forth
herein) not applied to satisfy Genentech's PA Obligations shall be
promptly returned to Genentech by BNP, free from any security interest
or lien granted pursuant to this Agreement, after (but only after)
Genentech's PA Obligations (including but not limited to payments of
interest on past due amounts owing to BNP which may accrue as provided
herein) are satisfied in full; provided, however: (A) this provision
shall not excuse BNP from its obligation to remit interest earned on
Restricted Funds as provided above; (B) if subsequent to Genentech's
delivery of Restricted Funds Genentech and BNP do agree upon Vacaville
Pledge Documents and upon other arrangements for Genentech's pledge of
Qualified Securities in lieu of the deposit of Restricted Funds, all in
form and substance satisfactory to Genentech, BNP and the Participants
in their sole and absolute discretion, then the Restricted Funds
(including any interest accrued on Restricted Funds that BNP has not yet
remitted to Genentech) will be promptly returned to Genentech when such
pledge becomes effective (or, if directed by Genentech in any notice
delivered to BNP at least 3 days prior to date when such pledge becomes
effective, BNP shall on the date the pledge is to become effective
withdraw the Restricted Funds from the accounts in which they are
deposited and use the same to acquire the Qualified Securities which
will be so pledged); and (C) if directed by Genentech to do so in any
notice delivered to BNP at least 3 days prior to any Designated Payment
Date, BNP shall on the Designated Payment Date withdraw the Restricted
Funds from the accounts in which they are deposited and apply the same
against payments due to BNP hereunder on such Designated Payment Date.
(v) Nothing in this Agreement shall authorize any party
holding any Restricted Funds (other than BNP and its permitted assigns
under this Agreement) to offset the Restricted Funds against any
obligation of Genentech. BNP may require as a condition to placing any
Restricted Funds with a Deposit Taker that such Deposit Taker waive any
rights it may have to offset the Restricted Funds against any obligation
owed to it by Genentech or others, that such Deposit Taker note BNP's
rights hereunder on such Deposit Taker's books with respect to the
accounts it maintains for the Restricted Funds and that such Deposit
Taker agree to such other requirements as BNP then deems appropriate to
preserve the Restricted Funds as security for Genentech's PA
Obligations.
(vi) If by an assignment permitted by this Agreement BNP
assigns its interest in the Property prior to any sale thereof pursuant
to this Agreement, BNP may also transfer its interest in the Restricted
Funds to the assignee and thereafter BNP will have no liability for the
return or proper application of the Restricted Funds, it being agreed
that Genentech shall look solely to the new owner of the Property for
the return or proper application of the same.
6. Remedies Cumulative. No right or remedy herein conferred upon or
reserved to BNP is intended to be exclusive of any other right or remedy
BNP has with respect to the Property, and each and every right and
remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing at law or in equity or by
statute. In addition to other remedies available under this Agreement,
either party shall be entitled, to the extent permitted by applicable
law, to a decree compelling performance of any of the other party's
agreements hereunder.
7. No Implied Waiver. The failure of either party to this Agreement
to insist at any time upon the strict performance of any covenant or
agreement of the other party or to exercise any remedy contained in this
Agreement shall not be construed as a waiver or a relinquishment thereof
for the future. The waiver by either party of or redress for any
violation of any term, covenant, agreement or condition contained in
this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect
of an original violation. No express waiver by either party shall
affect any condition other than the one specified in such waiver and
that one only for the time and in the manner specifically stated. A
receipt by BNP of any payment hereunder with knowledge of the breach of
this Agreement shall not be deemed a waiver of such breach, and no
waiver by either party of any provision of this Agreement shall be
deemed to have been made unless expressed in writing and signed by the
waiving party.
8. Attorneys' Fees and Legal Expenses. If either party commences any
legal action or other proceeding to enforce any of the terms of this
Agreement or the documents and agreements referred to herein, or because
of any breach by the other party or dispute hereunder or thereunder, the
successful or prevailing party, shall be entitled to recover from the
nonprevailing party all Attorneys' Fees incurred in connection
therewith, whether or not such controversy, claim or dispute is
prosecuted to a final judgment. Any such Attorneys' Fees incurred by
either party in enforcing a judgment in its favor under this Agreement
shall be recoverable separately from such judgment, and the obligation
for such Attorneys' Fees is intended to be severable from other
provisions of this Agreement and not to be merged into any such
judgment.
9. Estoppel Certificate. Genentech will, upon not less than twenty
(20) days' prior written request by BNP, execute, acknowledge and
deliver to the requesting party a written statement certifying that this
Agreement is unmodified and in full effect (or, if there have been
modifications, that this Agreement is in full effect as modified, and
setting forth such modification) and either stating that no default
exists hereunder or specifying each such default of which the signer may
have knowledge. Any such statement may be relied upon by any
Participant or prospective purchaser or assignee of BNP with respect to
the Property. Genentech shall be required to provide such a certificate
no more frequently than once in any six month period; provided, however,
that if BNP determines that there is a significant business reason for
requiring a current certificate, including, without limitation, the need
to provide such a certificate to a prospective purchaser or assignee,
Genentech shall provide a certificate upon BNP's request whether or not
Genentech had provided a certificate within the prior six month period.
10. Notices. Each provision of this Agreement referring to the
sending, mailing or delivery of any notice or referring to the making of
any payment to BNP, shall be deemed to be complied with when and if the
following steps are taken:
(a) All payments required to be made by Genentech or the
Applicable Purchaser to BNP hereunder shall be paid to BNP in
immediately available funds in accordance with the payment instructions
set forth in the Lease or as BNP may otherwise direct by written notice
sent in accordance herewith. Time is of the essence as to all payments
required hereunder and other obligations of Genentech. All payments
required to be made by BNP to Genentech pursuant to the last sentence of
clause (ii) of Paragraph 2(a) shall be paid to Genentech in immediately
available funds at the address of Genentech set forth below or as
Genentech may otherwise direct by written notice sent in accordance
herewith.
(b) All notices and other communications to be made hereunder to
the parties hereto shall be in writing (at the addresses set forth
below) and shall be given by any of the following means: (1) personal
service; (2) electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by United States first class
mail, return receipt requested); or (3) registered or certified first
class mail, return receipt requested. Such addresses may be changed by
notice to the other parties given in the same manner as provided above.
Any notice or other communication sent pursuant to clause (1) or (2)
shall be deemed received upon such personal service or upon dispatch by
electronic means except for telecopies, and, if telecopied or sent
pursuant to clause (3), shall be deemed received five (5) days following
deposit in the mail. Until changed, addresses for notices are as
follows:
Address of BNP:
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Telecopy: (214) 969-0060
With a copy to:
Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Jennifer Cho
Telecopy: (415) 296-8954
And with a copy to:
Clint Shouse
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Telecopy: (214) 969-1550
Address of Genentech:
Genentech, Inc.
Attn: Corporate Secretary
460 Point San Bruno Boulevard
South San Francisco, California 94080
Telecopy: (415) 952-9881
With a copy to:
Morrison & Foerster
555 West Fifth Street
Suite 3500
Los Angeles, California 90013-1024
Attention: Tom Fileti
Telecopy: (213) 892-5454
11. Severability. Each and every covenant and agreement of Genentech
contained in this Agreement is, and shall be construed to be, a separate
and independent covenant and agreement. If any term or provision of
this Agreement or the application thereof to any person or circumstances
shall to any extent be invalid and unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby. Further, the obligations
of Genentech hereunder, to the maximum extent possible, shall be deemed
to be separate, independent and in addition to, not in lieu of, the
obligations of Genentech under the Lease. In the event of any
inconsistency between the terms of this Agreement and the terms and
provisions of the Lease, the terms and provisions of this Agreement
shall control.
12. Entire Agreement. This Agreement and the instruments referred to
herein supersede any prior negotiations and agreements between the
parties concerning the Property, including the Prior Lease and the Prior
Purchase Agreement, but not including the Environmental Indemnity
Agreement, and no amendment or modification of this Agreement shall be
binding or valid unless expressed in a writing executed by both parties
hereto. Genentech ratifies and confirms the Environmental Indemnity
Agreement as a separate and independent continuing agreement.
13. Paragraph Headings. The paragraph headings contained in this
Agreement are for convenience only and shall in no way enlarge or limit
the scope or meaning of the various and several paragraphs hereof.
14. Gender and Number. Within this Agreement, words of any gender
shall be held and construed to include any other gender and words in the
singular number shall be held and construed to include the plural,
unless the context otherwise requires.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
UNDER AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REGARD TO CONFLICTS OR CHOICE OF LAWS.
16. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon Genentech and BNP and their
respective permitted successors and assigns and shall inure to the
benefit of Genentech and BNP and all permitted transferees, mortgagees,
successors and assignees of Genentech and BNP with respect to the
Property; provided, that the rights of BNP hereunder shall not pass to
Genentech or any Applicable Purchaser or any subsequent owner claiming
through them. Prior to the Designated Payment Date BNP may transfer,
assign and convey, in whole or in part, the Property and any and all of
its rights under this Agreement (subject to the terms of this Agreement)
by any conveyance that constitutes a Permitted Transfer, but not
otherwise. If BNP sells or otherwise transfers the Property and assigns
its rights under this Agreement and the Lease pursuant to a Permitted
Transfer, and if BNP's successor in interest confirms its liability for
the obligations imposed upon BNP by this Agreement and the Lease on and
subject to the express terms set out herein and therein, then BNP shall
thereby be released from any further obligations under this Agreement
and the Lease, and Genentech agrees to look solely to each successor in
interest of BNP for performance of such obligations.
17. WAIVER OF JURY TRIAL. BNP AND GENENTECH EACH HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THE LEASE, THIS AGREEMENT OR ANY OTHER DOCUMENT
OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. The scope
of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject
matter of this transaction, including without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Genentech and BNP each acknowledge that this waiver
is a material inducement to enter into a business relationship, that
each has already relied on the waiver in entering into this Agreement
and the other documents referred to herein, and that each will continue
to rely on the waiver in their related future dealings. Genentech and
BNP each further warrant and represent that it has reviewed this waiver
with its legal counsel, and that it knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY
OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LEASE, THIS AGREEMENT OR THE
ENVIRONMENTAL INDEMNITY AGREEMENT. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
"BNP"
BNP LEASING CORPORATION,
a Delaware corporation
By:
Name:
Title:
"Genentech"
GENENTECH, INC.,
a Delaware corporation
By:
Name:
Title:
Exhibit A
LEGAL DESCRIPTION
ALL THAT REAL PROPERTY SITUATED IN THE CITY OF VACAVILLE, COUNTY OF
SOLANO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL ONE:
PARCEL "4D", AS SHOWN ON THAT CERTAIN MAP ENTITLED: "PARCEL MAP, BEING A
RESUBDIVISION OF PARCEL 4, AS SHOWN IN BOOK 38 OF PARCEL MAPS, PAGE 35,
PARCELS 14-22, PORTIONS OF AKERLY DRIVE AND BARCAR DRIVE AS SHOWN IN
BOOK 39 OF MAPS, PAGE 74, AND PORTIONS OF LANDS DESCRIBED IN DEED
RECORDED MAY 13, 1982, PAGE 29409, AS INSTRUMENT NO. 17086 IN THE OFFICE
OF THE COUNTY RECORDER OF SOLANO COUNTY, STATE OF CALIFORNIA," FILED
JULY 31, 1995 IN THE OFFICE OF THE COUNTY RECORDER OF SOLANO COUNTY, IN
BOOK 39 OF PARCEL MAPS, PAGE 37.
EXCEPTING THEREFROM AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL
MINERALS, MINERAL DEPOSITS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES OF
EVERY KIND AND CHARACTER BELOW 500 FEET FROM THE SURFACE OF SAID LAND,
BUT WITHOUT, HOWEVER, THE RIGHT OF SURFACE ENTRY, AS EXCEPTED AND
RESERVED IN DEED FROM MARGARET JOSEPHINE SHELLHAMMER TO GERTRUDE M.
EAMES, DATED JUNE 8, 1956, RECORDED JUNE 12, 1956 IN BOOK 833 OF
OFFICIAL RECORDS, PAGE 480 AND IN DEED FROM MARGARET JOSEPHINE
SHELLHAMMER TO BARBARA C. SANTOS DATED DECEMBER 28, 1962, RECORDED
JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS, PAGE 520, AND IN DEED
FROM MARGARET JOSEPHINE SHELLHAMMER TO ROBERTA SANTOS, DATED DECEMBER
28, 1962, RECORDED JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS,
PAGE 529, SOLANO COUNTY RECORDS.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL OIL, GAS AND
OTHER HYDROCARBONS; NON-HYDROCARBON GASSES OR GASEOUS SUBSTANCES; ALL
OTHER MINERALS OF WHATSOEVER NATURE, WITHOUT REGARD TO SIMILARITY TO THE
ABOVE-MENTIONED SUBSTANCES; AND ALL SUBSTANCES THAT MAY BE PRODUCED
THEREWITH FROM SAID REAL PROPERTY AS RESERVED IN THE DEED FROM CHEVRON
U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987 PAGE
42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL GEOTHERMAL
RESOURCES, EMBRACING: INDIGENOUS STEAM, HOT WATER AND HOT BRINES; STEAM
AND OTHER GASSES, HOT WATER AND HOT BRINES RESULTING FROM WATER, GAS OR
OTHER FLUIDS ARTIFICIALLY INTRODUCED INTO SUBSURFACE FORMATIONS; HEAT OR
OTHER ASSOCIATED ENERGY FOUND BENEATH THE SURFACE OF THE EARTH; AND
BYPRODUCTS OF ANY OF THE FOREGOING SUCH AS MINERALS (EXCLUSIVE OF OIL OR
HYDROCARBON GAS THAT CAN BE SEPARATELY PRODUCED) WHICH ARE FOUND IN
SOLUTION OR ASSOCIATION WITH OR DERIVED FROM ANY OF THE FOREGOING, AS
RESERVED IN THE DEED FROM CHEVRON U.S.A. INC., A CORPORATION, RECORDED
APRIL 1, 1987 IN BOOK 1987 PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO.
21698.
ALSO THE SOLE AND EXCLUSIVE RIGHT FROM TIME TO TIME TO BORE OR DRILL AND
MAINTAIN WELLS AND OTHER WORKS INTO AND THROUGH SAID REAL PROPERTY AND
ADJOINING STREETS, ROADS AND HIGHWAYS BELOW A DEPTH OF FIVE HUNDRED
(500') FEET FROM THE SURFACE THEREOF FOR THE PURPOSE OF EXPLORING FOR
AND PRODUCING ENERGY RESOURCES; THE RIGHT TO PRODUCE, INJECT, STORE AND
REMOVE FROM AND THROUGH SAID BORES, WELLS OR WORKS, OIL, GAS, WATER AND
OTHER SUBSTANCES OF WHATEVER NATURE, INCLUDING THE RIGHT TO PERFORM
BELOW SAID DEPTH ANY AND ALL OPERATIONS DEEMED BY GRANTOR NECESSARY OR
CONVENIENT FOR THE EXERCISE OF SUCH RIGHTS, AS RESERVED IN THE DEED FROM
CHEVRON U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987
PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALL RIGHTS EXCEPTED AND RESERVED TO CHEVRON DO NOT INCLUDE AND DO NOT
EXCEPT OR RESERVE TO CHEVRON ANY RIGHT OF CHEVRON TO USE THE SURFACE OF
SAID PROPERTY OR THE FIRST FIVE HUNDRED (500') FEET BELOW SAID SURFACE
OR TO CONDUCT ANY OPERATIONS THEREON OR THEREIN.
APN: PORTION 133-080-290
PORTION 133-120-300
133-190-030 THRU 100
133-190-130
PARCEL TWO:
THOSE CERTAIN EASEMENTS GRANTED IN ARTICLE 8 OF THE DECLARATION OF
COVENANTS, CONDITIONS AND RESTRICTIONS FOR VACA VALLEY BUSINESS PARK,
DATED NOVEMBER 10, 1993, EXECUTED BY CHEVRON LAND AND DEVELOPMENT
COMPANY, A DELAWARE CORPORATION, RECORDED NOVEMBER 12, 1993 AS
INSTRUMENT NO. 1993-00107441 IN THE SOLANO COUNTY RECORDS, AS AMENDED BY
A FIRST AMENDMENT THERETO, RECORDED NOVEMBER 12, 1993 AS INSTRUMENT NO.
1993-00107445 IN THE SOLANO COUNTY RECORDS, AS FURTHER AMENDED BY A
SECOND AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056033 IN THE SOLANO COUNTY RECORDS AND AS FURTHER AMENDED BY A
THIRD AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056034 IN THE SOLANO COUNTY RECORDS
Exhibit B
CORPORATION GRANT DEED
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
NAME: Genentech, Inc.
ADDRESS: 460 Point San Bruno Boulevard
ATTN: Corporate Secretary
CITY: South San Francisco
STATE: California
Zip: 94080
MAIL TAX STATEMENTS TO:
NAME: Genentech, Inc.
ADDRESS: 460 Point San Bruno Boulevard
ATTN: Corporate Secretary
CITY: South San Francisco
STATE: California
ZIP: 94080
CORPORATION GRANT DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
BNP LEASING CORPORATION, a Delaware corporation, hereby grants to
GENENTECH, INC., a Delaware corporation, all of the land situated in the
County of Solano, State of California, described on Annex A attached
hereto and hereby made a part hereof, together with the improvements
currently located on such land and any easements, rights-of-way,
privileges, appurtenances and other rights pertaining to such land;
provided, however, that this grant is subject to the following, as well
as the Permitted Encumbrances described on Annex B:
1. Real Estate Taxes not yet due and payable;
2. General Special Assessments payable after the date hereof;
3. Liens, claims, easements, covenants, restrictions, encumbrances
and other matters of record;
4. Zoning ordinances and regulations;
5. Public Utility Drainage and Highway easements, whether or not of
record;
6. Rights of parties in possession;
7. Encroachments, variations in area or in measurements, boundary
line disputes, roadways and other matters not of record which would be
disclosed by a survey and inspection of the property conveyed hereby.
BNP LEASING CORPORATION
Date: As of ____________ By:
Its: Vice President
Attest:
Its: Assistant Secretary
(STATE OF TEXAS)
SS
(COUNTY OF DALLAS)
On ___________________ before me, , personally appeared
and , personally known to me (or proved to me on the basis of
satisfactory evidence) to be the persons whose names are subscribed to
the within instrument and acknowledged to me that they executed the same
in their authorized capacities, and that by their signatures on the
instrument the person, or the entity upon behalf of which the persons
acted, executed the instrument.
WITNESS my hand and official seal.
Signature
Annex A
LEGAL DESCRIPTION
ALL THAT REAL PROPERTY SITUATED IN THE CITY OF VACAVILLE, COUNTY OF
SOLANO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL ONE:
PARCEL "4D", AS SHOWN ON THAT CERTAIN MAP ENTITLED: "PARCEL MAP, BEING A
RESUBDIVISION OF PARCEL 4, AS SHOWN IN BOOK 38 OF PARCEL MAPS, PAGE 35,
PARCELS 14-22, PORTIONS OF AKERLY DRIVE AND BARCAR DRIVE AS SHOWN IN
BOOK 39 OF MAPS, PAGE 74, AND PORTIONS OF LANDS DESCRIBED IN DEED
RECORDED MAY 13, 1982, PAGE 29409, AS INSTRUMENT NO. 17086 IN THE OFFICE
OF THE COUNTY RECORDER OF SOLANO COUNTY, STATE OF CALIFORNIA," FILED
JULY 31, 1995 IN THE OFFICE OF THE COUNTY RECORDER OF SOLANO COUNTY, IN
BOOK 39 OF PARCEL MAPS, PAGE 37.
EXCEPTING THEREFROM AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL
MINERALS, MINERAL DEPOSITS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES OF
EVERY KIND AND CHARACTER BELOW 500 FEET FROM THE SURFACE OF SAID LAND,
BUT WITHOUT, HOWEVER, THE RIGHT OF SURFACE ENTRY, AS EXCEPTED AND
RESERVED IN DEED FROM MARGARET JOSEPHINE SHELLHAMMER TO GERTRUDE M.
EAMES, DATED JUNE 8, 1956, RECORDED JUNE 12, 1956 IN BOOK 833 OF
OFFICIAL RECORDS, PAGE 480 AND IN DEED FROM MARGARET JOSEPHINE
SHELLHAMMER TO BARBARA C. SANTOS DATED DECEMBER 28, 1962, RECORDED
JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS, PAGE 520, AND IN DEED
FROM MARGARET JOSEPHINE SHELLHAMMER TO ROBERTA SANTOS, DATED DECEMBER
28, 1962, RECORDED JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS,
PAGE 529, SOLANO COUNTY RECORDS.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL OIL, GAS AND
OTHER HYDROCARBONS; NON-HYDROCARBON GASSES OR GASEOUS SUBSTANCES; ALL
OTHER MINERALS OF WHATSOEVER NATURE, WITHOUT REGARD TO SIMILARITY TO THE
ABOVE-MENTIONED SUBSTANCES; AND ALL SUBSTANCES THAT MAY BE PRODUCED
THEREWITH FROM SAID REAL PROPERTY AS RESERVED IN THE DEED FROM CHEVRON
U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987 PAGE
42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL GEOTHERMAL
RESOURCES, EMBRACING: INDIGENOUS STEAM, HOT WATER AND HOT BRINES; STEAM
AND OTHER GASSES, HOT WATER AND HOT BRINES RESULTING FROM WATER, GAS OR
OTHER FLUIDS ARTIFICIALLY INTRODUCED INTO SUBSURFACE FORMATIONS; HEAT OR
OTHER ASSOCIATED ENERGY FOUND BENEATH THE SURFACE OF THE EARTH; AND
BYPRODUCTS OF ANY OF THE FOREGOING SUCH AS MINERALS (EXCLUSIVE OF OIL OR
HYDROCARBON GAS THAT CAN BE SEPARATELY PRODUCED) WHICH ARE FOUND IN
SOLUTION OR ASSOCIATION WITH OR DERIVED FROM ANY OF THE FOREGOING, AS
RESERVED IN THE DEED FROM CHEVRON U.S.A. INC., A CORPORATION, RECORDED
APRIL 1, 1987 IN BOOK 1987 PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO.
21698.
ALSO THE SOLE AND EXCLUSIVE RIGHT FROM TIME TO TIME TO BORE OR DRILL AND
MAINTAIN WELLS AND OTHER WORKS INTO AND THROUGH SAID REAL PROPERTY AND
ADJOINING STREETS, ROADS AND HIGHWAYS BELOW A DEPTH OF FIVE HUNDRED
(500') FEET FROM THE SURFACE THEREOF FOR THE PURPOSE OF EXPLORING FOR
AND PRODUCING ENERGY RESOURCES; THE RIGHT TO PRODUCE, INJECT, STORE AND
REMOVE FROM AND THROUGH SAID BORES, WELLS OR WORKS, OIL, GAS, WATER AND
OTHER SUBSTANCES OF WHATEVER NATURE, INCLUDING THE RIGHT TO PERFORM
BELOW SAID DEPTH ANY AND ALL OPERATIONS DEEMED BY GRANTOR NECESSARY OR
CONVENIENT FOR THE EXERCISE OF SUCH RIGHTS, AS RESERVED IN THE DEED FROM
CHEVRON U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987
PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALL RIGHTS EXCEPTED AND RESERVED TO CHEVRON DO NOT INCLUDE AND DO NOT
EXCEPT OR RESERVE TO CHEVRON ANY RIGHT OF CHEVRON TO USE THE SURFACE OF
SAID PROPERTY OR THE FIRST FIVE HUNDRED (500') FEET BELOW SAID SURFACE
OR TO CONDUCT ANY OPERATIONS THEREON OR THEREIN.
APN: PORTION 133-080-290
PORTION 133-120-300
133-190-030 THRU 100
133-190-130
PARCEL TWO:
THOSE CERTAIN EASEMENTS GRANTED IN ARTICLE 8 OF THE DECLARATION OF
COVENANTS, CONDITIONS AND RESTRICTIONS FOR VACA VALLEY BUSINESS PARK,
DATED NOVEMBER 10, 1993, EXECUTED BY CHEVRON LAND AND DEVELOPMENT
COMPANY, A DELAWARE CORPORATION, RECORDED NOVEMBER 12, 1993 AS
INSTRUMENT NO. 1993-00107441 IN THE SOLANO COUNTY RECORDS, AS AMENDED BY
A FIRST AMENDMENT THERETO, RECORDED NOVEMBER 12, 1993 AS INSTRUMENT NO.
1993-00107445 IN THE SOLANO COUNTY RECORDS, AS FURTHER AMENDED BY A
SECOND AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056033 IN THE SOLANO COUNTY RECORDS AND AS FURTHER AMENDED BY A
THIRD AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056034 IN THE SOLANO COUNTY RECORDS
Annex B
Permitted Encumbrances
This conveyance is subject to the following matters to the extent
the same are still valid and in force:
[INSERT LIST OF "PERMITTED ENCUMBRANCES" AS DEFINED IN THE LEASE]
1. Amended and Restated Lease Agreement dated as of December 8, 1995
by and between BNP Leasing Corporation, as lessor, and Genentech, Inc.,
as lessee.
[IF THE CONVEYANCE IS TO AN APPLICABLE PURCHASER:
2. Any encumbrances claimed by, through or under Genentech, Inc.]
[ADD A LIST OF ANY OTHER KNOWN ENCUMBRANCES FOR WHICH BNP IS NOT
RESPONSIBLE UNDER PARAGRAPH 10(A) OF THE LEASE.
EXHIBIT C
PRELIMINARY CHANGE OF OWNERSHIP REPORT
THIS REPORT IS NOT A PUBLIC DOCUMENT
(To be completed by transferee (buyer) prior to transfer of the subject
property in accordance with Section 480.3 of the Revenue and Taxation
Code.
THIS SPACE FOR RECORDER'S US
SELLER/TRANSFEROR:
SELLER RECORDING DATE: DOCUMENT NO.
BUYER/TRANSFEREE:
ASSESSOR'S IDENTIFICATION NUMBER(S)
LA ------ Page Parcel
PROPERTY ADDRESS OR LOCATION:
No Street
City State Zip Code
MAIL TAX INFORMATION TO:
NAME:
ADDRESS:
Street No City State Zip Code
FOR ASSESSOR'S USE ONLY
Cluster
OC1
OC2
DT
INT
RC
SP$
DTT $
# Pcl.
A Preliminary Change in Ownership Report must be filed with each
conveyance in the County Recorder's office for the county where the
property is located; this particular form may be used in all 58 counties
of California
NOTICE: A lien for property taxes applies to your property on March 1
of each year for the taxes owing in the following fiscal year, July 1
through June 30. One-half of those taxes is due November 1 and one-half
is due February 1. The first installment becomes delinquent on December
10 and the second installment becomes delinquent on April 10. One tax
bill is mailed before November 1 to the owner of record. IF THIS
TRANSFER OCCURS AFTER MARCH 1 AND ON OR BEFORE DECEMBER 31, YOU MAY BE
RESPONSIBLE FOR THE SECOND INSTALLMENT OF TAXES ON FEBRUARY 1.
The property which you acquired may be subject to a supplemental tax
assessment in an amount to be determined by the Los Angeles County
Assessor. For further information on your supplemental roll obligation,
please call the Los Angeles County Assessor at (713) 974-3211
PART I: TRANSFER INFORMATIONPlease answer all questions.
YES NO
___ ___ A. Is this transfer solely between husband and wife
(Addition of a spouse, death of a spouse, divorce settlement, etc.)?
___ ___ B. Is this transaction only a correction of the name(s) of
the person(s) holding title to the property (For example, a name change
upon marriage)?
___ ___ C. Is this document recorded to create, terminate, or
reconvey a lender's interest in the property?
___ ___ D. Is this transaction recorded only to create, terminate,
or reconvey a security interest (e.g., cosigner)?
___ ___ E. Is this document recorded to substitute a trustee under
a deed of trust, mortgage, or other similar document?
___ ___ F. Did this transfer result in the creation of a joint
tenancy in which the seller (transferor) remains as one of the joint
tenants?
___ ___ G. Does this transfer return property to the person who
created the joint tenancy (original transferor)?
___ ___ H. Is this transfer of property:
1. to a trust for the benefit of the grantor, or
grantor's spouse?
2. to a trust revocable by the transferor?
3. to a trust from which the property reverts to the
grantor within 12 years?
___ ___ I. If this property is subject to a lease, is the remaining
lease term 35 years or more including written options?
___ ___ J. Is this a transfer from parents to children or from
children to parents?
___ ___ K. Is this transaction to replace a principal residence by
a person 55 years of age or older?
___ ___ L. Is this transaction to replace a principal residence by
a person who is severely disabled as defined by Revenue and Taxation
Code Section 69.5?
If you checked yes to J, K or L, an applicable claim form must be filed
with the County Assessor.
Please provide any other information that would help the Assessor to
understand the nature of the transfer.
IF YOU HAVE ANSWERED "YES" TO ANY OF THE ABOVE QUESTIONS EXCEPT J, K, OR
L, PLEASE SIGN AND DATE.
OTHERWISE COMPLETE BALANCE OF THE FORM
PART II: OTHER TRANSFER INFORMATION
A. Date of transfer if other than recording date.
B. Type of transfer. Please check appropriate box.
__ Purchase __ Foreclosure __ Gift
__ Trade or Exchange __Merger, Stock or Partnership Acquisition
__ Contract of Sale __ Date of Contract
__ Inheritance __ Date of Contract
__ Other: Please explain:
__ Creation of a lease: __ Assignment of a lease;
__ Termination of a lease
Date lease began
Original term in years (including written options)
Remaining term in years (including written options).
C. Was only a partial interest in the property transferred?
__ Yes __ No
If yes, indicate the percentage transferred
Please answer, to the best of your knowledge, all applicable questions,
sign and date. If a question does not apply, indicate with "N/A".
PART III: PURCHASE PRICE & TERMS OF SALE
A. CASH DOWN PAYMENT OR Value of Trade or Exchange (excluding closing
cost)
B. FIRST DEED OF TRUST at % interest for years.
Pymts./Mo. = $ (Prin. and Int. only)
__ FHA __ Fixed Rate __ New Loan
__ Conventional __ Variable Rate
__ Assumed Existing Loan Balance
__ VA __ All Inclusive D.T. ($ Wrapped)
__ Bank or Savings & Loan
__ Cal-Vet __ Loan Carried by Seller __ Finance Company
Balloon Payment __ Yes __ No
Due Date Amount $
C. SECOND DEED OF TRUST @ % interest for years.
Pymts./Mo. = $ (Prin. & Int. only)
__ Bank or Savings & Loan __ Fixed Rate __ New Loan
__ Loan Carried by Seller __ Variable Rate
__ Assumed Existing Loan Balance
__ Balloon Payment __ Yes __ No
Due Date Amount $
D. OTHER FINANCING: Is other financing involved not covered in (b) or
(c) above? __ Yes __ No
Type @ % interest for years.
Pymts./Mo. = $ (Prin. & Int. only)
__ Bank or Savings & Loan __ Fixed Rate __ New Loan
__ Loan Carried by Seller __ Variable Rate
__ Assumed Existing Loan Balance
__ Balloon Payment __ Yes __ No
Due Date Amount $
E. IMPROVEMENT BOND __ Yes __ No
Outstanding Balance
Amount $
Amount $
Amount $
Amount $
Amount $
F.TOTAL PURCHASE PRICE: (or acquisition price, if traded or exchanged,
include real estate commission if paid.)
Total items A through E
G.PROPERTY PURCHASED:__ Through a broker;__ Direct form seller;__ Other
(Explain)
If purchased through a broker, provide broker's name and phone no.:
Please explain any special terms or financing and many other
information that would help the Assessor understand the purchase price
and terms of sale.
PART IV: PROPERTY INFORMATION
A. IS PERSONAL PROPERTY INCLUDED IN THE PURCHASE PRICE
(other than a mobilehome subject to local property tax)?
__ Yes __ No
If yes, enter the value of the personal property included in the
purchase price $ (Attach itemized list of personal property)
B. IS THIS PROPERTY INTENDED AS YOUR PRINCIPAL RESIDENCE?
__ Yes __ No
If yes, enter date of occupancy / /, 19
or intended occupancy / , 19
Month Day
Month Day
C. TYPE OF PROPERTY TRANSFERRED:
__ Single-Family residence __ Agricultural
__ Timeshare __ Multiple-Family residence (no. of units: )
__ Coop/Own-your-own __ Mobilehome
__ Commercial/Industrial __ Condominium __ Unimproved lot
__ Other (Description: )
D. DOES THE PROPERTY PRODUCE INCOME? __ Yes __ No
E. IF THE ANSWER TO QUESTION D IS YES, IS THE INCOME FROM:
__ Lease/Rent __ Contract __ Mineral rights
__ Other - explain
F. WHAT WAS THE CONDITION OF THE PROPERTY AT THE TIME OF SALE?
__ Good __ Average __ Fair __ Poor
Enter here, or on an attached sheet, any other information that
would assist the Assessor in determining value of the property such as
the physical condition of the property, restrictions, etc.
I certify that the foregoing is true, correct and complete to the
best of my knowledge and belief.
Signed
Date
New Owner/Corporate Officer)
Please Print Name of New Owner/Corporate Officer
Phone No. where you are available from 8:00 a.m. - 5:00 p.m.
(Note: The Assessor may contact you for further information)
If a document evidencing a change of ownership is presented to the
recorder for recordation without the concurrent filing of a PRELIMINARY
CHANGE OF OWNERSHIP REPORT, the recorder may charge an additional
recording fee of twenty dollars ($20)
Exhibit D
BILL OF SALE, ASSIGNMENT OF CONTRACT
RIGHTS AND INTANGIBLE ASSETS
Reference is made to: (1) that certain Property Purchase Agreement
dated as of May 24, 1995, as amended by the Amendments thereto dated as
of June 30, 1995, July 31, 1995 and September 5, 1995 (the "Contract"),
between Chevron Land and Development Company, a Delaware corporation, as
seller, and BNP LEASING CORPORATION ("Assignor") as the buyer through an
assignment from the original buyer named therein, Genentech, Inc; (2)
that certain Amended and Restated Purchase Agreement between Assignor
and Genentech, Inc., dated as of December 8, 1995 (the "Purchase
Agreement"); and (3) that certain Amended and Restated Lease Agreement
between Assignor, as landlord, and Genentech, Inc., as tenant, dated as
of December 8, 1995 (the "Lease").
As contemplated by the Purchase Agreement, Assignor hereby sells,
transfers and assigns unto [GENENTECH OR THE APPLICABLE PURCHASER, AS
THE CASE MAY BE], a _____________ ("Assignee"), all of Assignor's
right, title and interest in and to the following property, if any, to
the extent such property is assignable:
(a) any warranties, guaranties, indemnities and claims Assignor
may have under the Contract or under any document delivered by the
seller thereunder to the extent related to the real property described
in Annex A attached hereto (the "Property"), including specifically,
without limitation, warranties, guaranties, indemnities and claims for
workmanship, materials and performance;
(b) any pending or future award made because of any condemnation
affecting the Property or because of any conveyance to be made in lieu
thereof, and any unpaid award for damage to the Property and any unpaid
proceeds of insurance or claim or cause of action for damage, loss or
injury to the Property; and
(c) all other property included within the definition of
"Property" as set forth in the Purchase Agreement, including but not
limited to any of the following transferred to Assignor by the seller
under the Contract, transferred to Assignor by the tenant pursuant to
subparagraph 9(ae) of the Lease or otherwise acquired by Assignor, at
the time of the closing under the Contract or thereafter, by reason of
Assignor's status as the owner of the Property: (1) any goods,
equipment, furnishings, furniture, chattels and tangible personal
property of whatever nature that are located on the Property and all
renewals or replacements of or substitutions for any of the foregoing;
(ii) the rights of Assignor, existing at the time of the closing under
the Contract or thereafter arising, under Permitted Encumbrances as
defined under the Lease (including the Development Contracts, as defined
in the Lease); and (iii) any other general intangibles, permits,
licenses, franchises, certificates, and other rights and privileges
related to the Property that Assignee would have acquired if Assignee
had itself acquired the Property as the purchaser under the Contract.
Provided, however, excluded from this conveyance and reserved to
Assignor are the any rights or privileges of Assignor under (1) the
Environmental Indemnity Agreement, as defined in the Purchase Agreement,
(2) the Lease, to the extent rights under the Lease relate to the period
ending on the date hereof, whether such rights are presently known or
unknown, including rights of the Assignor to be indemnified against
claims of third parties as provided in the Lease which may not presently
be known, and including rights to recover any accrued unpaid rent under
the Lease which may be outstanding as of the date hereof, but not
including any of the rights assigned to Assignor pursuant to
subparagraph 9(ae) of the Lease (3) agreements between Assignor and
"Landlord's Parent" or any "Participant," both as defined in the Lease,
or any modification or extension thereof, and (4) any other instrument
being delivered to Assignor contemporaneously herewith pursuant to the
Purchase Agreement.
Assignor does for itself and its heirs, executors and
administrators, covenant and agree to warrant and defend the title to
the property assigned herein against the just and lawful claims and
demands of any person claiming under or through Assignor, but not
otherwise; excluding, however, any claim or demand arising by, through
or under [GENENTECH].
Assignee hereby assumes and agrees to keep, perform and fulfill
Assignor's obligations, if any, relating to any permits or contracts,
under which Assignor has rights being assigned herein.
Executed: , 199__.
ASSIGNOR:
BNP LEASING CORPORATION
a Delaware corporation
By:
Its:
ASSIGNEE:
[GENENTECH, OR THE APPLICABLE PURCHASER], a _________ corporation
By:
Its:
Annex A
LEGAL DESCRIPTION
ALL THAT REAL PROPERTY SITUATED IN THE CITY OF VACAVILLE, COUNTY OF
SOLANO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL ONE:
PARCEL "4D", AS SHOWN ON THAT CERTAIN MAP ENTITLED: "PARCEL MAP, BEING A
RESUBDIVISION OF PARCEL 4, AS SHOWN IN BOOK 38 OF PARCEL MAPS, PAGE 35,
PARCELS 14-22, PORTIONS OF AKERLY DRIVE AND BARCAR DRIVE AS SHOWN IN
BOOK 39 OF MAPS, PAGE 74, AND PORTIONS OF LANDS DESCRIBED IN DEED
RECORDED MAY 13, 1982, PAGE 29409, AS INSTRUMENT NO. 17086 IN THE OFFICE
OF THE COUNTY RECORDER OF SOLANO COUNTY, STATE OF CALIFORNIA," FILED
JULY 31, 1995 IN THE OFFICE OF THE COUNTY RECORDER OF SOLANO COUNTY, IN
BOOK 39 OF PARCEL MAPS, PAGE 37.
EXCEPTING THEREFROM AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL
MINERALS, MINERAL DEPOSITS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES OF
EVERY KIND AND CHARACTER BELOW 500 FEET FROM THE SURFACE OF SAID LAND,
BUT WITHOUT, HOWEVER, THE RIGHT OF SURFACE ENTRY, AS EXCEPTED AND
RESERVED IN DEED FROM MARGARET JOSEPHINE SHELLHAMMER TO GERTRUDE M.
EAMES, DATED JUNE 8, 1956, RECORDED JUNE 12, 1956 IN BOOK 833 OF
OFFICIAL RECORDS, PAGE 480 AND IN DEED FROM MARGARET JOSEPHINE
SHELLHAMMER TO BARBARA C. SANTOS DATED DECEMBER 28, 1962, RECORDED
JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS, PAGE 520, AND IN DEED
FROM MARGARET JOSEPHINE SHELLHAMMER TO ROBERTA SANTOS, DATED DECEMBER
28, 1962, RECORDED JANUARY 4, 1963 IN BOOK 1178 OF OFFICIAL RECORDS,
PAGE 529, SOLANO COUNTY RECORDS.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL OIL, GAS AND
OTHER HYDROCARBONS; NON-HYDROCARBON GASSES OR GASEOUS SUBSTANCES; ALL
OTHER MINERALS OF WHATSOEVER NATURE, WITHOUT REGARD TO SIMILARITY TO THE
ABOVE-MENTIONED SUBSTANCES; AND ALL SUBSTANCES THAT MAY BE PRODUCED
THEREWITH FROM SAID REAL PROPERTY AS RESERVED IN THE DEED FROM CHEVRON
U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987 PAGE
42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALSO EXCEPTING AN UNDIVIDED ONE-HALF (1/2) INTEREST IN ALL GEOTHERMAL
RESOURCES, EMBRACING: INDIGENOUS STEAM, HOT WATER AND HOT BRINES; STEAM
AND OTHER GASSES, HOT WATER AND HOT BRINES RESULTING FROM WATER, GAS OR
OTHER FLUIDS ARTIFICIALLY INTRODUCED INTO SUBSURFACE FORMATIONS; HEAT OR
OTHER ASSOCIATED ENERGY FOUND BENEATH THE SURFACE OF THE EARTH; AND
BYPRODUCTS OF ANY OF THE FOREGOING SUCH AS MINERALS (EXCLUSIVE OF OIL OR
HYDROCARBON GAS THAT CAN BE SEPARATELY PRODUCED) WHICH ARE FOUND IN
SOLUTION OR ASSOCIATION WITH OR DERIVED FROM ANY OF THE FOREGOING, AS
RESERVED IN THE DEED FROM CHEVRON U.S.A. INC., A CORPORATION, RECORDED
APRIL 1, 1987 IN BOOK 1987 PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO.
21698.
ALSO THE SOLE AND EXCLUSIVE RIGHT FROM TIME TO TIME TO BORE OR DRILL AND
MAINTAIN WELLS AND OTHER WORKS INTO AND THROUGH SAID REAL PROPERTY AND
ADJOINING STREETS, ROADS AND HIGHWAYS BELOW A DEPTH OF FIVE HUNDRED
(500') FEET FROM THE SURFACE THEREOF FOR THE PURPOSE OF EXPLORING FOR
AND PRODUCING ENERGY RESOURCES; THE RIGHT TO PRODUCE, INJECT, STORE AND
REMOVE FROM AND THROUGH SAID BORES, WELLS OR WORKS, OIL, GAS, WATER AND
OTHER SUBSTANCES OF WHATEVER NATURE, INCLUDING THE RIGHT TO PERFORM
BELOW SAID DEPTH ANY AND ALL OPERATIONS DEEMED BY GRANTOR NECESSARY OR
CONVENIENT FOR THE EXERCISE OF SUCH RIGHTS, AS RESERVED IN THE DEED FROM
CHEVRON U.S.A. INC., A CORPORATION, RECORDED APRIL 1, 1987 IN BOOK 1987
PAGE 42125 OFFICIAL RECORDS AS INSTRUMENT NO. 21698.
ALL RIGHTS EXCEPTED AND RESERVED TO CHEVRON DO NOT INCLUDE AND DO NOT
EXCEPT OR RESERVE TO CHEVRON ANY RIGHT OF CHEVRON TO USE THE SURFACE OF
SAID PROPERTY OR THE FIRST FIVE HUNDRED (500') FEET BELOW SAID SURFACE
OR TO CONDUCT ANY OPERATIONS THEREON OR THEREIN.
APN: PORTION 133-080-290
PORTION 133-120-300
133-190-030 THRU 100
133-190-130
PARCEL TWO:
THOSE CERTAIN EASEMENTS GRANTED IN ARTICLE 8 OF THE DECLARATION OF
COVENANTS, CONDITIONS AND RESTRICTIONS FOR VACA VALLEY BUSINESS PARK,
DATED NOVEMBER 10, 1993, EXECUTED BY CHEVRON LAND AND DEVELOPMENT
COMPANY, A DELAWARE CORPORATION, RECORDED NOVEMBER 12, 1993 AS
INSTRUMENT NO. 1993-00107441 IN THE SOLANO COUNTY RECORDS, AS AMENDED BY
A FIRST AMENDMENT THERETO, RECORDED NOVEMBER 12, 1993 AS INSTRUMENT NO.
1993-00107445 IN THE SOLANO COUNTY RECORDS, AS FURTHER AMENDED BY A
SECOND AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056033 IN THE SOLANO COUNTY RECORDS AND AS FURTHER AMENDED BY A
THIRD AMENDMENT THERETO, RECORDED SEPTEMBER 13, 1995 AS INSTRUMENT NO.
1995-00056034 IN THE SOLANO COUNTY RECORDS
Exhibit E
ACKNOWLEDGMENT OF DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
THIS ACKNOWLEDGMENT OF DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
(this "Certificate") is made as of ___________________, 199___, by
[Genentech or the Applicable Purchaser, as the case may be], a
___________________ ("Grantee").
Contemporaneously with the execution of this Certificate, BNP
Leasing Corporation, a Delaware corporation ("BNP"), is executing and
delivering to Grantee (1) a Corporation Grant Deed and (2) a Bill of
Sale, Assignment of Contract Rights and Intangible Assets (the foregoing
documents and any other documents to be executed in connection therewith
are herein called the "Conveyancing Documents" and any of the
properties, rights or other matters assigned, transferred or conveyed
pursuant thereto are herein collectively called the "Subject Property").
Notwithstanding any provision contained in the Conveyancing
Documents to the contrary, Grantee acknowledges that BNP makes no
representations or warranties of any nature or kind, whether statutory,
express or implied, with respect to environmental matters or the
physical condition of the Subject Property, and Grantee, by acceptance
of the Conveyancing Documents, accepts the Subject Property "AS IS,"
"WHERE IS," "WITH ALL FAULTS" and without any such representation or
warranty by Grantor as to environmental matters, the physical condition
of the Subject Property, compliance with subdivision or platting
requirements or construction of any improvements. Without limiting the
generality of the foregoing, Grantee hereby further acknowledges and
agrees that warranties of merchantability and fitness for a particular
purpose are excluded from the transaction contemplated by the
Conveyancing Documents, as are any warranties arising from a course of
dealing or usage of trade. Grantee hereby assumes all risk and
liability (and agrees that BNP shall not be liable for any special,
direct, indirect, consequential, or other damages) resulting or arising
from or relating to the ownership, use, condition, location,
maintenance, repair, or operation of the Subject Property, except for
damages proximately caused by (and attributed by any applicable
principles of comparative fault to) the wilful misconduct, Active
Negligence or gross negligence of BNP, its agents or employees. As used
in the preceding sentence, "Active Negligence" of a party means, and is
limited to, the negligent conduct of activities actually on or about the
Property by that party in a manner that proximately causes actual bodily
injury or property damage to be incurred. "Active negligence" shall not
include (1) any negligent failure of BNP to act when the duty to act
would not have been imposed but for BNP's status as owner of the Subject
Property or as a party to the transactions pursuant to which BNP is
delivering this instrument (the "Applicable Transactions"), (2) any
negligent failure of any other party to act when the duty to act would
not have been imposed but for such party's contractual or other
relationship to BNP or participation or facilitation in any manner,
directly or indirectly, of the Applicable Transactions, or (3) the
exercise in a lawful manner by BNP (or any party lawfully claiming
through or under BNP) of any remedy provided in connection with the
Applicable Transactions.
The provisions of this Certificate shall be binding on Grantee, its
successors and assigns and any other party claiming through Grantee.
Grantee hereby acknowledges that BNP is entitled to rely and is relying
on this Certificate.
EXECUTED as of ________________, 199___.
By:
Name:
Title:
Exhibit F
DOCUMENTARY TRANSFER TAX REQUEST
ACCOUNTABLE FORM #
DATE:
To: Solano County Recorder
Subject: REQUEST THAT DOCUMENTARY TRANSFER TAX DECLARATION BE MADE IN
ACCORDANCE WITH REVENUE CODE 11932.
Re: Instrument Title: Corporation Grant Deed
Name of Party Conveying Title: BNP Leasing Corporation
The Documentary Transfer Tax is declared to be in the amount of
$_______________ for the referenced instrument and is:
___ Computed on full value of property conveyed.
___ Computed on full value less liens/encumbrances remaining
thereon at time of sale.
This separate declaration is made in accordance with
_________________________________. It is requested that the amount paid
be indicated on the face of the document after the permanent copy has
been made.
Sincerely,
Individual (or his agent) who made,
signed or issued instrument
PART I
RECORDING REFERENCE DATA:
Serial # Date Recorded
SEPARATE PAPER AFFIXED TO INSTRUMENT:
"Tax paid" indicated on the face of instrument and the separate
request (DRA 3-A) was affixed for Recorder by:
Date
Documentary Transfer Tax Collector
Witnessed by: Date
Mail Clerk
(Note: Prepare photo for Recorder file.)
PART II
ACCOUNTABLE FORM #
REFERENCE DATA: Title:
Serial: Date:
INSTRUCTIONS:
1. This slip must accompany document.
2. Mail Clerk hand carry document to Tax Collector to indicate
the amount of tax paid
Exhibit G
SECRETARY'S CERTIFICATE
The undersigned, Secretary of BNP Leasing
Corporation, a Delaware corporation (the "Corporation"), hereby
certifies as follows:
1. That he is the duly, elected, qualified and acting Secretary
[or Assistant Secretary] of the Corporation and has custody of the
corporate records, minutes and corporate seal.
2. That the following named persons have been properly designated,
elected and assigned to the office in the Corporation as indicated
below; that such persons hold such office at this time and that the
specimen signature appearing beside the name of such officer is his or
her true and correct signature.
[The following blanks must be completed with the names and signatures of
the officers who will be signing the deed and other Required Documents
on behalf of the Corporation.]
Name Title Signature
________________ ______________________ _________________________
________________ ______________________ _________________________
3. That the resolutions attached hereto and made a part hereof
were duly adopted by the Board of Directors of the Corporation in
accordance with the Corporation's Articles of Incorporation and Bylaws,
as evidenced by the signatures of all directors of the Corporation
affixed thereto. Such resolutions have not been amended, modified or
rescinded and remain in full force and effect.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the
seal of the Corporation on this , day of , 199 .
[signature]
CORPORATE RESOLUTIONS OF
BNP LEASING CORPORATION
WHEREAS, pursuant to that certain Amended and Restated Purchase
Agreement (herein called the "Purchase Agreement") dated as of December
8, 1995, by and between BNP Leasing Corporation (the "Corporation") and
[GENENTECH OR THE APPLICABLE PURCHASER AS THE CASE MAY BE]
("Purchaser"), the Corporation agreed to sell and Purchaser agreed to
purchase or cause the Applicable Purchaser (as defined in the Purchase
Agreement) to purchase the Corporation's interest in the property (the
"Property") located in __________, California more particularly
described therein.
NOW THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation, in its best business judgment, deems it in the best
interest of the Corporation and its shareholders that the Corporation
convey the Property to Purchaser or the Applicable Purchaser pursuant to
and in accordance with the terms of the Purchase Agreement.
RESOLVED FURTHER, that the proper officers of the Corporation, and
each of them, are hereby authorized and directed in the name and on
behalf of the Corporation to cause the Corporation to fulfill its
obligations under the Purchase Agreement.
RESOLVED FURTHER, that the proper officers of the Corporation, and
each of them, are hereby authorized and directed to take or cause to be
taken any and all actions and to prepare or cause to be prepared and to
execute and deliver any and all deeds and other documents, instruments
and agreements that shall be necessary, advisable or appropriate, in
such officer's sole and absolute discretion, to carry out the intent and
to accomplish the purposes of the foregoing resolutions.
IN WITNESS WHEREOF, we, being all the directors of the Corporation,
have hereunto signed our names as of the dates indicated by our
signatures.
[signature and date]
[signature and date]
[signature and date]
Exhibit H
BNP LEASING CORPORATION
717 N. HARWOOD
SUITE 2630
DALLAS, TEXAS 75201
, 199
[Title Insurance Company]
_________________
_________________
_________________
Re: Recording of Grant Deed to [Genentech or the Applicable
Purchaser] ("Purchaser")
Ladies and Gentlemen:
BNP Leasing Corporation has executed and delivered to Purchaser a
Grant Deed in the form attached to this letter. You are hereby
authorized and directed to record the Grant Deed at the request of
Purchaser.
Sincerely,
Exhibit I
FIRPTA STATEMENT
Section 1445 of the Internal Revenue Code of 1986, as amended,
provides that a transferee of a U.S. real property interest must
withhold tax if the transferor is a foreign person. Sections 18805,
18815 and 26131 of the California Revenue and Taxation Code, as amended,
provide that a transferee of a California real property interest must
withhold income tax if the transferor is a nonresident seller.
To inform [____________________ or the Applicable Purchaser, as the
case may be] (the "Transferee") that withholding of tax is not required
upon the disposition of a California real property interest by
transferor, BNP Leasing Corporation (the "Seller"), the undersigned
hereby certifies the following on behalf of the Seller:
1. The Seller is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The United States employer identification number for the Seller
is _____________________;
3. The office address of the Seller is ______________
__________________________________________.
[Note: BNP MUST INCLUDE EITHER ONE, BUT ONLY ONE, OF THE FOLLOWING
REPRESENTATIONS IN THE FIRPTA STATEMENT, BUT IF THE ONE INCLUDED STATES
THAT BNP IS DEEMED EXEMPT FROM CALIFORNIA INCOME AND FRANCHISE TAX, THEN
BNP MUST ALSO ATTACH A WITHHOLDING CERTIFICATE FROM THE CALIFORNIA
FRANCHISE TAX BOARD EVIDENCING THE SAME:
4. The Seller is qualified to do business in California.
OR
4. The Seller is deemed to be exempt from the withholding
requirement of California Revenue and Taxation Code Section 26131(e), as
evidenced by the withholding certificate from the California Franchise
Tax Board which is attached.]
The Seller understands that this certification may be disclosed to
the Internal Revenue Service and/or to the California Franchise Tax
Board by the Transferee and that any false statement contained herein
could be punished by fine, imprisonment, or both.
The Seller understands that the Transferee is relying on this
affidavit in determining whether withholding is required upon said
transfer. The Seller hereby agrees to indemnify and hold the Transferee
harmless from and against any and all obligations, liabilities, claims,
losses, actions, causes of action, demands, rights, damages, costs, and
expenses (including but not limited to court costs and attorneys' fees)
incurred by the Transferee as a result of any false misleading statement
contained herein.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true,
correct and complete, and I further declare that I have authority to
sign this document on behalf of the Seller.
Dated: ___________, 199___.
By:
Name:
Title:
1996 STOCK OPTION/STOCK INCENTIVE PLAN
(as approved by the Board of Directors on February 8, 1996)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSES OF THE PLAN
A. This 1996 Stock Option/Stock Incentive Plan (the "Plan") is intended to
promote the interests of Genentech, Inc., a Delaware corporation (the
"Company"), by providing a method whereby the Company may retain the services
of persons now employed by or serving as consultants or directors to it, secure
and retain the services of persons capable of filling such positions and
provide incentives for such persons to exert maximum efforts for the success of
the Company or its parent or subsidiary corporations.
B. For purposes of the Plan, the following definitions shall be in effect:
CHANGE IN CONTROL: "Change in Control" shall have the meaning set
forth in Article Two, III.C. hereof.
CHANGE IN CONTROL PRICE: "Change in Control Price" shall have the
meaning set forth in Article Two, II.C.4.b. hereof.
CLOSING SELLING PRICE: The Closing Selling Price per share of Special
Common Stock on any relevant date under the Plan shall be the closing selling
price per share of Special Common Stock, if such Special Common Stock is
reported on a national securities exchange or reported on the NASDAQ National
Market System (or any successor system), for the trading day immediately
preceding the date in question, as such price is published in the Wall Street
Journal (or if such publication is not available, a comparable publication
selected by the Committee).
CONSULTANT: An individual shall be considered to be a Consultant for
so long as such individual continues to render personal services to the Company
or one or more of its Parent or Subsidiaries as an independent contractor or
continues to have an effective and unexpired consulting agreement with the
Company.
CORPORATE TRANSACTION: "Corporate Transaction" shall have the meaning
set forth in Article Two, III.A. hereof.
EMPLOYEE: An individual shall be considered to be an Employee for so
long as such individual remains in the employ of the Company or one or more of
its Parent or Subsidiaries, irrespective of whether employment services are
actually provided by the individual.
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PARENT: A corporation shall be deemed to be a parent of the Company
if it is a corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each such corporation in the
unbroken chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
SECTION 16(b) INSIDER: An individual shall be considered to be a
Section 16(b) Insider on any relevant date under the Plan if such individual
(A) is at the time an officer or director of the Company subject to the short-
swing profit restrictions of the regulations promulgated under Section 16 of
the Securities Exchange Act of 1934, as amended (the "1934 Act") or (B) unless
Section 16 or regulations promulgated thereunder, are amended to provide
otherwise, was such an officer or director at any time during the six month
period immediately preceding the date in question and made any purchase or sale
of Special Common Stock during such six-month period.
SERVICE: An individual shall be deemed to be in the Service of the
Company for so long as such individual renders service on a periodic basis to
the Company or one or more of its Parent or Subsidiaries as an Employee or
Consultant.
SPECIAL COMMON STOCK: The Special Common Stock issuable under the
Plan shall be shares of the Company's Callable Putable Common Stock, par value
$0.02 per share. All references to "shares" or "stock", shall be deemed to be
references to shares of the Special Common Stock.
SUBSIDIARY: A corporation shall be deemed to be a subsidiary of the
Company if it is one of the corporations (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided each such
corporation (other than the last corporation in the unbroken chain) owns, at
the time of determination, stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain. For purposes of non-statutory option grants under Article Two
and stock incentive grants under Article Four and all Corporate Transaction
provisions of the Plan, the term "subsidiary" shall also include any
partnership, joint venture or other business entity of which the Company owns,
directly or indirectly through another subsidiary corporation, more than a
fifty percent (50%) interest in voting power, capital or profits.
C. Neither stock option grants nor stock bonus issuances made to any individual
under the Plan shall in any way affect, limit or restrict such individual's
eligibility to participate in any other stock plan or other compensation or
benefit plan, arrangement or practice now or hereafter maintained by the
Company or any Parent or Subsidiary.
Except for the grant of options to be made pursuant to the Automatic
Grant Program set forth in Article Three below and Section I of Article Three
of the Company's 1994 Stock Option Plan, as amended (the "1994 Plan"), non-
Employee Board members shall not be eligible to receive any option grants or
stock issuances under this Plan or any other stock plan of the Company or any
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Parent or Subsidiary. The terms of Section I of Article Three of the 1994 Plan
providing for automatic option grants to non-employee members of the Board
shall terminate on April 30, 1996.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Compensation Committee (the
"Committee"). The Committee shall be comprised of not less than two (2) Board
members ("Disinterested Directors") who: (i) were not during the one year prior
to serving on the Committee granted or awarded equity securities under this
Plan or any other stock option, stock appreciation, stock bonus or other stock
plan of the Company or its Parent or Subsidiaries, except as permitted by Rule
16b-3(c)(2)(i) promulgated under the 1934 Act ("Rule 16b-3(c)(2)(i)") or (ii)
are otherwise considered to be "disinterested directors" within Rule
16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations
of the Securities and Exchange Commission (the "SEC"). The Board may from time
to time appoint members to the Committee in substitution for (or in addition
to) members previously appointed, and the Board shall have the authority to
fill any and all vacancies on the Committee, however caused. The requirement
that the Committee be composed of Disinterested Directors shall not apply
during any period in which the Company does not have an equity security
registered under Section 12 of the 1934 Act.
B. Subject to limitations contained elsewhere herein and to the provisions of
Section V., C. and D. of this Article I relating to adjustments upon changes in
stock, the aggregate number of shares of stock that may be subject to options
and stock appreciation rights granted hereunder to any Employee in a calendar
year shall not exceed two hundred fifty thousand (250,000) shares of the
Company's Special Common Stock.
C. Subject to the express provisions of the Plan, the Committee shall have
plenary authority:
(i) to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, and to make all other determinations deemed
necessary or advisable in administering the Plan; and
(ii) to change the terms and conditions of any outstanding
discretionary option grant or unvested stock issuance, provided such action
does not, without the consent of the holder, adversely affect the rights and
obligations such individual may have under the Plan or the outstanding grant or
stock issuance.
D. Determinations of the Committee on all matters relating to the Plan and any
discretionary option grants or stock issuances made hereunder shall be final,
binding and conclusive on all persons having any interest in the Plan or any
options granted or shares issued under the Plan.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate components: the Regular Option
Grant Program specified in Article Two, the Automatic Grant Program specified
in Article Three and the Stock
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Incentive Program specified in Article Four. Under the Regular Option Grant
Program, eligible Employees and Consultants may be granted options to purchase
shares of Special Common Stock at an exercise price equal to not less than 50%
of the Closing Selling Price per share on the grant date. Under the Automatic
Grant Program, non-Employee Board members shall automatically be granted
options to purchase shares of Special Common Stock on the dates and in the
amounts specified in Article Three below at an exercise price of 100% of the
Closing Selling Price per share of Special Common Stock on the date of grant.
B. Under the Stock Incentive Program, eligible Employees and Consultants may be
awarded shares of Special Common Stock as a reward for past services or as an
incentive to the performance of future services. Such shares may be issued as
fully-vested shares or as shares vesting over time.
C. The provisions of Articles One, Five and Six of the Plan shall apply to the
Regular Option Grant Program, the Automatic Option Grant Program and the Stock
Incentive Program and shall accordingly govern the interests of all individuals
in the Plan.
IV. ELIGIBILITY FOR OPTION GRANTS AND STOCK ISSUANCES
A. The individuals eligible to receive option grants ("Optionees") and/or stock
incentives ("Recipients") pursuant to the Plan shall be limited to (i) those
Employees and Consultants selected by the Committee and (ii) those non-Employee
Board members who are entitled to option grants pursuant to the Automatic
Option Grant Program of Article Three.
V. STOCK SUBJECT TO THE PLAN
A. The Special Common Stock issuable under the Plan shall be made available
either from authorized but unissued shares of Special Common Stock or from
shares of Special Common Stock reacquired by the Company on the open market.
The aggregate number of shares of Special Common Stock issuable over the term
of this Plan, whether through exercised options or direct stock issuances shall
not exceed 9,000,000 shares (subject to adjustment from time to time in
accordance with paragraphs C. and D. below).
B. Should an option granted under this Plan expire or terminate for any reason
prior to exercise or surrender in full (including options canceled in
accordance with the cancellation-regrant provisions of the Regular Option Grant
Program), the shares subject to the portion of the option not so exercised or
surrendered shall be available for subsequent option grants under this Plan.
Shares subject to stock appreciation rights exercised in accordance with the
Stock Appreciation Right provisions of Article Two and shares repurchased by
the Company pursuant to its repurchase rights under the Plan shall not be
available for subsequent issuance, whether through option grants, stock
appreciation rights or direct issuances, under this Plan.
C. In the event any change is made to the Special Common Stock issuable under
the Plan by reason of any stock dividend, stock split, combination of shares,
exchange of shares or other change
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affecting the outstanding Special Common Stock as a class without receipt of
consideration, then appropriate adjustments shall be made by the Committee to
(i) the aggregate number and/or class of shares issuable under this Plan, the
maximum number and/or class of shares purchasable per Employee pursuant to the
applicable limitation of Section II.B of this Article One and the number and/or
class of shares for which the automatic option grants are to be made pursuant
to the provisions of Article Three, to reflect the effect of such change upon
the Company's capital structure, (ii) the number and/or class of shares and the
exercise price per share of the stock subject to each outstanding option in
order to preclude the dilution or enlargement of benefits thereunder and (iii)
the number and/or class of shares and the exercise price per share in effect
under each outstanding stock appreciation right in order to preclude the
dilution or enlargement of benefits thereunder. All adjustments made by the
Committee pursuant to this paragraph C. shall be final, binding and conclusive.
D. Subject to the special priority provisions of Article Six of the Plan, in
the event that (i) the Company is the surviving entity in any Corporate
Transaction that does not result in the termination of outstanding options
pursuant to the Corporate Transaction provisions of the Plan or (ii) the
outstanding options under the Plan are to be assumed in connection with such
Corporate Transaction, then each such continuing or assumed option shall,
immediately after such Corporate Transaction, be appropriately adjusted to
apply and pertain to the number and class of securities which would be
issuable, in consummation of such Corporate Transaction, to an actual holder of
the same number of shares of Special Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the exercise price payable per share subject to each option,
provided that the aggregate exercise price of such option shall remain the
same. In addition, the aggregate number and/or class of shares issuable under
this Plan shall be appropriately adjusted to reflect the effect of such
Corporate Transaction upon the Company's capital structure.
ARTICLE TWO
REGULAR OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
A. The Committee shall have plenary authority (subject to the express
provisions of the Plan) to determine which Employees and Consultants are to be
granted options under this Regular Option Grant Program, the number of shares
to be covered by each such option, the status of the granted option as either
an incentive stock option ("Incentive Option") which meets the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code"), or a non-statutory option not intended to meet such requirements,
the time or times at which such option is to become exercisable, the time or
times at which such option (or the Shares subject to such option) becomes
vested (referred to herein as the "vesting schedule") and the term for which
the option is to remain outstanding, up to a maximum term of ten (10) years.
B. The granted options shall be evidenced by instruments in such form as the
Committee shall from time to time approve; provided, however, that each such
instrument shall comply with and
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incorporate the terms and conditions specified below, except as such terms and
conditions must be modified for Incentive Options as set forth below in Section
IV of this Article Two.
1. Exercise Price.
a. The exercise price per share shall be fixed by the Committee, but
in no event shall the exercise price per share be less than fifty percent (50%)
of the Closing Selling Price per share of Special Common Stock on the date of
the option grant.
b. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the loan provisions of this Article Two, be
payable in one of the alternative forms specified below:
(A) full payment in cash or check made payable to the ]
Company's order; or
(B) full payment in shares of Special Common Stock held by
the Optionee for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at the Closing Selling Price on the
Exercise Date (as such term is defined below); or
(C) full payment in a combination of shares of Special
Common Stock held by the Optionee for the requisite period necessary to avoid a
charge to the Company's reported earnings and valued at the Closing Selling
Price on the Exercise Date and cash or check.
c. For purposes of subparagraph b. above, the Exercise Date shall be
the first date on which there is delivered to the Company both (i) written
notice of the exercise of the option and (ii) payment of the exercise price for
the purchased shares.
2. Term and Exercise of Options.
a. Each option granted under this Regular Option Grant Program shall
be exercisable in one or more installments over the Optionee's period of
Service as shall be determined by the Committee and set forth in the instrument
evidencing such option; provided, however, that unless no longer required by
SEC Rule 16b-3 issued under Section 16b-3 of the 1934 Act, no such option
granted to a Section 16(b) Insider shall become exercisable in whole or in part
within the first six (6) months after the grant date, except in the event of
the Optionee's death or disability.
b. Except for options granted to Section 16(b) Insiders, an option
may be exercisable by the Optionee or, in the event the Optionee is permanently
disabled (as such term is defined in Section 22(e) of the Code), by his or her
spouse, and such option may be transferred by the Optionee to a trust for such
Optionee's benefit or the benefit of an immediate family member or by will or
the laws of descent or distribution. An option granted to a Section 16(b)
Insider shall, during the lifetime of such Optionee, be exercisable only by
that Optionee and shall not be assignable or transferable by the Optionee
otherwise than by will or by the laws of descent and distribution.
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c. The Committee may, at its discretion, accelerate the vesting
schedule of any outstanding option at any time.
3. Termination of Service.
a. Should an Optionee cease to continue in Service for any reason
(other than termination due to death, permanent disability or retirement from
employment by the Company after reaching age sixty-five (65)) while the holder
of one or more outstanding options under this Regular Option Grant Program,
then such options shall not be exercisable at any time after the earlier of (i)
the specified expiration date of the option term or (ii) the expiration of
three (3) months after the Optionee's cessation of Service. Each such option
shall, during the applicable period following cessation of Service, be
exercisable only to the extent of the number of shares (if any) in which the
Optionee is vested on the date of such cessation of Service; provided, however,
that the Committee shall have the discretion to specify, either at the time the
option is granted or at the time that the Optionee ceases Service, that vesting
of such option may be extended for a period not to exceed three (3) years from
the date of cessation of Service and that the applicable expiration period set
forth in clause (ii) may be increased to a period of up to five (5) years.
b. Should an Optionee cease to continue in Service due to permanent
disability while the holder of one or more outstanding options under this
Regular Option Grant Program, then such options shall not be exercisable at any
time after the earlier of (i) the specified expiration date of the option term
or (ii) the expiration of three (3) months after the Optionee's cessation of
Service. Each such option shall, during the applicable period following
cessation of Service, be exercisable only to the extent of the number of shares
(if any) in which the Optionee is vested on the date of such cessation of
Service; provided, however, that the Committee shall have the discretion to
specify, either at the time the option is granted or at the time that the
Optionee ceases Service, that the vesting of such option may be accelerated or
extended from the date of cessation of Service and that the period of
exercisability can be increased up to the expiration date of the option term.
Should an Optionee cease to continue in Service due to death, or retirement
from employment by the Company after reaching age sixty-five (65), while the
holder of one or more outstanding options under this Regular Option Grant
Program, then all unvested options on such date shall automatically become
vested and the expiration date of the option shall automatically be extended to
the expiration date of the option term.
c. Any option granted to an Optionee under this Regular Option Grant
Program and outstanding in whole or in part on the date of the Optionee's death
may be subsequently exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution in the case of the Optionee's death, and any option granted to an
Optionee under this Regular Option Grant Program which is outstanding in whole
or in part on the date of the Optionee's cessation of Service due to permanent
disability may be exercised by the Optionee's spouse or designee. Any such
exercise must be inaccordance with subparagraph b.
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d. The Committee shall have complete discretion, exercisable either
at the time the option is granted or at the time the Optionee ceases Service,
to establish as a provision applicable to the exercise of one or more options
granted under this Regular Option Grant Program that during the limited period
of exercisability following cessation of Service due to retirement, "plant
closing" or "mass layoff" (as such terms are defined at 29 U.S.C. Section 2101)
that is subject to the notice requirements of 29 U.S.C. Section 2102, the
option will continue to vest according to the vesting schedule that would have
applied had the optionee continued in Service.
4. Repurchase Rights.
a. Options may provide that notwithstanding any vesting schedule
pursuant to subparagraph 2. a. above, they may be exercised prior to such
vesting schedule so long as the Optionee enters into a repurchase agreement
satisfactory to the Company. The shares of Special Common Stock acquired upon
the exercise of one or more options granted under this Regular Option Grant
Program may be subject to repurchase by the Company, at the exercise price paid
per share, upon the Optionee's cessation of Service prior to vesting in such
shares.
b. Any such repurchase right shall be exercisable by the Company
upon such terms and conditions (including the establishment of the appropriate
vesting schedule and other provision for the expiration of such right in one or
more installments over the optionee's period of Service) as the Committee may
specify in the instrument evidencing such right, which instrument shall include
appropriate terms with respect to the legending of stock certificates and the
placing of unvested shares into escrow.
c. All of the Company's outstanding repurchase rights shall
automatically terminate, and all shares purchased under this Regular Option
Grant Program shall immediately vest in full, upon the occurrence of any
Corporate Transaction or Change in Control; provided, however, that no such
termination of repurchase rights or immediate vesting of the purchased shares
shall occur if (and to the extent that): (i) the Company's outstanding
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction or (ii) such termination
of repurchase rights and acceleration of vesting are precluded by other
limitations imposed by the Committee either at the time the option is granted
or at the time the option shares are purchased.
5. Stockholder Rights.
An option holder shall have none of the rights of a stockholder with respect to
any shares covered by the option until such individual shall have exercised the
option, paid the option price and satisfied all other conditions precedent to
the issuance of certificates for the purchased shares.
II. STOCK APPRECIATION RIGHTS
A. The Committee shall have full power and authority, exercisable in its sole
discretion, to grant stock appreciation rights to one or more Employees or
Consultants eligible for option grants under this
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Regular Option Grant Program. Each such right shall entitle the holder to a
distribution based on the appreciation in the value per share of a designated
amount of Special Common Stock.
B. Three types of stock appreciation rights shall be authorized for issuance
under the Plan:
1. Tandem Stock Appreciation Rights. These rights require the holder
to elect between the exercise of the underlying option for shares of Special
Common Stock and the surrender of such option for an appreciation distribution
equal to the excess of (i) the Closing Selling Price (on the date of option
surrender) of the vested shares of Special Common Stock purchasable under the
surrendered option over (ii) the aggregate option price payable for such
shares.
2. Concurrent Stock Appreciation Rights. Concurrent rights may apply
to all or any portion of the shares of Special Common Stock subject to the
underlying option and will be exercised automatically at the same time the
option is exercised for those shares. The appreciation distribution to which
the holder of such concurrent right shall be entitled upon exercise of the
underlying option shall be in an amount equal to the excess of (i) the
aggregate Closing Selling Price (at date of exercise) of the vested shares
purchased under the underlying option with such concurrent rights over (ii) the
aggregate option price paid for those shares.
3. Limited Stock Appreciation Rights. These rights will entitle the
holder to surrender outstanding options in connection with certain Changes in
Control (as defined below) for an appreciation distribution equal in amount to
the excess of (i) the Change in Control Price (as defined below) of the number
of shares in which the Optionee is at the time vested under the surrendered
option over (ii) the aggregate option price payable for such vested shares.
C. The terms and conditions applicable to each Tandem Stock Appreciation Right
("Tandem Right"), Concurrent Stock Appreciation Right ("Concurrent Right") and
Limited Stock Appreciation Right ("Limited Right") shall be as follows:
1. Tandem Rights.
a. Tandem Rights may be tied to either Incentive Options or
non-statutory options. Each such right shall, except as specifically set forth
below, be subject to the same terms and conditions applicable to the particular
stock option grant to which it pertains.
b. The Appreciation Distribution payable on the exercised Tandem
Right shall be in an amount equal to the excess of (i) the Closing Selling
Price (on the date of the option surrender) of the number of shares of Special
Common Stock in which the Optionee is vested under the surrendered option over
(ii) the aggregate option price payable for such vested shares.
c. The Appreciation Distribution may, in the Committee's discretion,
be made in cash, in shares of Special Common Stock or in a combination of cash
and Special Common Stock. Any shares of Special Common Stock so distributed
shall be valued at the Closing Selling Price on the date the
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option is surrendered, and the shares of Special Common Stock subject to the
surrendered option shall not be available for subsequent issuance under this
Plan.
2. Concurrent Rights.
a. Concurrent Rights may be tied to any or all of the shares of
Special Common Stock subject to any Incentive Option or non-statutory option
grant made under this Regular Option Grant Program. The Concurrent Right shall,
except as specifically set forth below, be subject to the same terms and
conditions applicable to the particular stock option grant to which it
pertains.
b. The Concurrent Right shall be automatically exercised at the same
time the underlying option is exercised for the particular shares of Special
Common Stock to which the Concurrent Right pertains.
c. The Appreciation Distribution payable on the exercised Concurrent
Right shall be equal to the excess of (i) the aggregate Closing Selling Price
(on the Exercise Date) of the vested shares of Special Common Stock purchased
under the underlying option which have Concurrent Rights appurtenant to them
over (ii) the aggregate option price paid for such shares.
d. The Appreciation Distribution may, in the Committee's discretion,
be paid in cash, in shares of Special Common Stock or in a combination of cash
and Special Common Stock. Any shares of Special Common Stock so distributed
shall be valued at the Closing Selling Price on the date the Concurrent Right
is exercised and shall reduce on a one-for-one basis the number of shares of
Special Common Stock thereafter issuable under this Plan.
3. Terms Applicable to Both Tandem Rights and Concurrent Rights.
a. To exercise any outstanding Tandem or Concurrent Right, the
holder must provide written notice of exercise to the Company in compliance
with the provisions of the instrument evidencing such right.
b. If a Tandem or Concurrent Right is granted to an individual who
is at the time a Section 16(b) Insider, then the instrument of grant shall
incorporate all the terms and conditions at the time necessary to assure that
the subsequent exercise of such right shall qualify for the safe-harbor
exemption from short-swing profit liability provided by SEC Rule 16b-3 (or any
successor rule or regulation).
c. No limitation shall exist on the aggregate amount of cash
payments the Company may make under this Article Two Program in connection with
the exercise of Tandem or Concurrent Rights.
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4. Limited Rights.
a. Each Section 16(b) Insider shall have the Limited Right,
exercisable in the event there should occur a Change in Control (as such term
is defined below), to surrender any or all of the options (whether incentive
stock options or non-statutory options) held by such individual under this
Article Two Program, to the extent such options (i) have been outstanding for
at least six (6) months and (ii) are at the time exercisable for vested shares.
b. In exchange for each option surrendered in accordance with
subparagraph a. above, the Section 16(b) Insider shall receive an Appreciation
Distribution in an amount equal to the excess of (i) the Change in Control
Price (determined as of the date of surrender) of the number of shares in which
the Section 16(b) Insider is at the time vested under the surrendered option
over (ii) the aggregate option price payable for such vested shares. For
purposes of such Appreciation Distribution, the Change in Control Price per
share of the vested Special Common Stock subject to the surrendered option
shall be deemed to be equal to the greater of (a) the Closing Selling Price per
share on the date of surrender or (b) the highest reported price per share paid
in effecting the Change in Control. However, if the option is an Incentive
Option, then the Change in Control Price of the vested shares subject to the
surrendered option shall not exceed the value per share determined under clause
(a) above.
c. The Appreciation Distribution shall be made entirely in cash, and
the shares of Special Common Stock subject to each surrendered option shall not
be available for subsequent issuance under this Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company to any entity other than a Subsidiary of the
Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which fifty percent (50%) or more of the Company's outstanding
voting stock held by persons who are not "Subject Persons" as defined in
Article Eleventh of the Company's Certificate of Incorporation (as in effect on
September 7, 1990) including persons included in such definition by
subparagraph (b) thereof is transferred to holders different from those who
held the stock immediately prior to such merger, then the exercisability of
each option outstanding under this Regular Option Grant Program shall be
automatically accelerated so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Special Common Stock
purchasable under such option and may be exercised for all or any portion
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of such shares. However, an outstanding option under this Regular Option Grant
Program shall not be so accelerated if and to the extent: (i) such option is,
in connection with the Corporate Transaction, either to be assumed by the
successor corporation or parent thereof or be replaced with a comparable option
to purchase shares of the capital stock of the successor corporation or parent
thereof, or (ii) such option is to be replaced by a comparable cash incentive
program of the successor corporation based on the value of the option at the
time of the Corporate Transaction, or (iii) the acceleration of such option is
subject to other applicable limitations imposed by the Committee at the time of
grant. The determination of comparability under clause (i) or (ii) above shall
be made by the Committee, and its determination shall be final, binding and
conclusive.
B. Upon the consummation of the Corporate Transaction, all outstanding options
under this Regular Option Grant Program shall, to the extent not previously
exercised or assumed by the successor corporation or its parent company,
terminate and cease to be outstanding.
C. In the event of any of the following transactions (a "Change in Control"):
(i) the acquisition by a person or group of related persons, other
than the Company or any person controlling, controlled by or under common
control with the Company, of beneficial ownership (as determined pursuant to
the provisions of Rule 13d-3 under the 1934 Act) of securities of the Company
representing thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities pursuant to a transaction or series of
related transactions which the Board does not approve; or
(ii) the first date within any period of thirty-six (36) consecutive
months or less on which there is effected any change in the composition of the
Board such that the majority of the Board (determined by rounding up to the
next whole number) ceases to be comprised of individuals who either (I) have
been members of the Board continuously since the beginning of such period or
(II) have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause (I) who
were still in office at the time such election or nomination was approved by
the Board; then the exercisability of each option outstanding under this
Regular Option Grant Program shall be automatically accelerated so that each
such option shall become exercisable, immediately prior to such Change in
Control, for the full number of shares purchasable under such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Regular Option Grant Program shall not be so accelerated if and to
the extent one or more limitations imposed by the Committee at the time of
grant preclude such acceleration upon a Change in Control.
D. The grant of options under this Regular Option Grant Program shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
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IV. INCENTIVE OPTIONS
A. The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Regular Option Grant Program. Options
which are specifically designated as "non-statutory" options when issued under
this Regular Option Grant Program shall not be subject to such terms and
conditions.
1. Option Price.
The option price per share of the Special Common Stock subject to an
Incentive Option shall in no event be less than one hundred percent (100%) of
the Closing Selling Price per share of Special Common Stock on the grant date.
2. 10% Stockholder.
If any individual to whom an Incentive Option is to be granted
pursuant to the provisions of this Regular Option Grant Program is on the grant
date the owner of stock (as determined under Section 424(d) of the Internal
Revenue Code) possessing 10% or more of the total combined voting power of all
classes of stock of the Company or any one of its Parent or Subsidiaries (such
person to be herein referred to as a 10% Stockholder), then (i) the option
price per share shall not be less than one hundred and ten percent (110%) of
the Closing Selling Price per share of Special Common Stock on the grant date
and (ii) the maximum term of the option shall not exceed five (5) years from
the grant date.
3. Dollar Limitation.
The aggregate fair market value (determined on the basis of the
Closing Selling Price in effect on the respective date or dates of grant) of
the Special Common Stock for which one or more options granted to any Employee
under this Plan (or any other option plan of the Company or its Parent or
Subsidiaries) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two or more such options which become exercisable for the first
time in the same calendar year, the foregoing limitation on the exercisability
thereof as incentive stock options under the Federal tax laws shall be applied
on the basis of the order in which such options are granted.
4. Term and Exercise of Options.
a. No Incentive Option shall have a term in excess of ten (10) years
from the grant date.
b. An Incentive Option shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionee only by the Optionee.
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5. Termination of Service.
A. Notwithstanding any terms in the Plan to the contrary, an
Incentive Option must be exercised within the three (3) month period commencing
with the date of cessation of Employee status for any reason, except that in
the event the Optionee's cessation of Employee status is due to permanent
disability, such period shall be one (1) year from the date of such cessation
of Employee status. Incentive Options not exercised within the applicable
period shall be treated as non-statutory options.
B. Except as modified by the preceding provisions of this Incentive
Options section, all the provisions of this Regular Option Grant Program shall
be applicable to the Incentive Options granted hereunder. If any option
originally granted as an Incentive Stock Option is modified so as not to
qualify under the Code as an Incentive Stock Option, such modified Incentive
Stock Option shall be a non-statutory option.
V. CANCELLATION AND RE-GRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under this Regular Option Grant
Program and to grant in substitution therefor new options under this Plan
covering the same or different numbers of shares of Special Common Stock but
having an option price per share not less than fifty percent (50%) of the
Closing Selling Price (one hundred percent (100%) of the Closing Selling Price
in the case of an Incentive Option or, in the case of a 10% Stockholder, not
less than one hundred and ten percent (110%) of the Closing Selling Price) per
share of Special Common Stock on the new grant date.
VI. LOANS OR GUARANTEE OF LOANS
The Committee may assist any Employee (including any officer or
director) in the exercise of one or more options under this Regular Option
Grant Program by (a) authorizing the extension of a loan to such Employee from
the Company, (b) permitting the Employee to pay the option price for the
purchased Special Common Stock in installments over a period of years or (c)
authorizing a guarantee by the Company of a third-party loan to the Employee.
The terms of any loan, installment method of payment or guarantee (including
the interest rate and terms of repayment) shall be established by the Committee
in its sole discretion. Loans, installment payments and guarantees may be
granted without security or collateral, but the maximum credit available to the
Optionee shall not exceed the sum of (i) the aggregate exercise price (less the
par value) of the purchased shares plus (ii) any Federal and State income and
employment tax liability incurred by the Employee in connection with the
exercise of the option.
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ARTICLE THREE
AUTOMATIC GRANT PROGRAM
I. AUTOMATIC GRANTS
On April 30, 1996 each individual who is a non-Employee member of
the Board on such date shall automatically be granted a non-statutory option
under this Article Three to purchase 20,000 shares of Special Common Stock.
Each non-Employee who is first appointed or elected a member of the Board after
April 30, 1996 shall automatically be granted, on the date of such individual's
election to the Board, a non-statutory option under this Article Three to
purchase 20,000 shares of Special Common Stock. Each Employee director who is
first elected a member of the Board and who subsequently becomes a non-Employee
director after April 30, 1996 shall automatically be granted, on the date of
such individual's change from Employee to non-Employee director, a non-
statutory option under this Article Three to purchase 20,000 shares of Special
Common Stock.
II. TERMS AND CONDITIONS OF GRANT
Each option granted in accordance with the provisions of this
Article Three shall be evidenced by an instrument in such form as the Committee
approves from time to time for grants made under Article Two; provided,
however, that each such automatic grant shall be subject to the following terms
and conditions:
A. Exercise Price.
The exercise price per share shall be one hundred percent (100%) of
the Closing Selling Price per share of Special Common Stock on the grant date.
B. Term and Vesting of Options.
1. Except as otherwise specified below, each option shall vest in
increments of 5,000 shares on the first, second, third and fourth anniversaries
of the grant date and shall thereafter remain exercisable until the expiration
or earlier termination of the option term.
2. Each granted option shall have a term of ten (10) years measured
from the grant date.
C. Exercise of Option.
Upon exercise of the option, the option exercise price for the
purchased shares shall become immediately due and payable in full in one of the
alternative forms specified below:
(i) cash or check payable to the Company's order;
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(ii) shares of Special Common Stock held by the optionee
for the requisite period necessary to avoid a charge to the Company's reported
earnings and valued at the Closing Selling Price on the date of exercise; or
(iii) any combination of the foregoing so long as the total
payment equals the aggregate exercise price for the purchased shares.
D. Non-Transferability.
During the lifetime of the optionee, the option shall be exercisable
only by the optionee and shall not be assignable or transferable by the
optionee otherwise than by will or by the laws of descent and distribution.
E. Effect of Termination of Board Membership.
1. Should an optionee cease to be a member of the Board for any
reason (other than death) prior to the expiration date of the automatic grant
held by the optionee under this Article Three, then each such grant shall
remain exercisable, for any shares of Special Common Stock for which the option
is exercisable at the time of such cessation of Board membership, for a period
not to exceed the earlier of (i) the expiration of the three (3) month period
following the date of such cessation of Board membership or (ii) the specified
expiration date of the option term.
2. Should the optionee's membership on the Board cease by reason of
death, then each outstanding grant held by the optionee under this Article
Three may be subsequently exercised, for any shares of Special Common Stock for
which the option is exercisable at the time of the optionee's cessation of
Board membership, by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution. Any
such exercise must, however, occur prior to the earlier of (i) the expiration
of the twelve (12) month period following the date of the optionee's death or
(ii) the specified expiration date of the option term.
F. Stockholder Rights.
An option holder shall have none of the rights of a stockholder with
respect to any shares covered by an option granted under this Article Three
until such individual shall have exercised the option, paid the option exercise
price in full and satisfied all other conditions precedent to the issuance of
certificates for the purchased shares.
III. CORPORATE TRANSACTION
In the event of a Corporate Transaction, options granted under the
Automatic Grant Program shall be treated as described in Section III of Article
Two, except the provisions of clause (iii) of the penultimate sentence of
Section III A.(iii) of Article Two shall not apply.
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IV. CHANGE IN CONTROL
In the event of a Change in Control, options granted under the
Automatic Grant Program shall be treated as described in Section III of Article
Two, except the last sentence of Section III C.(ii) of Article Two shall not
apply.
ARTICLE FOUR
STOCK INCENTIVE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
A. Shares may be issued under this Stock Incentive Program as a
reward for past services rendered the Company or one or more of its Parent or
Subsidiaries or as an incentive for future service with such entities. Any
unvested shares so issued shall be evidenced by a Restricted Stock Issuance
Agreement ("Issuance Agreement") which complies with the terms and conditions
of this Stock Incentive Program and shall include appropriate terms with
respect to legending of certificates and escrow of unvested shares.
1. Vesting Schedule.
a. The Recipient's interest in the issued shares of Special Common
Stock may, in the absolute discretion of the Committee, be fully and
immediately vested upon issuance or may vest in one or more installments.
b. The elements of the vesting schedule applicable to any unvested
shares issued under this Stock Incentive Program, namely the number of
installments in which the shares are to vest, the interval or intervals (if
any) which are to lapse between installments and the effect which death,
disability or other event designated by the Committee is to have upon the
vesting schedule, shall be determined by the Committee and set forth in the
Issuance Agreement executed by the Company and the Recipient at the time of the
incentive grant.
c. Except as may otherwise be provided in the Issuance Agreement,
the Recipient may not transfer unvested shares of Special Common Stock. The
Recipient, however, shall have all the rights of a stockholder with respect to
such unvested shares, including without limitation the right to vote such
shares and to receive all dividends paid on such shares.
2. Cancellation of Shares.
a. In the event the Recipient should, while his/her interest in the
issued Special Common Stock remains unvested, cease to continue in Service for
any reason whatsoever, then the Company shall have the right to cancel all such
unvested shares, and the Recipient shall thereafter have no further stockholder
rights with respect to such shares.
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b. The Committee may in its discretion waive such cancellation of
unvested shares in whole or in part and thereby effect the immediate vesting of
the Recipient's interest in the shares of Special Common Stock (or other
assets) as to which the waiver applies.
3. Corporate Transaction/Change in Control.
All unvested shares under the Stock Incentive Program shall immediately vest in
full immediately prior to the occurrence of any Corporate Transaction or Change
in Control, except to the extent:
(i) the Company's outstanding cancellation rights are to be assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction, or
(ii) one or more limitations imposed by the Committee at the time of
stock issuance preclude such accelerated vesting.
ARTICLE FIVE
MISCELLANEOUS
I. TAX WITHHOLDING
A. The Company's obligation to deliver shares upon the exercise or surrender of
stock options or stock appreciation rights granted under Article Two or Article
Three or upon the issuance or vesting of shares under Article Four shall be
subject to the satisfaction of all applicable Federal, State and local income
and employment tax withholding requirements.
B. The Committee may, in its discretion and upon such terms and conditions as
it may deem appropriate (including the applicable safe-harbor provisions of SEC
Rule 16b-3 or any successor rule or regulation) provide any or all Optionees or
Recipients with the election to have the Company withhold, from the shares of
Special Common Stock purchased or issued under the Plan, one or more of such
shares with an aggregate Closing Selling Price equal to the designated
percentage (up to 100% specified by the Optionee or Recipient) of the Federal
and State income taxes ("Taxes") incurred in connection with the acquisition of
such shares. In lieu of such direct withholding, one or more Optionees or
Recipients may also be granted the right to deliver unrestricted shares of
Special Common Stock to the Company in satisfaction of such Taxes. The withheld
or delivered shares shall be valued at the Closing Selling Price on the
applicable determination date for such Taxes.
II. AMENDMENT OF THE PLAN
A. The Board shall have the complete and exclusive authority to amend or modify
the Plan in any or all respects whatsoever; provided, however, that no such
amendment or modification shall, without the consent of the holders, adversely
affect rights and obligations with respect to any stock options, stock
appreciation rights or unvested Special Common Stock at the time outstanding
under the Plan.
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In addition, with a view to making available the benefits provided by Section
422 of the Code and/or SEC Rule 16b-3 as in effect from time to time under the
1934 Act, the Board shall, at the time of each such amendment, determine
whether or not to submit such amendment of the Plan to the Company's
stockholders for approval.
B. No material amendments shall be made to the provisions of the Automatic
Grant Program without the approval of the Company's stockholders.
C. The provisions of the Automatic Grant Program shall not be amended more than
once every six months, as required by SEC Rule 16b-3.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no stock
option or stock appreciation right granted under the Plan shall become
exercisable, and no shares shall be issued, unless and until the Plan shall
have been approved by the Company's stockholders. If such stockholder approval
is not obtained within twelve (12) months after the date of the Board's
adoption of the Plan, then all stock options and stock appreciation rights
previously granted under the Plan shall terminate and no further stock options
or stock appreciation rights shall be granted. Subject to such limitation, the
Committee may grant stock options and stock appreciation rights under the Plan
at any time after the effective date and before the date fixed herein for
termination of the Plan.
B. The Plan shall in all events terminate on the date determined by the Board
but in no event shall the Plan terminate later than February 6, 2006. Upon such
termination, any stock options, stock appreciation rights and unvested shares
at the time outstanding under the Plan shall continue to have force and effect
in accordance with the provisions of the instruments evidencing such grants or
issuances.
C. Options may be granted under this Plan to purchase shares of Special Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and within one year thereafter such amendment is approved by
the Company's stockholders, if such stockholder approval is deemed necessary by
the Board, and (ii) each option granted is not to become exercisable, in whole
or in part, at any time prior to the obtaining of such stockholder approval,
and provided further that at any time that the Amended and Restated Governance
Agreement dated as of October 25, 1995 between the Company and Roche Holdings,
Inc. (the "Amended Governance Agreement") remains in effect, any action by the
Board pursuant to the foregoing shall require the approval of a majority of the
Independent Directors (as such term is defined in Article Eleventh of the
Certificate of Incorporation of the Company).
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IV. MISCELLANEOUS PROVISIONS
A. Any cash proceeds received by the Company from the issuance of shares
hereunder shall be used for general corporate purposes.
B. The implementation of the Plan, the granting of any stock option or stock
appreciation right hereunder, and the issuance of Special Common Stock under
the Regular Option Grant, the Automatic Grant Program or Stock Incentive
Program shall be subject to the Company's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options and stock appreciation rights granted under it and the
Special Common Stock issued pursuant to it.
C. Neither the action of the Company in establishing the Plan, nor any action
taken by the Board or the Committee hereunder, nor any provision of the Plan
itself shall be construed so as to grant any individual the right to remain in
the employ or service of the Company or any of its Parent or Subsidiaries for
any period of specific duration, and the Company (or any parent or subsidiary
retaining the services of such individual) may terminate such individual's
employment or service at any time and for any reason, with or without cause.
D. Nothing contained in the Plan shall be construed to limit the authority of
the Company to exercise its corporate rights and powers, including (without
limitation) the right of the Company (a) to grant options for proper corporate
purposes otherwise than under this Plan to any Employee or other person, firm
or company or association or (b) to grant options to, or assume the option of,
any person in connection with the acquisition (by purchase, lease, merger,
consolidation or otherwise) of the business and assets (in whole or in part) of
any person, firm, company or association.
ARTICLE SIX
SPECIAL REDEMPTION AND PUT PROVISIONS
I. PRIORITY
To the extent there is a conflict between any of the provisions of
this Article Six and any other provision of the Plan, the specific provisions
of this Article Six shall be controlling and shall govern the disposition of
all such options outstanding at the time of the Redemption (as defined below),
upon the exercise of the Put Rights (as defined below), or when both events may
no longer occur. Any rights under Section 1.04 of the Governance Agreement
dated as of September 7, 1990 between the Company and Roche Holdings, Inc.,
("Roche") and Section 1.04 of the Amended Governance Agreement which a holder
of an option, stock appreciation right, or stock issued under the Stock
Incentive Program may have are superseded in their entirety by this Article
Six.
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II. EFFECT OF REDEMPTION ON VESTED OPTIONS AND VESTED STOCK APPRECIATION RIGHTS
AND VESTED SHARES ISSUED UNDER THE STOCK INCENTIVE PROGRAM
A. If the Special Common Stock shall be redeemed by the Company (the
"Redemption") at any time as provided in Section (c)(ii) of Article Third of
the Certificate of Incorporation of the Company as in effect on October 25,
1995 (the "Certificate") or the put rights are exercisable by the stockholders
of the Company (the "Put Rights") at any time as provided in Section (c)(iii)
of Article Third of the Certificate, then holders of all outstanding options
and stock appreciation rights granted hereunder, to the extent vested
immediately prior to the date fixed for the Redemption or to the extent to
which the Put Rights were properly exercised by such holder for their
outstanding vested options and stock appreciation rights granted hereunder
("Vested Securities"), shall promptly be paid for such Vested Securities an
amount equal to the product of (i) the excess of the redemption price or put
price per share fixed in Section (c)(ii) or (iii) of Article Third of the
Certificate, as applicable (without reduction for the payment of any cash
dividends as provided in the fourth sentence of Section (c)(ii)(C) of Article
Third of the Certificate), over the exercise price per share, times (ii) the
number of shares covered by such Vested Security. If either the Redemption or
exercise of the Put Rights occurs as described in the preceding sentence, then
holders of all outstanding shares issued under the Stock Incentive Program, to
the extent vested immediately prior to the date fixed for the Redemption or to
the extent to which the Put Rights were properly exercised by such holder for
their outstanding vested shares issued under the Stock Incentive Program
("Vested Shares"), shall promptly be paid for such Vested Shares an amount
equal to the product of (i) the redemption price or put price per share fixed
in Section (c)(ii) or (iii) of Article Third of the Certificate, as applicable
(without reduction for the payment of any cash dividends as provided in the
fourth sentence of Section (c)(ii)(C) of Article Third of the Certificate),
times (ii) the number of Vested Shares. All payments hereunder shall be reduced
by any appropriate tax withholding.
III. EFFECT OF REDEMPTION ON UNVESTED OPTIONS AND STOCK APPRECIATION RIGHTS,
AND UNVESTED SHARES ISSUED UNDER THE STOCK INCENTIVE PROGRAM
A. Upon the Redemption each option and stock appreciation right granted under
this Plan, to the extent not vested immediately prior to the date fixed for the
Redemption shall be canceled. Upon the Redemption, all unvested shares issued
under the Stock Incentive Program shall be canceled.
IV. EFFECT OF NO REDEMPTION
A. If the Redemption does not occur, each option and stock appreciation right
granted and each share awarded under the Stock Incentive Program under this
Plan which is outstanding on July 1, 1999 shall remain outstanding on the same
terms and conditions (including, without limitation, the exercise price per
share (in the case of options and stock appreciation rights), and the number of
shares for options, stock appreciation rights and shares issued under the Stock
Incentive Program) in effect for such option, stock appreciation right or share
issued under the Stock Incentive Program immediately
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prior to July 1, 1999, except that the shares purchasable under each such
option, stock appreciation right or shares issued under the Stock Incentive
Program shall continue to be shares of Special Common Stock prior to the
Conversion Date (as defined in Section (c)(vi) of Article Third of the
Certificate) and shares of Common Stock on and after the Conversion Date. Each
such continuing option, stock appreciation right and share issued under the
Stock Incentive Program will become exercisable, and shall vest in accordance
with the same installment dates such option, stock appreciation right or share
issued under the Stock Incentive Program would have become exercisable at the
time of grant. Notwithstanding any provision in this Article Six, Section IV,
to the contrary, if at any time following July 1, 1999 the shares of
Genentech's capital stock are no longer listed for trading on the New York
Stock Exchange, the Nasdaq National Market, or any other national exchange for
any reason, any unvested options, stock appreciation rights and shares issued
under the Stock Incentive Program shall automatically be cancelled as of such
date.
V. EXAMPLE
A. For purposes of this example assume that it is July 1, 1999, the Redemption
has not occurred, the Put Rights are exercisable, an individual holds an option
for 100 shares of Special Common Stock with an exercise price of $50 per share,
75 of such shares are vested and 25 shares are unvested, the Special Common
Stock is trading on the New York Stock Exchange at $62 per share, and the Put
Price (as defined in the Certificate) is $60 per share. During the Put Period
(as defined in the Certificate) the holder may properly exercise the holder's
Put Rights with respect to none, some or all of the 75 vested shares. If, for
example, the holder exercised Put Rights for 40 of the 75 shares, that holder
would receive (40 shares) x (60 - 50 dollars per share) = $400, reduced by
appropriate tax withholding. So long as the Special Common Stock (during the
Put Period) or the Common Stock (following the Put Period) are listed for
trading on the New York Stock Exchange, the Nasdaq National Market, or any
other national exchange, (i) the 35 remaining vested shares for which Put
Rights were not exercised shall remain exercisable to acquire shares of Special
Common Stock or Common Stock, as appropriate, and (ii) the 25 unvested shares
would continue to vest and, to the extent vested, be exercisable to acquire
shares of Special Common Stock or Common Stock, as appropriate. If the Special
Common Stock or the Common Stock is no longer listed for trading on the New
York Stock Exchange, the Nasdaq National Market, or any other national exchange
for any reason, any of the 25 shares that are unvested on such date shall
automatically be cancelled.
VI. OTHER
A. On the Conversion Date, all references in the Plan to Special Common Stock
shall automatically become references to Common Stock.
B. The exercise by Roche Holdings, Inc. or its affiliates of its right to
designate nominees to the Board of Directors pursuant to Sections 3.01 and 3.02
of the Amended Governance Agreement shall not constitute a Change in Control.
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PROMISSORY NOTE
$1,500,000
South San Francisco, CA
April 14, 1995
FOR VALUE RECEIVED, the undersigned, G. Kirk Raab, promises to pay to the
order of GENENTECH, INC., ("Genentech"), One Million Five Hundred Thousand
Dollars ($1,500,000), with interest as described below, at the principal
offices of Genentech, upon the following terms and conditions:
1. Unless extended by Genentech's Board of Directors, the entire
principal amount of this promissory note ("Note") shall be due and payable on
the earlier of (i) April 21, 1996, (ii) the date of termination of employment
of the undersigned with Genentech for any reason, or (iii) the date Roche
Holdings, Inc. or any affiliate thereof causes Genentech to redeem its
Redeemable Common Stock ("RCS") or any other security issued in exchange for
such RCS. The undersigned promises to pay interest from the date hereof on
the outstanding amount of principal at the rate of 6.69% per annum, compounded
semi-annually, but not in excess of the maximum interest rate allowed to be
paid under applicable law.
2. If any lawsuit, reference or arbitration is commenced which arises
out of or relates to this Note, the prevailing party shall be entitled to
recover from the other party such sums as the court may adjudge to be
reasonable attorney's fees in the action, reference or arbitration, in
addition to costs and expenses otherwise allowed by law.
3. The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this Note without premium at any time prior to the
maturity hereof. The undersigned will use his best efforts to repay the
unpaid principal amount of this Note and any accrued but unpaid interest
thereon prior to April 21, 1996.
4. Nothing in this Note shall be interpreted to give the undersigned any
right to continue in the employ of Genentech for any particular period of
time.
5. This Note is not transferable by the undersigned to any other person
or entity.
6. The undersigned expressly waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note.
7. This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed,
dated and delivered as of the day and year first above written.
/S/G. KIRK RAAB
_________________
G. Kirk Raab
GENENTECH, INC. APPROVALS
/S/LARRY SETREN /S/JOHN P. MCLAUGHLIN /S/BRAD GOODWIN
_______________ _____________________ _______________________
Human Resources Management Committee Controller or Treasurer
GENENTECH, INC.
TAX REDUCTION INVESTMENT PLAN
(January 1, 1994 Restatement)
PREAMBLE
GENENTECH, INC. (the "Company") having established the Genentech, Inc.
Tax Reduction Investment Plan (the "Plan") effective as of January 1, 1985,
amended and restated the Plan effective (most recently) as of January 1, 1991,
and amended the restated Plan on two prior occasions, hereby again amends and
restates the Plan in its entirety effective as of January 1, 1994.
The Plan is maintained for the benefit of Eligible Employees of the
Company and its participating Affiliates, in order (1) to provide Eligible
Employees with a means of supplementing their retirement income on a tax-
favored basis, (2) to provide Eligible Employees with an incentive to continue
and increase their efforts to contribute to the success of the Company, and
(3) to enable Eligible Employees to acquire an equity ownership interest in
the Company. The Plan is designed to constitute a qualified profit-sharing
plan, as described in section 401(a) of the Code, which includes a qualified
cash or deferred arrangement, as described in section 401(k) of the Code. The
Plan is also designed to qualify as a 404(c) plan (within the meaning of
section 404(c) of ERISA).
SECTION 1
DEFINITIONS
The following capitalized words and phrases shall have the following
meanings unless a different meaning is plainly required by the context:
1.1 "Affiliate" shall mean a corporation, trade or business which is,
together with any Employer, a member of a controlled group of corporations or
an affiliated service group or under common control (within the meaning of
section 414(b), (c), (m) or (o) of the Code), but only for the period during
which such other entity is so affiliated with any Employer.
1.2 "Alternate Payee" shall mean any spouse, former spouse, child or
other dependent (within the meaning of section 152 of the Code) of a Member
who is recognized by a QDRO (as defined in Section 8.5) as having a right to
receive any immediate or deferred payment from a Member's Account under this
Plan.
1.3 "Beneficiary" shall mean the person or persons entitled to receive
benefits under the Plan upon the death of a Member in accordance with
Section 7.6.
1.4 "Board of Directors" shall mean the Board of Directors of the
Company, as from time to time constituted.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code shall include such section, any
valid regulation promulgated thereunder, and any comparable provision of any
future legislation amending, supplementing or superseding such section.
1.6 "Commingled Funds" shall mean (collectively) the commingled funds
described in Section 6.3.
1.7 "Committee" shall mean the administrative committee appointed by the
Board of Directors (as provided in Section 9.2) and charged with the general
administration of the Plan pursuant to Section 9.
1.8 "Common Stock" shall mean the redeemable common stock of the
Company, par value $0.02, while such redeemable common stock is outstanding,
and effective October 25, 1995, the callable putable common stock of the
Company, par value $0.02, while such callable putable common stock is
outstanding, and the common stock of the Company as from time to time
constituted.
1.9 "Company" shall mean Genentech, Inc., a Delaware corporation, and
any successor by merger, consolidation or otherwise that assumes (in writing)
the obligations of the Company under the Plan.
1.10 "Compensation" shall mean all salary, wages, annual cash bonuses
and sales commissions paid by any Employer with respect to services performed
during any period by an Employee, including Salary Deferrals, but excluding
contributions made by any Employer (other than Salary Deferrals) under this
Plan or any other employee benefit plan (within the meaning of section 3(3) of
ERISA). No portion of the Compensation of any Member for a Plan Year which
exceeds $150,000 (as adjusted pursuant to sections 401(a)(17) and 415(d) of
the Code) shall be taken into account under the Plan for any Plan Year. In
applying that $150,000 limit for a Plan Year, Section 1.17(c) shall apply
except that the term "Family Member" shall only include a spouse or a lineal
descendant who has not attained age 19 before the close of the Plan Year.
1.11 "Disability" shall mean the mental or physical inability of a
Member to perform his or her normal job as evidenced by the certificate of a
medical examiner satisfactory to the Committee certifying that the Member is
disabled under the standards of the Company's long-term disability plan.
1.12 "Eligible Employee" shall mean every Employee of an Employer
except:
(a) An Employee who is employed on a temporary basis as defined by an
Employer; provided, however, that any such Employee who is credited with
at least 1,000 Hours of Service for a 12-month period beginning on his
or her date of hire or any anniversary thereof shall become an Eligible
Employee as of the Entry Date that next follows the last day of such 12-
month period;
(b) A part-time Employee who is not normally scheduled to work at least
20 hours per week; provided, however, that any such Employee who is
credited with at least 1,000 Hours of Service for a 12-month period
beginning on his or her date of hire or any anniversary thereof shall
become an Eligible Employee as of the Entry Date that next follows the
last day of such 12-month period;
(c) An Employee who is a member of a collective bargaining unit and who
is covered by a collective bargaining agreement where retirement
benefits were the subject of good faith bargaining, unless the agreement
specifically provides for coverage of such Employee under this Plan;
(d) An individual employed by any corporation or other business entity
that is merged or liquidated into, or whose assets are acquired by any
Employer, unless any two (2) of the officers identified in Section 11.2
designate (in writing) the employees of that corporation or other
business entity as Eligible Employees under the Plan; provided, however,
that the exclusion of any individual under this paragraph (c) does not
make unavailable an exemption from section 16(a) or (b) of the 1934 Act;
(e) An Employee whose Compensation is not paid from any Employer's U.S.
payroll; and
(f) Leased Employees.
For purposes of this Section 1.12, "date of hire" shall mean the date on which
an Employee first completes an Hour of Service.
1.13 "Employee" shall mean an individual who is a (a) employed by an
Employer or Affiliate as a common-law employee, or (b) a Leased Employee.
However, if Leased Employees constitute less than 20% of the nonhighly
compensated work force (within the meaning of section 414(n)(5)(C)(ii) of the
Code), the term "Employee" shall not include those Leased Employees who are
covered by a plan described in section 414(n)(5) of the Code.
1.14 "Employer" shall mean the Company and each Affiliate that adopts
this Plan with the approval of the Board of Directors.
1.15 "Entry Date" shall mean the first day of each calendar quarter.
1.16 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended. Reference to a specific section of ERISA shall include such
section, any valid regulation promulgated thereunder, and any comparable
provision of any future legislation amending, supplementing or superseding
such section.
1.17 "Highly Compensated Employee" shall mean a Highly Compensated
Active Employee or a Highly Compensated Former Employee, as defined below:
(a) "Highly Compensated Active Employee" shall mean any Employee who
performs services for an Employer or Affiliate during the Determination
Year (as defined in Section 1.17(e)(1)) and who:
(1) During the Look-Back Year (as defined in Section 1.17(e)(2))
(A) was a 5-percent owner (within the meaning of section 414(q)(3)
of the Code) (a "5% Owner"), (B) received Compensation in excess
of $75,000 (as adjusted pursuant to sections 414(q)(1) and 415(d)
of the Code), (C) received Compensation in excess of $50,000 (as
adjusted pursuant to sections 414(q)(1) and 415(d) of the Code)
and was a member of the top-paid group (within the meaning of
section 414(q)(4) of the Code) for that Look-Back Year, or (D) was
an officer of an Employer or Affiliate and received Compensation
for that Look-Back Year that is greater than 50% of the dollar
limitation then in effect under section 415(b)(1)(A) and (d) of
the Code or (if no officer has Compensation in excess of that
threshold) was the highest paid officer for that Look-Back Year;
(2) (A) Would be described in clause (B), (C) or (D) of
paragraph (a)(1) above if the term "Determination Year" were
substituted for the term "Look-Back Year" and (B) is one of the
100 Employees who received the most Compensation for the
Determination Year; or
(3) Is a 5% Owner at any time during the Determination Year.
Subject to the satisfaction of such conditions as may be prescribed
under section 414(q)(12)(B)(ii) of the Code, the Company may elect for
any Plan Year (i) to apply paragraph (a)(1)(B) above by substituting
"$50,000" for "$75,000" and (ii) not to apply paragraph (a)(1)(C) above.
(b) "Highly Compensated Former Employee" shall mean any Employee who
(1) separated (or was deemed to have separated) from service prior to
the Determination Year, (2) performed no services for any Employer or
Affiliate during the Determination Year, and (3) was a Highly
Compensated Active Employee for either the Plan Year in which the
separation occurred or any Determination Year ending on or after his or
her 55th birthday.
(c) If an Employee is, at any time during a Determination Year or Look-
Back Year, a spouse, lineal ascendant or descendant, or spouse of a
lineal ascendant or descendant (a "Family Member") of either (1) a 5%
Owner (as defined in Section 1.17(a)(1)(A)) who is an active or former
Employee or (2) a Highly Compensated Employee who is one of the ten most
highly compensated employees ranked on the basis of Compensation paid
for that Year (in either case, a "Family Employee"), then for that Year
the Family Member and the Family Employee shall be aggregated and
treated as one Employee receiving Compensation and contributions under
the Plan equal to the sum of such Compensation and contributions
received by the Family Member and the Family Employee.
(d) The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of Employees in
the top-paid group, the top 100 Employees and the number of Employees
treated as officers, shall be made in accordance with section 414(q) of
the Code.
(e) For purposes of applying this Section 1.17:
(1) "Determination Year" shall mean the Plan Year for which the
determination is being made;
(2) "Look-Back Year" shall mean the Plan Year preceding the
Determination Year, unless the Committee elects to make Look-Back
Year calculations based on the Determination Year; and
(3) "Compensation" shall mean Testing Compensation (as defined in
Section 3.1.6), but without regard to the last three sentences
thereof.
1.18 "Hour of Service" means an hour credited to an Employee under this
Section 1.18:
(a) Paid Hours. An "Hour of Service" includes each hour for which:
(1) An Employee is directly or indirectly paid or entitled to
payment by an Employer or Affiliate for the performance of duties;
(2) An Employee is directly or indirectly paid or entitled to
payment by an Employer or Affiliate for periods during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including Disability), layoff, jury duty or Leave of
Absence (with pay); and
(3) Back pay (irrespective of mitigation damages) has been awarded
or agreed to by an Employer or Affiliate.
(b) No Duties Performed. Except as otherwise provided in
subsection (d) below, no Hours of Service shall be credited for periods
during which no duties are performed if payment by an Employer or
Affiliate is made or due under a plan maintained solely for the purpose
of complying with applicable worker's compensation, unemployment
compensation or disability insurance laws, or is made as reimbursement
to an Employee for medical or medically related expenses. In no event
will more than 501 Hours of Service be credited under this paragraph (b)
on account of any single continuous period during which an Employee
performs no duties.
(c) Crediting Rules. Hours of Service shall be credited under this
Section 1.18 in accordance with U.S. Department of Labor Regulation
Section 2530.200b-2(b) and (c).
(d) Family-Related Absences. In the case of an Employee who is
absent from active employment with an Employer or Affiliate for any
period,
(1) By reason of her pregnancy or the birth of his or her
child,
(2) By reason of the placement of a child with the Employee
in connection with his or her adoption of such child,
(3) For purposes of caring for any such child for a period
beginning immediately following such birth or placement, or
(4) On account of a leave of absence taken pursuant to the
Family and Medical Leave Act of 1993 ("FMLA"),
"Hour of Service" shall mean any hour that is not credited as an Hour of
Service (because the Employee is not paid or entitled to payment
therefor) but which would otherwise normally have been credited to the
Employee (but for the absence) under paragraphs (a) through (c) above.
In any case in which the Committee is unable to determine the number
of hours that would otherwise normally have been credited to an
Employee (but for the absence) under this paragraph (d), the Employee
shall be credited with eight Hours of Service for each day of the
absence. Notwithstanding the foregoing, (A) no more than 501 Hours of
Service shall be credited under this paragraph (d) to any individual
on account of any single pregnancy, birth, placement or other FMLA
leave, and (B) the hours described in this paragraph (d) shall be
treated as Hours of Service (i) for the Plan Year in which the absence
begins, to the extent required to credit the Employee with 1,000 Hours
of Service for that Plan Year, and (ii) with respect to the remainder
of the 501 Hours of Service maximum, for the next following Plan Year.
1.19 "Investment Manager" shall mean any investment manager appointed
by the Committee in accordance with Section 9.6.
1.20 "Leased Employee" shall mean an individual who is a leased
employee (within the meaning of section 414(n)(2) of the Code) with respect
to an Employer or Affiliate.
1.21 "Leave of Absence" shall mean the period of an Employee's absence
from active employment (a) authorized by any Employer in accordance with its
established and uniformly administered personnel policies, provided that the
Employee returns to active employment after the authorized absence period
expires, unless the Employee's failure to return is attributable to his or
her retirement or death; or (b) because of military service in the armed
forces of the United States, provided that the Employee returns to active
employment following discharge within the period during which he or she
retains reemployment rights under federal law.
1.22 "Matching Contributions" shall mean as to each Member the amounts
contributed under the Plan by the Employers, excluding Salary Deferrals, in
accordance with Section 4.1.
1.23 "Member" shall mean an Eligible Employee who has become a Member
of the Plan pursuant to Section 2.1 and has not ceased to be a Member
pursuant to Section 2.6.
(a) For each Plan Year a Member shall be classified as an "Active
Member" if (1) he or she has enrolled in the Plan for any portion of
the Plan Year by authorizing the required Salary Deferrals in
accordance with Sections 2.3, 3.1 and 3.2, or (2) his or her active
membership is resumed during the Plan Year after the end of a
suspension period in accordance with Section 2.4 or 2.5.
(b) A Member who is not an Active Member shall be classified as an
"Inactive Member."
1.24 "Member's Account" or "Account" shall mean as to any Member the
separate account maintained in order to reflect his or her interest in the
Plan. Each Member's Account shall be comprised of up to four separate
subaccounts, as follows:
1.24.1 "Loan Account" shall mean the subaccount maintained to
record any loans made to the Member from his or her Account pursuant to
Section 5.3.3.
1.24.2 "Matching Account" shall mean the subaccount maintained to
record Matching Contributions made on behalf of the Member and any
adjustments relating thereto.
1.24.3 "Rollover Account" shall mean the subaccount maintained to
record any transfers to the Plan made by or on behalf of a Member pursuant
to Section 10.5 and any adjustments relating thereto.
1.24.4 "Salary Deferral Account" shall mean the subaccount
maintained to record the Salary Deferrals made on behalf of the Member and
any adjustments relating thereto.
1.25 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time. Reference to a specific section of the 1934 Act
shall include any section, any valid regulation promulgated thereunder, and
any comparable provision of any future legislation amending, supplementing
or superseding such section.
1.26 "Normal Retirement Age" shall mean age 55.
1.27 "Plan" shall mean the Genentech, Inc. Tax Reduction Investment
Plan, formerly the Genentech, Inc. Tax Incentive Savings Plan, as set forth
in this instrument and as heretofore or hereafter amended from time to time
in accordance with Section 11.2.
1.28 "Plan Year" shall mean the calendar year.
1.29 "Salary Deferrals" shall mean as to each Member the amounts
contributed under the Plan by the Employers in accordance with Section 3.3,
pursuant to the salary deferral election made by the Member in accordance
with Sections 3.1 and 3.2.
1.30 "Trust Fund" shall mean the trust fund established by and
maintained under the Trust Agreement entered into by and between any
Employer and the Trustee, as amended from time to time, for the purpose of
funding the benefits provided by the Plan, as provided in Section 10.
1.31 "Trustee" shall mean Fidelity Management Trust Company, a
Massachusetts trust company, and any additional, successor or substitute
trustee or trustees from time to time acting as Trustee of the Trust Fund.
1.32 "Valuation Date" shall mean:
(a) For purposes of valuing Plan assets and Members' Accounts for
periodic reports and statements, the date as of which such reports or
statements are made; and
(b) For purposes of determining the amount of assets actually
distributed to the Member, his or her Beneficiary or an Alternate
Payee (or available for loan or withdrawal), the date on which occur
the relevant transactions required to liquidate to cash the assets
allocated to the Member's Account, provided that when such
transactions occur on more than one date, there shall be several
Valuation Dates, as appropriate.
In any other case, the Valuation Date shall be the date designated by the
Committee (in its discretion) or the date otherwise set out in this Plan.
In all cases, the Committee may (in its discretion) change the Valuation
Date, on a uniform and nondiscriminatory basis, as is necessary or
appropriate. Notwithstanding the foregoing, the Valuation Date shall occur
at least annually.
SECTION 2
ELIGIBILITY AND MEMBERSHIP
2.1 Initial Eligibility. An Employee shall become a Member of the
Plan on the date he or she becomes an Eligible Employee.
2.2 Employer Aggregation. The status of an Employee as an Eligible
Employee shall not be adversely affected merely by reason of his or her
employment by more than one Employer during any Plan Year. The transfer of
a Member from employment with an Employer to employment with an Affiliate
which is not an Employer shall not be an event entitling the Member to a
distribution under Section 7.
2.3 Membership. Each Member's decision to become an Active Member
shall be entirely voluntary.
2.3.1 Active Membership. An Employee who has become a Member
under Section 2.1 may elect to become an Active Member, effective as of the
first day of the first payroll period beginning on or after any Entry Date,
provided that he or she enrolls in the Plan and elects to make Salary
Deferrals, on forms provided by the Committee, at least 15 days before the
Entry Date.
2.3.2 Inactive Membership. A Member who does not elect to become
an Active Member when eligible to do so shall be at all times treated as an
Inactive Member until the Entry Date as of which he or she elects to become
an Active Member.
2.4 Voluntary Suspension. An Active Member may voluntarily suspend
his or her active membership in the Plan, by suspending his or her Salary
Deferrals for any number of calendar quarters, as of the first day of any
payroll period, by giving at least 15 days' prior written notice to the
Committee, provided that any Member who is subject to section 16 of the 1934
Act may suspend his or her Salary Deferrals only as of an Entry Date.
2.4.1 Effect. With respect to the period for which a Member's
active membership is suspended, he or she shall not make any Salary
Deferrals nor share in the allocation of Matching Contributions, and he or
she may not later make the Salary Deferrals that he or she might otherwise
have made during the suspension period. No distribution shall be made to a
Member solely as the result of any suspension of his or her active
membership.
2.4.2 Resumption of Active Membership. A Member whose active
membership in the Plan has been suspended may voluntarily resume his or her
Salary Deferrals, effective with respect to Compensation paid for the first
payroll period beginning on or after any Entry Date, by again electing to
become an Active Member in accordance with Section 2.3; provided, however,
that with respect to any Member who is subject to section 16 of the 1934 Act
and whose active membership has been suspended (whether voluntarily,
mandatorily or in any other fashion), such Member shall not resume active
membership for a minimum of six (6) months after the Entry Date on which
such Member's suspension became effective.
2.5 Mandatory Suspension. If a Member (1) ceases to be an Eligible
Employee because he or she ceases to meet the requirements of Section 1.12,
(2) is transferred to employment with an Affiliate which is not an Employer,
(3) is granted a Leave of Absence without pay, (4) is on long-term
disability, or (5) is placed on layoff or furlough status, then:
(a) His or her status as an Active Member shall be suspended (in
accordance with Section 2.4.1) for each payroll period beginning
during the continuation of such ineligible status, and
(b) After he or she again becomes an Eligible Employee and the
conditions described in clauses (1) through (5) above cease to apply,
his or her status as an Active Member may be resumed only in
accordance with Section 2.4.2.
Notwithstanding any contrary Plan provision, a Member's Compensation which
is paid for any portion of a payroll period that includes a period of
mandatory suspension shall not be subject to any salary deferral election
nor contributed under the Plan as Salary Deferrals.
2.6 Termination of Membership. An Eligible Employee who has become a
Member shall remain a Member until his or her employment with all Employers
and Affiliates terminates or, if he or she remains alive, until his or her
entire Account balance is distributed (whichever is later).
SECTION 3
SALARY DEFERRALS
3.1 Salary Deferrals. Each Active Member may elect to defer portions
of his or her Compensation payments and to have the amounts of such Salary
Deferrals contributed by the Employers to the Trust Fund and credited to his
or her Salary Deferral Account under the Plan. An Active Member may elect
to defer a portion of each payment of Compensation that would otherwise be
made to him or her, after the election becomes and while it remains
effective, equal to any whole percentage from 1% to 15% (inclusive) of his
or her Compensation.
3.1.1 Section 401(k) Ceiling. Notwithstanding the foregoing, the
Committee:
(a) May suspend or limit any Member's salary deferral election at any
time in order to prevent the cumulative amount of the Salary Deferrals
contributed on behalf of the Member for any calendar year from
exceeding the Section 401(k) Ceiling;
(b) Shall cause any amount allocated to the Plan as an excess
deferral (calculated by taking into account only amounts deferred
under this and any other cash or deferred arrangement maintained by
any Employer or Affiliate and qualified under section 401(k) of the
Code), together with any income allocable to that amount for the
calendar year to which the excess deferral relates, to be distributed
to the Member in accordance with section 402(g)(2)(A) of the Code; and
(c) May cause any other amount allocated to the Member's Account and
designated by the Member as an excess deferral, together with any
income allocable thereto for the calendar year to which the excess
deferral relates, to be distributed to the Member in accordance with
section 402(g)(2)(A) of the Code.
(d) The "Section 401(k) Ceiling" is a dollar amount equal to the
dollar limit prescribed in section 402(g)(3) of the Code (as adjusted
pursuant to sections 402(g)(5) and 415(d) of the Code).
3.1.2 Limitations on HCE Members. For any Plan Year, the
Committee (in its discretion) may limit the period for which, and/or specify
a lesser maximum percentage at which, Salary Deferrals may be elected by HCE
Members (as defined in Section 3.1.3) in such manner as may be necessary or
appropriate in order to assure that the limitation described in
Section 3.1.4 will be satisfied.
3.1.3 HCE and Non-HCE Members. All Members who are Eligible
Employees at any time during a Plan Year (whether or not they are Active
Members), and who are Highly Compensated Employees (as defined in Section
1.17) with respect to the Plan Year, shall be "HCE Members" for the Plan
Year. All other Members who are Eligible Employees at any time during the
Plan Year shall be "Non-HCE Members" for the Plan Year.
3.1.4 Deferral Percentage Limitation. In no event shall the
actual deferral percentage, determined in accordance with Section 3.1.5 (the
"ADP"), for the HCE Members for a Plan Year exceed the maximum ADP, as
determined by reference to the ADP for the Non-HCE Members, in accordance
with the following table:
If the ADP for
Non-HCE Members Then the Maximum ADP
("NHCEs' ADP") is: for HCE Members is:
_________________ ____________________
Less than 2% 2.0 x NHCEs' ADP
2% to 8% NHCEs' ADP + 2%
More than 8% 1.25 x NHCEs' ADP
3.1.5 Actual Deferral Percentage. The actual deferral percentage
for the HCE or Non-HCE Members for a Plan Year shall be calculated by
computing the average of the percentages (calculated separately for each HCE
or Non-HCE Member) (the "Deferral Rates") determined by dividing (1) the
total of all Salary Deferrals made by the Member and credited to his or her
Salary Deferral Account for the Plan Year, by (2) the Member's Testing
Compensation (as defined in Section 3.1.6) for the Plan Year. In computing
a Member's Deferral Rate, the following special rules shall apply:
(a) If any Employer or Affiliate maintains any other cash or deferred
arrangement which is aggregated by the Company with this Plan for
purposes of applying section 401(a)(4) or 410(b) of the Code, then all
such cash or deferred arrangements shall be treated as one plan for
purposes of applying Section 3.1.4.
(b) If an HCE Member is a participant in any other cash or deferred
arrangement maintained by any Employer or Affiliate, the separate
Deferral Rates determined for the Member under all such cash or
deferred arrangements shall be aggregated with the separate Deferral
Rate determined for the Member for purposes of applying Section 3.1.4.
(c) If an HCE Member is subject to the family aggregation rules of
Section 1.17(c), the Deferral Rate of the family unit shall be the
greater of (1) the combined Deferral Rate of all Family Members (as
defined in Section 1.17(c)) who are HCE Members without regard to
family aggregation, or (2) the combined Deferral Rate of all eligible
Family Members.
3.1.6 Testing Compensation. For purposes of applying Sections
3.1, 3.2 and 4.1 and the discrimination tests of sections 401(k) and 401(m)
of the Code, "Testing Compensation" shall mean with respect to any Member:
(a) The sum of (1) his or her Total Compensation (as defined in
Section 5.4.2(d)), (2) Salary Deferrals credited to his or her Salary
Deferral Account, and (3) other amounts that are contributed to an
employee benefit plan by any Employer pursuant to a salary reduction
agreement and are not includible in gross income under section 125,
401(k), 402(e)(3), 402(h), 403(b) or 414(h)(2) of the Code; or
(b) The amount of his or her compensation calculated by the Committee
in a manner which satisfies applicable requirements of Treas. Reg.
section 1.401(k)-1(g)(2)(i).
Compensation for periods prior to the time that the individual becomes a
Member shall not be taken into account. No amount in excess of $150,000 (as
adjusted pursuant to sections 401(a)(17) and 415(d) of the Code) shall be
taken into account under this Section 3.1.6 for any Plan Year. In applying
that $150,000 limit for a Plan Year, Section 1.17(c) shall apply except that
the term "Family Member" shall only include a spouse or lineal descendant
who has not attained age 19 before the close of the Plan Year.
3.2 Salary Deferral Election. Each Active Member shall determine the
percentage of his or her Compensation that shall be deferred and contributed
to the Trust Fund as his or her Salary Deferrals, subject to the limitations
of Section 3.1, at the time he or she becomes an Active Member and
thereafter may redetermine such percentage from time to time as of any Entry
Date. In either event the Active Member shall execute and deliver a salary
deferral election with respect to his or her Salary Deferrals, and no Salary
Deferrals shall be made by any Active Member except in accordance with his
or her salary deferral election and the limitations of Section 3.1.
3.2.1 Amount. The amount of Salary Deferrals that may be made by
each Active Member for each payroll period shall be the amount in dollars
and cents that is nearest to the amount of Compensation subject to the
salary deferral election multiplied by the percentage elected by the Active
Member pursuant to Section 3.1.
3.2.2 Changes. An Active Member may change the percentage
determined under the first sentence of this Section 3.2, effective with
respect to Compensation paid for the first payroll period beginning on or
after any Entry Date, or such other date as the Committee (in its
discretion) may specify, by giving written notice on such form and within
such advance notice period as the Committee shall specify. The salary
deferral election made by an Active Member shall remain in effect until his
or her active membership in the Plan is terminated, except to the extent
that the election is suspended in accordance with Section 2.4, 2.5 or 8.1,
changed in accordance with this Section 3.2.2, or reduced pursuant to
Section 3.1.1 or 3.1.2.
3.2.3 Potential Excess ADP. In the event that (but for the
application of this Section 3.2.3) the Committee determines that the ADP for
HCE Members would exceed the maximum permitted under Section 3.1.4 for a
Plan Year (the "ADP Maximum"), then the Committee (in its discretion) may
reduce, in accordance with Section 3.1.2, the percentage or amount of Salary
Deferrals subsequently to be contributed on behalf of the HCE Members by
such percentage or amount as, and for as long as, the Committee (in its
discretion) may determine is necessary or appropriate in the circumstances
then prevailing. If the Committee determines that it is no longer necessary
to reduce the Salary Deferrals contributed on behalf of (current or former)
HCE Members, the Committee (in its discretion) may permit some or all HCE
Members, on a uniform and nondiscriminatory basis, to make new salary
deferral elections with respect to their Salary Deferrals and shall
establish a policy as to the deferral percentages that shall apply with
respect to those HCE Members who do not make new elections.
3.2.4 Actual Excess ADP. In the event that the Committee
determines that the ADP for the HCE Members exceeds the ADP Maximum for any
Plan Year, then (1) the amount of any excess contributions (within the
meaning of section 401(k)(8)(B) of the Code) contributed on behalf of any
HCE Member, and (2) any Matching Contributions allocated to the HCE Member's
Matching Account by reason of excess contributions distributed pursuant to
clause (1), shall be distributed, together with any income allocable to
those amounts for the Plan Year to which the excess contributions relate, to
the HCE Member before the close of the Plan Year that next follows that Plan
Year.
(a) Determination of Excess Contributions. The amount of excess
contributions for a HCE Member shall be determined in the following
manner:
(1) The Salary Deferrals of the HCE Member with the highest
Deferral Rate shall be reduced to the extent necessary to
satisfy the ADP test or cause such Rate to equal the Deferral
Rate of the HCE Member with the next highest Deferral Rate.
This process shall be repeated until the ADP test is satisfied.
(2) The amount of excess contributions for a HCE Member shall be
equal to his or her Salary Deferrals (calculated using the
Member's original Deferral Rate), minus his or her Deferrals
calculated using the Member's Deferral Rate as reduced under
paragraph (a)(1) above.
(3) The amount of excess contributions, as determined according
to the method described in this paragraph (a), shall be reduced
by any excess deferrals previously distributed to a Member for
the Plan Year under Section 3.1.1.
(b) Family Aggregation. In the case of an HCE Member whose Deferral
Rate is determined under the family aggregation rules of Section
3.1.5(c), the Deferral Rate shall be reduced in accordance with the
"levelling" method described in Treas. Reg. section 1.401(k)-1(f)(2).
Excess contributions for the family unit shall be allocated among the
Family Members in proportion to the Salary Deferrals of each Family
Member that have been combined.
(c) Determination of Allocable Income. The income allocable to any
excess contributions for the Plan Year, excluding income for the
period between the end of the Plan Year and the date of distribution,
shall be determined in accordance with section 401(k)(8)(A)(i) of the
Code.
(d) Incorporation By Reference. The foregoing provisions of this
Section 3 are intended to satisfy the requirements of
section 401(k)(3) of the Code and, to the extent not otherwise stated
above, the provisions of section 401(k)(3) and 401(m)(9) of the Code
and Treas. Reg. section 1.401(k)-1(b) and 1.401(m)-2 are incorporated
herein by reference.
3.3 Payment of Deferrals. Subject to the provisions of Sections 3.1,
3.2, 10.3 and 11, the Employers shall pay to the Trust Fund the amounts
elected by Members to be contributed as Salary Deferrals pursuant to
Section 3. Any Salary Deferrals to be contributed for a payroll period in
accordance with the preceding sentence shall be paid to the Trust Fund as
soon as practicable (and in no event later than 90 days) after the end of
such period.
SECTION 4
MATCHING CONTRIBUTIONS
4.1 Amount of Matching Contributions. Subject to the provisions of
this Section 4.1 and Sections 10.3 and 11, the Employers shall contribute to
the Trust Fund as Matching Contributions amounts equal to the Matching
Amount (determined pursuant to Section 4.1.1) determined by the Salary
Deferrals made for each payroll period by each eligible Active Member
(determined pursuant to Section 4.1.3). Only those Salary Deferrals which
are made pursuant to such portion of each eligible Active Member's Deferral
Rate (determined pursuant to Section 3.1) as does not exceed the Matching
Ceiling (determined pursuant to Section 4.1.2) shall be taken into account
in calculating the amount of the Matching Contribution (if any) to be made
in respect of the Member's Salary Deferrals.
4.1.1 Matching Amount. The rate at which the amount of Employer
Matching Contributions shall be made for any Plan Year (the "Matching
Amount") shall be determined as follows:
If the Salary Deferral
Contribution Rate for an Then the Matching Amount
eligible Active Member is: for the Member shall be:
Less than or equal to 2% Equal to the Salary Deferrals
Greater than 2% Equal to the first 2% of Salary
deferrals plus one-half (1/2) of
Salary Deferrals greater than 2%
and less than or equal to 6%
The "Salary Deferral Contribution Rate" for an Active Member is determined
on a Plan Year basis and is (Salary Deferrals) divided by (Compensation),
expressed as a percentage. Subject to the limitations of Section 5.4, the
Matching Amount may be changed for any Plan Year to such extent (if any) as
the Board of Directors (in its discretion) may determine by resolution and
without amending the Plan pursuant to Section 11.2; provided, however, that
no decrease in the Matching Amount applicable to any Salary Deferral
contribution rate shall take effect before the first payroll period that
begins after the decrease is announced to eligible Active Members.
4.1.2 Maximum Matched Rate. For any Plan Year for which a
different rate is not determined in accordance with the following sentence,
the maximum Salary Deferral contribution rate that shall be taken into
account in determining the amount of the Matching Contribution (if any) to
be made on behalf of any eligible Active Member pursuant to this Section 4.1
(the "Matching Ceiling") shall be 6%, i.e., the amount of Matching
Contributions (if any) to be made on behalf of any eligible Active Member
shall not exceed 4% of his or her Compensation. Subject to the limitations
of Section 5.4, the Board of Directors (in its discretion) may change for
any Plan Year the maximum Salary Deferral contribution rate stated in the
preceding sentence; provided, however, that no decrease in the Matching
Ceiling shall take effect before the first payroll period that begins after
the decrease is announced to eligible Members.
4.1.3 Eligible Members. Notwithstanding the foregoing provisions
of this Section 4.1, no Matching Contribution shall be made on behalf of an
Active Member for a Plan Year unless (a) he or she remains an Eligible
Employee on the last Valuation Date of the Plan Year, or (b) his or her
employment with all Employers and Affiliates terminated at any time during
the Plan Year by reason of death or Disability.
4.1.4 Limitations on HCE Members. For any Plan Year, the
Committee (in its discretion) may limit the period for which, and/or specify
a lesser Matching Amount and/or Matching Ceiling with respect to the amount
of Matching Contributions to be made on behalf of HCE Members (as defined in
Section 3.1.3) in such manner as may be necessary or appropriate in order to
assure that the limitation described in Section 4.1.5 will be satisfied.
4.1.5 Contribution Percentage Limitation. In no event shall the
actual contribution percentage, determined in accordance with Section 4.1.6
(the "ACP"), for the HCE Members for a Plan Year exceed the maximum ACP, as
determined by reference to the ACP for the Non-HCE Members, in accordance
with the following table:
If the ACP for
Non-HCE Members Then the Maximum ACP
("NHCEs' ACP") is: for HCE Members is:
_________________ ____________________
Less than 2% 2.0 x NHCEs' ACP
2% to 8% NHCEs' ACP + 2%
More than 8% 1.25 x NHCEs' ACP
4.1.6 Actual Contribution Percentage. The actual contribution
percentage for the HCE or Non-HCE Members for a Plan Year shall be
calculated by computing the average of the percentages (calculated
separately for each HCE or Non-HCE Member) (the "Contribution Rates")
determined by dividing (a) the total of all Matching Contributions made on
behalf of the Member and credited to his or her Matching Account for the
Plan Year, by (b) the Member's Testing Compensation (as defined in Section
3.1.6) for the Plan Year. The special aggregation rules set forth in
Section 3.1.5 with respect to calculation of the Members' ADPs shall also
apply to the calculation of their ACPs.
4.1.7 Potential Excess ACP. In the event that (but for the
application of this Section 4.1.7) the Committee determines that the ACP for
the HCE Members would exceed the maximum permitted under Section 4.1.5 for a
Plan Year (the "ACP Maximum"), then the Committee (in its discretion) may
reduce, in accordance with Section 4.1.4, the percentage or amount of
Matching Contributions subsequently to be made on behalf of the HCE Members
by such percentage or amount as, and for as long as, the Committee (in its
discretion) may determine is necessary or appropriate in the circumstances
then prevailing.
4.1.8 Actual Excess ACP. In the event that the Committee
determines that the ACP for the HCE Members exceeds the ACP Maximum for a
Plan Year, then the amount of any excess aggregate contributions (within the
meaning of section 401(m)(6)(B) of the Code) contributed on behalf of any
HCE Member shall be distributed, together with any income allocable to that
amount for the Plan Year to which the excess aggregate contributions relate,
to the HCE Member before the close of the Plan Year that next follows that
Plan Year.
(a) Determination of Excess Aggregate Contributions. The amount of
excess aggregate contributions for an HCE Member, the income allocable
thereto and the application of the family aggregation rules shall be
determined in the manner provided in Section 3.2.4 with respect to
excess contributions.
(b) Prohibition on Multiple Use. Notwithstanding any contrary Plan
provision, multiple use of the alternative methods of compliance with
sections 401(k) and 401(m) of the Code, as set forth in sections
401(k)(3)(A)(ii)(II) and 401(m)(2)(A)(ii) of the Code, shall not be
permitted. In the event that multiple use occurs, it shall be
corrected by reducing the ADP and/or ACP for HCE Members (in the
discretion of the Committee), and treating such reductions as excess
contributions and/or excess aggregate contributions (as appropriate)
under Section 3.2.4 or this Section 4.1.8.
(c) Incorporation By Reference. The foregoing provisions of this
Section 4.1 are intended to satisfy the requirements of section 401(m)
of the Code and, to the extent not otherwise stated above, the
provisions of section 401(m)(2) and (9) of the Code and Treas. Reg.
section 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by
reference.
4.2 Timing. Subject to the provisions of Sections 4.1.4, 10.3 and 11,
Matching Contributions shall be paid to the Trust Fund within the time
prescribed by law (including extensions) for filing the Company's federal
income tax return for its taxable year that ends with or within the Plan
Year for which the Matching Contributions are made.
4.3 Periodic Contributions. Subject to the foregoing provisions of
this Section 4, any Matching Contributions to be made for a Plan Year may be
paid in installments from time to time during or after the Plan Year for
which they are made. The Employers shall specify, as to each Matching
Contribution payment made to the Trust Fund, the Plan Year to which the
payment relates. The Employers intend the Plan to be permanent, but the
Employers do not obligate themselves to make any Matching Contributions
under the Plan whatsoever.
4.4 Profits Not Required. Each Employer shall make any contributions
otherwise required to be made for a Plan Year without regard to its current
or accumulated earnings or profits for the taxable year that ends with or
within the Plan Year for which the contributions are made. Notwithstanding
the foregoing, the Plan is designed to constitute a qualified profit-sharing
plan as described in section 401(a) of the Code.
4.5 After-Tax Contributions. In no event shall any Member be
permitted to make contributions to the Plan or Trust Fund on an after-tax
basis.
SECTION 5
ALLOCATIONS AND INVESTMENT
5.1 Salary Deferrals. Except as provided in Section 3.2.4, the Salary
Deferrals made on behalf of an Active Member for any period shall be
allocated to his or her Salary Deferral Account as of the date on which such
Salary Deferrals are received by the Trust Fund.
5.2 Matching Contributions. Except as provided in Section 4.1.8, the
Matching Contributions made on behalf of an Active Member for a Plan Year
shall be allocated to his or her Matching Account as of the date on which
such Matching Contributions are received by the Trust Fund.
5.3 Investment. Each Active Member shall indicate on the salary
deferral election made pursuant to Section 3.2, or in such other manner as
the Committee may designate, the percentages of all amounts allocated to his
or her Account that are to be invested in each of the Commingled Funds.
Other Members shall indicate, on such election forms as the Committee may
prescribe or in such other manner as the Committee may designate and at such
times as the Committee may permit, the percentages of all amounts allocated
to their Accounts that are to be invested in each of the Commingled Funds.
A Member may specify as to any Commingled Fund any percentage provided that
the total of the percentages specified shall not exceed 100%.
5.3.1 Changes. The instructions of a Member, including a Member
whose employment has terminated but whose entire Account balance has not yet
been distributed, concerning the investment of the amounts allocated to his
or her Account may be changed in accordance with such procedures as the
Committee shall designate from time to time. The designated procedures at
all times shall permit Members to make investment changes in accordance with
designated procedures effective at a minimum of four (4) times per each Plan
Year, and more frequently if administratively feasible, all in a manner
designed to permit the Plan to qualify as a section 404(c) plan (within the
meaning of section 404(c) of ERISA).
5.3.2 Failure to Elect. If a Member fails to direct the manner
in which the amounts allocated to his or her Account are to be invested,
such amounts shall be invested in the Short-Term Fund (as described in
Section 6.3.2).
5.3.3 Member Loans. In the event a loan is to be made to a
Member in accordance with Section 8.4, the Committee shall direct that an
amount, in cash, equal to the amount of the loan be reallocated, as directed
by the Committee, from the portion of the Member's Account invested in one
or more of the other Commingled Funds to a separate subaccount within the
Member's Account (the "Loan Account"), which shall be maintained for the
purpose of accounting for any loans made to the Member from his or her
Account. Interest and principal payments on loans made to any Member shall
be allocated to his or her Loan Account as received by the Trustee and,
after appropriate adjustments have been made to the Loan Account to reflect
such payments, shall be reallocated to the Commingled Funds in the same
percentages as specified by the Member pursuant to the introductory
paragraph of this Section 5.3 (or if there is no such designation currently
in force, as the Committee shall determine).
5.4 Limitations on Allocations.
5.4.1 Annual Addition Limitation. Notwithstanding any contrary
Plan provision, in no event shall the Annual Addition to any Member's
Account for any Plan Year exceed the lesser of (a) $30,000 or (if greater)
25% of the dollar limitation in effect under section 415(b)(1)(A) of the
Code, or (b) 25% of the Member's Total Compensation for the Plan Year;
provided, however, that clause (b) shall not apply to Annual Additions
described in clauses (5) and (6) of Section 5.4.2(c).
5.4.2 Definitions. For purposes of this Section 5.4, the
following definitions shall apply:
(a) "Affiliate" shall mean a corporation, trade or business which is,
together with any Employer, a member of a controlled group of
corporations or an affiliated service group or under common control
(within the meaning of section 414(b), (c), (m) or (o) of the Code, as
modified by section 415(h) of the Code), but only for the period
during which such other entity is so affiliated with any Employer.
(b) "Aggregated Plan" shall mean any defined contribution plan which
is aggregated with this Plan pursuant to Section 5.4.3.
(c) "Annual Addition" shall mean with respect to each Member the sum
for a Plan Year of (1) the Member's Salary Deferrals to be credited to
the Member's Salary Deferral Account; (2) any Matching Contributions
to be credited to the Member's Matching Account; (3) the share of all
contributions made by all Employers and Affiliates (including salary
reduction contributions made pursuant to section 401(k) of the Code)
and any forfeitures to be credited to the Member's account under any
Aggregated Plan; (4) any after-tax employee contributions made by the
Member for the Plan Year under any Aggregated Plan; (5) any amount
allocated to the Member's individual medical account (within the
meaning of section 415(l) of the Code) under a defined benefit plan
maintained by an Employer or Affiliate; and (6) any amount
attributable to post-retirement medical benefits that is allocated
pursuant to section 419A of the Code to the Member's separate account
under a welfare benefits fund (within the meaning of section 419(e) of
the Code) maintained by an Employer or Affiliate.
(d) "Total Compensation" shall mean the amount of an Employee's:
(1) Wages (within the meaning of section 3401(a) of the Code)
and all other payments of compensation which an Employer or
Affiliate is required to report in Box 1 ("wages, tips, other
compensation") of IRS Form W-2, but (A) excluding amounts paid
or reimbursed by the Employer or Affiliate for moving expenses
incurred by the Member, to the extent that at the time of
payment it is reasonable to believe that such amounts qualify as
a "qualified moving expense reimbursement" (within the meaning
of section 132(a)(6) of the Code), and (B) determined without
regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the
services performed (such as the agricultural labor exception);
or
(2) Compensation calculated by the Committee in a manner which
satisfies applicable requirements of Treas. Reg.
section 1.415-2(d).
5.4.3 Other Defined Contribution Plans. All defined contribution
plans (terminated or not) maintained by any Employer or Affiliate shall be
aggregated with this Plan, and all plans so aggregated shall be considered
as one plan in applying the limitations of this Section 5.4, provided that
the special limitation applicable to employee stock ownership plans under
section 415(c)(6) of the Code shall be taken into account with respect to a
Member who participates in any such plan.
5.4.4 Defined Benefit Plans. If any Member participates both in
this Plan and in one or more defined benefit plans maintained by any
Employer or Affiliate for the same Plan Year, then the sum of the amounts in
(a) and (b) below shall not exceed 1.0:
(a) The ratio of (1) the annual additions actually made to his or her
accounts under this Plan and all other defined contribution plans
(subject to section 415(e)(4) of the Code) for all of his or her years
of service with all Employers and Affiliates (his or her "Total
Service") to (2) the sum of the lesser of the following amounts
(determined for each Plan Year included in his or her Total Service):
(i) An amount equal to the product of (A) 1.4 and (B) the
percentage limitation in effect under section 415(c)(1)(B) of
the Code for the Plan Year, multiplied by the Member's Total
Compensation for the Plan Year, or
(ii) An amount equal to the product of 1.25 and the dollar
limitation in effect under section 415(c)(1)(A) and (d) of the
Code for the Plan Year,
when added to:
(b) The ratio of (1) the aggregate of his or her projected annual
retirement benefits under all such defined benefit plans (determined
as of the end of the Plan Year) to (2) the lesser of (A) an amount
equal to 140% of the Member's average Total Compensation for the
three (3) consecutive years included in his or her Total Service in
which he or she had the highest Total Compensation and was an active
participant in any such defined benefit plan or (B) the product of
1.25 and the dollar limitation in effect under section 415(b)(1)(A) of
the Code (as adjusted in accordance with section 415(d) of the Code)
for the Plan Year.
5.4.5 Adjustments. If, as a result of (1) a reasonable error in
estimating a Member's Total Compensation, allocating forfeitures under any
Aggregated Plan or other circumstances which permit the application of the
rules stated in this Section 5.4.5, or (2) a reasonable error in determining
the amount of Salary Deferrals that may be made under the limits of this
Section 5.4, any of the limitations of this Section 5.4 otherwise would be
exceeded with respect to any Member for any Plan Year, then the following
actions, but only to the extent necessary to avoid exceeding such
limitations, shall be taken in the following order:
(a) Any after-tax employee contributions made by the Member under any
Aggregated Plan for the Plan Year shall be returned to him or her;
(b) In the circumstances described in clause (2) above, Salary
Deferrals shall be distributed to the Member to the extent required to
reduce the excess annual addition to the Member's Account attributable
to that circumstance;
(c) The Member's accrued benefit under any defined benefit plan shall
be frozen and/or the rate of its future accrual shall be reduced;
(d) Any Matching Contributions allocated to the Member's Matching
Account under this Plan and/or any employer matching contributions
allocated to his or her account under any Aggregated Plan shall be
reallocated to a suspense account, and the balance credited to that
account shall be applied to reduce the Matching Contributions or other
employer matching contributions (of the same class) otherwise to be
made for and allocated to all eligible Members or participants in the
Aggregated Plan for succeeding Plan Years in order of time;
(e) The Member's Salary Deferrals and any salary reduction
contributions made at the Member's election pursuant to section 401(k)
of the Code under any Aggregated Plan shall be reallocated to a
suspense account and applied to reduce such Salary Deferrals or other
salary reduction contributions as otherwise are to be made thereafter
at his or her election under this or any Aggregated Plan; and
(f) Any employer contributions otherwise to be allocated to the
Member's account under any Aggregated Plan shall be reallocated to a
suspense account, and the balance credited to that account shall be
applied to reduce other employer matching contributions (of the same
class) otherwise to be made for and allocated to all eligible
participants in the Aggregated Plan for succeeding Plan Years in order
of time.
5.4.6 Suspense Accounts. If a suspense account is created under
Section 5.4.5(d), (e) and/or (f) and exists in a later Plan Year, the amount
allocated to the suspense account shall be reallocated to the Member's
account before any amount may be contributed to this or any Aggregated Plan
on behalf of the Member for that Plan Year. If the Member for whom a
suspense account is maintained terminates employment with all Employers and
Affiliates before the suspense account balance has been reallocated pursuant
to Section 5.4.5, that balance shall be reallocated among the accounts of
all Members who remain Employees on the first day of the next following Plan
Year, in direct proportion to each such Member's share of the aggregate
Total Compensation paid to all such Members for the Plan Year of termination
(subject to the limitations of this Section 5.4), before any amount may be
contributed to this or any Aggregated Plan for the Plan Year of
reallocation. Suspense accounts shall not share in allocations of earnings
and gains (or losses) of the Trust Fund. The balances credited to all
suspense accounts shall be returned to the Employers upon termination of the
Plan.
5.4.7 Limitation Year. For purposes of applying the limitations
of section 415 of the Code, the limitation year shall be the Plan Year.
SECTION 6
ACCOUNTS AND COMMINGLED FUNDS
6.1 Members' Accounts. At the direction of the Committee, there shall
be established and maintained for each Active Member, as appropriate:
(a) A Salary Deferral Account, to which shall be credited all Salary
Deferrals paid to the Trust Fund at his or her election under
Section 3;
(b) A Matching Account, to which shall be credited all Matching
Contributions paid to the Trust Fund on his or her behalf under
Section 4;
(c) A Rollover Account, to which shall be credited all transfers made
to the Trust Fund by or on behalf of the Member under Section 10.5;
and
(d) A Loan Account, to which shall be credited (pursuant to
Section 5.3.3) any amounts loaned to the Member in accordance with
Section 8.4.
Each Member's Account shall also reflect the value of its proportionate
interest in each of the Commingled Funds as of each Valuation Date. The
maintenance of a separate Account for each Member shall not be deemed to
segregate for the Member, nor to give the Member any ownership interest in,
any specific assets of the Trust Fund.
6.2 Trust Fund Assets. The Trust Fund shall consist of the Members'
Salary Deferrals, Matching Contributions, rollovers made pursuant to Section
10.5, all investments and reinvestments made therewith, and all earnings and
gains (less any losses) thereon. The Trustee shall hold and administer all
assets of the Trust Fund in the Commingled Funds, and each Member and his or
her Account shall have only an undivided interest in any of the Commingled
Funds.
6.3 Commingled Funds. All assets of the Trust Fund shall be invested
in the following Commingled Funds:
6.3.1 Common Stock Fund. Effective as of April 1, 1985, or such
later date as the Committee may direct to assure compliance with all
applicable federal and state securities laws, the Trustee shall establish or
maintain a Common Stock Fund which shall be a commingled fund maintained for
the purpose of investing such portions of Members' Accounts as are, pursuant
to Members' investment instructions made in accordance with Section 5.3,
properly allocable to the Common Stock Fund.
(a) The Common Stock Fund shall be invested in Common Stock and may
be used to purchase shares of Common Stock in the open market.
(b) The Trustee may invest and hold up to 100% of the assets of the
Common Stock Fund in Common Stock. The Trustee may also hold such
assets in cash or cash equivalents as necessitated by the cash
requirements of the Common Stock Fund, as determined by the Committee.
6.3.2 Short-Term Fund. The Trustee shall establish or maintain a
Short-Term Fund which shall be a commingled fund maintained for the purpose
of investing such portions of Members' Accounts as are, pursuant to Members'
investment instructions made in accordance with Section 5.3, properly
allocable to the Short-Term fund. The Short-Term Fund shall be invested by
the Trustee in units, shares or other interests in one or more common,
pooled or other collective short-term investment funds which are either
(a) maintained by the Trustee or any other bank (within the meaning of
section 581 of the Code), the trustee of or investment advisor to any such
fund in which any other Commingled Fund is invested or an affiliate of such
trustee or investment advisor, or (b) registered under the Investment
Company Act of 1940.
6.3.3 Other Funds. In accordance with directions of the
Committee, the Trustee shall establish or maintain one or more other
Commingled Funds which shall be maintained for the purpose of investing such
portions of Members' Accounts as are, pursuant to Members' investment
instructions made in accordance with Section 5.3, properly allocable to each
such Fund. Each such other Commingled Fund shall be invested in units,
shares or other interests in one or more common, pooled or other collective
investment funds which are either (a) maintained by the Trustee, any other
person described in section 3(38)(B) of ERISA or an affiliate of such
person, or (b) registered under the Investment Company Act of 1940. At
least three (3) of the Commingled Funds shall (a) be diversified, (b) have
materially different risk and return characteristics, and (c) be structured
to satisfy the broad range of investment alternatives requirement, all in
manner designed to permit the Plan to qualify as a 404(c) plan (within the
meaning of section 404(c) of ERISA).
6.3.4 Designations, Redesignations and Reinvestments. Except to
the extent that investment responsibility for one or more of the Commingled
Funds (other than the Common Stock Fund) has been transferred to an
Investment Manager in accordance with Section 9.6, the Committee shall
designate the common, pooled or other collective investment funds in which
the Commingled Funds (other than the Common Stock Fund) shall be invested.
The Committee may from time to time change the number, identity or
composition of the Commingled Funds made available under this Section 6.3
and redesignate the collective investment funds in which any Commingled Fund
shall be invested. All interest, dividends or other income realized from
the investments of any of the Commingled Funds shall be reinvested in the
Commingled Fund that realized such income. Temporary cash balances arising
in any of the Commingled Funds shall be invested where feasible in any
collective investment fund which would qualify as an investment medium for
the Short-Term Fund.
6.4 Valuation of Members' Accounts. The Trustee shall determine the
fair market values of the assets of the Commingled Funds, and the Committee
shall determine the fair market value of each Member's Account, as of each
Valuation Date. In making such determinations and in crediting net earnings
and gains (or losses) in the Commingled Funds to the Members' Accounts, the
Committee may employ, and may direct the Trustee to employ, such accounting
methods as the Committee may deem appropriate in order fairly to reflect the
fair market values of the Commingled Funds and each Member's Account. For
this purpose the Trustee and the Committee (as appropriate) may rely upon
information provided by the Committee, the Trustee or other persons believed
by the Trustee or the Committee to be competent.
6.5 Valuation of Shares. For all purposes of the Plan, the Trustee
shall determine the fair market value of a share of Common Stock, which, as
of any date, shall be (except as set forth below) the closing price of the
Common Stock on the New York Stock Exchange on that date, as published in
"The Wall Street Journal" or, if no report is available for that date, on
the next preceding date for which a report is available, except that in the
case of a transaction involving the purchase or sale of share(s) of Common
Stock, the fair market value of any share of Common Stock shall be the
purchase or sale price of such share on the New York Stock Exchange.
6.6 Statements of Members' Accounts. Each Member shall be furnished
with periodic statements of his or her interest in the Plan, at least
annually.
6.7 Accounts Nonforfeitable. Each Member shall at all times have a
fully (100%) vested and nonforfeitable interest in his or her Account.
SECTION 7
DISTRIBUTIONS
7.1 Events Permitting Distribution. Subject to Section 7.3, the
balance credited to a Member's Account shall become distributable only in
the following circumstances:
(a) Upon termination of the Member's employment at or after Normal
Retirement Age;
(b) Upon termination of the Member's active employment by reason of
Disability or death;
(c) Upon termination of the Member's employment with all Employers
and Affiliates (whether by reason of resignation or dismissal) for any
reason other than those specified in paragraph (a) or (b) above;
(d) Upon the January 1, and no later than the April 1, that next
follows the calendar year in which the Member attains age 70 1/2, if
the Member attains age 70 1/2 after December 31, 1987, but no earlier
than April 1, 1990, if the Member is not a 5-percent owner (within the
meaning of section 416(i)(1) of the Code);
(e) Upon the Committee's approval of the Member's application for a
withdrawal from his or her Account, to the limited extent provided in
Section 8;
(f) In accordance with and to the limited extent provided in
Section 3.2.4 or 4.1.8; or
(g) Upon the creation or recognition of an Alternate Payee's right to
all or a portion of a Member's Account under a domestic relations
order which the Committee determines is a QDRO (as defined in
Section 8.5), but only as to the portion of the Member's Account that
the QDRO states is payable to the Alternate Payee.
7.2 Times for Distribution. Subject to the consent requirement of
Section 7.3 and except as provided in Section 8.5 (relating to QDROs),
distributions from a Member's Account shall occur at the following times:
7.2.1 Disability or Death. Distributions permitted under
Section 7.1(b) shall normally be made as soon as practicable after the end
of the calendar month in which occurs the event permitting the distribution,
but at the written election of the Member or his or her Beneficiary (if
applicable) shall be made after the last day of the Plan Year during which
such event occurs.
7.2.2 Employment Termination. A distribution permitted under
Section 7.1(a) or (c) by reason of the termination of the Member's
employment shall normally be made as soon as practicable after the end of
the calendar month in which the Member's employment terminates.
7.2.3 Withdrawals. A distribution arising from the Member's
exercise of his or her withdrawal rights shall occur at the time set forth
in Section 8.
7.2.4 Distribution Deadline. All distributions not made sooner
pursuant to one of the foregoing provisions of this Section 7.2 shall be
made no later than 60 days after the end of the Plan Year in which a
distribution event described in Sections 7.1(a) through (c) occurs or the
Member attains Normal Retirement Age (whichever is later); provided,
however, that if the amount of the distribution or the location of the
Member or his or her Beneficiary (after a reasonable search) cannot be
ascertained by that date, distribution shall be made no later than 60 days
after the earliest date on which the amount or location (as appropriate) is
ascertained; and provided, further, that distributions permitted by reason
of the Member's death shall be made within five (5) years after his or her
death. Notwithstanding the foregoing, if a Member continues in employment
after attaining Normal Retirement Age and his or her Account becomes
distributable pursuant to Section 7.1(d), the Account shall be distributed
no later than the April 1 specified in Section 7.1(d), and any subsequent
allocations to the Account (after the period of suspension described in
Section 2.5) shall be distributed by the April 1 that next follows the Plan
Year to which those allocations pertain.
7.3 Consent Requirement. If the balance credited to a Member's
Account exceeds $3,500 as of the Valuation Date that (a) next precedes the
date of the distribution or (b) next preceded the date of any prior
distribution or withdrawal from the Account, no portion of the Member's
Account shall be distributed to the Member, until he or she attains age 62,
except upon receipt of the Member's written consent to an earlier
distribution. For purposes of this Section 7.3, the Valuation Date is the
end of the calendar month following the event that is the basis for the
distribution (e.g., termination of employment).
7.4 Form of Distribution.
7.4.1 Cash. With respect to any portion of a Member's Account as
is not invested in the Common Stock Fund, any distribution from such portion
of the Account shall be made in the form of a single lump sum payment of
cash (or its equivalent) equal to the balance credited to such portion of
the Account as of the Valuation Date, except where the distributee elects,
in accordance with procedures established by the Committee, to have such
portion of the Account distributed in the form of the unliquidated assets
credited to such portion of the Account as of the Valuation Date.
7.4.2 Common Stock. Any distribution from such portion of a
Member's Account as is invested in the Common Stock Fund shall be made in
the form of a single lump sum payment in (a) whole shares of the Common
Stock allocable to such portion of the Account as of the Valuation Date,
(b) cash equal to the fair market value of such Common Stock as of the
Valuation Date, or (c) a combination of both, as elected by the distributee;
provided, however, that if fewer than 100 shares of Common Stock are
allocable to the Member's Account, the distribution shall be made in cash
(or its equivalent) to that extent.
7.4.3 Fractional Shares. If shares of Common Stock are to be
distributed, only full shares shall be distributed and cash shall be
distributed in lieu of any fractional share. The amount of cash to be
distributed in any such case shall be determined pursuant to Section 6.5 as
of the Valuation Date.
7.4.4 No Annuities. In no event shall any distribution from a
Member's Account be made in the form of a life annuity.
7.4.5 Direct Rollovers. Effective as of January 1, 1993, and
notwithstanding any contrary Plan provision:
(a) If a Distributee of any Eligible Rollover Distribution (1) elects
to have at least $500 of such Distribution paid directly to an
individual retirement account ("IRA") or other eligible retirement
plan (within the meaning of section 401(a)(31)(D) of the Code), and
(2) specifies such IRA or plan and the elected amount in such manner
and within such advance notice period as the Committee may specify,
such Distribution (or elected portion thereof) shall be made in the
form of a direct rollover to such IRA or plan, in accordance with and
subject to the conditions and limitations of section 401(a)(31) and
related provisions of the Code; and
(b) Such Distribution may commence less than 30 days after the notice
required under Treas. Reg. section 1.411(a)-11(c) is given to the
Distributee, provided that (1) the Distributee is clearly informed
that he or she has a right to consider, for a period of at least 30
days after receiving the notice, a decision on whether to elect a
distribution (and, if applicable, a particular distribution option),
and (2) the Distributee, after receiving the notice, affirmatively
elects a distribution.
(c) "Distributee" shall mean a Member, a Beneficiary (if the
surviving spouse of a Member), or an Alternate Payee (as defined in
Section 1.2) (if the surviving spouse of a Member under a QDRO (as
defined in Section 8.5)).
(d) "Eligible Rollover Distribution" shall mean a distribution of any
portion of the balance credited to the Account of a Member which is
not one of a series of substantially equal periodic payments made over
(1) a specified period of ten years or (2) the life or life expectancy
of the Distributee, to the extent that it constitutes an eligible
rollover distribution (within the meaning of section 401(a)(31)(C) of
the Code).
7.5 Common Stock Restrictions. Any Member or other prospective
distributee who is to receive a distribution of Common Stock may be required
to execute an appropriate stock transfer agreement, implementing and
evidencing such restrictions on transferability as may be imposed by
applicable federal and state securities laws, prior to receiving a
certificate for the Common Stock. Any shares of Common Stock held or
distributed by the Trustee may include such legend restrictions on
transferability as the Company may reasonably require in order to assure
compliance with applicable federal and state securities laws.
7.6 Beneficiary Designations. Each Member may designate one or more
Beneficiaries in a signed writing delivered to the Committee.
7.6.1 Spousal Consent. If a Member designates any a person other
than his or her spouse as a primary Beneficiary, the designation shall be
ineffective unless the Member's spouse consents to the designation. Any
spousal consent required under this Section 7.6 shall be void unless it
(a) is set forth in writing, (b) acknowledges the effect of the Member's
designation of another person as his or her Beneficiary under the Plan, and
(c) is signed by the spouse and witnessed by an authorized agent of the
Committee or a notary public. Notwithstanding the foregoing, if the Member
establishes to the satisfaction of the Committee that written spousal
consent may not be obtained because there is no spouse or the spouse cannot
be located, his or her designation shall be effective without spousal
consent. Any spousal consent required under this Section 7.6.1 shall be
irrevocable and valid only with respect to the spouse who signs the consent.
A Member may revoke his or her Beneficiary designation in writing at any
time, regardless of his or her spouse's previous consent to the revoked
designation, and any such revoked designation shall be void.
7.6.2 Changes and Failed Designations. A Member may designate
different Beneficiaries (or may revoke a prior Beneficiary designation) at
any time by delivering a new designation (or a signed revocation of a prior
designation) in like manner. Any designation shall become effective only
upon its receipt by the Committee but shall cease to be effective when a
written revocation of that designation by the Member is received by the
Committee. The last effective designation received by the Committee shall
supersede all prior designations. If a Member dies without having
effectively designated a Beneficiary, or if no Beneficiary survives the
Member, the Member's Account shall be payable to his or her surviving spouse
or, if the Member is not survived by his or her spouse, the Account shall be
paid to one or more of the following persons in the following priority
order:
(a) The Member's surviving Children (whether or not adopted) in equal
shares or the trustees of any trust or trusts established for the
benefit of the Member's surviving Children; for the purposes of
applying this Section, "Children" shall mean the Member's children and
the issue of the Member's deceased children, by right of
representation;
(b) The Member's surviving parents or parent, in equal shares or the
trustees of any trust or trusts established for the benefit of the
Member's surviving parents or parent; or
(c) The executors and/or administrators of his or her estate.
7.7 Payments to Incompetents. If any individual to whom a benefit is
payable under the Plan is a minor, or if the Committee determines that any
individual to whom a benefit is payable under the Plan is physically or
mentally incompetent to receive such payment or to give a valid release
therefor, payment shall be made to the guardian, committee or other
representative of the estate of such individual which has been duly
appointed by a court of competent jurisdiction. If no guardian, committee
or other representative has been appointed, payment:
(a) May be made to any person as custodian for the minor or
incompetent under the California Uniform Transfers to Minors Act (or
comparable law of another state), or
(b) May be made to or applied to or for the benefit of the minor or
incompetent, his or her spouse, children or other dependents, the
institution or persons maintaining him or her, or any of them, in such
proportions as the Committee from time to time shall determine.
The release of the person or institution receiving the payment shall be a
valid and complete discharge of any liability of the Plan with respect to
any benefit so paid.
7.8 Undistributable Accounts. Each Member and (in the event of death)
his or her Beneficiary shall keep the Committee advised of his or her
current address. If the Committee is unable to locate the Member or
Beneficiary to whom a Member's Account is payable under this Section 7,
(a) the Member's Account may be closed after 24 months have passed since the
date the Account first became distributable to such Member or Beneficiary,
and (b) the balance credited to any Account so closed shall be reallocated
among the remaining Members' Accounts as of the next succeeding Valuation
Date in the same manner as Trust Fund earnings. If the Member or
Beneficiary whose Account was closed under the preceding sentence
subsequently files a claim for distribution of his or her Account, and if
the Committee determines that such claim is valid, then the balance
previously removed upon closure of the Account shall be restored to the
Account by means of a special contribution which shall be made to the Trust
Fund by the Employers.
SECTION 8
WITHDRAWALS, LOANS AND DOMESTIC RELATIONS ORDERS
8.1 General Rules. In accordance with Sections 8.2 and 8.3, a Member
who is an Employee may withdraw, in cash, from his or her Account any amount
up to 100% of the balance credited to the Account as of the Valuation Date
that next precedes the date of the withdrawal. Any application for a
withdrawal shall be submitted to the Committee in writing on such form as it
may prescribe. No Member shall be permitted to make a withdrawal under this
Section 8 more often than once in any period of four (4) consecutive
calendar quarters. The active membership of a Member who makes a withdrawal
under Section 8.2 or 8.3 shall be suspended, in the manner set forth in
Section 2.5, for each payroll period that begins during the period starting
on the withdrawal approval date and ending on the last day of the fourth
full calendar quarter that begins after that date. Following that
suspension period, the Member may again become an Active Member and resume
his or her Salary Deferrals, effective with respect to Compensation paid for
the first payroll period beginning on or after any Entry Date, only by again
electing to become an Active Member in accordance with Section 2.3.
8.2 Hardship Withdrawal. The Committee shall authorize a distribution
under this Section 8.2 if the Member provides evidence which is sufficient
to enable the Committee to determine that the withdrawal satisfies the
conditions of this Section 8.2.
8.2.1 Permissible Financial Obligations. A Member may make a
withdrawal under this Section 8.2 only to meet a financial obligation for:
(a) Unreimbursed expenses for medical care (as defined in
section 213(d) of the Code) incurred by the Member, his or her spouse
or any dependent (as defined in section 152 of the Code) of the
Member, or necessary to enable any such person to obtain such care;
(b) The purchase of the Member's principal residence;
(c) Payment of tuition and related educational expenses up to the
next 12 months of post-secondary education for the Member, his or her
spouse or any dependent (as defined in section 152 of the Code) of the
Member;
(d) Prevention of the eviction of the Member from his or her
principal residence or foreclosure on the mortgage or deed of trust on
the Member's principal residence;
(e) Such other expenses as may be permitted under published documents
of general applicability as provided under Treas. Reg.
section 1.401(k)-1(d)(2)(ii)(B).
8.2.2 Withdrawal Necessary to Meet Financial Obligation. No
withdrawal shall be made under this Section 8.2 unless the Member has
elected to receive all distributions, withdrawals and loans available under
this Plan and all other qualified plans maintained by the Employers and
Affiliates.
8.2.3 Contribution Limitations. To the extent required by
regulations, no withdrawal shall be made under this Section 8.2 unless the
Member irrevocably agrees in writing to the following limitations:
(a) The Member shall agree to refrain during the period beginning on
the withdrawal approval date and ending on the last day of the 12th
full month ending thereafter from making contributions to,
compensation deferrals under or payments in connection with the
exercise of any rights granted under any other qualified plan or any
nonqualified stock option, stock purchase, deferred compensation or
similar plan (but not any health or welfare plan) maintained by any
Employer or Affiliate.
(b) If the Member elects to become an Active Member again following
the suspension of his or her active membership pursuant to
Section 8.1, the total amount of the Member's Salary Deferrals for the
calendar year that next follows the withdrawal date shall not exceed
an amount equal to (1) the Section 401(k) Ceiling (as defined in
Section 3.1) for that calendar year, minus (2) the Member's Salary
Deferrals for the calendar year of the withdrawal under this
Section 8.2.
8.2.4 Limit on Withdrawal. No withdrawal under this Section 8.2
shall exceed the lesser of:
(a) The amount which the Committee determines is necessary (net of
income or penalty taxes reasonably anticipated to result from the
withdrawal) to satisfy the financial obligations meeting the
conditions of Section 8.2.1;
(b) The excess of (1) the value of the Member's Accounts as of the
Valuation Date that occurs on or next precedes the withdrawal date,
over (2) the total amount due (including both principal and interest)
under all outstanding loans made pursuant to Section 8.4 by the
Member; or
(c) To the extent that the withdrawal is made from the Member's
Salary Deferral Account, the excess of (1) the sum of all Salary
Deferrals allocated to the Member's Salary Deferral Account on or
before the date of the withdrawal plus the amount of the earnings
credited to that Account as of December 31, 1988, over (2) the sum of
all amounts previously withdrawn or distributed from the Member's
Salary Deferral Account.
8.2.5 Order of Withdrawal From Accounts. Any amount withdrawn
under this Section 8.2 shall be deducted from the Member's Accounts in the
following order: the Rollover Account, the Matching Account, the Salary
Deferral Account, and any other Accounts. Subject to the preceding
sentence, the Member shall designate in writing the order in which amounts
invested in the Commingled Funds shall be withdrawn.
8.3 Age 59 1/2 Withdrawal. At any time after a Member attains age 59
1/2, the Member (subject to the provisions of Section 8.1) may withdraw an
amount from his or her Account.
8.4 Loans to Members.
8.4.1 General Loan Rules. A Member who is an Employee may, upon
written application to the Committee on such form as the Committee shall
prescribe, obtain a loan from the portion of the Trust Fund allocated to the
Member's Account in accordance with the provisions of this Section 8.4.
Loans shall be available to all Members who are Employees, and to parties in
interest (within the meaning of section 3(14) of ERISA) with respect to the
Plan who are non-Employee Members or Beneficiaries of deceased Members, on a
reasonably equivalent basis.
(a) Amount. The amount of the loan shall be neither less than $1,000
nor more than the excess of (1) 50% of the Member's Available Balance,
determined as of the Valuation Date, over (2) the sum of the
outstanding balances (including both principal and accrued interest)
on all prior outstanding loans to the Member under this Plan.
(b) "Available Balance" shall mean the vested balance credited to the
Member's Account as of the applicable date, reduced by amounts
allocated pursuant to Section 8.5 to any subaccount of the Member's
Account for any Alternate Payee under a QDRO (as defined in
Section 8.5).
(c) Additional Limits. The amount borrowed under this Section 8.4
shall not cause the sum of (i) the amount of the loan, plus (ii) the
aggregate outstanding balance (including both principal and accrued
interest) on all prior loans to the Member under this Plan or any
other qualified plan maintained by any Employer or Affiliate (an
"Other Plan"), to exceed an amount equal to $50,000, reduced by the
excess (if any) of (1) the highest aggregate outstanding balance on
all loans under this Plan and all Other Plans during the one-year
period ending on the day before the date the loan is to be made, over
(2) the aggregate outstanding balance on all such loans on the date
the loan is made.
(d) Number of Loans. No Member shall be permitted to borrow under
this Section 8.4 if the borrowing would result in his or her having
more than two (2) loans outstanding, and an additional loan may not be
made to a Member until at least 12 months after the next earliest loan
was made; provided, however, that the Committee (in its discretion)
may nevertheless permit a Member to make a second or third loan if the
Member provides evidence sufficient to show that the second or third
loan is necessary in light of his or her immediate and heavy financial
needs.
8.4.2 Minimum Requirements of Each Loan. The terms of any loan
made under this Section 8.4 shall be evidenced by a promissory note signed
by the Member, and such terms shall satisfy the following minimum
requirements:
(a) Separate Accounting. Each loan shall be considered as a
separate, ear-marked investment of the Member's Loan Account and shall
be accounted for as provided in Section 5.3.3.
(b) Term. The term of the loan shall not exceed five (5) years. The
Member may elect a term of either three (3) or five (5) years for each
loan.
(c) Interest Rate. Each loan shall bear a reasonable rate of
interest, as determined by the Committee, which shall be comparable to
the interest rates charged under similar circumstances by persons in
the business of lending money.
(d) Payment Schedule. A definite payment schedule shall be
established for each loan which shall require level and periodic
payments of both principal and interest over the agreed term of the
loan. The Committee may require on a uniform basis that loans with a
term of five (5) years be repaid in 58 equal monthly installments. A
Member may prepay at any time the entire amount remaining due under
the loan, but no partial prepayments shall be permitted.
(e) Withholding Payments. No loan shall be made unless the Member
agrees to make principal and interest payments on each loan, together
with any and all reasonable charges imposed by the Trustee at the
direction of the Committee in connection with the loan:
(1) By payroll withholding, in the case of a Member who is
receiving periodic wage payments from an Employer or Affiliate;
or
(2) By an automatic payment method which the Committee (in its
discretion) determines will provide security comparable to that
of payroll withholding, in the case of a Member who is not
receiving periodic wage payments from an Employer or Affiliate.
(f) On Payroll. If during the term of the loan, a Member who has
been making payments by the automatic payment method described in
Section 8.4.2(e)(2) begins receiving periodic wage payments from an
Employer or Affiliate, the Member shall authorize in writing payroll
withholding for the remaining loan payments.
(g) Off Payroll. If during the term of the loan, a Member who has
been making loan payments by payroll withholding ceases to receive
periodic wage payments from an Employer or Affiliate (and distribution
of the Member's Account has not begun), the Member shall authorize in
writing an automatic payment method described in Section 8.4.2(e)(2)
for the remaining loan payments.
(h) Failure to Authorize. If any Member fails to authorize any
change in the method of payment required by Section 8.4.2(f) or (g),
the outstanding balance (including unpaid principal and interest) on
the loan shall become immediately due and payable.
(i) Security. Each loan shall be adequately secured by collateral of
sufficient value to secure payment of the loan principal and interest.
Notwithstanding the provisions of Section 13.2, the Member shall
pledge 50% of his or her interest in the Member's Account, and shall
provide such other collateral as the Committee may require, to secure
his or her loan payment obligations.
(j) Spousal Consent. No loan may be made to a Member who is married
at the time the loan is to be made unless, no more than 90 days before
the date of the loan, the Member's spouse consents in writing to the
loan and to the possible reduction of the Member's Account balance in
the event the loan is in default. Any spousal consent required under
this Section 8.4.2 shall be void unless it (1) is set forth in
writing, (2) acknowledges the loan and possible effect of the loan in
the Member's Account balance, and (3) is signed by the spouse and
witnessed by an authorized agent of the Company or a notary public.
Notwithstanding the foregoing, if the Member establishes to the
satisfaction of the Committee that written spousal consent may not be
obtained because there is no spouse or the spouse cannot be located,
his or her designation shall be effective without spousal consent.
The same spousal consent requirement shall apply with respect to any
renegotiation, renewal or other revision of the loan.
8.4.3 Default. If a Member defaults on his or her loan payment
obligations and does not cure the default within 30 days of the date the
Committee notifies him or her of the default, the Committee shall take, or
direct the Trustee to take, such action as shall be necessary or appropriate
in the circumstances prevailing:
(a) To realize upon the security interest of the Trust Fund in the
collateral pledged to secure the loan, and/or
(b) To reduce the balance credited to the Member's Account by the
amount required to cure the default.
(c) In applying the method of cure provided in paragraph (a) above,
if any losses are realized or expenses incurred, they shall be
allocated only to the defaulting Account.
(d) In applying the method of cure provided in paragraph (b) above,
the amount by which the Member's Account is to be reduced shall be
credited to a separate suspense account for the Member and shall be
increased annually with interest, at the greater of (1) the average
rate of interest earned by the Short-Term Fund for each Plan Year, or
(2) the interest rate that actually applies to the loan pursuant to
Section 8.4.2(c), for the period from the date of the default until
the earlier of the date the Member attains age 59 1/2 or the first
date on which distributions from the Account can be made under
Section 7.1; the balance credited to the Account as of that first date
shall be reduced by the amount then credited to the suspense account;
and only the remaining balance (if any) shall be available for
distribution under Section 7.
8.4.4 Effect of Distributions. If any amount remains outstanding
as a loan obligation of a Member when a distribution is made from his or her
Account under Section 7 (including, but not limited to, a distribution in
connection with termination of employment with all Employers and
Affiliates), (a) the outstanding loan balance (including both principal and
accrued interest) shall then become immediately due and payable, and (b) the
balance credited to the Member's Account shall be reduced to the extent
necessary to discharge the obligation.
8.4.5 Transition Rule. The provisions of this Section 8.4 shall
apply only with respect to loans made after the effective date of Amendment
No. 2 to the Plan (as restated effective January 1, 1991), and prior
provisions of the Plan shall apply with respect to loans made on or before
that date.
8.5 Qualified Domestic Relations Orders. The Committee shall
establish written procedures for determining whether a domestic relations
orders purporting to dispose of any portion of a Member's Account is a
qualified domestic relations order (within the meaning of section 414(p) of
the Code) (a "QDRO").
8.5.1 No Payment Unless a QDRO. No payment shall be made to any
Alternate Payee until the Committee (or a court of competent jurisdiction
reversing an initial adverse determination by the Committee) determines that
the order is a QDRO. Payment shall be made to any Alternate Payee only as
specified in the QDRO.
8.5.2 Immediate Payment Required. Payment shall be made to an
Alternate Payee, in accordance with a QDRO, as soon as practicable after the
QDRO determination is made, regardless of whether the distribution, if made
to a Member at the time specified in the order, would be permitted under the
terms of the Plan.
8.5.3 Deferred Payment. If the QDRO does not provide for
immediate payment to an Alternate Payee, the Committee shall establish a
subaccount to record the Alternate Payee's interest in the Member's Account.
All investment decision with respect to amounts credited to the subaccount
shall be made by the Alternate Payee in the manner provided in Section 5.3.
Payment to the Alternate Payee shall not be deferred beyond the date of
distribution to the Member or (in the event of death) his or her Beneficiary
is made or commenced.
SECTION 9
ADMINISTRATION OF THE PLAN
9.1 Plan Administrator. The Company is hereby designated as the
administrator of the Plan (within the meaning of sections 414(g) and
3(16)(A) of the Code and ERISA, respectively).
9.2 Committee. The Plan shall be administered by a Committee
consisting of at least three (3) members, appointed by and holding office at
the pleasure of the Board of Directors. The Committee shall have the
authority to control and manage the operation and administration of the Plan
as a named fiduciary under section 402(a)(1) of ERISA. Any member of the
Committee who is also an Employee shall serve as such without additional
compensation. Any member of the Committee may resign at any time by notice
in writing mailed or delivered to the Board of Directors. The Board of
Directors may remove any member of the Committee at any time and may fill
any vacancy which exists.
9.3 Actions by Committee. Each decision of a majority of the members
of the Committee then in office shall constitute the final and binding act
of the Committee. The Committee may act with or without a meeting being
called or held and shall keep minutes of all meetings held and a record of
all actions taken. Except as otherwise specifically or generally directed
by the Committee, any action of the Committee may be evidenced by a writing
signed by any two (2) members of the Committee.
9.4 Powers of Committee. The Committee shall have all powers
necessary to supervise the administration of the Plan and to control its
operation in accordance with its terms, including, but not by way of
limitation, the following discretionary powers:
(a) To interpret the provisions of the Plan and to determine any
question arising under, or in connection with the administration or
operation of, the Plan;
(b) To determine all questions concerning the eligibility of any
Employee to become or remain a Member and/or an Active Member of the
Plan;
(c) To cause one or more separate Accounts to be maintained for each
Member;
(d) To establish and revise an accounting method or formula for the
Plan, as provided in Section 6.4;
(e) To determine the manner and form, and to notify the Trustee, of
any distribution to be made under the Plan;
(f) To grant or deny hardship withdrawal and loan applications under
Section 8;
(g) To determine the status and rights of Members and their spouses,
Beneficiaries or estates;
(h) To instruct the Trustee with respect to matters within the
jurisdiction of the Committee;
(i) To direct the Trustee, in accordance with Section 6.3, as to the
establishment of Commingled Funds and the investment of the Plan
assets held in the Commingled Funds (other than the Common Stock
Fund);
(j) To employ such counsel, agents and advisors, and to obtain such
legal, clerical and other services, as it may deem necessary or
appropriate in carrying out the provisions of the Plan;
(k) To prescribe the form and manner in which any member, or his or
her spouse or other Beneficiary, shall make any election or
designation required under the Plan;
(l) To establish rules for the performance of its powers and duties
and for the administration of the Plan;
(m) To arrange for annual distribution to each Member of a statement
of benefits accrued under the Plan;
(n) To establish rules and regulations by which requests for Plan
information from Members are processed expeditiously and completely;
(o) To provide to each terminated Member notice of his or her vested
interest under the Plan and the written explanation described in
section 402(f) of the Code;
(p) To publish a claims and appeal procedure satisfying the minimum
standards of section 503 of ERISA pursuant to which Members or their
spouses, Beneficiaries or estates may claim Plan benefits and appeal
denials of such claims;
(q) To determine the liabilities of the Plan, to establish and
communicate a funding policy to the Trustee and any Investment Manager
appointed pursuant to Section 9.6, and in accordance with such funding
policy, to coordinate the Plan's investment policy with the Plan's
requirements for funds to pay expenses and benefits as they become
due;
(r) To act as agent for the Company in keeping all records and
assisting with the preparation of all reports and disclosures
necessary for purpose of complying with the reporting and disclosure
requirements of ERISA and the Code;
(s) To arrange for the purchase of any bond required of the Committee
members or others under section 412 of ERISA; and
(t) To delegate to any one or more of its members or to any other
person, severally or jointly, the authority to perform for and on
behalf of the Committee one or more of the fiduciary and/or
ministerial functions of the Committee under the Plan.
9.5 Fiduciary Responsibilities. To the extent permissible under
ERISA, any person may serve in more than one fiduciary capacity with respect
to the Plan. Except as required by specific provisions of ERISA, no person
who is a fiduciary with respect to the Plan shall be under any obligation to
perform any duty or responsibility with respect to the Plan which has been
specifically allocated to another fiduciary.
9.6 Investment Responsibilities. The Committee shall direct the
Trustee to invest the Commingled Funds (other than the Common Stock Fund) in
one or more common, pooled or other collective investment funds. Subject to
the provisions of this Section 9.6 and any contrary provision of the Plan or
Trust Agreement, exclusive authority and discretion to manage and control
the assets of the Trust Fund shall be vested in the Trustee, and the Trustee
from time to time shall review the assets and make its determinations as to
the investments of the Trust Fund.
9.6.1 Investment Manager Appointment. The Committee in its
discretion may appoint, and thereafter may discharge, one or more investment
managers (the "Investment Managers") to manage the investment of the one or
more of the Commingled Funds and other designated portions of the Trust Fund
(other than the Common Stock Fund). In the event of any such appointment,
the Trustee shall follow the instructions of the Investment Manager in
investing and administering Trust Fund assets managed by the Investment
Manager. Alternatively, the Committee may delegate investment authority and
responsibility with respect to any Commingled Fund (other than the Common
Stock Fund) directly to any Investment Manager which has investment
management responsibility for any collective investment fund in which the
Commingled Fund is invested.
9.6.2 Eligibility. Any person, firm or corporation appointed as
Investment Manager (a) shall be a person described in section 3(38)(B) of
ERISA, (b) shall make such representations from time to time as the
Committee may require in order to determine its qualifications to be
appointed and to continue to serve in such capacity, and (c) shall
acknowledge in writing its status as a fiduciary with respect to the Plan
upon acceptance of its appointment.
9.7 Voting and Tender Offer Rights in Common Stock.
9.7.1. Pass-Through Issues. All Common Stock held in the Trust
Fund shall be voted, tendered or exchanged, with respect to Pass-Through
Issues, in accordance with Sections 9.7.3 through 9.7.6. For purposes of
this Section 9.7, a "Pass-Through Issue" with respect to Common Stock is an
issue which concerns:
(a) The voting of shares of Common Stock with respect to the approval
or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business or any transaction
which the Committee determines (in its discretion) to be similar to
the foregoing;
(b) Any tender or exchange offer for Common Stock;
(c) Any proposal by a shareholder pursuant to Rule 14a-8 under the
1934 Act;
(d) Any election contest governed by Rule 14a-11 under the 1934 Act;
(e) Any proposal with respect to which there is any solicitation in
opposition (within the meaning of Rule 14a-6 under the 1934 Act); or
(f) Any such other event that the Committee designates a Pass-Through
Issue. It is anticipated that generally the Committee will designate
all but nonsubstantive issues as Pass-Through Issues. The Committee
shall have the authority to determine which issues are nonsubstantive
issues.
9.7.2 Voting On Issues Other Than Pass-Through Issues. Except
with respect to Pass-Through Issues, all Common Stock held in the Trust Fund
shall be voted by the Trustee only in accordance with instructions received
from the Committee. However, if with respect to some matter other than a
Pass-Through Issue the Committee shall fail to give, or shall notify the
Trustee in writing of its decision not to give, timely voting instructions
to the Trustee, the Trustee shall exercise the power to vote such Common
Stock in its sole discretion. The functions of the Committee and the
Trustee with respect to other rights pertaining to such Common Stock on
matters other than Pass-Through Issues shall be allocated between them in
like manner.
9.7.3 Named Fiduciary Status. For purposes of this Section 9.7,
each Member (or, if deceased, his or her Beneficiary) shall be a named
fiduciary (within the meaning of, but not limited to, sections 402(a) and
403(a)(1) of ERISA) with respect to Pass-Through Issues for all shares of
Common Stock as to which the Member has the right of direction with respect
to voting, tender and any other rights appurtenant to such Stock. That
named fiduciary status shall apply with respect to Pass-Through Issues for
all shares of Common Stock allocable to the Member's Account.
9.7.4 Confidentiality. In implementing this Section 9.7, each
appropriate fiduciary shall take all steps necessary or appropriate to
ensure that each Member's (or Beneficiary's) instructions shall be kept in
strictest confidence and shall not be divulged or released to any person,
except as provided in the next sentence, including officers, directors or
employees of the Company or any Affiliate. To the extent necessary for the
operation of the Plan, however, the instructions may be provided to the
Trustee and to a recordkeeper, auditor or other person providing services to
the Plan if the person (a) is not the Company or an Affiliate, and
(b) agrees not to divulge the instructions to any other person, including
officers, directors or employees of the Company or any Affiliate.
9.7.5 Directed Voting and Consents
(a) Notwithstanding any contrary Plan provision, whenever any proxies
or consents are solicited from the holders of Common Stock with
respect to Pass-Through Issues, the Trustee shall exercise voting or
other rights solely as directed in written instructions timely
received from Members (or if deceased, their Beneficiaries) and in
accordance with this Section 9.7.
(b) Each Member (or if deceased, his or her Beneficiary) shall have
the right, with respect to Pass-Through Issues for shares of Common
Stock allocable to his or her Account, to instruct the Trustee in
writing as to the manner in which to vote those shares at any
stockholders' meeting of the Company, or the manner in which the
Trustee shall give or withhold consent with respect to the shares.
(1) The Trustee shall pool the results of instructions received
from all Members to whose Accounts fractional shares are
allocable and shall vote or otherwise act accordingly with
respect to those shares on Pass-Through Issues;
(2) In the case of a deceased Member who has more than one
Beneficiary, the Trustee shall vote or otherwise act on Pass-
Through Issues in accordance with the instructions of the
Member's Beneficiaries in respect of the shares allocable to the
deceased Member's Account in proportion to the Beneficiaries'
respective interests in the Member's Account in accordance with
rules established by the Committee.
(3) If no instructions are received with respect to shares of
Common Stock allocable to a Member's Account, those shares shall
not be voted nor shall any other actions under this Section 9.7
be taken with respect to the shares on Pass-Through Issues.
(c) The Company shall use its best efforts to timely distribute or
cause to be distributed to each Member (or Beneficiary) such
information concerning Pass-Through Issues as will be distributed to
stockholders of the Company in connection with any stockholders'
meeting or any solicitation of voting or consents, together with a
request for confidential instructions to the Trustee or its designee
on how shares of Common Stock shall be voted on each such matter or
how consents shall be given or withheld.
9.7.6 Tender or Exchange Offers
(a) Notwithstanding any contrary Plan provision, whenever any tender
or exchange offer is made for shares of Common Stock, the Trustee
shall tender or exchange shares of Common Stock (or refrain from
tendering or exchanging) solely as directed in written instructions
timely received from Members (or if deceased, their Beneficiaries) and
in accordance with this Section 9.7.
(b) Each Member (or, if deceased, his or her Beneficiary) shall have
the right, with respect to shares of Common Stock allocable to his or
her Account, to instruct the Trustee in writing as to the manner in
which to respond to a tender or exchange offer with respect to those
shares.
(1) If, and to the extent that the Trustee shall not have
timely received instructions from any Member (or Beneficiary)
with a right to instruct, such person shall be deemed to have
timely instructed the Trustee not to tender or exchange the
relevant shares of Common Stock.
(2) The Trustee shall pool the results of instructions received
from all Members to whose Accounts fractional shares are
allocable and shall respond to the tender or exchange offer
accordingly with respect to those shares.
(3) In the case of a deceased Member who has more than one
Beneficiary, the Trustee shall respond to the tender or exchange
offer in accordance with the instructions of the Member's
Beneficiaries in respect of the shares allocated to the deceased
Member's Account in proportion to the Beneficiaries' respective
interests in the Member's Account in accordance with rules
established by the Committee.
(4) Shares allocated to a Member's Account with respect to
which no timely instructions are furnished shall be treated as
shares with respect to which instructions not to tender or
exchange have been timely furnished.
(c) The Company shall use its best efforts to timely distribute or
cause to be distributed to each Member (or Beneficiary) such
information as will be distributed to stockholders of the Company in
connection with any tender or exchange offer, together with a request
for confidential instructions to the Trustee or its designee to
respond to the tender or exchange offer.
9.8 Decisions of Committee. All decisions of the Committee, and any
action taken by it in respect of the Plan and within the powers granted to
it under the Plan, and any interpretation of provision of the Plan or the
Trust Agreement by the Committee, shall be conclusive and binding on all
persons, and shall be given the maximum possible deference allowed by law.
9.9 Administrative Expenses. All reasonable expenses actually
incurred in connection with the administration of the Plan by the Employers,
the Committee or otherwise, including legal, Trustee's and investment
management fees and expenses ("Administrative Expenses"), shall be payable
from the Trust Fund, except to the extent paid by the Employers under
clause (a) below. Notwithstanding the foregoing, Administrative Expenses
shall be paid from the Trust Fund only to the extent that such payments (to
the extent prohibited by section 406) are exempt under section 408 of ERISA.
The Committee shall determine which Administrative Expenses are not payable
from the Trust Fund under the foregoing rules. The Company (in its
discretion) may (a) direct the Employers to pay any or all Administrative
Expenses, and/or (b) direct the Employers not to pay a greater share,
portion or amount of such Expenses which would otherwise be allocable to the
Accounts of Members who are no longer employed by any Employer or Affiliate.
9.10 Eligibility to Participate. No member of the Committee, who is
also an Eligible Employee and otherwise eligible under Section 2, shall be
excluded from membership in the Plan, but he or she, as a member of the
Committee, shall not act or pass upon any matters pertaining specifically to
his or her own Account under the Plan.
9.11 Indemnification. Each of the Employers shall, and hereby does,
indemnify and hold harmless any of its Employees, officers or directors who
may be deemed to be a fiduciary of the Plan, and the members of the
Committee, from and against any and all losses, claims, damages, expenses
and liabilities (including reasonable attorneys' fees and amounts paid, with
the approval of the Board of Directors, in settlement of any claim) arising
out of or resulting from the implementation of a duty, act or decision with
respect to the Plan, so long as such duty, act or decision does not involve
gross negligence or willful misconduct on the part of any such individual.
SECTION 10
TRUST FUND AND ROLLOVER CONTRIBUTIONS
10.1 Trust Fund. The Company shall establish a Trust Agreement with
the Trustee in order to provide for the safekeeping, administration and
investment of Salary Deferrals, Matching Contributions and rollover
contributions made under the Plan, the maintenance of Members' Accounts, and
the payment of benefits as provided in the Plan. The Trustee shall receive
and place in the Trust Fund all such contributions and shall hold, invest,
reinvest and distribute the Trust Fund in accordance with provisions of the
Plan and Trust Agreement. Assets of this Plan may be commingled with the
assets of other qualified plans through one or more collective investment
funds described in Section 6.3; provided, however, that the assets of this
Plan shall not be available to provide any benefits under any other such
plan. The benefits provided under the Plan shall be only such as can be
provided by the assets of the Trust Fund, and no liability for payment of
benefits shall be imposed upon the Employers or any of their shareholders,
directors or employees. The Trust Fund shall continue for such time as may
be necessary to accomplish the purposes for which it is created.
10.2 No Diversion of Assets. Notwithstanding any contrary Plan
provision, at no time shall any assets of the Plan be used for, or diverted
to, purposes other than for the exclusive benefit of Eligible Employees,
Members, Beneficiaries and other persons receiving or entitled to receive
benefits or payments under the Plan. Except to the limited extent permitted
by Sections 5.4.6 and 10.3, no assets of the Plan shall ever revert to or
become the property of the Employers.
10.3 Continuing Conditions. Any obligation to contribute Salary
Deferrals and/or to make Matching Contributions under the Plan after initial
qualification is hereby conditioned upon the continued qualification of the
Plan under section 401(a) of the Code and the exempt status of the Trust
Fund under section 501(a) of the Code and upon the deductibility of such
Salary Deferrals and/or Matching Contributions under section 404(a) of the
Code. That portion of any Salary Deferral or Matching Contribution which is
contributed or made by reason of a good faith mistake of fact, or by reason
of a good faith mistake in determining the deductibility of such portion,
shall be returned to the Employers as promptly as practicable, but not later
than one year after the contribution was made or the deduction was
disallowed (as the case may be). The amount returned pursuant to the
preceding sentence shall be an amount equal to the excess of the amount
actually contributed over the amount that would have been contributed if the
mistake had not been made; provided, however, that gains attributable to the
returnable portion shall be retained in the Trust Fund; and provided,
further, that the returnable portion shall be reduced (a) by any losses
attributable thereto and (b) to avoid a reduction in the balance of any
Member's Account below the balance that would have resulted if the mistake
had not been made.
10.4 Change of Investment Alternatives. The Company reserves the
right to change at any time the means through which the Plan is funded,
including adding or substituting one or more contracts with an insurance
company or companies, and thereupon may make suitable provision for the use
of a designated portion of the assets of the Trust Fund to provide for the
funding and/or payment of Plan benefits under any such insurance contract.
No such change shall constitute a termination of the Plan or result in the
diversion to the Employers of any portion of the Trust Fund.
Notwithstanding the implementation of any such change of funding medium, all
references in the Plan to the Trust Fund shall also refer to the Plan's
interest in or the assets held under any other such funding medium.
10.5 Rollover Contributions. Notwithstanding any contrary Plan
provision, the Committee may direct the Trustee to accept a transfer of
assets to the Trust Fund by a Member of this Plan, but only if the transfer
qualifies as a rollover under section 402(c) or 408(d)(3)(A)(ii) of the
Code. Any assets transferred to the Trust Fund in accordance with the
preceding sentence must be in the form of cash.
10.5.1 Rollover Account. Assets transferred to the Trust Fund
pursuant to this Section 10.5 shall be credited to the Member's Rollover
Account. A Member's interest in his or her Rollover Account shall be fully
(100%) vested and nonforfeitable at all times. The Member shall indicate,
on such form or in such manner and within such advance notice period as the
Committee shall prescribe, the percentages of the amounts allocated to his
or her Rollover Account that are to be invested in each of the Commingled
Funds. In all other respects Rollover Account investments shall be subject
to Section 5.3.
10.5.2 Nonqualifying Rollovers. If it is later determined that a
transfer to the Trust Fund made pursuant to this Section 10.5 did not in
fact qualify as a rollover under section 402(c) or 408(d)(3)(A)(ii) of the
Code, then the balance credited to the Member's Rollover Account shall
immediately be (a) segregated from all other Plan assets, (b) treated as a
nonqualified trust established by and for the benefit of the Member, and
(c) distributed to the Member. Such a nonqualifying rollover shall be
deemed never to have been a part of the Trust Fund.
SECTION 11
MODIFICATION OR TERMINATION OF PLAN
11.1 Employers' Obligations Limited. The Plan is voluntary on the
part of the Employers, and the Employers shall have no responsibility to
satisfy any liabilities under the Plan. Furthermore, the Employers do not
guarantee to continue the Plan, and the Company may, by appropriate
amendment of the Plan, discontinue Salary Deferrals and/or Matching
Contributions for any reason at any time. Complete discontinuance of all
Salary Deferral and Employer contributions shall be deemed a termination of
the Plan.
11.2 Right to Amend or Terminate. The Company reserves the right to
alter, amend or terminate the Plan, or any part thereof, in such manner as
it may determine. Amendments which do not add materially to the Company's
cost under the Plan and which are either necessary to comply with the Code,
ERISA or other applicable law, are technical or intended to ease
administration may be adopted if approved in writing by any two (2) of the
following officers of the Company:
Vice-President, Human Resources
Treasurer
Chief Financial Officer
All other amendments shall be approved by the Board of Directors. Any such
alteration, amendment or termination shall take effect upon the date
indicated in the document embodying such alteration, amendment or
termination; provided, however, that:
(a) No such alteration or amendment shall (1) divest any portion of
an Account that is then vested under the Plan, or (2) except as may be
permitted by regulations or other IRS guidance, eliminate any optional
form of benefit (within the meaning of section 411(a)(6)(B)(ii) of the
Code) with respect to benefits accrued prior to the adoption of the
amendment; and
(b) Any alteration, amendment or termination of the Plan or any part
thereof, shall be subject to the restrictions in Section 10.2 which
prohibit any diversion of the assets of the Plan.
11.3 Effect of Termination. If the Plan is terminated or partially
terminated, or if there is a complete discontinuance of all Salary Deferral
and Matching Contributions, the interests of all Members affected by such
termination or discontinuance in their Accounts shall remain fully (100%)
vested and nonforfeitable. Notwithstanding the foregoing, the balances
credited to the Salary Deferral Accounts of any Members who are affected by
the termination may be distributed prior to the occurrence of a distribution
event described in Section 7.1, but only to the extent permitted by section
401(k)(2)(B) of the Code.
SECTION 12
TOP-HEAVY PLAN
12.1 Top-Heavy Plan Status. Notwithstanding any contrary Plan
provision, the provisions of this Section 12 shall apply with respect to any
Plan Year for which the Plan is a top-heavy plan (within the meaning of
section 416(g) of the Code) (a "Top-Heavy Plan").
12.1.1 60% Rule. The Plan shall be a Top-Heavy Plan with respect
to any Plan Year if, as of the Determination Date, the value of the
aggregate of the Accounts under the Plan for key employees (within the
meaning of section 416(i) of the Code) exceeds 60% of the value of the
aggregate of the Accounts under the Plan for all Members. For purposes of
determining the value of the Accounts, the provisions of section
416(g)(4)(E) of the Code and Treas. Reg. section 1.416-1, (Q&A T-1) are
incorporated herein by reference.
12.1.2 Top-Heavy Determinations. The Committee, acting on behalf
of the Employers, shall determine as to each Plan Year whether or not the
Plan is a Top-Heavy Plan for that Plan Year. For purposes of making that
determination as to any Plan Year:
(a) "Determination Date" shall mean the last day of the immediately
preceding Plan Year;
(b) The Plan shall be aggregated with each other qualified plan of
any Employer or any Affiliate (1) in which a key employee (within the
meaning of section 416(i)(1) and (5) of the Code) participates, and/or
(2) which enables the Plan or any plan described in clause (1) above
to meet the requirements of section 401(a)(4) or 410(b) of the Code;
(c) The Plan may be aggregated with any other qualified plan of any
Employer or Affiliate, which plan is not required to be aggregated
under paragraph (b)(1) above, if the resulting group of plans would
continue to meet the requirements of sections 401(a)(4) and 410(b) of
the Code; and
(d) In determining which employees are key and non-key employees, an
Employee's compensation for the Plan Year shall be his or her Total
Compensation (as defined in Section 5.4.2(d)).
12.2 Top-Heavy Plan Provisions. For any Plan Year for which the Plan
is a Top-Heavy Plan, the following provisions shall apply:
12.2.1 Minimum Allocation. The Employers shall make an
additional contribution to the Account of each Member who is a non-key
employee (within the meaning of section 416(i)(2) and (5) of the Code), and
who is employed on the last day of the Plan Year, in an amount which equals
3% of his or her Top-Heavy Compensation (as defined in Section 12.2.2) for
the Plan Year; provided, however, that if the Key Employee Percentage is
less than 3%, then the percentage rate at which that additional Employer
contribution shall be made for that Plan Year shall be reduced from 3% to
the Key Employee Percentage.
(a) "Key Employee Percentage" shall mean the largest percentage
computed by dividing (a) the total amount of Salary Deferrals and
Matching Contributions allocated for that Plan Year to the Account of
each Member who is a key employee (within the meaning of
section 416(i)(1) and (5) of the Code), by (b) his or her Top-Heavy
Compensation.
(b) The additional contribution required under this Section 12.2.1
shall be made without regard to the level of the Member's Top-Heavy
Compensation for the Plan Year.
(c) Notwithstanding the foregoing, if a Member is also covered under
any Other Plan (as defined in Section 8.4.1(c)) and the minimum
allocation of benefit requirement applicable to Top-Heavy Plans will
be met under such Other Plan or Plans, no additional contribution will
be made for the Member under this Plan.
12.2.2 "Top-Heavy Compensation", with respect to any Member for a
Plan Year, shall mean the sum of (a) his or her Total Compensation (as
defined in Section 5.4.2(d)), (b) Salary Deferrals credited to his or her
Salary Deferral Account, and (c) other amounts that are contributed to an
employee benefit plan by any Employer pursuant to a salary reduction
agreement and are not includible in gross income under section 125, 401(k),
402(e)(3), 402(h), 403(b) or 414(h)(2) of the Code. No amount in excess of
$150,000 (as adjusted pursuant to sections 401(a)(17) and 415(d) of the
Code) shall be taken into account under this Section 12.2.2 for any Plan
Year. In applying that $150,000 limit, Section 1.17(c) shall apply except
that the term "Family Member" shall only include a spouse or a lineal
descendant who has not attained age 19 before the close of the Plan Year.
12.2.3 Defined Benefit Plan. With respect to each Member who is
also a participant in a qualified defined benefit plan maintained by any
Employer or Affiliate which is also a top-heavy plan (within the meaning of
section 416(g) of the Code), then provided that the aggregation group of
which the Plan is a member is not super top-heavy (within the meaning of
section 416(h)(2)(B) of the Code), the additional Employer contribution
required to be made to the Account of each non-key employee (within the
meaning of section 416(i)(2) and (5) of the Code) under Section 12.2.1 shall
be in an amount which equals 7.5% of his or her Top-Heavy Compensation.
SECTION 13
GENERAL PROVISIONS
13.1 Plan Information. Each Member shall be advised of the general
provisions of the Plan and, upon written request addressed to the Committee,
shall be furnished with any information requested, to the extent required by
applicable law, regarding his or her status, rights and privileges under the
Plan.
13.2 Inalienability. Except to the extent otherwise provided in
Sections 8.4 and 8.5 or mandated by applicable law, in no event may any
Member, former Member or his or her spouse, Beneficiary or estate sell,
transfer, anticipate, assign, hypothecate, or otherwise dispose of any right
or interest under the Plan; and such rights and interests shall not at any
time be subject to the claims of creditors nor be liable to attachment,
execution or other legal process.
13.3 Rights and Duties. No person shall have any rights in or to the
Trust Fund or other assets of the Plan, or under the Plan, except as, and
only to the extent, expressly provided for in the Plan. To the maximum
extent permissible under section 410 of ERISA, neither the Employers, the
Trustee nor the Committee shall be subject to any liability or duty under
the Plan except as expressly provided in the Plan, or for any other action
taken, omitted or suffered in good faith.
13.4 No Enlargement of Employment Rights. Neither the establishment
or maintenance of the Plan, the making of any contributions nor any action
of any Employer, the Trustee or Committee, shall be held or construed to
confer upon any individual any right to be continued as an Employee nor,
upon dismissal, any right or interest in the Trust Fund or any other assets
of the Plan other than as provided in the Plan. Each Employer expressly
reserves the right to discharge any Employee at any time.
13.5 Apportionment of Duties. All acts required of the Employers
under the Plan may be performed by the Company for itself and its
Affiliates. Any costs incurred by the Company for itself or its Affiliates
in connection with the Plan and the costs of the Plan, if not paid from the
Trust Fund pursuant to Section 9.9, shall be equitably apportioned among the
Company and the other Employers, as determined by the Committee (in its
discretion). Whenever an Employer is permitted or required under the terms
of the Plan to do or perform any act, matter or thing, it shall be done and
performed by any officer or employee of the Employer who is thereunto duly
authorized by the board of directors of the Employer.
13.6 Merger, Consolidation or Transfer. This Plan shall not be merged
or consolidated with any other plan, nor shall there be any transfer of any
assets or liabilities from this Plan to any other plan, unless immediately
after such merger, consolidation or transfer, each Member's accrued benefit,
if such other plan were then to terminate, is at least equal to the accrued
benefit to which the Member would have been entitled if this Plan had been
terminated immediately before such merger, consolidation or transfer.
13.7 Applicable Law. The provisions of the Plan shall be construed,
administered and enforced in accordance with ERISA and, to the extent
applicable, the laws of the State of California.
13.8 Severability. If any provision of the Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provisions of the Plan, and the Plan shall be construed and enforced as if
such provision had not been included.
13.9 Captions. The captions contained in and the table of contents
prefixed to the Plan are inserted only as a matter of convenience and for
reference and in no way define, limit, enlarge or describe the scope or
intent of the Plan nor in any way shall affect the construction of any
provision of the Plan.
EXECUTION
IN WITNESS WHEREOF, Genentech, Inc., by its duly authorized officers,
has executed this January 1, 1994 Restatement of the Plan on the date
indicated below.
GENENTECH, INC.
By
_______________________________
Title:
Dated
By
_______________________________
Title:
Dated
GENENTECH, INC.
TAX REDUCTION INVESTMENT PLAN
(January 1, 1994 Restatement)
TABLE OF CONTENTS
Page
PREAMBLE ......................................................... 1
SECTION 1 DEFINITIONS ........................................... 2
SECTION 2 ELIGIBILITY AND MEMBERSHIP ............................ 12
2.1 Initial Eligibility ....................................... 12
2.2 Employer Aggregation ...................................... 12
2.3 Membership ................................................ 12
2.4 Voluntary Suspension ...................................... 13
2.5 Mandatory Suspension ...................................... 14
2.6 Termination of Membership ................................. 14
SECTION 3 SALARY DEFERRALS ...................................... 15
3.1 Salary Deferrals .......................................... 15
3.2 Salary Deferral Election .................................. 18
3.3 Payment of Deferrals ...................................... 21
SECTION 4 MATCHING CONTRIBUTIONS ................................ 21
4.1 Amount of Matching Contributions .......................... 21
4.2 Timing .................................................... 26
4.3 Periodic Contributions .................................... 26
4.4 Profits Not Required ...................................... 26
4.5 After-Tax Contributions ................................... 27
SECTION 5 ALLOCATIONS AND INVESTMENT ............................ 27
5.1 Salary Deferrals .......................................... 27
5.2 Matching Contributions .................................... 27
5.3 Investment ................................................ 27
5.4 Limitations on Allocations ................................ 29
SECTION 6 ACCOUNTS AND COMMINGLED FUNDS ......................... 34
6.1 Members' Accounts ......................................... 34
6.2 Trust Fund Assets ......................................... 34
6.3 Commingled Funds .......................................... 35
6.4 Valuation of Members' Accounts ............................ 37
6.5 Valuation of Shares ....................................... 38
6.6 Statements of Members' Accounts ........................... 38
6.7 Accounts Nonforfeitable ................................... 38
SECTION 7 DISTRIBUTIONS ......................................... 38
7.1 Events Permitting Distribution ............................ 38
7.2 Times for Distribution .................................... 39
7.3 Consent Requirement ....................................... 40
7.4 Form of Distribution ...................................... 41
7.5 Common Stock Restrictions ................................. 43
7.6 Beneficiary Designations .................................. 43
7.7 Payments to Incompetents .................................. 45
7.8 Undistributable Accounts .................................. 46
SECTION 8 WITHDRAWALS, LOANS AND DOMESTIC RELATIONS ORDERS ...... 46
8.1 General Rules ............................................. 46
8.2 Hardship Withdrawal ....................................... 47
8.3 Age 59 1/2 Withdrawal ..................................... 49
8.4 Loans to Members .......................................... 49
8.5 Qualified Domestic Relations Orders ....................... 53
SECTION 9 ADMINISTRATION OF THE PLAN ............................ 55
9.1 Plan Administrator ........................................ 55
9.2 Committee ................................................. 55
9.3 Actions by Committee ...................................... 55
9.4 Powers of Committee ....................................... 56
9.5 Fiduciary Responsibilities ................................ 57
9.6 Investment Responsibilities ............................... 58
9.7 Voting and Tender Offer Rights in Common Stock ............ 59
9.8 Decisions of Committee .................................... 63
9.9 Administrative Expenses ................................... 63
9.10 Eligibility to Participate ................................ 64
9.11 Indemnification ........................................... 64
SECTION 10 TRUST FUND AND ROLLOVER CONTRIBUTIONS ................ 64
10.1 Trust Fund ............................................... 64
10.2 No Diversion of Assets ................................... 65
10.3 Continuing Conditions .................................... 65
10.4 Change of Investment Alternatives ........................ 66
10.5 Rollover Contributions ................................... 67
SECTION 11 MODIFICATION OR TERMINATION OF PLAN .................. 68
11.1 Employers' Obligations Limited ........................... 68
11.2 Right to Amend or Terminate .............................. 68
11.3 Effect of Termination .................................... 69
SECTION 12 TOP-HEAVY PLAN ....................................... 70
12.1 Top-Heavy Plan Status .................................... 70
12.2 Top-Heavy Plan Provisions ................................ 71
SECTION 13 GENERAL PROVISIONS ................................... 73
13.1 Plan Information ......................................... 73
13.2 Inalienability ........................................... 73
13.3 Rights and Duties ........................................ 73
13.4 No Enlargement of Employment Rights ...................... 74
13.5 Apportionment of Duties .................................. 74
13.6 Merger, Consolidation or Transfer ........................ 74
13.7 Applicable Law ........................................... 75
13.8 Severability ............................................. 75
13.9 Captions ................................................. 75
EXECUTION ........................................................ 76
Page
SF3-44540.2
Page
NY1-53134.1
GENENTECH, INC.
AND
THE BANK OF NEW YORK
as Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of October 18, 1995
To
INDENTURE
Dated as of March 27, 1987
Between
GENENTECH, INC.
and
THE BANK OF NEW YORK
as Trustee
U.S. $150,000,000
5% Convertible Subordinated Debentures
Due 2002
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of October 18, 1995 (the
"Second Supplement"), among Genentech, Inc., a Delaware corporation
("Genentech"), and The Bank of New York, as Trustee (the "Trustee"), under
the Indenture, dated as of March 27, 1987 (the "Indenture"), as amended
and supplemented by a First Supplemental Indenture dated as of August 17,
1990, pursuant to which the 5% Convertible Subordinated Debentures Due
2002 of Genentech (the Debentures) were issued.
RECITALS OF GENENTECH
Pursuant to an Agreement and Plan of Merger dated as of May 23, 1995,
as amended (the "Merger Agreement"), by and among Genentech, Roche
Holdings, Inc. ("Roche") and HLR (U.S.) II, Inc., a wholly-owned
subsidiary of Roche ("Merger Sub"), Merger Sub is to be merged with and
into Genentech (the "Merger"). Pursuant to the Merger, each outstanding
share of Common Stock, par value $.02 per share, of Genentech ("Genentech
Common Stock") (other than shares held by Roche and its affiliates) will
be converted into the right to receive one share of Callable Puttable
Common Stock, par value $.02 per share, of Genentech ("Special Common
Stock").
Pursuant to Section 12.11 of the Indenture, Genentech is required to
execute and deliver a supplemental indenture in connection with the
Merger, relating to the conversion rights of the Holders of the Debentures
from and after the effective time of the Merger (the "Effective Time").
All things necessary to continue to make the Debentures issued under
the Indenture as hereby supplemented the valid obligations of Genentech,
to make the Indenture as hereby supplemented a valid agreement of
Genentech and to cause Genentech to continue to comply with its covenants
and requirements under the Indenture following the Merger, have been done.
NOW, THEREFORE, THIS SECOND SUPPLEMENT WITNESSETH:
In order to comply with the requirements of the Indenture, Genentech
agrees with the Trustee for the equal and proportionate benefit of the
Holders of the Debentures as follows:
1
ARTICLE ONE
Section 101. In accordance with Section 12.11 of the Indenture, from
and after the Effective Time, the Holder of each Security shall have the
right, during the period such Security shall be convertible as specified
in Section 12.01 of the Indenture, to convert such Security only into the
amount of cash and shares of Special Common Stock receivable pursuant to
the Merger by a holder of the number of shares of Common Stock into which
such Security might have been converted immediately prior to the Effective
Time.
Section 102. From and after the Effective Time, the Conversion Price
and the consideration into which the Securities are convertible pursuant
to Article XII of the Indenture, as modified pursuant to this Second
Supplement, shall be subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
Article XII of the Indenture.
2
ARTICLE TWO
Section 201. Except as otherwise expressly provided or unless the
context otherwise requires, all terms used herein which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
Section 203. This Second Supplement shall be effective as of the
Effective Time. This Second Supplement shall have no effect in the event
that the Merger Agreement is terminated and the Merger is abandoned prior
to the Effective Time.
Section 204. The recitals contained herein shall be taken as the
statements of Genentech and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the
validity or sufficiency of this Second Supplement.
Section 205. This Second Supplement shall be governed by and
construed in accordance with the laws of the jurisdiction which govern the
Indenture and its construction.
Section 206. This Second Supplement may be executed in any number of
counterparts each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplement to be duly executed and their respective seals to be affixed
hereunto and duly attested all as of the day and year first above written.
GENENTECH, INC.
[Corporate Seal] By /s/ John P. McLaughlin
_______________________
John P. McLaughlin
Senior Vice President
Attest:
/s/ Stephen Juelsgaard
THE BANK OF NEW YORK,
as Trustee
[Corporate Seal] By /s/ Helen M. Cotiaux
____________________
Helen M. Cotiaux
Vice President
Attest:
/s/ Marie E. Trimboli
Marie E. Trimboli
Assistant Treasurer
- -5-
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Genentech, Inc. of our report dated January 17, 1996, included in the 1995
Annual Report to Stockholders of Genentech, Inc.
Our audits also included the financial statement schedule of Genentech, Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements pertaining to the 1991 Employee Stock Plan, the 1994 Stock Option
Plan, the 1990 Stock Option/Stock Incentive Plan, the 1984 Incentive Stock
Option Plan and the 1984 Non-Qualified Stock Option Plan, the shares issuable
to certain warrant holders, the shares issuable to certain convertible
subordinated debenture holders and the Genentech, Inc. Tax Reduction
Investment Plan and in the related Prospectuses of our report dated January
17, 1996, with respect to the consolidated financial statements incorporated
herein by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report
(Form 10-K) for the year ended December 31, 1995.
Ernst & Young LLP
San Jose, California
March 29, 1996
