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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-9992
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KLA INSTRUMENTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2564110
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
160 RIO ROBLES 95134
SAN JOSE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 468-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 aggregate market value of the voting stock held by non-affiliates of
the Registrant based upon the average bid and asked prices of the registrant's
stock, as of August 31, 1995, was $1,767,219,628. Shares of common stock held by
each officer and director and by each person or group who owns 5% or more of the
outstanding common stock have been excluded in that such persons or groups may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The registrant had 25,136,065 shares of Common Stock outstanding as of
August 31, 1995.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 1995 ("1995 Annual Report to Stockholders" ) are incorporated by
reference into Parts I, II and IV of this Report.
Portions of the Proxy Statement for the Annual Meeting of Stockholders
("Proxy Statement" ) to be held on November 15, 1995, and to be filed pursuant
to Regulation 14A within 120 days after registrant's fiscal year ended June 30,
1995, are incorporated by reference into Part III of this Report.
PART I
Item 1. DESCRIPTION OF BUSINESS
THE COMPANY AND ITS PRODUCTS
The Company was incorporated under the laws of the State of Delaware in
July 1975. The Company's headquarters are located at 160 Rio Robles, San Jose,
California, 95134, telephone (408) 468-4200. Unless the text requires otherwise,
the "Company" or "KLA" refers to KLA Instruments Corporation and its
subsidiaries.
KLA is the leader in the design, manufacture, marketing and service of
yield management and process monitoring systems for the semiconductor industry.
KLA believes that it is the world's largest supplier to the wafer and reticle
inspection and optical metrology equipment markets. KLA's systems are used to
analyze product and process quality at critical steps in the manufacture of
integrated circuits and to provide feedback so that fabrication problems can be
identified, addressed and contained. This understanding of defect sources and
how to contain them enables semiconductor manufacturers to increase yields.
Quickly attaining and then maintaining high yields is one of the most important
determinants of profitability in the semiconductor industry. The Company
believes that its customers typically experience rapid paybacks on their
investments in the Company's systems. The Company sells to virtually all of the
world's semiconductor manufacturers and has achieved very high market shares in
its principal businesses.
The Company's technological strength has enabled it to develop and
introduce major new product families in the past three years for the following
three business units: WISARD, which addresses semiconductor wafer inspection;
RAPID, which addresses reticle inspection; and Metrology, which addresses
overlay registration and linewidth measurement. The Company believes that its
WISARD and RAPID product families incorporate proprietary technologies which
provide greater sensitivity to defects than any competing systems.
YIELD MANAGEMENT
Maximizing yields, or the number of good die per wafer, is a key goal of
modern semiconductor manufacturing. Higher yields increase the revenue a
manufacturer can obtain for each semiconductor wafer processed. As geometry
linewidths decrease, yields become more sensitive to the size and density of
defects. Semiconductor manufacturers use yield management and process monitoring
systems to improve yields by identifying defects, by analyzing them to determine
process problems, and, after corrective action has been taken, by monitoring
subsequent results to ensure that the problem has been contained. Monitoring and
analysis often takes place at various points in the fabrication process as
wafers move through a production cycle consisting of hundreds of separate
process steps.
Semiconductor factories are increasingly expensive to build and equip.
Yield management and process monitoring systems, which typically represent a
small percentage of the total investment required to build and equip a
fabrication facility, enable integrated circuit manufacturers to leverage these
expensive facilities and improve their returns on investment.
The most significant opportunities for yield improvement generally occur
when production is started at new factories and when new products are first
built. Equipment that helps a manufacturer quickly increase new product yields
enables the manufacturer to offer these new products in volume at a time when
they are likely to generate the greatest profits.
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The following are some of the methods used to manage yield, all of which
require the capture and analysis of data gathered through many measurements:
- - Engineering analysis is performed off the manufacturing line to identify
and analyze defect sources. Engineering analysis equipment operates with
very high sensitivity to enable comprehensive analysis of wafers. Because
they operate off-line, engineering analysis systems do not require high
speeds of operation.
- - In-line monitoring is used to review the status of circuits during
production steps. Information generated is used to determine whether the
fabrication process steps are within required tolerances and to make any
necessary process adjustments in real-time before wafer lots move to
subsequent process stations. Because the information is needed quickly to
be of greatest value, in-line monitoring requires both high throughput and
high sensitivity.
- - Pass/fail tests are used at several steps in the manufacturing process to
evaluate products. For example, a pass/fail test is used to determine
whether reticles used in photolithography are defect-free; electrical
pass/fail testing is performed at the end of the manufacturing process to
determine whether products meet performance specifications.
KLA STRATEGY
KLA is the premier supplier of yield management and process monitoring
systems to the semiconductor manufacturing industry. Key elements of KLA's
strategy are as follows:
- - Leadership in Yield Management. The Company believes that yield management
requires both the ability to identify defects and the ability to use defect
data (i) to recognize patterns which reveal process problems, and (ii) to
resolve and contain process flaws which are causing reduced yields. The
Company has developed yield management solutions that consist of
sophisticated defect detection sensors located at key steps in the
production process, as well as analysis stations with relational database
software, that enable isolation of defect sources, identification of
problem causes and implementation of corrective action.
The Company believes that its worldwide organization of more than 90
applications engineers provides an important competitive advantage. These
applications engineers serve as yield management consultants to the
Company's customers, assisting in applying KLA's systems to accelerate
yield improvement and achieve real-time process control.
- - Expansion of In-Line Monitoring Markets. Several years ago, the Company
recognized the industry's need for in-line monitoring to provide real-time
process management capability. Prior to the introduction of KLA's 2100
series, no supplier's products were capable of both the speed and the
sensitivity needed for in-line inspection for all defect types at critical
process steps. In-line inspection is a critical yield enhancement and cost
reduction technique because it allows defect detection in real-time rather
than waiting until after final test results become available to discover
problems that have a significant yield impact. In response, the Company
devoted substantial resources to developing systems with the throughput,
reliability and associated data analysis capabilities for in-process
inspection. During the past several years, customers' use of the Company's
wafer inspection systems began evolving from single system, off-line
engineering analysis applications to multiple systems directly monitoring
critical steps on advanced fabrication lines. Most of the Company's
customers are now adopting the KLA methodology of installing multiple
systems directly monitoring critical steps in the integrated circuit
manufacturing process. The Company believes that the market for in-line
monitoring systems is several times larger than its traditional market for
engineering analysis systems.
- - Development of In-Line Monitoring Market. KLA's strategy is to leverage its
technology leadership to develop new hardware and software yield management
tools. The Company has committed significant resources to internally
developing emerging yield management technologies. KLA has also acquired
technologies that it believes will be critical to enhancing its long-term
competitive position. In fiscal 1995, the Company enhanced its position in
the market for yield management and process monitoring systems by expanding
its product offerings to include yield management software through its
recently formed PRISM division, and electron beam ("E-Beam") metrology
applications through the December 1994 acquisition of Metrologix, Inc. The
Company's long-term strategy is to link information from its new and
existing products, as well as from measurement systems manufactured by
others, to form an integrated network of detection and analysis systems.
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YIELD MANAGEMENT AND PROCESS MONITORING SYSTEMS
KLA's systems are developed to offer its customers integrated yield
management solutions. KLA offers inspection systems for key steps in the
semiconductor manufacturing process and analysis systems comprised of database
management hardware and software to translate raw inspection data into patterns
which reveal process problems. The Company's wafer inspection and metrology
systems are used for engineering analysis and in-line monitoring, and its
reticle inspection systems and wafer probers are used for pass/fail tests. The
Company's software productivity and analysis systems collect, store and analyze
data collected by test equipment manufactured by both the Company and others to
provide semiconductor manufacturers with an integrated yield management
application. The Company's principal business units are: Wafer Inspection
Systems (WISARD); Reticle Inspection Systems (RAPID); Metrology, including
Optical Metrology and E-Beam Metrology; Wafer Probing Systems (ATS); Software
Productivity and Analysis Systems (PRISM); and Scanning Electron Microscope
Inspection Systems (SEMSpec).
WISARD - WAFER INSPECTION SYSTEMS
KLA's WISARD business unit created the market for automated inspection of
semiconductor wafers with the introduction of the KLA 2000 series over ten years
ago. KLA continues to have a predominant market share with its current
generation of wafer inspection systems, the 2100 series.
KLA's 2100 series, combined with a dedicated defect data gathering and
analysis workstation, the KLA 2552, and an off-line Review Station, the KLA
2608, provides semiconductor manufacturers with a yield management system
sensitive enough for engineering analysis and fast enough for in-line monitoring
of the semiconductor manufacturing process. The 2100 series of inspection
systems offers an increase in inspection speed of up to 2,000 times over that of
KLA's original wafer inspection system. This marked increase in speed and
sensitivity allows customers to obtain very prompt feedback on process status by
placing wafer inspection systems on the production line.
The selection of the technology architecture for the 2100 series was made
to allow the base unit to support a family of products capable of performance
enhancements through upgrades of various subsystems. The first model, the KLA
2110, was introduced in 1991 with sufficient speed and sensitivity to enable
in-line inspection of repeating arrays typical in memory devices. KLA introduced
a new repeating array model in 1992, the KLA 2111, which operated at up to five
times the speed of the KLA 2110 and had improved sensitivity. In 1995, KLA
introduced the 2112 for repeating array with greater sensitivity and greater
maximum speed.
In 1992, KLA introduced the KLA 2130 which is capable of "all pattern"
inspection required for microprocessors and other logic devices as well as both
the logic and repeating array portions of memory devices. In late 1993, KLA
introduced the new 2131 model for all pattern inspection which operates at up to
twice the speed of the KLA 2130 and with higher sensitivity. In 1995, KLA
introduced the 2132 for all pattern inspection with higher sensitivity and
higher maximum speed. The Company believes that there are further opportunities
to expand the 2100 series and has several new models under development.
To manage defect data, KLA offers the KLA 2552 Analysis Station, a
multi-user work station using a relational database for storing defect
coordinates and digitized images. Defect analysis and image review operate
through a Windows(TM) -based interface. The KLA 2552 incorporates an open
architecture which consolidates data from inspection systems, review stations,
wafer sort electrical testers, host computers, and scanning electron microscopes
(SEMs). The data analysis software provides statistical process control reports,
defect source analysis, and automated correlation of in-line process defects to
bit failures. The graphical software combines both data and image to produce
wafer maps, trend charts, and video review. When coupled with an optional remote
terminal, the KLA 2552 permits process engineers in remote locations to link to
the database of defect records and images to perform further analyses or compare
data from different wafer fabrication facilities.
The KLA 2608 Review Station provides a platform for reviewing and
classifying defects detected on KLA and non-KLA wafer inspection systems. An
operator may append classification codes to the defect record, a record which
also includes wafer number, die coordinates, defect location, and defect size.
The average selling prices of KLA's 2100 series of wafer inspection systems
range from approximately $1 million to approximately $2.5 million.
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RAPID-RETICLE INSPECTION SYSTEMS
RAPID, KLA's first business unit, created the market for automated
inspection of reticles and photomasks for the semiconductor manufacturing
industry over 17 years ago and continues to have a predominant market share. KLA
has delivered over 700 reticle and photomask inspection systems worldwide.
During photolithography, a stepper projects a circuit pattern from a
reticle onto a wafer. Error-free reticles are the first step in ensuring high
yields in the manufacturing process because defects in reticles can translate
into millions of ruined die.
In 1992, KLA introduced its new generation of reticle inspection systems,
the 300 series. The KLA 301 Reticle Inspection System and the KLA 30 Reference
Data Computer together form the KLA 331 Inspection System, which represents a
major advance in speed, sensitivity and flexibility. The KLA 331 offers the
highest inspection sensitivity available in the marketplace, which the Company
believes is vital to meet reticle inspection requirements for today's more
complex microprocessors and larger DRAMs. This dedicated image processor employs
a flexible system architecture which permits future upgrades and enhancements
through software, rather than hardware changes. Furthermore, the KLA 331's
optics include a rotating telescope turret to provide three sensitivities in one
system. The KLA 331 offers flexibility for users who need a versatile inspection
system to address the inspection needs of both the most demanding and the more
routine semiconductor manufacturing processes. Users may obtain higher
throughput by selecting lower sensitivity inspections.
The KLA 331 incorporates a reference database generator and data
preparation system which give full die-to-database functionality to the
inspection, permitting inspection against the ideal reticle pattern as specified
by the user's CAD program. The Company is continuing to develop enhancements to
the KLA 331 inspection system to improve performance, serviceability and
reliability.
The Company recently introduced a new reticle inspection product,
STARlight, which uses reflected and transmitted light detection techniques
simultaneously to identify reticle contaminants, including particles. STARlight
permits users to identify defects which previously had not been detectable. The
Company believes STARlight will be applied by mask manufacturers and
semiconductor manufacturers. STARlight is offered as an option on the KLA 331
inspection system and as a stand-alone unit.
During fiscal 1993 and 1994, delays in completing all features of the KLA
331 systems caused a decline in RAPID's business as many customers waited for
the new model. In fiscal 1995, system enhancements coupled with successful
customer demonstrations resulted in increased industry acceptance of the KLA
331.
The average selling prices of KLA's 331 inspection systems range from
approximately $1.7 million to approximately $3 million.
METROLOGY GROUP
Optical Metrology Business Unit. Lithography for sub-micron semiconductor
fabrication requires increasingly stringent overlay and critical dimension
tolerances. In particular, decreasing linewidths, larger die sizes, and
additional layers have made overlay mis-registration errors a crucial cause of
yield loss. To address these challenges, KLA offers the KLA 5000 series
metrology systems: the 5100 for overlay; and the 5105 for both overlay and
critical dimension measurement. KLA estimates that during its fiscal 1994 and
1995, it had the leading share in the worldwide market for overlay registration
systems.
The KLA 5000 series uses a patented coherence probe microscopy technology
which permits fast autofocus and precision critical dimension measurements.
Applying its expertise in digital image processing, KLA has developed
sophisticated measurement algorithms that are tolerant of process variations.
With coherence probe microscopy, the system scans the image-forming coherence
region through the wafer plane, only gathering information from in-focus
surfaces. As a result, measurements are more tolerant of process and substrate
reflectivity variations than those from ordinary optical systems.
The precision measurements from the KLA 5000 series identify the magnitude
and direction of overlay mis-registration errors arising from the stepping
process and from optical distortion inherent in the stepper lens. Based upon
these measurements, users can fine-tune the stepper program to compensate for
these errors, and improve process yield.
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The disk drive manufacturing industry is an emerging market for KLA's
metrology systems. Disk drive manufacturers use a semiconductor photolithography
process to produce thin film heads. The Company's coherence probe technology is
particularly well-suited to handle the complex topography characteristics
encountered in the thin film head process. The Company believes that its
solution to these requirements has allowed it to achieve the major share of the
thin film head metrology market.
The average selling prices of KLA's metrology systems for the semiconductor
industry range from approximately $300,000 to approximately $550,000, and
systems for the disk drive industry range from approximately $500,000 to
approximately $900,000.
E-Beam Metrology Business Unit. KLA broadened its portfolio of metrology
products in December 1994 with the acquisition of Metrologix, Inc., a
manufacturer of advanced electron beam measurement equipment. With this
acquisition, KLA's E-Beam Metrology business gained an established position in
the CD SEM inspection market, a market which KLA believes is larger than the
optical overlay market, and one which it believes will grow as semiconductor
manufacturers continue to produce more complex semiconductor devices.
KLA's first generation E-Beam metrology system features high throughput and
automated setup. One major U.S. memory manufacturer and two major U.S.
microprocessor manufacturers have purchased multiple systems for use in both
production and research and development. KLA anticipates increasing its
expenditures for engineering and manufacturing to enhance the capabilities of
the E-Beam metrology system.
The average selling prices of KLA's E-Beam metrology systems range from
approximately $1.1 million to approximately $1.4 million.
ATS DIVISION-WAFER PROBING SYSTEMS
The ATS division sells and services a family of automated wafer probers and
accessories which position individual semiconductor devices still in wafer form
under electrical test probes. The probers work in conjunction with electronic
parametric and functional testers to perform fully automated tests of the
performance of completed die before the wafers are diced and packaged. The
electrical test procedure also identifies failed die, classifies die by
performance and generates a database of test results for use in process control.
KLA develops, manufactures and markets these products in cooperation with
Tokyo Electron, Limited ("TEL"), the leading distributor of semiconductor
equipment in Japan. KLA develops and manufactures the prober's image processing
electronics and optical subsystems. TEL manufactures the prober's mechanical
chassis and incorporates the KLA electronics and subsystems. The ATS division
sells the integrated prober systems in the United States and Europe with its own
control software and custom interfaces. TEL sells and services the integrated
prober systems in Japan and the rest of Asia.
The average selling prices of KLA's basic wafer prober systems range from
approximately $130,000 to approximately $600,000.
PRISM-SOFTWARE PRODUCTIVITY AND ANALYSIS SYSTEMS
The PRISM division was formed in April 1994 to address the market for
software products that can be utilized in semiconductor fabrication applications
for yield management and productivity improvement. The PRISM division is
developing and marketing two software product lines, Discovery and CIMA.
Discovery is an enterprise-wide yield management system that collects, stores
and correlates yield information from multiple data sources in a fabrication
facility. This product was the result of a cooperative development project with
Motorola. The Company released production versions of Discovery in early fiscal
1996. CIMA is a test floor automation product that was developed by the Company
and introduced in August 1994. CIMA collects test data from, and automates the
operation of, the wafer floor. CIMA is currently in production and is installed
in several modern fabrication facilities. PRISM has formed a client services
organization to provide system integration and consulting services to assist its
customers in the integration of its software products into the facility's
information systems.
The average selling prices of KLA's Discovery software range from
approximately $1 million to approximately $2 million. The average selling prices
of KLA's CIMA software range from approximately $10,000 to approximately
$40,000.
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SEMSPEC-SCANNING ELECTRON MICROSCOPE INSPECTION SYSTEMS
As feature sizes of semiconductor circuits continue to decrease for leading
edge semiconductor products, the Company believes that conventional optical
technologies ultimately will begin to reach physical limits imposed by the
wavelength of light and fail to provide the necessary inspection resolution.
Working closely with those customers with the most advanced inspection
requirements, KLA has developed the world's only fully automatic electron beam
inspection systems. These systems, comprised of the world's fastest scanning
electron-optical column and a high speed image computer, are used for wafer and
x-ray mask inspection. The development of these systems was funded in part by
customer-sponsored research and development programs. KLA has sold four of these
systems to customers. KLA expects the market for these inspection systems to
emerge slowly.
The average selling prices of KLA's SEMSpec systems range from
approximately $4 million to approximately $5 million.
CUSTOMERS AND APPLICATIONS
The Company believes that it is one of the few suppliers which sells its
systems to virtually all of the world's semiconductor manufacturers. During
fiscal 1993, Motorola accounted for approximately 11% of the Company's revenues.
In fiscal 1994 and 1995, no single customer accounted for more than 10% of the
Company's revenues.
SALES, SERVICE AND MARKETING
The Company sells products through a combination of direct sales and
distribution channels. The Company believes that the size and location of its
field sales, service and applications engineering organization represents a
significant competitive advantage in its served markets. In the United States,
Europe, and Korea the Company has a direct sales force located in major
geographical markets. The Company's sales, service and applications facilities
throughout the world employ over 400 sales, service and applications engineers.
In Japan, the Company sells systems for the semiconductor market through
TEL. TEL has been the Company's distributor to the Japanese semiconductor market
since 1978. The sales effort in Japan is supported by KLA Japan, which provides
marketing, applications support, technical support and service to Japanese
customers. Over the last three years, the Company significantly increased its
customer service organization in Japan in order to assume service and support
responsibilities from TEL. KLA Japan has over 130 local employees in its
Yokohama headquarters and six regional service centers.
In Singapore and Taiwan, the Company sells its systems through local sales
representatives. Post-sales support is handled by the Company's local
organizations.
KLA maintains an export compliance program that fully meets the
requirements of the U.S. Department of Commerce. KLA has never been denied
approval to ship against a purchase order.
For information regarding the Company's revenues from foreign operations
for the Company's last three fiscal years, see Note 10 on page 24 of the 1995
Annual Report to Stockholders, incorporated herein by reference.
TECHNOLOGY
KLA's inspection and metrology systems precisely capture trillions of
features on wafers and reticles that are as small as 10 millionths of an inch on
a side and analyze each of these features for possible defects through the use
of the following technologies:
Image Acquisition. KLA's systems acquire images of sub-micron features on
wafers and reticles. The quality and brightness of the images greatly influence
the speed and sensitivity of the final inspection system. KLA has developed a
wide range of optical imaging systems, such as laser scanners, interference
microscope systems, and conventional white light and deep UV optical systems. To
satisfy the future sensitivity requirements of advanced lithography, KLA has
already developed an electron beam system which incorporates the world's fastest
scanning electron-optical column.
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Image Conversion. The Company's equipment converts the photon or electron
image to an electronic digital format. KLA has been a pioneer in the use of
time-delay-integration sensors that convert as many as 100 million pixels
(picture elements) to 256-level gray scale images each second. KLA also utilizes
other image conversion technologies such as avalanche diode detectors, photo
multiplier systems and fixed frame pickups.
Precision Mechanics. In the most common configuration of an inspection
system, the reticle or the wafer is moved at a constant speed through the field
of the imaging system. Since areas of interest are as small as 5 millionths of
an inch, and vibrations in the scanning system of one-tenth of the area of
interest can degrade system performance, the mechanical stage must be extremely
smooth and precise. To address these requirements, KLA has nine years experience
in the design and manufacture of air-bearing linear drive stages.
Proprietary Algorithms. To perform the inspection or measurement task, the
Company's equipment examines the properties of the digitized images using a set
of logical steps (algorithms) which measure the desired image property. KLA's
engineers develop sets of algorithms that are specifically tailored to obtain
optimum performance for its wafer, reticle and metrology systems. These
algorithms are largely responsible for the state-of-the-art performance of KLA's
systems.
Image Computers. The combination of proprietary algorithms and special
purpose computers allows KLA's equipment to have a high performance to cost
ratio. While general purpose computers are capable of executing KLA's
algorithms, very few computer architectures can sustain the computing speed that
is required in KLA's systems. To address this requirement, KLA develops and
builds special purpose image computers designed to execute its algorithms.
Database Analysis. Many of the inspections that KLA reticle inspection
systems perform require a digital image representation of the ideal pattern
obtained from the data used to manufacture the reticle. This capability allows
inspection systems to compare the actual circuit with its design specifications.
KLA has been developing database systems for over 15 years to satisfy this
objective. Its present generation of special purpose database computers is
capable of generating simulated images at the same high speeds at which KLA's
image conversion systems generate the digital image from the actual reticle.
Statistical Process Control. Integrated circuit yield management and
process monitoring systems generate hundreds of thousands of data items each
day. To enhance the utility of these data, KLA has a team of software engineers
who build systems containing statistical process control software to simplify
data and present these data in a useful manner. KLA is continuing to work on new
software to enhance its statistical process control systems.
RESEARCH AND DEVELOPMENT
The market for yield management and process monitoring systems is
characterized by rapid technological development and product innovation. The
Company believes that continued and timely development of new products and
enhancements to existing products are necessary to maintain its competitive
position. Accordingly, the Company devotes a significant portion of its
personnel and financial resources to research and development programs and seeks
to maintain close relationships with customers to remain responsive to their
needs. In order to meet continuing developments in the semiconductor industry
and to broaden the applications for its image processing technology, the Company
is committed to significant engineering efforts for product improvement and new
product development. Approximately 20% of the Company's workforce is engaged in
engineering, research and development. For information regarding the Company's
research and development expense during the last three fiscal years, see Notes 1
and 8 on pages 21 and 24, respectively, of the 1995 Annual Report to
Stockholders incorporated herein by reference.
KLA typically receives some external funding from customers, from industry
groups, and from government sources to augment its engineering, research and
development efforts. In addition, KLA capitalizes some software development
costs. Although the timing and the level of these external funds cannot be
predicted, the level of such funding and capitalization has been approximately
4%, 2% and 1% of sales for fiscal 1993, 1994 and 1995, respectively. The Company
reports engineering, research and development expense net of this funding and
capitalization. Thus, recorded amounts for engineering, research and development
expense were 10%, 9% and 10% of sales in fiscal 1993, 1994 and 1995,
respectively.
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MANUFACTURING
The Company's principal manufacturing activities take place in San Jose,
California; Bevaix, Switzerland; and Migdal Ha'Emek, Israel; and consist
primarily of manufacturing, assembling and testing components and subassemblies
which are acquired from third party vendors and then integrated into the
Company's finished products. In June 1995, the Company entered into a lease
agreement for an additional manufacturing facility being constructed at its San
Jose campus site. In August 1995, the Company leased two additional facilities
adjacent to its San Jose campus site. The Company is also cross-training
personnel, so that it can respond to changes in product mix by reallocating
personnel in addition to hiring.
The Company has been working with key vendors to improve inventory
management. Volume purchase agreements and just-in-time delivery schedules have
reduced both inventory levels and costs. The Company's manufacturing engineers,
in conjunction with key vendors, are improving the manufacturability and
reliability of the new wafer and reticle inspection systems.
Many of the components and subassemblies are standard products, although
certain items are made to Company specifications. Certain of the components and
subassemblies included in the Company's systems are obtained from a single
source or a limited group of suppliers. Those parts subject to single or limited
source supply are routinely monitored by management and the Company endeavors to
ensure that adequate supplies are available to maintain manufacturing schedules,
should supply for any part be interrupted. Although the Company seeks to reduce
its dependence on sole and limited source suppliers, in some cases the partial
or complete loss of certain of these sources could have at least a temporary
adverse effect on the Company's results of operations and damage customer
relationships.
COMPETITION
The market for yield management and process control systems is highly
competitive. In each of the markets it serves, the Company faces competition
from established and potential competitors, some of which may have greater
financial, engineering, manufacturing and marketing resources than the Company.
Significant competitive factors in the market for yield management and process
control systems include system performance, ease of use, reliability, installed
base and technical service and support.
The Company believes that, while price and delivery are important
competitive factors, the customers' overriding requirement is for systems which
easily and effectively incorporate automated, highly accurate inspection
capabilities into their existing manufacturing processes, thereby enhancing
productivity. The Company's yield management and process control systems for the
semiconductor industry are generally higher priced than those of its present
competitors and are intended to compete based upon performance and technical
capabilities. These systems also compete with less expensive, more
labor-intensive manual inspection devices.
The Company's wafer and reticle inspection systems have a predominant share
of their respective markets. The Company is the leading provider of overlay
registration systems. The Company believes it is the second largest supplier of
wafer prober systems in the U.S. and Europe.
Many of the Company's competitors are investing in the development of new
products aimed at applications currently served by the Company. The Company's
competitors can be expected to continue to improve the design and performance of
their products in each product area and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results.
Although the Company believes that it has certain technical and other advantages
over its competitors, maintaining such advantages will require a continued high
level of investment by the Company in research and development and sales and
marketing. There can be no assurance that the Company will have sufficient
resources to continue to make such investments or that the Company will be able
to make the technological advances necessary to maintain these competitive
advantages.
The yield management and process control industry is characterized by
rapidly changing technology and a high rate of technological obsolescence.
Development of new technologies that have price/performance characteristics
superior to the Company's technologies could adversely affect the Company's
results of operations. In order to remain competitive, the Company believes that
it will be necessary to expend substantial effort on continuing product
improvement and new product development. There can be no assurance that the
Company will be able to develop and market new products successfully or that the
products introduced by others will not render the Company's products or
technologies non-competitive or obsolete.
9
<PAGE> 10
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company believes that, due to the rapid pace of innovation within the
yield management and process control systems industry, its protection of patent
and other intellectual property rights is less important than factors such as
its technological expertise, continuing development of new systems, market
penetration and installed base and the ability to provide comprehensive support
and service to customers.
The Company protects its proprietary technology through a variety of
intellectual property laws including patents, copyrights and trade secrets. The
Company's source code is protected as a trade secret and as an unpublished
copyright work. The Company has a number of United States and foreign patents
and patent applications. The Company's effort to protect its intellectual
property rights through trade secret and copyright protection may be impaired if
third parties are able to copy or otherwise obtain and use the Company's
technology without authorization. Effective intellectual property protection may
be unavailable or limited in certain foreign countries. In addition, the
semiconductor industry is characterized by frequent litigation regarding patent
and other intellectual property rights. No assurance can be given that any
patent held by the Company will provide sufficient protection.
BACKLOG
Backlog orders for systems were $250 million as of June 30, 1995, with 100%
shippable in one year, as compared with $125 million as of June 30, 1994, with
99% shippable in one year. The Company generally ships systems within six months
after receipt of a customer's purchase order.
EMPLOYEES
As of August 31, 1995, KLA employed a total of approximately 1,654 persons.
None of KLA's employees are represented by a labor union. KLA has experienced no
work stoppages and believes that its employee relations are excellent.
Competition in the recruiting of personnel in the semiconductor and
semiconductor equipment industry is intense. KLA believes that its future
success will depend in part on its continued ability to hire and retain
qualified management, marketing and technical employees.
Item 2. PROPERTIES
KLA owns a corporate facility which houses engineering, manufacturing and
administrative functions in San Jose, California, occupying approximately
232,000 square feet. The Company purchased this facility in 1990 at a total cost
of approximately $30 million, including improvements. The Company leases
additional office space for manufacturing, engineering, sales and service
activities, including seven locations in the U.S., six in Japan, four in Europe,
and one each in Malaysia, Korea, Taiwan and Israel. The Company entered into two
leases, for two year terms commencing August 10, 1994 and November 1, 1994,
respectively, for two buildings adjacent to its campus facility, consisting of
an aggregate of approximately 73,000 square feet.
In June 1995, the Company entered into an agreement to lease a building to
be constructed on land owned by the Company in San Jose, California. The lessor
of the building, which ground-leased the property from the Company, has
committed to fund up to $12.5 million (subject to reductions based on certain
conditions in the lease) for the construction of the building, with the portion
of the committed amount actually utilized to be determined by the Company. In
August 1995, the Company entered into a similar lease agreement to occupy two
buildings in San Jose, California. The lessor has committed to fund up to $15.4
million for the acquisition of the land and buildings and for the completion of
improvements to the buildings. Rent obligations for the three buildings will
commence upon the Company's occupation of the buildings in fiscal year 1996. The
Company may, at its option, purchase the properties during the term of the
leases at approximately the amount expended by the lessor to acquire, construct
and improve the properties. If the Company does not purchase the properties at
the end of the leases, the Company will guarantee to the lessor 85% of the
residual values of the properties as determined at the inception of each lease.
In addition, the lease agreements require the Company to maintain, among other
things, minimum quick ratio, tangible net worth and profitability.
10
<PAGE> 11
Item 3. LEGAL PROCEEDINGS
In June 1990, the Company filed a lawsuit in the U.S. Federal District
Court in San Jose, California, against Orbot Systems Ltd. and Orbot, Inc., now
Orbotech ("Orbot"), for patent infringement. Orbot has since counter-sued for
interference with normal business. If the Company were to lose, Orbot would be
allowed to continue to sell products using its present illuminator. The Company
believes that the outcome of this suit will most likely be determined based upon
the validity of KLA's patent, U.S. Patent No. 4,877,326. Orbot has moved for a
summary judgment dismissal of the case. The matter is being heard by a special
master, with no trial date scheduled. Management believes the results of this
lawsuit will not have a significant adverse effect on the Company.
In November 1993, KLA filed suit, in U.S. District Court in San Jose, CA,
against Orbot Instruments Inc. for infringing upon a KLA patent on
die-to-database inspection. Orbot Instruments has moved for a summary judgment
dismissal of the case. The matter is under consideration by the judge. The trial
is scheduled for the Spring of 1996.
The Company is also the defendant in three suits resulting from the
discontinuance of the printed circuit inspection business. In one case the trial
court denied the plaintiff's demand for damages. This case is under appeal. One
case is in the discovery phase, while the other case was dismissed by the judge
with leave to refile. Management does not believe that these suits will have a
significant adverse effect on the Company.
Beginning in August 1992, Jerome Lemelson, an independent inventor, filed
suit in U.S. District Court in Reno, NV, against the three U.S. automobile
companies, Motorola and several Mitsubishi subsidiaries for the infringement of
Lemelson's patents on machine vision. Recently, Mitsubishi settled with
Lemelson. On June 16, 1995 the Magistrate Judge in Reno handed down a ruling
which recommends that all of Lemelson's patents-in-suit be declared
unenforceable due to the inventor's delay in the patent prosecution.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
"Common Stock" on page 26 of the 1995 Annual Report to Stockholders is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
"Selected Financial Data" on page 16 of the 1995 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
"Management's Financial Commentary" on pages 14 and 15 of the 1995
Annual Report to Stockholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon
of Price Waterhouse LLP dated July 26, 1995, appearing on pages 16 through 26 of
the accompanying 1995 Annual Report to Stockholders are incorporated herein by
reference in this Form 10-K Annual Report. With the exception of the
aforementioned information and the information incorporated in Items 5, 6, 7 and
8, the 1995 Annual Report to Stockholders is not to be deemed filed as part of
this Form 10-K Annual Report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE> 12
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the present executive officers of the
Company, their ages and positions held with the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth Levy 52 Chairman of the Board of Directors and
Chief Executive Officer
Kenneth L. Schroeder 49 President, Chief Operating Officer and Director
Robert J. Boehlke 54 Vice President of Finance and Administration,
Chief Financial Officer and Assistant Secretary
Frank Brienzo 44 Vice President, Asia Operations
Virginia J. DeMars 53 Vice President, Human Resources
Gary E. Dickerson 37 Vice President, Wafer Inspection
Samuel Harrell 55 Senior Vice President, Strategic Business Development
Michael D. McCarver 49 Vice President, Corporate Sales
Neil Richardson 40 Vice President, Metrology
Magnus O. W. Ryde 39 Vice President, U.S. and European Sales Organizations
Arthur P. Schnitzer 52 Group Vice President, Wafer and Reticle Inspection
Christopher Stoddart 39 Treasurer
Bin-Ming Ben Tsai 37 Vice President, Chief Technical Officer
William Turner 39 Vice President, Corporate Controller
Edward W. Barnholt 52 Director
Leo J. Chamberlain 65 Director
Robert E. Lorenzini 58 Director
Yoshio Nishi 55 Director
Samuel Rubinovitz 65 Director
Dag Tellefsen 53 Director
</TABLE>
Mr. Levy co-founded the Company in July 1975 and served as President and
Chief Executive Officer and a Director of the Company until November 1991, when
he became Chairman of the Board of Directors and Chief Executive Officer. Since
May 1993, Mr. Levy has been a Director of Ultratech Stepper, Inc., a
manufacturer of photolithography equipment; since April 1993, a Director of
Network Peripherals, Inc., a supplier of high-performance client-server
networking solutions; and since August 1995, a Director of Integrated Process
Equipment for chemical, mechanical, planarization (CMP) and cleaning of advanced
integrated circuits.
Mr. Schroeder rejoined the Company in November 1991 as President, Chief
Operating Officer and Director. Mr. Schroeder had worked previously at KLA from
1979 through 1987, during which time he held the positions of Vice President of
Operations (1979); Vice President and General Manager, RAPID (1982); Vice
President and General Manager, WISARD (1983); and Senior Vice President (1985).
In July 1988, he became President and Chief Executive Officer of Photon
Dynamics, Inc., a manufacturer of electro-optic test equipment. In mid-1990, he
was appointed President, Chief Operating Officer and Director of Genus, Inc., a
manufacturer of CVD chemical vapor deposition and ion implant equipment. He left
Genus in October 1991, to rejoin KLA.
Mr. Boehlke joined the Company in April 1983 as Vice President and General
Manager of the RAPID Division. Subsequently, he was General Manager of several
divisions and groups of divisions at KLA. In June 1985, Mr. Boehlke was elected
to Senior Vice President and to Executive Vice President in January 1989, and to
Chief Operating Officer in August 1989 until July 1990, when he became Chief
Financial Officer.
Mr. Brienzo joined the Company in July 1989 as Vice President of
Manufacturing, WISARD Division. In October 1990, he was named President of KLA
Acrotec. He served there until September 1994, when he took the position of Vice
President Operations, KLA Japan. In July 1995, he was promoted to Vice
President, Asia Operations and General Manager, KLA Japan.
Ms. DeMars joined KLA in 1988 as Director of Human Resources after a 13
year career in Employee Relations at Monolithic Memories, Inc. and Advanced
Micro Devices. In November 1991, KLA promoted Ms. DeMars to Vice President of
Human Resources, worldwide.
12
<PAGE> 13
Mr. Dickerson joined KLA in January 1986 as a Senior Applications Engineer
in the Wafer Inspection Division. In July 1987 he was promoted to Manager of
Applications Engineering for the Wafer Inspection Division, followed by Manager
of Product Planning in July 1989, Director of Marketing in July 1990, and Vice
President of Marketing in July 1992. In July 1993, he was promoted to Vice
President and Director of the Wafer Inspection Business Unit. In July 1994, he
was elected Vice President of the Company.
Dr. Harrell joined the Company in September 1995 as Senior Vice President
and Chief Strategy Officer. Dr. Harrell is also serving until December 1995 as
the Senior Vice President and Chief Strategy Officer at SEMATECH. He has been at
the government/semiconductor industry consortium since October 1992. From August
1987 to September 1992 he served as President of SEMI/SEMATECH.
Mr. McCarver joined the Company in October 1985 as Vice President of Sales
for the RAPID Division, was promoted to General Manager in July 1987, and was
additionally elected to Vice President of the Company in August 1989. In August
1993, he became Vice President of Corporate Sales.
Dr. Richardson joined KLA in June 1993 as Vice President and General
Manager of the Metrology Division, and was elected Vice President of the Company
in July 1994. He served as Vice President and General Manager of Diagnostic
Systems Group of Schlumberger Technologies from September 1985 to November 1991,
and was the Corporate Technology Adviser for Schlumberger Ltd., a manufacturer
of electronic test equipment, from November 1991 to May 1993.
Mr. Ryde joined KLA in June 1980 as Production Control Manager. In May 1981
he was promoted to Materials Manager, followed by Production Manager in January
1982 and Manager, Advance Manufacturing - KLA208 in May 1984. In March 1985, he
became Product Marketing Manager for the RAPID Division. In December 1988, after
leaving KLA for 6 months to pursue other interests, he returned as Director of
EMMI Business within the ATS Division. In January 1989, he was promoted to
Director of Operations - Europe, and in January 1991 became Vice President of
Operations for the ATS Division. He was promoted to Vice President and General
Manager of the Customer Support Division in July 1992 and was elected to Vice
President of the Company in July 1994. In July 1995, he became Vice President of
the U.S. and European Sales Organizations.
Mr. Schnitzer joined the Company in July 1978 as Software Engineering
Manager and was promoted to Director of Engineering of the RAPID Division in
July 1982, and was promoted to Vice President in July 1983. He became Vice
President of Technology and Marketing of RAPID in May 1987, and Vice President
of Advanced Inspection in January 1989. In October 1989, he was promoted to
General Manager of the WISARD Division and, additionally, was elected to Vice
President of the Company in July 1990. In July 1993, he became Group Vice
President of the Wafer and Reticle Inspection Group ("WRInG"), composed of the
former WISARD, RAPID and SEMSpec business units.
Mr. Stoddart joined the Company in December 1991 as Treasurer. Prior to
joining the Company, Mr. Stoddart was Treasurer of General Cellular Corporation,
a cellular telephone service provider, from October 1989 to September 1991 and
previously with The Cooper Companies, Inc., a manufacturer of pharmaceuticals
and medical and implant equipment, as Assistant Treasurer from August 1986 to
July 1988, and then Treasurer from July 1988 to September 1989.
Dr. Tsai joined the Company in June 1984 as a member of the WISARD
Technical Staff and was promoted to Manager of Algorithm Development for the
WISARD Division. From August 1989 until September 1990 he served as Director of
Engineering for WISARD. In October 1990, he was promoted to Vice President of
Engineering for KLA Acrotec, and in July 1994 he was elected Vice President of
the Company and promoted to Chief Technical Officer.
Mr. Turner joined the Company in September 1983 as a Corporate Financial
Analyst, transferred to be the Field Service Financial Administrator of the
RAPID Division in August 1984, was promoted to RAPID Division Controller in
February 1986, transferred to International Division Controller in July 1988,
was promoted to Corporate Controller in December 1989, and was elected Vice
President of the Company in July 1990.
Mr. Barnholt has served as a Director of the Company since September 1995.
From October 1990 to October 1993 he served as Vice President and General
Manager of the Test and Measurement Organization for Hewlett-Packard. In
November 1993 he was promoted to Senior Vice President and General Manager of
the Test and Measurement Organization.
13
<PAGE> 14
Mr. Chamberlain has served as a Director of the Company since 1982. He has
also served as a Director of Octel Communications Corporation, a manufacturer of
high performance voice processing systems since March 1989.
Mr. Lorenzini has served as a Director of the Company since 1976. He has
served since January 1993 as Chairman of SunPower Corporation, a manufacturer of
optoelectronic devices, and from October 1988 to January 1993, he served as
President and Chief Executive Officer. Since July 1993, he has also been a
Principal in Dalton Partners, a turn-around management company. He was a founder
and, until December 1986, Chairman of the Board of Siltec Corporation, a
manufacturer of semiconductor materials and manufacturing equipment. Since
October 1986, Mr. Lorenzini has also served as a Director of FSI International,
a semiconductor process equipment manufacturer.
Dr. Nishi has served as a Director of the Company since 1989. He has served
as Vice President and Director of Research and Development for the Semiconductor
Group of Texas Instruments since May 1995. Mr. Nishi served as a Director of
numerous research laboratories at Hewlett-Packard from January 1986 to April
1995. He is a consulting professor in the Stanford University Department of
Electrical Engineering and teaches at Waseda University in Japan as a visiting
Professor of the Materials Science and Engineering Department and the Electronic
Communication Engineering Department.
Mr. Rubinovitz previously served as a Director of the Company from October
1979 to January 1989, and rejoined the Company as a Director in 1990. From April
1989 through December 1993, he served as Executive Vice President of EG&G, Inc.,
a diversified manufacturer of scientific instruments and electronic, optical and
mechanical equipment, and previously as Senior Vice President of EG&G, Inc.
between April 1986 and April 1989. Since April 1989, Mr. Rubinovitz has served
as a Director of EG&G. Since October 1984, he has served as Director of
Richardson Electronics, Inc., a manufacturer and distributor of electron tubes
and semiconductors and, since October 1986, Director of Kronos, Inc., a
manufacturer of electronic time keeping systems.
Mr. Tellefsen has served as a Director of the Company since 1978. He is
General Partner of Glenwood Capital Management, a venture capital firm. Since
January 1983, he has served as a Director of Iwerks Entertainment, a producer of
movie-based specialty theaters, and since 1982, as a director of Octel
Communications Corporation.
Item 11. EXECUTIVE COMPENSATION
The information regarding Executive Compensation as it appears in the Proxy
Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership of Certain Beneficial Owners
and Management as it appears in the Proxy Statement is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding Certain Relationships and Related Transactions as
it appears in the Proxy Statement is incorporated herein by reference.
14
<PAGE> 15
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORT ON FORM 8-K
(a) (1) Financial Statements: See Index to Financial Statements, page 17.
(2) Financial Statement Schedules: See Index to Financial Statement
Schedules, page 17.
(3) Exhibits: See Index to Exhibits, pages 18 and 19.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1995.
15
<PAGE> 16
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 in the City of San
Jose, State of California, on the 27th day of September 1995.
KLA INSTRUMENTS CORPORATION
By WILLIAM TURNER
------------------------------
William Turner
Vice President/Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of this
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
KENNETH LEVY Director, Chairman of the Board, and September 27, 1995
- ------------------------ Chief Executive Officer
Kenneth Levy
KENNETH L. SCHROEDER Director, President September 27, 1995
- ------------------------ and Chief Operating Officer
Kenneth L. Schroeder
ROBERT J. BOEHLKE Vice President Finance September 27, 1995
- ------------------------ and Administration,
Robert J. Boehlke Chief Financial Officer,
and Assistant Secretary
EDWARD W. BARNHOLT Director September 27, 1995
- ------------------------
Edward W. Barnholt
LEO J. CHAMBERLAIN Director September 27, 1995
- ------------------------
Leo J. Chamberlain
ROBERT E. LORENZINI Director September 27, 1995
- ------------------------
Robert E. Lorenzini
DR. YOSHIO NISHI Director September 27, 1995
- ------------------------
Dr. Yoshio Nishi
SAMUEL RUBINOVITZ Director September 27, 1995
- ------------------------
Samuel Rubinovitz
DAG TELLEFSEN Director September 27, 1995
- -------------------------
Dag Tellefsen
</TABLE>
16
<PAGE> 17
KLA INSTRUMENTS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s) in
1995 Annual
Report*
-----------
<S> <C>
Consolidated Statement of Operations for the three years ended June 30, 1995.................... 16
Consolidated Balance Sheet at June 30, 1994 and 1995............................................ 17
Consolidated Statement of Stockholders' Equity for the three years ended June 30, 1995......... 18
Consolidated Statement of Cash Flows for the three years ended June 30, 1995.................... 19
Notes to the Consolidated Financial Statements.................................................. 20-25
Report of Independent Accountants............................................................... 26
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
*Incorporated by reference from the indicated pages of the 1995 Annual Report
to Stockholders.
Financial Statement Schedules not included in this Form 10-K Annual Report
have been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
17
<PAGE> 18
INDEX TO EXHIBITS
(i) EXHIBITS INCORPORATED BY REFERENCE:
3.1 Certificate of Incorporation as amended(7)
3.2 Bylaws, as amended(7)
4.1 Amended and Restated Rights Agreement dated as of August 30, 1995,
between the Company and First National Bank of Boston, as Rights
Agent. The Rights Agreement includes as Exhibit A, the form of
Right Certificate.(1)
10.15 Statement of Partnership to Triangle Partners dated April 12, 1983(2)
10.16 Lease Agreement and Addendum thereto dated January 10, 1983, between
BB&K Partnership and the Company(2)
10.18 Purchase and Sale Agreement dated January 10, 1983, between BB&K
Partnership, Triangle Partners and the Company(2)
10.35 Research and Development Agreement, Cross License and Technology
Transfer Agreement and Agreement for Option to License and
Purchase Resulting Technology, all dated October 1, 1986, by and
between KLA Development No. 4, Ltd., and the Company(3)
10.45 Distribution Agreement dated July 1990, by and between Tokyo Electron
Limited, a Japanese Corporation, and the Company(4)
10.46 Principal facility Purchase Agreement dated July 1990, including all
exhibits and amendments; Lease Agreement, Termination of Lease,
Lot line adjustment, rights of first refusal, Deeds of Trust(4)
10.47 Joint Venture Agreement between the Company and Nippon Mining Company,
Limited, dated September 18, 1990(5)
10.49 Exercise of Option to Purchase Technology made effective as of
January 1, 1990, by and between KLA Development No. 4, and the
Company(5)
10.54 Micrion Corporation Series E Preferred Stock Purchase Agreement, dated
September 13, 1991(6)
10.67 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated March 31, 1994(9)
10.68 Credit Agreement between Bank of America NT & SA and the Company,
dated April 30, 1994(9)
10.71 1990 Outside Directors Stock Option Plan(8)
10.73 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated December 31, 1994(10)
10.74 1981 Employee Stock Purchase Plan, as amended by the Board of
Directors on October 7, 1994(10)
10.75 1982 Stock Option Plan, as amended by the Board of Directors on
October 7, 1994(10)
10.76 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated February 15, 1995(11)
(ii) EXHIBITS INCLUDED HEREWITH:
10.77 Lease Agreement, Ground Lease Agreement and Purchase Agreement dated
June 5, 1995, between BNP Leasing Corporation and the Company.
10.78 Lease Agreement and Purchase Agreement dated August 10, 1995, between
BNP Leasing Corporation and the Company.
13 1995 Annual Report to Stockholders. This Annual Report shall not be
deemed to be filed except to the extent that the information is
specifically incorporated by reference.
21 List of Subsidiaries of KLA Instruments Corporation
23.1 Consent of Independent Accountants
27 1995 Year End Financial Data Schedule
- ---------------
(1) Filed as exhibit number 1 to Form 8-A/A, filed effective September 25, 1995
(2) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1983
(3) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1987
(4) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1990
(5) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1991
18
<PAGE> 19
(6) Filed as the same exhibit number as set forth herein to Registrant's
Form 10-K for the year ended June 30, 1992
(7) Filed as the same exhibit number to Registrant's registration statement
no.33-51819 on Form S-3, dated February 2, 1994
(8) Filed as exhibit number 4.6 as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1991
(9) Filed as the same exhibit number as set forth herein to Registrant's
Form 10-K for the year ended June 30, 1994
(10) Filed as the same exhibit number as set forth herein to Registrant's
Form 10-Q for the quarter ended December 31, 1994
(11) Filed as the same exhibit number as set forth herein to Registrant's
Form 10-Q for the quarter ended March 31, 1995
19
<PAGE> 1
Exhibit 10.77
$12,500,000
LEASE AGREEMENT
BETWEEN
BNP LEASING CORPORATION,
AS LANDLORD
AND
KLA INSTRUMENTS CORPORATION,
AS TENANT
EFFECTIVE AS OF JUNE 5, 1995
PURSUANT TO AND AS MORE PARTICULARLY PROVIDED IN SUBPARAGRAPH 20.(j) OF THIS
LEASE, THIS LEASE AND THE PURCHASE AGREEMENT REFERENCED HEREIN ARE TO
CONSTITUTE, FOR INCOME TAX PURPOSES ONLY, A FINANCING ARRANGEMENT OR CONDITIONAL
SALE. AS PROVIDED IN SUBPARAGRAPH 20.(j) OF THIS LEASE, LANDLORD AND TENANT
EXPECT THAT TENANT (AND NOT LANDLORD) SHALL BE TREATED AS THE TRUE OWNER OF THE
PROPERTY FOR INCOME TAX PURPOSES, THEREBY ENTITLING TENANT (AND NOT LANDLORD) TO
TAKE DEPRECIATION DEDUCTIONS AND OTHER TAX BENEFITS AVAILABLE TO THE OWNER.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions........................................................................................ 2
(a) Administrative Fee........................................................................ 2
(b) Active Negligence......................................................................... 2
(c) Additional Rent........................................................................... 2
(d) Advance Date.............................................................................. 2
(e) Affiliate................................................................................. 2
(f) Applicable Laws........................................................................... 2
(g) Applicable Purchaser...................................................................... 3
(h) Attorneys' Fees........................................................................... 3
(i) Base Rent................................................................................. 3
(j) Base Rent Commencement Date............................................................... 3
(k) Base Rent Date............................................................................ 3
(l) Base Rent Period.......................................................................... 4
(m) Breakage Costs............................................................................ 4
(n) Business Day.............................................................................. 5
(o) Capital Adequacy Charges.................................................................. 5
(p) Carrying Costs............................................................................ 5
(q) Closing Costs............................................................................. 5
(r) Change of Control Event................................................................... 5
(s) Code...................................................................................... 5
(t) Commitment Fee............................................................................ 5
(u) Completion Notice......................................................................... 5
(v) Completion Deadline....................................................................... 5
(w) Construction Advances..................................................................... 5
(x) Construction Allowance.................................................................... 6
(y) Construction Periods...................................................................... 6
(z) Custodial Agreement....................................................................... 6
(aa) Debt...................................................................................... 6
(ab) Default................................................................................... 6
(ac) Default Rate.............................................................................. 6
(ad) Defaulting Participant.................................................................... 6
(ae) Designated Payment Date................................................................... 6
(af) Effective Rate............................................................................ 7
(ag) Environmental Indemnity................................................................... 7
(ah) Environmental Laws........................................................................ 7
(ai) Environmental Losses...................................................................... 7
(aj) Environmental Report...................................................................... 8
(ak) ERISA..................................................................................... 8
(al) ERISA Affiliate........................................................................... 8
(am) ERISA Termination Event................................................................... 8
(an) Escrowed Proceeds......................................................................... 8
(ao) Eurocurrency Liabilities.................................................................. 9
(ap) Eurodollar Rate Reserve Percentage........................................................ 9
(aq) Event of Default.......................................................................... 9
(ar) Excluded Taxes............................................................................ 9
(as) Fair Market Value......................................................................... 9
(at) Fed Funds Rate............................................................................ 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(au) Funding Advances.......................................................................... 9
(av) GAAP...................................................................................... 9
(aw) Hazardous Substance....................................................................... 10
(ax) Hazardous Substance Activity.............................................................. 10
(ay) Impositions............................................................................... 10
(az) Improvements.............................................................................. 10
(ba) Indemnified Party......................................................................... 10
(bb) Initial Funding Advance................................................................... 10
(bc) Initial Improvements...................................................................... 11
(bd) Landlord's Lender......................................................................... 11
(be) Last Advance Date......................................................................... 11
(bf) LIBOR..................................................................................... 11
(bg) LIBOR Period Election..................................................................... 11
(bh) Lien...................................................................................... 12
(bi) Losses.................................................................................... 12
(bj) Maximum Construction Allowance............................................................ 12
(bk) Notice of Last Advance.................................................................... 12
(bl) Ordinary Negligence....................................................................... 12
(bm) Outstanding Construction Allowance........................................................ 12
(bn) Participant............................................................................... 12
(bo) Participation Agreements.................................................................. 13
(bp) Permitted Encumbrances.................................................................... 13
(bq) Permitted Hazardous Substance Use......................................................... 13
(br) Permitted Hazardous Substances............................................................ 13
(bs) Permitted Transfer........................................................................ 13
(bt) Person.................................................................................... 14
(bu) Plan...................................................................................... 14
(bv) Pledge Agreement.......................................................................... 14
(bw) Potential Lien Claimants.................................................................. 14
(bx) Prime Rate................................................................................ 14
(by) Purchase Agreement........................................................................ 14
(bz) Qualified Payments........................................................................ 14
(ca) Remaining Proceeds........................................................................ 15
(cb) Rent...................................................................................... 15
(cc) Responsible Financial Officer............................................................. 15
(cd) Revolving Credit Agreement................................................................ 15
(ce) Scope Change.............................................................................. 15
(cf) Spread.................................................................................... 15
(cg) Stipulated Loss Value..................................................................... 16
(ch) Subsidiary................................................................................ 16
(ci) Tenant's Knowledge........................................................................ 16
(cj) Term...................................................................................... 16
(ck) Unfunded Benefit Liabilities.............................................................. 16
(cl) Upfront Fee............................................................................... 17
(cm) Other Terms and References................................................................ 17
2. Term............................................................................................... 17
3. Rent............................................................................................... 17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
(a) Base Rent Generally....................................................................... 17
(b) Calculation of Base Rent.................................................................. 18
(c) Upfront Fee............................................................................... 18
(d) Administrative Agency Fees................................................................ 18
(e) Commitment Fees........................................................................... 19
(f) Additional Rent........................................................................... 19
(g) Interest and Order of Application......................................................... 19
(h) Net Lease................................................................................. 19
(i) No Demand or Setoff....................................................................... 19
4. Insurance and Condemnation Proceeds................................................................ 19
5. No Lease Termination............................................................................... 21
(a) Status of Lease........................................................................... 21
(b) Waiver By Tenant.......................................................................... 21
6. Construction Allowance............................................................................. 22
(a) Advances; Outstanding Construction Allowance.............................................. 22
(b) Initial Improvements...................................................................... 23
(i) Responsibility for Construction................................................... 23
(ii) Scope Changes.................................................................... 23
(iii) Value Added...................................................................... 23
(iv) Estoppel Letters Required........................................................ 23
(v) Advances Not a Waiver............................................................ 24
(c) Conditions to Construction Advances....................................................... 24
(i) Prior Notice..................................................................... 24
(ii) Amount of the Advances........................................................... 24
(iii) Insurance........................................................................ 24
a) Title Insurance........................................................... 24
b) Builder's Risk Insurance.................................................. 25
(iv) Progress of Construction......................................................... 25
(v) Evidence of Costs to be Reimbursed............................................... 25
(vi) No Event of Default or Change of Control Event................................... 25
(vii) No Sale of Landlord's Interest................................................... 25
(viii) Construction Advance Certificate................................................. 25
(d) Completion Notice......................................................................... 26
7. Future Modifications............................................................................... 26
8. Purchase Agreement, Pledge Agreement and Environmental Indemnity................................... 27
9. Use and Condition of Leased Property............................................................... 27
(a) Use....................................................................................... 27
(b) Condition................................................................................. 27
(c) Consideration of and Scope of Waiver...................................................... 27
10. Other Representations, Warranties and Covenants of Tenant.......................................... 28
(a) Financial Matters......................................................................... 28
(b) Ground Lease.............................................................................. 28
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
(c) No Default or Violation................................................................... 28
(d) Compliance with Covenants and Laws........................................................ 28
(e) Environmental Representations............................................................. 29
(f) No Suits.................................................................................. 29
(g) Condition of Property..................................................................... 29
(h) Organization.............................................................................. 29
(i) Enforceability............................................................................ 30
(j) Not a Foreign Person...................................................................... 30
(k) Omissions................................................................................. 30
(l) Existence................................................................................. 30
(m) Tenant Taxes.............................................................................. 30
(n) Operation of Property..................................................................... 30
(o) Debts for Construction.................................................................... 31
(p) Impositions............................................................................... 31
(q) Repair, Maintenance, Alterations and Additions............................................ 32
(r) Insurance and Casualty.................................................................... 32
(s) Condemnation.............................................................................. 33
(t) Protection and Defense of Title........................................................... 34
(u) No Liens on the Leased Property........................................................... 34
(v) Books and Records......................................................................... 34
(w) Financial Statements; Required Notices; Certificates as to Default........................ 35
(x) Further Assurances........................................................................ 36
(y) Fees and Expenses; General Indemnification; Increased Costs; and
Capital Adequacy Charges.................................................................. 36
(z) Liability Insurance....................................................................... 38
(aa) Permitted Encumbrances.................................................................... 38
(ab) Environmental............................................................................. 39
(ac) Compliance with Financial Covenants and Certain Other Requirements
Established by the Revolving Credit Agreement............................................. 40
(ad) ERISA..................................................................................... 41
11. Representations, Warranties and Covenants of Landlord.............................................. 41
(a) Title Claims By, Through or Under Landlord................................................ 41
(b) Actions Required of the Title Holder...................................................... 41
(c) No Default or Violation................................................................... 42
(d) No Suits.................................................................................. 42
(e) Organization.............................................................................. 42
(f) Enforceability............................................................................ 42
(g) Existence................................................................................. 42
(h) Not a Foreign Person...................................................................... 43
12. Assignment and Subletting.......................................................................... 43
(a) Consent Required.......................................................................... 43
(b) Standard for Landlord's Consent to Assignments and Certain Other Matters.................. 43
(c) Consent Not a Waiver...................................................................... 43
(d) Landlord's Assignment..................................................................... 43
13. Environmental Indemnification...................................................................... 44
(a) Indemnity................................................................................. 44
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C>
(b) Assumption of Defense..................................................................... 44
(c) Notice of Environmental Losses............................................................ 44
(d) Rights Cumulative......................................................................... 45
(e) Survival of the Indemnity................................................................. 45
14. Landlord's Right of Access and Right to Perform.................................................... 45
15. Events of Default.................................................................................. 46
(a) Definition of Event of Default............................................................ 46
(b) Remedies.................................................................................. 48
(c) Enforceability............................................................................ 49
(d) Remedies Cumulative....................................................................... 49
(e) Waiver by Tenant.......................................................................... 49
(f) No Implied Waiver......................................................................... 50
16. Default by Landlord................................................................................ 50
17. Quiet Enjoyment.................................................................................... 50
18. Surrender Upon Termination......................................................................... 50
19. Holding Over by Tenant............................................................................. 50
20. Miscellaneous...................................................................................... 51
(a) Notices................................................................................... 51
(b) Severability.............................................................................. 53
(c) No Merger................................................................................. 53
(d) NO IMPLIED REPRESENTATIONS BY LANDLORD.................................................... 53
(e) Entire Agreement.......................................................................... 53
(f) Binding Effect............................................................................ 53
(g) Time is of the Essence.................................................................... 53
(h) Governing Law............................................................................. 53
(i) Waiver of a Jury Trial.................................................................... 53
(j) Income Tax Reporting...................................................................... 54
</TABLE>
Exhibits
Exhibit A......................................................Legal Description
Exhibit B.......................................................Encumbrance List
Exhibit C............................Information Concerning Initial Improvements
Exhibit D...........................................Contractor's Estoppel Letter
Exhibit E............................................Architect's Estoppel Letter
Exhibit F.....................................................Draw Request Forms
Exhibit G........................................Covenant Compliance Certificate
Exhibit H.........................................Permitted Hazardous Substances
Exhibit I................................Resolution of Disputed Insurance Claims
Exhibit J...........................................LIBOR Period Election Notice
(v)
<PAGE> 7
LEASE AGREEMENT
This LEASE AGREEMENT (hereinafter called this "LEASE"), made to be
effective as of June 5, 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 KLA
INSTRUMENTS CORPORATION, a Delaware corporation (hereinafter called "TENANT");
W I T N E S E T H T H A T:
WHEREAS, pursuant to a Ground Lease dated of even date herewith
(hereinafter called the "GROUND LEASE") from Tenant, as lessor, to Landlord, as
lessee, covering the land described in Exhibit A attached hereto (hereinafter
called the "LAND"), Landlord is leasing the Land and any existing improvements
thereon from Tenant for a term of 34 years;
WHEREAS, in anticipation of Landlord's lease of the Land, Landlord and
Tenant have reached agreement as to the terms and conditions upon which Landlord
is willing to sublease the same to Tenant, and by this Lease Landlord and Tenant
desire to evidence such agreement;
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 SUBLEASE, 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
improvements now or hereafter erected on the Land, including, but not
limited to, the fixtures, attachments, appliances, equipment, machinery
and other articles attached to such buildings and improvements
(hereinafter called the "IMPROVEMENTS");
(ii) all easements and rights-of-way now owned or leased or
hereafter acquired or leased 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 or leased 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 or leased 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 (by sublease) the leasehold in the Real
Property as described above, Landlord hereby grants and assigns 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 in, to
or under the following that have been transferred to Landlord under the Ground
Lease, to the extent any such rights and interests are assignable and related to
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; and (b) any general intangibles, permits, licenses, franchises,
certificates,
<PAGE> 8
and other rights and privileges. All of the property, rights and privileges
described above in this paragraph, together with any furniture, furnishings and
other personalty included in the Initial Improvements (as hereinafter defined)
because of Tenant's purchase thereof with the Construction Allowance (as
hereinafter defined), 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:
2. Definitions. As used herein, the terms "Landlord," "Tenant,"
"Ground Lease," "Land," "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) Administrative Fee. "ADMINISTRATIVE FEE" shall have the
meaning assigned to it in subparagraph 3.(d) below.
(b) Active Negligence. "ACTIVE NEGLIGENCE" of an Indemnified
Party means, and is limited to, the negligent conduct of activities on the
Leased Property by the Indemnified Party in a manner that proximately causes
actual bodily injury or property damage to occur. "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 any interest in 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 lawfully claiming through
or under Landlord) of any remedy provided herein or in the Purchase Agreement.
(c) Additional Rent. "ADDITIONAL RENT" shall have the
meaning assigned to it in subparagraph 3.(f) below.
(d) Advance Date. "ADVANCE DATE" means, regardless of
whether any Construction Advance shall actually be made thereon, each of the
following: (i) June 14, 1995 and (ii) the first Business Day of every calendar
month, beginning with July 3, 1995 and continuing regularly thereafter to and
including the Base Rent Commencement Date. If the Base Rent Commencement Date
occurs before the Last Advance Date, then each Base Rent Date through and
including the Last Advance Date shall also constitute an "ADVANCE DATE"
hereunder. In any event, the Last Advance Date shall be the final Advance Date.
(e) Affiliate. "AFFILIATE" of any Person means any other
Person controlling, controlled by or under common control with such Person. For
purposes of this definition, the term "CONTROL" when used with respect to any
Person means the power to direct the management of policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
(f) Applicable Laws. "APPLICABLE LAWS" shall have the
meaning assigned to it in subparagraph 10.(d) below.
<PAGE> 9
(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) Attorneys' Fees. "ATTORNEYS' FEES" means the reasonable
fees and expenses 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 fees and expenses 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 such fees and
expenses were incurred.
(i) Base Rent. "BASE RENT" means the rent payable by Tenant
pursuant to subparagraph 3.(a) below.
(j) Base Rent Commencement Date. "BASE RENT COMMENCEMENT
DATE" means the earlier of (1) the Last Advance Date, or (2) the first Business
Day of any calendar month that occurs at least ten (10) days after Landlord has
received a notice from Tenant stating that Tenant irrevocably elects to have
Base Rent begin to accrue as soon as possible under this Lease. It is understood
that Tenant may, but shall not be required, to give such a notice at any time
Tenant would prefer to commence payment of Base Rent rather than have Carrying
Costs continue to accrue.
(k) Base Rent Date. "BASE RENT DATE" means a date upon which
Base Rent must be paid under this Lease, all of which dates shall be the first
Business Day of a calendar month. The first Base Rent Date shall be determined
as follows:
a) If a LIBOR Period Election of one month is in effect
on the Base Rent Commencement Date, then the first Business Day
of the first calendar month following the Base Rent Commencement
Date shall be the first Base Rent Date.
b) If the LIBOR Period Election in effect on the Base
Rent Commencement Date is three months or longer, then the first
Business Day of the third calendar month following the Base Rent
Commencement Date shall be the first Base Rent Date.
Each successive Base Rent Date after the first Base Rent Date shall be the first
Business Day of the first or third calendar month following the calendar month
which includes the preceding Base Rent Date, determined as follows:
a) If a LIBOR Period Election of one month is in effect
on a Base Rent Date, then the first Business Day of the first
calendar month following such Base Rent Date shall be the next
following Base Rent Date.
b) If a LIBOR Period Election of three months or longer
is in effect on a Base Rent Date, then the first Business Day of
the third calendar month following such Base Rent Date shall be
the next following Base Rent Date.
Thus, for example, if the Base Rent Commencement Date falls on June 2, 1997 and
a LIBOR Period Election of six months commences on the Base Rent Commencement
Date, then the first Base Rent Date shall be the first
<PAGE> 10
Business Day of September, 1997, and the second Base Rent Date shall be the
first Business Day of December, 1997.
(l) Base Rent Period. "BASE RENT PERIOD" means a period for
which Base Rent must be paid under this Lease, each of which periods shall
correspond to the LIBOR Period Election for such period. The first Base Rent
Period shall begin on and include the Base Rent Commencement Date, and each
successive Base Rent Period shall begin on and include the Base Rent Date upon
which the preceding Base Rent Period ends. Each Base Rent Period, including the
first Base Rent Period, shall end on but not include the first, second, third or
fourth Base Rent Date after the Base Rent Date upon which such period began,
determined as follows:
a) If the LIBOR Period Election for a Base Rent Period
is one month or three months, then such Base Rent Period shall
end on the first Base Rent Date after the Base Rent Date upon
which such period began.
b) If the LIBOR Period Election for a Base Rent Period
is six months, then such Base Rent Period shall end on the
second Base Rent Date after the Base Rent Date upon which such
period began.
c) If the LIBOR Period Election for a Base Rent Period
is nine months, then such Base Rent Period shall end on the
third Base Rent Date after the Base Rent Date upon which such
period began.
d) If the LIBOR Period Election for a Base Rent Period
is twelve months, then such Base Rent Period shall end on the
fourth Base Rent Date after the Base Rent Date upon which such
period began.
The determination of Base Rent Periods can be illustrated by two examples:
1) If Tenant makes a LIBOR Period Election of three
months for a hypothetical Base Rent Period beginning on June 2,
1997, then such Base Rent Period will end on but not the include
the first Base Rent Date after June 1, 1997; that is, such Base
Rent Period will end on September 1, 1997, the first Business
Day of the third calendar month after June 2, 1997.
2) If, however, Tenant makes a LIBOR Period Election of
six months for the hypothetical Base Rent Period beginning June
2, 1997, then such Base Rent Period will end on but not include
the second Base Rent Date after June 2, 1997; that is, December
1, 1997.
If the Base Rent Commencement Date occurs before the Last Advance Date, then
because of the interplay of the definitions in this Lease: (1) the last day of
each Base Rent Period shall also constitute an Advance Date hereunder through
and including the Last Advance Date; (2) Base Rent Periods ending on or prior to
the Last Advance Date shall also constitute Construction Periods hereunder; and
(3) the LIBOR Period Election for any Base Rent Period ending on or prior to the
Last Advance Date shall, under the definition of LIBOR Period Election in
subparagraph 1.(bg) below, be one month, thus causing each such Base Rent Period
to be only one month.
(m) Breakage Costs. "BREAKAGE COSTS" means any and all
costs, losses or expenses incurred or sustained by Landlord's Lender or any
Participant, for which Landlord's Lender or the Participant shall expect
reimbursement from Landlord, because of the resulting liquidation or
redeployment of deposits or other funds used to make Funding Advances upon any
termination of the Ground Lease by Tenant (as lessor thereunder) pursuant to
Paragraph 2 thereof or upon any termination of this Lease by Tenant pursuant to
<PAGE> 11
Paragraph 2 below, if such termination is effective as of any day other than the
last day of a Construction Period or Base Rent Period. Breakage Costs will
include losses attributable to any decline in LIBOR as of the effective date of
termination as compared to LIBOR used to determine the Effective Rate then in
effect. (However, if Landlord's Lender or a Participant actually receives a
profit upon the liquidation or redeployment of deposits or other funds used to
make Funding Advances, because of any increase in LIBOR, then such profit will
be offset against costs or expenses that would otherwise be charged as Breakage
Costs under this Lease.) Each determination by Landlord's Lender of Breakage
Costs shall, in the absence of clear and demonstrable error, be conclusive and
binding upon Landlord and Tenant.
(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 Lender or any Participant requires
Landlord to pay as compensation for an increase in required capital as provided
in subparagraph 10.(y)(iv).
(p) Carrying Costs. "CARRYING COSTS" means the charges
(accruing at the Effective Rate) added to and made a part of the Outstanding
Construction Allowance from time to time on and before the Base Rent
Commencement Date pursuant to and as more particularly described in subparagraph
6.(a)(ii) below.
(q) Closing Costs. "CLOSING COSTS" means the costs paid from
the Initial Funding Advance in connection with the preparation and negotiation
of this Lease, the Ground Lease, the Purchase Agreement, the Pledge Agreement,
the Environmental Indemnity and related documents. To the extent that Landlord
does not itself use the entire Initial Funding Advance to pay expenses incurred
by Landlord in connection with the preparation and negotiation of such
documents, the remainder thereof will be advanced to Tenant for payment of
expenses incurred by Tenant in connection therewith, or title insurance
premiums.
(r) Change of Control Event. "CHANGE OF CONTROL EVENT" means
the occurrence of any merger or consolidation or sale of assets involving Tenant
that would constitute an "Event of Default" as defined in the Revolving Credit
Agreement.
(s) Code. "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
(t) Commitment Fee. "COMMITMENT FEE" shall have the meaning
assigned to it in subparagraph 3.(e) below.
(u) Completion Notice. "COMPLETION NOTICE" shall have the
meaning assigned to it in subparagraph 6.(d) below.
(v) Completion Deadline. "COMPLETION DEADLINE" means
November 1, 1997.
(w) Construction Advances. "CONSTRUCTION ADVANCES" means
actual advances of funds made by or on behalf of Landlord pursuant to Paragraph
6.(a)(i) below for costs incurred to construct the Initial Improvements or for
property taxes and assessments assessed against the Leased Property and paid
prior to the Last Advance Date.
<PAGE> 12
(x) Construction Allowance. "CONSTRUCTION ALLOWANCE" means
the allowance, consisting of all Construction Advances and Carrying Costs, which
is to be provided by Landlord for the construction of the Initial Improvements
as more particularly described in Paragraph 6 below.
(y) Construction Periods. The first "CONSTRUCTION PERIOD"
shall be a short period beginning on and including the effective date hereof and
ending on but not including July 3, 1995. Each successive "CONSTRUCTION PERIOD"
after the first Construction Period shall be a period of approximately one (1)
month, and 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. The last "CONSTRUCTION PERIOD" shall end on but not include the
Last Advance Date.
(z) Custodial Agreement. "CUSTODIAL AGREEMENT" means the
Custodial Agreement dated as of the date hereof between Banque Nationale de
Paris, New York Branch (or any successor or replacement custodian), and Tenant
pursuant to which such bank will hold securities pledged by Tenant as collateral
for Tenant's obligations under the Purchase Agreement, as such Custodial
Agreement may be extended, supplemented, amended, restated or otherwise modified
from time to time in accordance with its terms.
(aa) Debt. "DEBT" of any Person means (i) indebtedness of
such Person for borrowed money, (ii) obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) obligations of such
Person to pay the deferred purchase price of property or services, (iv)
obligations of such Person as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (v) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) above, (vi) liabilities of
another Person secured by a Lien on, or payable out of the proceeds of
production from, property of such Person even though such obligation shall not
be assumed by such Person (but in the case of such liabilities not assumed by
such Person, the liabilities shall constitute Debt of such Person only to the
extent of the value of such Person's property encumbered by the Lien securing
such liabilities) and (vii) Unfunded Benefit Liabilities.
(bb) Default. "DEFAULT" means any event which, with the
passage of time or the giving of notice or both, would (if not cured within any
applicable cure period) constitute an Event of Default.
(cc) Default Rate. "DEFAULT RATE" means a floating per annum
rate equal to three percent (3%) above the Prime Rate. However, in no event will
the Default Rate exceed the maximum interest rate permitted by law.
(dd) Defaulting Participant. "DEFAULTING PARTICIPANT" means
any Participant that shall have breached its Participation Agreement with
Landlord by failing to provide a Funding Advance to Landlord for (or equal to)
such Participant's percentage of any Construction Advance requested by Tenant.
(For purposes of this Lease a "PARTICIPANT'S PERCENTAGE" shall mean the
percentage that, under such Participant's Participation Agreement with Landlord,
is to be multiplied against Construction Advances to compute the amount the
Participant must advance to Landlord for (or equal to) a percentage of
Construction Advances requested hereunder.) Notwithstanding the foregoing,
however, in no event will any Participant be a Defaulting Participant unless its
Participation Agreement with Landlord expressly makes Tenant a third party
beneficiary of the applicable Participant's promise to fund advances for (or
equal to) its percentage share of Construction Advances hereunder.
(ee) Designated Payment Date. "DESIGNATED PAYMENT DATE" shall
have the meaning assigned to it in the Purchase Agreement.
<PAGE> 13
(ff) Effective Rate. "EFFECTIVE RATE" means:
(i) for each day during the short first Construction Period
ending July 3, 1995 the per annum rate which equals the Spread plus the
rate which is fifty basis points (50/100 of 1%) above the Fed Funds Rate
for that day; and
(ii) for each subsequent Construction Period and for each
Base Rent Period, the per annum rate which equals the Spread for such
Construction Period or Base Rent Period plus the per annum rate
determined by dividing (A) LIBOR for such Construction Period or Base
Rent Period, as the case may be, by (B) 100% minus the Eurodollar Rate
Reserve Percentage for such Construction Period or Base Rent Period.
If LIBOR or the Eurodollar Rate Reserve Percentage changes from Construction
Period to Construction Period or from Base Rent Period to Base Rent Period, then
the Effective Rate shall be automatically increased or decreased as of the date
of such change, as the case may be. If for any reason Landlord determines that
it is impossible or unreasonably difficult to determine the Effective Rate with
respect to a given Construction Period or Base Rent Period in accordance with
the preceding sentences, then the "EFFECTIVE RATE" for that Construction Period
or Base Rent Period shall equal the Spread plus any published index or per annum
interest rate determined reasonably and in good faith by Landlord's Lender 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 Lender'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.
(gg) Environmental Indemnity. "ENVIRONMENTAL INDEMNITY" means
the separate Environmental Indemnity Agreement dated as of the date hereof
executed by Tenant in favor of Landlord covering the Land and certain other
property described therein, as such agreement may be extended, supplemented,
amended, restated or otherwise modified from time to time in accordance with its
terms.
(hh) 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").
(ii) 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: (i) any Hazardous
Substance Activity; (ii) any violation of 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; 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.(ai), or
any allegation of any such matters. 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
<PAGE> 14
LISTED IN THE PRECEDING SENTENCE EVEN WHEN SUCH MATTERS ARE CAUSED BY THE
ORDINARY NEGLIGENCE (AS DEFINED BELOW) OF THAT PARTICULAR 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 any Indemnified Party will not constitute Environmental
Losses of such Indemnified Party for purposes of this Lease.
(jj) Environmental Report. "ENVIRONMENTAL REPORT" means,
collectively, the following reports prepared by Tetra Tech, Inc. for Lund
Financial Corporation: (i) Limited Soils Investigation for Vacant Parcel at the
KLA Instruments Facility, 160 Rio Robles, San Jose, California dated April 18,
1995; and (ii) Phase I Environmental Site Assessment KLA Instruments Property,
160 Rio Robles Drive, San Jose, California dated April 21, 1995, and all tables,
figures, certificates, appendices and other attachments to such reports.
(kk) ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
(ll) ERISA Affiliate. "ERISA AFFILIATE" means any Person who
for purposes of Title IV of ERISA is a member of Tenant's controlled group, or
under common control with Tenant, within the meaning of Section 414 of the Code,
and the regulations promulgated and rulings issued thereunder.
(mm) ERISA Termination Event. "ERISA TERMINATION EVENT" means
(i) the occurrence with respect to any Plan of a) a reportable event described
in Sections 4043(b)(5) or (6) of ERISA or b) any other reportable event
described in Section 4043(b) of ERISA other than a reportable event not subject
to the provision for 30-day notice to the Pension Benefit Guaranty Corporation
pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (ii)
the withdrawal of Tenant or any Affiliate of Tenant from a Plan during a plan
year in which it was a "SUBSTANTIAL EMPLOYER" as defined in Section 4001(a)(2)
of ERISA, or (iii) the filing of a notice of intent to terminate any Plan or the
treatment of any Plan amendment as a termination under Section 4041 of ERISA, or
(iv) the institution of proceedings to terminate any Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
(nn) 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
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 Rent 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 4 below or applied as a Qualified Payment
or as reimbursement for costs incurred
<PAGE> 15
in connection with a Qualified Payment, Landlord shall keep the same deposited
in an interest bearing account established in Landlord's name, and all interest
earned on such account shall be added to and made a part of Escrowed Proceeds.
(oo) 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.
(pp) Eurodollar Rate Reserve Percentage. "EURODOLLAR RATE
RESERVE PERCENTAGE" means, for purposes of determining the Effective Rate for
any Construction Period or Base Rent Period, the reserve percentage applicable
two Business Days before the first day of such Construction Period or Base Rent
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 or liabilities by reference to which
LIBOR is determined) having a term comparable to such Construction Period or
Base Rent Period.
(qq) Event of Default. "EVENT OF DEFAULT" shall have the
meaning assigned to it in subparagraph 15.(a) below.
(rr) Excluded Taxes. "EXCLUDED TAXES" shall mean (1) all
federal, state and local income taxes upon the Base Rent, the Upfront Fee,
Administrative Fees, Commitment Fees and any interest paid to Landlord pursuant
to subparagraph 3.(g), (2) any taxes imposed by any governmental authority
outside the United States, and (3) 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 the Lease, the Purchase Agreement or the Leased Property,
but excluding any such taxes assessed because of any Permitted Transfer to a
Participant or because of any Permitted Transfer described in clause (4) of the
definition of Permitted Transfer below.
(ss) Fair Market Value. "FAIR MARKET VALUE" shall have the
meaning assigned to it in the Purchase Agreement.
(tt) 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
Lender from three Federal funds brokers of recognized standing selected by
Landlord's Lender. All determinations of the Fed Funds Rate by Landlord's Lender
shall, in the absence of clear and demonstrable error, be binding and conclusive
upon Landlord and Tenant.
(uu) Funding Advances. "FUNDING ADVANCES" means (1) the
Initial Funding Advance and (2) all future advances (which, together with
Initial Funding Advance, are expected to total $12,500,000) made by Landlord's
Lender or any Participant to or on behalf of Landlord to allow Landlord to
provide the Construction Allowance hereunder.
(vv) 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 10.(w) (except for changes
concurred in by Tenant's independent public accountants).
<PAGE> 16
(ww) 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.
(xx) Hazardous Substance Activity. "HAZARDOUS SUBSTANCE
ACTIVITY" means any actual, proposed or threatened 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.
(yy) Impositions. "IMPOSITIONS" shall have the meaning
assigned to it in subparagraph 10.(p) below.
(zz) 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 any new improvements or changes
to existing improvements made by Tenant. Accordingly, any and 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.
(aaa) Indemnified Party. "INDEMNIFIED PARTY" means each of (1)
Landlord, any of Landlord's successors and any of Landlord's assigns to the
extent that the transfer to such assigns was permitted hereunder, as to all or
any portion of the Leased Property or any interest therein (but excluding Tenant
or any Applicable Purchaser under the Purchase Agreement or any Person that
claims its interest in the Leased Property through or under Tenant or such
Applicable Purchaser), (2) any Participants, and (3) any Affiliate, officer,
agent, director, employee or servant of any of the parties described in clause
(1) or (2) preceding.
(bbb) Initial Funding Advance. "INITIAL FUNDING ADVANCE" means
the advance of $300,000 made by Landlord's Lender to or on behalf of Landlord on
or prior to the date of this Lease to finance Closing Costs.
(ccc) Initial Improvements. "INITIAL IMPROVEMENTS" shall mean
the improvements on the Land and any furnishings for such improvements which are
to be constructed and installed by Tenant using the Construction Allowances
described in Paragraph 6 below.
<PAGE> 17
(ddd) Landlord's Lender. "LANDLORD'S LENDER" means Landlord's
Affiliate, 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 of the
Funding Advances, and any successors of such bank and such Affiliates.
(eee) Last Advance Date. "LAST ADVANCE DATE" means the earlier
of (1) the Completion Deadline, or (2) the Designated Payment Date under the
Purchase Agreement, or (3) the first Business Day of any calendar month that
occurs at least ten (10) days after Landlord has received a Completion Notice or
Notice of Last Advance from Tenant, or (4) the first Business Day of any
calendar month during which Landlord has received a Lessor's Termination Notice
under and as defined in the Ground Lease.
(fff) LIBOR. "LIBOR" means, for purposes of determining the
Effective Rate for each Construction Period and Base Rent Period, the rate
determined by Landlord's Lender 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 Lender 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 Rent
Period, as the case may be. Landlord shall instruct Landlord's Lender 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 Rent Period, (ii) in an amount equal or comparable
to the total (projected on the applicable date of determination by Landlord's
Lender) Stipulated Loss Value on the first day of such Construction Period or
Base Rent Period, and (iii) for a period of time equal or comparable to the
length of such Construction Period or Base Rent Period. If Landlord's Lender 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; provided, however, Tenant may notify Landlord that
Tenant objects to any future determination of LIBOR in the manner provided by
this sentence, in which case any determination of LIBOR required more than three
Business Days after Landlord's receipt of such notice shall be made as if this
sentence had been struck from this Lease. If for any reason Landlord's Lender
determines that it is impossible or unreasonably difficult to determine LIBOR
with respect to a given Construction Period or Base Rent Period in accordance
with the preceding sentences, or if Landlord's Lender shall determine that it is
unlawful (or any central bank or governmental authority shall assert that it is
unlawful) for Landlord, Landlord's Lender or any Participant to provide Funding
Advances hereunder during any Base Rent Period for which Base Rent is computed
by reference to LIBOR, then "LIBOR" for that Construction Period or Base Rent
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 Lender
shall, in the absence of clear and demonstrable error, be binding and conclusive
upon Landlord and Tenant.
(ggg) LIBOR Period Election. The "LIBOR PERIOD ELECTION" for
any Base Rent Period means a period of one month, three months, six months, nine
months or twelve months as designated by Tenant at least ten (10) Business Days
prior to the commencement of such Base Rent Period by a written notice given to
Landlord in the form of Exhibit J attached hereto. (For purposes of this Lease a
LIBOR Period Election for any Base Rent Period shall also be considered the
LIBOR Period Election in effect on (1) the Base Rent Commencement Date or Base
Rent Date upon which such Base Rent Period begins and (2) subsequent Base Rent
Dates, if any, which occur before the date upon which such Base Rent Period
ends.) Any Libor Period Election so designated by Tenant shall remain in effect
for the entire Base Rent Period specified in Tenant's notice to Landlord
(provided such Base Rent Period commences at least ten (10) Business Days after
Landlord's receipt of the notice) and for all subsequent Base Rent Periods until
a new designation becomes effective in accordance with the provisions set forth
in this paragraph. Notwithstanding the foregoing, however: (1) Tenant shall not
be entitled to designate a LIBOR Period Election that would cause a Base Rent
Period to extend beyond the end of the scheduled Term; (2) changes in the LIBOR
Period Election shall become effective only upon the commencement of a new Base
Rent Period; (3) if Tenant fails to make a LIBOR Period Election in accordance
<PAGE> 18
with the foregoing requirements for any Base Rent Period, or if an Event of
Default shall have occurred and be continuing on the third Business Day
preceding the commencement of any Base Rent Period, the LIBOR Period Election
for such Base Rent Period shall be deemed to be one month; and (4) for any Base
Rent Period which ends on or prior to the Last Advance Date, the LIBOR Period
Election shall be deemed to be one month.
(hhh) Lien. "LIEN" means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any agreement to sell receivables with recourse, any lease in the
nature thereof, and the filing of or agreement to give any financing statement
under the Uniform Commercial Code of any jurisdiction). Customary bankers'
rights of set-off arising by operation of law or by contract (however styled, if
the contract grants rights no greater than those arising by operation of law) in
connection with working capital facilities, lines of credit, term loans and
letter of credit facilities and other contractual arrangements entered into with
banks in the ordinary course of business are not "Liens" for the purposes of
this Lease.
(iii) 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 and the fees of outside accountants and environmental
consultants), of any and every kind or character, foreseeable and unforeseeable,
liquidated and contingent, proximate and remote, known and unknown.
(jjj) Maximum Construction Allowance. "MAXIMUM CONSTRUCTION
ALLOWANCE" means an amount equal to $12,500,000, less the Initial Funding
Advance.
(kkk) Notice of Last Advance. "NOTICE OF LAST ADVANCE" means
any notice given by Tenant to Landlord stating that Tenant irrevocably elects
not to request or accept any further Construction Advances which Tenant might be
entitled to but for such election. It is understood that Tenant may, but shall
not be required, to give a Notice of Last Advance in order to accelerate the
Last Advance Date and to thereby accelerate the date upon which Commitment Fees
shall cease to accrue.
(lll) Ordinary Negligence. "ORDINARY NEGLIGENCE" of an
Indemnified Party means any negligent acts or omissions of such party that does
not for any reason constitute Active Negligence as defined in this Lease.
(mmm) Outstanding Construction Allowance. "OUTSTANDING
CONSTRUCTION ALLOWANCE" shall have the meaning assigned to it in subparagraph
6.(a)(i).
(nnn) Participant. "PARTICIPANT" means any Person other than
Landlord that agrees with Landlord or another Participant to participate in all
or some of the risks and rewards to Landlord of this Lease and the Purchase
Agreement. As of the effective date hereof, there are no Participants, but
Landlord may through a Permitted Transfer (and only through a Permitted
Transfer) share in risks and rewards of this Lease and the Purchase Agreement
with Participants in the future.
(ooo) Participation Agreements. "PARTICIPATION AGREEMENTS"
means participation agreements between Landlord and one or more third parties,
pursuant to which the third party or parties become Participants by agreeing to
participate in all or some of the risks and rewards to Landlord of this Lease
and the Purchase Agreement, as such Participation Agreements may be extended,
supplemented, amended, restated or otherwise modified from time to time.
(ppp) Permitted Encumbrances. "PERMITTED ENCUMBRANCES" means
(i) the encumbrances and other matters affecting the Leased Property that are
set forth in Exhibit B attached hereto and made a part hereof,
<PAGE> 19
and (ii) the Ground Lease or any other agreement described therein that survived
the execution and delivery thereof, and (iii) any easement agreement or other
document affecting title to the Leased Property executed by Landlord at the
request of or with the consent of Tenant.
(qqq) 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 of the Initial
Improvements and any other Improvements permitted by this Lease and for
the operation of the Leased Property for the purposes expressly
permitted under subparagraph 9.(a); or
(2) include any disposal, discharge or other release of Hazardous
Substances from operations on the Leased Property in any manner that
might allow such substances to reach the San Francisco Bay, 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) for Hazardous Substances, including but not limited to a landfill,
incinerator or other waste disposal facility.
(rrr) Permitted Hazardous Substances. "PERMITTED HAZARDOUS
SUBSTANCES" means Hazardous Substances used and reasonably required for the
construction of the Initial Improvements or for Tenant's operation of the Leased
Property for the purposes expressly permitted by subparagraph 9.(a), in either
case in strict compliance with all Environmental Laws and with due care given
the nature of the Hazardous Substances involved. Without limiting the generality
of the foregoing, Permitted Hazardous Substances shall include, without
limitation, usual and customary office and janitorial products, and the
materials listed on Exhibit H attached hereto.
(sss) Permitted Transfer. "PERMITTED TRANSFER" means any one
or more of the following: (1) any assignment or conveyance by Landlord of any
lien or security interest against the Leased Property (in contrast to a
conveyance of Landlord's leasehold estate under the Ground Lease) or of any of
Landlord's interest in Rent, payments required by the Purchase Agreement or
payments to be generated from the Leased Property after the Term, to any Person
not an Affiliate of Landlord that is approved in advance by Tenant as a
Participant (which approval shall not be unreasonably withheld for any proposed
Participant that is a commercial bank operating in the United States of America
having capital and surplus in excess of $500,000,000 or for any Affiliate of
such a bank) or to any Person that is an Affiliate of Landlord but is not
classified as a special purpose entity under GAAP as it pertains to the
characterization of this Lease as an operating lease; (2) any agreement to
exercise or refrain from exercising rights or remedies hereunder or under the
Purchase Agreement, the Pledge Agreement or the Environmental Indemnity made by
Landlord with any Participant or Affiliate of Landlord; (3) any assignment or
conveyance by Landlord requested by Tenant or required by any Permitted
Encumbrance, by the Purchase Agreement or by Applicable Laws; (4) any assignment
or conveyance by Landlord when an Event of Default shall have occurred and be
continuing; or (5) any assignment or conveyance by Landlord after the Designated
Payment Date.
<PAGE> 20
(ttt) Person. "PERSON" means an individual, a corporation, a
partnership, an unincorporated organization, an association, a joint stock
company, a joint venture, a trust, an estate, a government or agency or
political subdivision thereof or other entity, whether acting in an individual,
fiduciary or other capacity.
(uuu) Plan. "PLAN" means at any time an employee pension
benefit plan which is covered under Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code and is either (i) maintained by
Tenant or any Subsidiary for employees of Tenant or any Subsidiary or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Tenant or any Subsidiary is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
(vvv) Pledge Agreement. "PLEDGE AGREEMENT" means the Pledge
Agreement dated as of the date hereof between Landlord and Tenant pursuant to
which Tenant may pledge securities as collateral for Tenant's obligations under
the Purchase Agreement, as such Pledge Agreement may be extended, supplemented,
amended, restated or otherwise modified from time to time.
(www) Potential Lien Claimants. "POTENTIAL LIEN CLAIMANTS"
shall have the meaning assigned to it in subparagraph 6.(c)(v).
(xxx) Prime Rate. "PRIME RATE" means the prime interest rate
or equivalent charged by Landlord's Lender in the United States as announced or
published by Landlord's Lender from time to time, which need not be the lowest
interest rate charged by Landlord's Lender. If for any reason Landlord's Lender
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 as the Prime Rate. 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.
(yyy) 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 in accordance with its terms.
(zzz) 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 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
and the Outstanding Construction Allowance) 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
<PAGE> 21
Qualified Payments, until they are actually applied as Qualified Payments by
Landlord, which Landlord will do upon the first Advance Date or Base Rent 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 Rent 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 Base Rent Date in accordance with Paragraph 4
below.
(aaaa) Remaining Proceeds. "REMAINING PROCEEDS" shall have the
meaning assigned to it in subparagraph 4.(a)(ii).
(bbbb) Rent. "RENT" means the Base Rent and all Additional
Rent.
(cccc) Responsible Financial Officer. "RESPONSIBLE FINANCIAL
OFFICER" means the chief financial officer, the controller, the treasurer or the
assistant treasurer of Tenant.
(dddd) Revolving Credit Agreement. "REVOLVING CREDIT AGREEMENT"
shall have the meaning assigned to it in subparagraph 10.(ac) below.
(eeee) Scope Change. A "SCOPE CHANGE" means a material addition
to, deletion from or other modification to the quality, function or capacity of
the Initial Improvements as delineated in Exhibit C or in any plans and
specifications therefor previously approved by Landlord, but shall not include
refinement, correction and detailing by Tenant or Tenant's architects or
contractors from time to time. As used in this definition, a "MATERIAL" change
includes any change that (a) is reasonably likely to substantially reduce the
fair market value of the Leased Property (after completion of the Initial
Improvements), or (b) will change the general character of the Initial
Improvements from that described in Exhibit C.
(ffff) Spread. "SPREAD" means, for purposes of determining the
Effective Rate for each Construction Period and Base Rent Period, the difference
between (1) eighty-seven and one-half basis points (87.5/100 of 1%), less (2)
the product of (a) sixty-two and one-half basis points (62.5/100 of 1%) times
(b) the Collateral Percentage (as defined below) in effect for such Construction
Period or Base Rent Period. As used in this Lease, "COLLATERAL PERCENTAGE" means
the Collateral Percentage determined under (and as defined in) the Pledge
Agreement; provided, however, for purposes of this Lease, the Collateral
Percentage for any Construction Period or Base Rent Period shall not exceed a
fraction; the numerator of which fraction shall equal the Market Value (as
defined below) of all collateral (a) that is, on the first day of such
Construction Period or Base Rent Period, held by the Custodian under the
Custodial Agreement subject to a Qualifying Security Interest (as defined
below), (b) that is free from claims or security interests held or asserted by
any third party, and (c) with respect to which Tenant shall have satisfied the
requirements of Section 2.3 of the Pledge Agreement; and the denominator of
which fraction shall equal the Stipulated Loss Value on the first day of such
Construction Period or Base Rent Period (computed after the addition of any
Construction Advance made on such first day, after the addition of all Carrying
Costs for prior Construction Periods, and after the subtraction of any Qualified
Payments applied on such first day), but in no event shall such fraction exceed
1.0/1.0. As used in this paragraph, "MARKET VALUE" means, for purposes of
determining the Collateral Percentage for each Construction Period and Base Rent
Period, the Market Value determined in accordance with (and as defined in) the
Pledge Agreement on the Valuation Date (as defined in the Custodial Agreement)
upon which such Construction Period or Base Rent Period commences or, if such
Construction Period or Base Rent Period does not commence upon a Valuation Date,
on the most recent Valuation Date prior to the commencement of such period. As
used in this paragraph, "QUALIFYING SECURITY INTEREST" means a first priority
perfected security interest under the Pledge Agreement which is sufficient, for
purposes of the laws and regulations which govern minimum amounts of capital
that Landlord and Participants or their affiliates must maintain, to permit them
to assign a twenty percent
<PAGE> 22
risk weighting to a portion of their collective investment in the Property equal
to the Market Value of the collateral encumbered by such an interest.
(gggg) Stipulated Loss Value. "STIPULATED LOSS VALUE" means the
amount computed from time to time in accordance with the formula specified in
this definition. Such amount shall equal the Initial Funding Advance (i.e.,
$300,000), PLUS the Outstanding Construction Allowance as of the date a
computation is required hereunder, LESS the amount (if any) of Qualified
Payments paid to Landlord on or prior to such date that have not been deducted
in calculating the Outstanding Construction Allowance. Thus, for example, if a
determination of Stipulated Loss Value is required under subparagraph 3.(b) on
the first day of the applicable Base Rent Period, and if Tenant has used the
entire Construction Allowance to make the Initial Improvements to the Leased
Property, but the Leased Property has been damaged by fire or other casualty
with the result that $5,000,000 of net insurance proceeds have been paid to
Landlord and retained by Landlord as Qualified Payments, then the Stipulated
Loss Value as of the date of the required determination shall be $7,500,000:
The Initial Funding Allowance ($300,000) PLUS the Outstanding
Construction Allowance--after accounting for Qualified Payments that
were applied to reduce the Outstanding Construction Allowance--
($12,200,000 - $5,000,000 = $7,200,000) LESS zero (since all Qualified
Payments were applied to reduce the Outstanding Construction Allowance)
= $300,000 + $7,200,000 - $0 = $7,500,000.
Under no circumstances will any payment of Base Rent or the Upfront Fee,
Administrative Fees or Commitment Fees reduce Stipulated Loss Value.
(hhhh) Subsidiary. "SUBSIDIARY" means any corporation of which
Tenant and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors.
(iiii) Tenant's Knowledge. "TENANT'S KNOWLEDGE," "TO THE
KNOWLEDGE OF TENANT" and words of like effect means the actual knowledge (with
due investigation) of any of the following employees of Tenant: Christopher
Stoddart, Treasurer; Robert Boehlke, Chief Financial Officer; and Gerald B.
Campbell, Facilities Manager. 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" and words of like effect 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. But none of the employees of Tenant whose knowledge is now or
may hereafter be relevant shall be personally liable for the representations of
Tenant made herein.
(jjjj) Term. "TERM" shall have the meaning assigned to it in
Paragraph 2 below.
(kkkk) 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.
(llll) Upfront Fee. "UPFRONT FEE" shall have the meaning
assigned to it in subparagraph 3.(c) below.
(mmmm) 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
<PAGE> 23
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.
<PAGE> 24
3. 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 July
1, 2000 (or the next following Business Day if July 1, 2000 is not a Business
Day), unless extended or sooner terminated as herein provided. Notwithstanding
any other provision of this Lease which may expressly restrict the early
termination hereof, and 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 notify Landlord of Tenant's election to
terminate this Lease by giving Landlord an irrevocable notice of such election
and of the effective date of the termination, which notice must be given (if at
all) at least sixty (60) days prior to the effective date of the termination. If
Tenant elects to so terminate this Lease, then on the date on which this Lease
is to be terminated, not only must Tenant pay all unpaid Rent, Tenant must also
pay any Breakage Costs resulting from the termination and must satisfy its
obligations under the Purchase Agreement. The payment of any unpaid Rent and
Breakage Costs and the satisfaction of Tenant's obligations under the Purchase
Agreement shall be conditions precedent to the effectiveness of any early
termination of this Lease by Tenant. All provisions of this Lease which by the
terms hereof survive the termination of this Lease, shall continue in full force
and effect and shall be unaffected by the early termination provided for in this
Paragraph.
4. Rent.
(a) Base Rent Generally. 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
installments on each Base Rent Date through the end of the Term. Each payment of
Base Rent must be received by Landlord no later that 12:00 noon (San Francisco
time) on the date it becomes due; if received after 12:00 noon it will be
considered for purposes of this Lease as received on the next following Business
Day. The Base Rent payable on the first Base Rent Date shall represent rent for
the period from the Base Rent Commencement Date to the first Base Rent Date.
Each subsequent installment of Base Rent shall represent rent allocable to the
period ending on the Base Rent Date on which the installment is due and
beginning on the preceding Base Rent Date. After the Base Rent Commencement
Date, Landlord shall notify Tenant in writing of the Base Rent payable for each
Base Rent Period or portion thereof at least fifteen (15) days prior to the Base
Rent Date on which such Base Rent is actually due. Any failure by Landlord to so
notify Tenant shall not constitute a waiver of Landlord's right to payment, but
absent such notice Tenant shall not be in default for any underpayment resulting
therefrom if Tenant, in good faith, reasonably estimates the payment required,
makes a timely payment of the amount so estimated and corrects any underpayment
within three (3) Business Days after being notified by Landlord of the
underpayment. If Tenant or any other Applicable Purchaser purchases Landlord's
interest in the Leased Property after the Base Rent Commencement Date pursuant
to the Purchase Agreement, any Base Rent for the period ending on the date of
purchase (including, if the date of Purchase is not a Base Rent Date, a pro
rated portion of the Base Rent which would become due on the next Base Rent Date
but for the 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.
(b) Calculation of Base Rent. Payments of Base Rent shall be
calculated and become due as follows:
(i) For all Base Rent Periods subject to a LIBOR Period
Election of one month or three months, all Base Rent shall be due on the
Base Rent Date upon which the Base Rent Period ends. The Base Rent for
each such Base Rent Period shall equal (A) Stipulated Loss Value on the
first day of such Base Rent Period, times (B) the Effective Rate with
respect to such Base Rent Period, times (C) the number of days in such
Base Rent Period, divided by (D) three hundred sixty (360).
(ii) For Base Rent Periods subject to a LIBOR Period Election
of greater than three months, Base Rent shall be payable in more than
one installment, with an installment becoming due on (1) each
<PAGE> 25
Base Rent Date that occurs during the Base Rent Period (other than the
Base Rent Date upon which the Base Rent Period begins) and (2) the Base
Rent Date upon which the Base Rent Period ends. The amount of each
installment shall equal (A) Stipulated Loss Value on the first day of
such Base Rent Period, times (B) the Effective Rate with respect to such
Base Rent Period, times (C) the number of days in the period from and
including the preceding Base Rent Date to but not including the Base
Rent Date upon which the installment is due, divided by (D) three
hundred sixty (360).
Assume, only for the purpose of illustration: that the Initial Advance was made
in the amount of $300,000; that a hypothetical Base Rent Period contains exactly
ninety (90) days; that on the first day of such Base Rent Period, after
considering total Construction Advances and Carrying Costs of $12,200,000 and
deducting a total of $1,000,000 of Qualified Payments received by Landlord, the
resulting Stipulated Loss Value is $11,500,000; and that the Effective Rate
computed with respect to the applicable Base Rent Period is 4%. Under such
assumptions, the Base Rent for the hypothetical Base Rent Period will equal:
$11,500,000 x 4% x 90/360, or $115,000.
(c) Upfront Fee. Contemporaneously with the execution and
delivery of this Lease by Landlord, Tenant is paying Landlord an upfront fee
(the "UPFRONT FEE"), which represents Additional Rent for the first Construction
Period, as agreed pursuant to a Letter Agreement dated March 31, 1995, as
amended April 4, 1995.
(d) Administrative Agency Fees. Upon execution and delivery
of this Lease by Landlord, and again on each anniversary of the date hereof
until the Base Rent Commencement Date, Tenant shall pay Landlord an
administrative fee (the "ADMINISTRATIVE FEE") equal to $4,500. Each
Administrative Fee shall represent Additional Rent Construction Period during
which it is paid. In the event that the Construction Period ends after the first
anniversary of the date hereof and Landlord has received payment of the
Administrative Fee due on such anniversary date, Landlord shall refund to Lessee
the pro rata portion of such Administrative Fee allocable to the period from the
end of the Construction Period until the second anniversary of the date hereof.
(e) Commitment Fees. For each Construction Period Tenant
shall pay Landlord a fee (herein called a "COMMITMENT FEE") equal to (1)
twenty-five basis points (25/100 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 sum (computed without deduction for any Qualified
Payments) of all Construction Advances made by or on behalf of Landlord and all
Carrying Costs added to and made a part of the 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 1, April 1,
July 1, and October 1 of each calendar year, beginning with October 1, 1995 and
continuing regularly thereafter to and including the first of such dates to fall
on or after the Last Advance Date; 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; and 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.
(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. All 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
<PAGE> 26
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. 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 of any interest in the Leased Property under the Ground Lease or
otherwise 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.
5. Insurance and Condemnation Proceeds.
(a) Subject to Landlord's rights under this Paragraph 4, and so long
as no Event of Default shall have occurred and be continuing, Tenant shall be
entitled to use all casualty insurance and condemnation proceeds payable with
respect to the Leased Property during the Term for the restoration and repair of
the Leased Property or any remaining portion thereof. Except as provided in the
last sentence of subparagraph 10.(r) and the last sentence of subparagraph
10.(s), all insurance and condemnation proceeds received with respect to the
Leased Property (including proceeds payable under any insurance policy covering
the Leased Property which is maintained by Tenant) shall be paid to Landlord and
then applied as follows:
(i) First, 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, the remainder of such proceeds (the "REMAINING
PROCEEDS"), shall be held by Landlord as Escrowed Proceeds and applied
to reimburse Tenant for the actual cost of the repair, restoration or
replacement of the Leased Property. However, any Remaining Proceeds not
needed for such purpose shall be applied by Landlord as Qualified
Payments after Tenant notifies Landlord that they are not needed for
repairs, restoration or replacement.
Notwithstanding the foregoing, if an Event of Default shall have occurred and be
continuing, then Landlord shall be entitled to receive and collect insurance or
condemnation proceeds payable with respect to the Leased Property, and either,
at the discretion of Landlord, (A) hold such proceeds as Escrowed Proceeds until
paid to Tenant as reimbursement for the actual and reasonable cost of repairing,
restoring or replacing the Leased Property when Tenant has completed such
repair, restoration or replacement, or (B) retain such proceeds (net of the
deductions described in clause (i) above) as Qualified Payments.
(b) Any Remaining Proceeds held by Landlord as Escrowed
Proceeds shall be deposited by Landlord in an interest bearing account as
provided in the definition of Escrowed Proceeds and shall be paid to Tenant upon
completion of the applicable repair, restoration or replacement and upon
compliance by Tenant with such terms, conditions and requirements as may be
reasonably imposed by Landlord, but in no event shall Landlord be required to
pay any Escrowed Proceeds to Tenant in excess of the actual cost to Tenant of
the applicable repair, restoration or replacement, it being understood that
Landlord may retain any such excess as a Qualified
<PAGE> 27
Payment. 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 excess Remaining Proceeds result in Qualified Payments which reduce
Stipulated Loss Value (and thus payments computed on the basis of Stipulated
Loss Value) as provided in the definitions set out above. Further,
notwithstanding the inadequacy of the Remaining Proceeds held by Landlord as
Escrowed Proceeds, if any, or anything herein to the contrary, Tenant must,
after any taking of less than all or substantially all of the Leased Property by
condemnation and after any damage to the Leased Property by fire or other
casualty, restore or improve the Leased Property or the remainder thereof to a
value no less than fifty percent (50%) of Stipulated Loss Value (computed after
the application of any Remaining Proceeds as a Qualified Payment) and to a safe
and sightly condition. Any taking of so much of the Leased Property as, in
Landlord's reasonable judgment, makes it impracticable to restore or improve the
remainder thereof as required by the preceding sentence shall be considered a
taking of substantially all the Leased Property for purposes of this Paragraph
4.
(c) In the event of any taking of all or substantially all of the
Leased Property, Landlord shall be entitled to apply all Remaining Proceeds as a
Qualified Payment, notwithstanding the foregoing. In addition, if Stipulated
Loss Value immediately prior to any taking of all or substantially all of the
Leased Property by condemnation exceeds the sum of the Remaining Proceeds
resulting from such condemnation, then Landlord shall be entitled to recover the
excess from Tenant upon demand as an additional Qualified Payment, whereupon
this Lease shall terminate.
(d) Nothing herein contained shall be construed to prevent Tenant
from obtaining and applying as it deems appropriate any separate award from any
condemning authority or from any insurer for a taking of or damage to Tenant's
personal property not included in the Leased 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
interest therein. Further, notwithstanding anything to the contrary herein
contained, if Remaining Proceeds held by Landlord during the term of this Lease
shall exceed Stipulated Loss Value and any Rent payable by Tenant, then Tenant
may obtain the excess by terminating this Lease in accordance with Paragraph 2
and purchasing any remaining interest of Landlord in the Leased Property and the
Escrowed Proceeds, pursuant to the Purchase Agreement.
(e) 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 4.(e) 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.
6. 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
<PAGE> 28
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, 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.
7. 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 actual cost of making the Initial Improvements to the Leased
Property and for any property taxes or assessments payable prior to the
Last Advance Date with respect to the Leased Property. In no event will
the total of all Construction Advances which may be required of
Landlord, when added to Carrying Costs accrued or projected by Landlord
to accrue prior to the Base Rent Commencement Date as described below,
exceed the Maximum Construction Allowance. 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 and all Carrying Costs added
thereto under subparagraph 6.(a)(ii) on or prior to the date in
question, less (B) any Qualified Payments received on or prior to the
date in question. (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 accruing on and after such
preceding Advance Date to but not including the date in question.
<PAGE> 29
(ii) Charges accruing at the Effective Rate (herein
collectively called "CARRYING COSTS") for each Construction Period prior
to or ending on the Base Rent Commencement Date will be added to (and
thereafter be included in) the Outstanding Construction Allowance on the
last day of such Construction Period (i.e., generally on the Advance
Date upon which such Construction Period ends). Carrying Costs shall be
calculated as follows:
a) The total Carrying Costs for the first short
Construction Period ending July 3, 1995 shall be equal to the
sum of the Carrying Costs computed for each day included in such
period computed as follows:
(1) for each day during such Construction Period
prior to the first Advance Date (A) the Initial Funding
Advance, times (B) the per annum Effective Rate for such
day, divided by (C) 360; plus
(2) for each day during such Construction Period
beginning on and including the first Advance Date (A)
the Initial Funding Advance plus the Construction
Advance, if any, advanced on the first Advance Date,
times (B) the per annum Effective Rate for such day,
divided by (C) 360.
b) The amount of Carrying Costs for each subsequent
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.
(b) Initial Improvements.
(i) Responsibility for Construction. Tenant shall construct
all Initial Improvements in a good and workmanlike manner, in accordance
with (1) the descriptions in and renderings listed in Exhibit C, (2)
Applicable Laws, and (3) the other provisions of this Lease. Further,
except for building foundations, driveways, parking lots, sidewalks and
other improvements which would not suffer damage by being submerged
under flood waters, all Initial Improvements shall be constructed by
Tenant above the elevation that the U.S. Army Corp of Engineers or any
other governmental authority estimates as the highest elevation that 100
year flood waters could be expected to reach. Tenant shall have sole
responsibility for contracting for and administering the construction of
Initial Improvements, it being understood that Landlord's obligation
with respect to the Initial Improvements 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
enforce Landlord's obligations to make advances as a third party
beneficiary. Notwithstanding delays beyond Tenant's control, and even if
the Construction Allowance is not sufficient to pay for completion of
Initial Improvements, Tenant warrants that it shall cause all Initial
Improvements with respect to which it receives any Construction Advances
to be completed on or prior to the Completion Deadline.
(ii) Scope Changes. Before making any Scope Change to the
Initial Improvements contemplated in Exhibit C, Tenant shall provide to
Landlord a reasonably detailed written description of the Scope Change
and a revised construction budget, 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.
<PAGE> 30
(iii) Value Added. The Initial Improvements, upon completion
and taken as a whole, must enhance the value of the Leased Property by
an amount commensurate with the total Construction Allowance used by
Tenant; however, this requirement will not preclude Tenant from
obtaining Construction Advances for soft costs (such as architectural
fees), demolition costs or other costs that do not, individually, add
value to the Leased Property but that are incurred in connection with
the construction of Initial Improvements which will in the aggregate
satisfy this requirement. For purposes hereof, the Initial Improvements
will be deemed to have added value "commensurate" with the Construction
Allowance used by Tenant if, when the Initial Improvements are
substantially complete, the Leased Property has a fair market value with
the Initial Improvements that exceeds the fair market value which the
Leased Property would have without the Initial Improvements by an amount
equal to no less than fifty percent (50%) of the then Outstanding
Construction Allowance.
(iv) Estoppel Letters Required. If requested by Landlord
prior to the substantial completion of the Initial Improvements, Tenant
shall cause the contractor under each significant general construction
contract for the Initial Improvements to execute and deliver to Landlord
an estoppel letter in the form of Exhibit D attached hereto. Similarly,
if requested by Landlord prior to the substantial completion of the
Initial Improvements, Tenant shall also cause the architect and engineer
under any material architectural or engineering contract for the Initial
Improvements to execute and deliver to Landlord an estoppel letter in
the form of Exhibit E attached hereto; provided, that no such estoppel
letter shall be required from any architect or engineer who has assigned
his plans and specifications for the Initial Improvements to Tenant
without restricting Tenant's right to further assign or allow another to
use the same. Tenant hereby grants to Landlord (and Landlord's
successors and assigns through any Permitted Transfer) a license to copy
and use any such plans and specifications as Landlord shall deem
appropriate.
(v) Advances Not a Waiver. No funding of Construction
Advances and no failure of Landlord to object to Initial Improvements
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 F for any
Construction Advance at least ten (10) Business Days prior to the
Advance Date upon which the advance is to be paid, except in the case of
any Construction Advance requested on the first Advance Date, for which
only five (5) Business Days shall be required. Landlord shall consider
in good faith any changes to the Construction Advance request forms
attached hereto that Tenant may reasonably request, provided the
requested changes do not impair Landlord's rights or create or increase
any liability Landlord may have in connection with the Initial
Improvements.
(ii) Amount of the Advances. No Construction Advance shall
exceed the lesser of:
a) the Maximum Construction Allowance, less (1) all
prior Construction Advances and all Carrying Costs accruing
through the date of such advance, and (2) the Carrying Costs
then projected by Landlord to be added to the Construction
Allowance on and after the date of the advance; or
b) (1) the actual costs and expenses previously incurred
and paid by Tenant for the Initial Improvements, including "soft
costs," and for property taxes or assessments assessed against
the Leased Property after the date hereof and prior to the Last
Advance Date, less (2) the sum of all
<PAGE> 31
previous Construction Advances made under this Paragraph 6 to
Tenant as reimbursement for such costs and expenses.
(In the event that Landlords executes an amendment to this Lease
providing for an increase in the Maximum Construction Allowance or
adding other property acquired by Landlord to the Leased Property
covered by this Lease, such amendment shall limit the Maximum Amount of
Construction Advances required to be made by Landlord when there are
Defaulting Participants.)
Further, no Construction Advance shall be required that would cause the
cost of completing all Initial Improvements then contemplated as
estimated by Landlord to exceed the difference computed by subtracting
(1) the Carrying Costs then projected by Landlord to be added to the
Outstanding Construction Allowance, from (2) the Construction Allowance
remaining to be advanced.
Further, Tenant shall not request any Construction Advance (other than
the final Construction Advance) for an amount less than $250,000.
(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 10.(z) 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 an amount, form and substance
and written by Santa Clara Land Title Company or one or more
other title insurance companies reasonably satisfactory to
Landlord and insuring Landlord's interest in the Leased
Property, including Landlord's leasehold under the Ground Lease
and Landlord's interest in any new Improvements constructed by
Tenant, in the amount no less than Stipulated Loss Value plus
any remaining portion of the Construction Allowance to be
advanced under this Lease; and
b) Builder's Risk Insurance. Builder's
Completed Value Risk and such other hazard insurance as Landlord
may reasonably require against all risks of physical loss
(including collapse and transit coverage, but not including
earthquake or flood coverage) with deductibles not to exceed
$500,000, such insurance to be in amounts sufficient to cover
the total value of any Improvements under construction and to be
maintained in full force and effect at all times until
completion of the Initial Improvements.
(iv) Progress of Construction. Construction of the Initial
Improvements shall be progressing in a good and workmanlike manner and
in accordance with the requirements of this Lease without any continuing
significant interruption, other than interruptions beyond the reasonable
control of Tenant that are not likely to cause the cost of such
construction (and Carrying Costs and construction period ad property
taxes and assessments) to exceed the Maximum Construction Allowance.
Also, Tenant shall have corrected or caused the correction promptly of
any significant defect in such construction.
(v) Evidence of Costs to be Reimbursed. To the extent
contemplated by the Construction Advance request forms attached as
Exhibit F and described in subparagraph 6.(c)(i), or otherwise required
by Landlord at the time a Construction Advance is to be made, Tenant
shall have submitted invoices, requests for payment from contractors,
certifications from Tenant's architect or construction manager, lien
releases and other evidence satisfactory to Landlord that (A) all costs
for which Tenant requests reimbursement constitute actual costs incurred
by Tenant for the construction of the Initial Improvements
<PAGE> 32
or constitute property taxes or assessments assessed against the Leased
Property and paid by Tenant prior to the Last Advance Date with respect
to the Leased Property and (B) general contractors and all parties that
have filed a statutory Preliminary Notice which would give them the
right to assert a mechanic's or materialman's lien against the Leased
Property (collectively, "POTENTIAL LIEN CLAIMANTS") have been paid all
sums for which prior Construction Advances have been advanced. Without
limiting the foregoing, Landlord may decline to advance any amount that
would result in an excess of $2,000,000 or more of (1) the total cost of
work with respect to which Potential Lien Claimants could have asserted
a lien against the Leased Property and for which Construction Advances
have been advanced by Landlord, over (2) the cost of such work for which
Tenant has provided to Landlord unconditional statutory lien releases
from all Potential Lien Claimants in form and substance reasonably
satisfactory to Landlord.
(vi) No Event of Default or Change of Control Event. No Event
of Default shall have occurred and be continuing under this Lease and no
Change of Control Event shall have occurred.
(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) Construction Advance Certificate. Landlord shall have
received, together with the notice requesting the Construction Advance
described in clause (i) above, a current Construction Advance
Certificate executed by a Responsible Financial Officer of Tenant in the
form attached to Exhibit F.
(d) Completion Notice. Tenant shall provide a notice to Landlord
(the "COMPLETION NOTICE") promptly after construction of the Initial
Improvements is substantially complete and more than fifty percent (50%) of the
Initial Improvements are being occupied by Tenant.
8. Future Modifications. This Lease and other agreements referenced
herein between Landlord and Tenant may be modified after the date hereof by
written amendments to:
(a) provide an increase in the Construction Allowance or a second
construction allowance comparable to the Construction Allowance for a
new building or buildings to be constructed by Tenant on the Land in
addition to the Initial Improvements;
(b) cause this Lease (and the Purchase Agreement and Environmental
Indemnity) to cover not only the Leased Property, but also any interest
in additional land or improvements that Landlord may acquire after the
effective date hereof at the request of Tenant; or
(c) cause this Lease (and the Ground Lease and the Purchase
Agreement) to no longer cover a part of the Land over which there are no
significant Initial Improvements.
This Paragraph 7 shall not, however, be construed as a covenant by Landlord or
Tenant to agree to any such modification or even to act reasonably or in good
faith, it being understood that before any such modification becomes effective,
both parties must after the effective date hereof execute a written definitive
modification agreement acceptable to each of the parties in its sole and
absolute discretion after review and approval of their respective legal counsel
and other advisors. Without limiting the foregoing, Landlord and Tenant
acknowledge that:
(1) Tenant may buy or lease property in the vicinity of the Land
from others without any obligation pursuant to this Paragraph to first
give Landlord an opportunity to acquire such property and include it in
the Leased Property.
<PAGE> 33
(2) Landlord makes no commitment whatsoever to acquire additional
property for lease or sale to Tenant or to provide additional funds for
an increase in the Construction Allowance or for a second construction
allowance.
(3) Landlord may decline to execute any modification agreement
without the approval of then existing Participants (if any).
(4) Landlord may decline to even consider any modifications at any
time when after an Event of Default or when there exists events or
circumstances which, with the giving of notice or the passing of time or
both, could become an Event of Default.
(5) Any modifications proposed to accomplish the exclusion of a part
of the Land from the Ground Lease or this Lease, as described in clause
(c) preceding, must be needed for a new development of the excluded land
which will be used by KLA or a third party approved by Landlord and must
not violate platting or map recording ordinances and statutes. Also, the
property that will continue to be covered by the Ground Lease and this
Lease after any such modifications (the "REMAINING LEASED PROPERTY")
must be such that it can be operated on a stand alone basis; that is,
the Remaining Leased Property must have access, utilities and sufficient
parking, all on-site or through easements or public dedications.
Further, as a condition to executing any such modifications Landlord may
require that the Tenant provide at the Tenant's expense an appraisal
satisfactory to Landlord in Landlord's sole and absolute discretion
which establishes that the Remaining Leased Property will have a value
no less than fifty six percent (56%) of Stipulated Loss Value.
9. Purchase Agreement, Pledge Agreement and Environmental
Indemnity. 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, Pledge Agreement or Environmental Indemnity, which
obligations are intended to be separate, independent and in addition to, and not
in lieu of, the obligations established by this Lease. In the event of any
inconsistency between the terms and provisions of the Purchase Agreement, Pledge
Agreement or Environmental Indemnity and the terms and provisions of this Lease,
the terms and provisions of the Purchase Agreement, Pledge Agreement or
Environmental Indemnity (as the case may be) shall control.
10. Use and Condition of Leased Property.
(a) Use. Subject to the Permitted Encumbrances and the terms
hereof, Tenant may use and occupy the Leased Property so long as no Event of
Default occurs hereunder, but only for the following purposes and other lawful
purposes incidental thereto:
(i) administrative and office space; and
(ii) distribution and warehouse storage of
semiconductor-related and other electronic products; and
(iii) assembly of semiconductor-related and other electronic
products using components manufactured elsewhere; and
(iv) cafeteria, library, fitness center and other support
function uses that Tenant may provide to its employees.
Although the term "electronic products" in this subparagraph may include
products designed to detect, monitor, neutralize, handle or process Hazardous
Substances, the use of the Leased Property by Tenant shall not include
<PAGE> 34
bringing Hazardous Substances onto the Leased Property for the purpose of
researching, testing or demonstrating any such products.
(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 11.(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. Nor shall Landlord 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 of and Scope of Waiver. The provisions of
subparagraph 9.(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, the benefit of
which is to pass to Tenant during the Term because of the definition of Personal
Property and Leased Property above.
11. 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. The financial statements and all financial data heretofore
delivered to Landlord relating to Tenant have been prepared in accordance with
GAAP 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 March 31, 1995.
(b) Ground Lease. During the term of this Lease, Tenant
shall satisfy all obligations of Landlord under the Ground Lease. 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 Ground Lease or the other agreements described
therein. THE INDEMNITY SET OUT IN THIS SUBPARAGRAPH SHALL APPLY EVEN IF THE
SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT OF THE ORDINARY
NEGLIGENCE (AS DEFINED ABOVE) 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. Because Tenant hereby agrees to satisfy all
obligations of Landlord under the Ground Lease and the other agreements
described therein during the Term of this Lease, no failure by Landlord to take
any action required by the Ground Lease or such other agreements during the Term
of this Lease shall, for the purposes of this indemnity, be deemed to be caused
by the Active Negligence, gross negligence or willful misconduct of Landlord.
The foregoing indemnity is in addition to the
<PAGE> 35
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, the Purchase Agreement, the Pledge
Agreement and the Environmental Indemnity 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
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, and 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.
(d) Compliance with Covenants and Laws. 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 promptly obtain all utility, building, health and operating permits as
may be required for Tenant's use of the Leased Property 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 has occurred prior to the date of
this Lease; (iii) neither Tenant nor any prior owner or operator of the Leased
Property or any surrounding property has reported or been required to report any
release of any Hazardous Substances on or from the Leased Property or the
surrounding property pursuant to any Environmental Law; (iv) neither Tenant nor
any prior owner or operator of the Leased Property or any surrounding property
has received any warning, citation, notice of violation or other communication
regarding a suspected or known release or discharge of Hazardous Substances on
or from the Leased Property or regarding a suspected or known violation of
Environmental Laws concerning the Leased Property from any federal, state or
local agency; and (v) 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 its knowledge the Environmental Report is not
misleading or inaccurate in any material respect.
(f) No Suits. There are no judicial or administrative
actions, suits, proceedings or investigations pending or, to Tenant's knowledge,
threatened that will 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. The Land as described in Exhibit
A is the same as the land shown on the plat included as part of the ALTA/ACSM
Land Title Survey prepared by DES Architects Engineers, which was delivered to
Landlord at the request of Tenant. When the Initial Improvements are completed
in accordance with the requirements of this Lease, adequate provision will have
been made for the Leased Property
<PAGE> 36
to be served by electric, gas, storm and sanitary sewers, sanitary water supply,
telephone and other utilities required for the use thereof. All streets, alleys
and easements necessary to serve the Leased Property have been completed and are
serviceable or will be so when the Initial Improvements are complete. The Leased
Property will be, when the Initial Improvements are complete, in a condition
satisfactory for its use and occupancy. Tenant is not aware of any latent or
patent material defects or deficiencies in the Leased Property that, either
individually or in the aggregate, could materially and adversely affect Tenant's
use or occupancy or could reasonably be anticipated to endanger life or limb.
(h) Organization. Tenant is duly incorporated and legally
existing under the laws of the State of Delaware. 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, the Purchase Agreement, the Pledge Agreement and the
Environmental Indemnity are duly authorized and do not require the consent or
approval of any governmental body or other regulatory authority that has not
heretofore been obtained and are not in contravention of or conflict with any
Applicable Laws or any term or provision of Tenant's articles of incorporation
or bylaws. This Lease, the Purchase Agreement, the Pledge Agreement and the
Environmental Indemnity are valid, binding and legally enforceable obligations
of Tenant in accordance with their terms, 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 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. To Tenant's knowledge, none of Tenant's
representations or warranties contained in this Lease or any document,
certificate or written statement furnished to Landlord by or on behalf of Tenant
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. Tenant shall continuously maintain its
existence and its qualification to do business in the State of California.
(m) Tenant Taxes. 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; 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.
<PAGE> 37
(n) Operation of Property. Tenant shall operate the Leased
Property in a good and workmanlike manner and in compliance with all Applicable
Laws and will pay all fees or charges of any kind in connection therewith.
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. 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: (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) execute or file any subdivision plat affecting the Leased
Property; or (v) consent to the annexation of the Leased Property to any
municipality. If a change in the zoning or other Applicable Laws affecting the
permitted use or development of the Leased Property shall occur that Landlord
determines will materially reduce the then-current market value of the Leased
Property, and if after such reduction the Stipulated Loss Value shall
substantially exceed the then-current market value of the Leased Property in the
reasonable judgment of Landlord, then Tenant shall pay Landlord an amount equal
to such excess for application as a Qualified Payment. Tenant shall make any
payment required by the preceding sentence within one hundred eighty (180) days
after it is requested by Landlord and in any event shall make any such payment
before the end of the Term. Tenant shall not impose any restrictive covenants or
encumbrances upon the Leased Property without the prior written consent of the
Landlord; provided, that such consent shall not be unreasonably withheld for any
encumbrance or restriction that is made expressly subject to this Lease, as
modified from time to time, and subordinate to Landlord's interest in the Leased
Property by an agreement in form satisfactory to Landlord. 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.
Tenant shall not do any act whereby the market value of the Leased Property may
be materially lessened. 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. 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 or lessee 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 and any claims asserted against Landlord or the Leased Property
because of such violation must be paid by Tenant, all prior to the date that (i)
any criminal charges may be brought against Landlord or any of its directors,
officers or employees because of such violation or (ii) any action may be taken
by any governmental authority against Landlord or any property owned or leased
by Landlord (including the Leased Property) because of such violation.
(o) Debts for Construction. 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
<PAGE> 38
pending such contest Tenant shall not be deemed in default under this
subparagraph (or subparagraphs 10.(t) or 10.(u)) 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 $500,000 (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 the date (i) any criminal action may be
instituted against Landlord or its directors, officers or employees because of
the nonpayment thereof or (ii) any writ or order is issued under which any
property owned or leased by Landlord (including the Leased Property) may be
seized or sold or any other action may be taken against Landlord or any property
owned or leased 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 or operation of the Leased Property, or any part thereof, or
relating to or required to be paid by the terms of any of the Permitted
Encumbrances (collectively, herein called the "IMPOSITIONS"), excluding only
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 (or subparagraphs 10.(t) or 10.(u)) 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
$500,000 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 the date (i) any criminal action may
be instituted against Landlord or its directors, officers or employees because
of the nonpayment thereof or (ii) any writ or order is issued under which any
property owned or leased by Landlord (including the Leased Property) may be
seized or sold or any other action may be taken against Landlord or any property
owned or leased by Landlord because of the nonpayment thereof.
(q) Repair, Maintenance, Alterations and Additions. Tenant
shall keep the Leased Property in good order, repair, operating condition and
appearance (ordinary wear and tear excepted), causing all necessary repairs,
renewals, replacements, additions and improvements to be promptly made, and will
not allow any of the Leased Property to be materially misused, abused or wasted
or to deteriorate. Tenant shall promptly replace any worn-out fixtures included
within the Leased Property with fixtures comparable to the replaced fixtures
when new and repair any damage caused by the removal of such fixtures. Further,
Tenant shall not, without the prior written consent of Landlord, (i) remove from
the Leased Property any fixtures of significant value which were paid for with
(or for which reimbursement was provided to Tenant by) a Construction Advance,
except such as are replaced by Tenant by articles of equal value, free and clear
of any Lien (and for purposes of this clause "significant value" will mean any
fixture that has a value of more than $100,000 or that, when considered together
with all other fixtures removed and not replaced by Tenant by articles of equal
suitability and value, has an aggregate value of $500,000 or more) or (ii) make
any alteration to any Improvements, after the Initial Improvements are
constructed, which significantly reduces the fair market value or changes the
general character of the Leased Property, taken as a whole, or which impairs in
any significant manner the useful life or utility of the Improvements, taken as
whole. Upon request of Landlord made at any time when an Event of Default shall
<PAGE> 39
have occurred and be continuing, Tenant shall deliver to Landlord an inventory
describing and showing the make, model, serial number and location of all
fixtures and personalty, if any, included in the Initial Improvements with a
certification by Tenant that such inventory is a true and complete schedule of
all such fixtures and personalty and that all items specified in the inventory
are covered hereby free and clear of any Lien other than the Permitted
Encumbrances described in Exhibit B.
(r) Insurance and Casualty. Throughout the Term, Tenant will
keep all Improvements (including all alterations, additions and changes made to
the Improvements) which are located within the Leased Property insured under an
all-risk property insurance policy (excluding from coverage damage by flood or
earthquake, but not excluding other perils normally included within the
definitions of extended coverage, vandalism and malicious mischief) in the
amount of one hundred percent (100%) of the replacement value with endorsements
for contingent liability from operation of building laws, increased cost of
construction and demolition costs which may be necessary to comply with building
laws. 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 $500,000. Such insurance shall cover not only the value of
Tenant's interest in the Improvements, 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, Tenant shall deliver to Landlord
certificates from the applicable insurer or its authorized agent of renewals or
replacements of all such policies of insurance at least five (5) 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. 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's consent must be obtained for any settlement, adjustment or compromise
of any claims for loss, damage or destruction under any policy or policies of
insurance (provided, that if any such claim is for less than $2,000,000 and no
Event of Default shall have occurred and be continuing, Tenant alone shall have
the right to settle, adjust or compromise the claim as Tenant deems appropriate;
and, provided further, that any disagreement between Landlord and Tenant about
the amount for which any such claim should be settled shall, at the request of
either party, be resolved as provided in Exhibit I, unless an Event of Default
shall have occurred and be continuing, in which case Landlord alone shall have
the right to settle, adjust or compromise the claim as Landlord deems
appropriate). 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. Notwithstanding the
foregoing provisions of this subparagraph, if insurance proceeds totaling not
more than $2,000,000 are to be recovered as a result of a fire or other casualty
involving the Leased Property, Tenant shall be entitled to receive directly and
hold 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 required by Paragraph 4.(b).
<PAGE> 40
(s) Condemnation. 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.
Notwithstanding the foregoing provisions of this subparagraph, if condemnation
proceeds totaling not more than $2,000,000 are to be recovered as a result of a
taking of less than all or substantially all of the Leased Property, Tenant may
directly receive and hold 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 remainder of the Leased
Property as required by Paragraph 4.(b).
(t) Protection and Defense of Title. If any encumbrance or
title defect whatsoever affecting Landlord's leasehold under the Ground Lease or
any other interest of Landlord in the Leased Property is claimed or discovered
(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
(other than a Lien Tenant is contesting as expressly permitted by and in
accordance with subparagraph 10.(o) or subparagraph 10.(p)), 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 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.
(u) No Liens on the Leased Property. Tenant shall not,
without the prior written consent of Landlord, create, place or permit to be
created or placed, or through any act or failure to act, acquiesce in the
placing of, or allow to remain, any Lien (except the lien for property taxes or
assessments assessed against the Leased Property which are not delinquent and
any Lien Tenant is contesting as expressly permitted by and in accordance with
subparagraph 10.(o) or subparagraph 10.(p)), against or covering the Leased
Property or any part thereof (other than any Lien which is lawfully claimed
through or under Landlord and which is not claimed by, through or under Tenant)
regardless of whether the same are expressly or otherwise subordinate to this
Lease or Landlord's interest in the Leased Property, and should any prohibited
Lien exist or become attached hereafter in any manner to any part of the Leased
Property without the prior written consent of Landlord, Tenant shall cause the
same to be promptly discharged and released to the satisfaction of Landlord. All
rights, interests, benefits and encumbrances arising under that certain
Agreement dated August 1, 1990 between Tenant and NELO, a California general
partnership, entitled Rights of First Refusal and Agreement to Share Profit on
Sales,
<PAGE> 41
a memorandum of which was recorded in the Official Records of Santa Clara
County, Book 436, Page 1657 shall terminate on August 1, 1995.
(v) Books and Records. Tenant shall keep books and records
that are accurate and complete in all material respects for the construction and
maintenance of the Leased Property and will permit all such books and records
(including without limitation all contracts, statements, invoices, bills and
claims for labor, materials and services supplied for the construction and
operation of any Improvements) to be inspected and copied by Landlord and its
duly accredited representatives at all times during reasonable business hours;
provided that so long as Tenant remains in possession of the Leased Property,
Landlord or Landlord's representative will, before making any such inspection or
copying any such documents, 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 provided by Tenant when Landlord or Landlord's
representative first arrives at the Leased Property, (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, interfere with or delay inspections or copying
by Landlord authorized by this subparagraph. 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 if
requested by Landlord at any time when an Event of Default shall have occurred
and be continuing, Tenant shall construct or abstract from its regularly
maintained books and records information required by this subparagraph relating
to the Leased Property.
(w) Financial Statements; Required Notices; Certificates as
to Default. Tenant shall deliver to Landlord and to each Participant of which
Tenant has been notified:
(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; provided, that notwithstanding the foregoing, for so long
as Tenant is a company subject to the periodic reporting requirements of
Section 12 of the Securities Exchange Act of 1934, as amended, Tenant
shall be deemed to have satisfied its obligations under this clause (i)
so long as Tenant delivers to Landlord the same annual report and report
and opinion of accountants that Tenant delivers to its shareholders;
(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 a Responsible Financial Officer of
Tenant (subject to year-end adjustments); provided, that notwithstanding
the foregoing, for so long as Tenant is a company subject to the
periodic reporting requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, Tenant shall be deemed to have satisfied its
obligations under this clause (ii) so long as Tenant delivers to
Landlord the same quarterly reports, certified by a Responsible
Financial Officer of Tenant (subject to year-end adjustments), that
Tenant delivers to its shareholders;
<PAGE> 42
(iii) together with the financial statements furnished in
accordance with subparagraph 10.(w)(ii) and 10.(w)(i), a certificate of
a Responsible Financial Officer of Tenant in substantially the form
attached hereto as Exhibit G: (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 10 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 following Sections of the Revolving Credit Agreement: Section
7.02 (which establishes a minimum tangible net worth requirement),
Section 7.03 (which establishes a quick ratio requirement), Section 7.04
(which establishes a maximum permitted ratio of total liabilities to
tangible net worth), Section 7.06 (which establishes a limit on
permitted dividends as a percentage of earnings), and Section 7.10
(which establishes a limit on permitted losses);
(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) as soon as possible and in any event within five (5)
Business Days after a Responsible Financial Officer of Tenant becomes
aware of the occurrence of each Default or Event of Default, a statement
of a Responsible Financial Officer of Tenant setting forth details of
such Default or Event of Default and the action which Tenant has taken
and proposes to take with respect thereto;
(vi) 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
any Participant;
(vii) copies of all notices required by Sections 6.01 or 6.07
of the Revolving Credit Agreement; and
(viii) 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 10.(w) to any
Participant and to any regulatory body having jurisdiction over Landlord that
requires or requests it.
(x) Further Assurances. Tenant shall, on request of
Landlord, (i) promptly correct any defect, error or omission 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; (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
<PAGE> 43
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 Lender and any Participants to comply with the requirements or
requests of the Federal Reserve Bank or any other bank regulatory agency or
authority or any other governmental agency or authority having jurisdiction over
them.
(y) Fees and Expenses; General Indemnification; Increased
Costs; and Capital Adequacy Charges.
(i) Except for any costs paid by Landlord with the proceeds
of the Initial Funding Advance as part of the Closing Costs, Tenant
shall pay (and shall indemnify and hold harmless Landlord, Landlord's
Lender and any Person claiming through Landlord by reason of a Permitted
Transfer from and against) all Losses incurred by Landlord or Landlord's
Lender 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, the Purchase Agreement, the Pledge
Agreement, the Environmental Indemnity or any Participation Agreements
with Participants which Tenant shall have approved, (C) the making of
Funding Advances, including Attorneys' Fees or other costs incurred to
evaluate lien releases and other information submitted by Tenant with
requests for Construction Advances, or (D) the construction of the
Initial Improvements, 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 environmental consulting fees incurred
by Landlord with respect to the Leased Property. If Landlord pays or
reimburses Landlord's Lender 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.
(ii) Tenant shall also pay (and indemnify and hold harmless
Landlord, Landlord's Lender 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 Lender
or any Person claiming through Landlord through a Permitted Transfer or
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 in a lawful manner of any of Landlord's 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
<PAGE> 44
ORDINARY NEGLIGENCE (AS DEFINED ABOVE) 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.
(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 Lender 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 Lender or such
Participant, as the case may be, additional amounts sufficient to
compensate Landlord's Lender or the Participant for such increased cost.
A certificate as to the amount of such increased cost, submitted to
Landlord and Tenant by Landlord's Lender or the Participant, shall be
conclusive and binding for all purposes, absent clear and demonstrable
error.
(iv) Landlord's Lender or any Participant may demand
additional payments (herein called "CAPITAL ADEQUACY CHARGES") if
Landlord's Lender or the 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 or to make Construction Advances. To
the extent that Landlord's Lender or the Participant demands Capital
Adequacy Charges as compensation for the additional capital requirements
reasonably allocable to such advances, Tenant shall pay to Landlord for
the account of the Landlord's Lender or the Participant, as the case may
be, the amount so demanded.
(v) Any amount to be paid to Landlord, Landlord's Lender or
any Indemnified Party under this subparagraph 10.(y) shall be a demand
obligation owing by Tenant. Tenant's indemnities and obligations under
this subparagraph 10.(y) 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.
(z) Liability Insurance. Tenant shall maintain one or more
policies of 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 aggregate
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
$500,000 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 13 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 and all Participants of which Tenant has been notified. 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 confirmation (in form satisfactory to Landlord) with respect to such
insurance from the applicable insurer or its authorized agent, which
confirmation must provide that insurance coverage will not be canceled or
reduced without at least ten (10) days notice to Landlord. Not less than five
(5) days prior to the expiration date of each policy of insurance required of
Tenant
<PAGE> 45
pursuant to this subparagraph, Tenant shall deliver to Landlord a certificate
evidencing a paid renewal policy or policies.
(aa) Permitted Encumbrances. Except to the extent expressly
required of Landlord by subparagraph 11.(b), Tenant shall comply with and will
cause to be performed all of the covenants, agreements and obligations imposed
upon the owner of any interest in 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 without
the prior written consent of Landlord. Such consent will not be unreasonably
withheld for the modification of any Permitted Encumbrance that has been made
expressly subject to this Lease, as modified from time to time, and subordinate
to Landlord's interest in the Leased Property by agreement in form satisfactory
to Landlord.
(bb) Environmental.
(i) Environmental Covenants. Tenant covenants:
a) not to 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;
b) not to conduct or authorize others to conduct
Hazardous Substance Activities on the Leased Property, except
Permitted Hazardous Substance Use;
c) to the extent required by Environmental Laws, to
remove Hazardous Substances from the Leased Property (or if
removal is prohibited by law, to take whatever action is
required by law) promptly upon discovery; and
d) not to discharge or authorize the discharge of
anything (including Permitted Hazardous Substances) from the
Leased Property into groundwater or surface water that would
require any permit under applicable Environmental Laws, other
than storm water runoff.
If Tenant's failure to cure any breach of the covenants listed above in
this subparagraph (i) continues beyond the Environmental Cure Period (as
defined below), Landlord may, in addition to any other remedies
available to it, after notifying Tenant of the remediation efforts
Landlord believes are needed, cause the Leased Property to be freed from
all Hazardous Substances (or if removal is prohibited by law, to take
whatever action is required by law), and the cost of the removal shall
be a demand obligation owing by Tenant to Landlord. Further, subject to
the provisions of subparagraph 13.(c) below, Tenant agrees to indemnify
Landlord against all Losses incurred by or asserted or proven against
Landlord in connection therewith. As used in this subparagraph,
"ENVIRONMENTAL CURE PERIOD" means the period ending on the earlier of:
(1) one hundred and eighty days (180) after Tenant is notified of the
breach which must be cured within such period, or such longer period as
is reasonably required for any cure that Tenant pursues with diligence
pursuant to and in accordance with an Approved Plan (as defined below),
(2) the date any writ or order is issued for the levy or sale of any
property owned or leased by Landlord (including the Leased Property) or
any criminal action is instituted against Landlord or any of its
directors, officers or employees because of the breach which must be
cured within such period, (3) the end of the Term. As used in this
subparagraph, an "APPROVED PLAN" means a plan of remediation of a
violation of Environmental Laws for which Tenant has obtained, within
one hundred and eighty days (180) after Tenant is notified of the
applicable breach of the covenants listed above in this subparagraph
(i), the
<PAGE> 46
written approval of the governmental authority with primary jurisdiction
over the violation and with respect to which no other governmental
authority asserting jurisdiction has claimed such plan is inadequate.
(ii) Environmental Inspections and Reviews. 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 in violation of
the preceding subparagraph (i), 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; (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
the preceding subparagraph (i). Tenant grants to Landlord and to
Landlord's agents, employees, consultants and contractors the right
during reasonable business hours and after reasonable 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 any discharge
into groundwater or surface water from, the Leased Property. Without
limiting the generality of the foregoing, Tenant 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; (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 the preceding subparagraph (i).
(iii) Notice of Environmental Problems. Tenant shall
immediately advise Landlord of (i) any discovery of any event or
circumstance which would render any of the representations contained in
subparagraph 10.(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) discovery of any 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,
(iii) Tenant's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of the Leased Property which could
cause the Leased Property or any part thereof to be subject to any
ownership, occupancy, transferability or use restrictions under
Environmental Laws, or (iv) any investigation or inquiry affecting the
Leased Property by any governmental authority in connection with any
Environmental Laws. 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, if any, to bring the
Leased Property into compliance with Environmental Laws or to correct
any breach by Tenant of the covenants listed above in subparagraph (i),
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.
(cc) Compliance with Financial Covenants and Certain Other
Requirements Established by the Revolving Credit Agreement. So long as Tenant
shall continue to have any obligations under this Lease or the
<PAGE> 47
Purchase Agreement, Tenant shall comply with each and every requirement set
forth in Article VII of the Credit Agreement dated as of April 30, 1994, by and
among Tenant, as borrower, and Bank of America National Trust and Savings
Association, as lender, as amended by the First Amendment to Credit Agreement
dated December 31, 1994 between Tenant and such lender and by the Second
Amendment to Credit Agreement dated February 15, 1995 between Tenant and such
lender (the "REVOLVING CREDIT AGREEMENT"). A true and correct copy of such
Revolving Credit Agreement has been delivered by Tenant to Landlord. To the
extent that any of the requirements set forth in other provisions of this Lease,
in the Environmental Indemnity or in the Purchase Agreement are more stringent
than the requirements set forth in the Revolving Credit Agreement (for example,
more stringent requirements concerning Tenant's use of the Leased Property
itself in compliance with Environmental Laws), the more stringent requirements
set forth herein or in the Environmental Indemnity or in the Purchase Agreement
shall control. Further, for purposes of determining Tenant's compliance with
requirements established in this Lease by reference to the Revolving Credit
Agreement, and for purposes of establishing the meaning of capitalized terms
defined herein by reference to the Revolving Credit Agreement, such requirements
and definitions shall be construed as if (1) the Revolving Credit Agreement were
continuing after any expiration or termination thereof, (2) no modifications or
waivers of the Revolving Credit Agreement were made or granted after the date of
this Lease, and (3) no consents or approvals were given for anything requiring a
consent or approval by the terms of the Revolving Credit Agreement, other than
such consents or approvals as Landlord shall have itself approved in writing in
its capacity as the landlord under this Lease. As used in the provisions of the
Revolving Credit Agreement referenced herein, capitalized terms shall have the
meanings assigned to them in the Revolving Credit Agreement itself.
(dd) ERISA.
(i) Each Plan is in compliance in all material respects
with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other
applicable Federal or state law, and as of the date hereof no event or
condition is occurring or exists which would require a notice from
Tenant under clause 10.(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
$2,000,000 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 Pension Benefit Guaranty
Corporation by Tenant or an ERISA Affiliate with respect to any of the
following or the events or conditions leading up to it): (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 the collateral covered by the Pledge
Agreement, or (B) the taking of any action by the Pension Benefit
Guaranty Corporation or any other governmental authority action 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.
12. Representations, Warranties and Covenants of Landlord. Landlord
represents, warrants 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
<PAGE> 48
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 any Participant which Tenant
shall have approved, or (iii) any encumbrance or title defect arising because of
Landlord's compliance with subparagraph 11.(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
(including granting any utility easements required in connection with
construction of Improvements); provided that (i) actions 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 leasehold estate created by the Ground
Lease, 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 Purchase
Agreement, the Pledge Agreement or Environmental Indemnity or otherwise be
reasonably objectionable to Landlord. Any Losses incurred by Landlord because of
any action taken pursuant to this subparagraph shall be covered by the
indemnification set forth in subparagraph 10.(y). 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 Ground Lease or any Construction Document.
(c) No Default or Violation. The execution, delivery and
performance of this Lease do not contravene, result in a breach of or constitute
a default under any material contract or agreement to which Landlord is a party
or by which Landlord is bound and do not, to the knowledge of Landlord, violate
or contravene any law, order, decree, rule or regulation to which Landlord is
subject.
(d) No Suits. To Landlord's knowledge there are no judicial
or administrative actions, suits or proceedings involving the validity,
enforceability or priority of this Lease, and to Landlord's knowledge no such
suits or proceedings are threatened.
(e) Organization. Landlord is duly incorporated and legally
existing under the laws of Delaware and is or, if necessary, will become duly
qualified to do business in the State of California. Landlord has or will
obtain, at Tenant's expense pursuant to the other provisions of this Lease, all
requisite power and all material governmental certificates of authority,
licenses, permits, qualifications and other documentation necessary to lease the
Leased Property and to perform its obligations under this Lease.
(f) Enforceability. The execution, delivery and performance
of this Lease, the Purchase Agreement and the Pledge 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, the Purchase Agreement and the Pledge
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.
<PAGE> 49
(g) Existence. 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.
(h) Not a Foreign Person. Landlord is not a "foreign person"
within the meaning of the 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), and Landlord is not subject to withholding under
California Revenue and Taxation Code Sections 18805, 18815, and 26131.
13. Assignment and Subletting.
(a) Consent Required. During the term of this Lease, 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: (1) Tenant shall be entitled
without Landlord's consent to sublet space in then existing and completed
Improvements if (i) any sublease by Tenant is made expressly subject and
subordinate to the terms hereof, (ii) such sublease has a term less than the
remainder of the then effective term of this Lease, and (iii) the use permitted
by such sublease is expressly limited to the uses permitted by Paragraph 9(a);
and (2) Tenant shall be entitled to assign this Lease to an Affiliate of Tenant
if both Tenant and its Affiliate confirm their joint and several liability
hereunder by notice given to Landlord in accordance with Paragraph 20.(a)
hereof.
(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. 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 governmental 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. Landlord shall have the right to
transfer, assign and convey, in whole or in part, the Leased Property and any
and all of its rights under this Lease by any conveyance that constitutes a
Permitted Transfer. (However, any Permitted Transfer shall be subject to all of
the provisions of each and every agreement concerning the Leased Property then
existing between Landlord and Tenant, including without limitation this Lease
and the Purchase Agreement.) In the event Landlord sells or otherwise transfers
the Leased Property and assigns its rights under this Lease, the Purchase
Agreement and the Pledge Agreement, and if Landlord's successor in interest
confirms its liability for the obligations imposed upon Landlord by this Lease,
<PAGE> 50
the Purchase Agreement and the Pledge Agreement on and subject to the express
terms and conditions set out herein and therein, then the original Landlord
shall thereby be released from any obligations thereafter arising under this
Lease, the Purchase Agreement and the Pledge Agreement, and Tenant agrees to
look solely to each successor in interest of Landlord for performance of such
obligations. However, 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 such assignee
for the withholding tax.
14. 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 13.(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
13 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 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 13 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 if any such failure by Tenant
continues for thirty (30) days or more after Tenant is notified thereof,
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 13 so long as, 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 an Indemnified Party
receives a written notice of Environmental Losses that such Indemnified Party
believes are covered by this Paragraph 13, then such Indemnified Party will be
expected to 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 13; provided, that if Tenant is unaware of the
matters described in the notice and such failure renders unavailable defenses
that Tenant might otherwise assert, or precludes actions that Tenant might
otherwise take, to minimize
<PAGE> 51
its obligations hereunder, then Tenant shall be excused from its obligation to
indemnify such Indemnified Party (and any Affiliate of such Indemnified Party)
against Environmental Losses, 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 13.(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 (or any Affiliate of Landlord) to pay
the excess.
(d) Rights Cumulative. The rights of each Indemnified Party
under this Paragraph 13 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 at 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 13 shall survive the termination or expiration of this Lease. All
obligations of Tenant under this Paragraph 13 shall be payable upon 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 demand at a floating interest rate
equal to the Default Rate, but in no event in excess of the maximum rate
permitted by law.
15. Landlord's Right of Access and Right to Perform.
(a) Landlord and Landlord's representatives may enter the
Leased Property, after five (5) Business Days advance written notice to Tenant
(except in the event of an emergency, when no advance notice will be required),
for the purpose of making inspections or performing any work Landlord is
authorized to undertake by the next subparagraph. So long as Tenant remains in
possession of the Leased Property, Landlord or Landlord's representative will,
before making any such inspection or performing any such work on the Leased
Property, 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
provided by Tenant when Landlord or Landlord's representative first arrives at
the Leased Property, (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, interfere with or delay inspections or work of Landlord
authorized by this Lease.
(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
<PAGE> 52
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.
16. Events of Default.
(a) Definition of Event of Default. 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 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 15.(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
15.(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 or leased 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, the Pledge Agreement or the
Environmental Indemnity and such failure shall continue after the last
day of any applicable grace period provided for therein.
(iv) Tenant shall abandon any portion of the Leased Property.
(v) Tenant shall fail to make any payment or payments of
principal, premium or interest, on any 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 15.(a)(v), "Debt" shall mean only Debts of
Tenant now existing or arising in the future (a) payable to Landlord or
any Participant or any Affiliate of Landlord or any Participant, or (B)
payable to any other Person and with respect to which $3,000,000 or more
is actually due and payable because of acceleration or otherwise.
(vi) Tenant or any of its Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by
or against Tenant or any of its Subsidiaries seeking to adjudicate it
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), either
<PAGE> 53
such proceeding shall remain undismissed or unstayed for a period of
thirty (30) consecutive days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its
property) shall occur; or Tenant or any of its Subsidiaries shall take
any corporate action to authorize any of the actions set forth above in
this clause (vi).
(vii) Any order, judgment or decree is entered in any
proceedings against Tenant or any Subsidiary decreeing the dissolution
of Tenant or such Subsidiary and such order, judgment or decree remains
unstayed and in effect for more than sixty (60) days.
(viii) Any order, judgment or decree is entered in any
proceedings against Tenant or any Subsidiary decreeing a split-up of
Tenant or such Subsidiary which requires the divestiture of assets
representing a substantial part, or the divestiture of the stock of a
Subsidiary whose assets represent a substantial part, of the
consolidated assets of Tenant and its Subsidiaries (determined in
accordance with GAAP) or which requires the divestiture of assets, or
stock of a Subsidiary, which shall have contributed a substantial part
of the consolidated net income of Tenant and its Subsidiaries
(determined in accordance with GAAP) for any of the three fiscal years
then most recently ended, and such order, judgment or decree remains
unstayed and in effect for more than sixty (60) days.
(ix) A final judgment or order for the payment of money in an
amount (not covered by insurance) which exceeds $3,000,000 shall be
rendered against Tenant or any of its Subsidiaries and within sixty (60)
days after the entry thereof, such judgment or order is not discharged
or execution thereof stayed pending appeal, or within thirty (30) days
after the expiration of any such stay, such judgment is not discharged.
(x) Any ERISA Termination Event that Landlord determines
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States district court of a trustee
to administer any Plan shall have occurred and be continuing thirty (30)
days after written notice to such effect shall have been given to Tenant
by Landlord, or any Plan shall be terminated, or a trustee shall be
appointed by an appropriate United States district court to administer
any Plan, or the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan.
(xi) A Change of Control Event not approved in advance by
Landlord shall occur.
(xii) An "Event of Default" as defined in the Revolving Credit
Agreement (taking into account any applicable notice and cure period set
forth therein) by Tenant shall occur.
Notwithstanding the foregoing, any Default that could become an Event of Default
under clause 15.(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 Landlord's interest in the Leased Property and designating as the
Designated Payment Date the next following date which is either an Advance Date
or a Base Rent Date and which is at least ten (10) days after the date of such
notice; provided, however, Tenant must, as a condition to the effectiveness of
its cure, on the date so designated as the Designated Payment Date tender to
Landlord the full purchase price required by the Purchase Agreement and all Rent
and all other amounts then due or accrued and unpaid hereunder (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 any Participants) and Tenant
must also furnish written confirmation that all indemnities set forth herein
(including specifically, but without limitation, the general indemnity set forth
in subparagraph 10.(y) and the environmental indemnity set forth in Paragraph
13) shall
<PAGE> 54
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. Upon the occurrence of an Event of Default
which is not cured within any applicable period expressly permitted by
subparagraph 15.(a), at Landlord's option and without limiting Landlord in the
exercise of any other right or remedy Landlord may have on account of such
default, and without any further demand or notice except as expressly described
in this subparagraph 15.(b):
(i) By 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 a default shall terminate Tenant's right to possession if
Tenant fails to cure the 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 for the balance of the scheduled
Term 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 15.(b)(iii)a) and subparagraph 15.(b)(iii)b) shall
be computed by allowing interest at the Default Rate 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 15.(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%).
<PAGE> 55
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 15.(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 15 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 Purchase Agreement, the Pledge Agreement or the
Environmental Indemnity.
(e) Waiver by Tenant. To the extent permitted by law, Tenant
hereby waives and surrenders for itself and all claiming through Tenant under
this Lease, including creditors of all kinds, (i) any right and privilege which
it or any of them may have under any present or future constitution, statute or
rule of law to have a continuance of this Lease for the term hereby demised
after termination of Tenant's right of occupancy by order or judgment of any
court or by any legal process or writ, or under the terms of this Lease, or
after the termination of this Lease as herein provided, and (ii) the benefits of
any present or future constitution, or statute
<PAGE> 56
or rule of law which exempts property from liability for debt or for distress
for rent, and (iii) the provisions of law relating to notice and/or delay in
levy of execution in case of eviction of a lessee for nonpayment of rent.
(f) No Implied Waiver. The failure of Landlord 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 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
contained in this Lease shall not be deemed a waiver of such breach, and no
waiver by Landlord of any provision of this Lease shall be deemed to have been
made unless expressed in writing and signed by Landlord.
17. Default by Landlord. If Landlord should default in the
performance of any of its obligations 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.
18. 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, Landlord shall not 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 made 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.
19. 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, replacements or additions
constructed by Tenant, with all fixtures and furnishings included in the Initial
Improvements, but not including movable furniture and 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 Initial Improvements in the same condition as of the date the same were
initially completed, 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) 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.
<PAGE> 57
20. 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) (A)
the Prime Rate in effect for such day so long as the holdover period does not
extend beyond ninety (90) days and (B) for each such day beginning with the
ninety-first day after the holdover commences, three percent (3%) above the
Prime Rate; divided by (iii) 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.
21. 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: KLA Instruments Lease (Phase I).
or at such other place and in such other manner as Landlord may
designate in a notice to Tenant (provided Landlord will not unreasonably
designate a method of payment other than wire transfer). Time is of the
essence as to all payments and other obligations of Tenant under this
Lease.
(ii) All Construction Advances required to be paid to Tenant
by Landlord hereunder shall be paid to Tenant in immediately available
funds by wire transfer to:
Bank of America
Account Name: KLA Instruments Corporation
Account Number: 1483100220
ABA #: 121000358
Reference: Construction Advance
or at such other place and in such other manner as Tenant may designate
in a notice to Landlord (provided Tenant will not unreasonably designate
a method of payment other than wire transfer). Time is of the essence as
to the payment of all Construction Advances required of Landlord under
this Lease.
<PAGE> 58
(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) and shall be given by any of the following
means: (A) personal service, with proof of delivery or attempted
delivery retained; (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 (C) hereof shall be deemed received (whether or not
actually received) upon first attempted delivery at the proper notice
address on any Business Day between 9:00 A.M. and 5:00 P.M., and any
notice or other communication sent pursuant to clause (B) hereof shall
be deemed received upon dispatch by electronic means.
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: Rafael C. Lumanlan or William J. La Herran
Telecopy: (415) 296-8954
And with a copy to:
Dorothy H. Bjorck
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300,
Dallas, Texas 75201
Telecopy: (214) 969-1550
Address of Tenant:
KLA Instruments Corporation
160 Rio Robles
San Jose, California 95134
Attn: Christopher Stoddart, Treasurer
Telecopy: (408) 434-4268
<PAGE> 59
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Jonathan E. Rattner, Esq.
Telecopy: (415) 328-3029
(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 or any other 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 or any other estate in the Leased Property or any interest in such
fee or other 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, THE PURCHASE AGREEMENT AND THE PLEDGE
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 and no amendment or modification of this Lease
shall be binding or valid unless expressed in a writing executed by both parties
hereto.
(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 all notices required of Tenant under this Lease, but
this subparagraph shall not limit Tenant's opportunity to prevent an Event of
Default by curing any breach within the cure period (if any) applicable under
subparagraph 15.(a).
(h) Governing Law. This Lease shall be governed by and construed
in accordance with the laws of the State of California.
(i) Waiver of a 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
<PAGE> 60
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.
(j) Income Tax Reporting. Landlord and Tenant intend this Lease and
the Purchase Agreement to have a form for income taxes which is different than
the form of this Lease and the Purchase Agreement for other purposes, and thus
the parties acknowledge and agree as follows:
a) FOR PURPOSES OF DETERMINING THEIR RESPECTIVE
FEDERAL, STATE AND LOCAL INCOME TAX OBLIGATIONS, Landlord and
Tenant believe and intend that this Lease and the Purchase
Agreement constitute a financing arrangement or conditional
sale. Both Landlord and Tenant agree to report this Lease and
the Purchase Agreement as a financing arrangement or conditional
sale on their respective income tax returns (the "REQUIRED
REPORTING"), unless such Required Reporting is challenged in
writing by the Internal Revenue Service or another governmental
authority with jurisdiction (a "TAX CHALLENGE"). Consistent with
the foregoing, Landlord and Tenant expect that Tenant (and not
Landlord) shall be treated as the true owner of the Property for
income tax purposes, thereby entitling Tenant (and not Landlord)
to take depreciation deductions and other tax benefits available
to the owner. Tenant shall also report all interest earned on
Escrowed Proceeds or the collateral covered by the Pledge
Agreement as Tenant's income for federal, state and local income
tax purposes. REFERENCES IN THIS LEASE OR IN THE PURCHASE
AGREEMENT TO A "LEASE" OF THE "LEASED PROPERTY" ARE NOT INTENDED
FOR INCOME TAX PURPOSES TO REFLECT THE INTENT OF LANDLORD OR
TENANT AS TO THE FORM OF THE TRANSACTIONS COVERED BY, OR THE
PROPER CHARACTERIZATION OF, THIS LEASE AND THE PURCHASE
AGREEMENT.
b) FOR ALL OTHER PURPOSES, INCLUDING THE
DETERMINATION OF THE APPROPRIATE FINANCIAL ACCOUNTING FOR THIS
LEASE AND THE DETERMINATION OF THEIR RESPECTIVE RIGHTS AND
REMEDIES UNDER STATE LAW, Landlord and Tenant believe and intend
that (i) this Lease constitutes a true Lease, not a mere
financing arrangement, enforceable in accordance with its
express terms (and neither this subparagraph 20.(j) the
provisions referencing this subparagraph on the title page of
this Lease and in the Purchase Agreement are intended to affect
the enforcement of any other provisions of this Lease or the
Purchase Agreement) and (ii) the Purchase Agreement shall
constitute a separate and independent contract, enforceable in
accordance with the express terms and conditions set forth
therein. In this regard, Tenant acknowledges that Tenant asked
Landlord to participate in the transactions evidenced by this
Lease and the Purchase Agreement as a landlord and owner of the
Leased Property, not as a lender. Although other transactions
might have been used to accomplish similar results, Tenant
expects to receive certain material accounting and other
advantages through the use of a lease transaction. Accordingly,
and notwithstanding the Required Reporting for income tax
purposes, Tenant cannot equitably deny that this Lease and the
Purchase Agreement should be construed and enforced in
accordance with their respective terms, rather than as a
mortgage or other security device, in any action brought by
Landlord to enforce this Lease or the Purchase Agreement.
<PAGE> 61
In the event of a Tax Challenge, Landlord and Tenant shall each provide to the
other copies of all notices from the Internal Revenue Service or any other
governmental authority presenting the Tax Challenge. Further, before changing
from the Required Reporting because of a Tax Challenge, Landlord and Tenant
shall each consider in good faith any reasonable suggestions received from the
other party to this Lease about an appropriate response to the Tax Challenge;
provided, however, that the suggestions are set forth in a written notice
delivered no later than thirty (30) days after the suggesting party is first
notified of the Tax Challenge; and, provided further, that when presented with a
Tax Challenge, Landlord and Tenant shall each have the right to change from the
Required Reporting rather than participate in any litigation or other legal
proceeding against the Internal Revenue Service or another governmental
authority. In any event, Tenant must indemnify and hold harmless Landlord from
and against all liabilities, costs, additional taxes and other expenses that may
arise or become due because of any challenge to the Required Reporting or
because of any resulting recharacterization of this Lease or the Purchase
Agreement required by the Internal Revenue Service or another governmental
authority, including any additional taxes that may become due upon any sale
under the Purchase Agreement, to the extent (if any) that such liabilities,
costs, additional taxes and other expenses are not offset by tax savings
resulting from additional depreciation deductions or other tax benefits to
Landlord of the recharacterization.
<PAGE> 62
IN WITNESS WHEREOF, this Lease is hereby executed in multiple originals
as of the effective date above set forth.
"Landlord"
BNP LEASING CORPORATION
By:
--------------------------------
Name: Lloyd G. Cox
Title: Vice President
"Tenant"
KLA INSTRUMENTS CORPORATION
By:
--------------------------------
Name: Christopher Stoddart
Title: Treasurer
<PAGE> 63
STATE OF TEXAS )
)
COUNTY OF DALLAS )
On June 5, 1995, before me, ___________________________, personally
appeared Lloyd G. Cox, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature_________________________________
STATE OF CALIFORNIA )
)
COUNTY OF SANTA CLARA )
On June ___, 1995, before me, ________________________, personally
appeared _________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Signature_________________________________
<PAGE> 64
Exhibit A
PROPERTY DESCRIPTION
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
<PAGE> 65
Exhibit B
PERMITTED ENCUMBRANCES
This conveyance is subject to the following matters, but only to the
extent the same are still valid and in full force and effect:
<PAGE> 66
Exhibit C
DESCRIPTION OF RENDERINGS OF THE INITIAL IMPROVEMENTS
Reference is made to the following, which are incorporated in Exhibit as if
fully set forth here:
Exhibit C-1
<PAGE> 67
Exhibit D
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:
22. The undersigned has entered into that certain [Construction
Contract] (the "CONSTRUCTION CONTRACT") by and between the undersigned and KLA
Instruments Corporation ("TENANT") dated , 199__ for the construction of the
multiuse complex to be constructed on the 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 herein collectively referred to as the "PROJECT").
23. The undersigned has been advised that BNP owns a leasehold
estate in the Land under a long term ground lease.
24. The undersigned has also received a copy of the Lease Agreement
dated as of June 5, 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 the
["Owner"] 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.
25. 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.
26. The undersigned has not sent to Tenant or received from Tenant
any notice of default or any other notice 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 the ["Owner"] under the Construction Contract.
The undersigned acknowledges and agrees that:
Exhibit D -1-
<PAGE> 68
BNP Leasing Corporation
_______________, 199___
Page 2
a) BNP shall not be held liable for, and the undersigned shall not
assert, any claims, demands or liabilities against BNP or, except for statutory
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 the ["Owner"] 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 (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 construction 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. If BNP fails
to assume the Construction Contract 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 statutory 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 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
Construction Contract 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 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 (except that
the undersigned may keep an original set of the Construction Contract 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 Construction Contract. 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
Exhibit D -2-
<PAGE> 69
BNP Leasing Corporation
_______________, 199___
Page 3
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 material
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 KLA INSTRUMENTS CORPORATION - SAN JOSE 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 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 the extension of the aforementioned cure period, the undersigned shall be
entitled to an equitable adjustment to the price of the Construction Contract
for such additional costs.
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
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,
_______________________________
Exhibit D -3-
<PAGE> 70
BNP Leasing Corporation
_______________, 199___
Page 4
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.
KLA Instruments Corporation
By:________________________________
Name:___________________________
Title:__________________________
Exhibit D -4-
<PAGE> 71
Exhibit E
ESTOPPEL FROM ARCHITECTS/ENGINEERS
_________, 199__
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Re: Assignment of [Architect's/Engineer's 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:
27. The undersigned has entered into that certain
[Architects/Engineers Agreement] (the "AGREEMENT") by and between the
undersigned and KLA Instruments Corporation ("TENANT") dated , 199__ for the
[design] of the multiuse complex to be constructed on the San Jose 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 herein collectively referred to as the
"PROJECT").
28. The undersigned has been advised that BNP owns a leasehold
estate in the Land under a long term ground lease.
29. The undersigned has also received a copy of the Lease Agreement
dated as of June 5, 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 the
["Owner"] 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.
30. A 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.
31. The undersigned has not sent to Tenant or received from Tenant
any notice of default or any other notice 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
the ["Owner"] under the Agreement.
The undersigned acknowledges and agrees that:
<PAGE> 72
BNP Leasing Corporation
______________, 199____
Page 2
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 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 the
["Owner"] 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 (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 and
due for services rendered under the Agreement through the date of the letter;
(vii) the estimated total cost of completing services contemplated by the
Agreement after the date of the letter, together with a projected payment
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 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 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 obtain and use plans
and specifications prepared under the Agreement with respect to the Project. The
undersigned shall also, upon request by BNP, deliver to BNP all such plans and
specifications, all 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.
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.
Exhibit E -2-
<PAGE> 73
BNP Leasing Corporation
______________, 199____
Page 3
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 KLA
INSTRUMENTS CORPORATION - SAN JOSE 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
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.
Exhibit E -3-
<PAGE> 74
BNP Leasing Corporation
______________, 199____
Page 4
KLA Instruments Corporation
By:________________________________
Name:___________________________
Title:__________________________
Exhibit E -4-
<PAGE> 75
Exhibit F
Draw Request Forms
________, 199__
BNP Leasing Corporation
c/o Banque Nationale de Paris
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan or William J. La Herran
Re: Construction Advance Request No. __________
by KLA Instruments Corporation
Ladies and Gentlemen:
Reference is made to the Lease Agreement between BNP Leasing
Corporation, as landlord (herein "LANDLORD"), and KLA Instruments Corporation,
as tenant (herein "TENANT"), dated as of June 5, 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.
Tenant 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 Tenant's
general contractor, attached to which is a schedule of values
listing all subcontractors, suppliers and other parties to whom
the general contractor 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) Tenant for construction of Improvements and for which
Tenant is entitled to reimbursement from the Current Advance.
2. A list of any costs paid by Tenant, other than to the general
contractor, for which Tenant 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 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 $300,000 from
the draw requested in Contractor's
Exhibit F -1-
<PAGE> 76
BNP Leasing Corporation
______________, 199____
Page 2
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
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 $50,000.
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 Tenant 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 Tenant or to any other party at our
request.
Sincerely,
KLA Instruments Corporation
By:________________________________
Name:___________________________
Title:__________________________
cc: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Dorothy H. Bjorck
Thompson & Knight,
a Professional Corporation
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Exhibit F -2-
<PAGE> 77
CONSTRUCTION ADVANCE CERTIFICATE
Pursuant to Paragraph 6.(c)(viii) of the Lease dated as of June 5, 1995 (the
"LEASE") between KLA Instruments Corporation ("TENANT") and BNP Leasing
Corporation ("LANDLORD"), Tenant does hereby represent, warrant and certify to
Landlord in connection with Tenant's request for Construction Advance No.
__________ that:
a) no Event of Default has occurred and is continuing,
b) the representations and warranties of Tenant 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) Construction of the Initial Improvements has commenced and 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 Tenant has corrected or is diligently pursuing
the correction of any significant defect in such construction,
d) all costs and expenses for which Tenant is requesting
reimbursement by the Construction Advance referenced above constitute actual
costs and expenses incurred by Tenant for the Initial Improvements or for
property taxes or assessments assessed against and paid with respect to the
Leased Property, and
e) The amounts designated for payment to Potential Lien Claimants
in prior Construction advance Requests have been paid to such Potential Lien
Claimants, and the advance being requested hereby will not result in an excess
of $2,000,000 or more of (1) the total cost of work with respect to which
Potential Lien Claimants could have asserted a lien against the Leased Property
and for which Construction Advances have been advanced by Landlord, over (2) the
cost of such work for which Tenant has provided to Landlord unconditional
statutory lien releases from all Potential Lien Claimants.
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 KLA
Instruments Corporation as of ______________, 19___.
KLA Instruments Corporation
By:________________________________
Name:___________________________
Title:__________________________
Exhibit F -3-
<PAGE> 78
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.
Exhibit F -4-
<PAGE> 79
OTHER COSTS LIST
(Construction Advance Request No. ________)
Costs paid - other than to Tenant's general contractor - by Tenant and for which
Tenant is entitled to reimbursement from the Current Advance being requested are
as follows:
1.
2.
3.
Exhibit F -5-
<PAGE> 80
Exhibit G
FINANCIAL COVENANT COMPLIANCE CERTIFICATE
BNP Leasing Corporation
c/o Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan or William J. La Herran
Re: KLA Lease Agreement
Gentlemen:
I, the undersigned, the [chief financial officer, controller, treasurer
or the assistant treasurer] of KLA Instruments Corporation, do hereby certify,
represent and warrant that:
1. This Certificate is furnished pursuant to subparagraph
10.(w)(iii) of that certain Lease Agreement dated as of June 5, 1995 (the "LEASE
AGREEMENT," the terms defined therein being used herein as therein defined)
between KLA Instruments Corporation (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
Revolving Credit Agreement attached to 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 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___.
KLA Instruments Corporation
Name:______________________________
Title:_____________________________
[cc all Participants]
Exhibit G -1-
<PAGE> 81
Annex 1 To Compliance Certificate
For the _________________ Ended ________________, 19___
[INSERT HERE COMPUTATIONS SHOWING COMPLIANCE WITH FINANCIAL COVENANTS]
Exhibit G -2-
<PAGE> 82
Exhibit H
PERMITTED HAZARDOUS SUBSTANCES
(NOT a Comprehensive List)
It is anticipated that the following Hazardous Substances, and others necessary
for the use, occupancy, and operation of the Leased Property in accordance with
the terms and conditions of this Lease, will be used by Tenant at the Leased
Property:
Description C.A.S.#
-----------------------------------
Exhibit H -1-
<PAGE> 83
Exhibit I
RESOLUTION OF DISPUTED INSURANCE CLAIMS
If Landlord and Tenant cannot agree upon the amount for which any
insurance claim against an insurer should be settled after damage to the Leased
Property by fire or other casualty, and so long as neither Tenant nor Landlord
is authorized to determine such amount without the consent of the other pursuant
to subparagraph 10.(r), then either party may require that the amount be
determined as follows:
(i) Landlord and Tenant shall each appoint an experienced
architect who is familiar with construction costs for comparable
properties in the vicinity of the Leased Property. Each party will make
the appointment no later than 10 days after receipt of notice from the
other party that the dispute resolution process described in this
Exhibit has been invoked. The agreement of the two architects as to the
appropriate amount of the insurance settlement will be binding upon
Landlord and Tenant. If the two architects cannot agree upon the
settlement amount within 30 days following their appointment, they shall
within another 10 days agree upon a third architect. Immediately
thereafter, each of the first two architects will submit his best
estimate of the appropriate settlement amount (together with a written
report supporting such estimate) to the third architect and the third
architect will choose between the two estimates. The estimate chosen by
the third architect as the closest to the amount needed to repair and
restore the Leased Property will be binding upon Landlord and Tenant as
the amount for which the applicable insurance claim should be settled.
(However, no such estimate and nothing contained in this Exhibit will
limit Tenant's liability under other provisions of this Lease for the
repair and restoration of the Leased Property.) Notification in writing
of the estimate chosen by the third architect shall be made to Landlord
and Tenant within 15 days following the selection of the third
architect.
(ii) If architects must be selected under the procedure set
out above and either Tenant or Landlord fails to appoint an architect or
fails to notify the other party of such appointment within 10 days after
receipt of notice that the prescribed time for appointing the architects
has passed, then the other party's architect will determine the
appropriate settlement amount. All architects selected for the dispute
resolution process set out in this Exhibit will be disinterested,
reputable, qualified architects with at least 15 years experience
designing and overseeing the construction of properties comparable to
the Leased Property.
(iii) If a third architect must be chosen under the procedure
set out above, he will be chosen on the basis of objectivity and
competence, not on the basis of his relationship with the other
architects or the parties to this Lease, and the first two architects
will be so advised. Although the first two architects will be instructed
to attempt in good faith to agree upon the third architect, if for any
reason they cannot agree within the prescribed time, either Landlord or
Tenant may require the first two architects to immediately submit its
top choice for the third architect to the then highest ranking officer
of the San Francisco Bar Association who will agree to help and who has
no attorney/client or other significant relationship to either Landlord
or Tenant. Such officer will have complete discretion to select the most
objective and competent third architect from between the choice of each
of the first two architects, and will do so within 20 days after such
choices are submitted to him.
(iv) Either Landlord or Tenant may notify the architect
selected by the other party to demand the submission of an estimate of
the appropriate settlement amount or a choice of a third architect as
required under the procedure described above; and if the submission of
such an estimate or choice is required but the other party's architect
fails to comply with the demand within 5 days after receipt of such
notice, then the
Exhibit I -1-
<PAGE> 84
settlement amount or choice of the third architect, as the case may be,
selected by the other architect (i.e., the notifying party's architect)
will be binding upon Landlord and Tenant.
(v) For the purposes of this Exhibit, "appropriate
settlement amount" and words of like effect means the amount required to
restore the Leased Property, less any insurance deductible that clearly
applies under the policy of insurance which provides the coverage to be
settled; and all architects and other persons involved in the
determination of the settlement amount will be so advised.
Exhibit I -2-
<PAGE> 85
Exhibit J
NOTICE OF LIBOR PERIOD ELECTION
BNP Leasing Corporation
c/o Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan or William J. La Herran
Re: Lease Agreement dated June 5, 1995, between KLA Instruments
Corporation, as tenant, and BNP Leasing Corporation, as landlord
Gentlemen:
Capitalized terms used in this letter are intended to have the meanings
assigned to them in the Lease referenced above. This letter constitutes notice
to you that the LIBOR Period Election under the Lease shall be:
________________ month(s),
beginning with the first Base Rent Period that commences on or after:
______________, 199__.
NOTE: YOU SHALL BE ENTITLED TO DISREGARD THIS NOTICE IF THE NUMBER OF MONTHS
SPECIFIED ABOVE IS NOT A PERMITTED NUMBER UNDER THE DEFINITION OF "LIBOR PERIOD
ELECTION" SET FORTH AS PARAGRAPH 1.(BG) OF THE LEASE, OR IF THE DATE SPECIFIED
ABOVE CONCERNING THE COMMENCEMENT OF THE LIBOR PERIOD ELECTION IS LESS THAN TEN
(10) BUSINESS DAYS AFTER YOUR RECEIPT OF THIS NOTICE. HOWEVER, WE ASK THAT YOU
NOTIFY US IMMEDIATELY IF FOR ANY REASON YOU BELIEVE THIS NOTICE IS DEFECTIVE.
Executed this _____ day of ______________, 19___.
KLA Instruments Corporation
Name:______________________________
Title:_____________________________
[cc all Participants]
<PAGE> 86
GROUND LEASE AGREEMENT
BETWEEN
KLA INSTRUMENTS CORPORATION,
AS LESSOR
AND
BNP LEASING CORPORATION,
AS LESSEE
EFFECTIVE AS OF JUNE 5, 1995
<PAGE> 87
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions ....................................................... 2
(a) Event of Default .......................................... 2
(b) Fair Rental Value ......................................... 2
(c) FOCB Notice ............................................... 2
(d) Improvements .............................................. 2
(e) Leasehold Mortgage ........................................ 2
(f) Leasehold Mortgagee ....................................... 2
(g) Lessor's Termination Option ............................... 3
(h) Lessor's Termination Notice ............................... 3
(i) Permitted Encumbrances .................................... 3
(j) Qualifying Termination Date ............................... 3
(k) Rent ...................................................... 3
(l) Rent Commencement Date .................................... 3
(m) Term ...................................................... 3
(n) Termination Fee ........................................... 3
(o) Other Terms and References ................................ 3
2. Term and Early Termination ........................................ 4
3. Rent .............................................................. 4
4. Receipt and Application of Insurance and Condemnation Proceeds .... 5
5. No Lease Termination .............................................. 5
6. Purchase Agreement, Sublease and Environmental Indemnity .......... 5
7. Use of Leased Property ............................................ 5
8. Assignment and Subletting ......................................... 5
9. Estoppel Certificate .............................................. 5
10. Leasehold Mortgages ............................................... 6
11. Other Representations, Warranties and Covenants of Lessor ......... 7
(a) Title ..................................................... 7
(b) No Default or Violation ................................... 7
(c) No Suits .................................................. 7
(d) Enforceability ............................................ 8
(e) Insurance and Casualty .................................... 8
(f) Condemnation .............................................. 8
(g) Further Assurances ........................................ 8
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
12. Events of Default ................................................. 8
(a) Definition of Event of Default ............................ 8
(b) Remedy .................................................... 9
13. Quiet Enjoyment ................................................... 9
14. Option to Purchase ................................................ 9
15. Miscellaneous ..................................................... 9
(a) Notices ................................................... 9
(b) Severability .............................................. 11
(c) No Merger ................................................. 11
(d) Entire Agreement .......................................... 11
(e) Binding Effect ............................................ 11
(f) Governing Law ............................................. 11
(g) Waiver of a Jury Trial .................................... 11
(h) Memorandum of Lease ....................................... 11
</TABLE>
Exhibits
<TABLE>
<S> <C>
Exhibit A ................................................... Legal Description
Exhibit B ................................................... Encumbrance List
Exhibit C .................................. Determination of Fair Rental Value
Exhibit D ........................................ Contingent Purchase Option
</TABLE>
(ii)
<PAGE> 89
GROUND LEASE AGREEMENT
This GROUND LEASE AGREEMENT (hereinafter called this "GROUND LEASE"),
made to be effective as of June 5, 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 "LESSEE"),
and KLA INSTRUMENTS CORPORATION, a Delaware corporation (hereinafter called
"LESSOR");
WITNESETH THAT:
WHEREAS, Lessor and Lessee have reached agreement as to the terms and
conditions upon which Lessor is willing to lease the land described in Exhibit A
attached hereto (hereinafter called the "LAND") and any existing improvements
thereon to Lessee for a term of approximately 34 years, and by this Ground Lease
Lessor and Lessee desire to evidence such agreement;
WHEREAS, pursuant to a Lease Agreement dated of even date herewith
(hereinafter called the "SUBLEASE") from Lessee, as landlord, to Lessor as
tenant, Lessee is subleasing back the Land and any existing improvements thereon
to Lessor for a term scheduled to end on the Rent Commencement Date (as defined
below) under this Ground Lease;
WHEREAS, pursuant to a Purchase Agreement dated of even date herewith
(hereinafter called the "PURCHASE AGREEMENT") between Lessee and Lessor, Lessor
is agreeing to purchase Lessee's interest under this Ground Lease or arrange for
a purchase of such interest, on and subject to the terms and conditions set
forth therein;
WHEREAS, pursuant to an Environmental Indemnity Agreement dated of even
date herewith (hereinafter called the "ENVIRONMENTAL INDEMNITY") between Lessee
and Lessor, Lessor is agreeing to indemnify Lessee against environmental
problems that may arise concerning the Land, on and subject to the terms and
conditions set forth therein;
NOW, THEREFORE, in consideration of the rent to be paid and the
covenants and agreements to be performed by Lessee, as hereinafter set forth,
Lessor does hereby LEASE, DEMISE and LET unto Lessee for the term hereinafter
set forth the Land, together with:
(i) Lessor's interest in any and all buildings and
improvements now or hereafter erected on the Land, including, but not
limited to, the fixtures, attachments, appliances, equipment, machinery
and other articles attached to such buildings and improvements
(hereinafter called the "IMPROVEMENTS");
(ii) all easements and rights-of-way now owned or hereafter
acquired by Lessor for use in connection with the Land or Improvements
or as a means of access thereto;
(iii) all right, title and interest of Lessor, 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 Lessor, with respect to
which this Ground Lease shall cover only the portion thereof to the
center line between the Land and the abutting land owned by Lessor).
<PAGE> 90
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 leasing Real Property as described above, Lessor hereby
grants and assigns to Lessee for the term of this Ground Lease the right to use
and enjoy (and, to the extent the following consist of contract rights, to
enforce) any interests or rights in, to or under the following, to the extent
any such rights and interests are assignable and related to the Real Property:
any general intangibles, permits, licenses, franchises, certificates, and other
rights and privileges. All of the property, rights and privileges described in
this paragraph 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 Lessee's
rights hereunder are expressly made subject and subordinate to the Permitted
Encumbrances (as hereinafter defined). FURTHER, SO LONG AS THE SUBLEASE AND
PURCHASE AGREEMENT REMAIN IN FORCE, THE RIGHTS AND OBLIGATIONS OF LESSOR AND
LESSEE HEREUNDER SHALL BE SUBJECT TO ANY CONTRARY PROVISIONS THEREIN.
The Leased Property is leased by Lessor to Lessee and is accepted and is
to be used and possessed by Lessee upon and subject to the following terms,
provisions, covenants, agreements and conditions:
2. Definitions. As used herein, the terms "Ground Lease,"
"Lessor," "Lessee," "Land," "Sublease," "Purchase Agreement," "Environmental
Indemnity," "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) Event of Default. "EVENT OF DEFAULT" shall have the
meaning assigned to it in subparagraph 12.(a) below.
(b) Fair Rental Value. "FAIR RENTAL VALUE" means the annual
fair rental value of unimproved land of equivalent size and location to the
Land, without considering any value added by the Improvements, as determined in
accordance with Exhibit C.
(c) FOCB Notice. "FOCB NOTICE" shall have the meaning
assigned to it in Paragraph 2 below.
(d) Improvements. "IMPROVEMENTS," as defined in the recitals
at the beginning of this Ground Lease, shall include not only existing
improvements to the Land as of the date hereof, if any, but also any new
improvements or changes to existing improvements made during the term of this
Ground Lease. Accordingly, any and all new improvements made to the Leased
Property with the Construction Allowance contemplated in the Sublease shall
constitute Improvements as that term is used herein.
(e) Leasehold Mortgage. "LEASEHOLD MORTGAGE" means any
mortgage, deed of trust, security agreement or assignment executed by Lessee to
secure an obligation to repay borrowed money or other voluntary obligations,
which covers Lessee's leasehold estate hereunder or any part thereof or any
rents or other charges to be paid to Lessee pursuant to any sublease.
(f) Leasehold Mortgagee. "LEASEHOLD MORTGAGEE" means any
lender or other beneficiary of a Leasehold Mortgage that shall have notified
Lessor in writing of the existence such Leasehold Mortgage and of its address to
which notices should be delivered.
<PAGE> 91
(g) Lessor's Termination Option. "LESSOR'S TERMINATION
OPTION" shall have the meaning assigned to it in Paragraph 2 below.
(h) Lessor's Termination Notice. "LESSOR'S TERMINATION
NOTICE" shall have the meaning assigned to it in Paragraph 2 below.
(i) Permitted Encumbrances. "PERMITTED ENCUMBRANCES" means
the encumbrances and other matters affecting the Leased Property that are set
forth in Exhibit B attached hereto and made a part hereof.
(j) Qualifying Termination Date. "QUALIFYING TERMINATION
DATE" means any business day which is no sooner than thirty days after Lessee's
receipt of the notice sent by Lessor pursuant to subparagraph 2.(a) specifying
such date and which is no later than one hundred twenty days after Lessee's
receipt of such notice; provided, however, that if Lessor provides such a notice
to prevent the expiration of the Lessor's Termination Option in response to a
FOCB Notice from Lessee, then "Qualifying Termination Date" for purposes of such
notice will mean any business day within ten days after the date of such FOCB
Notice.
(k) Rent. "RENT" means the rent payable by Lessee pursuant
to Paragraph 3 below.
(l) Rent Commencement Date. "RENT COMMENCEMENT DATE" means
July 1, 2000.
(m) Term. "TERM" shall have the meaning assigned to it in
Paragraph 2 below.
(n) Termination Fee. "TERMINATION FEE" means an amount equal
to Stipulated Loss Value under and as defined in the Sublease, including any
Construction Advances and Carrying Costs (both as defined in the Sublease) which
are added to Stipulated Loss Value on or before the date Stipulated Loss Value
is computed for purposes of this definition, less any Escrowed Proceeds under
and as defined in the Sublease which Lessee will retain after the termination of
this Ground Lease. So long as the Sublease remains in effect, Stipulated Loss
Value will be computed for purposes of this definition on the date when the
Termination Fee is paid hereunder. After the Sublease has expired or been
terminated, Stipulated Loss Value will be computed for purposes of this
definition as of the date upon which the Sublease expired or terminated.
Notwithstanding the foregoing, however, so long as the Purchase Agreement
remains in effect, the "TERMINATION FEE" as used herein shall be no less than
the full Purchase Price (as defined in the Purchase Agreement) and any other
amounts (including interest on past due amounts) that would be due on the date
upon which the Termination Fee becomes payable hereunder if, pursuant to the
Purchase Agreement, Lessor was purchasing Lessee's interest in the Leased
Property.
(o) Other Terms and References. Words of any gender used in
this Ground 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 Ground 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 Ground 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 Lessee is a party or of which Lessee
is an intended beneficiary, without the consent of Lessee. All accounting terms
not specifically defined herein shall be construed in accordance with generally
accepted accounting principles. The words "THIS GROUND LEASE", "HEREIN",
"HEREOF", "HEREBY", "HEREUNDER" and words of similar import refer to this Ground
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
<PAGE> 92
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.
3. Term and Early Termination. The term of this Ground Lease
(herein called the "TERM") shall commence on and include the effective date
hereof and end on July 1, 2029. However, subject to the prior approval of any
Leasehold Mortgagee, Lessee shall have the right to terminate this Lease by
giving a notice to Lessor stating that Lessee unequivocally elects to terminate
effective as of a date specified in such notice, which may be any date more than
thirty days after the notice and after the expiration or termination of the
Sublease pursuant to its terms. Further, Lessor shall have an option (the
"LESSOR'S TERMINATION OPTION") to terminate this Ground Lease on and subject to
the following terms and conditions:
(a) To exercise the Lessor's Termination Option, Lessor must
provide Lessee with an unconditional notice thereof (the "LESSOR'S TERMINATION
NOTICE") which specifies a Qualifying Termination Date as the effective date of
the termination and which sets forth Lessor's calculation of the Termination Fee
and other payments required by the next subparagraph. Any notice specifying or
purporting to establish an effective date of termination which is not a
Qualifying Termination Date shall not be effective as a Lessor's Termination
Notice hereunder. Any Lessor's Termination Notice will be irrevocable.
(b) After giving any Lessor's Termination Notice, Lessor
must on or before the effective date of the termination specified therein, pay
to Lessee in good funds the Termination Fee and any amounts then due or which
have accrued under the Sublease, including but not limited to any accrued Base
Rent, Commitment Fees and Breakage Costs, all as defined in the Sublease.
Lessor's payment of the Termination Fee and all amounts due or accrued under the
Sublease shall be conditions precedent to the effectiveness of any early
termination of this Lease by Lessor. Time is of the essence as to such payment.
(c) At any time after the earlier of July 1, 2000 or any
Designated Payment Date under and as defined in the Purchase Agreement, Lessee
may provide a notice to Lessor (a "FOCB NOTICE") explaining that, unless Lessor
provides a Lessor's Termination Notice within thirty days after the FOCB Notice
is sent in accordance with the notice provisions hereof, the Lessor's
Termination Option will expire. Unless Lessor does in fact provide an effective
Lessor's Termination Notice within thirty days after any such FOCB Notice is
sent to Lessor by Lessee in accordance with the notice provisions hereof, the
Lessor's Termination Option will expire. Time is of the essence as to the giving
of any Lessor's Termination Notice required to prevent an expiration of the
Lessor's Termination Option; however, if during the thirty day period specified
above in this subparagraph Lessor is delayed in providing any Lessor's
Termination Notice because of any automatic stay or similar restraint imposed in
any bankruptcy or insolvency proceedings wherein Lessee is the debtor, then such
thirty day period will be extended by a time equal to such delay.
(d) Notwithstanding the foregoing, if Lessor loses its right
to acquire Lessee's interest in the Leased Property under the Purchase Agreement
before the effective date of any termination of this Ground Lease, and if Lessor
would not have lost such right but for Lessor's failure to cure a breach by
Lessor of the Purchase Agreement within any applicable grace period provided
therein, then Lessor shall no longer have any right whatsoever to terminate this
Ground Lease pursuant to this Paragraph 2, and any prior Lessor's Termination
Notice given by Lessor shall become ineffective for purposes of this Ground
Lease.
4. Rent. Lessee has on the effective date paid to Lessor the sum
of Ten and no/100 dollars ($10.00) as prepaid rent for the period beginning on
the effective date and ending on June 30, 2000. The receipt and sufficiency of
such prepaid rent is hereby acknowledged by Lessor. On each anniversary of the
Rent Commencement Date, Lessee shall pay Lessor an annual installment of rent in
arrears (herein called "RENT"), in currency that at the time of payment is legal
tender for public and private debts in the United States of America. Each such
installment of Rent shall equal the Fair Rental Value, determined as provided in
Exhibit C.
<PAGE> 93
5. Receipt and Application of Insurance and Condemnation Proceeds.
All insurance and condemnation proceeds payable with respect to any damage to or
taking of the Leased Property shall be payable to and become the property of the
Lessee; provided, however, Lessor shall be entitled to receive condemnation
proceeds awarded for the value of Lessor's remainder interest in the Land
exclusive of the Improvements. Lessee is authorized to take all action necessary
on behalf of both Lessee and Lessor to collect insurance and condemnation
proceeds.
6. No Lease Termination. Except as expressly provided herein, this
Ground Lease shall not terminate, nor shall Lessor have any right to terminate
this Ground Lease nor shall the obligations of Lessor under this Ground 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) any default
on the part of Lessee under this Ground Lease or under any other agreement to
which Lessor and Lessee are parties, (iv) 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 Lessor hereunder shall be separate and independent of the covenants and
agreements of Lessee. However, nothing in this Paragraph shall be construed as a
waiver by Lessor of any right Lessor may have at law or in equity to recover
monetary damages for any default under this Ground Lease.
7. Purchase Agreement, Sublease and Environmental Indemnity.
Nothing contained in this Ground Lease shall limit, modify or otherwise affect
any of Lessor's or Lessee's respective rights and obligations under the Purchase
Agreement, Sublease or Environmental Indemnity, which rights and obligations are
intended to be separate, independent and in addition to, and not in lieu of, the
obligations established by this Ground Lease; provided, however, that if Lessor
exercises the Lessor's Termination Option, Lessee shall have no further
obligations under the Purchase Agreement or the Sublease. In the event of any
inconsistency between the terms and provisions of the Purchase Agreement,
Sublease or Environmental Indemnity and the terms and provisions of this Ground
Lease, the terms and provisions of the Purchase Agreement, Sublease or
Environmental Indemnity (as the case may be) shall control.
8. Use of Leased Property. Subject to the Permitted Encumbrances
and the terms hereof, Lessee may use and occupy the Leased Property for any
lawful purpose. If a use of the Leased Property by Lessee for any lawful purpose
or any new Improvements or removal or modification of Improvements proposed by
Lessee would violate any Permitted Encumbrance unless Lessor, as an owner of
adjacent property or otherwise, gave its consent or approval thereto or agreed
to join in a modification of such Permitted Encumbrance, then Lessor shall give
such consent or approval or join in such modification. Further, Lessor's
obligation under the preceding sentence shall be binding upon any successor or
assign of Lessor with respect to the Permitted Encumbrances. In any event,
Lessee may at any time during the Term remove the Improvements from the Leased
Property without the consent of Lessor and without obligation to compensate
Lessor or construct other Improvements on the Land.
9. Assignment and Subletting. Lessor's consent shall not be
required for any assignment or subletting by Lessee.
10. Estoppel Certificate. Lessor shall from time to time, within
ten days after receipt of written request by Lessee, deliver a statement in
writing certifying:
(a) that this Ground Lease is unmodified and in full force
and effect (or if modified that this Ground Lease as so modified is in full
force and effect);
(b) that to the knowledge of Lessor Lessee has not
previously assigned or hypothecated its rights or interests under this Ground
Lease, except as is described in such statement with as much specificity as
Lessor is able to provide;
(c) the term of this Ground Lease and the Rent and any
additional charges;
<PAGE> 94
(d) that Lessee is not in default under any provision of
this Ground Lease (or if in default, the nature thereof in detail) and a
statement as to any outstanding obligations on the part of Lessor or Lessee; and
(e) such other matters as are requested by Lessee.
Lessor's failure to deliver such statement within such time shall be conclusive
upon Lessee (i) that this Ground Lease is in full force and effect, without
modification except as may be represented by Lessee, (ii) that there are no
uncured defaults in Lessee's performance hereunder.
11. Leasehold Mortgages.
(a) By Leasehold Mortgage Lessee may encumber Lessee's
leasehold estate in the Leased Property created by this Ground Lease, as well as
Lessee's rights and interests in buildings, fixtures, equipment and improvements
situated thereon and rents, issues, profits, revenues and other income to be
derived by Lessee therefrom. However, so long as the Sublease remains in effect,
any Leasehold Mortgage will be permitted hereunder only if it constitutes a
Permitted Transfer under and as defined in the Sublease.
(b) Any Leasehold Mortgagee or other party, including any
corporation formed by a Leasehold Mortgagee, may become the legal owner and
holder of the leasehold estate created by this Ground Lease, and of the
improvements, equipment, fixtures and other property assigned as additional
security pursuant to a Leasehold Mortgage, by foreclosure of a Leasehold
Mortgage or as a result of the assignment or conveyance in lieu of foreclosure.
Further, any such Leasehold Mortgagee or other party may itself, after becoming
the legal owner and holder of the leasehold estate created by this Ground Lease,
or of any improvements, equipment, fixtures and other property assigned as
additional security pursuant to a Leasehold Mortgage, convey or pledge the same
without the consent of Lessor.
(c) Lessor shall serve notice of any default by Lessee
hereunder upon any Leasehold Mortgagee. No notice of a default by Lessee shall
be deemed effective until it is so served. Any Leasehold Mortgagee shall have
the right to correct or cure any such default within the same period of time
after receipt of such notice as is given to Lessee under this Ground Lease to
correct or cure defaults, plus an additional period of thirty days thereafter.
Lessor will accept performance by any Leasehold Mortgagee of any covenant,
condition or agreement on Lessee's part to be performed hereunder with the same
force and effect as though performed by Lessee.
(d) If this Ground Lease should terminate by reason of a
disaffirmance or rejection of this Ground Lease by Lessee or any receiver,
liquidator or trustee for the property of Lessee, or by any department of the
city, state or federal government which had taken possession of the business or
property of Lessee by reason of the insolvency or alleged insolvency of Lessee,
then:
(i) Lessor shall give notice thereof to each
Leasehold Mortgagee; and upon request of any Leasehold
Mortgagee made within sixty days after Lessor has given such
notice, Lessor shall enter into a new ground lease of the
Leased Property with such Leasehold Mortgagee for the remainder
of the Term, at the same Rent and on the same terms and
conditions as contained in this Ground Lease.
(ii) In connection with any such new ground lease,
Lessor shall also convey to the Leasehold Mortgagee by
quitclaim deed any interest of Lessor in and to the
Improvements included in the Leased Property.
(iii) The estate of the Leasehold Mortgagee, as lessee
under the new lease, shall have priority equal to the estate of
Lessee hereunder. That is, there shall be no charge, lien or
burden upon the
<PAGE> 95
Leased Property prior to or superior to the estate granted by
such new lease which was not prior to or superior to the estate
of Lessee under this Ground Lease as of the date immediately
preceding the termination of this Ground Lease. To the extent
that the Sublease and or the Purchase Agreement are in effect
at the time of execution of such new ground lease, such new
ground lease shall be made subject to the Sublease and the
Purchase Agreement.
(iv) Notwithstanding the foregoing, if Lessor shall
receive requests to enter into a new ground lease from more
than one Leasehold Mortgagee, Lessor shall be required to enter
into only one new ground lease, and the new ground lease shall
be to the requesting Leasehold Mortgagee who holds the highest
priority lien or interest in the Lessee's leasehold estate in
the Land. If the liens or security interests of two or more
such requesting Leasehold Mortgagees which shared the highest
priority just prior to the termination of this Ground Lease,
the new ground lease shall name all such Leasehold Mortgagees
as co-tenants thereunder.
(e) If Lessee has agreed with any Leasehold Mortgagee that
such Leasehold Mortgagee's consent will be required to any modification or early
termination of this Lease by Lessee, and if Lessor has been notified of such
agreement, such consent will be required.
(f) No Leasehold Mortgagee will assume any liability under
this Ground Lease either by virtue of its Leasehold Mortgage or by any
subsequent receipt or collection of rents or profits generated from the Leased
Property, unless and until the Leasehold Mortgagee acquires Lessee's leasehold
estate in the Leased Property at foreclosure or by deed in lieu of foreclosure.
(g) Although the foregoing provisions concerning Leasehold
Mortgages and Leasehold Mortgagees will be self operative, Lessor agrees to
include, in addition to the items specified in Paragraph 9, confirmation of the
foregoing in any statement provided to a Leasehold Mortgagee or prospective
Leasehold Mortgagee pursuant to Paragraph 9.
12. Other Representations, Warranties and Covenants of Lessor.
Lessor represents, warrants and covenants as follows:
(a) Title. Lessor holds good and marketable title to the
Land, free and clear of all liens and encumbrances, other than the Permitted
Encumbrances.
(b) No Default or Violation. The execution, delivery and
performance by Lessor of this Ground Lease and the Environmental Indemnity do
not and will not constitute a breach or default under any other material
agreement or contract to which Lessor is a party or by which Lessor is bound or
which affects the Leased Property, and do not violate or contravene any law,
order, decree, rule or regulation to which Lessor is subject, and such
execution, delivery and performance by Lessor 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, Lessor's property pursuant to the
provisions of any of the foregoing.
(c) No Suits. There are no judicial or administrative
actions, suits, proceedings or investigations pending or, to Lessor's knowledge,
threatened that will adversely affect the Leased Property or the validity,
enforceability or priority of this Ground Lease, and Lessor 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 use, occupancy or operation of the Leased Property. No condemnation
or other like proceedings are pending or, to Lessor's knowledge, threatened
against the Leased Property.
(d) Enforceability. The execution, delivery and performance
of this Ground Lease are duly authorized and do not require the consent or
approval of any governmental body or other regulatory authority that has
<PAGE> 96
not heretofore been obtained and are not in contravention of or conflict with
any applicable laws or any term or provision of Lessor's articles of
incorporation or bylaws. This Ground Lease is a valid, binding and legally
enforceable obligation of Lessor in accordance with its terms, except as such
enforcement is affected by bankruptcy, insolvency and similar laws affecting the
rights of creditors, generally, and equitable principles of general application.
(e) Insurance and Casualty. 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)
Lessee may make proof of loss, (ii) each insurance company concerned is hereby
authorized and directed to make payment for such loss directly to Lessee for
application as required by Paragraph 4, and (iii) Lessee's consent must be
obtained for any settlement, adjustment or compromise of any claims for loss,
damage or destruction under any policy or policies of insurance.
(f) Condemnation. 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 Lessee and applied as provided in Paragraph 4 above. Lessee is
hereby authorized, in the name of Lessor, 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. Lessee 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.
(g) Further Assurances. Lessor shall, on request of Lessee,
(i) promptly correct any defect, error or omission which may be discovered in
the contents of this Ground Lease or in any other instrument executed in
connection herewith or in the execution or acknowledgment thereof; (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 Ground Lease and to subject to this Ground
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 Lessee 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 Lessee to enable Lessee or any Leasehold Mortgagee
to comply with the requirements or requests of any agency or authority having
jurisdiction over them.
13. Events of Default.
(a) Definition of Event of Default. Each of the following
events shall be deemed to be an "EVENT OF DEFAULT" by Lessee under this Ground
Lease:
(i) Lessee shall fail to pay when due any
installment of Rent due hereunder and such failure shall
continue for sixty days after Lessee receives written notice
thereof.
(ii) Lessee shall fail to comply with any term,
provision or covenant of this Ground Lease (other than as
described in the other clauses of this subparagraph 12.(a)),
and shall not cure such failure prior to the earlier of sixty
days after written notice thereof is sent to Lessee if such
failure is susceptible of cure but cannot with reasonable
diligence be cured within such sixty day period, and if Lessee
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 as shall be necessary
for the curing thereof with reasonable diligence.
<PAGE> 97
(b) Remedy. Upon the occurrence of an Event of Default which
is not cured within any applicable period expressly permitted by subparagraph
12.(a), Lessor's sole and exclusive remedy shall be to sue Lessee for the
collection of any amount due under this Ground Lease and to enjoin the
continuation of the Event of Default. Lessor may not terminate this Ground Lease
or Lessee's right to possession under this Ground Lease except as expressly
provided herein. Any judgment which Lessor may obtain against Lessee for amounts
due under this Ground Lease may be collected only through resort of a judgement
lien against Lessee's interest in the Leased Property. Lessee shall have no
personal liability for the payment amounts due under this or for the performance
of any obligations of Lessee under this Ground Lease.
14. Quiet Enjoyment. Neither Lessor nor any third party lawfully
claiming any right or interest in the Leased Property shall during the Term
disturb Lessee'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 Ground Lease and the Permitted Encumbrances, to which
this Ground Lease is subject and subordinate as hereinabove set forth.
15. Option to Purchase. Subject to the terms and conditions set
forth in Exhibit D, including the condition specified therein that Lessor shall
have breached the Purchase Agreement and failed to cure such breach within any
time for cure expressly provided in the Purchase Agreement, Lessee (and any
assignee of Lessee's entire interest in the Leased Property, but not any
subtenant or assignee of a lesser interest) shall have the option to purchase
the Lessor's interest in the Leased Property.
16. Miscellaneous.
(a) Notices. Each provision of this Ground 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 Lessee to Lessor, shall be
deemed to be complied with when and if the following steps are taken:
(i) All Rent required to be paid by Lessee to Lessor
hereunder shall be paid to Lessor in accordance with any
reasonable written instruction provided from time to time by
Lessor to Lessee, which may include payment by wire transfer.
<PAGE> 98
(ii) All notices, demands 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: (A) personal service, with proof of delivery
or attempted delivery retained; (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 (C) hereof shall be deemed received (whether
or not actually received) upon first attempted delivery at the
proper notice address on any business day between 9:00 A.M. and
5:00 P.M., and any notice or other communication sent pursuant
to clause (B) hereof shall be deemed received upon dispatch by
electronic means.
Address of Lessee:
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: Rafael C. Lumanlan or William J. La Herran
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 Lessor:
KLA Instruments Corporation
160 Rio Robles
San Jose, California 95134
Attn: Christopher Stoddart, Treasurer
Telecopy: (408) 434-4268
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
<PAGE> 99
Attn: Jonathan E. Rattner, Esq.
Telecopy: (415) 328-3029
(b) Severability. If any term or provision of this Ground
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
Ground 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 Ground Lease
or of the leasehold estate hereby created with the fee or any other 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 Ground Lease or the
leasehold estate hereby created or any interest in this Ground Lease or in such
leasehold estate as well as the fee or any other estate in the Leased Property
or any interest in such fee or other estate, unless all parties 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) Entire Agreement. This Ground Lease, the agreements
referred to herein, and the instruments referred to therein supersede any prior
negotiations and agreements between the parties concerning the Leased Property
and no amendment or modification of this Ground Lease shall be binding or valid
unless expressed in a writing executed by both parties hereto.
(e) 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 assigns.
(f) Governing Law. This Ground Lease shall be governed by
and construed in accordance with the laws of the State of California.
(g) Waiver of a Jury Trial. LESSOR AND LESSEE EACH HEREBY
WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS GROUND LEASE OR ANY OTHER DOCUMENT OR DEALINGS
BETWEEN THEM RELATING TO THIS GROUND 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. Lessor and Lessee 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
Ground Lease and the other documents referred to herein, and that each will
continue to rely on the waiver in their related future dealings. Lessee and
Lessor 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 GROUND LEASE OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THIS GROUND LEASE OR THE LEASED PROPERTY. In the event of
litigation, this Ground Lease may be filed as a written consent to a trial by
the court.
(h) Memorandum of Lease. Lessor and Lessee shall execute a
memorandum of this Ground Lease in recordable form which shall be filed in the
real property records of Santa Clara County, California.
<PAGE> 100
IN WITNESS WHEREOF, this Ground Lease is hereby executed in multiple
originals as of the effective date above set forth.
"Lessor"
KLA INSTRUMENTS CORPORATION
By:
--------------------------------
Name: Christopher Stoddart
Title: Treasurer
"Lessee"
BNP LEASING CORPORATION
By:
--------------------------------
Name: Lloyd G. Cox
Title: Vice President
<PAGE> 101
STATE OF TEXAS )
)
COUNTY OF DALLAS )
On June 5, 1995, before me, _____________ , personally appeared Lloyd G.
Cox, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature _______________________________
STATE OF CALIFORNIA )
)
COUNTY OF SANTA CLARA )
On June ___, 1995, before me, ________________________, personally
appeared _________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Signature _______________________________
<PAGE> 102
Exhibit A
PROPERTY DESCRIPTION
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
<PAGE> 103
Exhibit B
PERMITTED ENCUMBRANCES
This conveyance is subject to the following matters, but only to the
extent the same are still valid and in full force and effect:
<PAGE> 104
Exhibit C
DETERMINATION OF FAIR RENTAL VALUE
Each annual installment of Rent will equal the Fair Rental Value as of
the Rent Commencement Date, unless reduced to a lesser amount equal to the Fair
Rental Value on a subsequent date selected by Lessee. By notice to Lessor,
Lessee may from time to time (but no more often than once in any 12 month
period), designate a new date within sixty days of the date of such notice as an
alternative to the Rent Commencement Date for purposes of determining Fair
Rental Value, in which case installments of Rent due after such alternative date
shall equal the Fair Rental Value on such alternative date unless and until
another alternative date is later designated. However, in no event will Rent
ever be increased above the Fair Rental Value on the Rent Commencement Date.
If Lessor and Lessee have not agreed upon Fair Rental Value as of the
Rent Commencement Date within 180 days after the Rent Commencement Date, or if
they do not agree upon Fair Rental Value as of an alternative date within thirty
days from the date of a notice from Lessee designating such alternative date as
described above, then Fair Rental Value will be determined as follows (but,
again, in no event shall Rent be adjusted above the Fair Rental Value on the
Rent Commencement Date):
(i) Lessor and Lessee shall each appoint a real estate
appraiser who is familiar with rental values for properties in the
vicinity of the Land. Each party will make the appointment no later than
10 days after receipt of notice from the other party that the appraisal
process described in this paragraph has been invoked. The agreement of
the two appraisers as to Fair Rental Value will be binding upon Lessor
and Lessee. If the two appraisers cannot agree upon the Fair Rental
Value within 10 days following their appointment, they shall within
another 10 days agree upon a third real estate appraiser. Immediately
thereafter, each of the first two appraisers will submit his best
estimate of the appropriate Fair Rental Value (together with a written
report supporting such estimate) to the third appraiser and the third
appraiser will choose between the two estimates. The estimate of Fair
Rental Value chosen by the third appraiser as the closest to the
prevailing monthly fair rental value will be binding upon Lessor and
Lessee. Notification in writing of this estimate shall be made to Lessor
and Lessee within 15 days following the selection of the third
appraiser.
(ii) If appraisers must be selected under the procedure set
out above and either Lessee or Lessor fails to appoint an appraiser or
fails to notify the other party of such appointment within 7 days after
receipt of notice that the prescribed time for appointing the appraisers
has passed, then the other party's appraiser will determine the Fair
Rental Value. All appraisers selected for the appraisal process set out
in this paragraph will be disinterested, reputable, qualified real
estate appraisers with the designation of MAI or equivalent and with at
least 5 years experience in appraising properties comparable to the
Land.
(iii) If a third appraiser must be chosen under the procedure
set out above, he or she will be chosen on the basis of objectivity and
competence, not on the basis of his relationship with the other
appraisers or the parties to this Ground Lease, and the first two
appraisers will be so advised. Although the first two appraisers will be
instructed to attempt in good faith to agree upon the third appraiser,
if for any reason they cannot agree within the prescribed time, either
Lessor and Lessee may require the first two appraisers to immediately
submit its top choice for the third appraiser to the then highest
ranking officer of the San Francisco Bar Association who will agree to
help and who has no attorney/client or other significant relationship to
either Lessor or Lessee. Such officer will have complete discretion to
select the most objective and competent third appraiser from between the
choice of each of the first two appraisers, and will do so within 20
days after such choices are submitted to him.
Exhibit C -- Page 1
<PAGE> 105
(iv) Either Lessor or Lessee may notify the appraiser
selected by the other party to demand the submission of an estimate of
Fair Rental Value or a choice of a third appraiser as required under the
procedure described above; and if the submission of such an estimate or
choice is required but the other party's appraiser fails to comply with
the demand within 15 days after receipt of such notice, then the Fair
Rental Value or choice of the third appraiser, as the case may be,
selected by the other appraiser (i.e., the notifying party's appraiser)
will be binding upon Lessor and Lessee.
(v) Lessor and Lessee shall each bear the expense of the
appraiser appointed by it, and the expense of the third appraiser and of
any officer of the San Francisco Bar Association who participates in the
appraisal process described above will be shared equally by Lessor and
Lessee.
Once determined in accordance with this Exhibit, the annual Rent shall
remain the same until Lessee elects to change Rent to the Fair Rental Value as
of a date other than the Rent Commencement Date as provided above.
Exhibit C -- Page 2
<PAGE> 106
Exhibit D
CONTINGENT PURCHASE OPTION
Subject to the terms of this Exhibit, Lessee shall have an option (the
"OPTION") to buy the Lessor's interest in the Leased Property at any time during
the term of this Ground Lease after (but only after) any breach by Lessor under
the Purchase Agreement, provided Lessor does not cure the breach within any time
permitted for cure by the express provisions of the Purchase Agreement, for a
purchase price (the "OPTION PRICE") to Lessor equal to fair market value.
For the purposes of this Exhibit, "fair market value" means (and all
appraisers and other persons involved in the determination of the Option Price
will be so advised) the price that would be agreed upon between a willing buyer,
but under no compulsion to buy, and a willing seller, but under no compulsion to
sell, for unimproved land comparable in size and location to the Land, exclusive
of any Improvements, at the time of Lessee's exercise of the Option and taking
into consideration the condition of the Land and the encumbrances affecting the
title to the Land at the time of the exercise of the Option.
If Lessee exercises the Option, which Lessee may do by notifying Lessor
that Lessee has elected to buy Lessor's interest in the Leased Property as
provided herein, then:
(vi) Upon Lessee's tender of the Option Price to Lessor,
Lessor will convey good and marketable title to the fee estate in the
Leased Property to Lessee by general warranty deed subject only to the
Permitted Encumbrances and, to the extent still in force, the Sublease
and the Purchase Agreement.
(vii) Lessee's obligation to close the purchase shall be
subject to the following terms and conditions, all of which are for the
benefit of Lessee: (1) Lessee shall have been furnished with evidence
satisfactory to Lessee that Lessor can convey title as required by the
preceding subparagraph; (2) nothing shall have occurred or been
discovered after Lessee exercised the Option that could significantly
and adversely affect title to the Leased Property or the Lessee's use
thereof, (3) all of the representations of Lessor in this Ground Lease
shall continue to be true as if made effective on the date of the
closing and, with respect to any such representations which may be
limited to the knowledge of Lessor or any of Lessor's representatives,
would continue to be true on the date of the closing if all relevant
facts and circumstances were known to Lessor and such representatives,
and (4) Lessee shall have been tendered the deed and other documents
which are described in this Exhibit as documents to be delivered to
Lessee at the closing of Lessee's purchase.
(viii) Closing of the purchase will be scheduled on the first
business day following thirty days after the Option Price is established
in accordance with the terms and conditions of this Exhibit, and prior
to closing Lessee's occupancy of the Leased Property shall continue to
be subject to the terms and conditions of this Ground Lease, including
the terms setting forth Lessee's obligation to pay rent. Closing shall
take place at the offices of any title insurance company reasonably
selected by Lessee to insure title under the title insurance policy
described below.
(ix) Any transfer taxes or notices or registrations required
by law in connection with the sale contemplated by this Exhibit will be
the responsibility of Lessor.
(x) Lessor will deliver a certificate of nonforeign status
to Lessee at closing as needed to comply with the provisions of the
Foreign Investors Real Property Tax Act (FIRPTA) or any comparable
federal, state or local law in effect at the time.
Exhibit D -- Page 1
<PAGE> 107
(xi) Lessor will also pay for and deliver to Lessee at the
closing an owner's title insurance policy in the full amount of the
Option Price, issued by a title insurance company designated by Lessee
(or written confirmation from the title company that it is then prepared
to issue such a policy), and subject only to standard printed exceptions
which the title insurance company refuses to delete or modify in a
manner acceptable to Lessee and to Permitted Encumbrances.
(xii) Lessor shall also deliver at the closing all other
documents or things reasonably required to be delivered to Lessee or by
the title insurance company to evidence Lessor's ability to transfer the
Leased Property to Lessee.
If Lessor and Lessee do not otherwise agree upon the amount of the
Option Price within 20 days after Lessee exercises the Option, the Option Price
shall be determined in accordance with the following procedure:
(a) Lessor and Lessee shall each appoint a real estate
appraiser who is familiar with properties in the vicinity of
the Land. Each party will make the appointment no later than 10
days after receipt of notice from the other party that the
appraisal process described in this paragraph has been invoked.
The agreement of the two appraisers as to the Option Price will
be binding upon Lessor and Lessee. If the two appraisers cannot
agree upon the Option Price within 10 days following their
appointment, they shall within another 10 days agree upon a
third real estate appraiser. Immediately thereafter, each of
the first two appraisers will submit his best estimate of the
appropriate Option Price (together with a written report
supporting such estimate) to the third appraiser and the third
appraiser will choose between the two estimates. The estimate
of Option Price chosen by the third appraiser as the closest to
the prevailing monthly fair market value will be binding upon
Lessor and Lessee. Notification in writing of the Option Price
shall be made to Lessor and Lessee within 15 days following the
selection of the third appraiser.
(b) If appraisers must be selected under the procedure
set out above and either Lessee or Lessor fails to appoint an
appraiser or fails to notify the other party of such
appointment within 7 days after receipt of notice that the
prescribed time for appointing the appraisers has passed, then
the other party's appraiser will determine the Option Price.
All appraisers selected for the appraisal process set out in
this paragraph will be disinterested, reputable, qualified real
estate appraisers with the designation of MAI or equivalent and
with at least 5 years experience in appraising properties
comparable to the Land.
(c) If a third appraiser must be chosen under the
procedure set out above, he will be chosen on the basis of
objectivity and competence, not on the basis of his
relationship with the other appraisers or the parties to this
Ground Lease, and the first two appraisers will be so advised.
Although the first two appraisers will be instructed to attempt
in good faith to agree upon the third appraiser, if for any
reason they cannot agree within the prescribed time, either
Lessor and Lessee may require the first two appraisers to
immediately submit its top choice for the third appraiser to
the then highest ranking officer of the San Francisco Bar
Association who will agree to help and who has no
attorney/client or other significant relationship to either
Lessor or Lessee. Such officer will have complete discretion to
select the most objective and competent third appraiser from
between the choice of each of the first two appraisers, and
will do so within 10 days after such choices are submitted to
him.
(d) Either Lessor or Lessee may notify the appraiser
selected by the other party to demand the submission of an
estimate of Option Price or a choice of a third appraiser as
required under the procedure described above; and if the
submission of such an estimate or choice is required but the
other party's appraiser fails to comply with the demand within
15 days after receipt of such notice, then the Option Price or
choice of the third appraiser, as the case may be, selected by
the other appraiser (i.e., the notifying party's appraiser)
will be binding upon Lessor and Lessee.
(e) Lessor and Lessee shall each bear the expense of the
appraiser appointed by it, and the expense of the third
appraiser and of any officer of the San Francisco Bar
Association who participates in the appraisal process described
above will be shared equally by Lessor and Lessee.
Exhibit D -- Page 2
<PAGE> 108
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "AGREEMENT") is made as of June 5, 1995,
by KLA INSTRUMENTS CORPORATION, a Delaware corporation ("KLA"), and BNP LEASING
CORPORATION, a Delaware corporation ("BNP").
R E C I T A L S
A. BNP is acquiring from KLA a leasehold estate under a Ground Lease
(the "GROUND LEASE") dated as of the date hereof, which covers the land
described in Exhibit A attached hereto and any improvements and fixtures located
thereon, and BNP is subleasing the same to KLA pursuant to a Lease Agreement (as
from time to time supplemented, amended or restated, the "LEASE") dated as of
the date hereof.
B. BNP is also concurrently herewith receiving a separate environmental
indemnity from KLA pursuant to an Environmental Indemnity Agreement (as from
time to time supplemented, amended or restated, the "ENVIRONMENTAL INDEMNITY")
between KLA and BNP dated as of the date hereof.
C. BNP and KLA desire by this Agreement to evidence the terms and
conditions upon which BNP will sell and KLA or a third party designated by KLA
will purchase BNP's interest in the Land described in Exhibit A and in other
property from time to time covered by the Lease.
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 "KLA", "BNP", "Ground
Lease", "Lease" and "Environmental Indemnity" 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 KLA to purchase the Property in satisfaction of the
Remarketing Requirements.
(b) Designated Payment Date. "Designated Payment Date" means the
earlier of:
(1) the effective date of any termination of the Lease by
Tenant pursuant to Paragraph 2 thereof;
(2) any Advance Date or Base Rent Date designated by KLA
in a written notice given by KLA to BNP, provided the notice of the date so
designated is given by KLA at least thirty (30) days before the date so
designated; or
(3) any date designated by BNP in a written notice given
by BNP to KLA when an Event of Default by KLA is continuing, provided
the notice of the date so designated is given by BNP at least thirty
(30) days before the date so designated; or
<PAGE> 109
(4) July 1, 2000, or if July 1, 2000 is not a Business Day,
then the next following Business Day.
(c) Fair Market Value. "Fair Market Value" means with respect to
any property or interest therein, the fair market value of such property or
interest on or about the Designated Payment Date (calculated under the
assumptions, whether or not then accurate, that KLA has maintained the Property
in compliance with all Applicable Laws [including Environmental Laws]; that KLA
has completed all construction which was commenced prior to the Designated
Payment Date; that KLA has repaired and restored the Property after any damage
following fire or other casualty; that KLA has restored the remainder of the
Property after any partial taking by eminent domain; that KLA 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 other than
Prohibited Encumbrances; that KLA has complied with all Permitted Encumbrances
and 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; and that the Lessor's Termination
Option under and as defined in the Ground Lease has expired or otherwise been
terminated) 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.
(d) KLA's Fee Interest. "KLA's Fee Interest" means KLA's remainder
interest in the Land and rights as lessor under the Ground Lease.
(e) Property. "Property" means BNP's leasehold estate under the
Ground Lease, together with BNP's interest in 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, together with BNP's interest in any funds held as
Escrowed Proceeds from time to time. The term "Property" does not include KLA's
Fee Interest or any other right, title or interest in the Leased Property which,
for any reason other than a Prohibited Encumbrance, may be superior to the
interest of BNP.
(f) 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.
(g) 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 KLA or any Participant approved by Tenant, or (iii)
exists because of any breach by KLA 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 KLA.
(h) Remarketing Notice. "Remarketing Notice" shall have the
meaning assigned to it in Paragraph 2(b)(1) below.
-2-
<PAGE> 110
(i) Remarketing Requirements. "Remarketing Requirements" means the
requirements that KLA must satisfy if it elects, in accordance with terms and
conditions of this Agreement, not to itself acquire the Property pursuant to
Paragraph 2(a)(i) below. Such requirements will be as specified in one (but not
both) of the following subparagraphs:
(1) KLA shall cause the Applicable Purchaser to purchase
the Property for a net cash price not less than the lesser of (a) the
Fair Market Value of the Property or (b) fourteen percent (14%) of
Stipulated Loss Value outstanding immediately prior to the purchase.
(2) KLA shall cause the Applicable Purchaser to purchase
not only the Property, but also KLA's Fee Interest, all for a net cash
price of no less than the Fair Market Value of the Land and all
Improvements, determined without any reduction in value because of the
severance of BNP's leasehold estate under the Ground Lease from KLA's
Fee Interest.
BNP may designate the requirements specified in the preceding subparagraph (2)
as "Remarketing Requirements" for purposes of this Agreement if, but only if,
KLA sends BNP a Remarketing Notice and BNP responds within 60 days after BNP
receives the Remarketing Notice with a notice to KLA so designating the
requirements in subparagraph (2). Absent an effective designation by BNP of the
requirements specified in subparagraph (2) as the Remarketing Requirements, the
"Remarketing Requirements" for purposes of this Agreement will be as specified
in the preceding subparagraph (1). However, if BNP does effectively designate
the requirements specified in the preceding subparagraph (2) as the Remarketing
Requirements, BNP will receive, as the price for the Property, a fraction of the
total net cash proceeds payable by the Applicable Purchaser, the numerator of
which fraction equals the Fair Market Value of the Property, and the denominator
of which fraction equals the sum of the Fair Market Value of the Property
(determined as if only the Property were to be sold), plus the Fair Market Value
of the KLA's Fee Interest (determined as if only KLA's Fee Interest were to be
sold); and the remainder of such net cash proceeds shall go to KLA as the price
for KLA's Fee Interest.
(j) Required Documents. "Required Documents" means the grant deed
and other documents that BNP must tender pursuant to Paragraph 3 below.
(k) Shortage Amount. "Shortage Amount" means any amount payable to
BNP by KLA, rather than by the Applicable Purchaser, pursuant to clause 2(b)(3)
below.
2. KLA's Options and Obligations on the Designated Payment Date.
(a) Choices. On the Designated Payment Date KLA shall have the
right and the obligation to either:
(i) purchase the Property for a net cash price equal to
the Purchase Price; or
(ii) satisfy the Remarketing Requirements.
(b) Election by KLA. KLA 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:
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(1) To give BNP the opportunity before the Designated Payment
Date to designate Remarketing Requirements (as provided above in the
definition of Remarketing Requirements) and to have the Fair Market
Value of the Property and of KLA's Fee Interest determined by an
appraiser (as provided above in the definition of Fair Market Value),
KLA must provide BNP with a Remarketing Notice, unless KLA agrees that
Fair Market Value of the Property will not be less than fourteen
percent (14%) of Stipulated Loss Value on the Designated Payment Date.
"REMARKETING NOTICE" means a notice given by KLA to BNP (and to each
of the Participants) no earlier than one hundred eighty (180) days
before the Designated Payment Date and no later than ninety (90) days
before the Designated Payment Date, specifying that KLA does not
concede that the Fair Market Value of the Property is equal to or
greater than fourteen percent (14%) of the Stipulated Loss Value. A
Remarketing Notice will be required only if KLA does not concede that
Fair Market Value of the Property will equal or exceed fourteen percent
(14%) 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) KLA fails to provide a Remarketing
Notice within the time periods specified in the definition of
Remarketing Notice above, Fair Market Value of the Property shall, for
purposes of this Agreement, be deemed to be no less than fourteen
percent (14%) 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, KLA must, if KLA intends
to satisfy the Remarketing Requirements rather than itself purchase the
Property, irrevocably specify the Applicable Purchaser in a notice to
BNP given at least seven (7) days prior to the Designated Payment Date.
If for any reason KLA fails to so specify an Applicable Purchaser, KLA
shall be deemed to have irrevocably elected to purchase the Property as
provided in clause (i) of Paragraph 2(a).
(3) If KLA elects to satisfy the Remarketing Requirements,
rather than purchase the Property pursuant to Paragraph 2(a)(i) above,
KLA must make a supplemental cash payment to BNP on the Designated
Payment Date equal to the excess (if any) of the Purchase Price over
the net cash price for the Property actually paid to BNP on the
Designated Payment Date by the Applicable Purchaser. However, provided
no Event of Default has occurred and is continuing under the Lease, and
provided further that neither KLA 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 cash payment
required by the preceding sentence shall not exceed eighty-six percent
(86%) of Stipulated Loss Value on the Designated Payment Date. Any
supplemental cash payment payable to BNP by KLA, rather than by the
Applicable Purchaser, pursuant to this clause (3) is hereinafter
referred to as the "SHORTAGE AMOUNT." If the net cash price for the
Property actually paid by the Applicable Purchaser to BNP exceeds the
Purchase Price and all other sums that are then due from KLA to BNP,
KLA shall be entitled to such excess.
(4) Notwithstanding any effective election by KLA to satisfy
the Remarketing Requirements, if the sum of the net cash price for the
Property to be paid to BNP by the Applicable Purchaser plus any
Shortage Amount is less than Stipulated Loss Value, BNP may elect to
keep the Property rather than sell to the Applicable Purchaser, in
which case KLA shall pay to BNP on the Designated Payment Date an
amount equal to (A) eighty-six percent (86%)
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of Stipulated Loss Value, less (B) any Escrowed Proceeds then held and
to be retained by BNP.
(c) Termination of KLA's Option To Purchase. Without limiting
BNP's right to require KLA to satisfy the obligations imposed by Paragraph 2(a),
KLA shall have no further option hereunder to purchase the Property if either:
(1) KLA shall have elected to satisfy the Remarketing
Requirements 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 subparagraph (4) of Paragraph 2(b); or
(2) KLA 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, KLA 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), 2(b) or 2(c) by KLA 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 hereunder, on the Designated Payment Date KLA must pay all amounts then
due to BNP under the Lease. BNP will remit any excess amounts due KLA pursuant
to the last sentence of the definition of Remarketing Requirements or pursuant
to the last sentence of clause (3) of Paragraph 2(b) promptly after (and no
later than 30 days after) BNP's receipt of the same.
(e) Effect of Options on Subsequent Title Encumbrances. It is the
intent of BNP and KLA that any conveyance of the Property to KLA or any
Applicable Purchaser pursuant to this Agreement shall cut off and terminate any
interest in the Property claimed by, through or under BNP (but not any
unsatisfied obligations to BNP under the Lease, the Environmental Indemnity or
this Agreement). Such interests cut off and terminated will include but not be
limited to any interests in the Property claimed by Participants or any holder
of a Leasehold Mortgage, any leasehold or other interests in the Property
conveyed by BNP in the ordinary course of BNP's business and any other
Prohibited Encumbrances. Anyone accepting or taking any interest in the Property
by or through BNP after the date of this Agreement shall acquire such interest
subject to the rights and options granted KLA hereby. Further, KLA 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 KLA 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
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<PAGE> 113
permitted by clause (4) of Paragraph 2(b), deliver Escrowed Proceeds, if any,
and convey all of its right, title and interest in the Property by Assignment of
Ground Lease and Sublease to KLA 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 Assignment of Ground Lease and
Sublease used to accomplish such conveyance shall be substantially in the form
attached as Exhibit B. With such Assignment of Ground Lease and Sublease, BNP
shall also tender to KLA 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 Ground Lease,
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 KLA 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.
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4. Survival of KLA's Obligations.
(a) Status of this Agreement. Except as expressly provided in the
last sentence of this subparagraph and elsewhere herein, this Agreement shall
not terminate, nor shall KLA have any right to terminate this Agreement, nor
shall KLA be entitled to any reduction of the Purchase Price hereunder, nor
shall the obligations of KLA 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 KLA'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 KLA or any party claiming under KLA by paramount title or
otherwise, (v) KLA'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 KLA hereunder (including KLA's obligation to make payments under
and, if applicable, to cause the Applicable Purchaser to make payments under -
Paragraph 2) shall be separate and independent of the covenants and agreements
of BNP. 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 KLA hereunder shall continue unaffected by any breach of this
Agreement by BNP. However, nothing in this subparagraph, nor the performance
without objection by KLA of its obligations hereunder, shall be construed as a
waiver by KLA of any right KLA may have at law or in equity, following any
failure by BNP to tender an Assignment of Ground Lease and Sublease and the
other Required Documents as required by Paragraph 3 upon the tender by KLA
and/or the Applicable Purchaser of the payments required by Paragraph 2 and of
the other documents to be executed in favor of BNP at the closing of the sale
hereunder, to (i) recover monetary damages proximately caused by such failure of
BNP if BNP does not cure the failure within thirty (30) days after Tenant
demands a cure by written notice to BNP, or (ii) a decree compelling performance
of BNP's obligation to so tender an Assignment of Ground Lease and Sublease and
the Required Documents.
(b) Remedies Under the Ground Lease, the Lease and the
Environmental Indemnity. No repossession of or re-entering upon the Property or
exercise of any other remedies available under the Ground Lease, the Lease or
the Environmental Indemnity shall relieve KLA of its liabilities and obligations
hereunder, all of which shall survive the exercise of remedies under the Ground
Lease, the Lease and Environmental Indemnity. KLA acknowledges that the
consideration for this Agreement is separate and independent of the
consideration for the Ground Lease, the Lease and the Environmental Indemnity,
and KLA's obligations hereunder shall not be affected or impaired by any event
or circumstance that would excuse KLA from performance of its obligations under
the Ground Lease, the Lease or the Environmental Indemnity.
5. 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 such 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.
6. 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
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<PAGE> 115
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 granted 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.
7. 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.
8. Estoppel Certificate. KLA and BNP will each, upon not less
than twenty (20) days' prior written request by the other, 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. Neither KLA nor BNP shall be
required to provide such a certificate more frequently than once in any six
month period; provided, however, that if either party 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, the other shall provide a certificate upon request
whether or not it had provided a certificate within the prior six month period.
9. 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:
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<PAGE> 116
(a) All payments required to be made by KLA or the Applicable
Purchaser to BNP hereunder shall be paid to BNP in immediately available funds
by wire transfer to:
Federal Reserve Bank of San Francisco
Account: Banque Nationale de Paris
ABA #: 121027234
Reference: KLA Instruments.
or at such other place and in such other manner as BNP may designate in a notice
to KLA (provided BNP will not unreasonably designate a method of payment other
than wire transfer). Time is of the essence as to all payments to BNP under this
Agreement. Any payments required to be made by BNP to KLA pursuant to the last
sentence of clause (i) of Paragraph 2(a) or the last sentence of subparagraph 3
of Paragraph 3(b) shall be paid to KLA in immediately available funds by wire
transfer to the account of Tenant designated in writing by Tenant or as KLA may
otherwise direct by written notice sent in accordance herewith.
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<PAGE> 117
(b) All notices, demands 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: (A) personal service, with proof
of delivery or attempted delivery retained; (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 (C)
hereof shall be deemed received (whether or not actually received) upon first
attempted delivery at the proper notice address on any Business Day between 9:00
A.M. and 5:00 P.M., and any notice or other communication sent pursuant to
clause (B) hereof shall be deemed received upon dispatch by electronic means.
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: Rafael Lumanlan or William J. La Herran
Telecopy: (415) 296-8954
And with a copy to:
Dorothy H. Bjorck
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Telecopy: (214) 969-1550
Address of KLA:
KLA Instruments Corporation
160 Rio Robles
San Jose, California 95134
Attn: Christopher Stoddart, Treasurer
Telecopy: (408) 434-4268
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<PAGE> 118
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Jonathan Rattner, Esq.
Telecopy: (415) 328-3029
10. Severability. Each and every covenant and agreement of KLA
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 KLA hereunder, to the maximum extent possible, shall be
deemed to be separate, independent and in addition to, not in lieu of, the
obligations of KLA under the Lease and other documents referenced herein. In the
event of any inconsistency between the express terms of this Agreement and the
express terms and provisions of the Lease or other documents referenced herein,
the terms and provisions of this Agreement shall control.
11. Entire Agreement. This Agreement and the documents and
agreements referred to herein set forth the entire agreement between the parties
concerning the subject matter hereof and no amendment or modification of this
Agreement shall be binding or valid unless expressed in a writing executed by
both parties hereto.
12. 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.
13. 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.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE UNDER AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
15. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon KLA and BNP and their respective
permitted successors and assigns and shall inure to the benefit of KLA and BNP
and all permitted transferees, mortgagees, successors and assignees of KLA and
BNP with respect to the Property; provided, that the rights of BNP hereunder
shall not pass to KLA 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
thereafter arising under this Agreement and the Lease, and KLA agrees to look
solely to each successor in interest of BNP for performance of such obligations.
16. WAIVER OF JURY TRIAL. BNP AND KLA EACH HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF
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<PAGE> 119
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. KLA 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. KLA 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. In the event of litigation, this Agreement may be filed
as a written consent to a trial by the court.
17. Security. KLA's obligations under this Agreement are
secured by the Pledge Agreement, reference to which is hereby made for a
description of the Collateral (as defined in the Pledge Agreement) covered
thereby and the rights and remedies provided to BNP thereby. Although BNP shall
be entitled to hold all Collateral as security for the full and faithful
performance by KLA of KLA's covenants and obligations under this Agreement, the
Collateral shall not be considered an advance payment of the Purchase Price or
any Shortage Amount or a measure of BNP's damages should KLA breach this
Agreement. If KLA does breach this Agreement and fails to cure the same within
any time specified herein for the cure, BNP may, from time to time, without
prejudice to any other remedy and without notice to KLA, immediately apply the
proceeds of any disposition of the Collateral (and any cash included in the
Collateral) to amounts then due hereunder from KLA. If BNP assigns its interest
in the Leased Property before the Designated Payment Date, BNP may also assign
BNP's interest in the Collateral to the assignee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"BNP"
BNP LEASING CORPORATION, a Delaware corporation
By:____________________________________________________
Lloyd G. Cox, Vice President
"KLA"
KLA INSTRUMENTS CORPORATION, a Delaware corporation
By:____________________________________________________
Name: Christopher Stoddart, Treasurer
Title: Treasurer
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<PAGE> 120
EXHIBIT A
Legal Description
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
A-1
<PAGE> 121
EXHIBIT B
[Use printed form assignment provided by California counsel, but expressly
subject to encumbrances described in Annex B]
B-1
<PAGE> 122
ANNEX A
(to Deed)
Legal Description
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
B-2
<PAGE> 123
Exhibit B
(to Assignment of Ground Lease and Sublease)
PERMITTED ENCUMBRANCES
This conveyance is subject to the matters described in the attached
pages and to the following matters to the extent the same are still valid and in
force:
[IF THE CONVEYANCE IS TO AN APPLICABLE PURCHASER:
__. Lease Agreement dated as of June 5, 1995 by and between BNP Leasing
Corporation, as lessor, and KLA Instruments Corporation, as lessee.
__. Any encumbrances claimed by, through or under KLA Instruments
Corporation]
[ADD A LIST OF ANY OTHER KNOWN ENCUMBRANCES FOR WHICH BNP IS NOT RESPONSIBLE
UNDER PARAGRAPH 10(A) OF THE LEASE.]
B-3
<PAGE> 124
EXHIBIT C
[PRINTED FORM OF CHANGE OF OWNERSHIP REPORT TO BE ATTACHED]
C-1
<PAGE> 125
EXHIBIT D
BILL OF SALE, ASSIGNMENT OF GROUND LEASE, CONTRACT
RIGHTS AND INTANGIBLE ASSETS
Reference is made to that certain Ground Lease dated June 5, 1995 (the
"GROUND LEASE") from KLA Instruments Corporation to BNP LEASING CORPORATION
("ASSIGNOR"), pursuant to which Assignor was conveyed a leasehold estate for a
term of 34 years in the real property described in Annex A attached hereto (the
"Property).
Assignor hereby sells, transfers and assigns unto [KLA 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) the interest of the lessee in and to the Ground Lease,
together with any warranties, guaranties, indemnities and claims Assignor may
have under the Ground Lease or under any document delivered by the lessor
thereunder to the extent related to the Property;
(b) all licenses, permits or similar consents (excluding any
prepaid utility reservations) from third parties to the extent related to the
Property;
(c) 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;
(d) any goods, equipment, furnishings, furniture, chattels and
personal property of whatever nature that are located on or about the Property;
and
(e) any general intangibles, permits, licenses, franchises,
certificates, and other rights and privileges owned by Assignor and used solely
in connection with, or relating solely to, the Property, including any such
rights and privileges conveyed to Assignor pursuant to the Ground Lease; but
excluding any rights or privileges of Assignor under (i) the Environmental
Indemnity, as defined in that certain Purchase Agreement between Assignor and
KLA Instruments Corporation dated as of June 5, 1995 (the "PURCHASE AGREEMENT")
(pursuant to which this document is being delivered), (ii) the Lease, as defined
in the Purchase Agreement, 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, (iii) agreements between Assignor and
Participants, as defined in the Lease, or any modification or extension thereof,
and (iv) 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 [KLA].
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.
D-1
<PAGE> 126
Executed:______________________, 199__.
ASSIGNOR:
BNP LEASING CORPORATION
a Delaware corporation
By:_____________________________________
Its:____________________________________
ASSIGNEE:
[KLA, OR THE APPLICABLE PURCHASER], a
_________ corporation
By:_____________________________________
Its:____________________________________
D-2
<PAGE> 127
ANNEX A
Legal Description
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
D-3
<PAGE> 128
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 [KLA 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) an Assignment of Ground Lease and Sublease covering a leasehold
estate under a ground lease 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 any interest in 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.
E-1
<PAGE> 129
EXECUTED as of ________________, 199___.
__________________, a ____________________
By:_________________________________________
Name:____________________________________
Title:___________________________________
E-2
<PAGE> 130
EXHIBIT F
DOCUMENTARY TRANSFER TAX REQUEST
ACCOUNTABLE FORM #_________
DATE:_____________
To: _________ County Recorder
Subject: REQUEST THAT DOCUMENTARY TRANSFER TAX DECLARATION BE MADE
IN ACCORDANCE WITH REVENUE CODE 11932.
Re: Instrument Title: Assignment of Ground Lease and Sublease
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 not 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_____________________
F-1
<PAGE> 131
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.
F-2
<PAGE> 132
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]
G-1
<PAGE> 133
CORPORATE RESOLUTIONS OF
BNP LEASING CORPORATION
WHEREAS, pursuant to that certain Purchase Agreement (herein called the
"PURCHASE AGREEMENT") dated as of June 5, 1995, by and between BNP Leasing
Corporation (the "CORPORATION") and [KLA 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 San Jose, 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]
G-2
<PAGE> 134
EXHIBIT H
BNP LEASING CORPORATION
717 N. HARWOOD
SUITE 2630
DALLAS, TEXAS 75201
___________, 199_
[Title Insurance Company]
__________________
__________________
__________________
Re: Recording of Assignment of Ground Lease and Sublease to [KLA or the
Applicable Purchaser] ("PURCHASER")
Ladies and Gentlemen:
BNP Leasing Corporation has executed and delivered to Purchaser an
Assignment of Ground Lease and Sublease in the form attached to this letter. You
are hereby authorized and directed to record the Assignment of Ground Lease and
Sublease at the request of Purchaser.
Sincerely,
H-1
<PAGE> 135
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.
I-1
<PAGE> 136
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:____________
I-2
<PAGE> 1
EXECUTION
EXHIBIT 10.78
$15,400,000
LEASE AGREEMENT
BETWEEN
BNP LEASING CORPORATION,
AS LANDLORD
AND
KLA INSTRUMENTS CORPORATION,
AS TENANT
EFFECTIVE AS OF AUGUST 10, 1995
PURSUANT TO AND AS MORE PARTICULARLY PROVIDED IN SUBPARAGRAPH 20.(j) OF THIS
LEASE, THIS LEASE AND THE PURCHASE AGREEMENT REFERENCED HEREIN ARE TO
CONSTITUTE, FOR INCOME TAX PURPOSES ONLY, A FINANCING ARRANGEMENT OR CONDITIONAL
SALE. AS PROVIDED IN SUBPARAGRAPH 20.(j) OF THIS LEASE, LANDLORD AND TENANT
EXPECT THAT TENANT (AND NOT LANDLORD) SHALL BE TREATED AS THE TRUE OWNER OF THE
PROPERTY FOR INCOME TAX PURPOSES, THEREBY ENTITLING TENANT (AND NOT LANDLORD) TO
TAKE DEPRECIATION DEDUCTIONS AND OTHER TAX BENEFITS AVAILABLE TO THE OWNER.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions............................................................................................ 2
(a) Administrative Fee............................................................................ 2
(b) Active Negligence............................................................................. 2
(c) Additional Rent............................................................................... 2
(d) Advance Date.................................................................................. 2
(e) Affiliate..................................................................................... 2
(f) Applicable Laws............................................................................... 3
(g) Applicable Purchaser.......................................................................... 3
(h) Attorneys' Fees............................................................................... 3
(i) Base Rent..................................................................................... 3
(j) Base Rent Commencement Date................................................................... 3
(k) Base Rent Date................................................................................ 3
(l) Base Rent Period.............................................................................. 4
(m) Breakage Costs................................................................................ 5
(n) Business Day.................................................................................. 5
(o) Capital Adequacy Charges...................................................................... 5
(p) Carrying Costs................................................................................ 5
(q) Closing Costs................................................................................. 5
(r) Change of Control Event....................................................................... 5
(s) Code.......................................................................................... 5
(t) Commitment Fee................................................................................ 5
(u) Completion Notice............................................................................. 5
(v) Completion Deadline........................................................................... 6
(w) Construction Advances......................................................................... 6
(x) Construction Allowance........................................................................ 6
(y) Construction Periods.......................................................................... 6
(z) Custodial Agreement........................................................................... 6
(aa) Debt.......................................................................................... 6
(ab) Default....................................................................................... 6
(ac) Default Rate.................................................................................. 6
(ad) Defaulting Participant........................................................................ 6
(ae) Designated Payment Date....................................................................... 7
(af) Effective Rate................................................................................ 7
(ag) Environmental Indemnity....................................................................... 7
(ah) Environmental Laws............................................................................ 7
(ai) Environmental Losses.......................................................................... 7
(aj) Environmental Report.......................................................................... 8
(ak) ERISA......................................................................................... 8
(al) ERISA Affiliate............................................................................... 8
(am) ERISA Termination Event....................................................................... 8
(an) Escrowed Proceeds............................................................................. 8
(ao) Eurocurrency Liabilities...................................................................... 9
(ap) Eurodollar Rate Reserve Percentage............................................................ 9
(aq) Event of Default.............................................................................. 9
(ar) Excluded Taxes................................................................................ 9
(as) Fair Market Value............................................................................. 9
(at) Fed Funds Rate................................................................................ 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(au) Funding Advances.............................................................................. 10
(av) GAAP.......................................................................................... 10
(aw) Hazardous Substance........................................................................... 10
(ax) Hazardous Substance Activity.................................................................. 10
(ay) Impositions................................................................................... 10
(az) Improvements.................................................................................. 10
(ba) Indemnified Party............................................................................. 10
(bb) Initial Funding Advances...................................................................... 11
(bc) Initial Improvements.......................................................................... 11
(bd) Landlord's Lender............................................................................. 11
(be) Last Advance Date............................................................................. 11
(bf) LIBOR......................................................................................... 11
(bg) LIBOR Period Election......................................................................... 12
(bh) Lien.......................................................................................... 12
(bi) Losses........................................................................................ 12
(bj) Maximum Construction Allowance................................................................ 12
(bk) Notice of Last Advance........................................................................ 12
(bl) Ordinary Negligence........................................................................... 13
(bm) Outstanding Construction Allowance............................................................ 13
(bn) Participant................................................................................... 13
(bo) Participation Agreements...................................................................... 13
(bp) Permitted Encumbrances........................................................................ 13
(bq) Permitted Hazardous Substance Use............................................................. 13
(br) Permitted Hazardous Substances................................................................ 14
(bs) Permitted Transfer............................................................................ 14
(bt) Person........................................................................................ 14
(bu) Plan.......................................................................................... 14
(bv) Pledge Agreement.............................................................................. 14
(bw) Potential Lien Claimants...................................................................... 14
(bx) Prime Rate.................................................................................... 14
(by) Purchase Agreement............................................................................ 15
(bz) Qualified Payments............................................................................ 15
(ca) Remaining Proceeds............................................................................ 15
(cb) Rent.......................................................................................... 15
(cc) Responsible Financial Officer................................................................. 15
(cd) Revolving Credit Agreement.................................................................... 15
(ce) Scope Change.................................................................................. 15
(cf) Spread........................................................................................ 16
(cg) Stipulated Loss Value......................................................................... 16
(ch) Subsidiary.................................................................................... 16
(ci) Tenant's Knowledge............................................................................ 16
(cj) Term.......................................................................................... 17
(ck) Unfunded Benefit Liabilities.................................................................. 17
(cl) Upfront Fee................................................................................... 17
(cm) Other Terms and References.................................................................... 17
2. Term................................................................................................... 17
3. Rent................................................................................................... 18
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
(a) Base Rent Generally........................................................................... 18
(b) Calculation of Base Rent...................................................................... 18
(c) Upfront Fee................................................................................... 19
(d) Administrative Agency Fees.................................................................... 19
(e) Commitment Fees............................................................................... 19
(f) Additional Rent............................................................................... 19
(g) Interest and Order of Application............................................................. 19
(h) Net Lease..................................................................................... 19
(i) No Demand or Setoff........................................................................... 19
4. Insurance and Condemnation Proceeds.................................................................... 20
5. No Lease Termination................................................................................... 21
(a) Status of Lease............................................................................... 21
(b) Waiver By Tenant.............................................................................. 22
6. Advances for the Purchase of the Land-51 Rio Robles and for Construction............................... 22
(a) Purchase Price of the Land-51 Rio Robles...................................................... 22
(iv) No Event of Default or Change of Control Event....................................... 22
(v) No Sale of Landlord's Interest....................................................... 22
(c) Initial Improvements.......................................................................... 23
(i) Responsibility for Construction........................................................... 23
(ii) Scope Changes........................................................................ 24
(iii) Value Added.......................................................................... 24
(iv) Estoppel Letters Required............................................................ 24
(v) Advances Not a Waiver................................................................ 24
(d) Conditions to Construction Advances........................................................... 24
(i) Prior Notice......................................................................... 24
(ii) Amount of the Advances............................................................... 25
(iii) Insurance............................................................................ 25
a) Title Insurance............................................................... 25
b) Builder's Risk Insurance...................................................... 25
(iv) Progress of Construction............................................................. 25
(v) Evidence of Costs to be Reimbursed................................................... 26
(vi) No Event of Default or Change of Control Event....................................... 26
(vii) No Sale of Landlord's Interest....................................................... 26
(viii) Construction Advance Certificate..................................................... 26
(ix) Payments by Participants............................................................. 26
(e) Completion Notice............................................................................. 27
7. Purchase Agreement, Pledge Agreement and Environmental Indemnity Agreement............................. 27
8. Use and Condition of Leased Property................................................................... 27
(a) Use........................................................................................... 27
(b) Condition..................................................................................... 27
(c) Consideration of and Scope of Waiver.......................................................... 28
9. Other Representations, Warranties and Covenants of Tenant.............................................. 28
(a) Financial Matters............................................................................. 28
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
(b) Existing Contract............................................................................. 28
(c) No Default or Violation....................................................................... 28
(d) Compliance with Covenants and Laws............................................................ 29
(e) Environmental Representations................................................................. 29
(f) No Suits...................................................................................... 29
(g) Condition of Property......................................................................... 29
(h) Organization.................................................................................. 29
(i) Enforceability................................................................................ 30
(j) Not a Foreign Person.......................................................................... 30
(k) Omissions..................................................................................... 30
(l) Existence..................................................................................... 30
(m) Tenant Taxes.................................................................................. 30
(n) Operation of Property......................................................................... 30
(o) Debts for Construction........................................................................ 31
(p) Impositions................................................................................... 32
(q) Repair, Maintenance, Alterations and Additions................................................ 32
(r) Insurance and Casualty........................................................................ 32
(s) Condemnation.................................................................................. 33
(t) Protection and Defense of Title............................................................... 34
(u) No Liens on the Leased Property............................................................... 34
(v) Books and Records............................................................................. 34
(w) Financial Statements; Required Notices; Certificates as to Default............................ 35
(x) Further Assurances............................................................................ 36
(y) Fees and Expenses; General Indemnification; Increased Costs; and
Capital Adequacy Charges...................................................................... 36
(z) Liability Insurance........................................................................... 38
(aa) Permitted Encumbrances........................................................................ 38
(ab) Environmental................................................................................. 39
(ac) Compliance with Financial Covenants and Certain Other Requirements
Established by the Revolving Credit Agreement................................................. 40
(ad) ERISA......................................................................................... 41
10. Representations, Warranties and Covenants of Landlord.................................................. 41
(a) Title Claims By, Through or Under Landlord.................................................... 41
(b) Actions Required of the Title Holder.......................................................... 41
(c) No Default or Violation....................................................................... 42
(d) No Suits...................................................................................... 42
(e) Organization.................................................................................. 42
(f) Enforceability................................................................................ 42
(g) Existence..................................................................................... 42
(h) Not a Foreign Person.......................................................................... 43
11. Assignment and Subletting.............................................................................. 43
(a) Consent Required.............................................................................. 43
(b) Standard for Landlord's Consent to Assignments and Certain Other Matters...................... 43
(c) Consent Not a Waiver.......................................................................... 43
(d) Landlord's Assignment......................................................................... 43
12. Environmental Indemnification.......................................................................... 44
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C>
(a) Indemnity..................................................................................... 44
(b) Assumption of Defense......................................................................... 44
(c) Notice of Environmental Losses................................................................ 44
(d) Rights Cumulative............................................................................. 45
(e) Survival of the Indemnity..................................................................... 45
13. Landlord's Right of Access and Right to Perform........................................................ 45
14. Events of Default...................................................................................... 46
(a) Definition of Event of Default................................................................ 46
(b) Remedies...................................................................................... 48
(c) Enforceability................................................................................ 49
(d) Remedies Cumulative........................................................................... 49
(e) Waiver by Tenant.............................................................................. 49
(f) No Implied Waiver............................................................................. 50
15. Default by Landlord.................................................................................... 50
16. Quiet Enjoyment........................................................................................ 50
17. Surrender Upon Termination............................................................................. 50
18. Holding Over by Tenant................................................................................. 50
19. Miscellaneous.......................................................................................... 51
(a) Notices....................................................................................... 51
(b) Severability.................................................................................. 53
(c) No Merger..................................................................................... 53
(d) NO IMPLIED REPRESENTATIONS BY LANDLORD........................................................ 53
(e) Entire Agreement.............................................................................. 53
(f) Binding Effect................................................................................ 53
(g) Time is of the Essence........................................................................ 53
(h) Governing Law................................................................................. 53
(i) Waiver of a Jury Trial........................................................................ 53
(j) Income Tax Reporting.......................................................................... 54
</TABLE>
Exhibits
Exhibit A......................................................Legal Description
Exhibit B.......................................................Encumbrance List
Exhibit C..................................................Intentionally Omitted
Exhibit D...........................................Contractor's Estoppel Letter
Exhibit E............................................Architect's Estoppel Letter
Exhibit F.....................................................Draw Request Forms
Exhibit G........................................Covenant Compliance Certificate
Exhibit H.........................................Permitted Hazardous Substances
Exhibit I................................Resolution of Disputed Insurance Claims
Exhibit J...........................................LIBOR Period Election Notice
(v)
<PAGE> 7
LEASE AGREEMENT
This LEASE AGREEMENT (hereinafter called this "LEASE"), made to be
effective as of August 10, 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 KLA
INSTRUMENTS CORPORATION, a Delaware corporation (hereinafter called "TENANT");
W I T N E S E T H T H A T:
WHEREAS, pursuant to a Purchase and Sale Agreement dated as of July 26,
1995 (hereinafter called the "Existing Contract") covering (i) the land
described in Part I of Exhibit A attached hereto (hereinafter called the
"Land-77 Rio Robles") and any improvements thereon, and (ii) the land described
in Part II of Exhibit A attached hereto (hereinafter called the "Land-51 Rio
Robles" and the Land-77 Rio Robles and the Land-51 Rio Robles are hereinafter
collectively called the "Land") and any improvements thereon, Landlord is
acquiring the Land-77 Rio Robles and any improvements thereon from Amdahl
Corporation (hereinafter called "Seller") contemporaneously with the execution
of this Lease and Landlord anticipates acquiring the Land-51 Rio Robles and any
improvements thereon;
WHEREAS, in anticipation of Landlord's acquisition of the Land and other
property hereinafter described, Landlord and Tenant have reached agreement as to
the terms and conditions upon which Landlord is willing to lease the same to
Tenant, and by this Lease Landlord and Tenant desire to evidence such agreement;
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
improvements now or hereafter erected on the Land, including, but not
limited to, the fixtures, attachments, appliances, equipment, machinery
and other articles attached to said buildings and improvements
(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 or leased 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 or leased 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 the leasehold in the Real Property described above,
Landlord hereby grants and assigns to Tenant for the term of this Lease the
right to use and enjoy (and, to the extent the following consist of contract
<PAGE> 8
rights, to enforce) any interests or rights in, to or under the following that
have been transferred to Landlord by Seller under the Existing Contract, to the
extent any such rights and interests are assignable and related to the Real
Property: (a) any goods, equipment, furnishings, furniture, chattels and
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; and
(b) any general intangibles, permits, licenses, franchises, certificates, and
other rights and privileges. All of the property, rights and privileges
described above in this paragraph, together with all furniture, furnishings and
other personalty included in the Initial Improvements (as hereinafter defined)
because of Tenant's purchase thereof with the Construction Allowance (as
hereinafter defined), 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:
2. Definitions. As used herein, the terms "Landlord,"
"Tenant," "Existing Contract," "Seller," "Land," "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) Administrative Fee. "ADMINISTRATIVE FEE" shall have the
meaning assigned to it in subparagraph 3.(d) below.
(b) Active Negligence. "ACTIVE NEGLIGENCE" of an Indemnified
Party means, and is limited to, the negligent conduct of activities on the
Leased Property by the Indemnified Party in a manner that proximately causes
actual bodily injury or property damage to occur. "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 any interest in 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 lawfully claiming through
or under Landlord) of any remedy provided herein or in the Purchase Agreement.
(c) Additional Rent. "ADDITIONAL RENT" shall have the
meaning assigned to it in subparagraph 3.(f) below.
(d) 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 September 1, 1995 and
continuing regularly thereafter to and including the Base Rent Commencement
Date. If the Base Rent Commencement Date occurs before the Last Advance Date,
then each Base Rent Date through and including the Last Advance Date shall also
constitute an "ADVANCE DATE" hereunder. In any event, the Last Advance Date
shall be the final Advance Date.
(e) Affiliate. "AFFILIATE" of any Person means any other
Person controlling, controlled by or under common control with such Person. For
purposes of this definition, the term "CONTROL" when used with respect to any
Person means the power to direct the management of policies of such Person,
directly or
<PAGE> 9
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
(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) Attorneys' Fees. "ATTORNEYS' FEES" means the reasonable
fees and expenses 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 fees and expenses 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 such fees and
expenses were incurred.
(i) Base Rent. "BASE RENT" means the rent payable by Tenant
pursuant to subparagraph 3.(a) below.
(j) Base Rent Commencement Date. "BASE RENT COMMENCEMENT
DATE" means the earlier of (1) the Last Advance Date, or (2) the first Business
Day of any calendar month that occurs at least ten (10) days after Landlord has
received a notice from Tenant stating that Tenant irrevocably elects to have
Base Rent begin to accrue as soon as possible under this Lease. It is understood
that Tenant may, but shall not be required, to give such a notice at any time
Tenant would prefer to commence payment of Base Rent rather than have Carrying
Costs continue to accrue.
(k) Base Rent Date. "BASE RENT DATE" means a date upon which
Base Rent must be paid under this Lease, all of which dates shall be the first
Business Day of a calendar month. The first Base Rent Date shall be determined
as follows:
a) If a LIBOR Period Election of one month is in effect
on the Base Rent Commencement Date, then the first Business Day
of the first calendar month following the Base Rent Commencement
Date shall be the first Base Rent Date.
b) If the LIBOR Period Election in effect on the Base
Rent Commencement Date is three months or longer, then the first
Business Day of the third calendar month following the Base Rent
Commencement Date shall be the first Base Rent Date.
Each successive Base Rent Date after the first Base Rent Date shall be the first
Business Day of the first or third calendar month following the calendar month
which includes the preceding Base Rent Date, determined as follows:
a) If a LIBOR Period Election of one month is in effect
on a Base Rent Date, then the first Business Day of the first
calendar month following such Base Rent Date shall be the next
following Base Rent Date.
<PAGE> 10
b) If a LIBOR Period Election of three months or longer
is in effect on a Base Rent Date, then the first Business Day of
the third calendar month following such Base Rent Date shall be
the next following Base Rent Date.
Thus, for example, if the Base Rent Commencement Date falls on June 2, 1997 and
a LIBOR Period Election of six months commences on the Base Rent Commencement
Date, then the first Base Rent Date shall be the first Business Day of
September, 1997, and the second Base Rent Date shall be the first Business Day
of December, 1997.
(l) Base Rent Period. "BASE RENT PERIOD" means a period for
which Base Rent must be paid under this Lease, each of which periods shall
correspond to the LIBOR Period Election for such period. The first Base Rent
Period shall begin on and include the Base Rent Commencement Date, and each
successive Base Rent Period shall begin on and include the Base Rent Date upon
which the preceding Base Rent Period ends. Each Base Rent Period, including the
first Base Rent Period, shall end on but not include the first, second, third or
fourth Base Rent Date after the Base Rent Date upon which such period began,
determined as follows:
a) If the LIBOR Period Election for a Base Rent Period
is one month or three months, then such Base Rent Period shall
end on the first Base Rent Date after the Base Rent Date upon
which such period began.
b) If the LIBOR Period Election for a Base Rent Period
is six months, then such Base Rent Period shall end on the
second Base Rent Date after the Base Rent Date upon which such
period began.
c) If the LIBOR Period Election for a Base Rent Period
is nine months, then such Base Rent Period shall end on the
third Base Rent Date after the Base Rent Date upon which such
period began.
d) If the LIBOR Period Election for a Base Rent Period
is twelve months, then such Base Rent Period shall end on the
fourth Base Rent Date after the Base Rent Date upon which such
period began.
The determination of Base Rent Periods can be illustrated by two examples:
1) If Tenant makes a LIBOR Period Election of three
months for a hypothetical Base Rent Period beginning on June 2,
1997, then such Base Rent Period will end on but not the include
the first Base Rent Date after June 1, 1997; that is, such Base
Rent Period will end on September 1, 1997, the first Business
Day of the third calendar month after June 2, 1997.
2) If, however, Tenant makes a LIBOR Period Election of
six months for the hypothetical Base Rent Period beginning
June 2, 1997, then such Base Rent Period will end on but not
include the second Base Rent Date after June 2, 1997; that is,
December 1, 1997.
If the Base Rent Commencement Date occurs before the Last Advance Date, then
because of the interplay of the definitions in this Lease: (1) the last day of
each Base Rent Period shall also constitute an Advance Date hereunder through
and including the Last Advance Date; (2) Base Rent Periods ending on or prior to
the Last Advance Date shall also constitute Construction Periods hereunder; and
(3) the LIBOR Period Election for any Base Rent Period ending on or prior to the
Last Advance Date shall, under the definition of LIBOR Period Election in
subparagraph 1.(bg) below, be one month, thus causing each such Base Rent Period
to be only one month.
<PAGE> 11
(m) Breakage Costs. "BREAKAGE COSTS" means any and all
costs, losses or expenses incurred or sustained by Landlord's Lender or any
Participant, for which Landlord's Lender or the Participant shall expect
reimbursement from Landlord, because of the resulting liquidation or
redeployment of deposits or other funds used to make Funding Advances upon any
termination of this Lease by Tenant pursuant to Paragraph 2 below, if such
termination is effective as of any day other than the last day of a Construction
Period or Base Rent Period. Breakage Costs will include losses attributable to
any decline in LIBOR as of the effective date of termination as compared to
LIBOR used to determine the Effective Rate then in effect. (However, if
Landlord's Lender or a Participant actually receives a profit upon the
liquidation or redeployment of deposits or other funds used to make Funding
Advances, because of any increase in LIBOR, then such profit will be offset
against costs or expenses that would otherwise be charged as Breakage Costs
under this Lease.) Each determination by Landlord's Lender of Breakage Costs
shall, in the absence of clear and demonstrable error, be conclusive and binding
upon Landlord and Tenant.
(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 Lender or any Participant requires
Landlord to pay as compensation for an increase in required capital as provided
in subparagraph 9.(y)(iv).
(p) Carrying Costs. "CARRYING COSTS" means the charges
(accruing at the Effective Rate) added to and made a part of the Outstanding
Construction Allowance from time to time on and before the Base Rent
Commencement Date pursuant to and as more particularly described in subparagraph
6.(b)(ii) below.
(q) Closing Costs. "CLOSING COSTS" means the costs paid from
the Initial Funding Advances in connection with the preparation and negotiation
of this Lease, the Existing Contract, the Purchase Agreement, the Pledge
Agreement, the Environmental Indemnity and related documents. To the extent that
Landlord does not itself use the entire Initial Funding Advance remaining after
payment of the purchase price for the Leased Property to pay expenses incurred
by Landlord in connection with the preparation and negotiation of such
documents, the remainder thereof will be advanced to Tenant for payment of
expenses incurred by Tenant in connection therewith, or title insurance
premiums.
(r) Change of Control Event. "CHANGE OF CONTROL EVENT" means
the occurrence of any merger or consolidation or sale of assets involving Tenant
that would constitute an "Event of Default" as defined in the Revolving Credit
Agreement.
(s) Code. "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
(t) Commitment Fee. "COMMITMENT FEE" shall have the meaning
assigned to it in subparagraph 3.(e) below.
(u) Completion Notice. "COMPLETION NOTICE" shall have the
meaning assigned to it in subparagraph 6.(e) below.
(v) Completion Deadline. "COMPLETION DEADLINE" means
March 1, 1996.
<PAGE> 12
(w) Construction Advances. "CONSTRUCTION ADVANCES" means
actual advances of funds made by or on behalf of Landlord pursuant to Paragraph
6.(b)(i) below for costs incurred to construct the Initial Improvements or for
property taxes and assessments assessed against the Leased Property and paid
prior to the Last Advance Date.
(x) Construction Allowance. "CONSTRUCTION ALLOWANCE" means
the allowance, consisting of all Construction Advances and Carrying Costs, which
is to be provided by Landlord for the construction of the Initial Improvements
as more particularly described in Paragraph 6.(b) below.
(y) Construction Periods. "Construction Period" means each
successive period of approximately one (1) month, except that the first
Construction Period shall be a short 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, until the last
Construction Period, which shall end on but not include the Completion Date.
"Construction Periods" means all Construction Periods collectively; that is, the
period from and including the effective date hereof to but not including the
Completion Date.
(z) Custodial Agreement. "CUSTODIAL AGREEMENT" means the
Custodial Agreement dated as of the date hereof, between Banque Nationale de
Paris, New York Branch (or any successor or replacement custodian), and Tenant
pursuant to which such bank will hold securities pledged by Tenant as collateral
for Tenant's obligations under the Purchase Agreement, as such Custodial
Agreement may be extended, supplemented, amended, restated or otherwise modified
from time to time in accordance with its terms.
(aa) Debt. "DEBT" of any Person means (i) indebtedness of
such Person for borrowed money, (ii) obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) obligations of such
Person to pay the deferred purchase price of property or services, (iv)
obligations of such Person as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (v) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) above, (vi) liabilities of
another Person secured by a Lien on, or payable out of the proceeds of
production from, property of such Person even though such obligation shall not
be assumed by such Person (but in the case of such liabilities not assumed by
such Person, the liabilities shall constitute Debt of such Person only to the
extent of the value of such Person's property encumbered by the Lien securing
such liabilities) and (vii) Unfunded Benefit Liabilities.
(bb) Default. "DEFAULT" means any event which, with the
passage of time or the giving of notice or both, would (if not cured within any
applicable cure period) constitute an Event of Default.
(cc) Default Rate. "DEFAULT RATE" means a floating per annum
rate equal to three percent (3%) above the Prime Rate. However, in no event will
the Default Rate exceed the maximum interest rate permitted by law.
(dd) Defaulting Participant. "DEFAULTING PARTICIPANT" means
any Participant that shall have breached its Participation Agreement with
Landlord by failing to provide to Landlord Participant's percentage of the
purchase price for the Land-51 Rio Robles and the related Leased Property or any
Construction Advance requested by Tenant. (For purposes of this Lease a
"PARTICIPANT'S PERCENTAGE" shall mean the percentage that, under such
Participant's Participation Agreement with Landlord, is to be multiplied against
Construction Advances to compute the amount the Participant must advance to
Landlord for (or equal to) a percentage of Construction Advances requested
hereunder.) Notwithstanding the foregoing, however, in no event will any
<PAGE> 13
Participant be a Defaulting Participant unless its Participation Agreement with
Landlord expressly makes Tenant a third party beneficiary of the applicable
Participant's promise to fund advances for (or equal to) its percentage share of
Construction Advances hereunder.
(ee) Designated Payment Date. "DESIGNATED PAYMENT DATE" shall
have the meaning assigned to it in the Purchase Agreement.
(ff) Effective Rate. "EFFECTIVE RATE" means:
(i) for each day during the first short Construction Period
ending September 1, 1995 the per annum rate which equals the Spread plus
the rate which is fifty basis points (50/100 of 1%) above the Fed Funds
Rate for that day; and
(ii) for each subsequent Construction Period and for each
Base Rent Period, the per annum rate which equals the Spread for such
Construction Period or Base Rent Period plus the per annum rate
determined by dividing (A) LIBOR for such Construction Period or Base
Rent Period, as the case may be, by (B) 100% minus the Eurodollar Rate
Reserve Percentage for such Construction Period or Base Rent Period.
If LIBOR or the Eurodollar Rate Reserve Percentage changes from Construction
Period to Construction Period or from Base Rent Period to Base Rent Period, then
the Effective Rate shall be automatically increased or decreased as of the date
of such change, as the case may be. If for any reason Landlord determines that
it is impossible or unreasonably difficult to determine the Effective Rate with
respect to a given Construction Period or Base Rent Period in accordance with
the preceding sentences, then the "EFFECTIVE RATE" for that Construction Period
or Base Rent Period shall equal the Spread plus any published index or per annum
interest rate determined reasonably and in good faith by Landlord's Lender 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 Lender'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.
(gg) Environmental Indemnity. "ENVIRONMENTAL INDEMNITY" means
the separate Environmental Indemnity Agreement dated as of the date hereof
executed by Tenant in favor of Landlord covering the Land and certain other
property described therein, as such agreement may be extended, supplemented,
amended, restated or otherwise modified from time to time in accordance with its
terms.
(hh) 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").
(ii) 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: (i) any Hazardous
Substance Activity; (ii) any violation of 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
<PAGE> 14
proceeding by or before any governmental or quasi-governmental agency or
authority in connection with any Hazardous Substance Activity; 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.(ai), or any allegation of any such matters.
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 IN THE PRECEDING SENTENCE EVEN WHEN SUCH MATTERS ARE CAUSED BY
THE ORDINARY NEGLIGENCE (AS DEFINED BELOW) OF THAT PARTICULAR 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 any Indemnified Party will not constitute Environmental
Losses of such Indemnified Party for purposes of this Lease.
(jj) Environmental Report. "ENVIRONMENTAL REPORT" means,
collectively, the following reports prepared by Tetra Tech, Inc, Inc. for Lund
Financial Corporation: Phase I Environmental Site Assessment for Amdahl/Fujitsu
Property, 51 and 77 Rio Robles Drive, San Jose, California and Letter Dated
July 5, 1995 to Ms. Lisbeth Ward, Banque Nationale de Paris regarding
Subsurface Soil Investigation, Amdahl/Fujitsu Buildings, 51 and 71 Rio Robles,
San Jose, and all tables, figures, certificates, appendices and other
attachments to such reports.
(kk) ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
(ll) ERISA Affiliate. "ERISA AFFILIATE" means any Person who
for purposes of Title IV of ERISA is a member of Tenant's controlled group, or
under common control with Tenant, within the meaning of Section 414 of the Code,
and the regulations promulgated and rulings issued thereunder.
(mm) ERISA Termination Event. "ERISA TERMINATION EVENT" means
(i) the occurrence with respect to any Plan of a) a reportable event described
in Sections 4043(b)(5) or (6) of ERISA or b) any other reportable event
described in Section 4043(b) of ERISA other than a reportable event not subject
to the provision for 30-day notice to the Pension Benefit Guaranty Corporation
pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (ii)
the withdrawal of Tenant or any Affiliate of Tenant from a Plan during a plan
year in which it was a "SUBSTANTIAL EMPLOYER" as defined in Section 4001(a)(2)
of ERISA, or (iii) the filing of a notice of intent to terminate any Plan or the
treatment of any Plan amendment as a termination under Section 4041 of ERISA, or
(iv) the institution of proceedings to terminate any Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
(nn) 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
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
<PAGE> 15
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 Rent 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 4 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 established in Landlord's name,
and all interest earned on such account shall be added to and made a part of
Escrowed Proceeds.
(oo) 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.
(pp) Eurodollar Rate Reserve Percentage. "EURODOLLAR RATE
RESERVE PERCENTAGE" means, for purposes of determining the Effective Rate for
any Construction Period or Base Rent Period, the reserve percentage applicable
two Business Days before the first day of such Construction Period or Base Rent
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 or liabilities by reference to which
LIBOR is determined) having a term comparable to such Construction Period or
Base Rent Period.
(qq) Event of Default. "EVENT OF DEFAULT" shall have the
meaning assigned to it in subparagraph 14.(a) below.
(rr) Excluded Taxes. "EXCLUDED TAXES" shall mean (1) all
federal, state and local income taxes upon the Base Rent, the Upfront Fee,
Administrative Fees, Commitment Fees and any interest paid to Landlord pursuant
to subparagraph 3.(g), (2) any taxes imposed by any governmental authority
outside the United States, and (3) 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 the Lease, the Purchase Agreement or the Leased Property,
but excluding any such taxes assessed because of any Permitted Transfer to a
Participant or because of any Permitted Transfer described in clause (4) of the
definition of Permitted Transfer below.
(ss) Fair Market Value. "FAIR MARKET VALUE" shall have the
meaning assigned to it in the Purchase Agreement.
(tt) 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
Lender from three Federal funds brokers of recognized standing selected by
Landlord's Lender. All determinations of the Fed Funds Rate by Landlord's Lender
shall, in the absence of clear and demonstrable error, be binding and conclusive
upon Landlord and Tenant.
<PAGE> 16
(uu) 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 $15,400,000) made by Landlord's
Lender or any Participant to or on behalf of Landlord to allow Landlord to
provide the Construction Allowance hereunder.
(vv) 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.(w) (except for changes
concurred in by Tenant's independent public accountants).
(ww) 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.
(xx) Hazardous Substance Activity. "HAZARDOUS SUBSTANCE
ACTIVITY" means any actual, proposed or threatened 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.
(yy) Impositions. "IMPOSITIONS" shall have the meaning
assigned to it in subparagraph 9.(p) below.
(zz) 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 effective date of this Lease, if any, but also any new
improvements or changes to existing improvements made by Tenant. Accordingly,
any and 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.
(aaa) Indemnified Party. "INDEMNIFIED PARTY" means each of (1)
Landlord, any of Landlord's successors and any of Landlord's assigns to the
extent that the transfer to such assigns was permitted hereunder, as to all or
any portion of the Leased Property or any interest therein (but excluding Tenant
or any Applicable Purchaser under the Purchase Agreement or any Person that
claims its interest in the Leased Property through or under Tenant or such
Applicable Purchaser), (2) any Participants, and (3) any Affiliate, officer,
agent, director, employee or servant of any of the parties described in clause
(1) or (2) preceding.
<PAGE> 17
(bbb) Initial Funding Advances. "INITIAL FUNDING ADVANCES"
means the Initial Funding Allowance-77 Rio Robles, which has been advanced on or
before the effective date of this Lease, and the Initial Funding Advance-51 Rio
Robles, which is expected to be advanced on or before the date Landlord acquires
the Land-51 Rio Robles. "INITIAL FUNDING ADVANCE-77 RIO ROBLES" means the
advance in the amount of $5,977,000 made by Landlord's Lender to finance the
cost of Landlord's acquisition of the Land-77 Rio Robles and related Leased
Property and certain Closing Costs incurred in connection therewith. "INITIAL
FUNDING ADVANCE-51 RIO ROBLES" means the advance (expected to be in the amount
of $4,825,000 plus related Closing Costs) which Landlord will obtain from
Landlord's Lender to finance the cost of Landlord's acquisition of the Land-51
Rio Robles and related Leased Property and certain Closing Costs which may be
incurred in connection therewith. As used in this Lease, the "INITIAL FUNDING
ADVANCES OUTSTANDING" or words of like effect shall mean (1) the Initial Funding
Advance-77 Rio Robles until Landlord acquires the Land-51 Rio Robles, and (2)
the sum of the Initial Funding Advance-77 Rio Robles plus the Funding Advance-51
Rio Robles after Landlord acquires the Land-51 Rio Robles.
(ccc) Initial Improvements. "INITIAL IMPROVEMENTS" shall mean
the improvements on the Land and any furnishings for such improvements which are
to be constructed and installed by Tenant using the Construction Allowances
described in Paragraph 6.(b) below.
(ddd) Landlord's Lender. "LANDLORD'S LENDER" means Landlord's
Affiliate, 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 of the
Funding Advances, and any successors of such bank and such Affiliates.
(eee) Last Advance Date. "LAST ADVANCE DATE" means the earlier
of (1) the Completion Deadline, or (2) the Designated Payment Date under the
Purchase Agreement, or (3) the first Business Day of any calendar month that
occurs at least ten (10) days after Landlord has received a Completion Notice or
Notice of Last Advance from Tenant.
(fff) LIBOR. "LIBOR" means, for purposes of determining the
Effective Rate for each Construction Period and Base Rent Period, the rate
determined by Landlord's Lender 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 Lender 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 Rent
Period, as the case may be. Landlord shall instruct Landlord's Lender 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 Rent Period, (ii) in an amount equal or comparable
to the total (projected on the applicable date of determination by Landlord's
Lender) Stipulated Loss Value on the first day of such Construction Period or
Base Rent Period, and (iii) for a period of time equal or comparable to the
length of such Construction Period or Base Rent Period. If Landlord's Lender 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; provided, however, Tenant may notify Landlord that
Tenant objects to any future determination of LIBOR in the manner provided by
this sentence, in which case any determination of LIBOR required more than three
Business Days after Landlord's receipt of such notice shall be made as if this
sentence had been struck from this Lease. If for any reason Landlord's Lender
determines that it is impossible or unreasonably difficult to determine LIBOR
with respect to a given Construction Period or Base Rent Period in accordance
with the preceding sentences, or if Landlord's Lender shall determine that it is
unlawful (or any central bank or governmental authority shall assert that it is
unlawful) for Landlord, Landlord's Lender or any Participant to provide Funding
Advances hereunder during any Base Rent Period for which Base Rent is computed
by reference to LIBOR, then "LIBOR"
<PAGE> 18
for that Construction Period or Base Rent 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 Lender shall, in the absence of clear and
demonstrable error, be binding and conclusive upon Landlord and Tenant.
(ggg) LIBOR Period Election. The "LIBOR PERIOD ELECTION" for
any Base Rent Period means a period of one month, three months, six months, nine
months or twelve months as designated by Tenant at least ten (10) Business Days
prior to the commencement of such Base Rent Period by a written notice given to
Landlord in the form of Exhibit J attached hereto. (For purposes of this Lease a
LIBOR Period Election for any Base Rent Period shall also be considered the
LIBOR Period Election in effect on (1) the Base Rent Commencement Date or Base
Rent Date upon which such Base Rent Period begins and (2) subsequent Base Rent
Dates, if any, which occur before the date upon which such Base Rent Period
ends.) Any Libor Period Election so designated by Tenant shall remain in effect
for the entire Base Rent Period specified in Tenant's notice to Landlord
(provided such Base Rent Period commences at least ten (10) Business Days after
Landlord's receipt of the notice) and for all subsequent Base Rent Periods until
a new designation becomes effective in accordance with the provisions set forth
in this paragraph. Notwithstanding the foregoing, however: (1) Tenant shall not
be entitled to designate a LIBOR Period Election that would cause a Base Rent
Period to extend beyond the end of the scheduled Term; (2) changes in the LIBOR
Period Election shall become effective only upon the commencement of a new Base
Rent Period; (3) if Tenant fails to make a LIBOR Period Election in accordance
with the foregoing requirements for any Base Rent Period, or if an Event of
Default shall have occurred and be continuing on the third Business Day
preceding the commencement of any Base Rent Period, the LIBOR Period Election
for such Base Rent Period shall be deemed to be one month; and (4) for any Base
Rent Period which ends on or prior to the Last Advance Date, the LIBOR Period
Election shall be deemed to be one month.
(hhh) Lien. "LIEN" means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any agreement to sell receivables with recourse, any lease in the
nature thereof, and the filing of or agreement to give any financing statement
under the Uniform Commercial Code of any jurisdiction). Customary bankers'
rights of set-off arising by operation of law or by contract (however styled, if
the contract grants rights no greater than those arising by operation of law) in
connection with working capital facilities, lines of credit, term loans and
letter of credit facilities and other contractual arrangements entered into with
banks in the ordinary course of business are not "Liens" for the purposes of
this Lease.
(iii) 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 and the fees of outside accountants and environmental
consultants), of any and every kind or character, foreseeable and unforeseeable,
liquidated and contingent, proximate and remote, known and unknown.
(jjj) Maximum Construction Allowance. "MAXIMUM CONSTRUCTION
ALLOWANCE" means (i) until Landlord acquires the Land-51 Rio Robles, an amount
equal to $8,309,500 less the Initial Funding Advance-77 Rio Robles, and (ii)
thereafter, $15,400,000.00, less the Initial Funding Advances.
(kkk) Notice of Last Advance. "NOTICE OF LAST ADVANCE" means
any notice given by Tenant to Landlord stating that Tenant irrevocably elects
not to request or accept any further Construction Advances which Tenant might be
entitled to but for such election. It is understood that Tenant may, but shall
not be required, to give a Notice of Last Advance in order to accelerate the
Last Advance Date and to thereby accelerate the date upon which Commitment Fees
shall cease to accrue.
<PAGE> 19
(lll) Ordinary Negligence. "ORDINARY NEGLIGENCE" of an
Indemnified Party means any negligent acts or omissions of such party that does
not for any reason constitute Active Negligence as defined in this Lease.
(mmm) Outstanding Construction Allowance. "OUTSTANDING
CONSTRUCTION ALLOWANCE" shall have the meaning assigned to it in subparagraph
6.(b)(i).
(nnn) Participant. "PARTICIPANT" means any Person other than
Landlord that agrees with Landlord or another Participant to participate in all
or some of the risks and rewards to Landlord of this Lease and the Purchase
Agreement. As of the effective date hereof, there are no Participants, but
Landlord may through a Permitted Transfer (and only through a Permitted
Transfer) share in risks and rewards of this Lease and the Purchase Agreement
with Participants in the future.
(ooo) Participation Agreements. "PARTICIPATION AGREEMENTS"
means participation agreements between Landlord and one or more third parties,
pursuant to which the third party or parties become Participants by agreeing to
participate in all or some of the risks and rewards to Landlord of this Lease
and the Purchase Agreement, as such Participation Agreements may be extended,
supplemented, amended, restated or otherwise modified from time to time.
(ppp) Permitted Encumbrances. "PERMITTED ENCUMBRANCES" means
(i) the encumbrances and other matters affecting the Leased Property that are
set forth in Exhibit B attached hereto and made a part hereof, and (ii) any
provisions of the Existing Contract that survive closing thereunder, and (iii)
any easement agreement or other document affecting title to the Leased Property
executed by Landlord pursuant to the Existing Contract or otherwise executed by
Landlord at the request of or with the consent of Tenant.
(qqq) 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 of the Initial
Improvements and any other Improvements permitted by this Lease and for
the operation of the Leased Property for the purposes expressly
permitted under subparagraph 8.(a); or
(2) include any disposal, discharge or other release of Hazardous
Substances from operations on the Leased Property in any manner that
might allow such substances to reach the San Francisco Bay, 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) for Hazardous Substances, including but not limited to a landfill,
incinerator or other waste disposal facility.
(rrr) Permitted Hazardous Substances. "PERMITTED HAZARDOUS
SUBSTANCES" means Hazardous Substances used and reasonably required for the
construction of the Initial Improvements or for Tenant's
<PAGE> 20
operation of the Leased Property for the purposes expressly permitted by
subparagraph 8.(a), in either case in strict compliance with all Environmental
Laws and with due care given the nature of the Hazardous Substances involved.
Without limiting the generality of the foregoing, Permitted Hazardous Substances
shall include, without limitation, usual and customary office and janitorial
products, and the materials listed on Exhibit H attached hereto.
(sss) Permitted Transfer. "PERMITTED TRANSFER" means any one
or more of the following: (1) any assignment or conveyance by Landlord of any
lien or security interest against the Leased Property (in contrast to a
conveyance of Landlord's fee estate in the Leased Property ) or of any of
Landlord's interest in Rent, payments required by the Purchase Agreement or
payments to be generated from the Leased Property after the Term, to any Person
not an Affiliate of Landlord that is approved in advance by Tenant as a
Participant (which approval shall not be unreasonably withheld for any proposed
Participant that is a commercial bank operating in the United States of America
having capital and surplus in excess of $500,000,000 or for any Affiliate of
such a bank) or to any Person that is an Affiliate of Landlord but is not
classified as a special purpose entity under GAAP as it pertains to the
characterization of this Lease as an operating lease; (2) any agreement to
exercise or refrain from exercising rights or remedies hereunder or under the
Purchase Agreement, the Pledge Agreement or the Environmental Indemnity made by
Landlord with any Participant or Affiliate of Landlord; (3) any assignment or
conveyance by Landlord requested by Tenant or required by any Permitted
Encumbrance, by the Existing Contract, by the Purchase Agreement or by
Applicable Laws; (4) any assignment or conveyance by Landlord when an Event of
Default shall have occurred and be continuing; or (5) any assignment or
conveyance by Landlord after the Designated Payment Date.
(ttt) Person. "PERSON" means an individual, a corporation, a
partnership, an unincorporated organization, an association, a joint stock
company, a joint venture, a trust, an estate, a government or agency or
political subdivision thereof or other entity, whether acting in an individual,
fiduciary or other capacity.
(uuu) Plan. "PLAN" means at any time an employee pension
benefit plan which is covered under Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code and is either (i) maintained by
Tenant or any Subsidiary for employees of Tenant or any Subsidiary or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Tenant or any Subsidiary is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
(vvv) Pledge Agreement. "PLEDGE AGREEMENT" means the Pledge
Agreement dated as of the date hereof between Landlord and Tenant pursuant to
which Tenant may pledge securities as collateral for Tenant's obligations under
the Purchase Agreement, as such Pledge Agreement may be extended, supplemented,
amended, restated or otherwise modified from time to time.
(www) Potential Lien Claimants. "POTENTIAL LIEN CLAIMANTS"
shall have the meaning assigned to it in subparagraph 6.(d)(v).
(xxx) Prime Rate. "PRIME RATE" means the prime interest rate
or equivalent charged by Landlord's Lender in the United States as announced or
published by Landlord's Lender from time to time, which need not be the lowest
interest rate charged by Landlord's Lender. If for any reason Landlord's Lender
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 as the Prime Rate. 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.
<PAGE> 21
(yyy) 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 in accordance with its terms.
(zzz) 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 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
and the Outstanding Construction Allowance) 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 Rent 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 Rent 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 Base Rent
Date in accordance with Paragraph 4 below.
(aaaa) Remaining Proceeds. "REMAINING PROCEEDS" shall have the
meaning assigned to it in subparagraph 4.(a)(ii).
(bbbb) Rent. "RENT" means the Base Rent and all Additional
Rent.
(cccc) Responsible Financial Officer. "RESPONSIBLE FINANCIAL
OFFICER" means the chief financial officer, the controller, the treasurer or the
assistant treasurer of Tenant.
(dddd) Revolving Credit Agreement. "REVOLVING CREDIT AGREEMENT"
shall have the meaning assigned to it in subparagraph 9.(ac) below.
(eeee) Scope Change. A "SCOPE CHANGE" means a material addition
to, deletion from or other modification to the quality, function or capacity of
the Initial Improvements as delineated in any plans and specifications therefor
previously approved by Landlord, but shall not include refinement, correction
and detailing by Tenant or Tenant's architects or contractors from time to time.
As used in this definition, a "MATERIAL" change includes any change that (a) is
reasonably likely to substantially reduce the fair market value of the Leased
Property (after completion of the Initial Improvements), or (b) will change the
general character of the Initial Improvements from that described in any plans
or specifications approved by Landlord.
(ffff) Spread. "SPREAD" means, for purposes of determining the
Effective Rate for each Construction Period and Base Rent Period, the difference
between (1) eighty-seven and one-half basis points
<PAGE> 22
(87.5/100 of 1%), less (2) the product of (a) sixty-two and one-half basis
points (62.5/100 of 1%) times (b) the Collateral Percentage (as defined below)
in effect for such Construction Period or Base Rent Period. As used in this
Lease, "COLLATERAL PERCENTAGE" means the Collateral Percentage determined under
(and as defined in) the Pledge Agreement; provided, however, for purposes of
this Lease, the Collateral Percentage for any Construction Period or Base Rent
Period shall not exceed a fraction; the numerator of which fraction shall equal
the Market Value (as defined below) of all collateral (a) that is, on the first
day of such Construction Period or Base Rent Period, held by the Custodian under
the Custodial Agreement subject to a Qualifying Security Interest (as defined
below), (b) that is free from claims or security interests held or asserted by
any third party, and (c) with respect to which Tenant shall have satisfied the
requirements of Section 2.3 of the Pledge Agreement; and the denominator of
which fraction shall equal the Stipulated Loss Value on the first day of such
Construction Period or Base Rent Period (computed after the addition of any
Construction Advance made on such first day, after the addition of all Carrying
Costs for prior Construction Periods, and after the subtraction of any Qualified
Payments applied on such first day), but in no event shall such fraction exceed
1.0/1.0. As used in this paragraph, "MARKET VALUE" means, for purposes of
determining the Collateral Percentage for each Construction Period and Base Rent
Period, the Market Value determined in accordance with (and as defined in) the
Pledge Agreement on the Valuation Date (as defined in the Custodial Agreement)
upon which such Construction Period or Base Rent Period commences or, if such
Construction Period or Base Rent Period does not commence upon a Valuation Date,
on the most recent Valuation Date prior to the commencement of such period. As
used in this paragraph, "QUALIFYING SECURITY INTEREST" means a first priority
perfected security interest under the Pledge Agreement which is sufficient, for
purposes of the laws and regulations which govern minimum amounts of capital
that Landlord and Participants or their affiliates must maintain, to permit them
to assign a twenty percent risk weighting to a portion of their collective
investment in the Property equal to the Market Value of the collateral
encumbered by such an interest.
(gggg) Stipulated Loss Value. "STIPULATED LOSS VALUE" means the
amount computed from time to time in accordance with the formula specified in
this definition. Such amount shall equal the Initial Funding Advances
outstanding as of the relevant date, PLUS the Outstanding Construction Allowance
as of such date, LESS the amount (if any) of Qualified Payments paid to Landlord
on or prior to such date that have not been deducted in calculating the
Outstanding Construction Allowance. Thus, for example, if a determination of
Stipulated Loss Value is required under subparagraph 3.(b) on the first day of
the applicable Base Rent Period, and if the Initial Funding Advances have been
made and Tenant has used the entire Construction Allowance to make the Initial
Improvements to the Leased Property, but the Leased Property has been damaged by
fire or other casualty with the result that $5,000,000 of net insurance proceeds
have been paid to Landlord and retained by Landlord as Qualified Payments, then
the Stipulated Loss Value as of the date of the required determination shall be
$10,400,000. Under no circumstances will any payment of Base Rent or the Upfront
Fee, Administrative Fees or Commitment Fees reduce Stipulated Loss Value.
(hhhh) Subsidiary. "SUBSIDIARY" means any corporation of which
Tenant and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors.
(iiii) Tenant's Knowledge. "TENANT'S KNOWLEDGE," "TO THE
KNOWLEDGE OF TENANT" and words of like effect means the actual knowledge (with
due investigation) of any of the following employees of Tenant: Christopher
Stoddart, Treasurer; Robert Boehlke, Chief Financial Officer; and Gerald B.
Campbell, Facilities Manager. 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" and words of like effect 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. But none of the employees of Tenant whose knowledge is now or
may hereafter be relevant shall be personally liable for the representations of
Tenant made herein.
<PAGE> 23
(jjjj) Term. "TERM" shall have the meaning assigned to it in
Paragraph 2 below.
(kkkk) 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.
(llll) Upfront Fee. "UPFRONT FEE" shall have the meaning
assigned to it in subparagraph 3.(c) below.
(mmmm) 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.
<PAGE> 24
3. Term. The term of this Lease (herein called the "TERM") shall
commence on and include (i) with respect to the Land-77 Rio Robles and the
related Leased Property, the date hereof, and (ii) with respect to the Land-51
Rio Robles and the related Leased Property, the date of Landlord's acquisition
thereof. The Term shall end with respect to all Leased Property at 8:00 A.M. on
August 1, 2000 (or the next following Business Day if August 1, 2000 is not a
Business Day), unless extended or sooner terminated as herein provided.
Notwithstanding any other provision of this Lease which may expressly restrict
the early termination hereof, and 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 notify Landlord of Tenant's election to
terminate this Lease by giving Landlord an irrevocable notice of such election
and of the effective date of the termination, which notice must be given (if at
all) at least sixty (60) days prior to the effective date of the termination. If
Tenant elects to so terminate this Lease, then on the date on which this Lease
is to be terminated, not only must Tenant pay all unpaid Rent, Tenant must also
pay any Breakage Costs resulting from the termination and must satisfy its
obligations under the Purchase Agreement. The payment of any unpaid Rent and
Breakage Costs and the satisfaction of Tenant's obligations under the Purchase
Agreement shall be conditions precedent to the effectiveness of any early
termination of this Lease by Tenant. All provisions of this Lease which by the
terms hereof survive the termination of this Lease, shall continue in full force
and effect and shall be unaffected by the early termination provided for in this
Paragraph.
4. Rent.
(a) Base Rent Generally. 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
installments on each Base Rent Date through the end of the Term. Each payment of
Base Rent must be received by Landlord no later that 12:00 noon (San Francisco
time) on the date it becomes due; if received after 12:00 noon it will be
considered for purposes of this Lease as received on the next following Business
Day. The Base Rent payable on the first Base Rent Date shall represent rent for
the period from the Base Rent Commencement Date to the first Base Rent Date.
Each subsequent installment of Base Rent shall represent rent allocable to the
period ending on the Base Rent Date on which the installment is due and
beginning on the preceding Base Rent Date. After the Base Rent Commencement
Date, Landlord shall notify Tenant in writing of the Base Rent payable for each
Base Rent Period or portion thereof at least fifteen (15) days prior to the Base
Rent Date on which such Base Rent is actually due. Any failure by Landlord to so
notify Tenant shall not constitute a waiver of Landlord's right to payment, but
absent such notice Tenant shall not be in default for any underpayment resulting
therefrom if Tenant, in good faith, reasonably estimates the payment required,
makes a timely payment of the amount so estimated and corrects any underpayment
within three (3) Business Days after being notified by Landlord of the
underpayment. If Tenant or any other Applicable Purchaser purchases Landlord's
interest in the Leased Property after the Base Rent Commencement Date pursuant
to the Purchase Agreement, any Base Rent for the period ending on the date of
purchase (including, if the date of Purchase is not a Base Rent Date, a pro
rated portion of the Base Rent which would become due on the next Base Rent Date
but for the 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.
(b) Calculation of Base Rent. Payments of Base Rent shall be
calculated and become due as follows:
(i) For all Base Rent Periods subject to a LIBOR Period
Election of one month or three months, all Base Rent shall be due on the
Base Rent Date upon which the Base Rent Period ends. The Base Rent for
each such Base Rent Period shall equal (A) Stipulated Loss Value on the
first day of such Base Rent Period, times (B) the Effective Rate with
respect to such Base Rent Period, times (C) the number of days in such
Base Rent Period, divided by (D) three hundred sixty (360).
<PAGE> 25
(ii) For Base Rent Periods subject to a LIBOR Period Election
of greater than three months, Base Rent shall be payable in more than
one installment, with an installment becoming due on (1) each Base Rent
Date that occurs during the Base Rent Period (other than the Base Rent
Date upon which the Base Rent Period begins) and (2) the Base Rent Date
upon which the Base Rent Period ends. The amount of each installment
shall equal (A) Stipulated Loss Value on the first day of such Base Rent
Period, times (B) the Effective Rate with respect to such Base Rent
Period, times (C) the number of days in the period from and including
the preceding Base Rent Date to but not including the Base Rent Date
upon which the installment is due, divided by (D) three hundred sixty
(360).
Assume, only for the purpose of illustration: that the Initial Funding Advances
were made in the amount of $11,000,000; that a hypothetical Base Rent Period
contains exactly ninety (90) days; that on the first day of such Base Rent
Period, after considering total Construction Advances and Carrying Costs of
$4,400,000 and deducting a total of $1,000,000 of Qualified Payments received by
Landlord, the resulting Stipulated Loss Value is $14,400,000; and that the
Effective Rate computed with respect to the applicable Base Rent Period is 4%.
Under such assumptions, the Base Rent for the hypothetical Base Rent Period will
equal:
$14,400,000 x 4% x 90/360, or $144,000.
(c) Upfront Fee. Contemporaneously with the execution and
delivery of this Lease by Landlord, Tenant is paying Landlord an upfront fee
(the "UPFRONT FEE"), which represents Additional Rent for the first Construction
Period, as agreed pursuant to a Letter Agreement dated June 5, 1995.
(d) Administrative Agency Fees. Upon execution and delivery
of this Lease by Landlord, and again on each anniversary of the date hereof
until the Base Rent Commencement Date, Tenant shall pay Landlord an
administrative fee (the "ADMINISTRATIVE FEE") equal to $4,500. Each
Administrative Fee shall represent Additional Rent Construction Period during
which it is paid. In the event that the Construction Period ends after the first
anniversary of the date hereof and Landlord has received payment of the
Administrative Fee due on such anniversary date, Landlord shall refund to Lessee
the pro rata portion of such Administrative Fee allocable to the period from the
end of the Construction Period until the second anniversary of the date hereof.
(e) Commitment Fees. For each Construction Period Tenant
shall pay Landlord a fee (herein called a "COMMITMENT FEE") equal to (1)
twenty-five basis points (25/100 of 1%), times (2) the difference at the end of
the first day of such Construction Period between (A) $15,400,000.00 and (B) the
sum (computed without deduction for any Qualified Payments) of the Initial
Funding Advances outstanding and all Construction Advances made by or on behalf
of Landlord and all Carrying Costs added to and made a part of the 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 1, April 1, July 1, and October 1 of each calendar year, beginning with
October 1, 1995 and continuing regularly thereafter to and including the first
of such dates to fall on or after the Last Advance Date; 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; and
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.
(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").
<PAGE> 26
(g) Interest and Order of Application. All 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. 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 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.
5. Insurance and Condemnation Proceeds.
(a) Subject to Landlord's rights under this Paragraph 4, and so long
as no Event of Default shall have occurred and be continuing, Tenant shall be
entitled to use all casualty insurance and condemnation proceeds payable with
respect to the Leased Property during the Term for the restoration and repair of
the Leased Property or any remaining portion thereof. Except as provided in the
last sentence of subparagraph 9.(r) and the last sentence of subparagraph 9.(s),
all insurance and condemnation proceeds received with respect to the Leased
Property (including proceeds payable under any insurance policy covering the
Leased Property which is maintained by Tenant) shall be paid to Landlord and
then applied as follows:
(i) First, 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, the remainder of such proceeds (the "REMAINING
PROCEEDS"), shall be held by Landlord as Escrowed Proceeds and applied
to reimburse Tenant for the actual cost of the repair, restoration or
replacement of the Leased Property. However, any Remaining Proceeds not
needed for such purpose shall be applied by Landlord as Qualified
Payments after Tenant notifies Landlord that they are not needed for
repairs, restoration or replacement.
Notwithstanding the foregoing, if an Event of Default shall have occurred and be
continuing, then Landlord shall be entitled to receive and collect insurance or
condemnation proceeds payable with respect to the Leased Property, and either,
at the discretion of Landlord, (A) hold such proceeds as Escrowed Proceeds until
paid to Tenant as reimbursement for the actual and reasonable cost of repairing,
restoring or replacing the Leased Property when Tenant has completed such
repair, restoration or replacement, or (B) retain such proceeds (net of the
deductions described in clause (i) above) as Qualified Payments.
(b) Any Remaining Proceeds held by Landlord as Escrowed Proceeds
shall be deposited by Landlord in an interest bearing account as provided in the
definition of Escrowed Proceeds and shall be paid to Tenant upon completion of
the applicable repair, restoration or replacement and upon compliance by Tenant
with such terms, conditions and requirements as may be reasonably imposed by
Landlord, but in no event shall Landlord
<PAGE> 27
be required to pay any Escrowed Proceeds to Tenant in excess of the actual cost
to Tenant of the applicable repair, restoration or replacement, it being
understood that Landlord may retain any such excess as a Qualified Payment. 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 excess
Remaining Proceeds result in Qualified Payments which reduce Stipulated Loss
Value (and thus payments computed on the basis of Stipulated Loss Value) as
provided in the definitions set out above. Further, notwithstanding the
inadequacy of the Remaining Proceeds held by Landlord as Escrowed Proceeds, if
any, or anything herein to the contrary, Tenant must, after any taking of less
than all or substantially all of the Leased Property by condemnation and after
any damage to the Leased Property by fire or other casualty, restore or improve
the Leased Property or the remainder thereof to a value no less than fifty
percent (50%) of Stipulated Loss Value (computed after the application of any
Remaining Proceeds as a Qualified Payment) and to a safe and sightly condition.
Any taking of so much of the Leased Property as, in Landlord's reasonable
judgment, makes it impracticable to restore or improve the remainder thereof as
required by the preceding sentence shall be considered a taking of substantially
all the Leased Property for purposes of this Paragraph 4.
(c) In the event of any taking of all or substantially all of the
Leased Property, Landlord shall be entitled to apply all Remaining Proceeds as a
Qualified Payment, notwithstanding the foregoing. In addition, if Stipulated
Loss Value immediately prior to any taking of all or substantially all of the
Leased Property by condemnation exceeds the sum of the Remaining Proceeds
resulting from such condemnation, then Landlord shall be entitled to recover the
excess from Tenant upon demand as an additional Qualified Payment, whereupon
this Lease shall terminate.
(d) Nothing herein contained shall be construed to prevent Tenant
from obtaining and applying as it deems appropriate any separate award from any
condemning authority or from any insurer for a taking of or damage to Tenant's
personal property not included in the Leased 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
interest therein. Further, notwithstanding anything to the contrary herein
contained, if Remaining Proceeds held by Landlord during the term of this Lease
shall exceed Stipulated Loss Value and any Rent payable by Tenant, then Tenant
may obtain the excess by terminating this Lease in accordance with Paragraph 2
and purchasing any remaining interest of Landlord in the Leased Property and the
Escrowed Proceeds, pursuant to the Purchase Agreement.
(e) 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 4.(e) 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.
6. 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
<PAGE> 28
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 15 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 15, (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, 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.
7. Advances for the Purchase of the Land-51 Rio Robles and for
Construction.
(a) Purchase Price of the Land-51 Rio Robles. This Lease
will become effective as to the Land-51 Rio Robles any Improvements
thereon and any Personal Property on or pertaining thereto only when and
to the extent the same are acquired by Landlord, and any delay in such
acquisition shall not extend the expiration of the Term. Landlord shall
have no obligation to pay for or accept title to the Land- 51 Rio Robles
if the title thereto or condition thereof is not then acceptable to
Landlord in Landlord's sole discretion. Further, any obligation of
Landlord to acquire the Land-51 Rio Robles and any Improvements thereon
and any Personal Property thereof or relating thereto shall be subject
to the following conditions:
(i) Purchase Price and Other Contract Terms. The
purchase price for the Land-51 Rio Robles and related Leased
Property shall not exceed $4,825,000, and the Existing Contract
as it pertains to the Land-51 Rio Robles shall be in form and
substance satisfactory to Landlord in its sole discretion.
(ii) Representations, Ratification of this Lease, and
Confirmation of the Initial Funding Advances. All
representations of Tenant in this Lease relating to the Leased
Property are and will continue to be true after the acquisition,
and Tenant shall provide a certificate to Landlord
contemporaneously with the acquisition confirming such
representations, ratifying this Lease, the Purchase Agreement
and the Environmental Indemnity Agreement, and confirming the
amount of the Initial Funding Advance-51 Rio Robles. Further,
this Lease and other agreements referenced herein between
Landlord and Tenant shall be, upon request therefor by Landlord,
modified after
<PAGE> 29
the date hereof by written amendments to add a revised
description of the Land-51 Rio Robles and to make any other
modifications deemed necessary to further subject such Land to
this Lease and the other agreements referenced herein.
(iii) Title Insurance. Landlord shall receive title
insurance in connection with its acquisition satisfactory to
Landlord in its sole discretion.
(iv) No Event of Default or Change of Control Event.
No Event of Default shall have occurred and be continuing under
this Lease and no Change of Control Event shall have occurred.
(v) No Sale of Landlord's Interest. No sale of
Landlord's interest in the Leased Property shall have occurred
pursuant to the Purchase Agreement.
(b) 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 actual cost of making the Initial Improvements to the Leased
Property and for any property taxes or assessments payable prior to the
Last Advance Date with respect to the Leased Property. In no event will
the total of all Construction Advances which may be required of
Landlord, when added to Carrying Costs accrued or projected by Landlord
to accrue prior to the Base Rent Commencement Date as described below,
exceed the Maximum Construction Allowance. 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 and all Carrying Costs added
thereto under subparagraph 6.(b)(ii) on or prior to the date in
question, less (B) any Qualified Payments received on or prior to the
date in question. (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 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 prior
to or ending on the Base Rent Commencement Date will be added to (and
thereafter be included in) the Outstanding Construction Allowance on the
last day of such Construction Period (i.e., generally on the Advance
Date upon which such Construction Period ends). Carrying Costs shall be
calculated as follows:
a) The total Carrying Costs for the first short
Construction Period ending September 1, 1995 shall be equal to
the sum of the Carrying Costs computed for each day included in
such period, and the Carrying Costs for each such day shall
equal (A) the Initial Funding Advances outstanding on such day,
times (B) the per annum Effective Rate for such day, divided by
(C) 360 equal.
b) The amount of Carrying Costs for each subsequent
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
<PAGE> 30
Rate with respect to such Construction Period, times (C) the
number of days in such Construction Period, divided by (D) 360.
(c) Initial Improvements.
(i) Responsibility for Construction. Tenant shall construct
all Initial Improvements in a good and workmanlike manner, in accordance
with (1) plans and specifications approved by Landlord in writing, (2)
Applicable Laws, and (3) the other provisions of this Lease. Further,
except for building foundations, driveways, parking lots, sidewalks and
other improvements which would not suffer damage by being submerged
under flood waters, all existing Improvements are and all Initial
Improvements shall be constructed above the elevation that the U.S. Army
Corp of Engineers or any other governmental authority estimates as the
highest elevation that 100 year flood waters could be expected to reach.
Tenant shall have sole responsibility for contracting for and
administering the construction of Initial Improvements, it being
understood that Landlord's obligation with respect to the Initial
Improvements shall be limited to the making of advances under and
subject to the conditions set forth in Paragraph 6.(d). No contractor or
other third party shall be entitled to enforce Landlord's obligations to
make advances as a third party beneficiary. Notwithstanding delays
beyond Tenant's control, and even if the Construction Allowance is not
sufficient to pay for completion of Initial Improvements, Tenant
warrants that it shall cause all Initial Improvements with respect to
which it receives any Construction Advances to be completed on or prior
to the Completion Deadline.
(ii) Scope Changes. Before making any Scope Change to the
Initial Improvements, Tenant shall provide to Landlord a reasonably
detailed written description of the Scope Change and a revised
construction budget, 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.
(iii) Value Added. The Initial Improvements, upon completion
and taken as a whole, must enhance the value of the Leased Property by
an amount commensurate with the total Construction Allowance used by
Tenant; however, this requirement will not preclude Tenant from
obtaining Construction Advances for soft costs (such as architectural
fees), demolition costs or other costs that do not, individually, add
value to the Leased Property but that are incurred in connection with
the construction of Initial Improvements which will in the aggregate
satisfy this requirement. For purposes hereof, the Initial Improvements
will be deemed to have added value "commensurate" with the Construction
Allowance used by Tenant if, when the Initial Improvements are
substantially complete, the Leased Property has a fair market value with
the Initial Improvements that exceeds the fair market value which the
Leased Property would have without the Initial Improvements by an amount
equal to no less than fifty percent (50%) of the then Outstanding
Construction Allowance.
(iv) Estoppel Letters Required. If requested by Landlord
prior to the substantial completion of the Initial Improvements, Tenant
shall cause the contractor under each significant general construction
contract for the Initial Improvements to execute and deliver to Landlord
an estoppel letter in the form of Exhibit D attached hereto. Similarly,
if requested by Landlord prior to the substantial completion of the
Initial Improvements, Tenant shall also cause the architect and engineer
under any material architectural or engineering contract for the Initial
Improvements to execute and deliver to Landlord an estoppel letter in
the form of Exhibit E attached hereto; provided, that no such estoppel
letter shall be required from any architect or engineer who has assigned
his plans and specifications for the Initial Improvements to Tenant
without restricting Tenant's right to further assign or allow another to
use the same. Tenant hereby grants to Landlord (and Landlord's
successors and assigns through any Permitted Transfer) a license to copy
and use any such plans and specifications as Landlord shall deem
appropriate.
<PAGE> 31
(v) Advances Not a Waiver. No funding of Construction
Advances and no failure of Landlord to object to Initial Improvements
proposed or constructed by Tenant shall constitute a waiver by Landlord
of the requirements contained in this subparagraph 6.(c).
(d) Conditions to Construction Advances. Landlord's
obligation to make Construction Advances from time to time under Paragraph 6.(b)
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 F for any
Construction Advance at least ten (10) Business Days prior to the
Advance Date upon which the advance is to be paid, except in the case of
any Construction Advance requested on the first Advance Date, for which
only five (5) Business Days shall be required. Landlord shall consider
in good faith any changes to the Construction Advance request forms
attached hereto that Tenant may reasonably request, provided the
requested changes do not impair Landlord's rights or create or increase
any liability Landlord may have in connection with the Initial
Improvements.
(ii) Amount of the Advances. No Construction Advance shall
exceed the lesser of:
a) the Maximum Construction Allowance, less (1) all
prior Construction Advances and all Carrying Costs accruing
through the date of such advance, and (2) the Carrying Costs
then projected by Landlord to be added to the Construction
Allowance on and after the date of the advance; or
b) (1) the actual costs and expenses previously incurred
and paid by Tenant for the Initial Improvements, including "soft
costs," and for property taxes or assessments assessed against
the Leased Property after the date hereof and prior to the Last
Advance Date, less (2) the sum of all previous Construction
Advances made under Paragraph 6.(b) to Tenant as reimbursement
for such costs and expenses.
Further, no Construction Advance shall be required that would cause the
cost of completing all Initial Improvements then contemplated as
estimated by Landlord to exceed the difference computed by subtracting
(1) the Carrying Costs then projected by Landlord to be added to the
Outstanding Construction Allowance, from (2) the Construction Allowance
remaining to be advanced.
Further, Tenant shall not request any Construction Advance (other than
the final Construction Advance) for an amount less than $250,000.
(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.(z) 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 an amount, form and substance and written by Santa
Clara Land Title Company or one or more other title insurance
companies reasonably satisfactory to Landlord and insuring
Landlord's interest in the Leased Property, including Landlord's
interest in any new Improvements constructed by Tenant, in the
amount no less than Stipulated Loss Value plus any remaining
portion of the Construction Allowance to be advanced under this
Lease; and
<PAGE> 32
b) Builder's Risk Insurance. Builder's Completed Value
Risk and such other hazard insurance as Landlord may reasonably
require against all risks of physical loss (including collapse
and transit coverage, but not including earthquake or flood
coverage) with deductibles not to exceed $500,000, such
insurance to be in amounts sufficient to cover the total value
of any Improvements under construction and to be maintained in
full force and effect at all times until completion of the
Initial Improvements.
(iv) Progress of Construction. Construction of the Initial
Improvements shall be progressing in a good and workmanlike manner and
in accordance with the requirements of this Lease without any continuing
significant interruption, other than interruptions beyond the reasonable
control of Tenant that are not likely to cause the cost of such
construction (and Carrying Costs and construction period ad property
taxes and assessments) to exceed the Maximum Construction Allowance.
Also, Tenant shall have corrected or caused the correction promptly of
any significant defect in such construction.
(v) Evidence of Costs to be Reimbursed. To the extent
contemplated by the Construction Advance request forms attached as
Exhibit F and described in subparagraph 6.(d)(i), or otherwise required
by Landlord at the time a Construction Advance is to be made, Tenant
shall have submitted invoices, requests for payment from contractors,
certifications from Tenant's architect or construction manager, lien
releases and other evidence satisfactory to Landlord that (A) all costs
for which Tenant requests reimbursement constitute actual costs incurred
by Tenant for the construction of the Initial Improvements or constitute
property taxes or assessments assessed against the Leased Property and
paid by Tenant prior to the Last Advance Date with respect to the Leased
Property and (B) general contractors and all parties that have filed a
statutory Preliminary Notice which would give them the right to assert a
mechanic's or materialman's lien against the Leased Property
(collectively, "POTENTIAL LIEN CLAIMANTS") have been paid all sums for
which prior Construction Advances have been advanced. Without limiting
the foregoing, Landlord may decline to advance any amount that would
result in an excess of $2,000,000 or more of (1) the total cost of work
with respect to which Potential Lien Claimants could have asserted a
lien against the Leased Property and for which Construction Advances
have been advanced by Landlord, over (2) the cost of such work for which
Tenant has provided to Landlord unconditional statutory lien releases
from all Potential Lien Claimants in form and substance reasonably
satisfactory to Landlord.
(vi) No Event of Default or Change of Control Event. No Event
of Default shall have occurred and be continuing under this Lease and no
Change of Control Event shall have occurred.
(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) Construction Advance Certificate. Landlord shall have
received, together with the notice requesting the Construction Advance
described in clause (i) above, a current Construction Advance
Certificate executed by a Responsible Financial Officer of Tenant in the
form attached to Exhibit F.
(ix) Payments by Participants. No Participant or its
successor under its Participation Agreement with Landlord shall have
failed to advance to Landlord its Participant's percentage of the
purchase price for the Land-51 Rio Robles and related Leased Property or
for the Construction Advance being requested. However, any such failure
of a Participant to fund its Participant's percentage of any
Construction Advance being requested shall excuse Landlord's obligation
to provide such Construction Advance only to the extent of the funds
that the applicable Participant or Participants should have advanced
(but did not advance) to Landlord, provided that any such failure of a
Participant to fund its Participant's percentage of such purchase price
shall excuse Landlord's obligation to lease the Land-51 Rio Robles and
related Leased Property to Tenant. In the event of any such failure:
<PAGE> 33
a) Landlord will immediately notify Tenant if any
Participant refuses or fails to advance its Participant's
percentage of such purchase price or 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 Defaulting 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.
(e) Completion Notice. Tenant shall provide a notice to Landlord
(the "COMPLETION NOTICE") promptly after construction of the Initial
Improvements is substantially complete and more than fifty percent (50%) of the
Initial Improvements are being occupied by Tenant.
8. Purchase Agreement, Pledge 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, Pledge Agreement or Environmental Indemnity, which
obligations are intended to be separate, independent and in addition to, and not
in lieu of, the obligations established by this Lease. In the event of any
inconsistency between the terms and provisions of the Purchase Agreement, Pledge
Agreement or Environmental Indemnity and the terms and provisions of this Lease,
the terms and provisions of the Purchase Agreement, Pledge Agreement or
Environmental Indemnity (as the case may be) shall control.
9. Use and Condition of Leased Property.
(a) Use. Subject to the Permitted Encumbrances and the terms
hereof, Tenant may use and occupy the Leased Property so long as no Event of
Default occurs hereunder, but only for the following purposes and other lawful
purposes incidental thereto:
(i) administrative and office space; and
(ii) distribution and warehouse storage of
semiconductor-related and other electronic products; and
(iii) assembly of semiconductor-related and other electronic
products using components manufactured elsewhere; and
(iv) cafeteria, library, fitness center and other support
function uses that Tenant may provide to its employees.
Although the term "electronic products" in this subparagraph may include
products designed to detect, monitor, neutralize, handle or process Hazardous
Substances, the use of the Leased Property by Tenant shall not include
<PAGE> 34
bringing Hazardous Substances onto the Leased Property for the purpose of
researching, testing or demonstrating any such products.
(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. Nor shall Landlord 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 of 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, the benefit of
which is to pass to Tenant during the Term because of the definition of Personal
Property and Leased Property above.
10. 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. The financial statements and all financial data heretofore
delivered to Landlord relating to Tenant have been prepared in accordance with
GAAP 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 March 31, 1995.
(b) Existing Contract. Tenant shall satisfy all surviving
obligations of the "Buyer" (as the term "Buyer" is used in the Existing
Contract) under the Existing Contract and under all other documents, the
execution of which is required by or in connection with the Existing Contract.
Tenant agrees to indemnify, defend and hold Landlord harmless from and against
any and all Losses of any and every kind or character, known or unknown, fixed
or contingent, 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 Existing Contract. THE INDEMNITY SET OUT IN THIS
SUBPARAGRAPH SHALL APPLY EVEN IF THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY
OR ARISES OUT OF THE ORDINARY NEGLIGENCE (AS DEFINED ABOVE) 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. Because Tenant
hereby assumes and agrees to satisfy all surviving obligations of the Buyer
under the Existing Contract, no failure by Landlord to take any action required
by the Existing Contract shall, for the purposes of this indemnity, be deemed to
be caused by the willful misconduct of Landlord. The foregoing indemnity is in
addition to the other indemnities set out herein
<PAGE> 35
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, the Purchase Agreement, the Pledge
Agreement and the Environmental Indemnity 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
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, and 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.
(d) Compliance with Covenants and Laws. 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 promptly obtain all utility, building, health and operating permits as
may be required for Tenant's use of the Leased Property 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 has occurred prior to the date of
this Lease; (iii) neither Tenant nor any prior owner or operator of the Leased
Property or any surrounding property has reported or been required to report any
release of any Hazardous Substances on or from the Leased Property or the
surrounding property pursuant to any Environmental Law; (iv) neither Tenant nor
any prior owner or operator of the Leased Property or any surrounding property
has received any warning, citation, notice of violation or other communication
regarding a suspected or known release or discharge of Hazardous Substances on
or from the Leased Property or regarding a suspected or known violation of
Environmental Laws concerning the Leased Property from any federal, state or
local agency; and (v) 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 its knowledge the Environmental Report is not
misleading or inaccurate in any material respect.
(f) No Suits. There are no judicial or administrative
actions, suits, proceedings or investigations pending or, to Tenant's knowledge,
threatened that will 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. The Land as described in Exhibit
A is the same as the land shown on the plat included as part of the ALTA/ACSM
Land Title Survey prepared by Kier & Wright, Civil Engineers & Surveyors, Inc.,
which was delivered to Landlord at the request of Tenant. When the Initial
Improvements are completed in accordance with the requirements of this Lease,
adequate provision will have been made for the
<PAGE> 36
Leased Property to be served by electric, gas, storm and sanitary sewers,
sanitary water supply, telephone and other utilities required for the use
thereof. All streets, alleys and easements necessary to serve the Leased
Property have been completed and are serviceable or will be so when the Initial
Improvements are complete. The Leased Property will be, when the Initial
Improvements are complete, in a condition satisfactory for its use and
occupancy. Tenant is not aware of any latent or patent material defects or
deficiencies in the Leased Property that, either individually or in the
aggregate, could materially and adversely affect Tenant's use or occupancy or
could reasonably be anticipated to endanger life or limb.
(h) Organization. Tenant is duly incorporated and legally
existing under the laws of the State of Delaware. 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, the Purchase Agreement, the Pledge Agreement and the
Environmental Indemnity are duly authorized and do not require the consent or
approval of any governmental body or other regulatory authority that has not
heretofore been obtained and are not in contravention of or conflict with any
Applicable Laws or any term or provision of Tenant's articles of incorporation
or bylaws. This Lease, the Purchase Agreement, the Pledge Agreement and the
Environmental Indemnity are valid, binding and legally enforceable obligations
of Tenant in accordance with their terms, 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 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. To Tenant's knowledge, none of Tenant's
representations or warranties contained in this Lease or any document,
certificate or written statement furnished to Landlord by or on behalf of Tenant
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. Tenant shall continuously maintain its
existence and its qualification to do business in the State of California.
(m) Tenant Taxes. 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; 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.
<PAGE> 37
(n) Operation of Property. Tenant shall operate the Leased
Property in a good and workmanlike manner and in compliance with all Applicable
Laws and will pay all fees or charges of any kind in connection therewith.
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. 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: (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) execute or file any subdivision plat affecting the Leased
Property; or (v) consent to the annexation of the Leased Property to any
municipality. If a change in the zoning or other Applicable Laws affecting the
permitted use or development of the Leased Property shall occur that Landlord
determines will materially reduce the then-current market value of the Leased
Property, and if after such reduction the Stipulated Loss Value shall
substantially exceed the then-current market value of the Leased Property in the
reasonable judgment of Landlord, then Tenant shall pay Landlord an amount equal
to such excess for application as a Qualified Payment. Tenant shall make any
payment required by the preceding sentence within one hundred eighty (180) days
after it is requested by Landlord and in any event shall make any such payment
before the end of the Term. Tenant shall not impose any restrictive covenants or
encumbrances upon the Leased Property without the prior written consent of the
Landlord; provided, that such consent shall not be unreasonably withheld for any
encumbrance or restriction that is made expressly subject to this Lease, as
modified from time to time, and subordinate to Landlord's interest in the Leased
Property by an agreement in form satisfactory to Landlord.
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. Tenant shall not do any act whereby the market value of the Leased
Property may be materially lessened. 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. 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 or lessee 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 and any claims asserted against Landlord or the Leased Property
because of such violation must be paid by Tenant, all prior to the date that (i)
any criminal charges may be brought against Landlord or any of its directors,
officers or employees because of such violation or (ii) any action may be taken
by any governmental authority against Landlord or any property owned or leased
by Landlord (including the Leased Property) because of such violation.
(o) Debts for Construction. 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
<PAGE> 38
pending such contest Tenant shall not be deemed in default under this
subparagraph (or subparagraphs 9.(t) or 9.(u)) 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 $500,000 (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 the date (i) any criminal action may be instituted against
Landlord or its directors, officers or employees because of the nonpayment
thereof or (ii) any writ or order is issued under which any property owned or
leased by Landlord (including the Leased Property) may be seized or sold or any
other action may be taken against Landlord or any property owned or leased 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 or operation of the Leased Property, or any part thereof, or
relating to or required to be paid by the terms of any of the Permitted
Encumbrances (collectively, herein called the "IMPOSITIONS"), excluding only
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 (or subparagraphs 9.(t) or 9.(u)) 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
$500,000 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 the date (i) any criminal action may
be instituted against Landlord or its directors, officers or employees because
of the nonpayment thereof or (ii) any writ or order is issued under which any
property owned or leased by Landlord (including the Leased Property) may be
seized or sold or any other action may be taken against Landlord or any property
owned or leased by Landlord because of the nonpayment thereof.
(q) Repair, Maintenance, Alterations and Additions. Tenant
shall keep the Leased Property in good order, repair, operating condition and
appearance (ordinary wear and tear excepted), causing all necessary repairs,
renewals, replacements, additions and improvements to be promptly made, and will
not allow any of the Leased Property to be materially misused, abused or wasted
or to deteriorate. Tenant shall promptly replace any worn-out fixtures included
within the Leased Property with fixtures comparable to the replaced fixtures
when new and repair any damage caused by the removal of such fixtures. Further,
Tenant shall not, without the prior written consent of Landlord, (i) remove from
the Leased Property any fixtures of significant value which were paid for with
(or for which reimbursement was provided to Tenant by) a Construction Advance,
except such as are replaced by Tenant by articles of equal value, free and clear
of any Lien (and for purposes of this clause "significant value" will mean any
fixture that has a value of more than $100,000 or that, when considered together
with all other fixtures removed and not replaced by Tenant by articles of equal
suitability and value, has an aggregate value of $500,000 or more) or (ii) make
any alteration to any Improvements, after the Initial Improvements are
constructed, which significantly reduces the fair market value or changes the
general character of the Leased Property, taken as a whole, or which impairs in
any significant manner the useful life or utility of the Improvements, taken as
whole. Upon request of Landlord made at any time when an Event of Default shall
<PAGE> 39
have occurred and be continuing, Tenant shall deliver to Landlord an inventory
describing and showing the make, model, serial number and location of all
fixtures and personalty, if any, included in the Initial Improvements with a
certification by Tenant that such inventory is a true and complete schedule of
all such fixtures and personalty and that all items specified in the inventory
are covered hereby free and clear of any Lien other than the Permitted
Encumbrances described in Exhibit B.
(r) Insurance and Casualty. Throughout the Term, Tenant will
keep all Improvements (including all alterations, additions and changes made to
the Improvements) which are located within the Leased Property insured under an
all-risk property insurance policy (excluding from coverage damage by flood or
earthquake, but not excluding other perils normally included within the
definitions of extended coverage, vandalism and malicious mischief) in the
amount of one hundred percent (100%) of the replacement value with endorsements
for contingent liability from operation of building laws, increased cost of
construction and demolition costs which may be necessary to comply with building
laws. 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 $500,000. Such insurance shall cover not only the value of
Tenant's interest in the Improvements, 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, Tenant shall deliver to Landlord
certificates from the applicable insurer or its authorized agent of renewals or
replacements of all such policies of insurance at least five (5) 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. 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's consent must be obtained for any settlement, adjustment or compromise
of any claims for loss, damage or destruction under any policy or policies of
insurance (provided, that if any such claim is for less than $2,000,000 and no
Event of Default shall have occurred and be continuing, Tenant alone shall have
the right to settle, adjust or compromise the claim as Tenant deems appropriate;
and, provided further, that any disagreement between Landlord and Tenant about
the amount for which any such claim should be settled shall, at the request of
either party, be resolved as provided in Exhibit I, unless an Event of Default
shall have occurred and be continuing, in which case Landlord alone shall have
the right to settle, adjust or compromise the claim as Landlord deems
appropriate). 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. Notwithstanding the
foregoing provisions of this subparagraph, if insurance proceeds totaling not
more than $2,000,000 are to be recovered as a result of a fire or other casualty
involving the Leased Property, Tenant shall be entitled to receive directly and
hold 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 required by Paragraph 4.(b).
<PAGE> 40
(s) Condemnation. 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.
Notwithstanding the foregoing provisions of this subparagraph, if condemnation
proceeds totaling not more than $2,000,000 are to be recovered as a result of a
taking of less than all or substantially all of the Leased Property, Tenant may
directly receive and hold 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 remainder of the Leased
Property as required by Paragraph 4.(b).
(t) Protection and Defense of Title. If any encumbrance or
title defect whatsoever affecting Landlord's fee interest in the Leased Property
is claimed or discovered (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 (other than a Lien Tenant is contesting as expressly
permitted by and in accordance with subparagraph 9.(o) or subparagraph 9.(p)),
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
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.
(u) No Liens on the Leased Property. Tenant shall not,
without the prior written consent of Landlord, create, place or permit to be
created or placed, or through any act or failure to act, acquiesce in the
placing of, or allow to remain, any Lien (except the lien for property taxes or
assessments assessed against the Leased Property which are not delinquent and
any Lien Tenant is contesting as expressly permitted by and in accordance with
subparagraph 9.(o) or subparagraph 9.(p)), against or covering the Leased
Property or any part thereof (other than any Lien which is lawfully claimed
through or under Landlord and which is not claimed by, through or under Tenant)
regardless of whether the same are expressly or otherwise subordinate to this
Lease or Landlord's interest in the Leased Property, and should any prohibited
Lien exist or become attached hereafter in any manner to any part of the Leased
Property without the prior written consent of Landlord, Tenant shall cause the
same to be promptly discharged and released to the satisfaction of Landlord.
(v) Books and Records. Tenant shall keep books and records
that are accurate and complete in all material respects for the construction and
maintenance of the Leased Property and will permit all such books and records
(including without limitation all contracts, statements, invoices, bills and
claims for labor,
<PAGE> 41
materials and services supplied for the construction and operation of any
Improvements) to be inspected and copied by Landlord and its duly accredited
representatives at all times during reasonable business hours; provided that so
long as Tenant remains in possession of the Leased Property, Landlord or
Landlord's representative will, before making any such inspection or copying any
such documents, 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 provided by Tenant when Landlord or Landlord's representative
first arrives at the Leased Property, (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, interfere with or delay inspections or copying by Landlord
authorized by this subparagraph. 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 if requested by
Landlord at any time when an Event of Default shall have occurred and be
continuing, Tenant shall construct or abstract from its regularly maintained
books and records information required by this subparagraph relating to the
Leased Property.
(w) Financial Statements; Required Notices; Certificates as
to Default. Tenant shall deliver to Landlord and to each Participant of which
Tenant has been notified:
(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; provided, that notwithstanding the foregoing, for so long
as Tenant is a company subject to the periodic reporting requirements of
Section 12 of the Securities Exchange Act of 1934, as amended, Tenant
shall be deemed to have satisfied its obligations under this clause (i)
so long as Tenant delivers to Landlord the same annual report and report
and opinion of accountants that Tenant delivers to its shareholders;
(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 a Responsible Financial Officer of
Tenant (subject to year-end adjustments); provided, that notwithstanding
the foregoing, for so long as Tenant is a company subject to the
periodic reporting requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, Tenant shall be deemed to have satisfied its
obligations under this clause (ii) so long as Tenant delivers to
Landlord the same quarterly reports, certified by a Responsible
Financial Officer of Tenant (subject to year-end adjustments), that
Tenant delivers to its shareholders;
(iii) together with the financial statements furnished in
accordance with subparagraph 9.(w)(ii) and 9.(w)(i), a certificate of a
Responsible Financial Officer of Tenant in substantially the form
attached hereto as Exhibit G: (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
<PAGE> 42
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 following Sections
of the Revolving Credit Agreement: Section 7.02 (which establishes a
minimum tangible net worth requirement), Section 7.03 (which establishes
a quick ratio requirement), Section 7.04 (which establishes a maximum
permitted ratio of total liabilities to tangible net worth), Section
7.06 (which establishes a limit on permitted dividends as a percentage
of earnings), and Section 7.10 (which establishes a limit on permitted
losses);
(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) as soon as possible and in any event within five (5)
Business Days after a Responsible Financial Officer of Tenant becomes
aware of the occurrence of each Default or Event of Default, a statement
of a Responsible Financial Officer of Tenant setting forth details of
such Default or Event of Default and the action which Tenant has taken
and proposes to take with respect thereto;
(vi) 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
any Participant;
(vii) copies of all notices required by Sections 6.01 or 6.07
of the Revolving Credit Agreement; and
(viii) 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.(w) to any
Participant and to any regulatory body having jurisdiction over Landlord that
requires or requests it.
(x) Further Assurances. Tenant shall, on request of
Landlord, (i) promptly correct any defect, error or omission 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; (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 Lender and any Participants to comply
<PAGE> 43
with the requirements or requests of the Federal Reserve Bank or any other bank
regulatory agency or authority or any other governmental agency or authority
having jurisdiction over them.
(y) Fees and Expenses; General Indemnification; Increased
Costs; and Capital Adequacy Charges.
(i) Except for any costs paid by Landlord with the proceeds
of the Initial Funding Advances as part of the Closing Costs, Tenant
shall pay (and shall indemnify and hold harmless Landlord, Landlord's
Lender and any Person claiming through Landlord by reason of a Permitted
Transfer from and against) all Losses incurred by Landlord or Landlord's
Lender 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, the Purchase Agreement, the Pledge
Agreement, the Environmental Indemnity or any Participation Agreements
with Participants which Tenant shall have approved, (C) the making of
Funding Advances, including Attorneys' Fees or other costs incurred to
evaluate lien releases and other information submitted by Tenant with
requests for Construction Advances, or (D) the construction of the
Initial Improvements, 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 environmental consulting fees incurred
by Landlord with respect to the Leased Property. If Landlord pays or
reimburses Landlord's Lender 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.
(ii) Tenant shall also pay (and indemnify and hold harmless
Landlord, Landlord's Lender 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 Lender
or any Person claiming through Landlord through a Permitted Transfer or
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 in a lawful manner of any of Landlord's 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 ORDINARY NEGLIGENCE (AS
DEFINED ABOVE) 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.
<PAGE> 44
(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 Lender 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 Lender or such
Participant, as the case may be, additional amounts sufficient to
compensate Landlord's Lender or the Participant for such increased cost.
A certificate as to the amount of such increased cost, submitted to
Landlord and Tenant by Landlord's Lender or the Participant, shall be
conclusive and binding for all purposes, absent clear and demonstrable
error.
(iv) Landlord's Lender or any Participant may demand
additional payments (herein called "CAPITAL ADEQUACY CHARGES") if
Landlord's Lender or the 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 or to make Construction Advances. To
the extent that Landlord's Lender or the Participant demands Capital
Adequacy Charges as compensation for the additional capital requirements
reasonably allocable to such advances, Tenant shall pay to Landlord for
the account of the Landlord's Lender or the Participant, as the case may
be, the amount so demanded.
(v) Any amount to be paid to Landlord, Landlord's Lender or
any Indemnified Party under this subparagraph 9.(y) shall be a demand
obligation owing by Tenant. Tenant's indemnities and obligations under
this subparagraph 9.(y) 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.
(z) Liability Insurance. Tenant shall maintain one or more
policies of 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 aggregate
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
$500,000 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 and all Participants of which Tenant has been notified. 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 confirmation (in form satisfactory to Landlord) with respect to such
insurance from the applicable insurer or its authorized agent, which
confirmation must provide that insurance coverage will not be canceled or
reduced without at least ten (10) days notice to Landlord. Not less than five
(5) 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.
(aa) Permitted Encumbrances. Except to the extent expressly
required of Landlord by subparagraph 10.(b), Tenant shall comply with and will
cause to be performed all of the covenants, agreements and obligations imposed
upon the owner of any interest in the Leased Property in the Permitted
Encumbrances in
<PAGE> 45
accordance with their respective terms and provisions. Tenant shall not modify
or permit any modification of any Permitted Encumbrance without the prior
written consent of Landlord. Such consent will not be unreasonably withheld for
the modification of any Permitted Encumbrance that has been made expressly
subject to this Lease, as modified from time to time, and subordinate to
Landlord's interest in the Leased Property by agreement in form satisfactory to
Landlord.
(bb) Environmental.
(i) Environmental Covenants. Tenant covenants:
a) not to 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;
b) not to conduct or authorize others to conduct
Hazardous Substance Activities on the Leased Property, except
Permitted Hazardous Substance Use;
c) to the extent required by Environmental Laws, to
remove Hazardous Substances from the Leased Property (or if
removal is prohibited by law, to take whatever action is
required by law) promptly upon discovery; and
d) not to discharge or authorize the discharge of
anything (including Permitted Hazardous Substances) from the
Leased Property into groundwater or surface water that would
require any permit under applicable Environmental Laws, other
than storm water runoff.
If Tenant's failure to cure any breach of the covenants listed above in
this subparagraph (i) continues beyond the Environmental Cure Period (as
defined below), Landlord may, in addition to any other remedies
available to it, after notifying Tenant of the remediation efforts
Landlord believes are needed, cause the Leased Property to be freed from
all Hazardous Substances (or if removal is prohibited by law, to take
whatever action is required by law), and the cost of the removal shall
be a demand obligation owing by Tenant to Landlord. 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. As used in this subparagraph,
"ENVIRONMENTAL CURE PERIOD" means the period ending on the earlier of:
(1) one hundred and eighty days (180) after Tenant is notified of the
breach which must be cured within such period, or such longer period as
is reasonably required for any cure that Tenant pursues with diligence
pursuant to and in accordance with an Approved Plan (as defined below),
(2) the date any writ or order is issued for the levy or sale of any
property owned or leased by Landlord (including the Leased Property) or
any criminal action is instituted against Landlord or any of its
directors, officers or employees because of the breach which must be
cured within such period, (3) the end of the Term. As used in this
subparagraph, an "APPROVED PLAN" means a plan of remediation of a
violation of Environmental Laws for which Tenant has obtained, within
one hundred and eighty days (180) after Tenant is notified of the
applicable breach of the covenants listed above in this subparagraph
(i), the written approval of the governmental authority with primary
jurisdiction over the violation and with respect to which no other
governmental authority asserting jurisdiction has claimed such plan is
inadequate.
(ii) Environmental Inspections and Reviews. Landlord reserves
the right to retain an independent professional consultant to review any
report prepared by Tenant or to conduct Landlord's own
<PAGE> 46
investigation to confirm whether Hazardous Substances Activities or the
discharge of anything into groundwater or surface water has occurred in
violation of the preceding subparagraph (i), 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;
(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 the preceding subparagraph (i). Tenant grants to Landlord
and to Landlord's agents, employees, consultants and contractors the
right during reasonable business hours and after reasonable 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 any discharge
into groundwater or surface water from, the Leased Property. Without
limiting the generality of the foregoing, Tenant 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; (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 the preceding subparagraph (i).
(iii) Notice of Environmental Problems. Tenant shall
immediately advise Landlord of (i) any 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) discovery of any 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,
(iii) Tenant's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of the Leased Property which could
cause the Leased Property or any part thereof to be subject to any
ownership, occupancy, transferability or use restrictions under
Environmental Laws, or (iv) any investigation or inquiry affecting the
Leased Property by any governmental authority in connection with any
Environmental Laws. 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, if any, to bring the
Leased Property into compliance with Environmental Laws or to correct
any breach by Tenant of the covenants listed above in subparagraph (i),
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.
(cc) Compliance with Financial Covenants and Certain Other
Requirements Established by the Revolving Credit Agreement. So long as Tenant
shall continue to have any obligations under this Lease or the Purchase
Agreement, Tenant shall comply with each and every requirement set forth in
Article VII of the Credit Agreement dated as of April 30, 1994, by and among
Tenant, as borrower, and Bank of America National Trust and Savings Association,
as lender, as amended by the First Amendment to Credit Agreement dated December
31, 1994 between Tenant and such lender and by the Second Amendment to Credit
Agreement dated February 15, 1995 between Tenant and such lender (the "REVOLVING
CREDIT AGREEMENT"). A true and correct copy of such Revolving Credit Agreement
has been delivered by Tenant to Landlord. To the extent that any of the
<PAGE> 47
requirements set forth in other provisions of this Lease, in the Environmental
Indemnity or in the Purchase Agreement are more stringent than the requirements
set forth in the Revolving Credit Agreement (for example, more stringent
requirements concerning Tenant's use of the Leased Property itself in compliance
with Environmental Laws), the more stringent requirements set forth herein or in
the Environmental Indemnity or in the Purchase Agreement shall control. Further,
for purposes of determining Tenant's compliance with requirements established in
this Lease by reference to the Revolving Credit Agreement, and for purposes of
establishing the meaning of capitalized terms defined herein by reference to the
Revolving Credit Agreement, such requirements and definitions shall be construed
as if (1) the Revolving Credit Agreement were continuing after any expiration or
termination thereof, (2) no modifications or waivers of the Revolving Credit
Agreement were made or granted after the date of this Lease, and (3) no consents
or approvals were given for anything requiring a consent or approval by the
terms of the Revolving Credit Agreement, other than such consents or approvals
as Landlord shall have itself approved in writing in its capacity as the
landlord under this Lease. As used in the provisions of the Revolving Credit
Agreement referenced herein, capitalized terms shall have the meanings assigned
to them in the Revolving Credit Agreement itself.
(dd) ERISA.
(i) Each Plan is in compliance in all material respects
with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other
applicable Federal or state law, 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
$2,000,000 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 Pension Benefit Guaranty
Corporation by Tenant or an ERISA Affiliate with respect to any of the
following or the events or conditions leading up to it): (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 the collateral covered by the Pledge
Agreement, or (B) the taking of any action by the Pension Benefit
Guaranty Corporation or any other governmental authority action 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.
11. Representations, Warranties and Covenants of Landlord. Landlord
represents, warrants 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 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 any Participant which Tenant
shall have approved, or (iii) any encumbrance or title defect arising because of
Landlord's compliance with subparagraph 10.(b) or any request made by Tenant.
<PAGE> 48
(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
(including granting any utility easements required in connection with
construction of Improvements); provided that (i) actions 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 fee interest in 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 Purchase Agreement, the
Pledge Agreement or Environmental Indemnity or otherwise be reasonably
objectionable to Landlord. Any Losses incurred by Landlord because of any action
taken pursuant to this subparagraph shall be covered by the indemnification set
forth in subparagraph 9.(y). 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 Existing Contract or any Construction Document.
(c) No Default or Violation. The execution, delivery and
performance of this Lease do not contravene, result in a breach of or constitute
a default under any material contract or agreement to which Landlord is a party
or by which Landlord is bound and do not, to the knowledge of Landlord, violate
or contravene any law, order, decree, rule or regulation to which Landlord is
subject.
(d) No Suits. To Landlord's knowledge there are no judicial
or administrative actions, suits or proceedings involving the validity,
enforceability or priority of this Lease, and to Landlord's knowledge no such
suits or proceedings are threatened.
(e) Organization. Landlord is duly incorporated and legally
existing under the laws of Delaware and is or, if necessary, will become duly
qualified to do business in the State of California. Landlord has or will
obtain, at Tenant's expense pursuant to the other provisions of this Lease, all
requisite power and all material governmental certificates of authority,
licenses, permits, qualifications and other documentation necessary to lease the
Leased Property and to perform its obligations under this Lease.
(f) Enforceability. The execution, delivery and performance
of this Lease, the Purchase Agreement and the Pledge 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, the Purchase Agreement and the Pledge
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.
(g) Existence. 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.
<PAGE> 49
(h) Not a Foreign Person. Landlord is not a "foreign person"
within the meaning of the 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), and Landlord is not subject to withholding under
California Revenue and Taxation Code Sections 18805, 18815, and 26131.
12. Assignment and Subletting.
(a) Consent Required. During the term of this Lease, 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 : (1) Tenant shall be entitled
without Landlord's consent to sublet space in then existing and completed
Improvements if (i) any sublease by Tenant is made expressly subject and
subordinate to the terms hereof, (ii) such sublease has a term less than the
remainder of the then effective term of this Lease, and (iii) the use permitted
by such sublease is expressly limited to the uses permitted by Paragraph 9(a);
and (2) Tenant shall be entitled to assign this Lease to an Affiliate of Tenant
if both Tenant and its Affiliate confirm their joint and several liability
hereunder by notice given to Landlord in accordance with Paragraph 19.(a)
hereof.
(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. 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 governmental 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. Landlord shall have the right to
transfer, assign and convey, in whole or in part, the Leased Property and any
and all of its rights under this Lease by any conveyance that constitutes a
Permitted Transfer. (However, any Permitted Transfer shall be subject to all of
the provisions of each and every agreement concerning the Leased Property then
existing between Landlord and Tenant, including without limitation this Lease
and the Purchase Agreement.) In the event Landlord sells or otherwise transfers
the Leased Property and assigns its rights under this Lease, the Purchase
Agreement and the Pledge Agreement, and if Landlord's successor in interest
confirms its liability for the obligations imposed upon Landlord by this Lease,
the Purchase Agreement and the Pledge Agreement on and subject to the express
terms and conditions set out herein and therein, then the original Landlord
shall thereby be released from any obligations thereafter arising under this
Lease, the Purchase Agreement and the Pledge Agreement, and Tenant agrees to
look solely to each successor in interest of Landlord for performance of such
obligations. However, notwithstanding anything to the contrary herein contained,
if withholding taxes are imposed on the rents and other amounts payable to
Landlord
<PAGE> 50
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 such assignee for
the withholding tax.
13 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 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 if any such failure by Tenant
continues for thirty (30) days or more after Tenant is notified thereof,
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 so long as, 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 an Indemnified Party
receives a written notice of Environmental Losses that such Indemnified Party
believes are covered by this Paragraph 12, then such Indemnified Party will be
expected to 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 Tenant is unaware of the
matters described in the notice and such failure 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 such Indemnified Party (and any
Affiliate of such Indemnified Party) against Environmental Losses, 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
<PAGE> 51
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 (or any Affiliate of 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 at 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 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 demand at a floating interest rate
equal to the Default Rate, but in no event in excess of the maximum rate
permitted by law.
14. Landlord's Right of Access and Right to Perform.
(a) Landlord and Landlord's representatives may enter the
Leased Property, after five (5) Business Days advance written notice to Tenant
(except in the event of an emergency, when no advance notice will be required),
for the purpose of making inspections or performing any work Landlord is
authorized to undertake by the next subparagraph. So long as Tenant remains in
possession of the Leased Property, Landlord or Landlord's representative will,
before making any such inspection or performing any such work on the Leased
Property, 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
provided by Tenant when Landlord or Landlord's representative first arrives at
the Leased Property, (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, interfere with or delay inspections or work of Landlord
authorized by this Lease.
(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.
<PAGE> 52
15. Events of Default.
(a) Definition of Event of Default. 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
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 or leased 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, the Pledge
Agreement or the Environmental Indemnity and such failure shall
continue after the last day of any applicable grace period
provided for therein.
(iv) Tenant shall abandon any portion of the Leased
Property.
(v) Tenant shall fail to make any payment or
payments of principal, premium or interest, on any 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 mean only Debts of Tenant now
existing or arising in the future (a) payable to Landlord or
any Participant or any Affiliate of Landlord or any
Participant, or (B) payable to any other Person and with
respect to which $3,000,000 or more is actually due and payable
because of acceleration or otherwise.
(vi) Tenant or any of its Subsidiaries shall
generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against Tenant or
any of its Subsidiaries seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it
or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted
by it), either such proceeding shall remain undismissed or
unstayed for a period of thirty (30) consecutive days, or any
of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property)
shall occur; or Tenant or any of its Subsidiaries shall take
any corporate action to authorize any of the actions set forth
above in this clause (vi).
<PAGE> 53
(vii) Any order, judgment or decree is entered in any
proceedings against Tenant or any Subsidiary decreeing the
dissolution of Tenant or such Subsidiary and such order,
judgment or decree remains unstayed and in effect for more than
sixty (60) days.
(viii) Any order, judgment or decree is entered in any
proceedings against Tenant or any Subsidiary decreeing a
split-up of Tenant or such Subsidiary which requires the
divestiture of assets representing a substantial part, or the
divestiture of the stock of a Subsidiary whose assets represent
a substantial part, of the consolidated assets of Tenant and
its Subsidiaries (determined in accordance with GAAP) or which
requires the divestiture of assets, or stock of a Subsidiary,
which shall have contributed a substantial part of the
consolidated net income of Tenant and its Subsidiaries
(determined in accordance with GAAP) for any of the three
fiscal years then most recently ended, and such order, judgment
or decree remains unstayed and in effect for more than sixty
(60) days.
(ix) A final judgment or order for the payment of
money in an amount (not covered by insurance) which exceeds
$3,000,000 shall be rendered against Tenant or any of its
Subsidiaries and within sixty (60) days after the entry
thereof, such judgment or order is not discharged or execution
thereof stayed pending appeal, or within thirty (30) days after
the expiration of any such stay, such judgment is not
discharged.
(x) Any ERISA Termination Event that Landlord
determines might constitute grounds for the termination of any
Plan or for the appointment by the appropriate United States
district court of a trustee to administer any Plan shall have
occurred and be continuing thirty (30) days after written
notice to such effect shall have been given to Tenant by
Landlord, or any Plan shall be terminated, or a trustee shall
be appointed by an appropriate United States district court to
administer any Plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any Plan
or to appoint a trustee to administer any Plan.
(xi) A Change of Control Event not approved in
advance by Landlord shall occur.
(xii) An "Event of Default" as defined in the
Revolving Credit Agreement (taking into account any applicable
notice and cure period set forth therein) by Tenant shall
occur.
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 Landlord's interest in the Leased Property and designating as the
Designated Payment Date the next following date which is either an Advance Date
or a Base Rent Date and which is at least ten (10) days after the date of such
notice; provided, however, Tenant must, as a condition to the effectiveness of
its cure, on the date so designated as the Designated Payment Date tender to
Landlord the full purchase price required by the Purchase Agreement and all Rent
and all other amounts then due or accrued and unpaid hereunder (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 any Participants) and Tenant
must also furnish written confirmation that all indemnities set forth herein
(including specifically, but without limitation, the general indemnity set forth
in subparagraph 9.(y) 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. Upon the occurrence of an Event of Default
which is not cured within any applicable period expressly permitted by
subparagraph 14.(a), at Landlord's option and without limiting
<PAGE> 54
Landlord in the exercise of any other right or remedy Landlord may have on
account of such default, and without any further demand or notice except as
expressly described in this subparagraph 14.(b):
(i) By 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 a default shall terminate Tenant's right to possession if
Tenant fails to cure the 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 for the balance of the
scheduled Term 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 the Default Rate 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).
<PAGE> 55
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 14 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 Purchase Agreement, the Pledge Agreement or the
Environmental Indemnity.
(e) Waiver by Tenant. To the extent permitted by law, Tenant
hereby waives and surrenders for itself and all claiming through Tenant under
this Lease, including creditors of all kinds, (i) any right and privilege which
it or any of them may have under any present or future constitution, statute or
rule of law to have a continuance of this Lease for the term hereby demised
after termination of Tenant's right of occupancy by order or judgment of any
court or by any legal process or writ, or under the terms of this Lease, or
after the termination of this Lease as herein provided, and (ii) the benefits of
any present or future constitution, or statute or rule of law which exempts
property from liability for debt or for distress for rent, and (iii) the
provisions of law relating to notice and/or delay in levy of execution in case
of eviction of a lessee for nonpayment of rent.
(f) No Implied Waiver. The failure of Landlord 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 Tenant of any term, covenant, agreement or
condition contained in this Lease shall not prevent a
<PAGE> 56
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 contained in this Lease shall not be deemed a waiver of such breach,
and no waiver by Landlord of any provision of this Lease shall be deemed to have
been made unless expressed in writing and signed by Landlord.
16. Default by Landlord. If Landlord should default in the
performance of any of its obligations 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, Landlord shall not 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 made 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, replacements or additions
constructed by Tenant, with all fixtures and furnishings included in the Initial
Improvements, but not including movable furniture and 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 Initial Improvements in the same condition as of the date the same were
initially completed, 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) 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) (A)
the Prime Rate in effect for such day so long as the holdover period does not
extend beyond ninety (90) days and (B) for each such day beginning with the
ninety-first day after the holdover commences, three percent (3%) above the
Prime Rate; divided by (iii) 360; subject, however, to all of the terms,
provisions, covenants and agreements on the part of
<PAGE> 57
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: KLA Instruments Lease (Phase III).
or at such other place and in such other manner as Landlord may
designate in a notice to Tenant (provided Landlord will not unreasonably
designate a method of payment other than wire transfer). Time is of the
essence as to all payments and other obligations of Tenant under this
Lease.
(ii) All Construction Advances required to be paid to
Tenant by Landlord hereunder shall be paid to Tenant in immediately
available funds by wire transfer to:
Bank of America
Account Name: KLA Instruments Corporation
Account Number: 1483100220
ABA #: 121000358
Reference: Construction Advance
or at such other place and in such other manner as Tenant may designate
in a notice to Landlord (provided Tenant will not unreasonably designate
a method of payment other than wire transfer). Time is of the essence as
to the payment of all Construction Advances required of Landlord under
this Lease.
<PAGE> 58
(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) and shall be given by any of the following
means: (A) personal service, with proof of delivery or attempted
delivery retained; (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 (C) hereof shall be deemed received (whether or not
actually received) upon first attempted delivery at the proper notice
address on any Business Day between 9:00 A.M. and 5:00 P.M., and any
notice or other communication sent pursuant to clause (B) hereof shall
be deemed received upon dispatch by electronic means.
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
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan
Telecopy: (415) 296-8954
And with a copy to:
Dorothy H. Bjorck
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300,
Dallas, Texas 75201
Telecopy: (214) 969-1550
Address of Tenant:
KLA Instruments Corporation
160 Rio Robles
San Jose, California 95134
Attn: Christopher Stoddart, Treasurer
Telecopy: (408) 434-4268
<PAGE> 59
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Jonathan E. Rattner, Esq.
Telecopy: (415) 328-3029
(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 or any other 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 or any other estate in the Leased Property or any interest in such
fee or other 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, THE PURCHASE AGREEMENT AND
THE PLEDGE 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 and no amendment or modification of this
Lease shall be binding or valid unless expressed in a writing executed by both
parties hereto.
(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 all notices required of Tenant under this Lease, but
this subparagraph shall not limit Tenant's opportunity to prevent an Event of
Default by curing any breach within the cure period (if any) applicable under
subparagraph 14.(a).
(h) Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State of California.
(i) Waiver of a 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
<PAGE> 60
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.
(j) Income Tax Reporting. Landlord and Tenant intend this Lease
and the Purchase Agreement to have a form for income taxes which is different
than the form of this Lease and the Purchase Agreement for other purposes, and
thus the parties acknowledge and agree as follows:
a) FOR PURPOSES OF DETERMINING THEIR RESPECTIVE
FEDERAL, STATE AND LOCAL INCOME TAX OBLIGATIONS, Landlord and Tenant
believe and intend that this Lease and the Purchase Agreement constitute
a financing arrangement or conditional sale. Both Landlord and Tenant
agree to report this Lease and the Purchase Agreement as a financing
arrangement or conditional sale on their respective income tax returns
(the "REQUIRED REPORTING"), unless such Required Reporting is challenged
in writing by the Internal Revenue Service or another governmental
authority with jurisdiction (a "TAX CHALLENGE"). Consistent with the
foregoing, Landlord and Tenant expect that Tenant (and not Landlord)
shall be treated as the true owner of the Property for income tax
purposes, thereby entitling Tenant (and not Landlord) to take
depreciation deductions and other tax benefits available to the owner.
Tenant shall also report all interest earned on Escrowed Proceeds or the
collateral covered by the Pledge Agreement as Tenant's income for
federal, state and local income tax purposes. REFERENCES IN THIS LEASE
OR IN THE PURCHASE AGREEMENT TO A "LEASE" OF THE "LEASED PROPERTY" ARE
NOT INTENDED FOR INCOME TAX PURPOSES TO REFLECT THE INTENT OF LANDLORD
OR TENANT AS TO THE FORM OF THE TRANSACTIONS COVERED BY, OR THE PROPER
CHARACTERIZATION OF, THIS LEASE AND THE PURCHASE AGREEMENT.
b) FOR ALL OTHER PURPOSES, INCLUDING THE
DETERMINATION OF THE APPROPRIATE FINANCIAL ACCOUNTING FOR THIS LEASE AND
THE DETERMINATION OF THEIR RESPECTIVE RIGHTS AND REMEDIES UNDER STATE
LAW, Landlord and Tenant believe and intend that (i) this Lease
constitutes a true Lease, not a mere financing arrangement, enforceable
in accordance with its express terms (and neither this subparagraph
20.(j) the provisions referencing this subparagraph on the title page of
this Lease and in the Purchase Agreement are intended to affect the
enforcement of any other provisions of this Lease or the Purchase
Agreement) and (ii) the Purchase Agreement shall constitute a separate
and independent contract, enforceable in accordance with the express
terms and conditions set forth therein. In this regard, Tenant
acknowledges that Tenant asked Landlord to participate in the
transactions evidenced by this Lease and the Purchase Agreement as a
landlord and owner of the Leased Property, not as a lender. Although
other transactions might have been used to accomplish similar results,
Tenant expects to receive certain material accounting and other
advantages through the use of a lease transaction. Accordingly, and
notwithstanding the Required Reporting for income tax purposes, Tenant
cannot equitably deny that this Lease and the Purchase Agreement should
be construed and enforced in accordance with their respective terms,
rather than as a mortgage or other security device, in any action
brought by Landlord to enforce this Lease or the Purchase Agreement.
<PAGE> 61
In the event of a Tax Challenge, Landlord and Tenant shall each provide
to the other copies of all notices from the Internal Revenue Service or
any other governmental authority presenting the Tax Challenge. Further,
before changing from the Required Reporting because of a Tax Challenge,
Landlord and Tenant shall each consider in good faith any reasonable
suggestions received from the other party to this Lease about an
appropriate response to the Tax Challenge; provided, however, that the
suggestions are set forth in a written notice delivered no later than
thirty (30) days after the suggesting party is first notified of the Tax
Challenge; and, provided further, that when presented with a Tax
Challenge, Landlord and Tenant shall each have the right to change from
the Required Reporting rather than participate in any litigation or
other legal proceeding against the Internal Revenue Service or another
governmental authority. In any event, Tenant must indemnify and hold
harmless Landlord from and against all liabilities, costs, additional
taxes and other expenses that may arise or become due because of any
challenge to the Required Reporting or because of any resulting
recharacterization of this Lease or the Purchase Agreement required by
the Internal Revenue Service or another governmental authority,
including any additional taxes that may become due upon any sale under
the Purchase Agreement, to the extent (if any) that such liabilities,
costs, additional taxes and other expenses are not offset by tax savings
resulting from additional depreciation deductions or other tax benefits
to Landlord of the recharacterization.
<PAGE> 62
IN WITNESS WHEREOF, this Lease is hereby executed in multiple originals
as of the effective date above set forth.
"Landlord"
BNP LEASING CORPORATION
By:
-----------------------------
Name: Lloyd G. Cox
Title: Vice President
"Tenant"
KLA INSTRUMENTS CORPORATION
By:
-----------------------------
Name: Christopher Stoddart
Title: Treasurer
<PAGE> 63
STATE OF TEXAS )
)
COUNTY OF DALLAS )
On August 10, 1995, before me, _____________, personally appeared Lloyd
G. Cox, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature ___________________________
STATE OF CALIFORNIA )
)
COUNTY OF SANTA CLARA )
On August 10, 1995, before me, ________________________, personally
appeared _________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ___________________________
<PAGE> 64
Exhibit A
PROPERTY DESCRIPTION
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
<PAGE> 65
Exhibit B
PERMITTED ENCUMBRANCES
This conveyance is subject to the following matters, but only to the
extent the same are still valid and in full force and effect:
<PAGE> 66
Exhibit C
DESCRIPTION OF RENDERINGS OF THE INITIAL IMPROVEMENTS
Intentionally omitted.
Exhibit C-1-
<PAGE> 67
Exhibit D
[KLA Instruments Lease Phase III]
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:
21. The undersigned has entered into that certain [Construction
Contract] (the "CONSTRUCTION CONTRACT") by and between the undersigned and KLA
Instruments Corporation ("TENANT") dated , 199__ for the construction of the
multiuse complex to be constructed on the 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 herein collectively referred to as the "PROJECT").
22. The undersigned has been advised that BNP owns the Land.
23. The undersigned has also received a copy of the Lease Agreement
dated as of August 10, 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 the
["Owner"] 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.
24. 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.
25. The undersigned has not sent to Tenant or received from Tenant
any notice of default or any other notice 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 the ["Owner"] under the Construction Contract.
The undersigned acknowledges and agrees that:
<PAGE> 68
BNP Leasing Corporation
_______________, 199___
Page 2
a) BNP shall not be held liable for, and the undersigned shall
not assert, any claims, demands or liabilities against BNP or, except for
statutory 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 the ["Owner"] 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 (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 construction 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. If BNP fails
to assume the Construction Contract 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 statutory 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 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 Construction Contract 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 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 (except that
the undersigned may keep an original set of the Construction Contract 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 Construction Contract. 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
Exhibit D-2-
<PAGE> 69
BNP Leasing Corporation
_______________, 199___
Page 3
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
material 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 KLA INSTRUMENTS CORPORATION - SAN JOSE
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 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 the extension of the aforementioned cure period, the
undersigned shall be entitled to an equitable adjustment to the price of the
Construction Contract for such additional costs.
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
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,
_____________________________
Exhibit D-3-
<PAGE> 70
BNP Leasing Corporation
_______________, 199___
Page 4
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.
KLA Instruments Corporation
By:__________________________
Name:_____________________
Title:____________________
Exhibit D-4-
<PAGE> 71
Exhibit E
ESTOPPEL FROM ARCHITECTS/ENGINEERS
KLA INSTRUMENTS LEASE (PHASE III)
_________, 199__
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Re: Assignment of [Architect's/Engineer's 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:
26. The undersigned has entered into that certain
[Architects/Engineers Agreement] (the "AGREEMENT") by and between the
undersigned and KLA Instruments Corporation ("TENANT") dated _________, 199__
for the [design] of the multiuse complex to be constructed on the San Jose
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 herein collectively referred to as
the "PROJECT").
27. The undersigned has been advised that BNP owns the Land.
28. The undersigned has also received a copy of the Lease Agreement
dated as of August 10, 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 the
["Owner"] 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.
29. A 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.
30. The undersigned has not sent to Tenant or received from Tenant
any notice of default or any other notice 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
the ["Owner"] under the Agreement.
1.
The undersigned acknowledges and agrees that:
<PAGE> 72
BNP Leasing Corporation
______________, 199____
Page 2
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 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 the
["Owner"] 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 (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 and
due for services rendered under the Agreement through the date of the letter;
(vii) the estimated total cost of completing services contemplated by the
Agreement after the date of the letter, together with a projected payment
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 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 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 obtain and
use plans and specifications prepared under the Agreement with respect to the
Project. The undersigned shall also, upon request by BNP, deliver to BNP all
such plans and specifications, all 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.
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.
Exhibit E-2-
<PAGE> 73
BNP Leasing Corporation
______________, 199____
Page 3
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 KLA INSTRUMENTS CORPORATION - SAN JOSE 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
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:__________________
Exhibit E-3-
<PAGE> 74
BNP Leasing Corporation
______________, 199____
Page 4
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.
KLA Instruments Corporation
By:_________________________
Name:____________________
Title:___________________
Exhibit E-4-
<PAGE> 75
Exhibit F
Draw Request Forms
KLA Instruments Lease (Phase III)
________, 199__
BNP Leasing Corporation
c/o Banque Nationale de Paris
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan
Re: Construction Advance Request No. __________
by KLA Instruments Corporation
Ladies and Gentlemen:
Reference is made to the Lease Agreement between BNP Leasing
Corporation, as landlord (herein "LANDLORD"), and KLA Instruments Corporation,
as tenant (herein "TENANT"), dated as of August 10, 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.
Tenant 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 Tenant's
general contractor, attached to which is a schedule of values
listing all subcontractors, suppliers and other parties to whom
the general contractor 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) Tenant for construction of Improvements and for which
Tenant is entitled to reimbursement from the Current Advance.
2. A list of any costs paid by Tenant, other than to the general
contractor, for which Tenant 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 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
Exhibit F-1-
<PAGE> 76
BNP Leasing Corporation
______________, 199____
Page 2
the Contractor's Application, are to be paid less than $300,000
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
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 $50,000.
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 Tenant as required by
Paragraph 6.(d)(viii) of the Lease.
We hereby confirm that Landlord will not be responsible for the
application of any funds advanced to Tenant or to any other party at our
request.
Sincerely,
KLA Instruments Corporation
By:________________________________
Name:___________________________
Title:__________________________
cc: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Dorothy H. Bjorck
Thompson & Knight,
a Professional Corporation
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Exhibit F-2-
<PAGE> 77
CONSTRUCTION ADVANCE CERTIFICATE
KLA INSTRUMENTS LEASE (PHASE III)
Pursuant to Paragraph 6.(d)(viii) of the Lease Agreement dated as of August 10,
1995 (the "LEASE") between KLA Instruments Corporation ("TENANT") and BNP
Leasing Corporation ("LANDLORD"), Tenant does hereby represent, warrant and
certify to Landlord in connection with Tenant's request for Construction Advance
No. __________ that:
a) no Event of Default has occurred and is continuing,
b) the representations and warranties of Tenant 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) Construction of the Initial Improvements has commenced
and 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 Tenant has corrected or is diligently pursuing
the correction of any significant defect in such construction,
d) all costs and expenses for which Tenant is requesting
reimbursement by the Construction Advance referenced above constitute actual
costs and expenses incurred by Tenant for the Initial Improvements or for
property taxes or assessments assessed against and paid with respect to the
Leased Property, and
e) The amounts designated for payment to Potential Lien
Claimants in prior Construction advance Requests have been paid to such
Potential Lien Claimants, and the advance being requested hereby will not result
in an excess of $2,000,000 or more of (1) the total cost of work with respect to
which Potential Lien Claimants could have asserted a lien against the Leased
Property and for which Construction Advances have been advanced by Landlord,
over (2) the cost of such work for which Tenant has provided to Landlord
unconditional statutory lien releases from all Potential Lien Claimants.
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 KLA
Instruments Corporation as of ______________, 19___.
KLA Instruments Corporation
By:________________________________
Name:___________________________
Title:__________________________
Exhibit F-3-
<PAGE> 78
LIST OF LIENS FOR WHICH A CLAIM OF LIEN HAS ACTUALLY BEEN FILED
(Construction Advance Request No. ________)
KLA Instruments Lease (Phase III)
Liens for which a claim of lien has actually been filed are as follows:
1.
2.
3.
Exhibit F-4-
<PAGE> 79
OTHER COSTS LIST
(Construction Advance Request No. ________)
KLA Instruments Lease (Phase III)
Costs paid-other than to Tenant's general contractor-by Tenant and for which
Tenant is entitled to reimbursement from the Current Advance being requested are
as follows:
1.
2.
3.
Exhibit F-5-
<PAGE> 80
Exhibit G
FINANCIAL COVENANT COMPLIANCE CERTIFICATE
BNP Leasing Corporation
c/o Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan
Re: KLA LEASE AGREEMENT (PHASE III)
Gentlemen:
I, the undersigned, the [chief financial officer, controller, treasurer
or the assistant treasurer] of KLA Instruments Corporation, do hereby certify,
represent and warrant that:
1. This Certificate is furnished pursuant to subparagraph 9.(w)
(iii) of that certain Lease Agreement dated as of August 10, 1995 (the "LEASE
AGREEMENT," the terms defined therein being used herein as therein defined)
between KLA Instruments Corporation (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
Revolving Credit Agreement attached to 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 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___.
KLA Instruments Corporation
Name:_________________________
Title:________________________
[cc all Participants]
Exhibit G-1-
<PAGE> 81
Annex 1 To Compliance Certificate
For the _________________ Ended ________________, 19___
[INSERT HERE COMPUTATIONS SHOWING COMPLIANCE WITH FINANCIAL COVENANTS]
Exhibit G-2-
<PAGE> 82
Exhibit H
PERMITTED HAZARDOUS SUBSTANCES
KLA INSTRUMENTS LEASE (PHASE III)
(NOT a Comprehensive List)
It is anticipated that the following Hazardous Substances, and others necessary
for the use, occupancy, and operation of the Leased Property in accordance with
the terms and conditions of this Lease, will be used by Tenant at the Leased
Property:
Description_____________________________________C.A.S.#
Exhibit H-1-
<PAGE> 83
Exhibit I
RESOLUTION OF DISPUTED INSURANCE CLAIMS
KLA INSTRUMENTS LEASE (PHASE III)
If Landlord and Tenant cannot agree upon the amount for which any
insurance claim against an insurer should be settled after damage to the Leased
Property by fire or other casualty, and so long as neither Tenant nor Landlord
is authorized to determine such amount without the consent of the other pursuant
to subparagraph 9.(r), then either party may require that the amount be
determined as follows:
(i) Landlord and Tenant shall each appoint an experienced
architect who is familiar with construction costs for comparable
properties in the vicinity of the Leased Property. Each party will make
the appointment no later than 10 days after receipt of notice from the
other party that the dispute resolution process described in this
Exhibit has been invoked. The agreement of the two architects as to the
appropriate amount of the insurance settlement will be binding upon
Landlord and Tenant. If the two architects cannot agree upon the
settlement amount within 30 days following their appointment, they shall
within another 10 days agree upon a third architect. Immediately
thereafter, each of the first two architects will submit his best
estimate of the appropriate settlement amount (together with a written
report supporting such estimate) to the third architect and the third
architect will choose between the two estimates. The estimate chosen by
the third architect as the closest to the amount needed to repair and
restore the Leased Property will be binding upon Landlord and Tenant as
the amount for which the applicable insurance claim should be settled.
(However, no such estimate and nothing contained in this Exhibit will
limit Tenant's liability under other provisions of this Lease for the
repair and restoration of the Leased Property.) Notification in writing
of the estimate chosen by the third architect shall be made to Landlord
and Tenant within 15 days following the selection of the third
architect.
(ii) If architects must be selected under the procedure set
out above and either Tenant or Landlord fails to appoint an architect or
fails to notify the other party of such appointment within 10 days after
receipt of notice that the prescribed time for appointing the architects
has passed, then the other party's architect will determine the
appropriate settlement amount. All architects selected for the dispute
resolution process set out in this Exhibit will be disinterested,
reputable, qualified architects with at least 15 years experience
designing and overseeing the construction of properties comparable to
the Leased Property.
(iii) If a third architect must be chosen under the procedure
set out above, he will be chosen on the basis of objectivity and
competence, not on the basis of his relationship with the other
architects or the parties to this Lease, and the first two architects
will be so advised. Although the first two architects will be instructed
to attempt in good faith to agree upon the third architect, if for any
reason they cannot agree within the prescribed time, either Landlord or
Tenant may require the first two architects to immediately submit its
top choice for the third architect to the then highest ranking officer
of the San Francisco Bar Association who will agree to help and who has
no attorney/client or other significant relationship to either Landlord
or Tenant. Such officer will have complete discretion to select the most
objective and competent third architect from between the choice of each
of the first two architects, and will do so within 20 days after such
choices are submitted to him.
(iv) Either Landlord or Tenant may notify the architect
selected by the other party to demand the submission of an estimate of
the appropriate settlement amount or a choice of a third architect as
required under the procedure described above; and if the submission of
such an estimate or choice is required but the
Exhibit I-1-
<PAGE> 84
other party's architect fails to comply with the demand within 5 days
after receipt of such notice, then the settlement amount or choice of
the third architect, as the case may be, selected by the other architect
(i.e., the notifying party's architect) will be binding upon Landlord
and Tenant.
(v) For the purposes of this Exhibit, "appropriate
settlement amount" and words of like effect means the amount required to
restore the Leased Property, less any insurance deductible that clearly
applies under the policy of insurance which provides the coverage to be
settled; and all architects and other persons involved in the
determination of the settlement amount will be so advised.
Exhibit I-2-
<PAGE> 85
Exhibit J
NOTICE OF LIBOR PERIOD ELECTION
KLA INSTRUMENTS LEASE (PHASE III)
BNP Leasing Corporation
c/o Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael C. Lumanlan
Re: Lease Agreement dated August 10, 1995, between KLA Instruments
Corporation, as tenant, and BNP Leasing Corporation, as landlord
Gentlemen:
Capitalized terms used in this letter are intended to have the meanings
assigned to them in the Lease referenced above. This letter constitutes notice
to you that the LIBOR Period Election under the Lease shall be:
________________ month(s),
beginning with the first Base Rent Period that commences on or after:
______________, 199__.
NOTE: YOU SHALL BE ENTITLED TO DISREGARD THIS NOTICE IF THE NUMBER OF MONTHS
SPECIFIED ABOVE IS NOT A PERMITTED NUMBER UNDER THE DEFINITION OF "LIBOR PERIOD
ELECTION" SET FORTH AS PARAGRAPH 1.(bg) OF THE LEASE, OR IF THE DATE SPECIFIED
ABOVE CONCERNING THE COMMENCEMENT OF THE LIBOR PERIOD ELECTION IS LESS THAN TEN
(10) BUSINESS DAYS AFTER YOUR RECEIPT OF THIS NOTICE. HOWEVER, WE ASK THAT YOU
NOTIFY US IMMEDIATELY IF FOR ANY REASON YOU BELIEVE THIS NOTICE IS DEFECTIVE.
Executed this _____ day of ______________, 19___.
KLA Instruments Corporation
Name:_________________________
Title:________________________
[cc all Participants]
<PAGE> 86
EXECUTION
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "AGREEMENT") is made as of August 10,
1995, by KLA INSTRUMENTS CORPORATION, a Delaware corporation ("KLA"), and BNP
LEASING CORPORATION, a Delaware corporation ("BNP").
R E C I T A L S
A. BNP is acquiring the land described in Part I of Exhibit A
attached hereto and any improvements and fixtures located thereon, and BNP
anticipates that it will obtain the land described in Part II of Exhibit A.
Pursuant to a Lease Agreement (as from time to time supplemented, amended or
restated, the "LEASE") dated as of the date hereof between KLA and BNP, the land
described in Part I of Exhibit A is being leased by BNP to KLA, and the Lease
provides that the land described in Part II of Exhibit A will be leased by BNP
to KLA effective as of the date BNP acquires such land.
B. BNP is also concurrently herewith receiving a separate
environmental indemnity from KLA pursuant to an Environmental Indemnity
Agreement (as from time to time supplemented, amended or restated, the
"ENVIRONMENTAL INDEMNITY") between KLA and BNP dated as of the date hereof.
C. As a condition to BNP's acquisition of any of the land
described in Exhibit A, BNP requires the agreements of KLA, on and subject to
the terms and conditions set out herein, to protect BNP against certain losses
that BNP may suffer if (1) the value of the land covered from time to time under
the Lease is or becomes less than BNP's investment in such land, or (2) the
value of buildings and other property covered by the Lease, exclusive of land,
is or may become less than BNP's investment in such buildings and other
property.
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 "KLA", "BNP", "Lease,"
and "Environmental Indemnity" 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 KLA to purchase the interest of BNP in the Property as
provided in Paragraph 2(a)(2) below; provided, the third party so designated
must not be a Person prohibited by ERISA from purchasing BNP's interest.
(b) Designated Payment Date. "Designated Payment Date" means the
earlier of:
(1) the effective date of any termination of the Lease by KLA
pursuant to Paragraph 2 thereof;
<PAGE> 87
(2) any Advance Date or Base Rent Date designated by KLA in a
written notice given by KLA to BNP, provided the notice of the date so
designated is given by KLA at least thirty (30) days before the date so
designated; or
(3) any date designated by BNP in a written notice given by
BNP to KLA when an Event of Default by KLA is continuing, provided the
notice of the date so designated is given by BNP at least thirty (30)
days before the date so designated; or
(4) August 1, 2000, or if August 1, 2000 is not a Business
Day, then the next following Business Day.
(c) Fair Market Value. "Fair Market Value" means with respect to
any property or interest therein, the fair market value of such property or
interest on or about the Designated Payment Date (calculated under the
assumptions, whether or not then accurate, that KLA has maintained the Property
in compliance with all Applicable Laws [including Environmental Laws]; that KLA
has completed all construction which was commenced prior to the Designated
Payment Date; that KLA has repaired and restored the Property after any damage
following fire or other casualty; that KLA has restored the remainder of the
Property after any partial taking by eminent domain; that KLA 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 other than
Prohibited Encumbrances; that KLA has complied with all Permitted Encumbrances
and 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.
(d) Improvement Value Percentage. "Improvement Value Percentage"
means the percentage computed by dividing the value of the Improvements and any
other Property, exclusive of the land, by the value of the entire Property,
including land. BNP and KLA stipulate that the Improvement Value Percentage is
65.58% and will remain so unless it is adjusted by BNP prior to the Designated
Payment Date. Following any change in circumstances that could affect the
allocation of the value of the Property between land and other parts of the
Property (including, without limitation, any casualty or condemnation or
conveyance in lieu of condemnation and any construction or demolition of
improvements not presently anticipated), BNP may determine that an adjustment to
the Improvement Value Percentage is necessary or appropriate, in which event BNP
may make the adjustment it deems necessary or appropriate by notice given to KLA
at any time prior to the Designated Payment Date. Any such determination by BNP
shall be conclusive and binding for purposes of this Agreement, absent clear and
demonstrable error.
(e) Land Value Percentage. "Land Value Percentage" means 100%
less the Improvement Value Percentage. Absent an adjustment of the Improvement
Value Percentage as provided in the definition thereof above, the Land Value
Percentage shall equal 34.42%.
(f) Property. "Property" means the land and easements 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, together with BNP's interest in any funds held as Escrowed Proceeds
from time to time; provided, however, as used herein "Property" will not include
the land described in Part II of Exhibit A or any improvements thereof or
easements appurtenant thereto or any
-2-
<PAGE> 88
Personal Property (as defined in the Lease) related to such land, unless and
until BNP acquires such land and thereby causes it to be effectively added to
the Leased Property.
(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 KLA or any Participant approved by KLA, or (iii)
exists because of any breach by KLA 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 KLA.
(i) Net Improvement Sales Proceeds. "Net Improvement Sales
Proceeds" means the Improvement Value Percentage, times the net cash price that
BNP actually receives from any Applicable Purchaser upon the Designated Payment
Date because of BNP's sale of its interest in the Property to such Applicable
Purchaser or that BNP would have received from an Applicable Purchaser on the
Designated Payment Date but for BNP's election to retain the Property as
provided in Paragraph 2(a)(2) below.
(j) Net Land Sales Proceeds. "Net Land Sales Proceeds" means the
Land Value Percentage, times the net cash price that BNP actually receives from
any Applicable Purchaser upon the Designated Payment Date because of BNP's sale
of its interest in the Property to such Applicable Purchaser or that BNP would
have received from an Applicable Purchaser on the Designated Payment Date but
for BNP's election to retain the Property as provided in Paragraph 2(a)(2)
below.
(k) Remarketing Notice. "Remarketing Notice" shall have the
meaning assigned to it in Paragraph 2(b)(1) below.
(l) Required Documents. "Required Documents" means the grant
deed and other documents that BNP must tender pursuant to Paragraph 3 below.
(m) Shortage Amount. "Shortage Amount" shall mean the sum of any
Supplemental Land Payment and any Supplemental Improvement Payment that may
become due pursuant to Paragraph 2(a)(2) below.
-3-
<PAGE> 89
(n) Stipulated Loss Value of the Improvements. "Stipulated Loss
Value of the Improvements" means the Improvement Value Percentage, times the
Stipulated Loss Value outstanding on the Designated Payment Date prior to any
sale hereunder.
(o) Stipulated Loss Value of the Land. "Stipulated Loss Value of
the Land" means the Land Value Percentage, times the Stipulated Loss Value
outstanding on the Designated Payment Date prior to any sale hereunder.
(p) Supplemental Improvement Payment. "Supplemental Improvement
Payment" means a payment from KLA to BNP equal to the amount, if any, by which
the Stipulated Loss Value of the Improvements exceeds Net Improvement Sales
Proceeds. HOWEVER, IF (BUT ONLY IF) NO EVENT OF DEFAULT HAS OCCURRED AND IS
CONTINUING UNDER THE LEASE AND NEITHER KLA 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, THEN ANY SUPPLEMENTAL IMPROVEMENT PAYMENT REQUIRED BY
THIS AGREEMENT SHALL NOT EXCEED EIGHTY-FIVE PERCENT (85%) OF THE STIPULATED LOSS
VALUE OF THE IMPROVEMENTS.
(q) Supplemental Land Payment. "Supplemental Land Payment" means
a payment from KLA to BNP equal to the amount, if any, by which the Stipulated
Loss Value of the Land exceeds Net Land Sale Proceeds. HOWEVER, IF (BUT ONLY IF)
NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING UNDER THE LEASE AND NEITHER
KLA 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, THEN ANY
SUPPLEMENTAL LAND PAYMENT REQUIRED BY THIS AGREEMENT SHALL NOT EXCEED
EIGHTY-FIVE PERCENT (85%) OF THE STIPULATED LOSS VALUE OF THE LAND.
2. KLA's Options and Obligations on the Designated Payment Date.
(a) Choices. On the Designated Payment Date KLA shall have the
right and the obligation to either:
(1) purchase BNP's interest in the Property for a net cash
price equal to the Purchase Price; or
(2) pay to BNP the Supplemental Improvement Payment (if any)
and the Supplemental Land Payment (if any) and cause the Applicable
Purchaser to purchase BNP's interest in the Property for a net cash
price not less than the lesser of (a) the Fair Market Value of the
Property or (b) Stipulated Loss Value outstanding immediately prior to
the purchase. If, however, the Fair Market Value is less than fifteen
percent (15%) of Stipulated Loss Value, BNP may elect to keep the
Property rather than sell to the Applicable Purchaser, and no such
election by BNP will relieve KLA of its obligation to pay the
Supplemental Improvement Payment and the Supplemental Land Payment. Any
Supplemental Improvement Payment will compensate BNP for, or mitigate
against, any loss BNP may suffer relating to BNP's interest in
Improvements; and any Supplemental Land Payment will compensate BNP
for, or mitigate against, any loss BNP may suffer relating to BNP's
interest in the Land only. In any event, 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 KLA to BNP, KLA shall be entitled
to such excess.
-4-
<PAGE> 90
(b) Election by KLA. KLA shall have the right to elect whether it
will satisfy the obligations set out in clause (1) or (2) of the preceding
Paragraph 2(a); provided, however, that KLA must comply with the following
requirements:
(1) To give BNP the opportunity to have the Fair Market Value
determined by an appraiser before the Designated Payment Date, KLA
must, unless KLA concedes that Fair Market Value will not be less than
fifteen percent (15%) of Stipulated Loss Value on the Designated
Payment Date, provide BNP with a Remarketing Notice (as defined below)
no sooner than one hundred eighty (180) days before the Designated
Payment Date and no later than ninety (90) days before the Designated
Date, specifying that KLA does not concede that the Fair Market Value
of the Property is equal to or greater than fifteen percent (15%) of
the Stipulated Loss Value. 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) KLA fails to
provide a Remarketing Notice within the time periods specified in the
preceding sentence, Fair Market Value shall, for purposes of this
Agreement, be deemed to be no less than fifteen percent of Stipulated
Loss Value on the Designated Payment Date. "REMARKETING NOTICE" means a
notice given by KLA to BNP (and to each of the Participants) no earlier
than one hundred eighty (180) days before the Designated Payment Date
and no later than ninety (90) days before the Designated Payment Date.
A Remarketing Notice will be required only if KLA does not concede that
Fair Market Value of the Property will equal or exceed fifteen percent
(15%) 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) KLA fails to provide a Remarketing
Notice within the time periods specified in the definition of
Remarketing Notice above, Fair Market Value of the Property shall, for
purposes of this Agreement, be deemed to be no less than fifteen
percent (15%) 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, KLA must, if it is to
elect to satisfy the obligations set forth in clause (2) of Paragraph
2(a), specify an Applicable Purchaser in a notice to BNP given at least
seven (7) days prior to the Designated Payment Date. If for any reason
KLA fails to so specify an Applicable Purchaser, KLA shall be deemed to
have irrevocably elected to satisfy the obligations set forth in clause
(1) of Paragraph 2(a).
(c) Termination of KLA's Option To Purchase. Without limiting
BNP's right to require KLA to satisfy the obligations imposed by Paragraph 2(a),
KLA shall have no further option hereunder to purchase the Property if either:
(1) KLA shall have elected to satisfy the obligations set
forth in clause (2) of Paragraph 2(a) above on a Designated Payment
Date and BNP shall have elected to keep the Property on such Designated
Payment Date in accordance with clause (2) of Paragraph 2(a); or
(2) KLA 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.
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<PAGE> 91
If BNP does not receive all payments due under the Lease and all payments
required hereunder on a Designated Payment Date, KLA 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), 2(b) or 2(c) by KLA 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 hereunder, on the Designated Payment Date KLA must pay all amounts then
due to BNP under the Lease. BNP will remit any excess amounts due KLA pursuant
to the last sentence of clause (2) of Paragraph 2(a) promptly after (and no
later than 30 days after) BNP's receipt of the same.
(e) Effect of Options on Subsequent Title Encumbrances. It is
the intent of BNP and KLA that any conveyance of the Property to KLA or any
Applicable Purchaser pursuant to this Agreement shall cut off and terminate any
interest in the Property claimed by, through or under BNP (but not any
unsatisfied obligations to BNP under the Lease, the Environmental Indemnity or
this Agreement). Such interests cut off and terminated will include but not be
limited to any interests in the Property claimed by Participants or any holder
of a Leasehold Mortgage, any leasehold or other interests in the Property
conveyed by BNP in the ordinary course of BNP's business and any other
Prohibited Encumbrances. Anyone accepting or taking any interest in the Property
by or through BNP after the date of this Agreement shall acquire such interest
subject to the rights and options granted KLA hereby. Further, KLA 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 KLA 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 clause (2) of Paragraph 2(a),
deliver Escrowed Proceeds, if any, and convey all of its right, title and
interest in the Property by grant deed to KLA 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 KLA 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 KLA 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
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<PAGE> 92
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 KLA's Obligations.
(a) Status of this Agreement. Except as expressly provided in the
last sentence of this subparagraph and elsewhere herein, this Agreement shall
not terminate, nor shall KLA have any right to terminate this Agreement, nor
shall KLA be entitled to any reduction of the Purchase Price hereunder, nor
shall the obligations of KLA 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 KLA'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 KLA or any party claiming under KLA by paramount title or
otherwise, (v) KLA'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 KLA hereunder (including KLA's obligation to make payments under
- - and, if applicable, to cause the Applicable Purchaser to make payments under -
Paragraph 2) shall be separate and independent of the covenants and agreements
of BNP. 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 KLA hereunder shall continue unaffected by any breach of this
Agreement by BNP. However, nothing in this subparagraph, nor the performance
without objection by KLA of its obligations hereunder, shall be construed as a
waiver by KLA of any right KLA may have at law or in equity, following any
failure by BNP to tender a grant deed and the other Required Documents as
required by Paragraph 3 upon the tender by KLA and/or the Applicable Purchaser
of the payments required by Paragraph 2 and of the other documents to be
executed in favor of BNP at the closing of the sale hereunder, to (i) recover
monetary damages proximately caused by such failure of BNP if BNP does not cure
the failure within thirty (30) days after KLA demands a cure by written notice
to BNP, or (ii) a decree compelling performance of BNP's obligation to so tender
a grant deed and the Required Documents.
(b) Remedies Under the Lease and the Environmental Indemnity. No
repossession of or re-entering upon the Property or exercise of any other
remedies available under the Lease or the Environmental Indemnity shall relieve
KLA of its liabilities and obligations hereunder, all of which shall survive the
exercise of remedies under the Lease and Environmental Indemnity. KLA
acknowledges that the consideration for this Agreement is separate and
independent of the consideration for the Lease and the Environmental Indemnity,
and KLA's obligations hereunder shall not be affected or impaired by any event
or circumstance that would excuse KLA from performance of its obligations under
the Lease or the Environmental Indemnity.
5. 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 such 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.
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<PAGE> 93
6. 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 granted 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.
7. 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.
8. Estoppel Certificate. KLA and BNP will each, upon not less
than twenty (20) days' prior written request by the other, 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. Neither KLA nor BNP shall be
required to provide such a certificate more frequently than once in any six
month period; provided, however, that if either party 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, the other shall provide a certificate upon request
whether or not it had provided a certificate within the prior six month period.
9. 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:
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<PAGE> 94
(a) All payments required to be made by KLA or the Applicable
Purchaser to BNP hereunder shall be paid to BNP in immediately available funds
by wire transfer to:
Federal Reserve Bank of San Francisco
Account: Banque Nationale de Paris
ABA #: 121027234
Reference: KLA Instruments (Phase III).
or at such other place and in such other manner as BNP may designate in a notice
to KLA (provided BNP will not unreasonably designate a method of payment other
than wire transfer). Time is of the essence as to all payments to BNP under this
Agreement. Any payments required to be made by BNP to KLA pursuant to the last
sentence of clause (2) of Paragraph 2(a) shall be paid to KLA in immediately
available funds by wire transfer to the account of KLA designated in writing by
KLA or as KLA may otherwise direct by written notice sent in accordance
herewith.
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<PAGE> 95
(b) All notices, demands 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: (A) personal service,
with proof of delivery or attempted delivery retained; (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 (C) hereof shall be deemed received (whether or not actually received) upon
first attempted delivery at the proper notice address on any Business Day
between 9:00 A.M. and 5:00 P.M., and any notice or other communication sent
pursuant to clause (B) hereof shall be deemed received upon dispatch by
electronic means.
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
180 Montgomery Street
San Francisco, California 94104
Attention: Rafael Lumanlan
Telecopy: (415) 296-8954
And with a copy to:
Dorothy H. Bjorck
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Telecopy: (214) 969-1550
Address of KLA:
KLA Instruments Corporation
160 Rio Robles
San Jose, California 95134
Attn: Christopher Stoddart, Treasurer
Telecopy: (408) 434-4268
With a copy to:
Gray Cary Ware & Freidenrich
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<PAGE> 96
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Jonathan Rattner, Esq.
Telecopy: (415) 328-3029
10. Severability. Each and every covenant and agreement of KLA
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 KLA hereunder, to the maximum extent possible, shall be
deemed to be separate, independent and in addition to, not in lieu of, the
obligations of KLA under the Lease and other documents referenced herein. In the
event of any inconsistency between the express terms of this Agreement and the
express terms and provisions of the Lease or other documents referenced herein,
the terms and provisions of this Agreement shall control.
11. Entire Agreement. This Agreement and the documents and
agreements referred to herein set forth the entire agreement between the parties
concerning the subject matter hereof and no amendment or modification of this
Agreement shall be binding or valid unless expressed in a writing executed by
both parties hereto.
12. 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.
13. 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.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE UNDER AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
15. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon KLA and BNP and their respective
permitted successors and assigns and shall inure to the benefit of KLA and BNP
and all permitted transferees, mortgagees, successors and assignees of KLA and
BNP with respect to the Property; provided, that the rights of BNP hereunder
shall not pass to KLA 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
thereafter arising under this Agreement and the Lease, and KLA agrees to look
solely to each successor in interest of BNP for performance of such obligations.
16. WAIVER OF JURY TRIAL. BNP AND KLA 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
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<PAGE> 97
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. KLA 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. KLA 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. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
17. Security. KLA's obligations under this Agreement are secured
by the Pledge Agreement, reference to which is hereby made for a description of
the Collateral (as defined in the Pledge Agreement) covered thereby and the
rights and remedies provided to BNP thereby. Although BNP shall be entitled to
hold all Collateral as security for the full and faithful performance by KLA of
KLA's covenants and obligations under this Agreement, the Collateral shall not
be considered an advance payment of the Purchase Price or any Shortage Amount or
a measure of BNP's damages should KLA breach this Agreement. If KLA does breach
this Agreement and fails to cure the same within any time specified herein for
the cure, BNP may, from time to time, without prejudice to any other remedy and
without notice to KLA, immediately apply the proceeds of any disposition of the
Collateral (and any cash included in the Collateral) to amounts then due
hereunder from KLA. If BNP assigns its interest in the Leased Property before
the Designated Payment Date, BNP may also assign BNP's interest in the
Collateral to the assignee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"BNP"
BNP LEASING CORPORATION, a Delaware corporation
By:
-------------------------------------------------
Lloyd G. Cox, Vice President
"KLA"
KLA INSTRUMENTS CORPORATION, a Delaware corporation
By:
-------------------------------------------------
Name: Christopher Stoddart, Treasurer
Title: Treasurer
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<PAGE> 98
EXHIBIT A
Legal Description
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
A-1
<PAGE> 99
EXHIBIT B
[Use printed form assignment provided by California counsel, but expressly
subject to encumbrances described in Annex B]
B-1
<PAGE> 100
ANNEX A
(to Deed)
Legal Description
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
B-2
<PAGE> 101
Exhibit B
(to Grant Deed)
PERMITTED ENCUMBRANCES
This conveyance is subject to the matters described in the attached
pages and to the following matters to the extent the same are still valid and in
force:
[IF THE CONVEYANCE IS TO AN APPLICABLE PURCHASER:
__. Lease Agreement dated as of August 10, 1995 by and between BNP Leasing
Corporation, as lessor, and KLA Instruments Corporation, as lessee.
__. Any encumbrances claimed by, through or under KLA Instruments
Corporation]
[ADD A LIST OF ANY OTHER KNOWN ENCUMBRANCES FOR WHICH BNP IS NOT RESPONSIBLE
UNDER PARAGRAPH 10(A) OF THE LEASE.]
B-3
<PAGE> 102
EXHIBIT C
[PRINTED FORM OF CHANGE OF OWNERSHIP REPORT TO BE ATTACHED]
C-1
<PAGE> 103
EXHIBIT D
BILL OF SALE, ASSIGNMENT OF CONTRACT
RIGHTS AND INTANGIBLE ASSETS
Assignor hereby sells, transfers and assigns unto [KLA 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) all licenses, permits or similar consents (excluding any
prepaid utility reservations) from third parties to the extent related to the
real property described in Annex A attached hereto (the "Property");
(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;
(c) any goods, equipment, furnishings, furniture, chattels and
personal property of whatever nature that are located on or about the
Property; and
(d) any general intangibles, permits, licenses, franchises,
certificates, and other rights and privileges owned by Assignor and used solely
in connection with, or relating solely to, the Property, excluding any rights or
privileges of Assignor under (i) the Environmental Indemnity, as defined in that
certain Purchase Agreement between Assignor and KLA Instruments Corporation
dated as of August 10, 1995 (the "PURCHASE AGREEMENT") (pursuant to which this
document is being delivered), (ii) the Lease, as defined in the Purchase
Agreement, 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, (iii) agreements between Assignor and Participants, as defined
in the Lease, or any modification or extension thereof, and (iv) 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 [KLA].
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.
D-1
<PAGE> 104
Executed:__________________________________, 199__.
ASSIGNOR:
BNP LEASING CORPORATION
a Delaware corporation
By:_________________________________________________
Its:________________________________________________
ASSIGNEE:
[KLA, OR THE APPLICABLE PURCHASER], a
_________ corporation
By:_________________________________________________
Its:________________________________________________
D-2
<PAGE> 105
ANNEX A
Legal Description
REAL PROPERTY in the City of San Jose, State of California, described as
follows:
D-3
<PAGE> 106
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 [KLA 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 grant deed covering a leasehold estate under a ground lease 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 any interest in 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.
E-1
<PAGE> 107
EXECUTED as of ________________, 199___.
____________________, a ____________________
By:_________________________________________
Name:____________________________________
Title:___________________________________
E-2
<PAGE> 108
EXHIBIT F
DOCUMENTARY TRANSFER TAX REQUEST
ACCOUNTABLE FORM #_________
DATE:_______________
To: _________ County Recorder
Subject: REQUEST THAT DOCUMENTARY TRANSFER TAX DECLARATION BE MADE IN
ACCORDANCE WITH REVENUE CODE 11932.
Re: Instrument Title: 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 not 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____________
F-1
<PAGE> 109
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.
F-2
<PAGE> 110
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]
G-1
<PAGE> 111
CORPORATE RESOLUTIONS OF
BNP LEASING CORPORATION
WHEREAS, pursuant to that certain Purchase Agreement (herein called the
"PURCHASE AGREEMENT") dated as of August 10, 1995, by and between BNP Leasing
Corporation (the "CORPORATION") and [KLA 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 San Jose, 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]
G-2
<PAGE> 112
EXHIBIT H
BNP LEASING CORPORATION
717 N. HARWOOD
SUITE 2630
DALLAS, TEXAS 75201
_________, 199_
[Title Insurance Company]
_________________________
_________________________
_________________________
Re: Recording of Grant Deed to [KLA 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,
H-1
<PAGE> 113
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 ("BNP"), the undersigned hereby certifies the following on behalf of
BNP:
1. BNP 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 BNP is
_____________________;
3.The office address of BNP 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. BNP IS QUALIFIED TO DO BUSINESS IN CALIFORNIA.
OR
4. BNP 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.]
BNP 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.
BNP understands that the Transferee is relying on this affidavit in
determining whether withholding is required upon said transfer. BNP 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.
I-1
<PAGE> 114
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 BNP.
Dated:____________, 199___.
By:_______________________
Name:__________________
Title:_________________
I-2
<PAGE> 1
EXHIBIT 13
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
QUARTER ENDED SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
- ---------------------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 51.9 $ 57.1 $ 62.6 $ 72.1 $ 83.2 $104.7 $118.1 $136.4
Gross profit 20.7 24.7 29.4 35.9 42.6 56.3 63.9 75.0
(% of net sales) 39.9% 43.3% 47.0% 49.8% 51.2% 53.8% 54.1% 55.0%
Engineering, research and
development expense 4.9 4.8 5.5 7.2 8.2 8.8 12.3 16.0
(% of net sales) 9.4% 8.4% 8.8% 10.0% 9.9% 8.4% 10.4% 11.7%
Selling, general and
administrative expense 9.9 11.3 12.0 15.0 16.5 21.7 21.6 25.5
(% of net sales) 19.1% 19.8% 19.2% 20.8% 19.8% 20.7% 18.3% 18.7%
Net income 4.2 6.3 9.0 10.7 12.8 1.0(a) 20.8 24.0
(% of net sales) 8.1% 11.0% 14.4% 14.8% 15.4% 1.0% 17.6% 17.6%
Net income per share $ 0.20 $ 0.30 $ 0.40 $ 0.45 $ 0.54 $ 0.04(a) $ 0.86 $ 0.94
Shares used in computing
net income per share 20.8 20.9 22.7 23.7 23.9 24.1 24.3 25.5
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Includes a net charge of $16.2 million or $0.66 per share, for writeoff of
acquired in-process technology.
<PAGE> 2
Management's Financial Commentary
Last year we described fiscal 1994 as a breakthrough year that resulted in a
sharp improvement in earnings. This year we can describe fiscal 1995 as a year
of rapid advance on all fronts. For the first time in many years, all of KLA's
major businesses were growing at the same time. Earnings per share of $3.06
(prior to the write-off resulting from the acquisition of Metrologix) were more
than double the prior year's record of $1.37 in fiscal 1994. This improvement
was the result of a number of factors. First and foremost, semiconductor
manufacturers continued to find new uses for the KLA 2100 series, and adoption
of KLA's methodologies became more pervasive. The top ten manufacturing plants
using KLA's approach now average seven KLA 2100 systems per fab, and more than
88 fabs have multiple systems installed or on order. The second factor was the
continued strength of capital spending by the industry on new submicron
manufacturing capabilities. The electronic components in greatest demand, such
as microprocessors, memories and custom ASICs, require facilities capable of
manufacturing circuits with 0.5-micron features or below. The shortage of these
advanced facilities has resulted in a strong cycle of spending by semiconductor
manufacturers. This spending strength has driven demand for all of KLA's
products, including the metrology and test division systems. A third
consideration was the recovery of the reticle and photomask business, reflecting
the industry's enthusiasm for the new capabilities of the KLA 331. The system
employs a new KLA technology, Simultaneous Transmitted and Reflected Light
("STARlight"), which finds many new classes of defects not previously thought to
exist on masks and reticles. As a result, both mask makers and mask users are
interested in this new verification technology.
As a result of these factors, KLA's bookings grew 80% in fiscal 1995, and
backlog doubled from about $125 million at June 30, 1994, to about $250 million
at June 30, 1995. To accommodate this continuing growth, KLA increased cleanroom
manufacturing space during the fiscal year by over 100%, entered into an
agreement to lease a 105,000 square-foot facility being constructed at its main
campus site, and leased an additional 73,000 square feet of office and
manufacturing space adjacent to the campus. In August of 1995, KLA also entered
into leases for 134,000 square feet in three buildings adjacent to the KLA
campus.
During fiscal 1995, KLA expanded the product offering of the metrology
business by acquiring Metrologix, a manufacturer of scanning electron
microscope(SEM) products used to measure the linewidths of very advanced
devices. As these linewidths became smaller, the optical technology of the KLA
5100 was less able to resolve the images for linewidth measurement. As a result,
the KLA 5100 is now employed primarily for overlay alignment applications, and
it continues to have a majority share of that market. The acquisition resulted
in an after-tax charge of $16.2 million attributable to the write-off of
in-process technology; this charge reduced earnings in the second quarter by
$0.66 per share.
ANNUAL RESULTS OF OPERATIONS
Sales increased 82% in fiscal 1995 compared with increases of 46% and 7% in
fiscal 1994 and 1993, respectively. The dollar sales increase in fiscal 1995 was
primarily attributable to the continued success of the 2100 series product line
manufactured by the Wafer Inspection Business Unit (WISARD). However, comparable
percentage increases were also recorded by the Reticle and Photomask Inspection
Business Unit (RAPID) for the reasons described earlier and by the Optical
Metrology Business Unit, which continued to achieve the majority share of its
overlay metrology market. Smaller percentage gains were seen in the ATS
Division, which benefited from the introduction of a new prober model, and the
Customer Service Division (CSD), which benefited from the growing installed base
of KLA equipment worldwide. The 46% sales increase in fiscal 1994 was again
primarily attributable to rising demand for WISARD's 2100 series product. The
Metrology Business Unit recorded a similar percentage increase to that of
WISARD. Revenue increases were also recorded in the RAPID and ATS divisions. The
7% sales increase in fiscal 1993 reflected strength in the ATS and Metrology
divisions, which slightly offset a decline in RAPID caused by a delay in
completing all the features of its new 300 Series.
International sales as a percent of total sales were 69%, 65% and 62% in
fiscal years 1995, 1994 and 1993, respectively. The increase in international
sales in fiscal 1995 was due to continued strong demand from Korea, to an
upsurge in orders from Taiwan in the second half of the year, and to a
continuation of the recovery of the Japanese semiconductor industry to more
traditional levels of profitability and investment.
Gross margins were 54%, 45% and 36% in fiscal years 1995, 1994 and 1993,
respectively. The improvement in fiscal 1995 was due to manufacturing
efficiencies in WISARD, the rise in WISARD's share of KLA's total revenues, the
absorption of fixed overhead costs by higher sales volumes and the favorable
impact of a stronger yen. The gross margin improvement in fiscal 1994 was driven
by the same considerations as in fiscal 1995. Gross margins in fiscal 1993 were
adversely impacted by new product transitions in all divisions, which generated
large scrap, rework and overhead variance costs. In RAPID, these transitions,
unlike others in KLA's history, involved redesigns of every significant
subsystem.
Engineering, research and development expenses were 10%, 9% and 10% of
revenue in fiscal 1995, 1994 and 1993, respectively. In absolute dollars, these
expenses doubled to $45.3 million in fiscal 1995. As the Company increasingly
concentrates on the broad opportunities in yield management, including the
networking of all measurement tools in the fab, it is increasingly identifying
opportunities to develop and market new systems and measurement tools, as well
as applications and the related software for using these tools. Many such
opportunities occurred in the WISARD Division during fiscal 1995, and R&D
spending increased accordingly. Increases in R&D were also recorded in RAPID,
Metrology and the new PRISM division. The decline in the percent of revenue for
R&D in fiscal 1994 to 9% was due to the efficiency of developing new models with
less extensive redesign of many subsystems than normal.
Engineering, research and development expenses are shown net of funds KLA
receives
14
<PAGE> 3
from customers, industry groups and government sources and also net of any
capitalization of software costs. KLA's gross R&D expenses were reduced by 1%,
2% and 4% by these sources in fiscal years 1995, 1994 and 1993, respectively.
KLA did not capitalize any software costs in fiscal years 1995 and 1994.
Selling, general and administrative costs were 19%, 20% and 20% in fiscal
years 1995, 1994 and 1993, respectively. In fiscal 1995, decreases in sales and
administration expenses as a percentage of sales were partially offset by
increases in profit-sharing expenses resulting directly from the continued
improvement in KLA's financial performance. In fiscal 1994, representative
commissions and profit-sharing expenses increased slightly, and were offset by a
decline in sales and administrative expenses, all as a percent of revenues.
"Interest income and other, net," increased in fiscal 1995 because the
Company had higher balances of cash, cash equivalents and marketable securities.
These balances increased primarily because of the secondary public offerings of
stock of $68.6 million in February 1994 and $91 million in May 1995. Interest
expense was $2.4, $2.0 and $3.4 million in fiscal years 1995, 1994 and 1993,
respectively. The decline in fiscal 1994 was due primarily to an interest rate
adjustment in August 1993 on KLA's mortgage loan from 10.3% to 5.63%.
The provision for income taxes on pretax income was 34%, 25% and 25% in
fiscal 1995, 1994 and 1993, respectively. In fiscal 1995, the income tax rate
was lower than the statutory U.S. tax rate primarily due to the benefits
generated by KLA's foreign sales corporation and the realization of deferred tax
assets which were previously reserved. KLA's tax rate increased from 1994 to
1995 as a result of a greater percentage of worldwide earnings being taxable in
the U.S. in 1995 than in prior years. In fiscal 1993 and 1994, the income tax
rate was lower than the statutory U.S. tax rate primarily due to tax advantages
in Switzerland that resulted in a lower net foreign tax rate and as a result of
the realization of deferred tax assets previously reserved. Additionally, the
fiscal 1994 rate was reduced by the utilization of $1.9 million in foreign tax
credits.
The IRS is currently auditing the Company's federal income tax returns for
fiscal years 1985-1992. Management believes sufficient taxes have been provided
in prior years and that the ultimate outcome of the IRS audit will not have a
material adverse impact on the Company's financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities increased by $105.6 million in
fiscal 1995 with $22.3 million from operations, $91 million from a secondary
public offering in May 1995, and $24.7 million from the after-tax impact of
stock option and stock purchase plans. This was partially offset by a $14.2
million cash payment to purchase Metrologix, and $19 million in capital
expenditures. Cash provided by operations was substantially less than reported
earnings due to the working capital investment required to support the rise in
revenues.
Capital expenditures of $19 million in fiscal 1995 compared with
depreciation charges of approximately $11 million and were about triple the
fiscal 1994 amount. The major uses of capital were the facility expansion at
KLA's main campus and the facility expansions at KLA Israel and Japan. Capital
expenditures for fiscal 1996 are expected to be greater than depreciation but
less than the fiscal 1995 amount; however, this assessment could change if
demand continues to exceed estimates and additional manufacturing capacity is
required. No estimate can be made of the size or cost of any such additional
capacity.
The Company has entered into lease agreements to occupy three buildings
beginning in fiscal 1996. In total, the lessor has committed to fund up to $27.9
million to construct or acquire and improve the three buildings located at KLA's
main campus site. KLA may, at its option, purchase the properties during the
term of the leases at approximately the amount expended by the lessor to
acquire, construct and improve the properties. If the Company does not purchase
the buildings at the end of the leases, the Company will guarantee the lessor
85% of the residual values of the properties as determined at the inception of
the leases.
KLA believes that its current level of liquid assets, borrowing facilities,
working capital and cash expected to be generated from operations will be
sufficient to fund its growth through at least fiscal 1996. The current policy
of KLA is not to pay dividends. Management believes that it is in the best
interests of the stockholders to continue to reinvest KLA's earnings in the
business.
[PHOTO OF ROBERT J. BOEHLKE, VICE PRESIDENT, FINANCE AND ADMINISTRATION AND
CHIEF FINANCIAL OFFICER]
BUSINESS RISKS AND UNCERTAINTIES
The Company's future results will depend on its ability to continuously
introduce new products and enhancements to its customers as demands for higher
productivity and specifications of semiconductor test equipment change or
increase. Due to the risks inherent in transitioning to new products, the
Company must accurately forecast demand in both volume and configuration and
also manage the transition from older products. The Company's results could be
affected by the ability of competitors to introduce new products that have
technological and/or pricing advantages. Results also will be affected by
strategic decisions made by management regarding whether to continue particular
product lines, and by volume, mix and timing of orders received during a period,
fluctuations in foreign exchange rates, and changing conditions in both the
semiconductor industry and key semiconductor markets around the world. As a
result, the Company's operating results may fluctuate, especially when measured
on a quarterly basis.
15
<PAGE> 4
<PAGE> 5
SELECTED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
- -------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
YEARS ENDED JUNE 30,
Net sales $ 148,432 $ 155,963 $ 167,236 $ 243,737 $ 442,416
Restructuring charges (recovery) - 8,158 (718) - -
Income (loss) from continuing operations 2,415 (16,610) 6,961 30,188 58,618
Net income (loss) (10,585) (13,810) 6,961 30,188 58,618
Income (loss) per share from continuing operations 0.13 (0.90) 0.35 1.37 2.40
Net income (loss) per share (0.57) (0.75) 0.35 1.37 2.40
Shares used in computing net income per share 18,552 18,451 19,707 22,044 24,435
AT JUNE 30,
Cash, cash equivalents and marketable securities 31,254 23,711 52,362 139,126 244,753
Working capital 91,116 83,961 93,611 212,873 228,026
Total assets 198,023 188,457 199,089 321,570 546,296
Long-term debt 24,000 24,000 20,000 20,000 -
Stockholders' equity 113,161 103,032 114,050 227,382 403,969
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1993 1994 1995
- -----------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 167,236 $ 243,737 $ 442,416
- ---------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 107,466 133,028 204,618
Engineering, research and development 16,314 22,435 45,252
Selling, general and administrative 32,684 48,192 85,255
Write-off of acquired in-process technology - - 25,240
Restructuring recovery (718) - -
- ---------------------------------------------------------------------------------------
155,746 203,655 360,365
- ---------------------------------------------------------------------------------------
Income from operations 11,490 40,082 82,051
Interest income and other, net 1,217 2,174 9,127
Interest expense (3,426) (2,005) (2,364)
- ---------------------------------------------------------------------------------------
Income before income taxes 9,281 40,251 88,814
Provision for income taxes 2,320 10,063 30,196
- ---------------------------------------------------------------------------------------
Net income $ 6,961 $ 30,188 $ 58,618
- ---------------------------------------------------------------------------------------
Net income per share $ 0.35 $ 1.37 $ 2.40
- ---------------------------------------------------------------------------------------
Shares used in computing net income per share 19,707 22,044 24,435
- ---------------------------------------------------------------------------------------
Pro forma net income per share, Note 5 $ 0.18 $ 0.69 $ 1.20
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16 KLA INSTRUMENTS CORPORATION
<PAGE> 6
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT JUNE 30, 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $139,126 $ 92,059
Short-term investments - 26,681
Accounts receivable, net of allowances of $1,754 and $2,196 74,226 129,274
Inventories 53,265 79,759
Deferred income taxes 7,495 18,155
Other current assets 4,343 14,949
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 278,455 360,877
- ---------------------------------------------------------------------------------------------------------------------------
Land, property and equipment, net 37,149 49,004
Marketable securities - 126,013
Other assets 5,966 10,402
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $321,570 $ 546,296
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,673 $ 4,458
Current portion of long-term debt - 20,000
Accounts payable 11,890 19,376
Income taxes payable 12,466 22,797
Other current liabilities 36,553 66,220
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 65,582 132,851
- ---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 8,606 9,476
Long-term debt 20,000 -
Commitments and contingencies, Note 4
Stockholders' equity:
Preferred Stock $.001 par value, 1,000 shares authorized, none issued and outstanding - -
Common shares, $.001 par value, 75,000 shares authorized,
22,864 and 25,080 shares issued and outstanding 23 25
Capital in excess of par value 147,358 263,016
Retained earnings 80,275 138,893
Treasury stock (581) (581)
Net unrealized gain on investments - 1,241
Cumulative translation adjustment 307 1,375
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 227,382 403,969
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $321,570 $ 546,296
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
KLA INSTRUMENTS CORPORATION 17
<PAGE> 7
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK AND CAPITAL
IN EXCESS OF PAR VALUE TREASURY STOCK NET UNREALIZED
------------------------ RETAINED ----------------- GAIN ON TRANSLATION
SHARES AMOUNT EARNINGS SHARES AMOUNT INVESTMENTS ADJUSTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 18,696 $ 58,957 $ 43,126 (55) $(581) $ - $ 1,530
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 604 4,277
Shares sold in stock purchase plan 203 1,424
Net income 6,961
Translation adjustments (1,644)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 19,503 64,658 50,087 (55) (581) - (114)
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 854 6,960
Tax benefit on exercise of stock options 5,232
Shares sold in stock purchase plan 207 1,965
Shares sold in stock offering 2,300 68,566
Net income 30,188
Translation adjustments 421
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 22,864 147,381 80,275 (55) (581) - 307
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 628 5,271
Tax benefit on exercise of stock options 15,427
Shares sold in stock purchase plan 88 3,995
Shares sold in stock offering 1,500 90,967
Net income 58,618
Net unrealized gain on investments 1,241
Translation adjustments 1,068
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 25,080 $263,041 $138,893 (55) $(581) $1,241 $1,375
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18 KLA INSTRUMENTS CORPORATION
<PAGE> 8
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,961 $30,188 $ 58,618
Adjustments required to reconcile net income
to cash provided by operations:
Depreciation and amortization 9,646 10,734 10,642
Write-off of acquired in-process technology - - 16,154
Deferred income taxes (466) (2,053) (9,591)
Changes in assets and liabilities:
Accounts receivable 947 (26,149) (54,462)
Inventories 6,048 (10,776) (23,112)
Other assets 1,570 (139) (18,313)
Accounts payable 3,375 2,937 6,509
Income taxes payable (429) 3,063 11,199
Other current liabilities 2,655 3,483 24,692
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by operations 30,307 11,288 22,336
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,226) (5,809) (19,009)
Purchases of short and long-term available for sale securities - - (329,729)
Sales and maturities of short and long-term available for sale securities - - 178,276
Investment in Metrologix - - (14,182)
Other (357) - -
- ---------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (3,583) (5,809) (184,644)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Short-term borrowings, net (2,881) 2,141 (1,487)
Payment of current portion of long-term debt - (4,000) -
Sales of common stock/tax benefit of options exercised 5,701 82,723 115,660
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 2,820 80,864 114,173
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes (893) 421 1,068
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 28,651 86,764 (47,067)
Cash and cash equivalents at beginning of year 23,711 52,362 139,126
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 52,362 $139,126 $ 92,059
- ---------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 3,515 $ 2,007 $ 2,361
Income taxes 1,914 3,369 22,715
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
KLA INSTRUMENTS CORPORATION 19
<PAGE> 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Subsidiaries with
accounts denominated in foreign currencies have been translated principally
using the local currencies as the functional currencies. Accordingly, the assets
and liabilities of these subsidiaries are translated at the rates of exchange on
the balance sheet date, income and expense items are translated at average rates
of exchange for the year, and the resulting translation gains or losses are
included in stockholders' equity. Foreign currency transaction gains and losses
have not been material and are included in interest income and other, net.
CASH EQUIVALENTS - Cash equivalents consist of highly liquid investments with a
maturity date at acquisition of three months or less. Cash and cash equivalents
are stated at cost, plus accrued interest, which approximates market value.
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (FAS 115) "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to classify debt and equity
securities into one of three categories: held to maturity, trading or available
for sale. The Company's investments are classified as available for sale.
Investments classified as available for sale are measured at market value, and
net unrealized gains and losses are recorded as a separate component of
stockholders' equity until realized. Any gains or losses on sales of investments
are computed by specific identification. As of June 30, 1995, net unrealized
gains on investments available for sale were $1.2 million.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
investments, trade accounts receivable and financial instruments used in hedging
activities.
The Company invests in a variety of financial instruments such as certificates
of deposit, commercial paper, municipal debt and U.S. Government debt. The
Company, by policy, limits the amount of credit exposure to any one financial
institution or commercial issuer.
The Company sells its systems to semiconductor manufacturers throughout the
world. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company maintains an allowance for uncollectible accounts receivable based
upon expected collectibility of all accounts receivable. The write-off of
uncollectible amounts has been insignificant.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on the foreign exchange contracts used in hedging activities. The
Company does not anticipate nonperformance by these counterparties.
FOREIGN EXCHANGE HEDGING - The Company enters into forward contracts to hedge
against currency fluctuations that affect certain foreign currency denominated
sales and purchase transactions. Because the impact of movements in currency
exchange rates on forward contracts offsets the related impact on the underlying
items being hedged, these financial instruments do not subject the Company to
speculative risk that would otherwise result from changes in currency exchange
rates. Unrealized gains and losses on these contracts are deferred and accounted
for as part of the hedged transactions. Cash flows from these contracts are
classified in the Statement of Cash Flows in the same category as the hedged
transactions.
At June 30, 1994, the Company had forward contracts maturing throughout fiscal
1995 to sell approximately $48.1 million in foreign currency, primarily Japanese
yen, and to purchase approximately $5.8 million of Japanese yen. At June 30,
1995, the Company had forward contracts maturing throughout fiscal 1996 to sell
approximately $147.9 million in foreign currency, primarily Japanese yen, and to
purchase approximately $19.1 million in foreign currency, primarily Japanese
yen. Of these contracts, approximately $70.5 million of contracts hedge foreign
currency receivables and payables carried on the balance sheet as of June 30,
1995, and consequently the financial statements reflect the fair market value of
the contracts and their underlying transactions. Approximately $90.6 million and
$5.9 million of the contracts hedge firm commitments for future sales and
purchases, respectively, denominated in foreign currency. The fair market value
of these contracts on June 30, 1995, based upon prevailing market rates on that
date, was approximately $88.3 million and $5.8 million, respectively.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using standard costs, which approximate actual costs on a first-in,
first-out basis.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets, which are 30 years for buildings and
building improvements, five years for furniture and fixtures, and range from
three to five years for machinery and equipment. The life of the lease or the
useful life, whichever is shorter, is used for the amortization of leasehold
improvements.
REVENUE RECOGNITION - The Company recognizes sales of wafer inspection,
metrology, reticle and photomask inspection systems upon acceptance at the
Company's plant, which is when title transfers. Customers may observe and
approve satisfactory completion of the tests. Sales of other systems are
recognized upon shipment. A provision for the estimated future cost of system
installation and warranty is recorded at the time revenue is recognized.
Revenues from software licenses are recognized upon delivery of the software,
provided that the Company does not have any significant obligations. Revenues
from service contracts are recognized during the terms of the contracts on a
straight-line basis.
20 KLA INSTRUMENTS CORPORATION
<PAGE> 10
NOTE 1 (CONTINUED)
RESEARCH AND DEVELOPMENT - The Company is actively engaged in significant
product improvement and new product development efforts. Research and
development expenses relating to possible future products aggregated
approximately $13.4, $16.8 and $28.4 million for fiscal 1993, 1994 and 1995,
respectively.
INCOME TAXES - The Company accounts for income taxes under the liability method,
which requires an adjustment to the provision for income taxes for the effect of
changes in corporate tax rates.
Undistributed earnings of certain of the Company's foreign subsidiaries, for
which no U.S. income taxes have been provided, aggregated approximately $6.3
million at June 30, 1995. The amount of the unrecognized deferred tax liability
related to this investment is estimated at approximately $2.3 million at June
30, 1995.
NET INCOME PER SHARE - Net income per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
respective periods, including the assumed net shares issuable upon exercise of
stock options, when dilutive.
NOTE 2 DETAILS OF FINANCIAL STATEMENT COMPONENTS
<TABLE>
<CAPTION>
1994 1995
- -----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Inventories:
Customer service spares $ 12,220 $ 13,050
Systems raw materials 12,597 18,944
Work-in-process 13,348 26,863
Demonstration equipment 15,100 20,902
- ----------------------------------------------------------------------------------
$ 53,265 $ 79,759
- ----------------------------------------------------------------------------------
Land, property and equipment:
Land $ 10,502 $ 10,502
Buildings and improvements 21,928 27,483
Machinery and equipment 33,143 41,203
Furniture and fixtures 4,549 5,542
Leasehold improvements 4,029 3,913
- ----------------------------------------------------------------------------------
74,151 88,643
Less accumulated depreciation and amortization (37,002) (39,639)
- ----------------------------------------------------------------------------------
$ 37,149 $ 49,004
- ----------------------------------------------------------------------------------
Other current liabilities:
Accrued compensation and benefits $ 16,328 $ 27,574
Accrued warranty and installation 14,367 22,229
Unearned revenue 3,054 4,867
Other 2,804 11,550
- ----------------------------------------------------------------------------------
$ 36,553 $ 66,220
- ----------------------------------------------------------------------------------
</TABLE>
NOTE 3 INVESTMENTS
The amortized cost and estimated fair value of securities available for sale as
of June 30, 1995, are as follows:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasuries $ 47,720 $ 455 $ 36 $ 48,139
Municipal bonds 83,983 693 100 84,576
Corporate debt securities 43,638 705 - 44,343
Other 45,324 368 59 45,633
- --------------------------------------------------------------------------------------------------
220,665 2,221 195 222,691
Less cash equivalents (70,021) (12) (36) (69,997)
Less short-term investments (26,614) (77) (10) (26,681)
- --------------------------------------------------------------------------------------------------
Long-term investments $ 124,030 $ 2,132 $ 149 $ 126,013
</TABLE>
KLA INSTRUMENTS CORPORATION 21
<PAGE> 11
NOTE 3 (continued)
Gross unrealized gains and losses are presented in stockholders' equity, net of
the tax effect. The contractual maturities of securities classified as available
for sale as of June 30, 1995, regardless of the consolidated balance sheet
classification, are as follows:
<TABLE>
<CAPTION>
Estimated
Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C>
Due within one year $ 69,997
Due after one year through five years 72,518
Due after five years 80,176
- ---------------------------------------------------------------------------------------------------------------------------
$222,691
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties. The realized gains and losses for the year ended June 30, 1995 were
not material to the Company's financial position or results of operations.
NOTE 4 COMMITMENTS AND CONTINGENCIES
The Company leases several facilities under operating leases expiring at various
dates through fiscal 2025 with renewal options at fair market value for
additional periods ranging up to ten years. In June 1995, the Company entered
into an agreement to lease a building being constructed on land owned by the
Company in San Jose, California. The lessor of the building has committed to
fund up to $12.5 million (subject to reductions based on certain conditions in
the lease) for the construction of the building, with the portion of the
committed amount actually utilized to be determined by the Company. In August
1995, the Company entered into a lease agreement to occupy two buildings in San
Jose, California. The lessor has committed to fund up to $15.4 million for the
acquisition of the land and buildings and for the completion of improvements to
the buildings. Rent obligations for the buildings will commence upon the
Company's occupation of the buildings in fiscal 1996. The Company may, at its
option, purchase the properties during the term of the leases at approximately
the amount expended by the lessor to acquire, construct and improve the
properties. If the Company does not purchase the buildings at the end of the
leases, the Company will guarantee the lessor 85% of the residual value of the
properties as determined at the inception of the leases. In addition, the lease
agreements require the Company to maintain, among other items, minimum quick
ratio, tangible net worth and profitability.
The aggregate minimum rental commitments under these lease agreements as of June
30, 1995, and including the facilities leased in August 1995, excluding property
taxes, insurance and certain other costs to be paid by the Company, are
approximately $4.7, $4.8, $3.6, $3.0, $2.5 and $26.4 million in fiscal 1996
through 2000 and thereafter, respectively. Total rental expense under all
operating leases was $2.9, $2.5 and $3.5 million in fiscal 1993, 1994 and 1995,
respectively.
The Company is party to several claims and lawsuits arising in the ordinary
course of business. While the outcome of these matters is not presently
determinable, in the opinion of management, they are not expected to have a
material effect on the financial position or the results of operations of the
Company.
NOTE 5 STOCKHOLDERS' EQUITY
A two-for-one stock split was declared by the Board of Directors on July 24,
1995. The stock split will be in the form of a 100% stock dividend. The dividend
will be paid on September 29, 1995, to stockholders of record on August 31,
1995. Financial information in this report has not been adjusted to reflect the
impact of the proposed common stock split.
In May 1995, the Company raised approximately $91 million, net of offering
costs, in a public offering of 1,500,000 shares of common stock at $63.50 per
share.
In February 1994, the Company sold 2,300,000 shares of common stock at $31.50
per share in a public offering resulting in $68.6 million of proceeds to the
Company, net of offering expenses.
In March 1989, the Company implemented a plan to protect stockholders' rights in
the event of a proposed takeover of the Company. Under the plan, each share of
the Company's outstanding common stock carries one Common Stock Purchase Right
(Right). The Right entitles the holder, under certain circumstances, to purchase
common stock of the Company or its acquirer at a discounted price. The Rights
are redeemable by the Company and expire in 1999.
22 KLA INSTRUMENTS CORPORATION
<PAGE> 12
NOTE 6 EMPLOYEE BENEFIT PLANS
The Company has a profit sharing program, wherein a percentage of pretax
profits, as determined by the Board of Directors, is accumulated and distributed
quarterly to all employees who have completed a stipulated employment period. In
addition, the Board may approve matching contributions to the Company's savings
and investment plan, a qualified salary reduction plan under section 401(k) of
the Internal Revenue Code. The total charge to operations under the profit
sharing and 401(k) programs aggregated approximately $0.7, $3.3 and $16.6
million in fiscal 1993, 1994 and 1995, respectively.
Under the 1982 Stock Option Plan, as amended, 6,350,000 shares have been
reserved for issuance to eligible employees and directors as either Incentive
Stock Options (ISO's) or nonqualified options. Options under this plan are
granted at prices determined by the Board of Directors, but not less than the
fair market value on the date of grant, and expire ten years after the date of
grant. Generally, options become exercisable within five years of the date of
grant, vesting monthly after a waiting period of six to thirty months.
In October 1990, the Company adopted the 1990 Outside Directors Stock Option
Plan to grant options to non-employee directors. This plan calls for an annual
grant of 2,500 options, at fair market value, to each outside director. The
options become exercisable at one fifty-fourth per month beginning six months
from date of grant and expire ten years from grant date. A total of 100,000
shares has been reserved for issuance under this plan. These options carry
exercise prices ranging from $7.00 to $49.50 per share, with 48,737 shares
outstanding at June 30, 1995.
In August 1992, the Company allowed all holders of outstanding options, with the
exception of holders who were officers or directors of the Company during all of
fiscal 1992, to exchange higher priced options for new non-qualified options at
$7.50 per share, the fair market value on the date of the Board's action;
412,000 options were exchanged.
Following is a summary of stock option and outside director plan transactions:
<TABLE>
<CAPTION>
Stock Reserved
Options Shares
Option Price Outstanding Available
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1992 $ 6.13-21.25 2,938,592 874,901
Options granted 7.50-12.38 1,048,246 (1,048,246)
Options cancelled 6.13-20.50 (594,311) 594,311
Options exercised 6.13-14.00 (603,912)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 $ 7.00-21.25 2,788,615 420,966
Options granted 19.13-41.63 235,050 (235,050)
Options cancelled 7.00-31.75 (113,749) 113,749
Options exercised 7.00-31.75 (853,509)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 $ 7.00-41.63 2,056,407 299,665
Options granted 4.69-61.25 1,329,768 (1,326,539)
Options cancelled 4.69-52.38 (196,246) 196,246
Options exercised 4.69-41.63 (628,288)
Increase in reserved shares 1,600,000
- -----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $ 4.69-61.25 2,561,641 769,372
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1995, options to purchase 598,497 shares of stock were exercisable
under all option plans.
The Company has reserved 2,000,000 shares of common stock to be issued under the
1981 Employee Stock Purchase Plan, as amended. The Plan permits eligible
employees to purchase common stock, through payroll deductions, at 85% of the
lower of the fair market value of the common stock on the date at the beginning
of the two-year offering period or the last day of the purchase period.
Substantially all employees are eligible to participate in the Plan. At June 30,
1995, shares totaling 356,910 were available for future issuance under the Plan.
NOTE 7 FINANCING ARRANGEMENTS
At June 30, 1995, the Company had a $20 million interest-only mortgage on its
principal facility due August 1995, bearing interest of 7.62% per annum through
August 1995. The mortgage is secured by the underlying asset. The Company
intends to repay the mortgage in full in August 1995.
As of June 30, 1995, the Company had a $10 million multicurrency line of credit
with a bank, expiring December 31, 1995. The line of credit has a facility fee
of 0.20% per annum. Interest on domestic and foreign borrowings is charged at
the bank's reference rate and at the bank's offshore reference rate plus 0.75%,
respectively. The agreement requires the Company to maintain, among other items,
minimum quick ratio, tangible net worth and profitability. The agreement also
restricts the amount of dividends that may be declared. At June 30, 1995, the
Company was in compliance with all of these covenants. As of June 30, 1995,
approximately $0.5 million had been borrowed at the related offshore interest
rate of 8.34% per annum.
In addition, certain of the Company's foreign subsidiaries had short-term local
currency borrowings of approximately $4.0 million at an average interest rate of
3.04% at June 30, 1995.
Based upon interest rates available to the Company for issuance of debt with
similar terms and remaining maturities, the fair values of the long-term
mortgage debt and notes payable were approximately equal to the recorded values.
KLA INSTRUMENTS CORPORATION 23
<PAGE> 13
NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into research and development arrangements with certain
key customers and other entities to partially fund the development of new
technology on a best efforts basis. In fiscal 1993, 1994 and 1995, revenues of
$6.8, $5.7 and $2.3 million, respectively, have been recognized on these
research and development contracts on the percentage of completion basis. These
revenues are offset against gross engineering, research and development
expenses.
NOTE 9 METROLOGIX INC. ACQUISITION
In December 1994, the Company acquired Metrologix Inc. (Metrologix), a
manufacturer of advanced electron beam measurement equipment, for $14.2 million
in cash. This acquisition was accounted for as a purchase and the total
acquisition cost of $16.1 million has been allocated to assets acquired and
liabilities assumed. A significant portion of the acquisition cost was allocated
to acquired in-process technology which was written off at the time of the
acquisition, because further substantial research and development investments
were necessary to complete the new product development then underway. This
resulted in an after-tax charge of $16.2 million ($25.2 million pre-tax). The
results of operations for Metrologix from the date of the acquisition to June
30, 1995, were immaterial.
NOTE 10 GEOGRAPHIC REPORTING
The Company is a leading manufacturer of yield monitoring and process control
systems for the semiconductor manufacturing industry. For geographic reporting,
sales are attributed to the geographic location of the sales and service
organizations, and costs directly and indirectly incurred in generating sales
are similarly assigned. During fiscal 1993, one customer accounted for 11% of
net sales. During fiscal 1994 and 1995, no customer accounted for more than 10%
of sales. The following is a summary of operations by geographical territories:
<TABLE>
<CAPTION>
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $ 62,802 $ 84,493 $138,926
Western Europe 34,141 37,854 47,862
Japan 46,914 79,820 159,253
Asia Pacific 23,379 41,570 96,375
- ---------------------------------------------------------------------------------------------------------------------------
167,236 243,737 442,416
- ---------------------------------------------------------------------------------------------------------------------------
Intercompany sales between geographic areas:
United States 28,942 39,998 60,861
Western Europe 4,751 7,595 12,178
Asia Pacific 3,212 6,832 9,846
- ---------------------------------------------------------------------------------------------------------------------------
36,905 54,425 82,885
- ---------------------------------------------------------------------------------------------------------------------------
Consolidation eliminations (36,905) (54,425) (82,885)
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $167,236 $243,737 $442,416
- ---------------------------------------------------------------------------------------------------------------------------
Operating results:
United States $ 7,558 $ 15,407 $ 31,777
Western Europe 6,262 9,234 8,567
Japan (1,783) 11,166 46,583
Asia Pacific 3,896 14,544 39,463
- ---------------------------------------------------------------------------------------------------------------------------
15,933 50,351 126,390
General corporate expenses (4,443) (10,269) (44,339)
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit $ 11,490 $ 40,082 $ 82,051
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets:
United States $ 96,383 $ 95,041 $147,557
Western Europe 22,631 19,853 24,361
Japan 18,627 38,444 71,854
Asia Pacific 13,487 24,264 45,380
- ---------------------------------------------------------------------------------------------------------------------------
151,128 177,602 289,152
General corporate assets 47,961 143,968 257,144
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $199,089 $321,570 $546,296
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Intercompany transfers of products are based on the cost of products
transferred. Corporate assets consist primarily of cash and cash equivalents
and other investments. Corporate expenses consist primarily of general,
administrative and other expenses not attributable to geographical regions.
Capital expenditures and depreciation expense have been primarily in the
United States.
NOTE 11 INCOME TAXES
The components of income before income taxes are comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Domestic $ 1,828 $ 31,515 $ 77,157
Foreign 7,453 8,736 11,657
- ---------------------------------------------------------------------------------------------------------------------------
$ 9,281 $ 40,251 $ 88,814
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 KLA INSTRUMENTS CORPORATION
<PAGE> 14
NOTE 11 (continued)
The provisions for income taxes are comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Federal:
Currently payable $ 495 $ 7,587 $ 35,390
Deferred - (2,195) (13,414)
- ---------------------------------------------------------------------------------------------------------------------------
495 5,392 21,976
- ---------------------------------------------------------------------------------------------------------------------------
State:
Currently payable 321 2,222 6,094
Deferred - - (1,337)
- ---------------------------------------------------------------------------------------------------------------------------
321 2,222 4,757
- ---------------------------------------------------------------------------------------------------------------------------
Foreign:
Currently payable 2,679 2,307 2,245
Deferred (1,175) 142 1,218
- ---------------------------------------------------------------------------------------------------------------------------
1,504 2,449 3,463
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 2,320 $10,063 $ 30,196
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Actual current tax liabilities are lower than reflected above for fiscal years
1993, 1994 and 1995 by none, $5.2 and $15.4 million, respectively, due to the
stock option deduction benefits recorded as credits to capital in excess of par
value.
The following is a reconciliation of the effective income tax rates and the
United States statutory federal income tax rate:
<TABLE>
<CAPTION>
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 35.0% 35.0%
State income taxes, net of federal tax benefits 2.3 3.6 3.5
Effect of foreign operations at lower tax rates (11.1) (1.7) (0.7)
Non-taxable FSC income - (1.5) (2.6)
Foreign tax credit - (4.8) (0.1)
Realized deferred tax assets previously reserved (3.8) (5.8) (2.7)
Other 3.6 0.2 1.6
- ---------------------------------------------------------------------------------------------------------------------------
Effective tax rate 25.0% 25.0% 34.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets (liabilities) at June 30, 1993, 1994 and 1995 are comprised
of the following:
<TABLE>
<CAPTION>
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Federal and state loss and credit carryforwards $ 4,816 $ 4,696 $ 2,804
State tax - - 1,096
Nondeductible reserves and other 15,733 18,651 24,611
- ---------------------------------------------------------------------------------------------------------------------------
20,549 23,347 28,511
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (4,317) (5,157) (3,559)
Unremitted earnings of foreign subsidiaries not permanently reinvested (2,726) (6,327) (8,319)
Other (3,275) (1,896) (2,101)
- ---------------------------------------------------------------------------------------------------------------------------
(10,318) (13,380) (13,979)
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax assets valuation allowance (13,395) (11,078) (5,853)
- ---------------------------------------------------------------------------------------------------------------------------
Total net deferred tax assets (liabilities) $ (3,164) $(1,111) $ 8,679
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's newly acquired subsidiary, Metrologix, has a federal net operating
loss carryforward of approximately $6 million as of June 30, 1995. It also has
research and development tax credit carryovers of approximately $0.7 million
that will expire primarily in fiscal 2005 through 2008. These tax assets are
subject to limitation as to their utilization under Internal Revenue Code
Section 382 and other provisions.
The deferred tax assets valuation allowance at June 30, 1993, 1994 and 1995 is
attributed to U.S. federal and state deferred tax assets. Management believes
sufficient uncertainty exists with regard to the realizability of the Metrologix
and certain other tax assets such that a valuation allowance of $5.9 million has
been provided at June 30, 1995. During fiscal 1993, 1994 and 1995, the Company
realized $0.4, $2.3 and $7.5 million, respectively, of deferred tax assets
previously reserved, reducing the valuation allowance by corresponding amounts.
In fiscal 1995, $5.1 of the $7.5 million that was realized was related to stock
option deductions and accordingly was credited to capital in excess of par
value.
The valuation allowance is allocated pro-rata to federal and state current and
non-current deferred tax assets. Net deferred tax assets at June 30, 1995, of
$8.7 million, reflect net U.S. assets of $13.2 million offset by $4.5 million of
net foreign liabilities. Net deferred tax liabilities at June 30, 1994, of $1.1
million reflect foreign liabilities of $3.3 million offset by $2.2 million of
net U.S. assets. The net deferred tax liability at June 30, 1993, relates to
foreign operations.
The Company's manufacturing operations in Switzerland are exempt from taxes
through 2001. The effect of this tax exemption was to increase net income in
fiscal 1993, 1994 and 1995 by approximately $0.6, $0.6 and $0.1 million,
respectively.
The IRS is currently auditing the Company's federal income tax returns for
fiscal years 1985 to 1992. The Company has not yet received a notice of proposed
tax deficiency. However, it anticipates a notice will be received in fiscal
1996. Management believes sufficient taxes have been provided in prior years and
that the ultimate outcome of the IRS audit will not have a material adverse
impact on the Company's financial position or results of operations.
KLA INSTRUMENTS CORPORATION 25
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
KLA Instruments Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of KLA
Instruments Corporation and its subsidiaries at June 30, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
July 26, 1995
Common Stock
<TABLE>
<CAPTION>
1994 1995
High Low High Low
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 26 1/2 17 51 3/4 37 1/4
Second Quarter 28 19 53 44 3/4
Third Quarter 43 25 7/8 65 46 1/2
Fourth Quarter 43 1/4 32 1/4 79 1/4 60
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's common stock is traded on the Nasdaq National Market System under
the symbol "KLAC."
The Company has not paid cash dividends on its common stock and does not plan to
pay cash dividends to its stockholders in the near future. The Company presently
intends to retain its earnings to finance further growth of its business. As of
June 30, 1995, the Company had approximately 983 stockholders of record.
26 KLA INSTRUMENTS CORPORATION
<PAGE> 16
CORPORATE DIRECTORY
<TABLE>
<CAPTION>
OFFICERS DIRECTORS
<S> <C> <C>
Kenneth Levy Kenneth Levy KLA Instruments Malaysia
Chairman of the Board Chairman of the Board 60 Jalan Timah 7
Chief Executive Officer Chief Executive Officer Tarman Sri Putri
81300 Skudal
Kenneth L. Schroeder Kenneth L. Schroeder Johor Bahru, Malaysia
President President 607-557-1946
Chief Operating Officer Chief Operating Officer
KLA Japan, Ltd.
Robert J. Boehlke Edward W. Barnholt YBP Hi-Tech Center
Vice President, Finance Senior Vice President 134 Godo-Cho
and Administration Hewlett-Packard Hodogaya-ku
Chief Financial Officer Yokohama City
Leo J. Chamberlain Kanagawa 240, Japan
Frank Brienzo Private Investor 81-453-35-8200
Vice President
Robert E. Lorenzini KLA Acrotec Company, Ltd.
Virginia DeMars Private Investor 20-16 Hikawadai
Vice President, Nerima-Ku 3-Cborne
Human Resources Yoshio Nishi, Ph.D. Tokyo 179, Japan
Vice President 81-359-20-3611
Gary E. Dickerson Texas Instruments
Vice President KLA Instruments, S.A.
Samuel Rubinovitz Chernin de Buchaux 38
Samuel Harrell, Ph.D. Retired CH-2022 Bevaix, Switzerland
Senior Vice President Executive Vice President 41-38-462090
EG&G, Inc.
Neil Richardson, Ph.D. KLA Instruments Korea
Vice President Dag Tellefsen Third Floor Lucky Security Building
General Partner 184-1, Bangi-dong, Songpa-ku
Magnus O.W. Ryde Glenwood Venture Management Seoul, South Korea 138-150
Vice President 822-415-0552
CORPORATE OFFICE
Arthur P. Schnitzer KLA Instruments Coporation KLA Instruments Taiwan
Vice President 160 Rio Robles Fifth Floor
P.O. Box 49055 115 Ming Sheng Road
Christopher Stoddart San Jose, California 95161-9055 Hsinchu City, Taiwan
Treasurer (408) 468-4200 Republic of China
886-35-335163
Bin-Ming Ben Tsai, Ph.D. INTERNATIONAL OFFICES
Vice President KLA Instruments Ltd. INDEPENDENT ACCOUNTANTS
Chief Technical Officer 4 The Business Center Price Waterhouse LLP
Molly Millars Lane San Jose, California
William Turner Wokingham, Berkshire
Vice President, RG11 2QZ, United Kingdom GENERAL LEGAL COUNSEL
Controller 44-1734-890666 Gray Cary Ware & Freldenrich
Palo Alto, California
Paul E. Kreutz, Esq. KLA Instruments GmbH
Secretary Leonrodstrasse 58 REGISTRAR AND TRANSFER AGENT
80636 Muenchen, Germany First National Bank of Boston
49-89-121561-0 Boston, Massachusetts
KLA Instruments France, S.A. ADDITIONAL COPIES OF THIS REPORT, AS WELL
25 Rue Michael Faraday AS COPIES OF SEC FORM 10K, FOR THE YEAR
78180 Montlgny-le-Bretonneux ENDED JUNE 30, 1995, MAY BE OBTAINED
France FROM THE COMPANY WITHOUT CHARGE BY
33.1.30.45.30.03 WRITING TO:
KLA Instruments, SLR KLA Instruments Corporation
Via Gabrio Serbelloni 1 Attn: Investor Relations
20122 Milan, Italy P.O. Box 49055
San Jose, CA 95161-9055
KLA Instruments Israel
4 Science Avenue
North Industrial Center
P.O. Box 143
Migdal Ha'Emek 23100, Israel
972-6-449449
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF
KLA INSTRUMENTS CORPORATION
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
<S> <C>
KLA Building Corporation California
KLA Instruments International Corporation California
KLA Management Corporation Delaware
KLA Instruments PCBI Corporation California
KLA Instruments Limited United Kingdom
KLA Instruments GmbH Germany
KLA Instruments France, S.A. France
KLA Japan Limited Japan
KLA Instruments Sales Corporation U.S. Virgin Islands
KLA Instruments, SLR Italy
KLA Instruments (Israel) Corporation Israel
KLA Holding Company Limited Israel
KLA (Israel) Service Limited Israel
KLA Instruments (Cayman) Limited Cayman Islands
KLA Instruments KLINNIK Corporation California
KLA Instruments, S.A. Switzerland
KLA Instruments (Malaysia) SdnBdh Malaysia
</TABLE>
The aforesaid subsidiaries do business only under their own names.
20
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-15784, 2-71584, 2-75314, 33-26002, 33-42973,
33-42982, 33-42975 and 33-55362) of KLA Instruments Corporation of our report
dated July 26, 1995, appearing on page 26 of the 1995 Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K.
Price Waterhouse, LLP
San Jose, California
September 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 92,059
<SECURITIES> 26,681
<RECEIVABLES> 131,470
<ALLOWANCES> 2,196
<INVENTORY> 79,759
<CURRENT-ASSETS> 360,877
<PP&E> 88,643
<DEPRECIATION> 39,639
<TOTAL-ASSETS> 546,296
<CURRENT-LIABILITIES> 132,851
<BONDS> 0
<COMMON> 25
0
0
<OTHER-SE> 403,944
<TOTAL-LIABILITY-AND-EQUITY> 546,296
<SALES> 442,416
<TOTAL-REVENUES> 0
<CGS> 204,618
<TOTAL-COSTS> 204,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,364
<INCOME-PRETAX> 88,814
<INCOME-TAX> 30,196
<INCOME-CONTINUING> 58,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,618
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
</TABLE>
