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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 2, 1999
OR
|_| Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No. 0-9919
PSC INC.
(Exact name of Registrant as Specified in Its Charter)
New York 16-0969362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 Basket Road, Webster, New York 14580
(Address of principal executive offices) (Zip Code)
(716) 265-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 12 months preceding (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 |_|
As of May 12, 1999, there were 11,968,325 shares of common stock outstanding.
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<PAGE>
PSC Inc. AND SUBSIDIARIES
INDEX
PAGE NUMBER
PART I: FINANCIAL INFORMATION
Item 1 -Financial Statements
Consolidated Balance Sheets as of
April 2, 1999 (Unaudited) and
December 31, 1998...........................................................3-4
Consolidated Statements of Operations and
Retained Earnings for the three months ended:
April 2, 1999 (Unaudited) and
April 3, 1998 (Unaudited) ....................................................5
Consolidated Statements of Cash Flows for the three months ended:
April 2, 1999 (Unaudited) and
April 3, 1998 (Unaudited) ....................................................6
Notes to Consolidated Financial
Statements (Unaudited) ....................................................7-10
Item 2 -Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................................11-13
PART II: OTHER INFORMATION
Item 1 -Legal Proceedings .................................................14
Item 2 -Changes in Securities ............................................14
Item 3 -Defaults upon Senior Securities ...................................14
Item 4 -Submission of Matters to a Vote of Security Holders ..............14
Item 5 -Other Information ...............................................14
Item 6 -Exhibits and Reports on Form 8-K .................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
<TABLE>
PSC Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
<CAPTION>
April 2, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 5,090 $ 6,180
Accounts receivable, net of allowance
for doubtful accounts of $1,575
and $1,492, respectively ..................... 35,809 37,121
Inventories ..................................... 21,042 17,250
Prepaid expenses and other ...................... 3,125 2,946
----------- ----------
TOTAL CURRENT ASSETS ............................. 65,066 63,497
PROPERTY, PLANT AND EQUIPMENT, net
of accumulated depreciation of $20,092
and $18,639, respectively ....................... 34,949 35,397
DEFERRED TAX ASSETS ..................................... 21,401 21,244
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $22,261 and $20,419, respectively ..... 51,001 51,125
---------- ----------
TOTAL ASSETS ............................................ $172,417 $171,263
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
PSC Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
(Continued)
<CAPTION>
April 2, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .................... $ 14,871 $ 14,402
Accounts payable .................................... 19,415 18,190
Accrued expenses .................................... 10,321 8,035
Accrued payroll and related employee benefits ....... 5,624 5,628
Accrued acquisition related restructuring costs ..... 157 415
--------- -------
TOTAL CURRENT LIABILITIES ......................... 50,388 46,670
LONG-TERM DEBT, less current maturities .................... 74,743 78,806
OTHER LONG-TERM LIABILITIES ................................ 1,561 1,588
SHAREHOLDERS' EQUITY:
Series A convertible preferred shares, par value $.01; 1 1
110 shares authorized, issued and outstanding
($11,000 aggregate liquidation value)
Series B preferred shares, par value $.01; 175
authorized, 0 shares issued and outstanding ......... -- --
Undesignated preferred shares, par value $.01;
9,715 authorized, 0 shares issued and outstanding ... -- --
Common shares, par value $.01;
40,000 authorized 11,942 and 11,869
shares issued and outstanding .................... 119 119
Additional paid-in capital .......................... 70,668 70,068
Retained earnings/(Accumulated deficit) ............. (23,936) (26,027)
Accumulated other comprehensive income/(loss) ....... (890) 275
Less treasury stock, 39 shares
repurchased, at cost ............................... (237) (237)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY ........................ 45,725 44,199
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ................................................ $172,417 $171,263
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
PSC Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
------------------------
April 2, April 3,
1999 1998
---- ----
<S> <C> <C>
NET SALES ....................................................... $59,145 $53,628
COST OF SALES ................................................... 33,540 31,943
--------- ---------
Gross profit ........................................... 25,605 21,685
OPERATING EXPENSES:
Engineering, research and development .................. 4,128 3,884
Selling, general and administrative .................... 12,360 9,738
Severance and other costs .............................. 2,103 --
Amortization of intangibles resulting
from business acquisitions ........................ 1,699 1,707
----- -----
Income from operations ................................. 5,315 6,356
INTEREST AND OTHER INCOME /(EXPENSE):
Interest expense ....................................... (2,174) (2,876)
Interest income ........................................ 91 65
Other income/(expense) ................................. (15) (5)
----------- --------
(2,098) (2,816)
--------- -------
Income before income tax provision ..................... 3,217 3,540
Income tax provision ................................... 1,126 1,310
-------- ------
Net income ............................................. $2,091 $2,230
====== ======
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Basic .................................................. $0.18 $0.19
Diluted ................................................ $0.15 $0.16
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic .................................................. 11,895 11,478
Diluted ................................................ 13,677 13,799
RETAINED EARNINGS/(ACCUMULATED DEFICIT):
Retained earnings/(Accumulated deficit)
beginning of period .................................. ($26,027) ($36,543)
Net income ............................................. 2,091 2,230
----------- -----
Retained earnings/(Accumulated deficit),
end of period ........................................ ($23,936) ($34,313)
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
PSC INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
------------------
April 2, April 3,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $2,091 $2,230
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 3,340 3,157
Deferred tax assets ...................................... (157) 909
(Increase) decrease in assets:
Accounts receivable .................................. 1,291 (211)
Inventories .......................................... (3,792) (1,406)
Prepaid expenses and other ........................... (179) (151)
Increase (decrease) in liabilities:
Accounts payable ..................................... 1,225 (1,197)
Accrued expenses ..................................... 2,286 1,247
Accrued payroll and related employee benefits ........ (67) (1,717)
Accrued acquisition related restructuring costs ...... (258) (218)
------ ------
Net cash provided by operating activities ......... 5,780 2,643
---------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net ..................................... (1,005) (1,186)
Additions to intangible and other assets ...................... (2,037) (698)
Repayment of notes for stock option activity .................. -- 325
-------- ---------
Net cash used in investing activities ....... (3,042) (1,559)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Addition to long-term debt .................................... 2,000 4,000
Payment of long-term debt .................................... (5,594) (4,585)
Addition to (payment of) other long-term liabilities, net ..... 63 (40)
Exercise of options and issuance of common shares ............. 555 1,524
----- -----
Net cash (used in) provided by financing activities .......... (2,976) 899
-------- ---
FOREIGN CURRENCY TRANSLATION ...................................... (852) (204)
NET (DECREASE)/INCREASE IN CASH AND CASH -------- -----
EQUIVALENTS .............................................. (1,090) 1,779
CASH AND CASH EQUIVALENTS:
Beginning of period ...................................... 6,180 2,271
------- -------
End of period ............................................ $5,090 $4,050
====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PSC Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
(All amounts in thousands, except per share data)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared by
the Company without audit. In the opinion of management, these financial
statements include all adjustments necessary to present fairly the
Company's financial position as of April 2, 1999, the results of
operations for the three months ended April 2, 1999 and April 3, 1998 and
its cash flows for the three months ended April 2, 1999 and April 3, 1998.
The results of operations for the three months ended April 2, 1999 are not
necessarily indicative of the results to be expected for the full year.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1998 annual report on
Form 10-K.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory costs include material, direct labor and
overhead and consist of the following:
April 2, 1999 December 31, 1998
---------------- ---------------------
Raw materials ........... $13,660 $11,231
Work-in-process ......... 3,228 2,888
Finished goods .......... 4,154 3,131
========== ==========
$21,042 $17,250
========== ==========
(2) LONG-TERM DEBT
Long-term debt consists of the following:
April 2, 1999 December 31, 1998
---------------- ---------------------
Senior term loan A ......... $34,000 $37,000
Senior term loan B ......... 22,750 23,000
Subordinated term loan ..... 29,562 29,547
Subordinated promissory note 3,125 3,438
Other ...................... 177 223
---------- -----------
89,614 93,208
Less: current maturities .. 14,871 14,402
---------- -----------
$74,743 $78,806
========== ===========
(3) SEVERANCE AND OTHER COSTS
During the first quarter of 1999, the Company recorded a pretax charge of
$2.1 million for severance and other costs. Of the total charge, $1.4
million was for employee severance and benefit costs for the elimination
of approximately 140 positions primarily at the Webster, New York
manufacturing facility resultant from the consolidation of all high volume
handheld scanner manufacturing at the Company's Eugene, Oregon facility.
The remaining $0.7 is for early termination of the lease on the Company's
Webster offsite storage and repair facility. As of April 2, 1999, the
amount of the severance and other accruals was approximately $2.1 million,
which relates to current contractual obligations. These costs reduced 1999
income before income tax provision, net income, basic EPS and diluted EPS
by $2.1 million, $1.4 million, $0.11 and $0.10, respectively.
<PAGE>
PSC Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
(All amounts in thousands, except per share data)
(Unaudited)
(4) SHAREHOLDERS' EQUITY
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which requires
comprehensive income and its components to be presented in the financial
statements. Comprehensive income, which includes net income, foreign
currency translation adjustments and unrealized loss on securities, was
$926 and $2,026 for the three months ended April 2, 1999 and April 3,
1998, respectively.
During the three month period ended April 2, 1999, employees purchased
approximately 62 shares at $7.76 per share under the provisions of the
Company's Employee Stock Purchase Plan.
Changes in the status of options under the Company's stock option plans
are summarized as follows:
<TABLE>
<CAPTION>
January 1, 1999 Weighted January 1, 1998 Weighted
to Average to Average
April 2, 1999 Price December 31, 1998 Price
------------------ ------------ --------------------- ------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period ............. 3,027 $7.98 3,046 $7.76
Options granted .................... -- -- 391 8.92
Options exercised .................. (11) 7.54 (310) 6.42
Options forfeited/canceled ......... (6) 7.21 (100) 7.28
======= ======== ======== ========
Options outstanding at
end of period ................... 3,010 $7.99 3,027 $7.98
======= ======== ======== ========
Number of options at end
of period:
Exercisable ..................... 1,829 1,820
Available for grant ............. 6 4
</TABLE>
During the three month period ended April 2, 1999, 4 forfeited options
were cancelled due to the expiration of the 1987 Stock Option Plan in
December 1997. These options are not available for future grants.
(5) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding during the year.
Diluted EPS for the three months ended April 2, 1999 and April 3, 1998 was
determined on the following assumptions: (1) Preferred Shares and related
warrants issued in connection with the private placement of equity were
converted upon issuance on January 1, 1998 and (2) warrants issued in
connection with the acquisition of Spectra were converted on January 1,
1998.
The following options were not included in the computation of diluted EPS
since the exercise prices were greater than the average market price of
Common Shares. Options to purchase 1,171 and 469 common shares at an
average price of $9.65 and $9.23 per share were outstanding for the three
months ended April 2, 1999 and April 3, 1998, respectively.
<PAGE>
<TABLE>
PSC Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
(All amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
April 2, 1999 April 3, 1998
---------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
Basic EPS:
<S> <C> <C> <C> <C> <C> <C>
Income available to common
shareholders ....................... $2,091 11,895 $0.18 $2,230 11,478 $0.19
===== =====
Effect of dilutive securities:
Options ............................ -- 324 -- 649
Warrants ........................... -- 83 -- 297
Preferred Shares ................... -- 1,375 -- 1,375
------------ -------------- ------------- --------------
Diluted EPS:
Income available to common
shareholders and assumed
conversions ........................ $2,091 13,677 $0.15 $2,230 13,799 $0.16
====== ====== ===== ====== ====== =====
</TABLE>
(6) DERIVATIVES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999 and cannot be applied retroactively. SFAS No. 133 must be applied
to derivative instruments that were issued, acquired or substantively modified
after December 31, 1997. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on the financial statements and has not determined the
timing of or method of adopting SFAS No. 133.
The Company monitors its exposure to interest rate and foreign currency exchange
risk. The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company uses derivative
instruments solely to reduce the financial impact of these risks. Cash flows
from interest rate swap agreements and foreign currency forward exchange
contracts are classified in the same category as the item being hedged.
Interest Rate Risk:
The Company's exposure to interest rate changes relates to its long-term debt.
The Company has entered into interest rate swap agreements with its senior
lending banks in accordance with the terms of the senior credit agreement. The
Company uses these interest rate swap agreements to reduce its exposure to
interest rate changes. The differentials to be received or paid under these
interest rate swap agreements are recognized as a component of interest expense
in the Consolidated Statements of Operations.
<PAGE>
PSC Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
(All amounts in thousands, except per share data)
(Unaudited)
Foreign Currency Exchange Rate Risk:
The Company's exposure to foreign currency relates primarily to its
international subsidiaries. Sales to certain countries are denominated in their
local currency. The Company enters into foreign currency forward exchange
contracts to minimize the effect of foreign currency fluctuations relating to
these transactions and commitments denominated in foreign currencies. The
foreign exchange contracts generally have maturities of approximately 30 days
and require the Company to exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to at the inception of the contracts. Gains and losses
on forward contracts are offset against the foreign exchange gains and losses on
the underlying hedged items and are recorded in the Consolidated Statements of
Operations.
(7) SUBSEQUENT EVENT
On May 12, 1999, the Company sold its facilities and property located in Eugene,
Oregon and simultaneously entered into a lease agreement for the facilities for
a fifteen year period. The lease is being accounted for as an operating lease,
and the resulting gain of $0.5 million is being amortized over the life of the
lease. The annual rental expense will be $0.8 million, which will be paid in
quarterly installments. The net proceeds from the sale totaled $8.3 million, of
which, $8.0 million will be utilized to reduce the senior credit facilities.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of the Company's December 31, 1998 annual report on Form 10-K.
Results of Operations: Three Months ended April 2, 1999 and April 3, 1998
- --------------------------------------------------------------------------
Net Sales. Consolidated net sales during the three months ended April 2, 1999
increased $5.5 million or 10% compared with the same period in 1998.
International net sales increased 16% and represented approximately 55% of net
sales in the first quarter of 1999 versus 52% of net sales in the first quarter
of 1998. The overall increase in consolidated net sales is attributed primarily
to increased sales in the fixed position retail product lines and U-Scan(R)
Express Self-Checkout Systems. The increase in international sales is primarily
due to the evolution of new products and the continued growth in the Company's
European and Asian Pacific customer sales.
Gross Profit. Consolidated gross profit during the three months ended April 2,
1999 increased $3.9 million or 18% compared with the same period in 1998. As a
percentage of sales, gross profit increased from 40.4% to 43.3%. The increase in
gross profit percentage is primarily due to improved product mix, higher
manufacturing volume and lower product unit costs.
Engineering, Research and Development. Engineering, Research and Development
(ER&D) expenses increased $0.2 million or 6%, as compared to the same period in
1998. As a percentage of sales, ER&D was 7.0% in the first quarter of 1999
versus 7.2% of net sales in the first quarter of 1998. The dollar increase is
due to additional investments in developing new products.
Selling, General and Administrative. Selling, General and Administrative (SG&A)
expenses increased $2.6 million or 27%, as compared to the same period in 1998.
As a percentage of sales, SG&A was 20.9% in 1999 versus 18.2% in 1998. The
dollar increase is primarily due to a significant increase in the international
sales infrastructure and additional investments in the Company's marketing
organization and marketing programs.
Severance and Other Costs. During the first quarter of 1999, the Company
recorded a pretax charge of $2.1 million for severance and other costs. Of the
total charge, $1.4 million was for employee severance and benefit costs for the
elimination of approximately 140 positions primarily at the Webster, New York
manufacturing facility resultant from the consolidation of all high volume
handheld scanner manufacturing at the Company's Eugene, Oregon facility. The
remaining $0.7 is for early termination of the lease on the Company's Webster
offsite storage and repair facility. As of April 2, 1999, the amount of the
severance and other accruals was approximately $2.1 million, which relates to
current contractual obligations. These costs reduced 1999 income before income
tax provision, net income, basic EPS and diluted EPS by $2.1 million, $1.4
million, $0.11 and $0.10, respectively.
Interest Expense. Interest expense decreased $0.7 million versus the comparable
period in 1998. The decrease is due to lower principal balances outstanding and
a reduction in the Company's interest rates on its senior term loans as the
Company achieved key milestones under certain financial covenants contained in
the bank credit agreements.
Provision for Income Taxes. The Company's effective tax rate was 35% in 1999
versus 37% in 1998 due to larger Foreign Sales Corporation benefits.
Liquidity and Capital Resources:
Current assets increased $1.6 million from December 31, 1998 primarily due to an
increase in inventory resulting from newly introduced products offset in part by
a reduction in accounts receivable. Current liabilities increased $3.7 million
primarily due to an increase in accounts payable and accrued expenses. As a
result, working capital decreased $2.1 million from December 31, 1998.
<PAGE>
Property, plant and equipment expenditures totaled $1.0 million for the three
months ended April 2, 1999 compared with $1.2 million for the three months ended
April 3, 1998. The 1999 expenditures primarily related to new product tooling,
manufacturing equipment and computer hardware.
The long-term debt to capital percentage was 62.0% at April 2, 1999 versus 64.1%
at December 31, 1998 primarily due to a reduction in long-term debt by $4.1
million and an increase in retained earnings resultant from net income of $2.1
million in the first quarter of 1999. At April 2, 1999, liquidity immediately
available to the Company consisted of cash and cash equivalents of $5.1 million.
The Company has credit facilities totaling $89.6 million and a revolving line of
credit of $20.0 million, of which, there is no outstanding balance. The Company
believes that its cash resources and available credit facilities, in addition to
its operating cash flows, are sufficient to meet its requirements for the next
12 months.
Year 2000
The Year 2000 problem is the result of many existing computer programs written
in two digits, rather than four, to define the applicable year. Accordingly,
date-sensitive software or hardware may not be able to distinguish between the
year 1900 and year 2000, and programs that perform arithmetic operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
potentially could cause a system failure or miscalculations that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices, or engage in normal business activities. These Year 2000 issues
affect virtually all companies and organizations.
The Company has developed a three-phase plan to address its Year 2000 issues:
(1) Identification of software and hardware. This includes the
following:
(a) Applications and information technology (IT) equipment,
which includes all mainframe, network and desktop software
and hardware, custom and packaged applications, and IT
embedded systems;
(b) Non-information technology (non-IT) embedded systems. This
includes non-IT equipment and machinery. Non-IT embedded
systems, such as security, fire prevention and climate
control systems typically include embedded technology; and
(c) Vendor relationships. This includes significant third-party
vendors and supplier interfaces.
Both domestically and internationally, the Company has substantially completed
the identification stage.
(2) Assessment of the software and hardware identified. This phase
includes the evaluation of the software and hardware identified
for Year 2000 compliance, the determination of the remediation
method and resources required, and the development of an
implementation plan. The Company has substantially completed the
assessment stage.
(3) Implementation of a remediation plan. This phase includes testing
some modifications/upgrades in a Year 2000 simulated environment
and vendor interface testing, if necessary. The Company has
commenced implementation, both domestically and internationally,
and expects this phase to be completed by the end of August 1999.
The Company's remediation plan for its Year 2000 issue is an
ongoing process and the estimated completion dates above are
subject to change.
Overall, at this time, the Company believes that its systems will be Year 2000
compliant in a timely manner for several reasons. Several significant operating
systems are already compliant. Internationally, the Company is currently
implementing new computer systems that were developed in the United States and
are currently Year 2000 compliant. To the extent that current systems that will
not be replaced have been determined to be non-compliant, the Company is working
with the suppliers of such systems to obtain upgrades and/or enhancements to
ensure Year 2000 compliance. Also, comprehensive testing of all critical systems
is planned to be conducted in a simulated Year 2000 environment.
<PAGE>
The Company believes that it will not be required to modify or replace
significant portions of the products it presently develops and provides to
customers as such products are not date dependent and, accordingly, will
function properly with respect to dates in the Year 2000. All new products will
be Year 2000 ready when released.
At this stage in the process, the Company has not identified any significant
risks. However, the Company believes that the area of the greatest potential
risk relates to significant suppliers' failing to remediate their Year 2000
issues in a timely manner. The Company is conducting formal communications with
its significant suppliers to determine the extent to which it may be affected by
those parties' plans to remediate their own Year 2000 issue in a timely manner.
If a number of significant suppliers are not Year 2000 compliant, this could
have a material adverse effect on the Company's results of operations, financial
position or cash flow. At this point, the Company has not been advised by any
significant supplier that it will not be Year 2000 compliant.
The Company is developing its contingency plans and expects to have them
completed by June 1999. To mitigate the effects of the Company's or significant
suppliers' potential failure to remediate the Year 2000 issue in a timely
manner, the Company will take appropriate actions. Such actions may include
having arrangements for alternate suppliers, using manual intervention to ensure
the continuation of operations where necessary and scheduling activity in
December 1999 that would normally occur at the beginning of January 2000. If it
becomes necessary for the Company to take these corrective actions, it is
uncertain, until the contingency plans are finalized, whether this would result
in significant delays in business operations or have a material adverse effect
on the Company's results of operations, financial position or cash flows.
Based upon the Company's current estimates, incremental out-of-pocket costs of
its Year 2000 program are expected not to be material. These costs are expected
to be incurred primarily in fiscal 1999 and will be associated primarily with
the remediation of existing computer software and hardware. Such costs are
estimated to be approximately $0.5 million. Such costs do not include internal
management time, which the Company does not separately track, nor the deferral
of other projects, the effects of which are not expected to be material to the
Company's results of operations or financial condition. The Company's total Year
2000 project costs include the estimated costs and time associated with the
impact of third-party Year 2000 issues based on presently available information.
However, there can be no guarantee that other companies upon which the Company
relies will be able to address in a timely manner their Year 2000 compliance
issues, the effects of which may be an adverse impact on the Company's results
of operations.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing legacy currencies and
the euro. The legacy currencies will remain in effect until July 1, 2002, at
which time, the legacy currencies will no longer be legal tender for any
transactions. The Company believes, but can give no assurance, that the euro
conversion will not have a material adverse impact to results of operations,
financial position or cash flows.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
Certain statements contained in this Management's Discussion and Analysis may be
forward-looking in nature, or "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Management cautions that these
statements are estimates of future performance and are highly dependent upon a
variety of important factors, which could cause actual results to differ
materially from the estimate. These factors include the market acceptance of
products, competitive product offerings, the disposition of legal issues, the
ability of the Company to identify and address successfully the Year 2000 issues
in a timely manner and at costs that are reasonably in line with projections,
and the ability of the Company's vendors to identify and address successfully
their own Year 2000 issues in a timely manner. Profits also will be affected by
the Company's ability to control manufacturing and operating costs. Reference
should be made to filings with the Securities and Exchange Commission for
further discussion of factors that could affect the Company's future results.
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
The descriptions of the Company's legal proceedings with Symbol
Technologies, Inc. ("Symbol"), set forth in Item 3 of the Company's
Annual Report on Form 10-K for the fiscal period ended December 31,
1998 (the "Litigation") are incorporated herein by reference.
On April 28, 1999, the Court denied Symbol's motions for
reconsideration and for immediate appeal of the Court's October 1998
Order granting the Company partial summary judgment against Symbol for
patent misuse. The Court also clarified its prior Order by deleting
reference to the 1995 licensing agreement.
The trial for the contract issues has not yet been rescheduled.
Item 2: Changes in Securities: None
Item 3: Defaults upon Senior Securities: None
Item 4: Submission of Matters of Shareholders to a Vote of Security Holders:
None
Item 5: Other Information: None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Lease Agreement between the Company and Scan LLC dated May 12, 1999.....16
(b) Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSC Inc.
DATE: May 14, 1999 By: /s/ Robert C. Strandberg
--------------------
Robert C. Strandberg
President and Chief Executive Officer
DATE: May 14, 1999 By: /s/ William J. Woodard
-------------------
William J. Woodard
Vice President and
Chief Financial Officer
DATE: May 14, 1999 By: /s/ Michael J. Stachura
-------------------
Michael J. Stachura
Vice President of Finance
(Principal Accounting Officer)
LEASE AGREEMENT
by and between
SCAN (OR) QRS 11-47, INC.,
a Delaware corporation
as LANDLORD
and
PSC SCANNING, INC.,
a Delaware corporation,
as TENANT
Premises: 959 Terry Street
Eugene, Oregon
Dated as of: May __, 1999
<PAGE>
TABLE OF CONTENTS
Page
Parties.....................................................................1
1. Demise of Premises......................................................1
2. Certain Definitions.....................................................1
3. Title and Condition.....................................................8
4. Use of Leased Premises; Quiet Enjoyment................................10
5. Term...................................................................11
6. Basic Rent.............................................................11
7. Additional Rent........................................................11
8. Net Lease; Non-Terminability...........................................12
9. Payment of Impositions.................................................13
10. Compliance with Laws and Easement Agreements; Environmental Matters...15
11. Liens; Recording......................................................16
12. Maintenance and Repair................................................17
13. Alterations and Improvements..........................................18
14. Permitted Contests....................................................18
15. Indemnification.......................................................19
16. Insurance.............................................................20
17. Casualty and Condemnation.............................................23
18. Termination Events....................................................25
19. Restoration...........................................................26
20. Procedures Upon Purchase..............................................28
21. Assignment and Subletting; Prohibition against Leasehold Financing....29
22. Events of Default.....................................................33
23. Remedies and Damages Upon Default.....................................35
24. Notices...............................................................38
25. Estoppel Certificate..................................................39
26. Surrender.............................................................39
27. No Merger of Title....................................................39
28. Books and Records.....................................................40
29. Determination of Value................................................40
30. Non-Recourse as to Landlord...........................................42
31. Financing.............................................................43
32. Subordination, Non-Disturbance and Attornment.........................43
33. Financial Covenants...................................................44
34. Tax Treatment; Reporting..............................................44
35. Financing Major Alterations...........................................44
36. Option to Purchase....................................................46
37. Miscellaneous.........................................................49
EXHIBITS
Exhibit "A" - Premises
Exhibit "B" - Machinery and Equipment
Exhibit "C" - Schedule of Permitted Encumbrances
Exhibit "D" - Rent Schedule
Exhibit "E" - Financial Covenants
<PAGE>
LEASE AGREEMENT, made as of May __, 1999, between SCAN (OR) QRS 11-47,
INC., a Delaware corporation ("Landlord"), with an address c/o W. P. Carey &
Co., Inc., 50 Rockefeller Plaza, 2nd Floor, New York, New York 10020, and PSC
SCANNING, INC., corporation ("Tenant"), with an address at 959 Terry Street,
Eugene, Oregon.
In consideration of the rents and provisions herein stipulated to be paid
and performed, Landlord and Tenant hereby covenant and agree as follows:
1. Demise of Premises. Landlord hereby demises and lets to Tenant, and
Tenant hereby takes and leases from Landlord, for the term and upon the
provisions hereinafter specified, the following described property
(collectively, the "Leased Premises"): (a) the premises described in Exhibit "A"
hereto, together with the Appurtenances (collectively, the "Land"); (b) the
buildings, structures and other improvements now or hereafter constructed on the
Land (collectively, the "Improvements"); and (c) the fixtures, machinery,
equipment and other property described in Exhibit "B" hereto (collectively, the
"Equipment").
2. Certain Definitions.
"Acquisition Cost" shall mean $8,717,278.00.
"Additional Rent" shall mean Additional Rent as defined in Paragraph 7.
"Adjoining Property" shall mean all sidewalks, driveways, curbs, gores and
vault spaces adjoining any of the Leased Premises.
"Alterations" shall mean all changes, additions, improvements or repairs
to, all alterations, reconstructions, renewals, replacements or removals of and
all substitutions or replacements for any of the Improvements or Equipment, both
interior and exterior, structural and non-structural, and ordinary and
extraordinary.
"Appurtenances" shall mean all tenements, hereditaments, easements,
rights-of-way, rights, privileges in and to the Land, including (a) easements
over other lands granted by any Easement Agreement and (b) any streets, ways,
alleys, vaults, gores or strips of land adjoining the Land.
"Assignment" shall mean any assignment of rents and leases from Landlord to
a Lender which (a) encumbers any of the Leased Premises and (b) secures
Landlord's obligation to repay a Loan, as the same may be amended, supplemented
or modified from time to time.
"Basic Rent" shall mean Basic Rent as defined in Paragraph 6.
"Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as
defined in Paragraph 6.
<PAGE>
"Casualty" shall mean any injury to or death of any person or any loss of
or damage to any property (including the Leased Premises) included within or
related to the Leased Premises or arising from the Adjoining Property.
"Commencement Date" shall mean Commencement Date as defined in Paragraph 5.
"Condemnation" shall mean a Taking.
"Condemnation Notice" shall mean notice or actual knowledge of the
institution of or intention to institute any proceeding for Condemnation.
"Costs" of a Person or associated with a specified transaction shall mean
all actual and reasonable out-of-pocket costs and expenses incurred by such
Person or associated with such transaction, including without limitation,
attorneys' fees and expenses, court costs, brokerage fees, escrow fees, title
insurance premiums, mortgage commitment fees, mortgage points, recording fees
and transfer taxes, as the circumstances require.
"Covenants" shall mean the covenants and agreements described on Exhibit
"E".
"CPI" shall mean CPI as defined in Exhibit "D" hereto.
"Default Termination Amount" shall mean the Default Termination Amount as
defined in Paragraph 23(a)(iii).
"Default Rate" shall mean the Default Rate as defined in Paragraph
7(a)(iv).
"Easement Agreement" shall mean any conditions, covenants, restrictions,
easements, declarations, licenses and other agreements listed as Permitted
Encumbrances or as may hereafter affect (as a benefit or a burden) the Leased
Premises.
"Environmental Law" shall mean (i) whenever enacted or promulgated, any
applicable federal, state, foreign and local law, statute, ordinance, rule,
regulation, license, permit, authorization, approval, consent, court order,
judgment, decree, injunction, code, requirement or agreement with any
governmental entity, (x) relating to pollution (or the cleanup thereof), or the
protection of air, water vapor, surface water, groundwater, drinking water
supply, land (including land surface or subsurface), plant, aquatic and animal
life from injury caused by a Hazardous Substance or (y) concerning exposure to,
or the use, containment, storage, recycling, reclamation, reuse, treatment,
generation, discharge, transportation, processing, handling, labeling,
production, disposal or remediation of Hazardous Substances, Hazardous
Conditions or Hazardous Activities, in each case as amended and as now or
hereafter in effect, and (ii) any common law or equitable doctrine (including,
<PAGE>
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations or injuries or damages due to or threatened as a result of the
presence of, exposure to, or ingestion of, any Hazardous Substance. The term
Environmental Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Water Pollution Control Act, the
federal Clean Air Act, the federal Clean Water Act, the federal Resources
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic
Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act,
the federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation Act,
each as amended and as now or hereafter in effect and any similar state or local
Law.
"Environmental Violation" shall mean (a) any direct or indirect discharge,
disposal, spillage, emission, escape, pumping, pouring, injection, leaching,
release, seepage, filtration or transporting of any Hazardous Substance at,
upon, under, onto or within the Leased Premises, or from the Leased Premises to
the environment, in violation of any Environmental Law or in excess of any
reportable quantity established under any Environmental Law or which could
reasonably be expected to result in any liability to Landlord, Tenant or Lender,
any Federal, state or local government or any other Person for the costs of any
removal or remedial action or natural resources damage or for bodily injury or
property damage, (b) any deposit, storage, dumping, placement or use of any
Hazardous Substance at, upon, under or within the Leased Premises or which
extends to any Adjoining Property in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could reasonably be expected to result in any liability to any Federal,
state or local government or to any other Person for the costs of any removal or
remedial action or natural resources damage or for bodily injury or property
damage, (c) the abandonment or discarding of any barrels, containers or other
receptacles containing any Hazardous Substances in violation of any
Environmental Laws, (d) any activity, occurrence or condition which could
reasonably be expected to result in any liability, cost or expense to Landlord
or Lender or any other owner or occupier of the Leased Premises, or which could
reasonably be expected to result in a creation of a lien on the Leased Premises
under any Environmental Law, or (e) any violation of or noncompliance with any
Environmental Law.
"Equipment" shall mean the Equipment as defined in Paragraph 1.
"Event of Default" shall mean an Event of Default as defined in Paragraph
22(a).
"Expansion Parcel" shall mean that certain undeveloped portion of the Land
identified as Tax Lot No. 3400 on the tax map filed in the County Assessor's
Office for Lane County, Oregon.
"Expansion Parcel Price" shall mean the Expansion Parcel Price as defined
in Paragraph 36(a).
<PAGE>
"Fair Market Value" shall mean the higher of (a) the fair market value of
the Leased Premises as of the Relevant Date as if unaffected and unencumbered by
this Lease or (b) the fair market value of the Leased Premises as of the
Relevant Date as affected and encumbered by this Lease. For all purposes of this
Lease, Fair Market Value shall be determined in accordance with the procedure
specified in Paragraph 29.
"Fair Market Value Date" shall mean the date when the Fair Market Value is
determined in accordance with Paragraph 29.
"Federal Funds" shall mean federal or other immediately available funds
which at the time of payment are legal tender for the payment of public and
private debts in the United States of America.
"Guarantor" shall mean PSC Inc., a New York corporation.
"Guaranty" shall mean the Guaranty and Suretyship Agreement dated as of the
date hereof from Guarantor to Landlord guaranteeing the payment and performance
by Tenant of all of Tenant's obligations under the Lease.
"Hazardous Activity" means any activity, process, procedure or undertaking
which directly or indirectly (i) procures, generates or creates any Hazardous
Substance; (ii) causes or results in (or threatens to cause or result in) the
release, seepage, spill, leak, flow, discharge or emission of any Hazardous
Substance into the environment (including the air, ground water, watercourses or
water systems), (iii) involves the containment or storage of any Hazardous
Substance; or (iv) would cause the Leased Premises or any portion thereof to
become a hazardous waste treatment, recycling, reclamation, processing, storage
or disposal facility within the meaning of any Environmental Law.
"Hazardous Condition" means any condition which would support any claim or
liability under any Environmental Law, including the presence of underground
storage tanks.
"Hazardous Substance" means (i) any substance, material, product,
petroleum, petroleum product, derivative, compound or mixture, mineral
(including asbestos), chemical, gas, medical waste, or other pollutant, in each
case whether naturally occurring, man-made or the by-product of any process,
that is toxic, harmful or hazardous or acutely hazardous to the environment or
public health or safety or (ii) any substance supporting a claim under any
Environmental Law, whether or not defined as hazardous as such under any
Environmental Law. Hazardous Substances include, without limitation, any toxic
or hazardous waste, pollutant, contaminant, industrial waste, petroleum or
petroleum-derived substances or waste, radon, radioactive materials, asbestos,
asbestos containing materials, urea formaldehyde foam insulation, lead and
polychlorinated biphenyls.
"Impositions" shall mean the Impositions as defined in Paragraph 9(a).
"Improvements" shall mean the Improvements as defined in Paragraph 1.
"Indemnitee" shall mean an Indemnitee as defined in Paragraph 15.
<PAGE>
"Insurance Requirements" shall mean the requirements of all insurance
policies required to be maintained in accordance with this Lease.
"Land" shall mean the Land as defined in Paragraph 1.
"Law" shall mean any constitution, statute, rule of law, code, ordinance,
order, judgment, decree, injunction, rule, regulation, policy, requirement or
administrative or judicial determination, even if unforeseen or extraordinary,
of every duly constituted governmental authority, court or agency, now or
hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Year" shall mean, with respect to the first Lease Year, the period
commencing on the Commencement Date and ending at midnight on the last day of
the twelfth (12th) consecutive calendar month following the month in which the
Commencement Date occurred, and each succeeding twelve (12) month period during
the Term.
"Leased Premises" shall mean the Leased Premises as defined in Paragraph 1.
"Legal Requirements" shall mean the requirements of all present and future
Laws (including but not limited to Environmental Laws and Laws relating to
accessibility to, usability by, and discrimination against, disabled
individuals) and all covenants, restrictions and conditions now or hereafter of
record which may be applicable to Tenant or to any of the Leased Premises, or to
the use, manner of use, occupancy, possession, operation, maintenance,
alteration, repair or restoration of any of the Leased Premises, even if
compliance therewith necessitates structural changes or improvements or results
in interference with the use or enjoyment of any of the Leased Premises.
"Lender" shall mean any person or entity (and their respective successors
and assigns) which may, after the date hereof, make a Loan to Landlord or is the
holder of any Note.
"Loan" shall mean any loan made by one or more Lenders to Landlord, which
loan is secured by a Mortgage and an Assignment and evidenced by a Note.
"Monetary Obligations" shall mean Rent and all other sums payable by Tenant
under this Lease to Landlord, to any third party on behalf of Landlord or to any
Indemnitee.
"Mortgage" shall mean any mortgage or deed of trust from Landlord to a
Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's
obligation to repay a Loan, as the same may be amended, supplemented or
modified.
<PAGE>
"Net Award" shall mean (a) the entire award payable to Landlord or Lender
by reason of a Condemnation whether pursuant to a judgment or by agreement or
otherwise, or (b) the entire proceeds of any insurance required under clauses
(i), (ii) (to the extent payable to Landlord or Lender), (iv), (v) or (vi) of
Paragraph 16(a), as the case may be, less any expenses incurred by Landlord and
Lender in collecting such award or proceeds.
"Non-Preapproved Assignee" shall have the meaning set forth in Paragraph 21
hereof.
"Non-Preapproved Assignment" shall have the meaning set forth in Paragraph
21 hereof.
"Note" shall mean any promissory note evidencing Landlord's obligation to
repay a Loan, as the same may be amended, supplemented or modified.
"Partial Casualty" shall mean any Casualty which does not constitute a
Termination Event.
"Partial Condemnation" shall mean any Condemnation which does not
constitute a Termination Event.
"Permitted Encumbrances" shall mean those covenants, restrictions,
reservations, liens, conditions and easements and other encumbrances, other than
any Mortgage or Assignment, listed on Exhibit "C" hereto (but such listing shall
not be deemed to revive any such encumbrances that have expired or terminated or
are otherwise invalid or unenforceable).
"Person" shall mean an individual, partnership, association, corporation or
other entity.
"Preapproved Assignee" shall have the meaning set forth in Paragraph 21
hereof.
"Preapproved Assignment" shall have the meaning set forth in Paragraph 21
hereof.
"Preapproved Sublet" shall have the meaning set forth in Paragraph 21
hereof.
"Prepayment Premium" shall mean any payment (other than a payment of
principal and/or interest which Landlord is required to make under a Note or a
Mortgage) by reason of any prepayment by Landlord of any principal due under a
Note or Mortgage, and which may be (in lieu of such prepayment premium or
prepayment penalty) a "make whole" or yield maintenance clause requiring a
prepayment premium or a defeasance premium (such defeasance premium to be an
amount equal to the positive difference between (a) the total amount required to
defease a Loan and (b) the outstanding principal balance of the Loan as of the
date of such defeasance, in either case in an amount sufficient to compensate
the Lender for the loss of the benefit of the Loan due to a prepayment.
<PAGE>
"Present Value" of any amount shall mean such amount discounted by a rate
per annum which is the lower of (a) the Prime Rate at the time such present
value is determined or (b) five percent (5 %) per annum.
"Prime Rate" shall mean the annual interest rate as published, from time to
time, in The Wall Street Journal as the "Prime Rate" in its column entitled
"Money Rate". The Prime Rate may not be the lowest rate of interest charged by
any "large U.S. money center commercial banks" and Landlord makes no
representations or warranties to that effect. In the event The Wall Street
Journal ceases publication or ceases to publish the "Prime Rate" as described
above, the Prime Rate shall be the average per annum discount rate (the
"Discount Rate") on ninety-one (91) day bills ("Treasury Bills") issued from
time to time by the United States Treasury at its most recent auction, plus
three hundred (300) basis points. If no such 91-day Treasury Bills are then
being issued, the Discount Rate shall be the discount rate on Treasury Bills
then being issued for the period of time closest to ninety-one (91) days.
"Relevant Amount" shall mean the Termination Amount, the Default
Termination Amount or the Expansion Parcel Price, as the case may be.
"Relevant Date" shall mean (a) the date immediately prior to the date on
which the applicable Condemnation Notice is received, in the event of a
Termination Notice under Paragraph 18 which is occasioned by a Taking, (b) the
date immediately prior to the date on which the applicable Casualty occurs, in
the event of a Termination Notice under Paragraph 18 which is occasioned by a
Casualty, (c) the date when Fair Market Value is redetermined, in the event of a
redetermination of Fair Market Value pursuant to Paragraph 20(c), (d) the date
immediately prior to the Event of Default giving rise to the need to determine
Fair Market Value in the event Landlord provides Tenant with notice of its
intention to require Tenant to make a termination offer under Paragraph
23(a)(iii) and (e) the Option Purchase Date in connection with Tenant's exercise
of its option to purchase the Leased Premises under Paragraph 36 hereof.
"Remaining Sum" shall mean Remaining Sum as defined in Paragraph 19(c).
"Requisition" shall mean any temporary requisition or confiscation of the
use or occupancy of any of the Leased Premises by any governmental authority,
civil or military, whether pursuant to an agreement with such governmental
authority in settlement of or under threat of any such requisition or
confiscation, or otherwise.
"Renewal Term" shall mean Renewal Term as defined in Paragraph 5.
"Rent" shall mean, collectively, Basic Rent and Additional Rent.
"Review Criteria" shall mean the Review Criteria as defined in Paragraph
21.
<PAGE>
"Site Assessment" shall mean a Site Assessment as defined in Paragraph
10(c).
"State" shall mean the State of Oregon.
"Surviving Obligations" shall mean any obligations of Tenant under this
Lease, actual or contingent, which arise on or prior to the expiration or prior
termination of this Lease and which survive such expiration or termination by
their own terms.
"Taking" shall mean any taking or damaging of all or a portion of any of
the Leased Premises (i) in or by condemnation or other eminent domain
proceedings pursuant to any Law, general or special, or (ii) by reason of any
agreement with any condemnor in settlement of or under threat of any such
condemnation or other eminent domain proceeding, or (iii) by any other means.
The Taking shall be considered to have taken place as of the later of the date
actual physical possession is taken by the condemnor, or the date on which the
right to compensation and damages accrues under the law applicable to the Leased
Premises.
"Term" shall mean the Term as defined in Paragraph 5.
"Termination Amount" shall mean the greater of (a) the sum of the Fair
Market Value plus any Prepayment Premium which Landlord will be required to pay
in prepaying any Loan with proceeds of the Termination Amount or (b) the sum of
the Acquisition Cost plus any Prepayment Premium which Landlord will be required
to pay in prepaying any Loan with proceeds of the Termination Amount.
"Termination Date" shall mean Termination Date as defined in Paragraph 18.
"Termination Event" shall mean a Termination Event as defined in Paragraph
18.
"Termination Notice" shall mean Termination Notice as defined in Paragraph
18(a).
"Trigger Offer" shall mean the Trigger Offer as defined in Paragraph 36(d)
3. Title and Condition.
(a) The Leased Premises are demised and let subject to (i) the rights of any
Persons in possession of the Leased Premises, (ii) the existing state of title
of any of the Leased Premises, including any Permitted Encumbrances, (iii) any
state of facts which an accurate survey or physical inspection of the Leased
Premises might show, (iv) all Legal Requirements, including any existing
violation of any thereof, and (v) the condition of the Leased Premises as of the
commencement of the Term, without representation or warranty by Landlord.
<PAGE>
(b) Tenant acknowledges that the Leased Premises is in good condition and repair
at the inception of this Lease. LANDLORD LEASES AND WILL LEASE AND TENANT TAKES
AND WILL TAKE THE LEASED PREMISES AS IS. TENANT ACKNOWLEDGES THAT LANDLORD
(WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND
WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES,
INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR
WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv)
LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii)
LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY, (xii)
DESCRIPTION, (xiii) DURABILITY, (xiv) OPERATION, (xv) THE EXISTENCE OF ANY
HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION OR HAZARDOUS ACTIVITY OR (xvi)
COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL
RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE
LEASED PREMISES IS OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE
LEASED PREMISES HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. IN THE
EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE,
WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b) HAVE
BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW
OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(c) Tenant represents to Landlord that Tenant has examined the title to the
Leased Premises prior to the execution and delivery of this Lease and has found
the same to be satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (i) fee simple title (both legal and equitable) is in Landlord
and that Tenant has only the leasehold right of possession and use of the Leased
Premises as provided herein, (ii) to the best of Tenant's knowledge, the
Improvements conform to all material Legal Requirements and all Insurance
Requirements, (iii) all easements necessary or appropriate for the use or
operation of the Leased Premises have been obtained, (iv) all contractors and
subcontractors who have performed work on or supplied materials to the Leased
Premises have been fully paid, and all materials and supplies have been fully
paid for, (v) the Improvements have been fully completed in all material
respects to the full satisfaction of Tenant, and (vi) all Equipment necessary or
appropriate for the use or operation of the Leased Premises has been installed
and is presently fully operative in all material respects to the full
satisfaction of Tenant.
<PAGE>
(d) Landlord hereby assigns to Tenant, without recourse or warranty whatsoever,
all assignable warranties, guaranties, indemnities and similar rights
(collectively, "Warranties") which Landlord may have against any manufacturer,
seller, engineer, contractor or builder in respect of any of the Leased
Premises. Such assignment shall remain in effect until an Event of Default
occurs or until the expiration or earlier termination of this Lease, whereupon
such assignment shall cease and all of Warranties, guaranties, indemnities and
other rights shall automatically revert to Landlord. Tenant shall enforce the
Warranties in accordance with their respective terms.
4. Use of Leased Premises; Quiet Enjoyment.
(a) Tenant may occupy and use the Leased Premises for general and executive
offices, light manufacturing, and research and development facilities, in
connection with Tenant's business and for no other purpose, without the express
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed; provided, however, that, Tenant shall not, under any
circumstances, use or occupy or permit any of the Leased Premises to be used or
occupied, nor do or permit anything to be done in or on any of the Leased
Premises, in a manner which would or might (i) violate any Law or Legal
Requirement, (ii) make void or voidable or cause any insurer to cancel any
insurance required by this Lease, or make it difficult or impossible to obtain
any such insurance at commercially reasonable rates, (iii) make void or
voidable, cancel or cause to be cancelled or release any warranty, guaranty or
indemnity, (iv) cause structural injury to any of the Improvements or (v)
constitute a public or private nuisance or waste.
(b) Subject to the provisions hereof, so long as no Event of Default has
occurred and is continuing, Tenant shall quietly hold, occupy and enjoy the
Leased Premises throughout the Term, without any hindrance, ejection or
molestation by Landlord with respect to matters that arise after the date
hereof, provided that Landlord or its agents may enter upon and examine any of
the Leased Premises at such reasonable times as Landlord may select and upon
reasonable notice to Tenant (except in the case of an emergency, in which no
notice shall be required) for the purpose of inspecting the Leased Premises,
verifying compliance or non-compliance by Tenant with its obligations hereunder
and the existence or non-existence of an Event of Default or event which with
the passage of time and/or notice would constitute an Event of Default, showing
the Leased Premises to prospective Lenders and purchasers and taking such other
action with respect to the Leased Premises as is permitted by any provision
hereof. In conducting any such inspections or otherwise having access to the
Leased Premises (including , but not limited to, any access pursuant to
Paragraph 10(c) hereof), Landlord shall comply, and shall cause all other
persons on entities having such access to comply, with the reasonable
instructions and requirements of Tenant, to not interfere with Tenant's use or
occupancy of the Leased Premises and to preserve the confidentiality of any
materials, information, data and/or operations of or with respect to Tenant.
<PAGE>
5. Term.
Subject to the provisions hereof, Tenant shall have and hold the Leased
Premises for an initial term (such term, as extended or renewed in accordance
with the provisions hereof, being called the "Term") commencing on the date
hereof (the "Commencement Date") and ending on the last day of the one hundred
eightieth (180th) calendar month next following the date hereof (the "Expiration
Date"). If all Rent and all other sums due hereunder shall not have been fully
paid by the end of the Term, Landlord may, at its option, extend the Term until
all said sums shall have been fully paid.
6. Basic Rent. Tenant shall pay to Landlord, as annual rent for the Leased
Premises during the Term, the amounts determined in accordance with Exhibit "D"
hereto ("Basic Rent"), quarterly, in advance, commencing on the first day of
June, 1999, and continuing on the first day of each September, December, March
and June thereafter during the Term (each such day being a "Basic Rent Payment
Date"). Each such rental payment shall be made (a) at Landlord's sole
discretion, to Landlord at its address set forth above and/or to such one or
more other Persons, at such addresses and in such proportions as Landlord may
direct by fifteen (15) days' prior written notice to Tenant (in which event
Tenant shall give Landlord notice of each such payment concurrent with the
making thereof), and (b) at Tenant's option, either by (x) a check hand
delivered at least five (5) business days before or mailed at least ten (10)
days before the applicable Basic Rent Payment Date, or (y) wire transfer in
immediately available Federal Funds on or before the applicable Basic Rent
Payment Date. Pro rata Basic Rent for the period from the date hereof through
the last day of May, 1999 shall be paid on the date hereof.
7. Additional Rent.
(a) Tenant shall pay and discharge, as additional rent (collectively,
"Additional Rent"):
(i) except as otherwise specifically provided herein, all costs and expenses of
Tenant, Landlord and any other Persons specifically referenced herein which are
incurred in connection or associated with (A) the ownership, use, non-use,
occupancy, possession, operation, condition, design, construction, maintenance,
alteration, repair or restoration of any of the Leased Premises, (B) the
performance of any of Tenant's obligations under this Lease, (C) any sale or
other transfer of any of the Leased Premises to Tenant under this Lease, (D) any
Condemnation proceedings, (E) the adjustment, settlement or compromise of any
insurance claims involving or arising from any of the Leased Premises, (F) the
prosecution, defense or settlement of any litigation involving or arising from
any of the Leased Premises, this Lease, or the sale of the Leased Premises to
Landlord, (G) the exercise or enforcement by Landlord, its successors and
assigns, of any of its rights under this Lease, (H) any amendment to or
modification or termination of this Lease made at the request of Tenant, (I)
Costs of Landlord and its counsel incurred in connection with any act undertaken
or performed by Landlord (or its counsel) at the request of Tenant or as a
result of Tenant's failure to act promptly in an emergency situation, and (J)
any other items specifically required to be paid by Tenant under this Lease;
<PAGE>
(ii) after the date all or any portion of any installment of Basic Rent is due
and not paid, an amount equal to five percent (5%) of the amount of such unpaid
installment or portion thereof, provided, however, that with respect to the
first late payment of all or any portion of any installment of Basic Rent in any
consecutive twelve (12) month period, the Late Charge shall not be due and
payable unless the Basic Rent has not been paid within five (5) days' following
the due date thereof;
(iii) a sum equal to any additional sums (including any late charge, default
penalties, interest and fees of Lender's counsel) which are payable by Landlord
to any Lender under any Note (but not to exceed the amounts that would have been
payable under the Initial Loan) by reason of Tenant's late payment or
non-payment of Basic Rent or by reason of an Event of Default; and
(iv) interest, at the rate (the "Default Rate") of the lesser of (x) five
percent (5%) over the Prime Rate per annum or (y) such other rate as may be
required by Lender for late payments due under the terms of the Loan on the
following sums until paid in full: (A) all overdue installments of Basic Rent
from the respective due dates thereof, (B) all overdue amounts of Additional
Rent relating to obligations which Landlord shall have paid on behalf of Tenant,
from the date of payment thereof by Landlord, and (C) all other overdue amounts
of Additional Rent, from the date when any such amount becomes overdue.
(b) Tenant shall pay and discharge (i) any Additional Rent referred to in
Paragraph 7(a)(i) when the same shall become due, provided that amounts which
are billed to Landlord or any third party, but not to Tenant, shall be paid
within ten (10) business days after Landlord's demand for payment thereof, and
(ii) any other Additional Rent, within ten (10) business days after Landlord's
demand for payment thereof.
(c) Landlord and Tenant acknowledge and agree that the amounts set forth as
additional rent in subparagraphs 7(a)(ii), (iii) and (iv) above have been
specifically negotiated by Landlord and Tenant and represent the parties best
estimate of actual losses to be suffered by Landlord under the applicable
circumstances, and are not intended or to be construed as a penalty. In no event
shall amounts payable under Paragraph 7(a)(ii), (iii) and (iv) exceed the
maximum amount permitted by applicable Law.
8. Net Lease; Non-Terminability.
(a) This is a net lease and all Monetary Obligations shall be paid without
notice or demand and without set-off, counterclaim, recoupment, abatement,
suspension, deferment, diminution, deduction, reduction or defense
(collectively, a "Set-Off").
(b) Except as otherwise expressly provided herein, this Lease and the rights of
Landlord and the obligations of Tenant hereunder shall not be affected by any
event or for any reason, including the following: (i) any damage to or theft,
loss or destruction of any of the Leased Premises, (ii) any Condemnation, (iii)
Tenant's acquisition of ownership of any of the Leased Premises other than
<PAGE>
pursuant to an express provision of this Lease, (iv) subject to the provisions
of Paragraph 32 hereof, any default on the part of Landlord hereunder or under
any Note, Mortgage, Assignment or any other agreement (but nothing herein shall
be deemed to limit or waive any right, claim or remedy, in law or in equity,
which Tenant may have against Landlord by reason of any such default), (v) any
latent or other defect in any of the Leased Premises, (vi) the breach of any
warranty of any seller or manufacturer of any of the Equipment, (vii) subject to
the provisions of Paragraph 4(b) hereof, any violation of any provision of this
Lease by Landlord, (viii) the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution or winding-up of, or other
proceeding affecting Landlord, (ix) subject to the provisions of Paragraph 32
hereof, the exercise of any remedy, including foreclosure, under any Mortgage or
Assignment, (x) subject to the provisions of Paragraph 32 hereof, any action
with respect to this Lease (including the disaffirmance hereof) which may be
taken by Landlord, any trustee, receiver or liquidator of Landlord or any court
under the Federal Bankruptcy Code or otherwise, (xi) any interference with
Tenant's use of the Leased Premises (except to the extent such interference is
caused by acts of Landlord not permitted under this Lease), (xii) market or
economic changes or (xiii) any other cause, whether similar or dissimilar to the
foregoing, any present or future Law to the contrary notwithstanding.
(c) The obligations of Tenant hereunder shall be separate and independent
covenants and agreements, all Monetary Obligations shall continue to be payable
in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and
the obligations of Tenant hereunder shall continue unaffected unless the
requirement to pay or perform the same shall have been terminated pursuant to an
express provision of this Lease. The obligation to pay Rent or amounts equal
thereto shall not be affected by any collection of rents by any governmental
body pursuant to a tax lien or otherwise, even though such obligation results in
a double payment of Rent. All Rent payable by Tenant hereunder shall constitute
"rent" for all purposes (including Section 502(b)(6) of the Federal Bankruptcy
Code).
(d) Except as otherwise expressly provided herein, Tenant shall have no right
and hereby waives all rights which it may have under any Law (i) to quit,
terminate or surrender this Lease or any of the Leased Premises, or (ii) to any
Set-Off of any Monetary Obligations.
9. Payment of Impositions.
(a) Tenant shall, before interest or penalties are due thereon, pay and
discharge all taxes (including real and personal property, franchise, sales and
rent taxes), all charges for any easement or agreement maintained for the
benefit of any of the Leased Premises, all assessments and levies, all permit,
inspection and license fees, all rents and charges for water, sewer, utility and
communication services relating to any of the Leased Premises, all ground rents
and all other public charges whether of a like or different nature, even if
unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii)
Tenant's leasehold interest in the Leased Premises, (iii) any of the Leased
Premises, (iv) Landlord as a result of or arising in respect of the acquisition,
ownership, occupancy, leasing, use, possession or sale of any of the Leased
Premises, any activity conducted on any of the Leased Premises, or the Rent, or
(v) any Lender by reason of any Note, Mortgage, Assignment or other document
<PAGE>
evidencing or securing a Loan and which (as to this clause (v)) Landlord has
agreed to pay (collectively, the "Impositions"); provided, that nothing herein
shall obligate Tenant to pay (A) income, excess profits or other taxes of
Landlord (or Lender) which are determined on the basis of Landlord's (or
Lender's) net income or net worth (unless such taxes are in lieu of or a
substitute for any other tax, assessment or other charge upon or with respect to
the Leased Premises which, if it were in effect, would be payable by Tenant
under the provisions hereof or by the terms of such tax, assessment or other
charge), (B) any estate, inheritance, succession, gift or similar tax imposed on
Landlord or (C) any capital gains tax imposed on Landlord in connection with the
sale of the Leased Premises to any Person. If any Imposition may be paid in
installments without interest or penalty, Tenant shall have the option to pay
such Imposition in installments; in such event, Tenant shall be liable only for
those installments which accrue or become due and payable during the Term. If
the Term of the Lease should expire or terminate (except by reason of an Event
of Default by Tenant hereunder) prior to the conclusion of any period for which
Tenant has paid any Imposition, then Landlord shall immediately upon such
expiration or termination remit to Tenant payment for the pro-rata portion of
such Imposition attributable to such unexpired period. Tenant shall prepare and
file all tax reports required by governmental authorities which relate to the
Impositions. Tenant shall deliver to Landlord (1) copies of all settlements and
notices pertaining to the Impositions which may be issued by any governmental
authority within ten (10) business days after Tenant's receipt thereof, (2)
receipts for payment of all taxes required to be paid by Tenant hereunder within
thirty (30) days after the due date thereof and (3) receipts for payment of all
other Impositions within ten (10) business days after Landlord's request
therefor.
(b) Subject to any terms more favorable to Tenant as may be agreed by Lender
with respect to the number or nature of any permitted defaults prior to the
application of this Paragraph 9(b) (which more favorable terms shall control),
following the occurrence of an Event of Default consisting of a failure to (i)
timely pay any Monetary Obligation, (ii) timely pay any real estate taxes or
assessments imposed upon the Leased Premises or payments in lieu thereof or
(iii) failure to keep and maintain in effect at all times during the Term of
this Lease the insurance coverage required under this Lease, Landlord shall have
the right to require Tenant to pay to Landlord an additional monthly sum (each
an "Escrow Payment") sufficient to pay the Escrow Charges (as hereinafter
defined) as they become due. If Landlord receives notice, or otherwise becomes
aware, of Tenant's failure to timely make payment of an insurance premium or
taxes or assessments, Landlord shall endeavor to provide Tenant with notice
thereof as soon as possible. As used herein, "Escrow Charges" shall mean real
estate taxes on the Leased Premises or payments in lieu thereof and premiums on
any insurance required by this Lease. Landlord shall determine the amount of the
Escrow Charges and of each Escrow Payment. As long as the Escrow Payments are
being held by Landlord, the Escrow Payments shall not be commingled with other
funds of Landlord or other Persons and interest thereon shall accrue for the
benefit of Tenant from the date such monies are received and invested until the
date such monies are disbursed to pay Escrow Charges. Landlord shall apply the
Escrow Payments to the payment of the Escrow Charges in such order or priority
as Landlord shall determine or as required by law. If at any time the Escrow
Payments theretofore paid to Landlord shall be insufficient for the payment of
the Escrow Charges, Tenant, within ten (10) days after Landlord's demand
therefor, shall pay the amount of the deficiency to Landlord.
<PAGE>
10. Compliance with Laws and Easement Agreements; Environmental Matters.
(a) Tenant shall, at its expense, comply with and conform to, and cause the
Leased Premises and any other Person occupying any part of the Leased Premises
to comply with and conform to, all Insurance Requirements and Legal Requirements
(including all applicable Environmental Laws). Tenant shall not at any time (i)
cause, permit or suffer to occur any Environmental Violation or (ii) permit any
sublessee, assignee or other Person occupying the Leased Premises under or
through Tenant to cause, permit or suffer to occur any Environmental Violation
and, at the reasonable request of Landlord or Lender, Tenant shall promptly
remediate or undertake any other appropriate response action to correct any
existing Environmental Violation. Any and all reports prepared for or by
Landlord with respect to the Leased Premises shall be for the sole benefit of
Landlord and Lender and no other Person shall have the right to rely on any such
reports.
(b) Tenant, at its sole cost and expense, will at all times promptly and
faithfully abide by, discharge and perform all of the covenants, conditions and
agreements contained in any Easement Agreement on the part of Landlord or the
occupier to be kept and performed thereunder. Tenant will not alter, modify,
amend or terminate any Easement Agreement, give any consent or approval
thereunder, or enter into any new Easement Agreement without, in each case, the
prior written consent of Landlord.
(c) Upon prior written notice from Landlord, Tenant shall permit such persons as
Landlord may designate ("Site Reviewers") to visit the Leased Premises and
perform, as agents of Tenant, environmental site investigations and assessments
("Site Assessments") on the Leased Premises for the purpose of determining
whether there exists on the Leased Premises any Environmental Violation or any
condition which could result in any Environmental Violation (i) in connection
with any sale, financing or refinancing of the Leased Premises, (ii) at any time
within the six month period prior to the expiration of the Term and (iii) at any
time that, in the opinion of Landlord or Lender, a reasonable basis exists to
believe that an Environmental Violation exists. Such Site Assessments may
include both above and below the ground testing for Environmental Violations and
such other tests as may be necessary, in the opinion of the Site Reviewers, to
conduct the Site Assessments. Tenant shall supply to the Site Reviewers such
historical and operational information regarding the Leased Premises as may be
reasonably requested by the Site Reviewers to facilitate the Site Assessments,
and shall make available for meetings with the Site Reviewers appropriate
personnel having knowledge of such matters. The cost of performing and reporting
any Site Assessments shall be paid by Tenant with respect to (i) the first Site
Assessment in any two (2) year period, (ii) any Site Assessment required by
Lender or any governmental authority, (iii) any Site Assessment following a
known Environmental Violation at the Leased Premises and (iv) any Site
Assessment in which an Environmental Violation is discovered.
<PAGE>
(d) If an Environmental Violation occurs or is found to exist and, in such Site
Reviewer's reasonable judgment, the cost of remediation of, or other response
action with respect to, the same is likely to exceed $500,000, Tenant shall
provide to Landlord, within ten (10) days after Landlord's request therefor,
adequate financial assurances that Tenant will effect such remediation in
accordance with applicable Environmental Laws. Such financial assurances shall
be a bond or letter of credit reasonably satisfactory to Landlord in form and
substance and in an amount equal to one hundred fifteen percent (115%) of
Landlord's reasonable estimate, based upon a Site Assessment performed pursuant
to Paragraph 10(c) (a copy of which shall be provided to Tenant at the time of
the request for such bond or letter of credit), of the anticipated cost of such
remedial action.
(e) Notwithstanding any other provision of this Lease, if an Environmental
Violation occurs or is found to exist and the Term would otherwise terminate or
expire, then, at the option of Landlord, the Term shall be automatically
extended beyond the date of termination or expiration and this Lease shall
remain in full force and effect beyond such date until the earlier to occur of
(i) the completion of all remedial action in accordance with applicable
Environmental Laws or (ii) the date specified in a written notice from Landlord
to Tenant terminating this Lease; provided, however, if Landlord leases all or
any part of the Leased Premises during such extended Term, Tenant shall be
entitled to a credit against Basic Rent hereunder in the amount equal to the
rental payments under such other lease as and when collected by Landlord.
(f) If Tenant fails, after any applicable notice and cure period, to correct any
Environmental Violation which occurs or is found to exist, Landlord shall have
the right (but no obligation) to take any and all actions as Landlord shall deem
necessary or advisable in order to cure such Environmental Violation.
(g) Tenant shall notify Landlord promptly after receipt of notice from any
governmental authority or actual knowledge of any Environmental Violation (or
alleged Environmental Violation) or noncompliance with any of the covenants
contained in this Paragraph 10 and shall forward to Landlord immediately upon
receipt thereof copies of all orders, reports, notices, permits, applications or
other communications relating to any such violation or noncompliance.
(h) All future leases, subleases or concession agreements relating to the Leased
Premises entered into by Tenant shall contain covenants of the other party not
to at any time (i) cause any Environmental Violation to occur or (ii) permit any
Person occupying the Leased Premises through said subtenant or concessionaire to
cause any Environmental Violation to occur.
11. Liens; Recording.
(a) Tenant shall not, directly or indirectly, create or permit to be created or
to remain and shall promptly discharge or remove any lien, levy or encumbrance
on any of the Leased Premises or on any Rent or any other sums payable by Tenant
under this Lease, other than any Mortgage or Assignment, the Permitted
Encumbrances and any mortgage, lien, encumbrance or other charge created by or
resulting solely from any act or omission of Landlord. NOTICE IS HEREBY GIVEN
THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED
PREMISES THROUGH OR UNDER TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY
SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF
LANDLORD IN AND TO ANY OF THE LEASED PREMISES. TENANT SHALL PROMPTLY UPON THE
COMMENCEMENT OF ANY ALTERATIONS AT THE LEASED PREMISES, POST A NOTICE ON THE
LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD THAT IS IN CONFORMITY
WITH THE PROVISIONS OF ORS 87.030.
<PAGE>
(b) Tenant shall execute, deliver and record, file or register (collectively,
"record") all such instruments as may be required or permitted by any present or
future Law in order to evidence the respective interests of Landlord and Tenant
in the Leased Premises, and shall cause a memorandum of this Lease (or, if such
a memorandum cannot be recorded, this Lease), and any supplement hereto or
thereto, to be recorded in such manner and in such places as may be required or
permitted by any present or future Law in order to protect the validity and
priority of this Lease.
12. Maintenance and Repair.
(a) Tenant shall at all times maintain the Leased Premises and the Adjoining
Property in as good repair and appearance as they are in on the date hereof and
fit to be used for their intended use in accordance with the better of the
practices generally recognized as then acceptable by other companies in its
industry or observed by Tenant with respect to the other real properties owned
or operated by it, and, in the case of the Equipment, in as good mechanical
condition as it was on the later of the date hereof or the date of its
installation, except, in each case, for ordinary wear and tear and insured
casualty (but excluding any deductible). Tenant shall take every other action
necessary or appropriate for the preservation and safety of the Leased Premises.
Tenant shall promptly make all Alterations of every kind and nature, whether
foreseen or unforeseen, which may be required to comply with the foregoing
requirements of this Paragraph 12(a), including Alterations required in order to
insure that the Improvements are year 2000 compliant. Landlord shall not be
required to make any Alteration, whether foreseen or unforeseen, or to maintain
any of the Leased Premises or Adjoining Property in any way, and Tenant hereby
expressly waives any right which may be provided for in any Law now or hereafter
in effect to make Alterations at the expense of Landlord or to require Landlord
to make Alterations. Any Alteration made by Tenant pursuant to this Paragraph 12
shall be made in conformity with the provisions of Paragraph 13.
(b) If any Improvement, now or hereafter constructed, shall (i) encroach upon
any setback or any property, street or right-of-way adjoining the Leased
Premises, (ii) violate the provisions of any restrictive covenant affecting the
Leased Premises, (iii) hinder or obstruct any easement or right-of-way to which
any of the Leased Premises is subject or (iv) impair the rights of others in, to
or under any of the foregoing, Tenant shall, promptly after receiving notice or
otherwise acquiring knowledge thereof, either (A) obtain from all necessary
parties waivers or settlements of all claims, liabilities and damages resulting
from each such encroachment, violation, hindrance, obstruction or impairment,
whether the same shall affect Landlord, Tenant or both, or (B) take such action
as shall be necessary to remove all such encroachments, hindrances or
obstructions and to end all such violations or impairments, including, if
necessary, making Alterations.
<PAGE>
13. Alterations and Improvements.
(a) Tenant shall have the right, without having obtained the prior written
consent of Landlord and Lender and provided that no monetary or material
non-monetary Event of Default exists beyond any applicable notice and cure
period, to make (i) Alterations or a series of related Alterations that, as to
any such Alterations or series of related Alterations, do not cost in excess of
$750,000 and (ii) to install Equipment in the Improvements or accessions to the
Equipment that, as to such Equipment or accessions, do not cost in excess of
$750,000, so long as at the time of construction or installation of any such
Equipment or Alterations no monetary or material non-monetary Event of Default
exists beyond any applicable notice and cure period and the value and utility of
the Leased Premises is not diminished thereby in any material respect. If the
cost of any Alterations, series of related Alterations, Equipment or accessions
thereto is in excess of $750,000, the prior written approval of Landlord and
Lender shall be required, such approval not to be unreasonably withheld, delayed
or conditioned. Tenant shall not construct upon the Land any additional
buildings without having first obtained the prior written consent of Landlord
and Lender.
(b) If Tenant makes any Alterations pursuant to this Paragraph 13 or as required
by Paragraph 12 or 17 (such Alterations and actions being hereinafter
collectively referred to as "Work"), whether or not Landlord's consent is
required, then (i) the market value of the Leased Premises shall not be lessened
by any such Work or its usefulness impaired, (ii) all such Work shall be
performed by Tenant in a good and workmanlike manner, (iii) all such Work shall
be expeditiously completed in compliance with all Legal Requirements, (iv) all
such Work shall comply with the Insurance Requirements, (v) if any such Work
involves the replacement of Equipment or parts thereto, all replacement
Equipment or parts shall have a value and useful life equal to the greater of
(A) the value and useful life on the date hereof of the Equipment being replaced
or (B) the value and useful life of the Equipment being replaced immediately
prior to the occurrence of the event which required its replacement, (vi) Tenant
shall promptly discharge or remove all liens filed against any of the Leased
Premises arising out of such Work, (vii) Tenant shall procure and pay for all
permits and licenses required in connection with any such Work, (viii) all such
Work shall be the property of Landlord and shall be subject to this Lease, and
Tenant shall execute and deliver to Landlord any document requested by Landlord
evidencing the assignment to Landlord of all estate, right, title and interest
(other than the leasehold estate created hereby) of Tenant or any other Person
thereto or therein, and (ix) Tenant shall comply, to the extent of Alterations
of $750,000 or more with the provisions of Paragraph 19(a), whether or not such
Work involves restoration of the Leased Premises.
14. Permitted Contests. Notwithstanding any other provision of this Lease,
Tenant shall not be required to (a) pay any Imposition, (b) discharge or remove
any lien referred to in Paragraph 11 or 13 or (c) take any action with respect
to any encroachment, violation, hindrance, obstruction or impairment referred to
in Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter
referred to collectively as "Permitted Violations"), so long as at the time of
<PAGE>
such contest no monetary or material non-monetary Event of Default exists and so
long as Tenant shall contest, in good faith, the existence, amount or validity
thereof, the amount of the damages caused thereby, or the extent of its or
Landlord's liability therefor by appropriate proceedings which shall operate
during the pendency thereof to prevent or stay (i) the collection of, or other
realization upon, the Permitted Violation so contested, (ii) the sale,
forfeiture or loss of any of the Leased Premises or any Rent to satisfy or to
pay any damages caused by any Permitted Violation, (iii) any interference with
the use or occupancy of any of the Leased Premises, (iv) any interference with
the payment of any Rent, or (v) the cancellation or material increase in the
rate of any insurance policy or a statement by the carrier that coverage will be
denied. Tenant shall provide Landlord security which is satisfactory, in
Landlord's reasonable judgment, to assure that such Permitted Violation is
corrected, including all Costs, interest and penalties that may be incurred or
become due in connection therewith. While any proceedings which comply with the
requirements of this Paragraph 14 are pending and the required security is held
by Landlord, Landlord shall not have the right to correct any Permitted
Violation thereby being contested unless Landlord is required by law to correct
such Permitted Violation and Tenant's contest does not prevent or stay such
requirement as to Landlord. Each such contest shall be promptly and diligently
prosecuted by Tenant to a final conclusion, except that Tenant, so long as the
conditions of this Paragraph 14 are at all times complied with, has the right to
attempt to settle or compromise such contest through negotiations. Tenant shall
pay any and all losses, judgments, decrees and Costs in connection with any such
contest and shall, promptly after the final non-appealable determination of such
contest, fully pay and discharge the amounts which shall be levied, assessed,
charged or imposed or be determined to be payable therein or in connection
therewith, together with all penalties, fines, interest and Costs thereof or in
connection therewith, and perform all acts the performance of which shall be
ordered or decreed as a result thereof. No such contest shall subject Landlord
to the risk of any civil or criminal liability.
15. Indemnification.
(a) Tenant shall pay, protect, indemnify, defend, save and hold harmless
Landlord, Lender and all other Persons described in Paragraph 30 (each an
"Indemnitee") from and against any and all liabilities, losses, damages
(including punitive damages), penalties, Costs, causes of action, suits, claims,
demands or judgments of any nature whatsoever, howsoever caused, without regard
to the form of action and whether based on strict liability, negligence or any
other theory of recovery at law or in equity, arising from (i) any matter
pertaining to the acquisition, or the negotiations leading thereto (provided
that, nothing herein shall be deemed to make Tenant liable for Landlord's Costs
in connection with the initial Loan in excess of $70,000), ownership, use,
non-use, occupancy, operation, condition, design, construction, maintenance,
repair or restoration of the Leased Premises or Adjoining Property, (ii) any
casualty in any manner arising from the Leased Premises or Adjoining Property,
whether or not Indemnitee has or should have knowledge or notice of any defect
or condition causing or contributing to said casualty, (iii) any violation by
Tenant of any provision of this Lease, any contract or agreement to which Tenant
is a party, any Legal Requirement or any Permitted Encumbrance or any
encumbrance Tenant consented to or the Mortgage or Assignment or (iv) except to
the extent caused solely by the gross negligence or willful misconduct of any
Indemnitee, any alleged, threatened or actual Environmental Violation, including
(A) liability for response costs and for costs of removal and remedial action
incurred by the United States Government, any state or local governmental unit
or any other Person, or damages from injury to or destruction or loss of natural
<PAGE>
resources, including the reasonable costs of assessing such injury, destruction
or loss, incurred pursuant to Section 107 of CERCLA, or any successor section or
act or provision of any similar state or local Law, (B) liability for costs and
expenses of abatement, correction or clean-up, fines, damages, response costs or
penalties which arise from the provisions of any of the other Environmental Laws
and (C) liability for personal injury or property damage arising under any
statutory or common-law tort theory, including damages assessed for the
maintenance of a public or private nuisance or for carrying on of a dangerous
activity.
(b) In case any action or proceeding is brought against any Indemnitee by reason
of any such claim, (i) Tenant may retain its own counsel and defend such action,
and Landlord may employ counsel of its choice to monitor the defense of any such
action; provided that in the event of a conflict of interest or a dispute
between Tenant and any such Indemnitee or during the continuance of an Event of
Default such counsel may be retained by Landlord at Tenant's cost and (ii) such
Indemnitee shall notify Tenant to resist or defend such action or proceeding by
retaining counsel reasonably satisfactory to such Indemnitee, and such
Indemnitee will cooperate and assist in the defense of such action or proceeding
if reasonably requested so to do by Tenant. In the event of a conflict of
interest or dispute or during the continuance of an Event of Default, Landlord
shall have the right to select counsel, and the cost of such counsel shall by
paid by Tenant.
(c) The obligations of Tenant under this Paragraph 15 shall survive any
termination, expiration or rejection in bankruptcy of this Lease.
16. Insurance.
(a) Tenant shall maintain the following insurance on or in connection with the
Leased Premises:
(i) Insurance against physical loss or damage to the Improvements and Equipment
as provided under a standard "All Risk" property policy including but not
limited to flood (if the Leased Premises is in a flood zone) and earthquake
coverage in amounts not less than the actual replacement cost of the
Improvements and Equipment. Such policies shall contain Replacement Cost and
Agreed Amount Endorsements and shall contain deductibles not more than $50,000
per occurrence.
(ii) Commercial General Liability Insurance (including but not limited to
Incidental Medical Malpractice and Host Liquor Liability) and Business
Automobile Liability Insurance (including Non-Owned and Hired Automobile
Liability) against claims for personal and bodily injury, death or property
damage occurring on, in or as a result of the use of the Leased Premises, in an
amount not less than $15,000,000 per occurrence/annual aggregate and all other
coverage extensions that are usual and customary for properties of this size and
type provided, however, that the Landlord shall have the right to require such
higher limits as may be reasonable and customary for properties of this size and
type.
<PAGE>
(iii) Workers' compensation insurance covering all persons employed by Tenant in
connection with any work done on or about any of the Leased Premises for which
claims for death, disease or bodily injury may be asserted against Landlord,
Tenant or any of the Leased Premises or, in lieu of such Workers' Compensation
Insurance, a program of self-insurance complying with the rules, regulations and
requirements of the appropriate agency of the State.
(iv) Comprehensive Boiler and Machinery Insurance on any of the Equipment or any
other equipment on or in the Leased Premises, in an amount not less than
$6,000,000 per accident for damage to property. Such policies shall include at
least $6,000,000 per accident for Off-Premises Service Interruption, Expediting
Expenses, Ammonia Contamination, and Hazardous Materials Clean-Up Expense and
may contain a deductible not to exceed $50,000.
(v) Business Income/Extra Expense Insurance at limits sufficient to cover 100%
of the period of indemnity not less than one year from time of loss. Such
insurance shall name Landlord as loss payee solely with respect to Rent payable
to or for the benefit of Landlord as its interest appears under this Lease.
(vi) During any period in which substantial Alterations at the Leased Premises
are being undertaken, builder's risk insurance covering the total completed
value including any "soft costs" with respect to the Improvements being altered
or repaired (on a completed value, non-reporting basis), replacement cost of
work performed and equipment, supplies and materials furnished in connection
with such construction or repair of Improvements or Equipment, together with
such "soft cost" endorsements and such other endorsements as Landlord may
reasonably require and general liability, worker's compensation and automobile
liability insurance with respect to the Improvements being constructed, altered
or repaired.
(vii) Such other insurance (or other terms with respect to any insurance
required pursuant to this Paragraph 16, including without limitation amounts of
coverage, deductibles, form of mortgagee clause) on or in connection with any of
the Leased Premises as Landlord or Lender may reasonably require, which at the
time is usual and commonly obtained in connection with properties similar in
type of building size, use and location to the Leased Premises.
(b) The insurance required by Paragraph 16(a) shall be written by companies
which, at all times during the Term, have a Best's rating of A:X or above and
are admitted in, and approved to write insurance policies by, the State
Insurance Department for the State. The insurance policies (i) shall be for such
terms as Landlord may reasonably approve and (ii) shall be in amounts sufficient
at all times to satisfy any coinsurance requirements thereof. The insurance
referred to in Paragraphs 16(a)(i), 16(a)(iv) and 16(a)(vi) shall name Landlord
<PAGE>
as Owner and Lender as loss payee and Tenant as its interest may appear. The
insurance referred to in Paragraph 16(a)(ii) shall name Landlord and Lender as
additional insureds, and the insurance referred to in Paragraph 16(a)(v) shall
name Landlord as insured and Lender and Landlord as loss payee. If said
insurance or any part thereof shall expire, be withdrawn, become void or
voidable for any reason, including a breach of any condition thereof by Tenant
or the failure or impairment of the capital of any insurer, or if for any other
reason whatsoever said insurance shall become reasonably unsatisfactory to
Landlord, Tenant shall immediately obtain new or additional insurance reasonably
satisfactory to Landlord.
(c) Each insurance policy referred to in clauses (i), (iv), (v) and (vi) of
Paragraph 16(a) shall contain standard non-contributory mortgagee clauses in
favor of and acceptable to Lender. Each policy required by any provision of
Paragraph 16(a), except clause (iii) thereof, shall provide that it may not be
cancelled, substantially modified or allowed to lapse on any renewal date except
after thirty (30) days' prior notice to Landlord and Lender. Each such policy
shall also provide that any loss otherwise payable thereunder shall be payable
notwithstanding (i) any act or omission of Landlord or Tenant which might,
absent such provision, result in a forfeiture of all or a part of such insurance
payment, (ii) the occupation or use of any of the Leased Premises for purposes
more hazardous than those permitted by the provisions of such policy, (iii) any
foreclosure or other action or proceeding taken by Lender pursuant to any
provision of the Mortgage, Note, Assignment or other document evidencing or
securing the Loan upon the happening of an event of default therein or (iv) any
change in title to or ownership of any of the Leased Premises.
(d) Tenant shall pay as they become due all premiums for the insurance required
by Paragraph 16(a), shall renew or replace each policy and deliver to Landlord
evidence of the payment of the full premium therefor or installment then due at
least thirty (30) days prior to the expiration date of such policy, and shall
promptly deliver to Landlord all original certificates of insurance.
(e) Anything in this Paragraph 16 to the contrary notwithstanding, any insurance
which Tenant is required to obtain pursuant to Paragraph 16(a) may be carried
under a "blanket" or umbrella policy or policies covering other properties or
liabilities of Tenant, provided that such "blanket" or umbrella policy or
policies otherwise comply with the provisions of this Paragraph 16 and provided
further that Tenant shall provide to Landlord a Statement of Values which shall
be reviewed annually and amended as necessary based on Replacement Cost
Valuations. The original or a certified copy of each such "blanket" or umbrella
policy shall promptly be delivered to Landlord.
(f) Tenant shall promptly comply with and conform to (i) all provisions of each
insurance policy required by this Paragraph 16 and (ii) all requirements of the
insurers thereunder applicable to Landlord, Tenant or any of the Leased Premises
or to the use, manner of use, occupancy, possession, operation, maintenance,
alteration or repair of any of the Leased Premises, even if such compliance
necessitates Alterations or results in interference with the use or enjoyment of
any of the Leased Premises.
(g) Tenant shall not carry separate insurance concurrent in form or contributing
in the event of a Casualty with that required in this Paragraph 16 unless (i)
Landlord and Lender are included therein as named insureds, with loss payable as
<PAGE>
provided herein, and (ii) such separate insurance complies with the other
provisions of this Paragraph 16. Tenant shall immediately notify Landlord of
such separate insurance and shall deliver to Landlord the original policies
thereof; provided however, that nothing contained herein shall be deemed to
limit Tenant's right to carry insurance with respect to any other properties or
businesses of Tenant or any personal property of Tenant that does not constitute
a part of the Leased Premises.
(h) All policies shall contain effective waivers by the carrier against all
claims for insurance premiums against Landlord and shall contain full waivers of
subrogation against the Landlord.
(i) All proceeds of any insurance required under Paragraph 16(a shall be
payable as follows:
(1) Proceeds payable under clauses (ii), (iii) and (iv) of Paragraph 16(a) and
proceeds attributable to the general liabilities coverage of Builder's Risk
insurance under clause (vi) of Paragraph 16(a) shall be payable to the Person
entitled to receive such proceeds.
(2) All proceeds of insurance payable under clauses (ii), (iii), (iv), (v) and
(vii) of Paragraph 16(a) and proceeds attributable to the general liability
coverage provisions of Builder's Risk insurance under clause (vi) of Paragraph
16(a) shall be payable to Landlord or, if required by the Mortgage, to Lender.
(3) Proceeds of insurance required under clause (i) of Paragraph 16(a) and
proceeds attributable to Builder's Risk insurance (other than its general
liability coverage provisions) under clause (vi) of Paragraph 16(a) shall be
payable to Landlord (or Lender) and applied as set forth in Paragraph 17. Tenant
shall apply the Net Award to restoration of the Leased Premises in accordance
with the applicable provisions of this Lease.
17. Casualty and Condemnation.
(a) If any Casualty occurs to the Leased Premises, the insurance proceeds for
which is reasonably estimated by Tenant to be equal to or in excess of Five
Hundred Thousand Dollars ($500,000), Tenant shall promptly give Landlord and
Lender notice thereof. So long as no monetary or material non-monetary Event of
Default exists beyond any applicable notice and cure period, Tenant is hereby
authorized to adjust, collect and compromise all claims under any of the
insurance policies required by Paragraph 16(a) (except public liability
insurance claims payable to a Person other than Tenant, Landlord or Lender) and
to execute and deliver on behalf of Landlord all necessary proofs of loss,
<PAGE>
receipts, vouchers and releases required by the insurers and Landlord shall have
the right to join therein. Any adjustment, settlement or compromise of any such
claim for any amount less than the replacement cost for the Leased Premises or
such portion thereof so damaged, as applicable, shall be subject to the prior
written approval of Landlord, which approval shall not be unreasonably withheld,
delayed or conditioned; provided however, that, if the proposed adjustment,
settlement or compromise is less than replacement cost for the Leased Premises
or the portion thereof so damaged (as reasonably determined, in each instance,
by Tenant's architect or engineer), and Tenant shall escrow any shortfall in the
funds necessary for the repair or restoration of the Leased Premises or the
portion thereof so damaged in accordance with the terms of this Lease into the
Restoration Fund, then Landlord shall not withhold its consent thereto. If a
monetary or material non-monetary Event of Default exists beyond any applicable
notice and cure period, (i) Tenant shall not be entitled to participate with
Landlord and Lender in any adjustment, collection and compromise of the Net
Award payable in connection with a Casualty, (ii) Tenant agrees to sign, upon
the request of Landlord and Lender, all such proofs of loss, receipts, vouchers
and releases and (iii) if Landlord or Lender so requests, Tenant shall adjust,
collect and compromise any and all such claims, and Landlord and Lender shall
have the right to join with Tenant therein. Upon notice from Landlord or Lender
as to the occurrence and continuance of an Event of Default beyond any
applicable notice and cure period, each insurer is hereby authorized and
directed to make payment under said policies, including return or unearned
premiums, directly to Landlord or, if required by the Mortgage, to Lender
instead of to Landlord and Tenant jointly, and Tenant hereby appoints each of
Landlord and Lender as Tenant's attorneys-in-fact to endorse any draft therefor.
The rights of Landlord under this Paragraph 17(a) shall be extended to Lender if
and to the extent that any Mortgage so provides.
(b) Tenant, immediately upon receiving any Condemnation Notice, shall notify
Landlord and Lender thereof. So long as no monetary or material non-monetary
Event of Default exists beyond any applicable notice and cure period, Tenant is
authorized to collect, settle and compromise, in its discretion, the amount of
any Net Award and Landlord shall be entitled to join therein. If an Event of
Default exists beyond any applicable notice and cure period, only Landlord and
Lender are authorized to collect, settle and compromise, in their discretion,
the amount of any Net Award and Tenant shall not be entitled to participate with
Landlord and Lender in any Condemnation proceeding or negotiations under threat
thereof and to contest the Condemnation or the amount of the Net Award therefor.
No agreement with any condemnor in settlement or under threat of any
Condemnation shall be made by Tenant without the prior written consent of
Landlord and Lender. Subject to the provisions of this Paragraph 17(b), Tenant
hereby irrevocably assigns to Landlord any award or payment to which Tenant is
or may be entitled by reason of any Condemnation, whether the same shall be paid
or payable for Tenant's leasehold interest hereunder or otherwise; but nothing
in this Lease shall impair Tenant's right to any award or payment on account of
Tenant's trade fixtures, equipment or other tangible property which is not part
of the Equipment, moving expenses or loss of business, if available, to the
extent that and so long as (i) Tenant shall have the right to make, and does
make, a separate claim therefor against the condemnor and (ii) such claim does
not in any way reduce either the amount of the award otherwise payable to
Landlord for the Condemnation of Landlord's fee interest in the Leased Premises
or the amount of the award (if any) otherwise payable for the Condemnation of
Tenant's leasehold interest hereunder. The rights of Landlord under this
Paragraph 17(b) shall also be extended to Lender if and to the extent that any
Mortgage so provides.
<PAGE>
(c) If any Casualty (whether or not insured against) or Partial Condemnation
shall occur, this Lease shall continue, notwithstanding such event, and there
shall be no abatement or reduction of any Monetary Obligations, except as
provided in Paragraph 17(d) and 19(c). Promptly after any Casualty, Tenant,
shall commence and diligently continue to restore the Leased Premises (including
the Equipment) to substantially the same size, layout, utility, value, condition
and character as existed immediately prior to such event (assuming the Leased
Premises to have been in the condition required by this Lease) and otherwise as
required in Paragraphs 12 and 13(b). Promptly after any Partial Condemnation,
Tenant shall commence and diligently continue to restore the Leased Premises as
nearly as possible to their value, condition and character immediately prior to
such event (assuming the Leased Premises to have been in the condition required
by this Lease) and otherwise as required in Paragraphs 12 and 13(b). So long as
no Event of Default exists beyond any applicable notice and cure period, the Net
Award shall be paid by Landlord to Tenant and Tenant shall restore the Leased
Premises in accordance with the requirements of this Paragraph and Paragraphs
12(a) and 13(b) of this Lease, and the amount of such Net Award so paid to
Tenant shall constitute the Restoration Fund, shall be held in escrow by Tenant
and not commingled with any other funds of Tenant, and subject to the provisions
of Paragraphs 19(b) and 19(c) hereof. If an Event of Default exists beyond any
applicable notice and cure period, any Net Award shall (unless such Condemnation
resulting in the Net Award is a Termination Event) be made available by Landlord
(or Lender, if required by the terms of any Mortgage) to Tenant for the
restoration of any of the Leased Premises pursuant to and in accordance with the
provisions of Paragraph 19 hereof. If any Condemnation which is not a Partial
Condemnation shall occur, Tenant shall comply with the terms and conditions of
Paragraph 18. Notwithstanding anything to the contrary contained herein, in the
event of any restoration of the Leased Premises hereunder, Tenant shall, upon
notice from Landlord, be required to hire an independent general contractor to
perform the restoration of the Leased Premises.
(d) In the event of a Requisition of any of the Leased Premises, if any Net
Award payable by reason of such Requisition is (i) retained by Landlord, each
installment of Basic Rent payable on or after the date on which the Net Award is
paid to Landlord shall be reduced by a fraction, the denominator of which shall
be the total amount of all Basic Rent due from such date to and including the
last Basic Rent Payment Date for the then existing Term and the numerator of
which shall be the amount of such Net Award retained by Landlord, or (ii) paid
to Lender, then each installment of Basic Rent thereafter payable shall be
reduced in the same amount and for the same period as payments are reduced under
the Note until such Net Award has been applied in full or until the Term has
expired, whichever first occurs.
18. Termination Events.
(a) If (i) the entire Leased Premises shall be taken by a Taking or (ii) any
substantial portion of the Leased Premises shall be taken by a Taking and, in
such case, Tenant certifies and covenants to Landlord that it will forever
abandon operations at the Leased Premises (each of the events described in the
above clauses (i) and (ii) shall hereinafter be referred to as a "Termination
Event"), then (x) Tenant shall be obligated, within thirty (30) days after
Tenant receives a Condemnation Notice, to give to Landlord written notice of the
Tenant's option to terminate this Lease (a "Termination Notice") in the form
described in Paragraph 18(b).
<PAGE>
(b) A Termination Notice shall contain (i) notice of Tenant's intention to
terminate this Lease on the first Basic Rent Payment Date which occurring after
the Fair Market Value Date (the "Termination Date"), (ii) a binding and
irrevocable offer of Tenant to pay to Landlord the Termination Amount and (iii)
if the Termination Event is an event described in Paragraph 18(a)(ii), the
certification and covenants described therein and a certified resolution of the
Board of Directors of Tenant authorizing the same. Promptly upon the delivery to
Landlord of a Termination Notice, Landlord and Tenant shall commence to
determine the Fair Market Value.
(c) If Landlord shall reject such offer to terminate this Lease pursuant to
Paragraph 18(b) above by written notice to Tenant (a "Rejection"), which
Rejection shall contain the written consent of Lender, not later than thirty
(30) days following the Fair Market Value Date, then this Lease shall terminate
on the Termination Date; provided that, if Tenant has not satisfied all Monetary
Obligations and all other obligations and liabilities under this Lease which
have arisen on or prior to the Termination Date (collectively, "Remaining
Obligations") on the Termination Date, then Landlord may, at its option, extend
the date on which this Lease may terminate to a date which is no later than the
first Basic Rent Payment Date after the Termination Date on which Tenant has
satisfied all Remaining Obligations. Upon such termination (i) all obligations
of Tenant hereunder shall terminate except for any Surviving Obligations, (ii)
Tenant shall immediately vacate and shall have no further right, title or
interest in or to any of the Leased Premises and (iii) the Net Award shall be
retained by Landlord. Notwithstanding anything to the contrary hereinabove
contained, if Tenant shall have received a Rejection and, on the date when this
Lease would otherwise terminate as provided above, Landlord shall not have
received the full amount of the Net Award payable by reason of the applicable
Termination Event, then the date on which this Lease is to terminate
automatically shall be extended to the earlier to occur of (A) the second Basic
Rent Payment Date after the scheduled Termination Date and (B) first Basic Rent
Payment Date after the receipt by Landlord of the full amount of the Net Award;
provided that, if Tenant has not satisfied all Remaining Obligations on such
date, then Landlord may, at its option, extend the date on which this Lease may
terminate to a date which is no later than the first Basic Rent Payment Date
after such date on which Tenant has satisfied all such Remaining Obligations.
(d) Unless Tenant shall have received a Rejection not later than the thirtieth
(30th) day following the Fair Market Value Date, Landlord shall be conclusively
presumed to have accepted such offer. If such offer is accepted by Landlord
then, on the Termination Date, Tenant shall pay to Landlord the Termination
Amount and all Remaining Obligations and, if requested by Tenant, Landlord shall
(i) convey to Tenant the Leased Premises or the remaining portion thereof, if
any, and (ii) pay to or assign to Tenant Landlord's entire interest in and to
the Net Award, all in accordance with Paragraph 20.
19. Restoration.
(a) If any monetary or material non-monetary Event of Default shall have
occurred and then be continuing beyond any applicable notice and cure period,
Landlord (or Lender if required by any Mortgage) shall hold the Net Award in a
fund (the "Restoration Fund") and disburse amounts from the Restoration Fund
only in accordance with the following conditions:
<PAGE>
(i) prior to commencement of restoration, (A) the architects, contracts,
contractors, plans and specifications for the restoration shall have been
approved by Landlord, (which approved shall not be unreasonably withheld,
conditioned or delayed) (B) Landlord and Lender shall be provided with
mechanics' lien insurance (if available) and acceptable performance and payment
bonds which insure satisfactory completion of and payment for the restoration,
are in an amount and form and have a surety acceptable to Landlord, and name
Landlord and Lender as additional dual obligees, and (C) appropriate waivers of
mechanics' and materialmen's liens shall have been filed if permitted under the
Laws of the State;
(ii) at the time of any disbursement, no monetary or material non-monetary Event
of Default shall exist and no mechanics' or materialmen's liens shall have been
filed against any of the Leased Premises and remain undischarged of record;
(iii) disbursements shall be made by Landlord (or Lender) from time to time in
an amount not exceeding the cost of the work completed since the last
disbursement, promptly upon receipt of (A) satisfactory evidence, including
architects' certificates, of the stage of completion, the estimated total cost
of completion and performance of the work to date in a good and workmanlike
manner in accordance with the contracts, plans and specifications, (B) waivers
of liens, (C) a satisfactory bringdown of title insurance and (D) other such
evidence of cost and payment reasonably necessary for Landlord to verify that
the amounts disbursed from time to time are represented by work that is
completed, in place and free and clear of mechanics' and materialmen's lien
claims;
(iv) each request for disbursement shall be accompanied by a certificate of
Tenant, signed by the president, a vice president or other authorized
representative of Tenant having sufficient familiarity with the Leased Premises
and the work, describing the work for which payment is requested, stating the
cost incurred in connection therewith, stating that Tenant has not previously
received payment for such work and, upon completion of the work, also stating
that the work has been fully completed and complies, to the best of Tenant's
knowledge, with the applicable requirements of this Lease;
(v) Landlord may retain ten percent (10%) of the restoration fund until the
restoration is fully completed;
(vi) if the Restoration Fund is held by Landlord, the Restoration Fund shall not
be commingled with Landlord's other funds and shall bear interest at a rate
agreed to by Landlord and Tenant; and
(vii) such other reasonable conditions as Landlord or Lender may impose.
<PAGE>
(b) Prior to commencement of restoration and at any time during restoration, if
the estimated cost of completing the restoration work free and clear of all
liens, as reasonably determined by Landlord, exceeds the amount of the Net Award
available for such restoration, the amount of such excess shall, upon demand by
Landlord, be paid by Tenant to Landlord to be added to the Restoration Fund. Any
sum so added by Tenant which remains in the Restoration Fund upon completion of
restoration shall be refunded to Tenant. For purposes of determining the source
of funds with respect to the disposition of funds remaining after the completion
of restoration, the Net Award shall be deemed to be disbursed prior to any
amount added by Tenant.
(c) If any sum remains in the Restoration Fund (after completion of the
restoration and any refund to Tenant pursuant to Paragraph 19(b), if
applicable), such sum (the "Remaining Sum") shall be retained by or paid to
Landlord or, if required by a Note or Mortgage, paid by Landlord to a Lender. If
the Remaining Sum is (i) retained by or paid to Landlord, each installment of
Basic Rent payable on or after the Retention Date shall be reduced by a
fraction, the denominator of which shall be the total amount of all Basic Rent
due from such date to and including the last Basic Rent Payment Date for the
then existing Term and the numerator of which shall be the Remaining Sum, or
(ii) paid to Lender, then each installment of Basic Rent thereafter payable
shall be reduced in the same amount as payments are reduced under any Note if
the Loan corresponding to such Note is reamortized to reflect such payment, in
each case until such Remaining Sum has been applied in full or until the Term
has expired, whichever occurs first. Upon the expiration of the Term, any
portion of the Remaining Sum which has not been so applied shall be retained by
Landlord.
20. Procedures Upon Purchase.
(a) If the Leased Premises is purchased by Tenant pursuant to any provision of
this Lease, Landlord need not convey any better title thereto than that which
was conveyed to Landlord, and Tenant shall accept such title, subject, however,
to the Permitted Encumbrances and to all other liens, exceptions and
restrictions on, against or relating to any of the Leased Premises and to all
applicable Laws, but free of the lien of and security interest created by any
Mortgage or Assignment and liens, exceptions and restrictions on, against or
relating to the Leased Premises which have been created by or resulted solely
from acts or omissions of Landlord after the date of this Lease, unless the same
are Permitted Encumbrances or customary utility easements benefiting the Leased
Premises (created with the concurrence of Tenant) or were otherwise created with
the concurrence of Tenant or as a result of a default by Tenant under this
Lease.
(b) Upon the date fixed for any such purchase of the Leased Premises pursuant to
any provision of this Lease (any such date the "Purchase Date"), Tenant shall
pay to Landlord, or to any Person to whom Landlord directs payment, the Relevant
Amount therefor specified herein, in Federal Funds, less any credit of the Net
Award received and retained by Landlord or a Lender allowed against the Relevant
Amount, and Landlord shall deliver to Tenant (i) an Oregon statutory special
warranty deed which describes the premises being conveyed and conveys the title
thereto as provided in Paragraph 20(a), (ii) such other instruments as shall be
<PAGE>
necessary to transfer to Tenant or its designee any other property (or rights to
any Net Award not yet received by Landlord or a Lender) then required to be sold
by Landlord to Tenant pursuant to this Lease and (iii) any Net Award received by
Landlord, not credited to Tenant against the Relevant Amount and required to be
delivered by Landlord to Tenant pursuant to this Lease; provided, that if any
Monetary Obligations remain outstanding on such date, then Landlord may deduct
from the Net Award the amount of such Monetary Obligations; and further
provided, that if any event has occurred which, in Landlord's reasonable
judgment, is likely to subject any Indemnitee to any liability which Tenant is
required to indemnify against pursuant to Paragraph 15, then an amount shall be
deducted from the Net Award which, in Landlord's reasonable judgment, is
sufficient to satisfy such liability, which amount shall be deposited in an
escrow account with a financial institution reasonably satisfactory to Landlord
and Tenant pending resolution of such matter. If, on the Purchase Date, the
total amount of any Monetary Obligations outstanding exceeds the Net Award, if
any, payable to Tenant by Landlord, then Tenant shall pay to Landlord on the
Purchase Date the amount of such Monetary Obligations in excess of any Net Award
received and retained by Landlord (or Lender). Upon the completion of such
purchase, this Lease and all obligations and liabilities of Tenant hereunder
shall terminate, except any Surviving Obligations.
(c) If the completion of such purchase shall be delayed after (i) the
Termination Date, in the event of a purchase pursuant to Paragraph 18 or, (ii)
the date scheduled for such purchase, in the event of a purchase under any other
provision of this Lease then (x) Rent shall continue to be due and payable until
completion of such purchase and (y) at Landlord's sole option, Fair Market
Value, if applicable, shall be redetermined and the Relevant Amount payable by
Tenant pursuant to the applicable provision of this Lease shall be adjusted to
reflect such redetermination.
(d) Any prepaid Monetary Obligations paid to Landlord shall be prorated as of
the Purchase Date, and the prorated unapplied balance shall be deducted from the
Relevant Amount due to Landlord; provided, that no apportionment of any
Impositions shall be made upon any such purchase.
21. Assignment and Subletting; Prohibition against Leasehold Financing.
(a) (i) Except as expressly set forth below in this Paragraph 21, Tenant may not
assign this Lease, voluntarily or involuntarily, whether by operation of law,
merger, consolidation or otherwise (it being agreed that the aggregate transfer
or ownership of 50% or more of the Voting Stock of Tenant by or to a Person
other than the Guarantor or a majority-owned subsidiary of Guarantor shall
constitute an assignment of this Lease), or sublet any of the Leased Premises at
any time to any other Person without the prior written consent of Landlord,
which consent, may be withheld by Landlord in its sole discretion, and any such
purported sublease or assignment in violation of this Paragraph 21 shall be null
and void.
(ii) Notwithstanding the provisions of Paragraph (a)(i) above, Tenant shall have
the right, upon not less than thirty (30) days prior written notice to Landlord
and Lender, with no consent of Landlord or Lender being required or necessary
("Preapproved Assignment") to assign this Lease by operation of law or otherwise
to (i) any Person that is, and at all times during the Term continues to be, a
majority-owned subsidiary of Tenant or Guarantor first named herein or (ii) to
any other Person, so long as (A) the Guarantor first named herein remains the
<PAGE>
guarantor under the Guaranty, or (B) the successor to Guarantor or the assignee
of the Guaranty satisfies the Fixed Charge Ratio, Total Debt/EBITDA Ratio and
Minimum Consolidated Net Worth covenants set forth in Exhibit E hereto (as
reflected on its most recently published audited annual financial statements
immediately preceding the date of the proposed assignment) or (C) the proposed
assignee satisfies the Fixed Charge Ratio, Total Debt/EBITDA Ratio and Minimum
Consolidated Net Worth covenants set forth in Exhibit E hereto (as reflected on
its most recently published annual audited financial statements immediately
preceding the date of the proposed assignment (each such Person, a "Preapproved
Assignee")
(iii) If Tenant desires to assign this Lease, whether by operation of law or
otherwise, to a Person ("Non-Preapproved Assignee") who would not be a
Preapproved Assignee ("Non-Preapproved Assignment") then Tenant shall, not less
than sixty (60) days prior to the date on which it desires to make a
Non-Preapproved Assignment, submit to Landlord and Lender information regarding
the following with respect to the Non-Preapproved Assignee (collectively, the
"Review Criteria"): (A) credit, (B) capital structure, (C) management, (D)
operating history, (E) proposed use of the Leased Premises and (F) risk factors
associated with the proposed use of the Leased Premises by the Non-Preapproved
Assignee, taking into account factors such as environmental concerns, product
liability and the like. Landlord and Lender shall review such information and
shall approve or disapprove the Non-Preapproved Assignee no later than the
thirtieth (30th) day following receipt of all such information, and Landlord and
Lender shall be deemed to have acted reasonably in granting or withholding
consent if such grant or disapproval is based on their review of the Review
Criteria applying reasonable and prudent business judgment under the
circumstances.
(iv) If Landlord shall disapprove the Non-Preapproved Assignment by notice to
Tenant, given within thirty (30) days following receipt of the information
described in the foregoing Paragraph 21(a)(iii), then this Lease shall remain in
full force and effect and unmodified. Nothing provided herein shall constitute a
waiver by Landlord of the obligation of Tenant to comply with the requirements
of Paragraph 21(a)(iii) if a subsequent Non-Preapproved Assignment arises.
Except as set forth in Paragraph 21 (a) (v) below, no approval of any
Non-Preapproved Assignment shall be effective for any purpose unless consented
to in writing by Lender.
(v) If Landlord shall have failed or refused to approve or disapprove any
Non-Preapproved Assignment by notice to Tenant on or before the thirtieth (30th)
day following receipt of the information described in Paragraph 21(a)(iii)
above, then Tenant shall be entitled to deliver a notice to Landlord so stating
such failure or refusal and, if Landlord shall then fail to so approve or
disapprove such Non-Preapproved Assignment within three (3) business days after
receipt of Tenant's notice, Landlord shall be conclusively be deemed to have
consented to such Non-Preapproved Assignment; provided that, no Event of Default
shall then have occurred and be continuing.
<PAGE>
(vi) If Tenant assigns all its rights and interest under this Lease, the
assignee under such assignment shall expressly assume all the obligations of
Tenant hereunder, actual or contingent, including obligations of Tenant which
may have arisen on or prior to the date of such assignment, by a written
instrument delivered to Landlord at the time of such assignment.
(b) Notwithstanding the provisions of Paragraph (a)(i) above, Tenant shall have
the right, upon thirty (30) days prior written notice to Landlord and Lender, to
enter into one or more subleases (i) to any Person that is, and at all times
during the Term continues to be, a majority-owned subsidiary of Tenant or
Guarantor first named herein or (ii) to any other Person, so long as (A) the
Guarantor first named herein remains the guarantor under the Guaranty, or (B)
the successor to Guarantor, or the assignee of the Guaranty, satisfies the Fixed
Charge Ratio, Total Debt/EBITDA Ratio and Minimum Consolidated Net Worth
covenants set forth in Exhibit E hereto (as reflected on its most recently
published audited annual financial statements immediately preceding the date of
the proposed subletting) or (C) the proposed subtenant satisfies the Fixed
Charge Ratio, Total Debt/EBITDA Ratio and Minimum Consolidated Net Worth
covenants set forth in Exhibit E hereto (as reflected on its most recently
published annual audited financial statements immediately preceding the date of
the proposed subletting (each, a "Preapproved Sublet"). Other than pursuant to a
Preapproved Sublet, at no time during the Term shall subleases for more than
twenty-five percent (25%) of the gross space in the Leased Premises be permitted
without the prior written consent of Landlord, which consent shall be granted or
withheld based on a review of the proposed sublessee's management, operating
history, proposed use of the Leased Premises and risk factors associated with
the proposed use of the Leased Premises by such proposed sublessee, taking into
account factors such as environmental concerns, product liability and the like,
in each case, to the extent same relate to the proposed sublessee and the terms
of the proposed sublease. Landlord and Lender shall review such information and
shall approve or disapprove the such proposed sublessee no later than the
thirtieth (30th) day following receipt of all such information, and Landlord and
Lender shall be deemed to have acted reasonably in granting or withholding
consent if such grant or disapproval is based on their review of the foregoing
factors applying reasonable and prudent business judgment.
(c) If Landlord shall have failed or refused to approve or disapprove any
Non-Preapproved Sublet by notice to Tenant on or before the thirtieth (30th) day
following receipt of the information described in Paragraph 21(b) above, then
Tenant shall be entitled to deliver a notice to Landlord so stating such failure
or refusal and, if Landlord shall then fail to so approve or disapprove such
Non-Preapproved Sublet within three (3) business days after receipt of Tenant's
notice, Landlord shall be conclusively be deemed to have consented to such
Non-Preapproved Sublet; provided that, no Event of Default shall then have
occurred and be continuing.
<PAGE>
(d) With respect to any Preapproved Assignment or Preapproved Sublet, Tenant
shall provide to Landlord in advance of the effective date of such assignment or
subletting information reasonably required by Landlord to establish that any
proposed Preapproved Assignment or Preapproved Sublet satisfies the criteria set
forth above. Each sublease of any of the Leased Premises shall be subject and
subordinate to the provisions of this Lease. No assignment (other than a
Pre-Approved Assignment to a Person meeting the Financial Covenants set forth in
Paragraphs 2(a), (b), (c) of Exhibit E) or sublease made as permitted by this
Paragraph 21 shall affect or reduce any of the obligations of Tenant hereunder
or Guarantor under the Guaranty, and all such obligations shall continue in full
force and effect as obligations of a principal and not as obligations of a
guarantor, as if no assignment or sublease had been made (other than a
Pre-Approved Assignment to a Person meeting the Financial Covenants set forth in
Paragraphs 2(a), (b), (c) of Exhibit E). No assignment or sublease shall impose
any additional obligations on Landlord under this Lease.
(e) Tenant shall, within ten (10) days after the execution and delivery of any
assignment or sublease, whether or not Landlord's consent is required, deliver a
duplicate original copy thereof to Landlord which, in the event of an
assignment, shall be in recordable form.
(f) As security for performance of its obligations under this Lease, Tenant
hereby grants, conveys and assigns to Landlord all right, title and interest of
Tenant in and to all subleases now in existence or hereafter entered into for
any or all of the Leased Premises, any and all extensions, modifications and
renewals thereof and all rents, issues and profits therefrom. Landlord hereby
grants to Tenant a license to collect and enjoy all rents and other sums of
money payable under any sublease of any of the Leased Premises, provided,
however, that Landlord shall have the absolute right upon notice to Tenant and
any subtenants at any time following the occurrence of an Event of Default to
revoke said license and to collect such rents and sums of money and to retain
the same. Tenant shall not consent to, cause or allow any modification or
alteration of any of the terms, conditions or covenants of any of the subleases
or the termination thereof, without the prior written approval of Landlord,
which consent shall not be unreasonably withheld, nor shall Tenant accept any
rents more than thirty (30) days in advance of the accrual thereof nor do nor
permit anything to be done, the doing of which, nor omit or refrain from doing
anything, the omission of which, will or could be a breach of or default in the
terms of any of the subleases.
(g) Tenant shall not have the power to mortgage, pledge or otherwise encumber
its interest under this Lease or any sublease of the Leased Premises, and any
such mortgage, pledge or encumbrance made in violation of this Paragraph 21
shall be void and of no force and effect.
(h) Landlord may sell or transfer the Leased Premises at any time without
Tenant's consent to any third party (each a "Third Party Purchaser"); provided,
however, that Landlord shall not be permitted to sell or transfer the Leased
Premises (or any interest therein) to any competitor of Tenant or Guarantor as
identified in the most recently filed 10-K of the Guarantor, without the prior
written consent of Tenant. In the event of any such permitted transfer, Tenant
shall attorn to any Third Party Purchaser as Landlord so long as such Third
Party Purchaser and Landlord notify Tenant in writing of such transfer. At the
request of Landlord, Tenant will execute such documents confirming the agreement
referred to above and such other agreements as Landlord may reasonably request,
provided that such agreements do not increase the liabilities and obligations of
Tenant hereunder.
<PAGE>
22. Events of Default.
(a) The occurrence of any one or more of the following (after expiration of any
applicable cure period as provided in Paragraph 22(b)) shall, at the sole option
of Landlord, constitute an "Event of Default" under this Lease:
(i) a failure by Tenant to make any payment of any Monetary Obligation,
regardless of the reason for such failure;
(ii) a failure by Tenant duly to perform and observe, or a violation or breach
of, any other provision hereof not otherwise specifically mentioned in this
Paragraph 22(a);
(iii) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be incorrect, now
or hereafter, in any material respect;
(iv) a default beyond any applicable cure period or at maturity by Tenant or
Guarantor in any payment of principal or interest on any obligations for
borrowed money having an original principal balance of $3,000,000 or more in the
aggregate, or in the performance of any other provision contained in any
instrument under which any such obligation is created or secured (including the
breach of any covenant thereunder), (x) if such payment is a payment at maturity
or a final payment, or (y) if an effect of such default is to cause, or permit
any Person to cause, such obligation to become due prior to its stated maturity;
(v) a default by Tenant or Guarantor beyond any applicable cure period in the
payment of rent under, or in the performance of any other material provision of,
any other lease or leases that have, in the aggregate, rental obligations over
the terms thereof of $3,000,000 or more if the Landlord under any such lease or
leases commences to exercise its remedies thereunder;
(vi) a final, non-appealable judgment or judgments for the payment of money in
excess of $3,000,000 in the aggregate shall be rendered against Tenant or
Guarantor and the same shall remain undischarged for a period of sixty (60)
consecutive days;
(vii) The breach of any financial Covenant contained in Exhibit E shall occur;
(viii) Tenant shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B)
seek or consent to the appointment of a receiver or trustee for itself or for
the Leased Premises, (C) file a petition seeking relief under the bankruptcy or
other similar laws of the United States, any state or any jurisdiction, (D) make
a general assignment for the benefit of creditors, or (E) be unable to pay its
debts as they mature;
<PAGE>
(ix) a court shall enter an order, judgment or decree appointing, without the
consent of Tenant, a receiver or trustee for it or for any of the Leased
Premises or approving a petition filed against Tenant which seeks relief under
the bankruptcy or other similar laws of the United States, any state or any
jurisdiction, and such order, judgment or decree shall remain undischarged or
unstayed ninety (90) days after it is entered;
(x) the Leased Premises shall have been vacated (for a period in excess of sixty
(60) consecutive days) or abandoned;
(xi) Tenant shall be liquidated or dissolved or shall begin proceedings towards
its liquidation or dissolution;
(xii) the estate or interest of Tenant in any of the Leased Premises shall be
levied upon or attached in any proceeding and such estate or interest is about
to be sold or transferred or such process shall not be vacated or discharged
within sixty (60) days after it is made;
(xiii) a failure by Tenant to perform or observe, or a violation or breach of,
or a misrepresentation by Tenant under any provision of any Assignment or any
other document between Tenant and Lender, if such failure, violation, breach or
misrepresentation gives rise to a default beyond any applicable cure period with
respect to any Loan and, as a result thereof, Lender accelerates the stated
maturity date of the Loan or commences to exercise its remedies against
Landlord's interest in the Leased Premises;
(xiv) a failure by Tenant to maintain in effect any other material license or
permit necessary for the use, occupancy or operation of the Leased Premises;
(xv) an Event of Default (as defined in the Guaranty) beyond any applicable cure
period shall occur under the Guaranty.
(b) No notice or cure period shall be required in any one or more of the
following events: (A) the occurrence of an Event of Default under clause (i)
(except as otherwise set forth below), (iv), (v), (vi), (vii), (viii), (ix),
(xi), (xii), (xiii) or (xv) of Paragraph 22(a); (B) the default consists of a
failure to pay Basic Rent, a failure to provide any insurance required by
Paragraph 16 or an assignment or sublease entered into in violation of Paragraph
21; or (C) the default is such that any delay in the exercise of a remedy by
Landlord could reasonably be expected to cause irreparable harm to Landlord. If
the default consists of the failure to pay any Monetary Obligation under clause
(i) of Paragraph 22(a), the applicable cure period shall be three (3) business
days from the date on which notice is given, but Landlord shall not be obligated
to give notice of, or allow any cure period for, any such default more than one
(1) time within any Lease Year. If the default consists of a default under
clauses (ii), (iii), (x) or (xiv) of Paragraph 22(a), other than the events
specified in clauses (B) and (C) of the first sentence of this Paragraph 22(b),
the applicable cure period shall be thirty (30) days from the date on which
notice is given or, if the default cannot be cured within such thirty (30) day
period and delay in the exercise of a remedy would not (in Landlord's reasonable
judgment) cause any material adverse harm to Landlord or any of the Leased
Premises, the cure period shall be extended for the period required to cure the
default (but such cure period, including any extension, shall not in the
aggregate exceed one hundred twenty (120) days), provided that Tenant shall
commence to cure the default within the said thirty (30) day period and shall
actively, diligently and in good faith proceed with and continue the curing of
the default until it shall be fully cured.
<PAGE>
(c) Notwithstanding anything in the foregoing paragraphs (a) or (b) to the
contrary, in the event any owner or holder of any senior or subordinate
indebtedness of either Tenant or Guarantor shall waive or consent to any breach,
violation, default or event of default under the terms of any documents or
instruments evidencing, securing, or executed in connection with such
indebtedness with respect to those matters set forth in subparagraph (iv), (v),
(vi) and (vii), Landlord shall waive or consent to the same; provided, such
consent or waiver shall be upon substantially the same or a pari passu basis
with such senior and/or subordinated lender, as applicable, as to time periods,
payment and other material terms and conditions.
23. Remedies and Damages Upon Default.
(a) If an Event of Default shall have occurred and is continuing, Landlord shall
have the right, at its sole option, then or at any time thereafter, to exercise
its remedies and to collect damages from Tenant in accordance with this
Paragraph 23, in all events subject to, and to the fullest extent permitted by,
applicable Law, without demand upon or notice to Tenant except as otherwise
provided in Paragraph 22(b) and this Paragraph 23.
(i) Whether or not Landlord elects to terminate this Lease and the estate
created thereby, Landlord may give Tenant notice of Landlord's intention to
terminate Tenant's right to possession of the Leased Premises under this Lease
on a date specified in such notice and upon such date, all rights of Tenant
hereunder to the use and possession of the Leased Premises shall expire and
terminate. Upon such termination, Tenant shall immediately surrender and deliver
possession of the Leased Premises to Landlord in accordance with Paragraph 26.
If Tenant does not so surrender and deliver possession of the Leased Premises,
Landlord may re-enter and repossess the Leased Premises, with or without legal
process, by peaceably entering the Leased Premises and changing locks or by
summary proceedings, ejectment or any other lawful means or procedure. Upon or
at any time after taking possession of the Leased Premises, Landlord may, by
peaceable means or legal process, remove any Persons or property therefrom.
Landlord shall be under no liability for or by reason of any such entry,
repossession or removal. Notwithstanding such entry or repossession, Landlord
may (A) exercise the remedy set forth in and collect the damages permitted by
Paragraph 23(a)(iii) or (B) collect the damages set forth in Paragraph 23(b)(i)
or 23(b)(ii).
(ii) After repossession of the Leased Premises pursuant to clause (i) above and
subject to applicable Law, Landlord shall have the right to relet any of the
Leased Premises to such tenant or tenants, for such term or terms, for such
rent, on such conditions and for such uses as Landlord in its sole discretion
may determine, and collect and receive any rents payable by reason of such
reletting. Landlord may make such Alterations in connection with such reletting
as it may deem advisable in its sole discretion. Notwithstanding any such
reletting, Landlord may collect the damages set forth in Paragraph 23(b)(ii).
<PAGE>
(iii) Provided that Landlord shall not have repossessed and relet the Leased
Premises under Paragraph 23(a)(ii) above, Landlord may, to the extent permitted
by applicable Law, upon notice to Tenant, require Tenant to make an irrevocable
offer to terminate this Lease upon payment to Landlord of an amount (the
"Default Termination Amount") specified in the next sentence. The "Default
Termination Amount" shall be the greater of (A) the sum of the Acquisition Cost
and any Prepayment Premium which Landlord will be required to pay in prepaying
any Loan with the proceeds of the Default Termination Amount and (B) the greater
of (1) the sum of the Fair Market Value of the Leased Premises and any
Prepayment Premium which Landlord will be required to pay in prepaying any Loan
with the proceeds of the Default Termination Amount and (2) an amount equal to
the Present Value of the entire Basic Rent from the date of such purchase to the
date on which the Term would expire, less, in the case of (1) and (2) above, an
amount equal to the unamortized cost of any expenditures properly classified as
capital expenditures under GAAP made by Tenant pursuant to this Lease with
respect to the roof, structural elements or foundation, or electrical, plumbing
or HVAC systems, at the Leased Premises. Upon such notice to Tenant, Tenant
shall be deemed to have made such offer and shall, if requested by Landlord,
within ten (10) business days following such request deposit with Landlord as
payment against the Default Termination Amount the amount described in (A) above
and Landlord and Tenant shall promptly commence to determine Fair Market Value.
Within thirty (30) days after the Fair Market Value Date, Landlord shall accept
or reject such offer. If Landlord accepts such offer then, on the tenth (10th)
business day after such acceptance, Tenant shall pay to Landlord the Default
Termination Amount, less the amount of an deposit paid by Tenant in accordance
with the previous sentence, and, at the request of Tenant, Landlord will convey
the Leased Premises to Tenant or its designee in accordance with Paragraph 20.
Any rejection by Landlord of such offer shall have no effect on any other remedy
Landlord may have under this Lease.
(iv) Landlord may, to the extent permitted by applicable Law, declare by notice
to Tenant the entire Basic Rent (in the amount of Basic Rent then in effect) for
the remainder of the then current Term to be immediately due and payable. Tenant
shall immediately pay to Landlord all such Basic Rent discounted to its Present
Value, all accrued Rent then due and unpaid, all other Monetary Obligations
which are then due and unpaid and all Monetary Obligations which arise or become
due by reason of such Event of Default (including any Costs of Landlord). Upon
receipt by Landlord of all such accelerated Basic Rent and Monetary Obligations,
this Lease shall remain in full force and effect and Tenant shall have the right
to possession of the Leased Premises from the date of such receipt by Landlord
to the end of the Term, and subject to all the provisions of this Lease,
including the obligation to pay all increases in Basic Rent and all Monetary
Obligations that subsequently become due, except that (A) no Basic Rent which
has been prepaid hereunder shall be due thereafter during the said Term and (B)
Tenant shall have no option to extend or renew the Term.
(b) The following constitute damages to which Landlord shall be entitled if
Landlord exercises its remedies under Paragraph 23(a)(i) or 23(a)(ii):
<PAGE>
(i) If Landlord exercises its remedy under Paragraph 23(a)(i) but not its remedy
under Paragraph 23(a)(ii) (or attempts to exercise such remedy and is
unsuccessful in reletting the Leased Premises) or Paragraph 23(a)(iii) then,
upon written demand from Landlord, Tenant shall pay to Landlord, as liquidated
and agreed final damages for Tenant's default and in lieu of all current damages
beyond the date of such demand (it being agreed that it would be impracticable
or extremely difficult to fix the actual damages), an amount equal to the
Present Value of the excess, if any, of (A) all Basic Rent from the date of such
demand to the date on which the Term is scheduled to expire hereunder in the
absence of any earlier termination, re-entry or repossession over (B) the then
fair market rental value of the Leased Premises for the same period. Tenant
shall also pay to Landlord all of Landlord's Costs in connection with the
repossession of the Leased Premises and any attempted reletting thereof,
including customary brokerage commissions, reasonable attorneys' fees and
expenses, employees' expenses, costs of Alterations and expenses and preparation
for reletting.
(ii) If Landlord exercises its remedy under Paragraph 23(a)(i) or its remedies
under Paragraph 23(a)(i) and 23(a)(ii), then Tenant shall, until the end of what
would have been the Term in the absence of the termination of the Lease, and
whether or not any of the Leased Premises shall have been relet, be liable to
Landlord for, and shall pay to Landlord, as liquidated and agreed current
damages all Monetary Obligations which would be payable under this Lease by
Tenant in the absence of such termination less the net proceeds, if any, of any
reletting pursuant to Paragraph 23(a)(ii), after deducting from such proceeds
all of Landlord's Costs (including the items listed in the last sentence of
Paragraph 23(b)(i) hereof) incurred in connection with such repossessing and
reletting; provided, that if Landlord has not relet the Leased Premises, such
Costs of Landlord shall be considered to be Monetary Obligations payable by
Tenant. Tenant shall be and remain liable for all sums aforesaid, and Landlord
may recover such damages from Tenant and, to the extent permitted by applicable
Law, institute and maintain successive actions or legal proceedings against
Tenant for the recovery of such damages. Nothing herein contained shall be
deemed to require Landlord to wait to begin such action or other legal
proceedings until the date when the Term would have expired by its own terms had
there been no such Event of Default.
(c) Notwithstanding anything to the contrary herein contained, in lieu of or in
addition to any of the foregoing remedies and damages, Landlord may exercise any
remedies and collect any damages available to it at law or in equity. If
Landlord is unable to obtain full satisfaction pursuant to the exercise of any
remedy, it may pursue any other remedy which it has hereunder or at law or in
equity.
(d) Landlord shall not be required to mitigate any of its damages hereunder
unless required to by applicable Law. If any Law shall validly limit the amount
of any damages provided for herein to an amount which is less than the amount
agreed to herein, Landlord shall be entitled to the maximum amount available
under such Law.
(e) No termination of this Lease, repossession or reletting of the Leased
Premises, exercise of any remedy or collection of any damages pursuant to this
Paragraph 23 shall relieve Tenant of any Surviving Obligations.
(f) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD HEREUNDER, LANDLORD AND
TENANT EACH HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT TO A TRIAL BY JURY.
<PAGE>
(g) Upon the occurrence of any Event of Default, Landlord shall have the right
(but no obligation) to perform any act required of Tenant hereunder and, if
performance of such act requires that Landlord enter the Leased Premises,
Landlord may enter the Leased Premises for such purpose.
(h) No failure of Landlord (i) to insist at any time upon the strict performance
of any provision of this Lease or (ii) to exercise any option, right, power or
remedy contained in this Lease shall be construed as a waiver, modification or
relinquishment thereof. A receipt by Landlord of any sum in satisfaction of any
Monetary Obligation with knowledge of the breach of any provision hereof shall
not be deemed a waiver of such breach, and no waiver by Landlord of any
provision hereof shall be deemed to have been made unless expressed in a writing
signed by Landlord.
(i) Tenant hereby waives and surrenders, for itself and all those claiming under
it, including creditors of all kinds, (i) any right and privilege which it or
any of them may have under any present or future Law to redeem any of the Leased
Premises or to have a continuance of this Lease after termination of this Lease
or of Tenant's right of occupancy or possession pursuant to any court order or
any provision hereof, and (ii) the benefits of any present or future Law which
exempts property from liability for debt or for distress for rent.
(j) Except as otherwise provided herein, all remedies are cumulative and
concurrent and no remedy is exclusive of any other remedy. Each remedy may be
exercised at any time an Event of Default has occurred and is continuing and may
be exercised from time to time. No remedy shall be exhausted by any exercise
thereof.
24. Notices. All notices, demands, requests, consents, approvals, offers,
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
deemed to have been given and received for all purposes when delivered in person
or by Federal Express or other reliable 24-hour delivery service or five (5)
business days after being deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
other party at its address stated above or when delivery is refused. A copy of
any notice given by Tenant to Landlord shall simultaneously be given by Tenant
to Reed Smith Shaw & McClay LLP, 2500 One Liberty Place, Philadelphia, PA 19103,
Attention: Chairman, Real Estate Department. A copy of any notice given by
Landlord to Tenant shall simultaneously be given by Landlord to (i) Tenant's
General Counsel, at PSC Inc.,675 Basket Road, Webster, New York 14580,
Attention: Elizabeth J. McDonald , Esq. and to (ii) Boylan, Brown, Code, Fowler,
Vigdor and Wilson LLP, 2400 Chase Square, Rochester, New York 14604, Attention:
Patrick Malgieri, Esq. For the purposes of this Paragraph, any party may
substitute another address stated above (or substituted by a previous notice)
for its address by giving fifteen (15) days' notice of the new address to the
other party, in the manner provided above.
<PAGE>
25. Estoppel Certificate. At any time upon not less than twenty (20) days' prior
written request by either Landlord or Tenant (the "Requesting Party") to the
other party (the "Responding Party"), the Responding Party shall deliver to the
Requesting Party a statement in writing, executed by an authorized officer of
the Responding Party, certifying (a) that, except as otherwise specified, this
Lease is unmodified and in full force and effect, (b) the dates to which Basic
Rent, Additional Rent and all other Monetary Obligations have been paid, (c)
that, to the knowledge of the signer of such certificate and except as otherwise
specified, no default by either Landlord or Tenant exists hereunder, (d) such
other matters as the Requesting Party may reasonably request relating to the
status of the Lease and/or the Leased Premises, and (e) if Tenant is the
Responding Party that, except as otherwise specified, there are no proceedings
pending or, to the knowledge of the signer, threatened, against Tenant before or
by any court or administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and operations of
Tenant. Any such statements by the Responding Party may be relied upon by the
Requesting Party, any Person whom the Requesting Party notifies the Responding
Party in its request for the Certificate is an intended recipient or beneficiary
of the Certificate, any Lender or their assignees and by any prospective
purchaser or mortgagee of any of the Leased Premises. Any certificate required
under this Paragraph 25 and delivered by Tenant shall state that, in the opinion
of each person signing the same, he has made such examination or investigation
as is necessary to enable him to express an informed opinion as to the subject
matter of such certificate, and shall briefly state the nature of such
examination or investigation.
26. Surrender. Upon the expiration or earlier termination of this Lease, Tenant
shall peaceably leave and surrender the Leased Premises to Landlord in the same
condition in which the Leased Premises was at the commencement of this Lease,
except as repaired, rebuilt, restored, altered, replaced or added to as
permitted or required by any provision of this Lease, and except for ordinary
wear and tear and insured casualty. Upon such surrender, Tenant shall (a) remove
from the Leased Premises all property which is owned by Tenant or third parties
other than Landlord and (b) repair any damage caused by such removal. Property
not so removed shall become the property of Landlord, and Landlord may, upon ten
(10) days prior written notice, thereafter cause such property to be removed
from the Leased Premises. The cost of removing and disposing of such property
and repairing any damage to any of the Leased Premises caused by such removal
shall be paid by Tenant to Landlord upon demand. Landlord shall not in any
manner or to any extent be obligated to reimburse Tenant for any such property
which becomes the property of Landlord pursuant to this Paragraph 26.
27. No Merger of Title. There shall be no merger of the leasehold estate created
by this Lease with the fee estate in any of the Leased Premises by reason of the
fact that the same Person may acquire or hold or own, directly or indirectly,
(a) the leasehold estate created hereby or any part thereof or interest therein
and (b) the fee estate in any of the Leased Premises or any part thereof or
interest therein, unless and until all Persons having any interest in the
interests described in (a) and (b) above which are sought to be merged shall
join in a written instrument effecting such merger and shall duly record the
same.
<PAGE>
28. Books and Records.
(a) Tenant shall keep adequate records and books of account with respect to the
finances and business of Tenant generally and with respect to the Leased
Premises, in accordance with generally accepted accounting principles ("GAAP")
consistently applied, and shall permit Landlord and Lender by their respective
agents, accountants and attorneys, upon reasonable notice to Tenant, to visit
and inspect the Leased and to discuss the finances and business with the
officers of Tenant, at such reasonable times as may be requested by Landlord. In
connection with any visit to or inspection of the Leased Premises, Landlord
shall comply, and Landlord shall cause its agents to comply, with the reasonable
instructions and requirements of Tenant, and shall not interfere with Tenant's
use or occupancy of the Leased Premises, and shall preserve the confidentiality
of any materials, information, data and/or operations of or with respect to
Tenant and/or the Leased Premises.
(b) If at any time neither Tenant nor Guarantor shall be a public company
subject to the reporting requirements of the Securities and Exchange Act of
1934, or if financial statements meeting the criteria set forth below are not
readily available to Landlord through Edgar or an alternative on-line or
internet source or by other means without any material cost to Landlord, then
(i) Tenant shall deliver or cause to be delivered to Landlord and to Lender
within ninety (90) days of the close of each fiscal year, annual audited
consolidated financial statements of Guarantor and Tenant prepared by a
nationally recognized firm of independent certified public accountants and (ii)
Tenant shall also furnish or cause to be furnished to Landlord within forty-five
(45) days after the end of each of the three remaining quarters unaudited
financial statements and all other quarterly reports of Tenant or Guarantor (as
applicable), certified by Tenant's or Guarantor's (as applicable) chief
financial officer, and all filings, if any, of Form 10-K, Form 10-Q and other
required filings with the Securities and Exchange Commission pursuant to the
provisions of the Securities and Exchange Act of 1934, as amended, or any other
Law. All annual financial statements shall be accompanied (i) by an opinion of
said accountants stating that (A) there are no qualifications as to the scope of
the audit and (B) the audit was performed in accordance with GAAP and (ii) by
the affidavit of the president or a vice president of Tenant or Guarantor (as
applicable), dated within five (5) days of the delivery of such statement,
stating that (C) the affiant knows of no Event of Default, or event which, upon
notice or the passage of time or both, would become an Event of Default which
has occurred and is continuing hereunder or, if any such event has occurred and
is continuing, specifying the nature and period of existence thereof and what
action Tenant has taken or proposes to take with respect thereto and (D) except
as otherwise specified in such affidavit, that Tenant has fulfilled, to the best
of affiant's knowledge, all of its obligations under this Lease which are
required to be fulfilled on or prior to the date of such affidavit.
29. Determination of Value.
(a) Whenever a determination of Fair Market Value is required pursuant to any
provision of this Lease, such Fair Market Value shall be determined in
accordance with the following procedure:
<PAGE>
(i) Landlord and Tenant shall endeavor to agree upon such Fair Market Value
within thirty (30) days after the date (the "Applicable Initial Date"") on which
(A) Tenant provides Landlord with notice of its intention to terminate this
Lease and purchase the Leased Premises pursuant to Paragraph 18, (B) Landlord
provides Tenant with notice of its intention to redetermine Fair Market Value
pursuant to Paragraph 20(c) or (C) Landlord provides Tenant with notice of
Landlord's intention to require Tenant to make an offer to terminate this Lease
pursuant to Paragraph 23(a)(iii). Upon reaching such agreement, the parties
shall execute an agreement setting forth the amount of such Fair Market Value.
(ii) If the parties shall not have signed such agreement within thirty (30) days
after the Applicable Initial Date, Tenant shall within fifty (50) days after the
Applicable Initial Date select an appraiser and notify Landlord in writing of
the name, address and qualifications of such appraiser. Within twenty (20) days
following Landlord's receipt of Tenant's notice of the appraiser selected by
Tenant, Landlord shall select an appraiser and notify Tenant of the name,
address and qualifications of such appraiser. Such two appraisers shall endeavor
to agree upon Fair Market Value based on a written appraisal made by each of
them (and given by Landlord and Tenant to each other) as of the Relevant Date.
If such two appraisers shall agree upon a Fair Market Value, the amount of such
Fair Market Value as so agreed shall be binding and conclusive upon Landlord and
Tenant.
(iii) If such two appraisers shall be unable to agree upon a Fair Market Value
within twenty (20) days after the selection of an appraiser by Landlord, then
such appraisers shall advise Landlord and Tenant of their respective
determination of Fair Market Value and shall select a third appraiser to make
the determination of Fair Market Value. The selection of the third appraiser
shall be binding and conclusive upon Landlord and Tenant.
(iv) If such two appraisers shall be unable to agree upon the designation of a
third appraiser within ten (10) days after the expiration of the twenty (20) day
period referred to in clause (iii) above, or if such third appraiser does not
make a determination of Fair Market Value within twenty (20) days after his
selection, then such third appraiser or a substituted third appraiser, as
applicable, shall, at the request of either party hereto, be appointed by the
President or Chairman of the American Arbitration Association in New York, New
York. The determination of Fair Market Value made by the third appraiser
appointed pursuant hereto shall be made within twenty (20) days after such
appointment.
(v) If a third appraiser is selected, Fair Market Value shall be the average of
the determination of Fair Market Value made by the third appraiser and the
determination of Fair Market Value made by the appraiser (selected pursuant to
Paragraph 29(a)(ii) hereof) whose determination of Fair Market Value is nearest
to that of the third appraiser. Such average shall be binding and conclusive
upon Landlord and Tenant.
(vi) All appraisers selected or appointed pursuant to this Paragraph 29(a) shall
(A) be independent qualified MAI appraisers (B) have no right, power or
authority to alter or modify the provisions of this Lease, (C) utilize the
definition of Fair Market Value hereinabove set forth above, and (D) be
registered in the State if the State provides for or requires such registration.
The Cost of the procedure described in this Paragraph 29(a) above shall be borne
entirely by Tenant.
<PAGE>
(b) If, by virtue of any delay (not caused solely by the acts or omissions of
Landlord), Fair Market Value is not determined by the expiration or termination
of the then current Term, then the date on which the Term would otherwise expire
or terminate shall be extended to the date specified for termination in the
particular provision of this Lease pursuant to which the determination of Fair
Market Value is being made.
(c) In determining Fair Market Value as defined in clause (b) of the definition
of Fair Market Value, the appraisers shall add (a) the Present Value of the Rent
for the remaining Term, assuming the Term has been extended for all extension
periods provided herein (with assumed increases in the CPI to be determined by
the appraisers) using a discount rate (which may be determined by an investment
banker retained by each appraiser) based on the creditworthiness of Tenant and
(b) the Present Value of the Leased Premises as of the end of such Term (having
assumed the Term has been extended for all extension periods provided herein).
The appraisers shall further assume that no default then exists under the Lease,
that Tenant has complied (and will comply) with all provisions of the Lease, and
that Tenant has not violated (and will not violate) any of the Covenants.
30. Non-Recourse as to Landlord. Anything contained herein to the contrary
notwithstanding, any claim based on or in respect of any liability of Landlord
under this Lease shall be enforced only against the Leased Premises and not
against any other assets, properties or funds of (i) Landlord, (ii) any
director, officer, member, general partner, shareholder, limited partner,
beneficiary, employee or agent of Landlord or any general partner of Landlord or
any of its members or general partners (or any legal representative, heir,
estate, successor or assign of any thereof), (iii) any predecessor or successor
partnership or corporation (or other entity) of Landlord or any of its general
partners, shareholders, officers, directors, members, employees or agents,
either directly or through Landlord or its general partners, shareholders,
officers, directors, employees or agents or any predecessor or successor
partnership or corporation (or other entity), or (iv) any Person affiliated with
any of the foregoing, or any director, officer, employee or agent of any
thereof.
<PAGE>
31. Financing.
(a) Tenant agrees to pay, within ten (10) days following written request from
Landlord, the costs and expenses incurred by Landlord in connection with the
financing of the initial Loan, including any "points" or commitment fees, survey
and title costs and the fees and expenses of Landlord's and Lender's counsel
but, not to exceed an aggregate maximum of $70,000 and exclusive of the cost of
any "rate buydown". Tenant further agrees to pay all costs and expenses incurred
by Landlord in connection with Landlord's purchase of the Leased Premises and
with this Lease, including, without limitation, the cost of appraisals,
environmental reports, title insurance, surveys, but specifically excluding the
legal fees and expenses of Landlord's counsel and the fees and expenses incurred
by Landlord with respect to any "due diligence" conducted by or on behalf of
Landlord.
(b) If Landlord desires to obtain or refinance any Loan, Tenant shall negotiate
in good faith with Landlord concerning any request made by any Lender or
proposed Lender for changes or modifications in this Lease; provided same shall
be at no cost to Tenant in connection with any refinancing of any Loan. In
particular, Tenant shall agree, upon request of Landlord, to supply any such
Lender with such notices and information as Tenant is required to give to
Landlord hereunder and to extend the rights of Landlord hereunder to any such
Lender and to consent to such financing if such consent is requested by such
Lender. Tenant shall provide any other consent or statement and shall execute
any and all other documents that such Lender requires in connection with such
financing, including any environmental indemnity agreement and subordination,
non-disturbance and attornment agreement, so long as the same do not materially
adversely affect any right, benefit or privilege of Tenant under this Lease or
materially increase any of Tenant's non-monetary obligations or increase any of
Tenant's monetary obligations, under this Lease. Such subordination,
nondisturbance and attornment agreement may require Tenant to confirm that (i)
Lender and its assigns will not be liable for any misrepresentation, act or
omission of Landlord and (ii) Lender and its assigns will not be subject to any
counterclaim, demand or offset which Tenant may have against Landlord. Nothing
herein shall be deemed to make Tenant liable to pay any Costs of Landlord or any
Lender in connection with obtaining or refinancing of any Loan, except as
otherwise provided in Paragraph 31(a) above with respect to the initial Loan.
32. Subordination, Non-Disturbance and Attornment. This Lease and Tenant's
interest hereunder shall be subordinate to any Mortgage or other security
instrument hereafter placed upon the Leased Premises by Landlord, and to any and
all advances made or to be made thereunder, to the interest thereon, and all
renewals, replacements and extensions thereof and Tenant agrees to attorn to and
recognize the holder of such Mortgage as landlord in the event that such holder
succeeds to the interest of Landlord hereunder; provided that, any such Mortgage
or other security instrument (or a separate instrument in recordable form duly
executed by the holder of any such Mortgage or other security instrument and
delivered to Tenant) shall provide for the recognition of this Lease and all
Tenant's rights hereunder (including, but not limited to, Tenant's right to the
continued and uninterrupted peaceable use, occupancy, enjoyment and possession
of the Leased Premises notwithstanding any default by Landlord under the terms
of a Note and/or Mortgage or the exercise by Lender of any remedy thereunder or
any other loan documents, including, but not limited to, foreclosure) unless and
until an Event of Default shall have occurred and then be continuing or Landlord
shall have the right to terminate this Lease pursuant to any applicable
provision hereof.
<PAGE>
33. Financial Covenants. Tenant hereby covenants and agrees to comply with all
the covenants and agreements described in Exhibit "E" hereto.
34. Tax Treatment; Reporting. Landlord and Tenant each acknowledge that each
shall treat this transaction as a true lease for state law purposes and shall
report this transaction as a Lease for Federal income tax purposes. For Federal
income tax purposes each shall report this Lease as a true lease with Landlord
as the owner of the Leased Premises and Equipment and Tenant as the lessee of
such Leased Premises and Equipment including: (1) treating Landlord as the owner
of the property eligible to claim depreciation deductions under Section 167 or
168 of the Internal Revenue Code of 1986 (the "Code") with respect to the Leased
Premises and Equipment, (2) Tenant reporting its Rent payments as rent expense
under Section 162 of the Code, and (3) Landlord reporting the Rent payments as
rental income.
35. Financing Expansion.
(a) If Tenant, during the Term of this Lease, desires to construct a new
building and related improvements upon the Expansion Parcel ("Major
Alterations"), then Tenant may, prior to the commencement of construction of
such Major Alterations, make a written request (a "Financing Request") for
Landlord to reimburse the costs thereof (the "Alteration Costs") to Tenant, to
wit: cost of labor and materials, financing fees, legal fees, architectural and
engineering fees, survey, title insurance and other normal and customary loan,
site development and preparation or construction costs. Landlord shall notify
Tenant in writing of its acceptance or rejection of the Financing Request no
later than sixty (60) days after Landlord's receipt of the same. If Landlord
fails or refuses to accept or reject Tenant's Financing Request within such
60-day period, Landlord shall be deemed to have rejected the same.
(b) Should Landlord agree to reimburse such Alteration Costs, Landlord and
Tenant shall enter into good faith negotiations regarding the execution and
delivery of a written agreement of modification of this Lease, which agreement
shall provide, among other things, for the following:
(i) payment by Landlord to Tenant of the Alteration Costs in full on the date
agreed by Landlord and Tenant or in installment payments as agreed by Landlord
and Tenant and commensurate with the progress of construction of the Major
Alterations;
(ii) an extension of the then current Term with respect solely to the Expansion
Parcel for a period which, when added to the remainder of the then current Term,
equals fifteen (15) years (the "Amortization Period") and if Tenant so elects,
an extension of the then current Term with respect to the remainder of the
Leased Premises equal in duration to the Amortization Period;
<PAGE>
(iii) an increase in the annual Basic Rent payable during the Amortization
Period to an amount sufficient to amortize the Alteration Costs ("Total
Financing") over the Amortization Period at such rate of interest and upon such
other terms as shall be agreed upon between Landlord and Tenant, but which shall
be no less favorable than the prevailing interest rate and terms for unsecured
loans in a principal amount equal to the Total Financing for borrowers with
credit ratings equivalent to that of Tenant's at the time in question;
(iv) provide a rate of return to Landlord on Landlord's equity investment in the
construction of the Major Alteration on the Expansion Parcel (or the Leased
Premises, if Tenant elects to extend the Term of the Lease with respect to the
entire Leased Premises) equal to that enjoyed by Landlord hereunder immediately
prior to such proposed increase in Basic Rent; and
(v) such other changes and amendments to this Lease as may be reasonably
necessary and appropriate in view of such payment of the Alteration Costs by
Landlord to Tenant.
(c) Tenant shall pay all Costs incurred by Landlord in connection with any such
modification to this Lease and such financing.
(d) To the extent that the terms of the Mortgage or any other document
encumbering any of the Leased Premises shall require the consent of Lender
and/or the holder or holders of any encumbrance on any of the Leased Premises
(the "Encumbrancers") to the addition or construction of any Major Alterations
or to the financing thereof by Landlord, the rights and obligations of Landlord
and Tenant under Paragraph 13 and this Paragraph 35 are expressly conditioned
upon Landlord's obtaining, prior to the commencement of any construction, the
Encumbrancers' written consent to such construction and to Landlord's obtaining,
in the event Landlord has accepted Tenant's offer to accept payment for the
Major Alterations, the Encumbrancers' written consent to such financing.
Landlord agrees to use its best efforts (exclusive of litigation) to obtain such
written consent as promptly as possible.
(e) If within sixty (60) days after the date of the Financing Request is made
(such 60-day period, the "Financing Request Period"), (i) Landlord and Tenant
acting in good faith are unable to reach agreement on the Financing Request,
(ii) Landlord is unable to obtain the written consent of the Encumbrancers
pursuant to paragraph (d) of this Section 35, or (iii) Landlord and Lender do
not consent to the Major Alterations in accordance with this Section and Section
13 of this Lease Tenant shall, subject to the provisions of Paragraph 13 of this
Lease, have the right, but not the obligation, to (A) construct the Major
Alterations at Tenant's sole cost and expense or (B) purchase the Expansion
Parcel in accordance with the provisions of Paragraph 36 below. If Tenant does
not timely exercise the option to purchase the Leased Premises as set forth in
Paragraph 36 below and if Tenant elects to construct the Major Alterations, the
construction of the Major Alterations shall be performed in accordance with the
provisions of Paragraph 13 hereof and the Major Alterations shall be the
property of Landlord and part of the Leased Premises subject to this Lease.
<PAGE>
(f) Nothing contained in this Paragraph 35 shall be construed to modify
Paragraph 13 hereof, and the provisions of Paragraph 12 and subparagraphs (i)
and (ii) of Paragraph 13(a) shall apply to all Major Alterations made or
constructed hereunder, including the requirement for Landlord's consent to
Alterations.
(g) If the Landlord does not finance the construction of the new building on the
Expansion Parcel, Tenant shall nevertheless ensure that the following criteria
is met. With respect to the new building and related improvements on the
Expansion Parcel, (i) the construction quality and building materials utilized
shall be of comparable or greater quality as the then existing Improvements on
the Leased Premises, (ii) same shall not, in the reasonable opinion of an
appraiser mutually acceptable to Landlord and Tenant, materially diminish the
value of the existing Improvements, (iii) same shall be completed in good and
workmanlike manner and otherwise in compliance with the provisions of Paragraph
12 hereof, and (iv) same shall be built in conformance with all applicable laws,
regulations and ordinances including but not limited to local zoning codes and,
if then required by prudent commercial lenders for similar properties located in
the vicinity of the Leased Premises, commercially reasonable earthquake-proof
standards; provided, however, that Landlord shall not have the right to approve
Lessee's plans and specifications.
36. Option to Purchase.
(a) If Landlord and Tenant acting in good faith are unable to reach agreement on
the Financing Request within the Financing Request Period, Landlord does hereby
give and grant to Tenant the option to purchase the Expansion Parcel (i) for a
purchase price of One ($1.00) Dollar (the "Expansion Parcel Price") ,and (ii) on
any date (the "Option Purchase Date") between the sixtieth (60th) and one
hundred twentieth (120th) day (which date shall be mutually agreeable to
Landlord and Tenant) after the expiration of the Financing Request Period. If
Tenant intends to exercise such option, Tenant shall give written notice to
Landlord to such effect not later than fifteen (15) days after the expiration of
the Financing Request Period.
(b) If Tenant shall exercise the foregoing option to purchase the Expansion
Parcel, then on the later to occur of (i) the Option Purchase Date or (ii) the
date when Tenant has paid the Expansion Parcel Price and has satisfied all other
Monetary Obligations, Landlord shall convey the Expansion Parcel to Tenant in
accordance with the provisions of Paragraph 20(a), (b) (other than the next to
last sentence thereof) and (d); provided, that if an Event of Default has
occurred and is continuing on the Option Purchase Date, Landlord, at its sole
option, may terminate Tenant's option to purchase hereunder. IF THIS LEASE SHALL
TERMINATE FOR ANY REASON PRIOR TO THE DATE ORIGINALLY FIXED HEREIN FOR THE
EXPIRATION OF THE TERM, OR IF TENANT SHALL FAIL TO GIVE THE AFORESAID NOTICE OF
INTENTION TO PURCHASE, TIME BEING OF THE ESSENCE, THE OPTION PROVIDED IN THIS
PARAGRAPH 36 AND ANY EXERCISE THEREOF BY TENANT SHALL CEASE AND TERMINATE AND
SHALL BE NULL AND VOID. IN SUCH EVENT TENANT SHALL EXECUTE A QUITCLAIM DEED AND
SUCH OTHER DOCUMENTS AS LANDLORD SHALL REASONABLY REQUEST EVIDENCING THE
TERMINATION OF ITS OPTIONS.
<PAGE>
(c) If Tenant shall exercise the foregoing option to purchase the Expansion
Parcel, then, simultaneous with Landlord's conveyance of the same to Tenant (and
from time to time thereafter as may be necessary), Landlord and Tenant shall
execute and deliver to each other, in recordable form, the cross-easement
agreement appended hereto as Exhibit "F" together with such other declarations,
easements or agreements (including, but not limited to electric, gas,
telecommunications, water, sanitary sewer and storm water sewer easements) with
respect to the Leased Premises, including, but not limited to (if required by a
municipality or other governmental entity only), the conveyance of a fee simple
interest, by tenancy in common or otherwise, in and to such portion of the
Leased Premises necessary to provide ingress and egress to and from the
Expansion Parcel and a publicly dedicated road, or the dedication to a
municipality or other governmental entity of any road or driveway located or to
be located on such portion of the Leased Premises as shall be necessary for
Tenant to secure any required governmental approvals, consents, certificates or
permits for the development, occupancy and use of the Expansion Parcel or
contemplated hereby (provided that such declarations, easements or agreements do
not materially interfere with the use of, or access to, buildings or structures
then located on the remainder of the Leased Premises or diminish in any material
respect, in the reasonable opinion of an appraiser selected by Tenant and
reasonably acceptable to Landlord, the value or utility thereof). Landlord
shall, at the same time or times, cause to have executed and delivered by and
from each Encumbrancer, in recordable form, a consent (and subordination
agreement, if necessary or desirable) to any and all of the above described
declarations, easements and agreements.
(d) If (1)Tenant shall exercise the foregoing option to purchase the Expansion
Parcel and (2) Tenant shall have constructed the new building and related
improvements thereon by any means of financing (including a self-financed
project) other than a third party sale-leaseback transaction, then, if
thereafter the Tenant shall desire to sell the Expansion Parcel and receive a
bona fide written offer (the "Trigger Offer") for the purchase of the Expansion
Parcel from a third party purchaser (and which may include other property owned
by Tenant so long as a specific purchase price is allocated to the Expansion
Parcel), which Trigger Offer Tenant intends to accept, Tenant shall give written
notice to Landlord of the Trigger Offer, together with a copy thereof and the
name and business address of the third party purchaser. Any acceptance of such
Trigger Offer by Tenant shall be conditioned upon Landlord's failure to exercise
its right under this Paragraph 36(d). Landlord shall have the right during the
Term to exercise the foregoing right of first refusal upon each proposed sale of
the Expansion Parcel meeting the criteria set forth herein.
(e) For a period of thirty (30) days following receipt of such notice, Landlord
shall have the right, exercisable by written notice to Tenant given within said
thirty (30) day period, to elect to purchase the Expansion Parcel at the
purchase price and upon the same material terms and conditions set forth in such
Trigger Offer, except that Landlord shall have no obligation to acquire any
property other than the Expansion Parcel. If at the expiration of such thirty
(30) day period Landlord shall have failed to exercise the such option, Tenant
may sell the Expansion Parcel to such third party purchaser upon the terms set
forth in the Trigger Offer.
<PAGE>
(f) Except as otherwise specifically provided herein, the closing date for any
purchase of the Expansion Parcel by Landlord pursuant to this Paragraph 36 shall
be the earlier to occur of (i) ninety (90) days after the date of Tenant's
notice to Landlord of its intention to sell the Expansion Parcel upon the terms
of the Trigger Offer, but not later than the Expiration Date of this Lease, or
(ii) the closing date provided in such Trigger Offer. At such closing, Tenant
shall convey the Expansion Parcel to Landlord in accordance with, and Landlord
shall pay to Tenant the purchase price and other consideration set forth in, the
Trigger Offer.
(g) If Tenant shall have acquired the Expansion Parcel pursuant to this
Paragraph 36 and subsequently receives a bona fide written offer from a third
party to finance the construction of the new building and related improvements
thereon by means of a sale-leaseback transaction, then, if (1) the effective
cost of financing such improvements as set forth in such offer is higher than
Landlord's last written proposal given to Tenant in response to Tenant's
Financing Request, Landlord shall have the option to provide such financing by
means of a sale-leaseback transaction at a rate equal to such higher rate, or
(2) ) the effective cost of financing such improvements as set forth in such
offer is lower than Landlord's last written proposal given to Tenant in response
to Tenant's Financing Request, Landlord shall have the option to provide such
financing by means of a sale-leaseback transaction at a capitalization rate
equal to such lower rate minus 25 basis points.
(h) Tenant may, at any time during the Term, make any application for, and
commence and prosecute any action or proceeding, administrative or otherwise, to
effect, the subdivision or partition of the Expansion Parcel from the remainder
of the Leased Premises under applicable law, at Tenant's sole cost and expense.
Landlord agrees, at no cost to Landlord, to cooperate fully with Tenant in any
such applications, actions or proceedings, and Tenant shall pay or reimburse
Landlord for all costs and expenses of Landlord in respect thereof (including
attorney's fees and expenses). Such cooperation shall include, but not be
limited to, (i) permitting such application, action or proceeding to be made or
commenced in Landlord's name or in Tenant's name as agent for Landlord, (ii)
executing and delivering any applications, affidavits, statements, petitions,
pleadings or other documents, and (iii) granting any declarations, easements and
agreements (including, but not limited to electric, gas, telecommunications,
water, sanitary sewer and storm water sewer easements) with respect to the
Leased Premises; including, but not limited to (if required by a municipality or
other governmental entity only), the conveyance of a fee simple interest, by
tenancy in common or otherwise, in and to such portion of the Leased Premises
necessary to provide ingress and egress to and from the Expansion Parcel and, a
publicly-dedicated road or the dedication to a municipality or other
governmental entity of any road or driveway located on such portion of the
Leased Premises) as shall be necessary for Tenant to secure approval for such
subdivision or partition (provided that such declarations, easements or
agreements do not materially interfere with the use of, or access to, buildings
or structures then located on the remainder of the Leased Premises). Landlord
shall, at the same time or times, cause to have executed and delivered by and
from any Encumbrancer, in recordable form, a consent (and subordination
agreement, if necessary or desirable) to any and all of the above described
easements and agreements.
<PAGE>
37. Miscellaneous.
(a) The paragraph headings in this Lease are used only for convenience in
finding the subject matters and are not part of this Lease or to be used in
determining the intent of the parties or otherwise interpreting this Lease.
(b) As used in this Lease, the singular shall include the plural and any gender
shall include all genders as the context requires and the following words and
phrases shall have the following meanings: (i) "including" shall mean "including
without limitation"; (ii) "provisions" shall mean "provisions, terms,
agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge,
encumbrance, title retention agreement, pledge, security interest, mortgage
and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty,
agreement, liability, covenant and/or condition"; (v) "any of the Leased
Premises" shall mean "the Leased Premises or any part thereof or interest
therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or
interest therein"; (vii) "any of the Improvements" shall mean "the Improvements
or any part thereof or interest therein"; (viii) "any of the Equipment" shall
mean "the Equipment or any part thereof or interest therein"; and (ix) "any of
the Adjoining Property" shall mean "the Adjoining Property or any part thereof
or interest therein".
(c) Any act which Landlord is permitted to perform under this Lease may be
performed at any time and from time to time by Landlord or any person or entity
designated by Landlord. Each appointment of Landlord as attorney-in-fact for
Tenant hereunder is irrevocable and coupled with an interest. Except as
otherwise specifically provided herein, whenever Landlord's consent is required
under this Lease, Landlord shall have the right, in its absolute and sole
discretion, to withhold or delay its consent thereto. Time is of the essence
with respect to the performance by Tenant of its obligations under this Lease.
(d) Landlord shall in no event be construed for any purpose to be a partner,
joint venturer or associate of Tenant or of any subtenant, operator,
concessionaire or licensee of Tenant with respect to any of the Leased Premises
or otherwise in the conduct of their respective businesses.
(e) This Lease and any documents which may be executed by Tenant on or about the
effective date hereof at Landlord's request constitute the entire agreement
between the parties and supersede all prior understandings and agreements,
whether written or oral, between the parties hereto relating to the Leased
Premises and the transactions provided for herein, including but not limited to
that certain letter of intent dated February 16, 1999. Landlord and Tenant are
business entities having substantial experience with the subject matter of this
Lease and have each fully participated in the negotiation and drafting of this
Lease. Accordingly, this Lease shall be construed without regard to the rule
that ambiguities in a document are to be construed against the drafter.
(f) This Lease may be modified, amended, discharged or waived only by an
agreement in writing signed by the party against whom enforcement of any such
modification, amendment, discharge or waiver is sought.
<PAGE>
(g) The covenants of this Lease shall run with the land and bind Tenant, its
successors and assigns and all present and subsequent encumbrancers and
subtenants of any of the Leased Premises, and shall inure to the benefit of
Landlord, its successors and assigns. If there is more than one Tenant, the
obligations of each shall be joint and several.
(h) If any one or more of the provisions contained in this Lease shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Lease, but this Lease shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
(i) This Lease shall be governed by and construed and enforced in accordance
with the Laws of the State.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease
to be duly executed under seal as of the day and year first above written.
LANDLORD:
SCAN (OR) QRS 11-47, INC.
a Delaware corporation
By:
Title:
ATTEST: TENANT:
PSC SCANNING, INC
a Delaware corporation
By: By:
Title: Title:
<PAGE>
EXHIBIT A
PREMISES
PARCEL I:
Lot 1, Block 1, SWEETLAND INDUSTRIAL PARK, as platted and recorded in Book 56,
Page 25, Lane County Oregon Plat Records, in Lane County, Oregon.
PARCEL II:
Beginning at the Initial Point of SWEETLAND INDUSTRIAL PARK, as platted and
recorded in Book 56, Page 25, Lane County Oregon Plat Records, said point being
on the Easterly right of way of Terry Street and being North 0(degree) 01' 02"
West 1322.13 feet and South 89(degree) 23' 01" East 40.00 feet from the West
one-quarter section corner of Section 33, Township 17 South, Range 4 West of the
Willamette Meridian; run thence along the Northerly line of said Sweetland
Industrial Park South 89(degree) 23' 01" East 400.00 feet to a point in the
Amazon Creek Channel; thence along the Northeasterly line of said Sweetland
Industrial Park South 48(degree) 25' 05" East 469.10 feet to the Easterly line
of said Sweetland Industrial Park; thence North 0(degree) 01' 02" West 16.47
feet along the extension of said Easterly line to the centerline of said Amazon
Creek Channel; thence following said centerline along the arc of 955.37 foot
radius curve to the left (the long chord of which bears South 63(degree) 57' 29"
East 311.15 feet), a distance of 312.54 feet; thence south 73(degree) 19' 48"
East 20.90 feet; thence along the arc of a 955.37 foot radius curve to the right
(the long chord of which bears South 71(degree) 37' 54" East 56.64 feet, a
distance of 56.65 feet; thence leaving said centerline North 0(degree) 01' 02"
West parallel with the centerline of Terry Street 719.59 feet; thence North
89(degree) 23' 01" West 813.04 feet to the centerline of said Amazon Creek;
thence along said centerline South 11(degree) 52' 48" East 109.57 feet; thence
along the arc of a 287.94 foot radius curve to the left (the long chord of which
bears South 18(degree) 44' 13" East 68.75 feet) a distance of 68.92 feet to a
point which is 100.00 feet Northerly of, when measured at right angles to, the
Northerly line of said Sweetland Industrial Park; thence leaving said centerline
North 89(degree) 23' 01" West parallel with said Northerly line 335.67 feet to
the Easterly right of way of Terry Street; thence along said right of way South
0(degree) 01' 02" East 100.00 feet to the point of beginning, in Eugene, Lane
County, Oregon.
PARCEL III
Beginning at the Initial Point of Sweetland Industrial Park, as platted and
recorded in Book 56, Page 25, Lane County Oregon Plat Records, said point being
on the Easterly right of way of Terry Street and being North 0(degree) 01' 02"
West 1322.13 feet and South 89(degree) 23' 01" East 40.00 from the West
one-quarter section corner of Section 33, Township 17 South, Range 4 West of the
<PAGE>
Willamette Meridian; run thence along the Northerly line of said Sweetland
Industrial Park South 89(degree) 23' 01" East 400.00 feet to a point in the
Amazon Creek Channel; thence along the Northeasterly line of said Sweetland
Industrial Park South 48(degree) 25' 05" East 469.10 feet to the Easterly line
of said Sweetland Industrial Park; thence North 0(degree) 01' 02" West 16.47
feet along the extension of said Easterly line to the centerline of said Amazon
Creek Channel; thence following said centerline along the arc of a 955.37 foot
radius curve to the left (the long chord of which bears South 63(degree) 57' 29"
East 311.15 feet), a distance of 312.54 feet; thence South 73(degree) 19' 48"
East 20.90 feet; thence along the arc of a 955.37 foot radius curve to the right
(the long chord of which bears South 71(degree) 37' 54" East 56.64 feet, a
distance of 56.65 feet; thence leaving said centerline North 0(degree) 01' 02"
West parallel with the centerline of Terry Street 799.12 feet; thence North
89(degree) 23' 01" West 829.79 feet to the centerline of said Amazon Creek;
thence along said centerline South 11(degree) 52' 48" East 191.02 feet; thence
along the arc of a 287.94 foot radius curve to the left (the long chord of which
bears South 18(degree) 44' 13" East 68.75 feet) a distance of 68.92 feet to a
point which is 100.00 feet Northerly of, when measured at right angles to, the
Northerly line of said Sweetland Industrial Park; thence leaving said centerline
North 89(degree) 23' 01" West parallel with said Northerly line 335.67 feet to
the Easterly right of way of Terry Street; thence along said right of way South
0(degree) 01' 02" East 100.00 feet to the point of beginning, in Eugene, Lane
County, Oregon.
EXCEPTING THEREFROM:
Beginning at the Initial Point of Sweetland Industrial Park, as platted and
recorded in Book 56, Page 25, Lane County Oregon Plat Records, said point being
on the Easterly right of way of Terry Street and being North 0(degree) 01' 02"
West 1322.13 feet and South 89(degree) 23' 01" East 40.00 feet from the West
one-quarter section corner of Section 33, Township 17 South, Range 4 West of the
Willamette Meridian; run thence along the Northerly line of said Sweetland
Industrial Park South 89(degree) 23' 01" East 400.00 feet to a point in the
Amazon Creek Channel; thence along the Northeasterly line of said Sweetland
Industrial Park South 48(degree) 25' 05" East 469.10 feet to the Easterly line
of said Sweetland Industrial Park; thence North 0(degree) 01' 02" West 16.47
feet along the extension of said Easterly line to the centerline of said Amazon
Creek Channel; thence following said centerline along the arc of a 955.37 foot
radius curve to the left (the long chord of which bears South 63(degree) 57' 29"
East 311.15 feet), a distance of 312.54 feet; thence South 73(degree) 19' 48"
East 20.90 feet; thence along the arc of a 955.37 foot radius curve to the right
(the long chord of which bears South 71(degree) 37' 54" East 56.64 feet, a
distance of 56.65 feet; thence leaving said centerline North 0(degree) 01' 02"
West parallel with the centerline of Terry Street 719.59 feet; thence North
89(degree) 23' 01" West 813.04 feet to the centerline of said Amazon Creek;
thence along said centerline South 11(degree) 52' 48" East 109.57 feet; thence
along the arc of a 287.94 foot radius curve to the left (the long chord of which
bears South 18(degree) 44' 13" East 68.75 feet) a distance of 68.92 feet to a
point which is 100.00 feet Northerly of, when measured at right angles to, the
Northerly line of said Sweetland Industrial Park; thence leaving said centerline
North 89(degree) 23' 01" West parallel with said Northerly line 335.67 feet to
the Easterly right of way of Terry Street; thence along said right of way South
0(degree) 01' 02" East 100.00 feet to the point of beginning, in Eugene, Lane
County, Oregon.
<PAGE>
PARCEL IV:
Beginning at the Initial Point of Sweetland Industrial Park, as platted and
recorded in Book 56, Page 25, Lane County Oregon Plat Records, said point being
on the Easterly right of way of Terry Street and being North 0(degree) 01' 02"
West 1322.13 feet and South 89(degree) 23' 01" East 40.00 feet from the West
one-quarter section corner of Section 33, Township 17 South, Range 4 West of the
Willamette Meridian; run thence along said Easterly right of way North 0(degree)
01' 02" West 351.39 feet; thence South 89(degree) 23' 01" East 291.07 feet to a
point on the centerline of the Amazon Creek Channel being the true point of
beginning; run thence 89(degree) 23' 01" East 829.79 feet; thence North
0(degree) 01' 02" West parallel with the centerline of Terry Street 396.90 feet;
thence North 89(degree) 23' 01" West 899.33 feet to the centerline of said
Amazon Creek; thence along said centerline along the arc of a 262.04 foot radius
curve to the right (the long chord of which bears South 2(degree) 48' 23" West
57.18 feet) a distance of 57.29 feet; thence along the arc of a 296.47 foot
radius curve to the left (the long chord of which bears South 8(degree) 59' 48"
East 183.88 feet) a distance of 186.97 feet; thence along the arc of a 287.94
foot radius curve to the right (the long chord of which bears South 19(degree)
28' 18" East 76.08 feet) a distance of 76.30 feet; thence South 11(degree) 52'
48" East 89.10 feet to the true point of beginning, in Eugene, Lane County,
Oregon.
PARCEL V:
Beginning at the initial point of Sweetland Industrial Park, as platted and
recorded in Book 56, Page 25, Lane County Oregon Plat Records, said point being
on the Easterly right of way of Terry Street and being North 0(degree) 01' 02"
West 1322.13 feet and South 89(degree) 23' 01" East 40.00 feet from the West
one-quarter section corner of Section 33, Township 17 South, Range 4 West of the
Willamette Meridian; run thence along said Easterly right of way North 0(degree)
01' 02" West 748.28 feet; thence South 89(degree) 23' 01" East 204.79 feet to a
point on the centerline of the Amazon Creek Channel, being the true point of
beginning; thence South 89(degree) 23' 01" East 899.33 feet; thence North
0(degree) 01' 02" West 573.61 feet to the North line of said Section 33; thence
along said North line North 89(degree) 23' 30" West 1044.12 feet to the
centerline of said Amazon Creek; thence along said centerline along the arc of a
955.37 foot radius curve to the right (the long chord of which bears South
28(degree) 26' 31" East 67.08 feet) a distance of 67.10 feet; thence South
26(degree) 25' 48" East 120.00 feet; thence along the arc of a 287.94 foot
radius curve to the right (the long chord of which bears south 8(degree) 28' 48"
East 177.48 feet) a distance of 180.47 feet; thence along the arc of a 290.63
foot radius curve to the left (the long chord of which bears south 5(degree) 55'
48" East 154.36 feet)( a distance of 156.23 feet; thence along the arc of a
262.04 foot radius curve to the right (the long chord of which bears South
12(degree) 23' 37" East 81.41 feet) a distance of 81.74 feet to the true point
of beginning, in Eugene, Lane County, Oregon
<PAGE>
EXHIBIT B
MACHINERY AND EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and appliances of every
kind and nature whatsoever now or hereafter affixed or attached to or installed
in any of the Leased Premises (except as hereafter provided), including all
electrical, anti-pollution, heating, lighting (including hanging fluorescent
lighting), incinerating, power, air cooling, air conditioning, humidification,
sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing and
ventilating systems, devices and machinery and all engines, pipes, pumps, tanks
(including exchange tanks and fuel storage tanks), motors, conduits, ducts,
steam circulation coils, blowers, steam lines, compressors, oil burners,
boilers, doors, windows, loading platforms, lavatory facilities, stairwells,
fencing (including cyclone fencing), passenger and freight elevators, overhead
cranes and garage units, together with all additions thereto, substitutions
therefor and replacements thereof required or permitted by this Lease, but
excluding all personal property and all inventory furniture, furnishings, trade
fixtures, machinery, office, manufacturing, processing, packaging and warehouse
equipment and supplies which are not necessary to the operation, as buildings,
of the buildings which constitute part of the Leased Premises.
<PAGE>
EXHIBIT C
PERMITTED ENCUMBRANCES
[The exceptions, exclusions and stipulations as shown on that certain pro
forma Title Commitment issued by Western Pioneer Title Company, as agent
for First American Title Insurance Company, dated as of May ____, 1999,
and bearing title no. 152017-NM]
[In the event that Tenant exercises its Option to Purchase the
Expansion Parcel, as set forth in Paragraph 36 hereof, add
that certain Cross Easement Agreement between Landlord and
Tenant, dated as of ___________________.]
<PAGE>
EXHIBIT D
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided for in Paragraphs 2, 3 and 4
below, Basic Rent payable in respect of the Term shall be $ 820,013.00 per
annum, payable quarterly, in advance, on each Basic Rent Payment Date, in equal
installments of $205,003.25 each.
2. CPI Adjustments to Basic Rent. The Basic Rent shall be subject to adjustment,
in the manner hereinafter set forth, for increases in the index known as United
States Department of Labor, Bureau of Labor Statistics, Consumer Price Index,
All Urban Consumers, United States City Average, All Items, (1982-84=100)
("CPI") or the successor index that most closely approximates the CPI. If the
CPI shall be discontinued with no successor or comparable successor index,
Landlord and Tenant shall attempt to agree upon a substitute index or formula,
but if they are unable to so agree, then the matter shall be determined by
arbitration in accordance with the rules of the American Arbitration Association
then prevailing in New York City. Any decision or award resulting from such
arbitration shall be final and binding upon Landlord and Tenant and judgment
thereon may be entered in any court of competent jurisdiction. In no event will
the Basic Rent as adjusted by the CPI adjustment be less than the Basic Rent in
effect for the one (1) year period immediately preceding such adjustment.
3. . Effective Dates of CPI Adjustments. Basic Rent shall not be adjusted to
reflect changes in the CPI until the first (1st) anniversary of the Basic Rent
Payment Date on which the first full quarterly installment of Basic Rent shall
be due and payable (the "First Full Basic Rent Payment Date"). As of the first
(1st) anniversary of the First Full Basic Rent Payment Date and thereafter on
each anniversary of the First Full Basic Rent Payment Date, Basic Rent shall be
adjusted to reflect increases in the CPI during the most recent one (1) year
period immediately preceding each of the foregoing dates (each such date being
hereinafter referred to as the "Basic Rent Adjustment Date").
4. Method of Adjustment for CPI Adjustment.
(a) As of each Basic Rent Adjustment Date when the average CPI determined
in clause (i) below exceeds the Beginning CPI (as defined in this Paragraph
4(a)), the Basic Rent in effect immediately prior to the applicable Basic Rent
Adjustment Date shall be multiplied by a fraction, the numerator of which shall
be the difference between (i) the average CPI for the three (3) most recent
calendar months (the "Prior Months") ending prior to such Basic Rent Adjustment
Date for which the CPI has been published on or before the forty-fifth (45th)
day preceding such Basic Rent Adjustment Date and (ii) the Beginning CPI, and
the denominator of which shall be the Beginning CPI. An amount equal to the
lesser of (x) the product of such multiplication or (y) 3.75% of the Basic Rent
in effect immediately prior to such Basic Rent Adjustment Date shall be added to
the Basic Rent in effect immediately prior to such Basic Rent Adjustment Date.
As used herein, "Beginning CPI" shall mean the average CPI for the three (3)
calendar months corresponding to the Prior Months, but occurring one (1) year
earlier. If the average CPI determined in clause (i) is the same or less than
the Beginning CPI, the Basic Rent will remain the same for the ensuing one (1)
year period.
<PAGE>
(b) Effective as of a given Basic Rent Adjustment Date, Basic Rent payable
under this Lease until the next succeeding Basic Rent Adjustment Date shall be
the Basic Rent in effect after the adjustment provided for as of such Basic Rent
Adjustment Date.
(c) Notice of the new annual Basic Rent, setting out in reasonable detail
the method of calculation of the new Basic Rent, shall be delivered to Tenant on
or before the tenth (10th) day preceding each Basic Rent Adjustment Date, but
any failure to do so by Landlord shall not be or be deemed to be a waiver by
Landlord of Landlord's rights to collect such sums. Tenant shall pay to
Landlord, within ten (10) days after a notice of the new annual Basic Rent is
delivered to Tenant, all amounts due from Tenant, but unpaid, because the stated
amount as set forth above was not delivered to Tenant at least ten (10) days
preceding the basic Rent Adjustment Date in question.
<PAGE>
EXHIBIT E
COVENANTS
1. Corporate Existence; Control; Mergers, Etc.
(a) Guarantor shall, and shall cause each of its Subsidiaries to, maintain its
corporate existence, rights and franchises in full force and effect in its
jurisdiction of incorporation. Guarantor shall, and shall cause its Subsidiaries
to, qualify and remain qualified as a corporation in each jurisdiction in which
failure to receive or retain such qualification would have an adverse effect on
the business, operations or financial condition of the enterprise comprised of
the Guarantor and its Subsidiaries taken as a whole.
(b) The Tenant shall not in a single transaction or series of related
transactions, sell or convey, transfer, abandon or lease all or substantially
all of its assets to any Person, except that Tenant shall have the right in a
single transaction or a series of related transactions to sell or convey all or
substantially all of its assets to a Person if the following conditions are met:
(i) the assignment is permitted under and otherwise in accordance with Paragraph
21 of the Lease; (ii) immediately after such transaction, such Person shall meet
the Financial Covenants set forth in Paragraphs 2(a), (b) and (c) below and
(iii) this Lease is assigned to such Person.
2. Financial Covenants. So long as the Lease shall remain in effect or any
Monetary Obligations under the Lease shall remain outstanding, Guarantor and its
Subsidiaries (collectively , "PSC") shall:
(a) Maintain at the end of each fiscal quarter of PSC, commencing with the
fiscal quarter ending 3/31/99, a ratio (the "Fixed Charge Ratio") of (i)
Consolidated EBITDA for the most recently completed four fiscal quarters of PSC,
less Capital Expenditures made during such period, less the aggregate amount of
federal, state, local and foreign taxes paid by PSC on all Debt during such
period to the (ii) sum of (w) cash interest payable by PSC on all Debt during
such period plus (x) cash rentals payable under Capitalized Leases during such
period plus (y) principal amounts of all Funded Debt payable, in each case, by
PSC during such period plus (z) the aggregate purchase price paid by PSC during
such period to purchase capital stock of Guarantor permitted by Section 5.02 (g)
of the Credit Agreement, of not less than 1.00 to 1.
(b) Maintain at the end of each fiscal quarter of PSC, commencing with the
fiscal quarter ending 3/31/99, a ratio (the "Total Debt/EBITDA Ratio") of (i)
Total Debt outstanding on the last day of such fiscal quarter to (ii)
consolidated EBITDA for such period of not more than 5.51 to 1; and
(c) Maintain, at all times, an excess (the "Minimum Consolidated Net Worth") of
Consolidated total assets over Consolidated total liabilities, in each case, of
PSC of not less than (i) $34,000,000 plus (ii) 49% of Consolidated net income of
PSC during the period after June 30, 1998 to and including each date of
determination computed on a cumulative basis for said entire period.
<PAGE>
3. Definitions. All accounting terms used herein which are not expressly defined
herein shall have the respective meanings given to them in the Credit Agreement,
by and between Guarantor and Fleet Bank, dated July 12, 1996 (the "Credit
Agreement"), or, if not defined therein, in accordance with GAAP. All
computations made pursuant hereto shall be made in accordance with GAAP and any
financial statements shall be prepared in accordance with GAAP. For the purpose
of this Exhibit "E" the following terms shall have the following meanings:
"GAAP" shall mean generally accepted accounting principles as in effect from
time to time in the United States of America, applied on a consistent basis.
"Person" shall mean an individual, partnership, limited liability company,
association, corporation or other entity.
"Subsidiary" of any Person means a corporation a majority of the Voting Stock of
which is at the time owned, or the management of which is otherwise controlled,
directly or indirectly, through one or more intermediaries, or both, by such
Person.
"Voting Stock" means shares of stock of a corporation having ordinary voting
power to elect the board of directors or other managers.
<PAGE>
EXHIBIT F
CROSS ACCESS AGREEMENT
CROSS EASEMENT AGREEMENT
THIS EASEMENT AGREEMENT is made this _____ day of _______, ______, by
SCAN,(OR) QRS 11-47, INC. a __________ corporation having an office at c/o W.P.
Carey & Co., Inc., 50 Rockefeller Plaza, 2nd Floor, New York, New York 10020
(SCAN "SCAN") to PSC SCANNING, INC., a Delaware Corporation having an office at
959 Terry Street, Eugene, Oregon (PSC "PSC").
RECITALS:
A. SCAN is the owner of certain improved real property more
particularly described in Schedule A attached hereto, commonly known as 959
Terry Street and located in the Sweetland Industrial Park, in the City of
Eugene, County of Lane, State of Oregon (the "Burdened Property").
B. PSC is the owner of certain adjacent real property, more
particularly described in Schedule B attached hereto, commonly known as Tax Lot
3400, in the City of Eugene, County of Lane, State of Oregon (the "Benefitted
Property").
C. Terry Street, a dedicated road, provides access to an undedicated
internal roadway system that provides the Benefitted and Burdened Properties
with ingress and egress to facilities within the respective Properties and Terry
Street.
D. SCAN has agreed to grant an easement to PSC over the undedicated
internal roadway system on the Burdened Property and to permit PSC to construct
an extension of and to the same (collectively, the "Connecting Roadway") for the
purpose of providing (i) vehicular and pedestrian access to the Benefitted
Property, (ii) the right of PSC and/or any entity to erect, construct, install,
lay, maintain, repair, replace and relocate gas, water, sewer, electric and
telecommunication lines, cables, poles, equipment and facilities on, in, at,
above, under and about the Connecting Roadway and (iii) temporary construction
easements.
E. PSC has agreed to grant an easement to SCAN over that portion of the
Benefited Property upon which an existing paved surface area, situate northerly
of certain improvements on the Burdened Property commonly referred to as
"Building 2", is located (the "Turn Around Area") for the purpose of providing
vehicular access to the Benefited Property to be used by solely by trucks and
other vehicles entering or exiting the loading dock area of the improvements on
the Burdened Property, and temporary construction easements.
NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) and
other good and valuable consideration, the receipt of which is hereby
acknowledged, and in consideration of the agreements contained hereinafter, (i)
SCAN grants to PSC a perpetual, non-exclusive easement (the "Access Easement")
for the uses stipulated below over a portion of the Burdened Property comprising
property situate, lying and being in the City of Eugene, County of Lane, State
of Oregon, more particularly shown and described in Schedule C attached hereto,
and commonly known as: 959 Terry Street, Eugene, Oregon, and (ii) PSC grants to
SCAN a perpetual non-exclusive easement (the "Turn-Around Easement") for the
uses stipulated below over a portion of the Benefitted Property compromising
property situate, lying and being in the City of Eugene, County of Lane, State
of Oregon, more particularly shown and described in Schedule D attached hereto.
<PAGE>
I. Access Easement
(1) The purpose for which this the Access Easement is to be used is to
provide, without limitation, (i) PSC's customers, employees, agents,
contractors, visitors, business invitees, municipal agents, utility companies
and public agencies with vehicular and pedestrian access over the Connecting
Roadway for the purpose of assuring ingress and egress to the Benefited
Property, (ii) PSC, its employees, agents and contractors with the right to
erect, construct, install, lay, maintain, repair and replace the extension
portion of the Connecting Roadway,(iii) PSC, its employees, agents, contractors,
municipal agents, utility companies and public agencies with the right to erect,
construct, install, lay, maintain, repair, replace and relocate gas, water,
sewer, electric and telecommunication lines, cables, conduits, wire, pipes,
poles, guy wires, pedestals, switches, equipment and other facilities on, in,
at, above, under or about the Connecting Roadway, and (iv) temporary
construction easement for a distance of ten feet (10') on either side of the
Connecting Roadway for the purposes of keeping, storing and maintaining any
construction equipment, vehicles, machinery, materials and supplies during the
construction of the extension portion of the Connecting Roadway and any
improvements on the Benefitted Property.
(2) The maintenance of the Connecting Roadway, including cleaning, snow
plowing, sealing, and repaving shall be undertaken exclusively by SCAN and shall
be done promptly and in a good and workmanlike manner. PSC agrees that it will
pay to the SCAN fifty percent (50%) of all of the foregoing repair and
maintenance charges. Such payments shall be made in December and June of each
year, following the date hereof, within fifteen (15) days of receipt by PSC of
an itemized statement of maintenance expenses of SCAN for the preceeding six (6)
month period.
(3) PSC shall indemnify, defend, and hold harmless SCAN for all claims
of loss, damage, and injury of any kind and nature whatsoever arising in
connection with the use of the Connecting Roadway by PSC, its agents, officers,
employees, tenants and visitors and the exercise generally of PSC's rights under
this Easement, except to the extent, if any, caused by or arising out of the
gross negligence or willful misconduct of SCAN, its agents, officers, employees
or visitors.
(4) PSC covenants and agrees that it shall at all time use due care and
take all reasonable steps to minimize material interference with SCAN's use and
enjoyment of the Connecting Roadway and the Burdened Property caused by PSC's
exercise of its rights under this Cross Easement Agreement. SCAN shall at all
times use due care and take all reasonable steps to minimize material
interference with PSC's use and enjoyment of the Connecting Roadway and the
Benefitted Property. In the event any use of the Connecting Roadway is
materially disrupted because of maintenance, repair or development to any
portion of the Burdened Property or the Connecting Roadway, all such disruptions
shall be remedied within a commercially reasonable period of time. In the event
SCAN defaults in the performance or observance of any of the terms or covenants
contained within this Agreement, PSC may give written notice to the SCAN of such
default. If SCAN fails to cure the default within ten (10) days of such notice,
PSC shall have the option, at is sole discretion, to cure such default at the
cost and expense of SCAN. All costs and expenses expended by PSC in connection
with curing the default shall be paid by SCAN upon PSC's demand.
<PAGE>
(5) PSC agrees to forever defend, indemnify, and save harmless SCAN
from any liability to, claim of, damage to, or action by any "person" for death
of, injury to, or damage to, any person or property and from any other claim in
any manner stemming from or arising out of, directly or indirectly, the
existence of, or exercise of the rights granted under, this Cross Easement
Agreement or any expense in connection with the foregoing, to the extent
presently permitted by law, except to the extent, if any, caused by or arising
out of the gross negligence or willful misconduct of SCAN.
II. Turn-Around Easement
(1) The purpose for which the Turn-Around Easement is to be used is to
provide, without limitation, (i) SCAN's customers, employees, agents,
contractors, visitors, business invitees, agents, utility companies and public
agencies with vehicular and pedestrian access of and over the Turn Around Area
for the purpose of assuring a safe and sufficient turn around area for all
trucks and other vehicles seeking ingress and egress to and from the Burdened
Property or loading or unloading goods or passengers, or requiring or desiring
access to the Burdened Property during the performance of work thereon, and (ii)
temporary construction easement for a distance of five feet (5') on the
northerly side of the Turn Around Area for the purposes of keeping, storing and
maintaining any construction equipment, vehicles, machinery, materials and
supplies during the maintenance, repair or replacement of the Turn Around Area.
(2) The maintenance of the Turn-Around Area, including cleaning, snow
plowing, sealing, and repaving shall be undertaken exclusively by SCAN and shall
be done promptly and in a good and workmanlike manner. SCAN agrees that it will
pay to one hundred percent (100%) of all of the foregoing repair and maintenance
charges.
(3) SCAN shall indemnify, defend, and hold harmless PSC for all claims
of loss, damage, and injury of any kind and nature whatsoever arising in
connection with the use of the SCAN Turn Around Area by SCAN, its agents,
officers, employees, tenants and visitors and the exercise generally of SCAN's
rights under this Easement, except to the extent, if any, caused by or arising
out of the gross negligence or willful misconduct of PSC, its agents, officers,
employees or visitors.
(4) SCAN covenants and agrees that it shall at all time use due care
and take all reasonable steps to minimize material interference with PCS's use
and enjoyment of the Turn Around Area and the Benefitted Property caused by
SCAN's exercise of its rights under this Cross Easement Agreement. PSC shall at
all times use due care and take all reasonable steps to minimize material
interference with SCAN's use and enjoyment of the Turn Around Area and the
Burdened Property. In the event any use of the Turn Around Area is materially
disrupted because of maintenance, repair or development to any portion of the
Benefitted Property or the Turn Around Area, all such disruptions shall be
remedied within a commercially reasonable period of time. In the event PSC
defaults in the performance or observance of any of the terms or covenants
contained within this Agreement, SCAN may give written notice to PSC of such
default. If PSC fails to cure the default within ten (10) days of such notice,
SCAN shall have the option, at is sole discretion, to cure such default at the
cost and expense of PSC. All costs and expenses expended by PSC in connection
with curing the default shall be paid by PSC upon SCAN's demand.
(5) SCAN agrees to forever defend, indemnify, and save harmless SCAN
from any liability to, claim of, damage to, or action by any "person" for death
of, injury to, or damage to, any person or property and from any other claim in
any manner stemming from or arising out of, directly or indirectly, the
existence of, or exercise of the rights granted under, this Cross Easement
Agreement or any expense in connection with the foregoing, to the extent
presently permitted by law, except to the extent, if any, caused by or arising
out of the gross negligence or willful misconduct of PSC.
<PAGE>
III. Miscellaneous
(1) This Cross Easement Agreement is granted without representations or
warranties of any kind or nature.
(2) SCAN and PSC each executes this instrument for the purpose of
acknowledging its respective assent to the duties and obligations of such party
hereunder.
(3) This Cross Easement Agreement shall be governed by the laws of the
State of Oregon.
(4) The provisions of this Cross Easement Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
distributees, successors and assigns, specifically including the indemnification
provision. Any assignee of SCAN's or PSC's rights hereunder shall expressly
acknowledge and assume SCAN's or PSC's, as applicable, indemnification
liabilities hereunder.
SCAN(OR) QRS 11-47, INC.
---------------------------------
By:
Its:
PSC SCANNING, INC.
----------------------------
By:
Its:
STATE OF OREGON )
) SS.
COUNTY OF LANE )
This instrument was acknowledged before me on _____________________,
1999, by _______________________.
---------------------------
Notary Public for Oregon
My commission expires:_______________
<PAGE>
SCHEDULE A
(BURDENED PROPERTY)
<PAGE>
SCHEDULE B
(BENEFITTED PROPERTY)
<PAGE>
SCHEDULE C
(ACCESS EASEMENT AREA)
<PAGE>
SCHEDULE D
(TURN AROUND EASEMENT AREA)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule - Q1 1999
</LEGEND>
<CIK> 319379
<NAME> PSC Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-02-1999
<EXCHANGE-RATE> 1
<CASH> 5,090
<SECURITIES> 0
<RECEIVABLES> 35,809
<ALLOWANCES> 1,575
<INVENTORY> 21,042
<CURRENT-ASSETS> 65,066
<PP&E> 34,949
<DEPRECIATION> 20,092
<TOTAL-ASSETS> 172,417
<CURRENT-LIABILITIES> 50,388
<BONDS> 0
0
1
<COMMON> 119
<OTHER-SE> 45,605
<TOTAL-LIABILITY-AND-EQUITY> 172,417
<SALES> 59,145
<TOTAL-REVENUES> 59,145
<CGS> 33,540
<TOTAL-COSTS> 20,290
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,174
<INCOME-PRETAX> 3,217
<INCOME-TAX> 1,126
<INCOME-CONTINUING> 2,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,091
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.15
</TABLE>
