<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Quarterly Period
Ended March 31, 1995
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to _________
Commission File No. 1-6635
APPLIED MAGNETICS CORPORATION
(Exact name of registrant as specified in its charter)
A Delaware Corporation 95-1950506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Robin Hill Road, Goleta, California 93117
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 683-5353
(No Change)
________________________________________________________________________________
Former name,former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes X No _
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 22,198,123 $.10 par value common stock as of April 28, 1995.
<PAGE>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
--------------------
The unaudited condensed consolidated financial statements included herein have
been prepared by Applied Magnetics Corporation and its subsidiaries (the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The unaudited condensed consolidated financial statements and
selected notes included therein should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
The following unaudited condensed consolidated financial statements reflect all
adjustments, consisting only of normal and recurring adjustments, which, in the
opinion of management, are necessary to present fairly the consolidated
financial position and results of operations for the periods presented.
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APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - Unaudited
(In thousands except share and per share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended March 31, ended March 31,
------------------------------ ------------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 64,919 $ 69,834 $ 120,292 $ 141,078
Cost of sales 58,459 66,492 113,305 133,989
------------- ------------- ------------- -------------
Gross profit 6,460 3,342 6,987 7,089
------------- ------------- ------------- -------------
Research and development expenses, net 7,285 6,690 15,067 10,794
Selling, general and administrative expenses 2,991 5,131 6,507 10,421
------------- ------------- ------------- -------------
Total operating expenses 10,276 11,821 21,574 21,215
------------- ------------- ------------- -------------
Loss from operations (3,816) (8,479) (14,587) (14,126)
Interest income 398 221 669 505
Interest expense (1,086) (884) (2,080) (1,880)
Other income, net 1,996 71 1,992 389
------------- ------------- ------------- -------------
Loss before taxes (2,508) (9,071) (14,006) (15,112)
Provision for income taxes 183 304 399 508
------------- ------------- ------------- -------------
Net loss $ (2,691) $ (9,375) $ (14,405) $ (15,620)
============= ============= ============= =============
Net loss per share: ($0.12) ($0.42) ($0.65) ($0.71)
============= ============= ============= =============
Weighted average common and dilutive equivalent
shares outstanding: 22,099,879 22,087,274 22,087,082 22,083,155
============= ============= ============= =============
</TABLE>
The accompanying Selected Notes to Condensed Consolidated Financial Statements
are an integral part of these condensed consolidated statements.
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<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets - Unaudited
(In thousands except share and par value data)
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
------------- -------------
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash and equivalents $ 33,984 $ 20,761
Accounts receivable, net 25,155 18,720
Inventories 25,988 31,520
Prepaid expenses and other 12,875 6,879
-------------- -------------
98,002 77,880
-------------- -------------
Property, plant and equipment, at cost 255,998 289,362
Less-accumulated depreciation (152,188) (165,046)
-------------- -------------
103,810 124,316
-------------- -------------
Other assets 17,647 18,360
-------------- -------------
$ 219,459 $ 220,556
============== =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 10,613 $ 20,412
Bank notes payable 56,767 46,062
Accounts payable 32,146 22,332
Accrued payroll and benefits 9,006 9,406
Other current liabilities 18,981 16,111
-------------- -------------
127,513 114,323
-------------- -------------
Long-term debt, net 384 677
-------------- -------------
Other liabilities 6,842 7,123
-------------- -------------
Shareholders' Investment:
Preferred stock, $.10 par value, authorized
5,000,000 shares, none issued and outstanding - -
Common stock, $.10 par value, authorized
40,000,000 shares, issued 22,191,171 as
of March 31, 1995, and 22,161,460 as of
September 30, 1994 2,219 2,216
Paid-in capital 178,704 178,481
Retained deficit (95,184) (80,779)
-------------- -------------
85,739 99,918
Treasury stock, at cost (96,603 shares as of
March 31, 1995, and 92,509 as of
September 30, 1994) (830) (812)
Unearned restricted stock compensation (189) (673)
-------------- -------------
84,720 98,433
-------------- -------------
$ 219,459 $ 220,556
============== =============
</TABLE>
The accompanying Selected Notes to Condensed Consolidated Financial
Statements are an integral part of these condensed consolidated balance sheets.
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<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows - Unaudited
(In thousands)
<TABLE>
<CAPTION>
For the six months ended
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (14,405) $ (15,620)
Adjustments to derive cash flows:
Depreciation and amortization 13,168 10,967
Gain on sale of business and assets (3,110) -
Provision for receivable allowances and related costs 50 100
Amortization of unearned restricted stock
compensation 394 150
Other assets 106 (12)
Other liabilities (281) 84
Other, net (189) 1,079
Working capital changes affecting
cash flows from operations:
Accounts receivable (9,591) (5,591)
Other receivables - 3,096
Inventories 2,967 1,625
Prepaid expenses and other (1,173) (2,261)
Accounts payable 10,779 8,315
Accrued payroll and benefits (174) (1,758)
Other current liabilities (2,381) (5,086)
------------ -----------------
Net cash flows used in operating activities (3,840) (4,912)
------------ -----------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (7,406) (23,885)
Proceeds from sale of businesses and assets, net 22,234 -
Notes receivable 1,364 1,490
------------ -----------------
Net cash flows provided by (used in) investing activities 16,192 (22,395)
------------ -----------------
Cash Flows from Financing Actitivies:
Proceeds from debt 85,534 88,609
Repayment of debt (85,311) (78,677)
Proceeds from stock options exercised 298 227
------------ -----------------
Net cash flows provided by financing activities 521 10,159
------------ -----------------
Effect of Exchange Rate Changes on Cash and Equivalents 350 401
------------ -----------------
Net Increase (Decrease) in Cash and Equivalents 13,223 (16,747)
------------ -----------------
Cash and Equivalents at Beginning of Period 20,761 49,371
------------ -----------------
Cash and Equivalents at End of Period $ 33,984 $ 32,624
============ =================
</TABLE>
The accompanying Selected Notes to Condensed Consolidated Financial Statements
are an integral part of these condensed consolidated statements.
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<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Selected Notes to Condensed Consolidated Financial Statements
Unaudited
(March 31, 1995)
Note A: Inventories
- --------------------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory costs consist of purchased materials and services, direct production
labor and manufacturing overhead expense. The components of inventory are as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
--------- -------------
1995 1994
---- ----
<S> <C> <C>
Purchased parts and
manufacturing supplies $11,467 $ 9,970
Work in process 12,823 17,436
Finished goods 1,698 4,114
------- -------
$25,988 $31,520
======= =======
</TABLE>
Note B: License and Technology Development Agreements
- ------------------------------------------------------
During 1992 and 1993, the Company entered into various joint development
agreements, including one with Hitachi Metals, Ltd. ("HML") relating, primarily,
to the advancement of the Company's inductive thin-film technology and the
development and commercialization of magnetoresistive ("MR") disk head products.
The performance schedule and development efforts related to these agreements
were substantially completed by September 1994. Under these agreements, all cost
offsets were recognized by the end of fiscal 1994. The Company recognized $8.3
million as cost offsets against development costs incurred for the six months
ended March 31, 1994; no cost offsets against development costs incurred were
recognized for the six months ended March 31, 1995. The Company does not
anticipate receiving any significant additional amounts of development funding
from customers or strategic partners in fiscal 1995.
Note C: Restructuring Reserve
- ------------------------------
During the six months ended March 31, 1995 and 1994, expenditures of
approximately $1.2 million and $1.5 million, respectively, were charged to the
1993 restructuring reserve, which related to the consolidation of certain of the
Company's manufacturing resources.
Note D: Sale of Assets
- -----------------------
During the first quarter of fiscal 1995, the Company completed the sale of a
facility in Singapore and received proceeds of $4.9 million in cash, which
approximated book
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<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Selected Notes to Consensed Consolidated Financial Statements
Unaudited
(March 31, 1995)
value. In the same quarter, the Company also completed the sale of its Tape Head
subsidiary to Seagate Technology, Inc. ("Seagate") for $21.5 million in cash, of
which the Company received $14.0 million at the closing of the transaction. Of
the remaining funds, $1.0 million was held in escrow as a standard hold-back,
for one year, to indemnify the buyer for any claims relating to the
representations and warranties provided by the Company in connection with the
divestiture and $6.5 million was held in escrow pending the completion of
certain performance milestones pursuant to the Company's agreements to provide
certain tape-related goods and services to the buyer on an ongoing basis. Of the
estimated $7.5 million gain pursuant to this transaction, $2.7 million was
recognized, net of related expenses, during the second quarter ended March 31,
1995 as certain milestones were satisfied. It is anticipated that the majority
of the remaining performance milestones will be completed during the remainder
of fiscal 1995.
Note E: Short Term Borrowings
- -----------------------------
On January 11, 1995, the Company retired the $10.0 million debt obligation owed
to Conner Peripherals Inc., ("Conner"). The Company also obtained a secured,
revolving line of credit from CIT Group/Business Credit, Inc. ("CIT"). This
line of credit provides for borrowings up to $35.0 million based on eligible
trade receivables at various interest rates over a three-year term and is
secured by trade receivables, inventories and certain other assets. As of March
31, 1995, $10.0 million of borrowings was outstanding. The $10.0 million of
borrowings was fully repaid during April 1995. The balance available for
additional borrowings under this line of credit was approximately $1.0 million
at March 31, 1995 and the Company was in compliance with all financial
covenants.
In May, 1995, the Company's Malaysian subsidiary accepted a letter offer from a
Malaysian bank to continue a credit facility which has been in place since 1990.
The facility, as proposed, is callable on demand, has no termination date, is
guaranteed by the Company, is secured by the Malaysian subsidiary's real
property holdings in Malaysia and is subject to certain covenants which preclude
the subsidiary from granting liens and security interests in other assets. The
facility is subject to the preparation and execution of certain definitive
agreements and related documents.
In March, 1995 the Company obtained an extension until May 31, 1995, of the
maturity date on a $10.0 million revolving credit facility from a commercial
bank. This facility is secured by a letter of credit issued for the account of
HML, subject to reimbursement by the Company. The Company's reimbursement
obligation is secured by deeds of
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<PAGE>
trust on its real property holdings in Santa Barbara County, California. The
Company, the commercial bank and HML have agreed in principle to extend the
maturity dates of this credit agreement and the letter of credit for one year
and the Company's reimbursement obligation to HML will be secured by a security
interest and lien in certain machinery and equipment in lieu of the deeds of
trust on the real property. This agreement in principle is subject to the
preparation and execution of definitive agreements which the Company expects to
be concluded by May 31, 1995.
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<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
From the fourth quarter of fiscal 1994 and continuing into the second quarter of
fiscal 1995, the Company achieved certain production process improvements which
resulted in increases in thin-film disk head unit shipments and revenues. As
process improvements continue for thin-film disk heads, the Company expects
revenue growth during the second half of fiscal 1995. The Company continues to
make significant progress in the development and production of MR disk heads,
and delivered prototype quantities of these products during the second quarter
of 1995. The conversion from prototype to production volume shipment levels
depends, among other things, on the Company's ability to achieve satisfactory
progress in its design and development efforts.
NET SALES. Net sales in the second quarter of fiscal 1995 increased 17.2% from
the first quarter of fiscal 1995 and decreased 7.0% from the second quarter of
fiscal 1994. The increase in net sales in the second quarter of fiscal 1995 from
the first quarter of fiscal 1995 was due to significant growth in thin-film disk
head shipments which is attributable to the production improvements discussed
above and also due to continuing strong demand. The decrease in net sales in the
second quarter of fiscal 1995 as compared to the same quarter of the prior
fiscal year was the result of an 86.9% decrease in ferrite shipments mitigated
by higher thin-film shipments, as customer demand for thin-film products
replaces market requirements for disk heads using ferrite technology. Net sales
for thin-film disk head products in the second quarter of fiscal 1995 increased
38.0% and 87.5% from the first quarter of fiscal 1995 and second quarter of
fiscal 1994, respectively. The Company has experienced quarter- to-quarter
growth in thin-film disk head revenues since the third quarter of fiscal 1994,
as production process improvements were achieved and as market demand for thin-
film disk heads continues to increase. The Company anticipates that the market
demand for ferrite disk head products will continue to decline as prices for
thin-film disk heads, which offer superior performance, become more competitive.
The following table sets forth, for the periods indicated, net sales by product
line.
<TABLE>
<CAPTION>
For the three months ended
-------------------------------------
March 31, December 31, March 31,
1995 1994 1994
---------- ------------- ----------
<S> <C> <C> <C>
Thin-film disk head products
Net sales $57,878 $41,926 $30,868
Percentage of total 89.2% 75.7% 44.2%
Ferrite disk head products
Net sales $ 4,479 $ 8,984 $34,172
Percentage of total 6.9% 16.2% 48.9%
Tape head products
Net sales $ 2,562 $ 4,463 $ 4,794
Percentage of total 3.9% 8.1% 6.9%
Total net sales $64,919 $55,373 $69,834
</TABLE>
-9-
<PAGE>
GROSS PROFIT. As a percentage of net sales, gross profit was 10.0%, 1.0%, and
4.8% for the second and first quarters of fiscal 1995 and the second quarter of
fiscal 1994, respectively. The increase in gross profit in the second quarter of
fiscal 1995 as compared to the first quarter of fiscal 1995 and the second
quarter of the prior fiscal year was due to production process improvements and
higher sales volumes in thin-film disk head products.
RESEARCH AND DEVELOPMENT. Research and development expenses as a percent of net
sales, before cost offsets from various joint development agreements, were
11.2%, 14.1% and 15.4% for the second and first quarters of fiscal 1995 and the
second quarter of fiscal 1994, respectively. The percentage decrease in the
second quarter of fiscal 1995 from the first quarter of fiscal 1995 was due to
higher net sales. The percentage decrease in the second quarter of fiscal 1995
from the second quarter of the prior fiscal year was due to institution of cost
reductions during the fourth quarter of fiscal 1994 and the first quarter of
fiscal 1995 in response to lower revenues, and due to transfer of manpower
resources as thin-film technological process improvements were implemented in
production. Expenses in dollars during the second quarter of fiscal 1995
decreased $3.5 million from the second quarter of fiscal 1994, before giving
effect to cost offsets from development agreements.
In connection with its development agreements with HML and other customers, the
Company recognized cost offsets of $3.9 million and $4.4 million for the second
and first quarters of fiscal 1994, respectively. These agreements were
substantially concluded by the end of fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of net sales were 4.6%, 6.3% and 7.3% for
the second and first quarters of fiscal 1995 and the second quarter of fiscal
1994, respectively. Expenses in dollars for the second quarter of fiscal 1995
decreased $0.5 million from the first quarter of fiscal 1995 primarily due to
cost reductions and a bad debt recovery from a 1991 bankruptcy claim. Expenses
in dollars for the second quarter of fiscal 1995 decreased $2.1 million from the
second quarter of fiscal 1994 as the Company benefited from the significant
staff and cost reductions that were implemented during the fourth quarter of
fiscal 1994 and the first quarter of fiscal 1995.
INTEREST INCOME AND EXPENSE. While average cash balances were lower during the
second quarter of fiscal 1995, interest income increased $0.1 million and $0.2
million as compared to the first quarter of fiscal 1995 and the second quarter
fiscal 1994, respectively, primarily due to favorable investment management
results. Interest expense in the second quarter of fiscal 1995 increased $0.1
million and $0.2 million from the first quarter of fiscal 1995 and the second
quarter of fiscal 1994 even though average debt
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<PAGE>
outstanding was similar, primarily as a result of higher average interest rates
on the Malaysian bank loans.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for the six
months ended March 31, 1995, consisted primarily of foreign taxes and minimal
state taxes.
Liquidity and Capital Resources
- -------------------------------
In fiscal 1994, lower sales volumes, manufacturing difficulties and production
yield problems, operating losses and capital expenditures resulted in a
significant reduction in the Company's cash balance to $20.8 million at
September 30, 1994 from $49.4 million at September 30, 1993. In order to improve
liquidity and as part of a cash management and operating plan implemented by
management, during the first and second quarter of fiscal 1995, the Company
implemented cost and cash expenditure controls, negotiated accelerated payment
terms with some of its key customers, sold its Tape Head business unit to
Seagate and completed other financings, including new loan and credit
facilities, extensions or renewals of existing facilities, and lease financing.
During the next several quarters, the Company expects to continue to make use of
equipment lease financing for capital expenditures and anticipates that it will
continue to implement cost and expenditure controls to maintain
acceptable liquidity. The Company is assessing its long-term operating and
capital expenditure requirements to determine what, if any, external financing
would be required to supplement capital resources generated internally.
At March 31, 1995, the Company's cash and equivalents increased to $34.0 million
from $20.8 million at September 30, 1994. During the first half of fiscal 1995,
the Company generated $22.2 million in cash from the sale of businesses and
assets which were made up of the following: 1) the sale of a building in
Singapore for $4.9 million; 2) the sale of its Tape Head subsidiary to Seagate,
for $21.5 million, of which the Company received $14.0 million at the closing
date of the transaction and $2.7 million, net of related expenditures, upon
completion of certain performance milestones in the second quarter; and 3) $0.6
million for the sale of excess machinery and equipment. See Note D in the
accompanying Selected Notes to Condensed Consolidated Financial Statements for
discussion of the Seagate Agreement. During the second quarter of fiscal 1995
the Company used $7.4 million for capital expenditures and $3.8 million for
operating activities.
At March 31, 1995, total debt, including notes payable, amounted to $67.8
million, an increase of $0.6 million from the balance outstanding at September
30, 1994. At March 31, 1995, the Company had fully drawn down its unsecured
Malaysian credit facility which has no stated maturity but is callable on demand
from a bank in Malaysia where the Company has substantial manufacturing
operations. Should all or any significant portion of the Malaysian credit
facility become unavailable for any reason, the Company would need to pursue
alternative financing sources. See Note E to Financial Statements.
On January 11, 1995 the Company retired the $10.0 million debt obligation owed
to Conner Peripherals Inc. The Company also obtained a secured, asset-based
revolving line of credit of $35.0 million from CIT Group/Business Credit, Inc.
("CIT"). This line of credit provides for borrowings up to $35.0 million based
on eligible trade
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<PAGE>
receivables at various interest rates over a three-year term and is secured by
trade receivables, inventories and certain other assets. As of March 31, 1995,
$10.0 million of borrowings was outstanding. The $10.0 million of borrowings was
fully repaid during April 1995. The balance available for additional borrowings
under this line of credit was approximately $1.0 million at March 31, 1995 and
the Company was in compliance with all financial covenants.
In May, 1995, the Company's Malaysian subsidiary accepted a letter offer from a
Malaysian bank to continue a credit facility which has been in place since 1990.
The facility, as proposed, is callable on demand, has no termination date, is
guaranteed by the Company, is secured by the Malaysian subsidiary's real
property holdings in Malaysia and is subject to certain covenants which preclude
the subsidiary from granting liens and security interests in other assets. The
facility is subject to the preparation and execution of certain definitive
agreements and related documents.
In March, 1995 the Company obtained an extension until May 31, 1995, of the
maturity date on a $10.0 million revolving credit facility from a commercial
bank. This facility is secured by a letter of credit issued for the account of
HML, subject to reimbursement by the Company. The Company's reimbursement
obligation is secured by deeds of trust on its real property holdings in Santa
Barbara County, California. The Company, the commercial bank and HML have agreed
in principle to extend the maturity dates of this credit agreement and the
letter of credit for one year and the Company's reimbursement obligation to HML
will be secured by a security interest and lien in certain machinery and
equipment in lieu of the deeds of trust on the real property.
The Company has informal understandings with some of its customers to make
payments on accelerated terms. Some of these arrangements have been canceled as
of March 31, 1995. However, the liquidity risk associated with the cancellation
of one or more of these arrangements is partially ameliorated by the credit
available under the CIT Agreement under which available loan proceeds could
generally increase as the Company's trade accounts receivable increase.
In fiscal 1995, the Company plans approximately $49.0 million in capital
expenditures relating primarily to improving thin-film production processes,
increasing thin-film production volumes, and development and production of MR
technologies and products. The Company's objective is to provide sufficient cash
flows from operations and to continue pursuit of equipment lease financing
alternatives in order to meet its operating and capital expenditure
requirements.
In the event that market demand for the Company's products does not materialize
or declines, management believes that it will be able to reduce its funding
requirements for planned, but not committed, capital expenditures. However, if
the Company were unable to increase sales or maintain production yields at
acceptable levels in order to permit it to execute customer orders for new drive
programs in a manner consistent with management's intentions to return to
profitability by the end of fiscal 1995, there could be a significant adverse
impact on liquidity. This might require the Company to obtain
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<PAGE>
additional capital from external sources. There are no assurances that such
sources of capital would be available or that the terms associated with
external funding sources would be satisfactory to the Company. If the Company
were unable to obtain sufficient capital, it would need to curtail its capital,
research and development and working capital expenditures, which could adversely
affect the Company's future years' operations and competitive position.
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<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description
------- -----------
10 Deeds of Trust naming as beneficiary, Hitachi Metals, Ltd.
to secure the Company's obligations under that certain
letter agreement dated March 24, 1995.
11 Statement re computation of per share information. NONE.
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed an Interim Report on Form 8-K
dated January 16, 1995 reporting under Item 5 that the Company had
concluded a Financing Agreement with The CIT Group/Business Credit,
Inc.
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<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED MAGNETICS CORPORATION
Dated: May 15, 1995 /s/ Craig D. Crisman
-------------------------------------
Craig D. Crisman
President and Chief Executive Officer
(Principal Financial Officer)
Dated: May 15, 1995 /s/ Peter T. Altavilla
-------------------------------------
Peter T. Altavilla
Corporate Controller
(Principal Accounting Officer)
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<PAGE>
RECORDING REQUESTED BY )
AND WHEN RECORDED, RETURN TO: )
)
Morgan, Lewis & Bockius )
801 South Grand Avenue )
22nd Floor )
Los Angeles, CA 90017 )
)
Attn: Douglas A. Dodds )
- --------------------------------------------------------------------------------
SANTA BARBARA COUNTY
FIRST DEED OF TRUST, ASSIGNMENT OF RENTS, AND FIXTURE FILING
THIS FIRST DEED OF TRUST, ASSIGNMENT OF RENTS, AND FIXTURE FILING
(this "Deed of Trust"), is made as of the 24th day of March, 1995, by APPLIED
MAGNETICS CORPORATION, a Delaware corporation, as trustor ("Trustor"), whose
address is 75 Robin Hill Road, Goleta, California 93117, to CHICAGO TITLE
COMPANY, as trustee ("Trustee"), for the benefit of HITACHI METALS, LTD., a
juridical person duly organized and existing under the laws of Japan (the
"Beneficiary"), with its head office at 2-1-2 Marunouchi, Chiyoda-Ku, Tokyo,
Japan.
1. GRANT IN TRUST
--------------
Trustor hereby grants and assigns to Trustee, in trust, with power of
sale and right of entry and possession, all of that certain real property (the
"Land") located in an unincorporated area of the County of Santa Barbara, State
of California, described on Exhibit A attached hereto and by this reference
---------
incorporated herein, together with all of Trustor's right, title and interest in
and to:
1.1 Streets, etc. All streets, roads and public places, opened or
-------------
proposed, adjoining the Land, all easements and rights of way, public or
private, now or hereafter created and used in connection with the Land;
1.2 Improvements, etc. All improvements (the "Improvements") of every
------------------
kind and description now or hereafter constructed or erected upon or made to the
Land;
1.3 Fixtures. All of the "Collateral" described in Section 6.2 of this
--------
Deed of Trust and replacements of any thereof, now or
1
<PAGE>
at any time hereafter owned by Trustor and affixed to or attached to or used in
construction upon or used in any other way in connection with or located upon,
under or within said Land and Improvements (such items as are affixed to and
deemed a part of the Land or Improvements being hereinafter collectively
referred to as the "Fixtures";
1.4 Reversions, Rents, etc. All reversions, remainders, rents, issues,
-----------------------
profits and other benefits arising or issuing from, and all leases of, all or
any portion of said Land, Improvements and Fixtures;
1.5 Awards, etc. All awards, damages, payments and other compensation
------------
(including, but not limited to, insurance proceeds) received by or payable to
Trustor, and all claims of Trustor therefor and rights of Trustor thereto, which
may result:
1.5.1 from any Condemnation (as defined in Section 4.6 below);
1.5.2 from any damage, injury or destruction in any manner caused to
the Land, Improvements, or Fixtures; or
1.5.3 from any change of grade or vacation of any street abutting the
Land. All of the foregoing are to be deemed to be part of the real estate, such
that all right, title and interest of Trustor thereto shall pass absolutely to
the purchaser at any trustee's sale or foreclosure sale;
1.6 Certificates, etc. All Certificates of Occupancy, other governmental
------------------
permits, and all water stock appurtenant to the Land or any portion thereof;
1.7 Insurance, etc. All of Trustor's right, title and interest in and to
---------------
all insurance policies required to be maintained under the terms of this Deed of
Trust, or otherwise carried by Trustor covering the Property or any portion
thereof, together with all unearned premiums paid thereon and all other benefits
received or to be received therefrom; and
1.8 Tax Refunds, etc. All refunds of taxes, assessments, levies and other
-----------------
charges related to the Land or Improvements, whether governmental or
nongovernmental, and including, but not limited to, water and sewer rents and
assessments on appurtenant water stock (collectively, the "Tax Refunds").
The Land and all other property herein described in Sections 1.1 through
1.8 above shall be referred to collectively as the "Property."
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2. ASSIGNMENT OF RENTS
-------------------
2.1 Trustor absolutely and irrevocably assigns to Beneficiary the rents,
issues, profits and royalties of the Property upon the terms and conditions
hereinafter set forth. The foregoing assignment shall not impose upon
Beneficiary any duty to produce rents from the Property, and said assignment
shall not cause Beneficiary to be a "mortgagee in possession" for any purpose.
This assignment of the rents, issues, profits, royalties, production and other
payments and proceeds, of the Property is intended to be an absolute assignment
from Trustor to Beneficiary and not merely the passing of a security interest.
Beneficiary is hereby authorized to collect and receive the foregoing rents,
issues, profits and royalties to give proper receipts and acquittances therefor
and to apply the same to the payment of the obligations secured hereby. However,
Beneficiary hereby grants Trustor an exclusive and (upon the occurrence of an
Event of Default, as defined in Section 5 hereof), revocable, license to collect
and receive such rents, issues, profits and royalties.
2.2 Upon the revocation of such license, and without the necessity of
Beneficiary entering upon and taking and maintaining full control of the
Property in person, by agent or by a court appointed receiver, Beneficiary shall
immediately be entitled to possession of all rents and revenues of the Property
as the same shall become due and payable, including, but not limited to, rents
then due and unpaid. All such rents, issues, profits and royalties thereafter
collected by Trustor shall be held by Trustor as trustee in a constructive trust
for the benefit of Beneficiary only. Trustor agrees that commencing upon the
revocation of such license, each tenant of the Property shall make such rents
payable to and pay such rents to Beneficiary or Beneficiary's agents on
Beneficiary's written demand to each tenant, without any liability on the part
of said tenant to inquire further as to the existence of a default or license by
Trustor.
3. OBLIGATIONS SECURED
-------------------
Trustor makes the grant described above for the purpose of securing:
3.1 The complete and full performance of all of Trustor's obligations
under that certain Letter Agreement, dated September 25, 1992, as amended by
that certain Letter Agreement dated August 24, 1994 between Trustor and
Beneficiary (as amended and modified from time to time, the "Reimbursement
Agreement"), including, but not limited to, payment to the Beneficiary of any
and all Drawdowns (as defined in the Reimbursement Agreement), interest and
other sums due or to become due under the
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Reimbursement Agreement (and any amendments, extensions, modifications,
renewals, or replacements thereof);
3.2 The observance and performance of each agreement, covenant and
obligation of Trustor herein contained or incorporated herein by reference and
payment of each fee, cost and expense by Trustor as herein set forth; and
3.3 Payment of such further sums and/or performance of such further
obligations as the then record owner of the Property may undertake to pay and/or
perform (whether as principal, surety or guarantor), for the benefit of
Beneficiary, its successors or assigns, when said borrowing and/or obligation is
evidenced by a writing or writings reciting that it or they are so secured.
4. RIGHTS AND DUTIES OF THE PARTIES
--------------------------------
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, THE PARTIES AGREE AS
FOLLOWS:
4.1 Title.
-----
4.1.1 Trustor represents and warrants that it lawfully holds and
possesses the real property described on Exhibit A attached hereto, in fee
---------
simple, free and clear of any mortgage, deed of trust, lien, or other charge or
encumbrance, except for existing encumbrances previously approved in writing by
the Beneficiary, and without limitation on the right to encumber.
4.1.2 Trustor agrees not to create, incur, assume, or suffer to
exist, or permit any related individual, association or entity to create, incur,
assume or suffer to exist, any mortgage, deed of trust, lien, or other charge or
encumbrance (including, without limitation, the lien or retained security title
of a conditional vendor) of any nature upon or with respect to all or any
portion or portions of the Property.
4.2 Taxes and Assessments. Trustor shall pay, prior to delinquency, all
---------------------
taxes, assessments, levies and charges imposed by any public or quasi-public
authority or utility company which are or may become a lien upon the Property,
any part thereof or interest therein. Trustor shall also pay, after notice and
prior to delinquency, all taxes, assessments, levies and charges imposed by any
public authority upon Beneficiary by reason of its interest in the Property
created hereby or by reason of any payment, or portion thereof, made to
Beneficiary hereunder or pursuant to any obligation hereby secured; provided,
however, that Trustor shall have no obligation to pay or discharge Beneficiary's
business or franchise taxes, federal or state income taxes or other taxes and
which are measured by and imposed
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upon Beneficiary's net or gross income or receipts. Trustor's obligations
hereunder may be discharged pursuant to Section 4.4. If requested by
Beneficiary, Trustor shall cause to be furnished to the Beneficiary a tax
reporting service covering the Property of a type and duration and with a
company satisfactory to the Beneficiary.
4.3 Insurance. For the purpose of protecting Beneficiary's interest
---------
granted herein, the Trustor shall maintain at all times so long as the
Reimbursement Agreement is in effect, and at the sole cost and expense of
Trustor, the following insurance with insurers qualified and licensed to do
business in the state where the Property is located:
4.3.1 "All risk" or equivalent property hazard insurance for an
insured value of no less than 100% of the replacement cost value of the
Improvements (excluding foundations, but including Fixtures owned by Trustor);
4.3.2 Debris removal insurance;
4.3.3 If the premises are located in an area identified by the United
States Secretary of Housing and Urban Development as an area having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of
1973, as the same may have been or may hereafter be amended or modified (and any
successor acts thereto), the Trustor shall also keep the Improvements and the
equipment located therein insured against loss by flood in an amount at least
equal to the outstanding indebtedness secured by this Deed of Trust or the
maximum limit of coverage available with respect to the Improvements under said
Act, whichever is less.
With respect to insurance policies obtained by Trustor as required by Sections
4.3.1 through 4.3.3 above:
(i) Trustor also agrees to name Beneficiary as mortgagee/loss payee, under
a standard mortgage clause or its equivalent and include an agreed amount
endorsement and a joint loss agreement in such policies;
(ii) Deductibles shall be no greater than customary for similar properties
in the area; and
(iii) Any loss shall not reduce the limit insured under such policies.
4.3.4 Boiler and machinery insurance with a joint loss agreement and at
limits adequate to cover repair and replacement expenses;
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4.3.5 General liability insurance covering third party bodily injury
and property damage, with respect to the Property, and including contractual
liability and auto liability, if applicable. Said insurance shall name the
Beneficiary, including its directors, officers, representatives, attorneys,
agents and employees, as additional insureds. It shall also provide that all of
the provisions in the policy shall operate in the same manner as if there were a
separate policy covering each additional insured (without, however, operating to
increase the insurer's limit of liability as set forth in such policies).
Beneficiary shall have no obligations to pay premiums. The policy shall also
provide that the insurer waives all rights of subrogation against the
Beneficiary. Limits shall be at all times on a per location basis in amounts
agreed to by Beneficiary, and shall be based on customary limits to be
determined based on practices by risks of a similar nature. No blanket insurance
shall be used to satisfy this requirement without Beneficiary's prior written
consent; and
4.3.6 Each of the above policies shall provide:
4.3.6.1 for 30-days prior written notice of cancellation or
material change;
4.3.6.2 Beneficiary has the option, with no obligation, but on
prior written notice to Trustor, to purchase insurance at the Trustor's expense
in the event of policy lapse, cancellation and/or Trustor's failure to purchase
the appropriate insurance;
4.3.6.3 if any loss significantly reduces the amount insured
under the policies, the insurer and Trustor will provide written notification of
same to Beneficiary;
4.3.6.4 such insurance shall be primary without right of
contribution from any other insurance which may be carried by the Beneficiary;
and
4.3.6.5 Beneficiary's interest in coverage shall not be
invalidated or made voidable by any act, neglect or omission by the Trustor.
4.3.7 Trustor shall provide Beneficiary with evidence of property and
primary liability insurance as soon as possible but in no event later than April
21, 1995 and upon renewal. The evidence shall be in the form of certified
duplicate policies. Evidence of all other insurance policies required to be
maintained by Trustor hereunder shall be in certificate form and shall state
deductible limits, inclusion of coverages, and shall contain all special
provisions specified herein. Beneficiary shall have the option to receive
certified
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duplicate policies at any time. Certificates, binders and/or policies are to be
available no later than April 21, 1995. If Trustor is not able to provide
certificates or certified duplicate policies on or before March 27, 1995,
Trustor may provide, at Beneficiary's discretion, a binder signed by the
insurer. Nonetheless, certified policy copies are to be sent to the Beneficiary
as soon as available, but in no case later than April 21, 1995.
4.4 Security Account. Upon the occurrence and during the continuance of
----------------
an Event of Default, at Beneficiary's option and upon its demand and except
where and to the degree prohibited by law, Trustor shall, until the
Reimbursement Agreement is terminated and every indebtedness secured hereby has
been paid in full or until such Event of Default is cured, pay to Beneficiary
each month an amount estimated by Beneficiary to be equal to: (i) the taxes,
assessments, levies, and charges referred to in Section 4.2, and (ii) premiums
for fire, other hazard and other insurance referred to in Section 4.3 next due.
Said tax and insurance estimate shall be calculated by dividing the amount next
due by, in each instance, the number of months to lapse preceding the month in
which the same, respectively, will become due. If at any time the funds
deposited with Beneficiary are or will be for any reason insufficient, in the
opinion of Beneficiary, to pay such amounts as may then be or subsequently
become due, Beneficiary shall notify Trustor and Trustor shall immediately
deposit an amount equal to such deficiency with Beneficiary. All sums paid
pursuant to this Section shall not bear interest, except to the extent and in
the minimum amount required by law, and Beneficiary shall, unless Trustor is
otherwise in default hereunder or under any obligation secured hereby, apply
said funds to the payment of, or at the sole option of Beneficiary release said
funds to Trustor for application to and payment of, such taxes, assessments,
levies, charges and insurance premiums. However, upon the occurrence of an
Event of Default by Trustor hereunder or under any obligation secured hereby,
Beneficiary may, at its sole option, apply all or any part of said sums to any
indebtedness secured hereby or to cure such default. Nothing contained herein
shall cause Beneficiary to be deemed a trustee of said funds or to be obligated
to pay any amount in excess of the amount of funds deposited with Beneficiary
pursuant to this Section. At Beneficiary's request, Trustor agrees to cause all
bills, statements and other documents relating to all taxes, assessments, levies
and charges and insurance premiums to be sent or mailed directly to Beneficiary.
The receipt, use or application of any sums paid by Trustor to Beneficiary
hereunder shall not be construed to affect the maturity of any indebtedness
secured by this Deed of Trust, or any of the rights or powers of Beneficiary or
Trustee or any of the obligations of Trustor under the terms of the
Reimbursement Agreement.
7
<PAGE>
4.5 Liens and Encumbrances. Trustor shall pay or remove (as appropriate),
----------------------
at or prior to maturity, all obligations secured by or reducible to liens or
encumbrances which shall now or hereafter encumber or appear to encumber the
Property or any part thereof or interest therein, whether senior or subordinate
hereto, including without limitation all claims for work or labor performed, or
materials or suppliers furnished, in connection with any work of demolition,
alteration, improvement of or construction upon the Property. Trustor shall
have the right to contest in good faith any such obligation or claim provided
such contest shall be prosecuted diligently and in a manner not prejudicial to
Beneficiary, and if a judgment adverse to Trustor is obtained, such judgment
shall be fully paid or discharged within ten (10) days after the entry of such
judgment. Upon demand by Beneficiary, Trustor shall protect, defend, indemnify
and hold Beneficiary harmless from and against any such obligation or claim, so
contested by Trustor, and upon demand by Beneficiary, Trustor shall make
suitable provision by payment to Beneficiary or by posting a bond or other
security satisfactory to Beneficiary for the possibility that the contest will
be unsuccessful, including, if Beneficiary requests, a one-and-one half times
bond with respect to mechanics' or materialmens' liens, if available. Such
provision shall be made within ten (10) days after demand therefor and, if made
by payment of funds to Beneficiary, the amount so deposited shall be disbursed
in accordance with the resolution of the contest either to Trustor or the
adverse claimant. If Trustor fails to post a suitable bond or other acceptable
security as provided, Beneficiary may remove or pay such lien or encumbrance at
Trustor's expense and any amount so advanced by Beneficiary shall be secured by
this Deed of Trust. Notwithstanding anything in the foregoing to the contrary,
if the lien or encumbrance contested or to be contested is senior to the lien of
this Deed of Trust, Trustor shall, within ten (10) days after Beneficiary's
demand, remove or pay or otherwise satisfactorily provide for such lien or
encumbrance (on terms and conditions satisfactory to Beneficiary), and, if
Trustor shall fail to do so, Beneficiary may do so at Trustor's expense, and any
amount so advanced by Beneficiary shall be secured by this Deed of Trust.
4.6 Disposition of Insurance and Condemnation Proceeds.
--------------------------------------------------
4.6.1 Should the Property or any part thereof or interest therein be
taken or damaged by reason of any public improvement or condemnation proceeding
or in any similar manner ("Condemnation") or should Trustor receive any notice
or other information regarding any such Condemnation, then, in any such event,
Trustor shall give prompt written notice thereof to the Beneficiary. All
proceeds of any Condemnation, casualty or other loss affecting the Property
(including, without limitation, any insurance proceeds) are hereby assigned,
transferred and paid
8
<PAGE>
over to the Trustor, provided however at any time after the occurrence and
during the continuance of an Event of Default, all such proceeds shall be paid
to Beneficiary. If, prior to the receipt by the Beneficiary of said
Condemnation proceeds, the Property shall have been sold by power of sale or
judicial foreclosure of this Deed of Trust, the Beneficiary shall have the
right, at its option, whether or not a deficiency judgement shall have been
sought, recovered or denied, to receive said sums to the extent of the
obligations remaining unsatisfied under such sale with interest thereon at the
rate per annum provided for in the Reimbursement Agreement, as such rate changes
from time to time, plus two percentage points (the "Default Rate"); if such
option is exercised by the Beneficiary, the right to collect such proceeds shall
not be conveyed at such sale as part of the Property, any other provisions of
this Deed of Trust to the contrary notwithstanding. Trustee or the Beneficiary,
as the case may be, shall be reimbursed by the Trustor with interest at the
Default Rate for all attorneys' fees, costs and disbursements incurred by the
Trustee or the Beneficiary in connection with the collection of said proceeds.
4.6.2 At any time after the occurrence and during the continuance of
an Event of Default the following shall apply: In the event of any damage to or
destruction of the Property or any part thereof, or any Condemnation, the
Beneficiary may, at the Beneficiary's option but without obligation so to do,
commence, appear in and prosecute either in its own name or in the name of
Trustor, any action or proceeding arising in connection with such casualty or
Condemnation, to the extent which Beneficiary reasonably believes necessary to
protect the security hereof, and may adjust, compromise or settle any claim made
in connection with such casualty or Condemnation. The Beneficiary may, at its
option, but with no obligation so to do, make any necessary proof of loss to any
insurance company with respect to any such casualty, or negotiate a sale or
other transfer of the Property or any portion thereof in lieu of Condemnation.
The Beneficiary shall be entitled to receive all proceeds, and Trustor hereby
authorizes and directs any affected insurance company or other Person to pay all
proceeds directly and solely to the Beneficiary, and should any proceeds be paid
to Trustor or jointly to Trustor and Beneficiary, the Beneficiary shall have the
authority, as attorney in fact for Trustor, to endorse and negotiate any check,
draft or other instrument by which such proceeds are paid.
4.7 Covenants Concerning the Property and Trustor.
---------------------------------------------
4.7.1 Trustor covenants and agrees:
4.7.1.1 to keep the Property in good condition and repair,
normal wear and tear excepted;
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4.7.1.2 not to remove or demolish the Property or any part
thereof in any material way or manner;
4.7.1.3 to complete or restore promptly and in good and
workmanlike manner the Property or any part thereof which may be damaged or
destroyed;
4.7.1.4 to pay when due all claims for work performed and for
materials furnished on or to the Property, and to pay any and all liens or
encumbrances arising out of or resulting from work performed or materials
supplied on or to the Property;
4.7.1.5 to comply with and not suffer any material violations
of, as to the Property and/or Trustor's activities in connection with the
Property:
4.7.1.5.1 any and all laws, ordinances, regulations and
standards;
4.7.1.5.2 any and all covenants, conditions, restrictions
and equitable servitudes, whether public or private, of every kind and
character; and
4.7.1.5.3 all requirements of insurance companies and any
bureau or agency which establishes standards of insurability;
4.7.1.6 not to:
4.7.1.6.1 except in the ordinary course of Trustor's
business, cause or permit any of the Improvements to be removed, demolished or
structurally altered, in whole or in part, or cause or permit any Fixture to be
removed or destroyed without the prior written consent of the Beneficiary; or
4.7.1.6.2 abandon or leave vacant the Property or cause or
permit any waste thereto;
4.7.1.7 to cultivate, irrigate, fertilize, fumigate, prune and
do all other acts which from the character or use of the Property may be
reasonably necessary to maintain, preserve and enhance its value, the specific
enumerations herein not excluding the general;
4.7.1.8 to perform and observe all of the terms, covenants,
conditions and obligations required to be performed or observed in all
instruments affecting the Property (including, but not limited to, leases and
conditional sales contracts) or the operation, occupation or use thereof except
for such non-performance or non-observance that would not have a material
10
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adverse affect on the business and financial condition of Trustor;
4.7.1.9 not to create (or allow to exist at any time) any deed
of trust, lien, or other encumbrance upon the Property without the prior written
approval of the Beneficiary;
4.7.1.10 to make no further assignment of rents of the Property;
4.7.1.11 to provide that so long as the Reimbursement Agreement
secured by this Deed of Trust is in force, any subordinate claim, lien,
encumbrance, deed of trust or mortgage shall be subordinate to any and all
leases of the Property or any part thereof, and no such subordinate claim, lien,
encumbrance, deed of trust or mortgage shall be enforced or foreclosed by the
holder, beneficiary or the mortgagee thereof without the prior written consent
of Beneficiary if the effect thereof would be to terminate any lease of the
Property or any part thereof, to evict or oust the tenant thereof under such a
lease, to cut off such a tenant's obligations to pay rental, or to permit such a
tenant to terminate its lease and its obligations to pay rent;
4.7.1.12 with respect to any areas of adjacent property now or
hereafter owned by Trustor and used in connection with the Property, not to
discontinue such use without the prior written consent of the Beneficiary;
4.7.1.13 if at any time the then existing use or occupancy of
the Property shall, pursuant to any zoning or any law, ordinance or regulation,
be permitted only so long as such use or occupancy shall continue, not to cause
or permit such use or occupancy to be discontinued without the prior written
consent of the Beneficiary;
4.7.1.14 to the extent any occupant of the Property is under an
obligation to maintain the Property or any portion thereof, to enforce such
obligation fully; and
4.7.1.15 to execute and, where appropriate, acknowledge and
deliver such further instruments as Beneficiary or Trustee deems reasonably
necessary to preserve, continue, perfect and enjoy the security provided for
herein, including without limitation assignments of Trustor's interest in leases
of the Property.
4.7.2 Beneficiary is extending the credit secured by this Deed of
Trust in reliance, in part, on the skill, expertise and financial strength of
Trustor. Trustor therefore covenants and agrees that it will not sell, assign,
transfer,
11
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lease or otherwise dispose of, nor will it contract to sell, assign, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions), all or any part of the Property or any beneficial interest in the
Property. An Event of Default shall occur under this Deed of Trust if any such
sale, assignment, transfer, lease or other disposition shall occur without the
prior written consent of Beneficiary, and, upon any such occurrence, Trustor
agrees that during the term of the Reimbursement Agreement Beneficiary may (in
addition to and without in any way limiting its other rights and remedies,
however arising), at its option, exercise any and all of the rights and remedies
under the Reimbursement Agreement and this Deed of Trust. Notwithstanding
anything to the contrary herein, the Reimbursement Agreement and this Deed of
Trust shall remain outstanding and Beneficiary's lien on the Property shall
remain in place even if Beneficiary approves any sale, assignment, transfer,
lease or other disposition of the Property or any beneficial ownership interest
in Trustor.
4.7.3 Trustor acknowledges that its ability to make payments due
under the Reimbursement Agreement will be materially lessened or the security of
this Deed of Trust may be otherwise impaired in the event that either (i) any
existing financing owed by Trustor to any Person (other than Beneficiary), which
is secured by a lien encumbering the Property, is amended, modified or extended,
in any material respect, without the consent of Beneficiary which shall not be
unreasonably withheld or delayed, or (ii) any subsequent financing is obtained
by Trustor and secured by a lien encumbering the Property. An Event of Default
shall occur under this Deed of Trust in the event that Trustor amends, modifies
or extends such existing financing, in any material respect, or obtains any
subsequent financing secured all or in part by all or any portion of the
Property or any beneficial interest in the Property without obtaining
Beneficiary's prior written consent, which shall not be unreasonably withheld or
delayed and, upon any such occurrence, Trustor agrees that during the term of
the Reimbursement Agreement Beneficiary may (in addition to and without in any
way limiting its other rights and remedies, however arising), at its option,
exercise any and all of the rights and remedies under the Reimbursement
Agreement and this Deed of Trust.
4.7.4 Without the prior written consent of Beneficiary, Trustor will
not apply for, directly or indirectly, any change in the zoning or permitted
land uses of the Property that would have a material and adverse effect on the
use of the Land and Improvements as currently used by Trustor.
4.8 Defense and Notice of Actions. Trustor shall, without liability, cost
-----------------------------
or expense to Beneficiary or Trustor, protect, preserve and defend (by counsel
satisfactory to Beneficiary)
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title to the Property, the security hereof and the rights or powers of
Beneficiary or Trustee hereunder. Said protection, preservation and defense
shall include protection, preservation and defense against all adverse claimants
to title or any possessory or non-possessory interest therein, whether or not
such claimants or encumbrances assert title paramount to that of Trustor or
claim their interest on the basis of events of conditions arising subsequent to
the date hereof, in connection with any such entry, Beneficiary shall consider
and treat all of Trustor's records, data, documents, technical information and
the like to be confidential and proprietary to Company.
4.9 Books and Records.
-----------------
4.9.1 Trustor will keep adequate books and records of account of the
Property sufficient to permit the preparation of financial statements therefrom
in accordance with generally accepted accounting principles, consistently
applied. Beneficiary will have the right to examine, copy, and audit Trustor's
records and books of account at all reasonable times during normal business
hours upon prior written notice to Trustor.
4.9.2 Trustor will promptly furnish, within ten (10) business days
after Beneficiary's request, a duly acknowledged written statement confirming
all amounts due on the indebtedness secured by this Deed of Trust and stating
either that no offsets or defenses exist against the obligations secured hereby,
or if such offsets or defenses are alleged to exist, the nature and amount
thereof.
4.10 Collection of Rents, Issues and Profits.
---------------------------------------
4.10.1 Beneficiary confers upon Trustor a revocable license to
collect and retain rents, issues, profits, royalties, production and other
payments and proceeds of the Property as they become due and payable; provided,
however, that Beneficiary may revoke said authority and collect and retain the
rents, issues, profits, royalties, production and other payments and proceeds of
the Property assigned herein to Beneficiary, upon the occurrence and during the
continuance of an Event of Default, and without regard to the adequacy of any
security for the indebtedness hereby secured, and without taking possession of
all or any part of the Property or becoming a "mortgagee in possession."
4.10.2 The right to collect rents, profits, royalties, production and
other payments and proceeds, as herein provided, shall not grant to Beneficiary
or Trustee the right to possession, except as expressly herein provided; nor
shall said
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right impose upon Beneficiary or Trustee the duty to produce rents or profits or
maintain the Property in whole or in part.
4.10.3 Trustor hereby agrees that it will do nothing to impair
Beneficiary's ability to collect and retain the rents, issues, profits,
royalties, production and other payments and proceeds, and interests herein
assigned and that any tenant or subtenant occupying the Property or any part
thereof may pay any and all rents or other charges directly to Beneficiary upon
notice from Beneficiary without the necessity of any notice from Trustor.
4.10.4 Beneficiary may apply, in its sole discretion, any rents,
issues, profits, royalties, production and other payments and proceeds so
collected by Beneficiary against any indebtedness secured hereby or any
obligations of Trustor arising hereunder or any other obligations of Trustor to
Beneficiary, whether existing on the date hereof or hereafter arising.
4.10.5 Collection of any rents, issues, profits, royalties,
production and other payments and proceeds by Beneficiary shall not cure or
waive any default or notice of default hereunder or invalidate any acts done
pursuant to such notice.
4.11 Right of Inspection. Beneficiary, its agents, contractors and
-------------------
employees, may enter the Property at any reasonable time upon at least 24 hours
prior written notice to Trustor for the purpose of inspecting the Property and
ascertaining Trustor's compliance with the terms hereof. In connection with any
such entry, Beneficiary shall consider and treat all of Trustor's records, data,
documents, technical information and the like to be confidential and proprietary
to Company.
4.12 Acceptance of Trust; Notice of Indemnification. Trustee accepts this
----------------------------------------------
trust when this Deed of Trust, duly executed and acknowledged, becomes a public
record as provided by law. Trustee is not obligated to notify any party hereto
of pending sale under any other deed of trust or of any action or proceeding in
which Trustor, Beneficiary or Trustee shall be a party unless Trustee brings
such action. Trustee shall not be obligated to perform any act required of it
hereunder unless the performance of such act is requested in writing and Trustee
is reasonably indemnified against loss, cost, liability and expense.
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4.13 Powers of Trustee.
-----------------
4.13.1 From time to time upon the prior written approval of
Beneficiary (which approval may be withheld in Beneficiary's sole discretion)
and without affecting the personal liability of any person for payment of any
indebtedness or performance of any obligation secured hereby, Trustee may,
without liability therefor and without notice:
4.13.1.1 reconvey all or any part of the Property;
4.13.1.2 consent to the making of any map or plat thereof;
4.13.1.3 join in granting any easement thereon;
4.13.1.4 join in any declaration of covenants and restrictions;
or
4.13.1.5 join in any extension agreement or any agreement
subordinating the lien or charge hereof .
4.13.2 Trustee or Beneficiary may from time to time apply to any
court of competent jurisdiction for aid and direction in the execution of the
trusts hereunder and the enforcement of the rights and remedies available
hereunder, and Trustee or Beneficiary may obtain orders or decrees directing or
confirming or approving acts in the execution of said trusts and the enforcement
of said remedies.
4.13.3 Trustor shall pay to Trustee reasonable compensation and
reimbursement for services and expenses in the administration of the trusts
created hereunder upon the occurrence of an Event of Default, including
reasonable attorneys' fees.
4.14 Substitution of Trustees. From time to time, by a writing signed and
------------------------
acknowledged by Beneficiary and recorded in the Office of the Recorder of the
County of Santa Barbara, Beneficiary may appoint another trustee to act in the
place and stead of Trustee or any successor. Such writing shall refer to this
Deed of Trust and set forth the date, book and page of its recordation (or
instrument number). The recordation of such instrument of substitution shall
discharge Trustee herein named and shall appoint the new trustee as the trustee
hereunder with the same effect as if originally named Trustee herein. A writing
recorded pursuant to the provisions of this Section shall be conclusive proof of
the proper substitution of such new trustee.
4.15 Reconveyance. Upon Beneficiary's written request, and upon surrender
------------
to Trustee for cancellation of this Deed of Trust
15
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and a copy of the instrument or instruments setting forth all obligations
secured hereby, Trustee shall reconvey, without warranty, the Property or that
portion thereof then held hereunder. The recitals of any matters or facts in
any reconveyance executed hereunder shall be conclusive proof of the
truthfulness thereof. To the extent permitted by law, the reconveyance may
describe the grantee as "the person or persons legally entitled thereto."
Neither Beneficiary nor Trustee shall have any duty to determine the rights of
persons claiming to be rightful grantees of any reconveyance. When the Property
has been fully reconveyed, the last such reconveyance shall operate as a
reassignment of all future rents, issues and profits of the Property to the
person or persons legally entitled thereto, unless such reconveyance expressly
provides to the contrary.
4.16 Certain Taxes. In the event of the passage, after the date of this
-------------
Deed of Trust, of any law deducting from the value of the Property for the
purpose of taxation, any lien thereon, or changing in any way the laws now in
force for the taxation of deeds of trust or debts secured by deeds of trust or
similar instruments, or the manner of the collection of any such taxes, so as to
affect this Deed of Trust, or imposing payment of the whole or any portion of
any taxes, assessments or other similar charges against the Property upon
Beneficiary, Trustor shall pay such tax or increased portion and shall agree
with Beneficiary in writing to pay, or reimburse Beneficiary for the payment of,
any such tax or increased portion thereof when thereafter levied or assessed
against the Property or any portion thereof. The obligations of Trustor under
such agreement shall be secured by this Deed of Trust.
4.17 Environmental Matters.
---------------------
4.17.1 Definitions. The following definitions apply to the
-----------
provisions of this Section 4.17:
4.17.1.1 The term "Responsible Person" shall mean Trustor, and
any other person who owns or acquires any interest in any part of the Property
or operates the Property during such time as Trustor continues to own the
Property, including but not limited to any tenants, easement holders, licensees
and other persons using or occupying the Property or any portion thereof and all
persons in transit across any part of the Property.
4.17.1.2 The term "Applicable Law" shall include, but shall not
be limited to, each statute named or referred to in Section 4.17.1.3.3 below,
and all rules and regulations thereunder, and any other local, state and/or
federal laws, rules, regulations, ordinances, or procedures, whether currently
in existence or hereafter enacted, which govern (to the extent applicable to the
Property):
16
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4.17.1.2.1 the existence, cleanup and/or remedy of
contamination on property;
4.17.1.2.2 the protection of the environment from soil,
air or water pollution, or from spilled, deposited or otherwise emplaced
contamination;
4.17.1.2.3 the emission or discharge of Hazardous
Substances into the environment;
4.17.1.2.4 the control of Hazardous Substances; or
4.17.1.2.5 the use, generation, transport, treatment,
removal or recovery of Hazardous Substances.
4.17.1.3 The term "Hazardous Substance" shall mean:
4.17.1.3.1 any oil, flammable substance, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances or any other wastes, materials or pollutants which pose a hazard to
the Property or to persons on, about, or outside of the Property or cause the
Property to be in any material violation of any Applicable Law;
4.17.1.3.2 asbestos in any form which is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment
which contain dielectric fluid containing levels of polychlorinated biphenyls,
or radon gas;
4.17.1.3.3 any chemical, material or substance defined as
or included in the definition of "waste," "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," or "toxic substances" or words of similar import under any
Applicable Law including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 USC (S)(S) 9601 et seq.;
-- ---
the Resource Conservation and Recovery Act ("RCRA"), 42 USC (S)(S) 6901 et seq.;
-- ---
the Hazardous Materials Transportation Act, 49 USC (S)(S) 1801 et seq.; the
-- ---
Federal Water Pollution Control Act, 33 USC (S)(S) 1251 et seq.; the California
-- ---
Hazardous Waste Control Law ("HWCL"), Cal. Health & Safety Code (S)(S) 25100 et
--
seq.; the Hazardous Substance Account Act ("HSAA"), Cal. Health & Safety Code
- ---
(S)(S) 25300 et seq.; the Underground Storage of Hazardous Substances Act, Cal.
-- ---
Health & Safety Code (S)(S) 25280 et seq.; the Porter-Cologne Water Quality
-- ---
Control Act (the "Porter-Cologne Act"), Cal. Water Code (S)(S) 13000 et seq.;
-- ---
the Safe Drinking Water and Toxic Enforcement Act of
17
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1986 (Proposition 65); and Title 22 of the California Code of Regulations,
Division 4, Chapter 30;
4.17.1.3.4 any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental
authority or agency or may or could pose a hazard to the health and safety of
the occupants of the Property or the owners and/or occupants of property
adjacent to or surrounding the Property, or any other person coming upon the
Property or adjacent property or otherwise; and
4.17.1.3.5 any other chemical, materials or substance which
may or could pose a hazard to the environment or any person.
4.17.2 Environmental Covenants and Representations.
-------------------------------------------
4.17.2.1 Except as set forth in the letter dated December 5,
1994, from Clayton Environmental Consultants, addressed to Mr. George Fiore (of
The CIT Group, Inc.), Trustor represents and warrants that there have not been
during the period of Trustor's ownership and, to the best of Trustor's
knowledge, information and belief after diligent inquiry, there have not been at
any other times, any activities on the Property, or portions thereof, involving,
directly or indirectly, the use, handling, generation, processing, treatment,
storage, transportation, manufacture or disposal of any Hazardous Substances in
any material violation of Applicable Law:
4.17.2.1.1 under, on or in the Property, whether contained
in soil, tanks, sumps, ponds, lagoons, barrels, cans or other containments,
structures or equipment;
4.17.2.1.2 incorporated in the buildings, structures or
improvements included in the Property, including any building material
containing asbestos; or
4.17.2.1.3 used in connection with any operations on or
in the Property.
4.17.2.2 Neither Trustor nor any other Responsible Person shall
allow any Hazardous Substances to be brought onto, installed, used, stored,
treated or disposed or transported over the Property in violation of Applicable
Law. Without limiting the generality of the foregoing, neither Trustor nor any
Responsible Person shall install, use or permit to be installed or used any
product or substance containing asbestos, urea formaldehyde foam insulation or
polychlorobiphenyls (pcb's) on the Property in violation of Applicable Law. Upon
receipt of a request to take any actions described in this Section 4.17
Beneficiary may, at its sole option, assert, withhold, consent,
18
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or condition its consent upon the provision by Trustor of insurance adequate in
the reasonable discretion of Beneficiary to cover fully and protect the
Beneficiary's interest under this Deed of Trust.
4.17.2.3 Trustor represents that all activities and conditions
on the Property are currently in compliance, in all material respects, with
Applicable Law. So long as Trustor shall own the Property, Trustor covenants and
agrees that all activities on the Property, whether conducted by any Responsible
Person or by any other person, shall at all times comply with Applicable Law, in
all material respects.
4.17.2.4 In the event that any investigation, site monitoring,
containment, clean-up, removal, restoration or other remedial work of any kind
or nature (the "Remedial Work") is necessary under any applicable local, State
or Federal law or regulation, any judicial order, or by any governmental or
nongovernmental entity or person because of, or in connection with, the current
or future presence, suspected presence, release, or suspected release of
Hazardous Substances in or about the air, soil, ground water, surface water or
soil vapor at, on, about, under or within the Property (or any portion thereof),
Trustor shall promptly (but in no event later than thirty (30) days after
written demand for performance thereof by Beneficiary (or such shorter period of
time as may be required under any applicable law, regulation, order or
agreement)), commence and thereafter diligently prosecute to completion, all
Remedial Work, regardless of whether any other person or entity is responsible
for such Remedial Work.
4.17.2.5 Trustor shall immediately take all actions necessary to
comply with laws requiring notification to government agencies concerning
Hazardous Substances and to remedy or correct any violations. Trustor shall
handle and dispose of such substances in accordance with Applicable Law. Trustor
shall take any and all actions, including institution of legal action against
third parties, necessary to obtain reimbursement or compensation from such
persons as were responsible for the presence of any Hazardous Substance on the
Property or otherwise obligated by law to bear the cost (or any portion thereof)
of such remedy. Beneficiary shall be subrogated to Trustor's rights in all such
claims.
4.17.2.6 All Remedial Work shall be performed by contractors and
under the supervision of a consulting engineer licensed in the state of
California. All costs and expenses of Remedial Work shall be paid by Trustor
(and in no event by Beneficiary), including, without limitation, Beneficiary's
reasonable attorney's fees and expenses, and costs incurred in connection with
monitoring or review of Remedial Work.
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<PAGE>
4.17.2.7 If the Trustor shall fail to timely prosecute to
completion Remedial Work, Beneficiary may, but shall in no event be required to,
cause Remedial Work to be performed and all costs and expenses thereof, or
incurred in connection therewith, shall be repaid to Beneficiary by Trustor upon
demand.
4.17.2.8 Notwithstanding anything to the contrary set forth
herein, nothing in this Deed of Trust shall:
4.17.2.8.1 impose any duty on Beneficiary to exercise
its rights under this Deed of Trust or meet any requirement under any Applicable
Law;
4.17.2.8.2 create any liability whatsoever on the part
of Beneficiary for any claims, damages or losses relating to Hazardous
Substances; or
4.17.2.8.3 impose any obligation on Beneficiary to
disclose any information concerning environmental matters related to the
Property.
4.17.2.9 Trustor shall provide Beneficiary with immediate oral
and written notice upon:
4.17.2.9.1 Trustor becoming aware of any release or
threat of release of any Hazardous Substances in violation of Applicable Law at,
on, about, under, within, or from the Property that would have a material
adverse effect on the business and financial condition of Trustor;
4.17.2.9.2 Trustor's receipt of any complaint, order,
citation or notice, whether written or oral, from (or upon the giving of any
such notice by Trustor to) any Federal, State, local or other governmental
agency or authority or any other Person in connection with any Hazardous
Substances located at, on, about, under, within, or emanating from the Property
and which, in the event of a determination adverse to Trustor, would have a
material adverse effect on the business and financial condition of Trustor; and
4.17.2.9.3 Trustor obtaining knowledge of any incurring
of material expenses by any governmental agency or authority or other Person in
connection with the assessment, containment or removal of any Hazardous
Substances located at, on, about, under, within, or emanating from the Property,
and shall promptly comply with its obligations under law with regard to such
release, complaint or expense.
4.17.2.10 Trustor shall be solely responsible for and agrees to
indemnify Beneficiary, protect and defend with counsel acceptable to Beneficiary
and hold Beneficiary harmless
20
<PAGE>
from and against any claims (including without limitation third party claims for
personal injury or real or personal property damage), suits, actions,
administrative proceedings (including without limitation informal proceedings),
judgments, damages, punitive damages, penalties, fines, costs, liabilities
(including sums paid in settlements of claims), interest or losses, attorneys'
fees (including any fees and expenses incurred in enforcing this indemnity),
consultant fees, and expert fees that arise directly or indirectly from or in
connection with the presence, suspected presence, release or suspected release
of any Hazardous Substance in, or from the Property, whether into the air, soil,
surface water or groundwater at the Property, or any other violation of
Applicable Law, or any breach of the foregoing representations and covenants.
The provisions of this Subsection 4.17 shall survive the termination and
reconveyance of this Deed of Trust.
4.17.3 Right of Entry. In addition to all rights of entry
--------------
contained in this Deed of Trust, Beneficiary shall have the right, upon 24 hours
prior written notice to Trustor, to enter and inspect the condition of the
Property from time to time during normal business hours and to conduct, or to
designate a representative of Beneficiary to conduct, at Trustor's sole expense,
such inspection, testing, environmental audit or other procedures (including,
without limitation, soil sampling and borings) that Beneficiary believes are
reasonably necessary to determine current compliance with the covenants and
representations contained herein. This provision shall not be construed to
require Beneficiary to conduct any environmental audit and Trustor acknowledges
that Beneficiary is relying on Trustor's representations with respect to
Hazardous Substances in entering into this Deed of Trust.
4.17.4 Beneficiary's Obligations. Nothing contained in this
-------------------------
Section 4.17 shall obligate Beneficiary to take any action with respect to the
Property, any Hazardous Substances thereon, or any condition or activity that is
in violation of Applicable Law, or to take any action against any person with
respect to such substances, condition or activity.
4.18 Representations and Warranties. Trustor represents and warrants to
------------------------------
the Beneficiary that no event has occurred that is an Event of Default or that
would be an Event of Default with the giving of notice or the passage of time or
both.
5. DEFAULT PROVISIONS; REMEDIES
----------------------------
5.1 Definitions. The occurrence of any one or more of the following shall
-----------
constitute an "Event of Default" hereunder:
21
<PAGE>
5.1.1 Trustor shall have failed to make any payment when due under
the Reimbursement Agreement or to perform any other obligations under the
Reimbursement Agreement;
5.1.2 Trustor shall have failed to observe or perform any term,
covenant, promise or agreement on Trustor's part to be observed or performed
under this Deed of Trust or any other document or instrument given in connection
herewith, and the same shall not have been cured or corrected within 30 days
after notice thereof is given by Beneficiary to Trustor; provided, however, that
this Section 5.1.2 shall not apply in any case specifically provided for by
another Section of this Section 5.1;
5.1.3 Any representation or warranty made by Trustor in this Deed of
Trust or any other document or instrument given in connection herewith is false
or incorrect in any material respect which would adversely affect Beneficiary as
of the date of this Deed of Trust; or
5.1.4 The holder of any junior or senior mortgage, deed of trust or
other lien on the Property, or any part thereof, (without hereby implying
Beneficiary's consent to any junior or senior mortgage, deed of trust or other
lien) institutes foreclosure or other proceedings for the enforcement of its
remedies thereunder (including, but not limited to, records a notice of default
in connection with such mortgage or deed of trust) or arranges for the
appointment of a receiver.
5.2 Rights and Remedies. At any time after the occurrence and during the
-------------------
continuance of an Event of Default, Beneficiary and Trustee shall each have the
following rights and remedies:
5.2.1 To declare all obligations secured hereby immediately due and
payable;
5.2.2 With or without notice, and without releasing Trustor from any
obligation hereunder, to cure any default of Trustor and, in connection
therewith, to enter upon the Property and to perform such acts and things as
Beneficiary or Trustee deem necessary or desirable to inspect, investigate,
assess and protect the security hereof, including without limitation of any of
its other rights: to obtain a court order to enforce Beneficiary's right to
enter and inspect the Property pursuant to California Civil Code Section 2929.5,
to which the decision of Beneficiary as to whether there exists a release or
threatened release of a Hazardous Substance onto the Property shall be deemed
reasonable and conclusive as between the parties hereto; to have a receiver
appointed pursuant to California Code of Civil Procedure 564 to enforce
Beneficiary's right to enter and inspect the Property for Hazardous Substances;
to appear in and defend
22
<PAGE>
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee hereunder; to pay, purchase, contest or
compromise any encumbrance, charge, lien or claim of lien which, in the judgment
of either Beneficiary or Trustee, is prior or superior hereto, the judgment of
Beneficiary or Trustee being conclusive as between the parties hereto; to pay
any premiums or charges with respect to insurance required to be carried
hereunder; and to employ counsel, accountants, contractors and other appropriate
persons to assist them;
5.2.3 In lieu of sale pursuant to the power of sale conferred hereby,
to commence and maintain an action or actions in any court of competent
jurisdiction to foreclose this instrument as a mortgage or to obtain specific
enforcement of the covenants of Trustor hereunder, and Trustor agrees that such
covenants shall be specifically enforceable by injunction or any other
appropriate equitable remedy;
5.2.4 Beneficiary or its employees, acting by themselves or through a
court-appointed receiver may enter upon, possess, manage, operate, dispose of
and contract to dispose of the Property or any part thereof; negotiate with
governmental authorities with respect to the Property's environmental compliance
and remedial measures; make, terminate, enforce or modify leases of the Property
upon such terms and conditions as Beneficiary deems proper; contract for goods
and services, hire agents, employees and counsel, make repairs, alterations and
improvements to the Property necessary, in Trustee's or Beneficiary's judgment,
to protect or enhance the security hereof; to incur the risks and obligations
ordinarily incurred by owners of property (without any personal obligation on
the part of the receiver); and/or to take any and all other actions which may be
necessary or desirable to comply with Trustor's obligations hereunder and under
the Reimbursement Agreement. All sums realized by Beneficiary under this
Subsection, less all costs and expenses incurred by it under this Subsection,
including attorneys' fees, and less such sums as Beneficiary deems appropriate
as a reserve to meet future expenses under this Subsection or contingent or
other future obligations of Trustor under the Reimbursement Agreement, shall be
applied on any indebtedness secured hereby in such order as Beneficiary shall
determine. Neither application of said sums to said indebtedness nor any other
action taken by Beneficiary under this Subsection shall cure or waive any Event
of Default, or notice of default hereunder or nullify the effect of any such
notice of default. Beneficiary or Trustee, or any employee or agent of
Beneficiary or Trustee, or a receiver appointed by a court, may take any action
or proceeding hereunder without regard to (i) the adequacy of the security for
the indebtedness secured hereunder, (ii) the existence of a declaration that the
indebtedness secured hereby
23
<PAGE>
has been declared immediately due and payable, or (iii) the filing of a notice
of default;
5.2.5 To execute a written notice of such Event of Default, and of
its election to cause the Property to be sold to satisfy the obligations secured
hereby Trustee shall give and record such notice as the law then requires as a
condition precedent to a Trustee's sale. When the minimum period of time
required by law after such notice has elapsed, Trustee, without notice to or
demand upon Trustor except as otherwise required by law, shall sell the Property
at the time and place of sale fixed by it in the notice of sale and in such
order as it or Beneficiary may determine, at public auction to the highest
bidder for cash, in lawful money of the United States, payable at time of sale
(the obligations hereby secured being the equivalent of cash for purposes of
said sale). If the Property consists of several lots, parcels, or items of
property, Beneficiary may: (i) designate the order in which such lots, parcels,
or items shall be offered for sale or sold, or (ii) elect to sell such lots,
parcels or items through a single sale, through two or more successive sales, or
in any other manner Beneficiary deems in its best interest. Trustor shall have
no right to direct the order in which the Property is sold. Trustee may
postpone sale of all or any portion of the Property by public announcement at
such time and place of sale, and from time to time thereafter may postpone such
sale by public announcement at such time fixed by the preceding postponement.
Trustee shall deliver to the purchaser at such sale a deed conveying the
Property or portion thereof so sold, but without any covenant or warranty,
express or implied. The recitals in such deed of any matters or facts shall be
conclusive proof of the truthfulness thereof. Any person, including Trustee,
Trustor or Beneficiary, may purchase at such sale;
In connection with any sale or sales hereunder, Beneficiary may elect
to treat any of the Property which consists of a right in action or which is
property that can be severed from the real property covered hereby or any
improvements thereon without causing structural damage thereto as if the same
were personal property or a fixture, as the case may be, and dispose of the same
in accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property or fixtures hereunder shall be
conducted in any manner permitted by the California Uniform Commercial Code.
After deducting all costs, fees and expenses of Trustee and of this
trust, including all costs of evidence of title and attorneys' fees in
connection with sale, Trustee shall apply the proceeds of sale to payment of all
sums so expended under the terms hereof not then repaid, the payment of all
other sums then
24
<PAGE>
secured hereby, and the remainder, if any, to the person or persons legally
entitled thereto;
5.2.6 To resort to and realize upon the security hereunder and any
other security now or hereafter held by Beneficiary in such order and manner as
Trustee and Beneficiary or either of them may, in their sole discretion,
determine; and resort to any or all such security may be taken concurrently or
successively and in one or several consolidated or independent judicial actions
or lawfully taken non-judicial proceedings, or both;
5.2.7 As a matter of right, and without notice to Trustor or anyone
claiming under Trustor and without regard to the adequacy of its security or the
then value of the Property or the interest of Trustor therein, apply to any
court having jurisdiction to appoint a receiver or receivers of the Property and
Trustor hereby irrevocably consents to such appointment and waives notice of any
application therefor. Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all of the powers of
the Beneficiary provided for in Section 5.2.4 above, and shall continue as a
receiver and exercise all such powers until the date of confirmation of sale of
the Property unless such receivership is sooner terminated by the Beneficiary in
its sole discretion;
5.2.8 To collect interest on all past due sums at the Default Rate;
5.2.9 To seek a judgment that Trustor has breached its covenants,
representations and/or warranties with respect to the environmental matters set
forth above in Section 4.17, by commencing and maintaining an action or actions
in any court of competent jurisdiction for breach of contract pursuant to
California Civil Procedure Code Section 736, whether commenced prior to
foreclosure of the Property or after foreclosure of the Property, and to seek
the recovery of any and all costs, damages, expenses, fees, penalties, fines,
judgments, indemnification payments to third parties, and other out-of-pocket
costs or expenses actually incurred by Beneficiary (collectively, the
"Environmental Costs") incurred or advanced by Beneficiary relating to the
cleanup, remediation or other response action required by Applicable Law or to
which Beneficiary believes necessary to protect the Property, it being
conclusively presumed between Beneficiary and Trustor that all such
Environmental Costs incurred or advanced by Beneficiary relating to the cleanup,
remediation or other response action of or to the Property were made by
Beneficiary in good faith. All Environmental Costs incurred by Beneficiary
pursuant to this Subsection (including without limitation court costs,
consultants' fees and attorneys' fees, whether incurred in litigation or not and
whether before or
25
<PAGE>
after judgment) shall bear interest at the Default Rate from the date of
expenditure until said sums have been paid. Beneficiary shall be entitled to
bid, at the sale of the Property held pursuant to Subsection 5.2.5 above, the
amount of said costs, expenses and interest in addition to the amount of the
other obligations hereby secured as a credit bid, the equivalent of cash.
Trustor acknowledges and agrees that notwithstanding any term or provision
contained herein, the Environmental Costs shall be exceptions to any non-
recourse, exculpatory provision or limitation of liability (if any) and Trustor
shall be fully and personally liable for the Environmental Costs hereunder and
such liability shall not be limited to the original principal amount of the
obligations secured by this Deed of Trust and Trustor's obligations shall
survive the foreclosure, deed in lieu of foreclosure, release, reconveyance or
any other transfer of the Property or this Deed of Trust. For the purposes of
any action brought under this Subsection, Trustor hereby waives the defense of
laches and any applicable statute of limitations; and
5.2.10 To waive its lien against the Property or any portion thereof,
whether fixtures or personal property, to the extent such property is found to
be environmentally impaired in accordance with California Code of Civil
Procedure 726.5 and to exercise any and all rights and remedies of an unsecured
creditor against Trustor and all of Trustor's assets and property for the
recovery of any deficiency and Environmental Costs, including, but not limited
to, seeking an attachment order pursuant to California Code of Civil Procedure
Section 483.010. Trustor acknowledges and agrees that notwithstanding any term
or provision contained herein or in the Reimbursement Agreement, all judgments
and awards entered against Trustor shall be exceptions to any non-recourse,
exculpatory, or limitation of liability provision (if any) and Trustor shall be
fully and personally liable for all judgments and awards entered against Trustor
hereunder and such liability shall not be limited to the original principal
amount of the obligations secured by this Deed of Trust and Trustor's
obligations shall survive the foreclosure, deed in lieu of foreclosure, release,
reconveyance or any other transfer of the Property or this Deed of Trust. For
the purposes of any action brought under this Subsection, Trustor hereby waives
the defense of laches and any applicable statute of limitations.
5.3 Payment of Costs, Expenses and Attorneys' Fees.
----------------------------------------------
5.3.1 All costs and expenses incurred by Trustee and Beneficiary
pursuant to Section 5.2 (including without limitation court costs, consultants'
fees and attorneys' fees, whether incurred in litigation or not and whether
before or after judgment) shall bear interest at the Default Rate, from the date
of expenditure until said sums have been paid.
26
<PAGE>
5.3.2 Beneficiary shall be entitled to bid, at the sale of the
Property held pursuant to Subsection 5.2.5 above, the amount of said costs,
expenses and interest in addition to the amount of the other obligations hereby
secured as a credit bid, the equivalent of cash.
5.4 Remedies Cumulative. No remedy conferred upon or reserved to Trustee
-------------------
or the Beneficiary by this Deed of Trust or the Reimbursement Agreement is
intended to be exclusive of any other remedy, but each shall be cumulative and
shall be in addition to every other remedy given by this Deed of Trust or the
Reimbursement Agreement or now or hereafter existing at law or in equity or by
statute. Every power or remedy given by this Deed of Trust or the Reimbursement
Agreement to Trustee or the Beneficiary or to which either of them may be
otherwise entitled, may be exercised, concurrently or independently, from time
to time and as often as may be deemed expedient by Trustee or the Beneficiary,
and either or both of them may pursue inconsistent remedies.
5.5 Releases, Extensions, Modifications and Additional Security. Without
-----------------------------------------------------------
affecting the liability of any person for payment of any indebtedness secured
hereby, or the lien or priority of this Deed of Trust upon the Property,
Beneficiary may, from time to time, with or without notice, do one or more of
the following: release any person's liability for the payment of an
indebtedness secured hereby, make any agreement or take any action extending the
maturity or otherwise altering the terms or increasing the amount of any
indebtedness secured hereby, and accept additional security or release all or a
portion of the Property and/or other security held to secure the indebtedness
secured hereby.
5.6 Other Security. Trustor hereby waives any right to require that any
--------------
security given hereunder or under any other agreement securing the obligation
secured hereby be marshalled and further waives any right otherwise available in
respect to marshalling of assets which secure any obligation secured or imposed
hereby or to require Beneficiary to pursue its remedies against any such assets.
Trustee and the Beneficiary, and each of them, shall be entitled to enforce
payment and performance of any obligations secured hereby and to exercise any
rights and powers under the Reimbursement Agreement or any laws now hereafter
enforced, notwithstanding that some or all of said obligations secured hereby
may now or hereafter be otherwise secured, whether by mortgage, deed of trust,
pledge, lien, assignment or otherwise. Neither the acceptance of this Deed of
Trust nor its enforcement, whether by court action or pursuant to the power of
sale or other powers herein contained, shall prejudice or in any manner effect
Trustee's or Beneficiary's right to realize upon or enforce any other security
now or
27
<PAGE>
hereafter held by Trustee or the Beneficiary, it being agreed that Trustee and
the Beneficiary, and each of the them, shall be entitled to enforce this Deed of
Trust and any other security now or hereafter held by Beneficiary or Trustee in
such order and manner as they or either of them may in their absolute discretion
determine.
6. FIXTURE FILING
--------------
6.1 Fixture Filing. Pursuant to Uniform Commercial Code Sections 9313 and
--------------
9402 as amended and recodified from time to time, this Deed of Trust shall
constitute a Fixture Filing recorded in the real estate records. Trustor is
sometimes referred to herein as "Debtor" and Beneficiary is sometimes referred
to herein as "Secured Party."
6.2 Description of Collateral. The following items and types of
-------------------------
collateral constitute the "Collateral" for purposes of this Deed of Trust: all
fixtures of every kind, that are affixed to and are deemed a part of the land or
Improvements, in which Debtor now or at any time hereafter owns or acquires any
interest in connection with the Property, including without limitation all
heating, ventilating and air conditioning systems, plumbing, mechanical and
electrical systems, elevators, lighting, alarm systems, fire control systems,
carpets and carpeting, trailers, mobile homes, and all additions and accessions
thereto, whether located at the Property.
6.3 Relation of Fixture Filing To Deed of Trust: Some or all of the
-------------------------------------------
Collateral described in Section 6.2 above may be or become a fixture in which
Beneficiary has a security interest under a separate security agreement or
agreements (the "Separate Agreements"). However, nothing herein shall be deemed
to create any lien or interest in favor of the Trustee under this Deed of Trust
in any accounts, general intangibles or inventory, or any such Collateral or
other personal property which is not a fixture, and the purpose of this Section
6 is to create a fixture filing under UCC Sections 9313 and 9402. The rights,
remedies and interests of Beneficiary under this Deed of Trust and any Separate
Agreement are independent and cumulative, and there shall be no merger of any
lien hereunder with any security interest created by any Separate Agreement.
Beneficiary may elect to exercise or enforce any of its rights, remedies, or
interests under either or both this Deed of Trust or any Separate Agreements or
Agreements as Beneficiary may from time to time deem appropriate.
6.4 Limitations. Beneficiary has not consented to any other security
-----------
interest of any other person in any fixtures and has not disclaimed any interest
in any fixtures, and Beneficiary has not agreed or consented to the removal of
any fixtures from
28
<PAGE>
the Land or Improvements, and any such consent by Trustor shall not be binding
on Beneficiary.
6.5 Removal. Notwithstanding any other provision of this Deed of Trust or
-------
any other agreement or contract between Trustor and Beneficiary to the contrary,
Trustor shall not, without the prior written consent of Beneficiary, remove or
permit the removal of any fixture from the Land or Improvements with a
replacement cost in excess of Ten Thousand Dollars ($10,000) for any one item or
Fifty Thousand Dollars ($50,000) in the aggregate of all such fixtures removed
from the date of execution hereof until the date this Deed of Trust is
reconveyed, except for fixtures removed and replaced in the ordinary course of
business. The Trustor shall provide a written certification to the Beneficiary
of such replacement cost and the Beneficiary may conclusively rely on such
certification. Beneficiary further reserves the right to prohibit the removal
of any such fixture by any person with the legal right to remove any fixture
from the Property unless and until such person makes arrangements with (and
satisfactory to) Beneficiary for the payment to Beneficiary of all costs of
repairing any physical injury to the Property which may be caused by the removal
of that fixture. Any such payment shall be made directly to Beneficiary, and
Beneficiary may hold such payment as additional collateral under this Deed of
Trust or may apply such payment to any indebtedness secured hereby pursuant to
Section 9502 of the Uniform Commercial Code or otherwise. Failure by Trustor to
cause the delivery to Beneficiary of any such payment shall constitute both
waste under (and a breach of) this Deed of Trust and conversion of Collateral.
7. MISCELLANEOUS PROVISIONS
------------------------
7.1 Non-Waiver.
----------
7.1.1 All waivers of rights, powers and remedies by Trustor or
Beneficiary must be in writing. No delay, omission or failure by the Beneficiary
or the Trustee to exercise any right, power or remedy to which it may be
entitled by reason of any Event of Default shall impair any such right, power or
remedy, nor shall such be construed as a release by the Beneficiary or the
Trustee of such right, power or remedy or as a waiver of or acquiescence in any
such Event of Default. Any waiver by the Beneficiary of any right, power or
remedy in any one instance shall not constitute a waiver of the same or any
other right, power or remedy in any other instance.
7.1.2 The acceptance by the Beneficiary of any sum after any default
under this Deed of Trust shall not constitute a waiver of the right either to
declare a default or to require prompt performance of all of the covenants and
conditions
29
<PAGE>
contained in the Reimbursement Agreement or this Deed of Trust. The acceptance
by the Beneficiary of any sum less than the sum then due shall be deemed an
acceptance on account only and shall not constitute a waiver of the obligation
of Trustor to pay the entire sum then due, and Trustor's failure to pay said
entire sum due shall be and continue to be an Event of Default notwithstanding
such acceptance of such lesser amount on account, and the Beneficiary or Trustee
shall be entitled at all times thereafter to exercise all rights in this
instrument conferred upon them, or either of them, notwithstanding the
acceptance by the Beneficiary thereafter of further sums, whether on account or
otherwise. The right to proceed with a sale under any notice of default and
election to sell shall in no way be impaired (except to the extent required by
law) by the acceptance of any past due sum or portion thereof, whether such
amounts are received prior or subsequent to such notice.
7.1.3 Without affecting the personal liability of any person,
corporation or other entity for the payment of the indebtedness secured hereby,
and without in anyway impairing or affecting the lien of this Deed of Trust or
the priority hereof or improving the position of any subordinate lienholder with
respect to the Property, or if part of the Property has been released from the
lien hereof, with respect to the remainder thereof, and without being
accountable for so doing to any other lienor, the Beneficiary, in its sole
discretion, may:
7.1.3.1 allow Trustor any indulgences, forbearances or
extensions of any kind, respecting obligations secured hereby;
7.1.3.2 release for such consideration, or none, as it may
require, any portion of the Property; or
7.1.3.3 accept the assignment or pledge of any other property in
addition to or in place of the Property or any part thereof as security or
accept or release any guaranty relating to the indebtedness secured by this Deed
of Trust.
7.2 Further Assurances. Trustor shall, upon demand by Beneficiary or
------------------
Trustee, execute, acknowledge (if appropriate) and deliver any and all documents
and instruments and do or cause to be done all further acts reasonably necessary
or appropriate to effectuate the provisions hereof, including but not limited to
the execution of any further documents and instruments deemed necessary by the
Beneficiary to establish, confirm, maintain and continue:
7.2.1 all liens created or intended to be created pursuant hereto;
30
<PAGE>
7.2.2 all assignments made or intended to be made in connection
herewith; and
7.2.3 all other rights and benefits conferred or intended to be
conferred on the Beneficiary hereby.
7.3 Statements of Condition. From time to time as required by law,
-----------------------
Beneficiary shall furnish to Trustor such statement as may be required
concerning the condition of the obligations secured hereby. Upon demand by
Beneficiary, Trustor covenants and agrees to pay Beneficiary's reasonable costs
incurred in furnishing such statement, but not in excess of the maximum amount
allowed by law.
7.4 Usury Savings Clause. It is the intent of Trustor and the Beneficiary
--------------------
in connection with this Deed of Trust and the Reimbursement Agreement to
contract in strict compliance with the usury laws of the state in which the Land
is located. Nothing contained herein or in the Reimbursement Agreement shall be
deemed to require the payment of interest or other charges by Trustor in excess
of the amounts that may be lawfully charged to the Trustor pursuant to this Deed
of Trust or the Reimbursement Agreement or under the applicable usury laws. In
the event Beneficiary shall collect monies which are deemed to constitute
interest which would increase the effective interest rate to a rate in excess of
that permitted to be charged by applicable law, all such sums deemed to
constitute interest in excess of the legal rate shall, upon such determination,
at the option of Beneficiary, be returned to Trustor or credited against the
principal balance of any obligation secured hereby then outstanding. The
provisions of this Section 7.4 shall control over all other provisions of the
Reimbursement Agreement which may be in conflict herewith.
7.5 Attorneys' Fees. If any party to this Deed of Trust shall bring any
---------------
action or proceeding for any relief against the other, declaratory or otherwise,
arising out of this Deed of Trust, the losing party shall pay to the prevailing
party a reasonable sum for attorney fees and costs incurred in bringing or
defending such action or proceeding and/or enforcing any judgment granted
therein, all of which shall be paid whether or not such action or proceeding is
prosecuted to final judgment. Any judgment or order entered in such action or
proceeding shall contain a specific provision providing for the recovery of
attorney fees and costs, separate from the judgment, incurred in enforcing such
judgment. The prevailing party shall be determined by the trier of fact based
upon an assessment of which party's major arguments or positions taken in the
proceedings could fairly be said to have prevailed over the other party's major
arguments or positions on major disputed issues. For the purposes of this
Section, attorney fees shall include, without
31
<PAGE>
limitation, fees incurred in the following: (1) post-judgment motions; (2)
contempt proceedings; (3) garnishment, levy, and debtor and third party
examinations; (4) discovery; and (5) bankruptcy litigation. This Section is
intended to be expressly severable from the other provisions of this Deed of
Trust, is intended to survive any judgment and is not to be deemed merged into
the judgment.
7.6 Obligations of Trustor Joint and Several. If more than one person has
----------------------------------------
executed this Deed of Trust as "Trustor," the obligations of all such persons
hereunder shall be joint and several.
7.7 Trustor and Beneficiary Defined. The term "Trustor" herein includes
-------------------------------
both the original Trustor and any subsequent owner or owners of any of the
Property, and the term "Beneficiary" includes the original Beneficiary and also
any subsequent duly appointed beneficiary.
7.8 Relationship of Trustor and Beneficiary.
---------------------------------------
7.8.1 The relationship of Trustor and Beneficiary under this Deed of
Trust and the Reimbursement Agreement is, and shall at all times remain, solely
that of debtor and creditor.
7.8.2 The Beneficiary neither undertakes nor assumes any
responsibility or duty to Trustor or to any third party with respect to the
Property. Notwithstanding any other provisions of this Deed of Trust and the
Reimbursement Agreement:
7.8.2.1 the activities of Beneficiary in connection with this
Deed of Trust and the Reimbursement Agreement shall not be "outside the scope of
the activities of a lender of money" within the meaning of California Civil Code
Section 3434, as amended or recodified from time to time, and Beneficiary does
not intend to ever assume any responsibility to any person for the quality,
suitability, safety or condition of the Property; and
7.8.2.2 Beneficiary shall not be deemed responsible for or a
participant in any acts, omissions or decisions of Trustor.
7.8.3 Beneficiary shall not be directly or indirectly liable or
responsible for any loss, claim, cause of action, liability, indebtedness,
damage or injury of any kind or character to any person or property arising from
any construction on, or occupancy or use of, any of the Property, whether caused
by or arising from:
32
<PAGE>
7.8.3.1 any defect in any building, structure, grading, fill,
landscaping or other improvements thereon or in any on-site or off-site
improvement or other facility therein or thereon;
7.8.3.2 any act or omission of Trustor or any of Trustor's
agents, employees, independent contractors, licensees or invitees;
7.8.3.3 any accident in or on any of the Property or any fire,
flood or other casualty or hazard thereon;
7.8.3.4 the failure of Trustor, any of Trustor's licensees,
employees, invitees, agents, independent contractors or other representatives to
maintain the Property in a safe condition; and
7.8.3.5 any nuisance made or suffered on any part of the
Property.
7.9 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. Specific
enumeration of rights, powers and remedies of Trustee and Beneficiary and of
acts which they may do and acts Trustor must or must not do shall not exclude or
limit the general. The headings of each Section are for information and
convenience and do not limit or construe the contents of any provision hereof.
7.10 Severability. Any provision in this Deed of Trust that is
------------
inoperative, unenforceable or invalid shall be ineffective, but only to the
extent required by law. The remaining provisions hereof shall be construed as
if the ineffective provision or provisions, to the extent they are ineffective,
were omitted. If the lien of this Deed of Trust is invalid or unenforceable as
to any part of the obligations secured hereby, or if said lien is invalid or
unenforceable as to any part of the Property, the unsecured or partially secured
portion of such obligations shall be completely paid prior to the payment of the
remaining secured or partially secured portion of such obligations, and all
payments made on such obligations, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of such obligations
which are not secured or fully secured by the lien of this Deed of Trust.
7.11 Successors in Interest. This Deed of Trust applies to, inures to the
----------------------
benefit of, and binds all parties hereto, their heirs, legatees, devisees,
administrators, executors, successors, and assigns.
33
<PAGE>
7.12 Notices. All notices, approvals, consents, requests, demands or
-------
documents which are required or permitted to be given or served hereunder shall
be in writing and sent by hand delivery, recognized overnight courier, or
registered or certified mail, return receipt requested, addressed as follows:
To Beneficiary:
HITACHI METALS, LTD.
2-1-2 Marunouchi
Chiyoda-Ku, Tokyo, Japan
Attention: Chief Executive Officer
To Trustor:
APPLIED MAGNETICS CORPORATION
75 Robin Hill Road
Goleta, California 93117
Attention: General Counsel
The addresses may be changed from time to time by either party by serving notice
as heretofore provided. Service of such notice or demand shall be deemed
complete on the date of actual delivery, as shown by the addressee's registry or
certification receipt, or at the expiration of the third day after the date of
mailing, whichever is earlier in time.
7.13 Beneficiary's Right to Perform. If Trustor fails to make any payment
------------------------------
or perform any act required by this Deed of Trust or by any junior, subordinated
or senior deed of trust or other lien on the Property (without hereby implying
the Beneficiary's consent to any such lien or encumbrance), then, at any time
thereafter, and without waiving or releasing any obligation or default,
Beneficiary may make such payment or perform such act for the account and at the
expense of Trustor and shall have the right to enter the Property for such
purpose and to take all such action thereon and with respect to the Property as
may be necessary or appropriate for such purpose. Notwithstanding anything to
the contrary in this Deed of Trust, Beneficiary shall have no obligation to do
anything set out in this Section. Beneficiary shall be entitled to interest on
all sums so paid by Beneficiary and all costs and expenses so incurred from the
date paid by Beneficiary until reimbursed in full by Trustor at the Default
Rate. All sums so paid by Beneficiary, all costs and expenses so incurred and
interest thereon shall be paid by Trustor to Beneficiary on demand. If
Beneficiary shall elect to pay any tax, assessment, levy or charge mentioned in
Section 4.2 of this Deed of Trust, Beneficiary may do so in reliance on any
bill, statement or
34
<PAGE>
assessment procured from the appropriate public or nonpublic office, without
inquiring into the accuracy thereof or into the validity of such tax,
assessment, levy or charge. Similarly, in making any payments to protect the
security interests intended to be created by this Deed of Trust, Beneficiary
shall not be bound to inquire into the validity of any apparent or threatened
adverse title, lien, encumbrance, claim or charge before making an advance for
the purpose of preventing or removing the same.
7.14 Releases or Reconveyances. Without affecting the liability of any
-------------------------
other person liable for the payment of any obligation herein mentioned, and
without affecting the lien or charge of this Deed of Trust upon any property not
then or theretofore released as security for the full amount of all unpaid
obligations, the Trustee may, upon written request by the Beneficiary, from time
to time, and with notice to the Trustor, release any person other than the
Trustor so liable, extend the maturity or alter any of the terms of any such
obligation, or grant other indulgences, release or reconvey, or cause to be
released or reconveyed, any portion or all of the Property, release any other or
additional security for any obligation herein mentioned, or make compositions or
other arrangements with debtors in relation thereto; and if the Trustee at any
time holds any additional security for any obligations secured hereby, it may
enforce the sale thereof or otherwise realize upon the same at its option,
either before or concurrently herewith or after a sale is made hereunder.
7.15 Transfer of Property. In the event of the sale or transfer by
--------------------
operation of law or otherwise of all or any part of, or any interest in, the
Property, the Beneficiary is hereby authorized and empowered (a) to deal with
such vendee or transferee with reference to the Property and the obligations
secured hereby, or with reference to any of the terms and conditions hereof, as
fully and to the same extent as it might do with the original parties hereto and
without in any way releasing or discharging any of the liabilities or
undertakings hereunder; (b) to retain any sum received by or deposited with the
Beneficiary pursuant hereto and to disburse and apply such sums for the purposes
permitted by this Deed of Trust, Trustor hereby waiving all claims and rights in
such sums. The covenants in this Deed of Trust shall run with the land. This
Section 7.15 shall in no way constitute a consent by Beneficiary to any
conveyance of the property or any portion thereof.
7.16 Indemnification and Waiver.
--------------------------
7.16.1 Trustor agrees to exonerate, protect, indemnify and defend the
Beneficiary and the Trustee from, and save them harmless against, any and all
liability, expenses (including, without limitation, attorneys' fees and
expenses), or
35
<PAGE>
damage of any kind or nature and from any suits, claims and demands, or on
account of any matter or thing, whether in suit or not, arising out of this Deed
of Trust or the Reimbursement Agreement or in connection therewith, including,
without limitation, disputes between Trustor and any materialman, supplier,
contractor, subcontractor, purchaser, broker, municipal or public authority, or
lessee.
7.16.2 Trustor waives any and all right to claim or recover against
Beneficiary, its officers, employees, attorneys, agents and representatives for
loss of or damage to Trustor, the Property, Trustor's other property or the
property of others under Trustor's control from any cause.
7.16.3 All sums payable by Trustor hereunder shall be paid without
notice, demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected by reason of: (i) any damage to or destruction of or any
condemnation or similar taking of the Property or any part thereof; (ii) any
restriction or prevention of or interference with any use of the Property or any
part thereof; (iii) any title defect or encumbrance or any eviction from the
Property or any part thereof by title paramount or otherwise; (iv) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Beneficiary, or any action
taken with respect to this Deed of Trust by any trustee or receiver of the
Beneficiary, or by any court, in any such proceeding; (v) any claim which
Trustor has or might have against the Beneficiary; (vi) any default or failure
on the part of the Beneficiary to perform or comply with any of the terms hereof
or of any other agreement with Trustor; or (vii) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing; all whether or not
Trustor shall have notice or knowledge of any of the foregoing. Except as
expressly provided herein, Trustor waives all rights now or hereafter conferred
by statute or otherwise to any abatement, suspension, deferment, diminution or
reduction of any obligations secured hereby.
7.17 Governing Law. This Deed of Trust shall be governed by and construed
-------------
in accordance with the laws of the state in which the Property is located.
7.18 Waivers Respecting the Property. Trustor hereby waives and
-------------------------------
relinquishes the benefits of any present or future laws:
7.18.1 exempting the Property, or any part of the proceeds arising
from any sale thereof, from attachment, levy or sale on execution; and/or
36
<PAGE>
7.18.2 staying execution or other process; and/or
7.18.3 requiring valuation or appraisement of the Property.
7.19 Time of Essence. Time is of the essence of this Deed of Trust, and
---------------
any delay in the performance of any of the terms, covenants and conditions
hereof shall be deemed a breach of the whole of this Deed of Trust.
7.20 VENUE; JURISDICTION; JURY TRIAL WAIVER. TO INDUCE BENEFICIARY TO
--------------------------------------
ACCEPT THIS DEED OF TRUST, TRUSTOR IRREVOCABLY AGREES THAT, SUBJECT TO
BENEFICIARY'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY,
MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS DEED OF TRUST, THE
REIMBURSEMENT AGREEMENT, OR THE PROPERTY SHALL BE LITIGATED IN COURTS HAVING
SITUS WITHIN THE COUNTY OF SANTA BARBARA, STATE OF CALIFORNIA. TRUSTOR HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED WITHIN SAID COUNTY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON TRUSTOR, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL DIRECTED TO TRUSTOR AT THE ADDRESS STATED ABOVE AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
TRUSTOR AND BENEFICIARY EACH WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (i) UNDER THIS DEED OF
TRUST, THE REIMBURSEMENT AGREEMENT, OR ANY RELATED AGREEMENT OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM ANY LENDING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS DEED OF
37
<PAGE>
TRUST OR THE REIMBURSEMENT AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust on the day and year
set forth above.
TRUSTOR PLEASE NOTE: IN THE EVENT OF YOUR DEFAULT, CALIFORNIA
PROCEDURE PERMITS THE TRUSTEE TO SELL THE SUBJECT PROPERTY AT A SALE HELD
WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY LAW.
UNLESS YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE ENTITLED
TO OTHER NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS. BY EXECUTION OF THIS
DEED OF TRUST, YOU CONSENT TO SUCH PROCEDURE. IF YOU HAVE ANY QUESTIONS
CONCERNING IT, YOU SHOULD CONSULT YOUR LEGAL ADVISOR. BENEFICIARY URGES YOU TO
GIVE IT PROMPT NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE
PROMPTLY ANY NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST.
TRUSTOR:
APPLIED MAGNETICS CORPORATION,
a Delaware corporation
By_________________________________
Its:_______________________________
Title:_____________________________
38
<PAGE>
EXHIBIT A
---------
REAL PROPERTY DESCRIPTION
-------------------------
The land referred to herein is situated in the State of California, County of
Santa Barbara, and is described as follows:
1
<PAGE>
STATE OF CALIFORNIA }
}ss.
COUNTY OF }
On March _____, 1995, before me, _________________________________, personally
appeared ____________________________________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s) or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________________________ (This area for
official notarial seal)
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1995 and the Consolidated Statement
of Operations for the six months ended as of March 31, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> SEP-30-1994
<PERIOD-END> MAR-31-1995
<CASH> $ 33,984
<SECURITIES> 0
<RECEIVABLES> 25,155
<ALLOWANCES> 0
<INVENTORY> 25,988
<CURRENT-ASSETS> 98,002
<PP&E> 255,998
<DEPRECIATION> (152,188)
<TOTAL-ASSETS> 219,459
<CURRENT-LIABILITIES> 127,513
<BONDS> 0
<COMMON> 2,219
0
0
<OTHER-SE> 85,739
<TOTAL-LIABILITY-AND-EQUITY> 219,459
<SALES> 120,292
<TOTAL-REVENUES> 120,292
<CGS> 113,305
<TOTAL-COSTS> 113,305
<OTHER-EXPENSES> 21,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,080)
<INCOME-PRETAX> (14,006)
<INCOME-TAX> 399
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,405)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
