<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 26, 2000
Commission File No. 0-12933
LAM RESEARCH CORPORATION
(Exact name of Registrant, as specified in its charter)
DELAWARE 94-2634797
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4650 CUSHING PARKWAY, FREMONT, CALIFORNIA 94538
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 572-0200
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of March 26, 2000 there were 124,411,008 shares of Registrant's Common Stock
outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION .................................................... 3
Item 1. Financial Statements (unaudited).......................................... 3
Condensed Consolidated Balance Sheets................................ 3
Condensed Consolidated Statements of Operations...................... 4
Condensed Consolidated Statements of Cash Flows...................... 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 15
Results of Operations................................................ 15
Liquidity and Capital Resources...................................... 21
Risk Factors......................................................... 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 31
PART II. OTHER INFORMATION......................................................... 32
Item 1. Legal Proceedings......................................................... 32
Item 4. Submission of Matters to Vote of Security Holders ........................ 33
Item 6. Exhibits and Reports on Form 8-K.......................................... 33
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 26,
2000 June 30,
(unaudited) 1999
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 27,296 $ 37,965
Short-term investments 294,182 273,836
Accounts receivable, net 306,680 170,531
Inventories 217,145 183,716
Prepaid expenses and other assets 26,051 17,177
Deferred income taxes 55,645 55,645
----------- -----------
Total Current Assets 926,999 738,870
Equipment and leasehold improvements, net 115,303 103,337
Restricted cash 60,348 60,348
Deferred income taxes 51,745 51,745
Other assets 30,953 25,151
----------- -----------
Total Assets $ 1,185,348 $ 979,451
=========== ===========
Liabilities and Stockholders' Equity
Trade accounts payable $ 47,462 $ 51,216
Accrued expenses and other
current liabilities 229,534 172,213
Current portion of long-term debt and
capital lease obligations 7,644 20,566
----------- -----------
Total Current Liabilities 284,640 243,995
Long-term debt and capital lease
obligations, less current portion 323,057 326,500
----------- -----------
Total Liabilities 607,697 570,495
Preferred stock: 5,000 shares authorized;
none outstanding
Common Stock, at par value of $0.001 per share
Authorized -- 400,000 shares; issued and outstanding
124,411 shares at March 26, 2000 and 116,535 shares
at June 30, 1999 124 117
Additional paid-in capital 427,895 388,868
Treasury stock -- (8,429)
Accumulated other comprehensive loss (7,605) (432)
Retained earnings 157,237 28,832
----------- -----------
Total Stockholders' Equity 577,651 408,956
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,185,348 $ 979,451
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
March 26, March 31, March 26, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenue $ 326,349 $ 152,976 $ 856,551 $ 437,070
Costs and expenses:
Cost of goods sold - on net sales 182,212 98,674 485,927 285,520
Cost of goods sold -
on restructuring charge (recovery) (849) -- (849) --
--------- --------- --------- ---------
Gross margin 144,986 54,302 371,473 151,550
Research and development 45,881 35,751 125,429 104,857
Selling, general and administrative 41,147 33,175 113,647 112,589
Restructuring charge (recovery) (18,083) -- (18,083) 53,372
Purchased technology for
research and development -- -- 7,460 5,000
--------- --------- --------- ---------
Operating income (loss) 76,041 (14,624) 143,020 (124,268)
Other income (expense), net 1,883 (100) 5,013 6
--------- --------- --------- ---------
Income (loss) before taxes 77,924 (14,724) 148,033 (124,262)
Income tax expense 10,909 -- 19,628 --
--------- --------- --------- ---------
Net income (loss) $ 67,015 $ (14,724) $ 128,405 $(124,262)
========= ========= ========= =========
Net income (loss) per share
Basic $ 0.55 $ (0.13) $ 1.07 $ (1.08)
========= ========= ========= =========
Diluted $ 0.48 $ (0.13) $ 0.97 $ (1.08)
========= ========= ========= =========
Number of shares used in
per share calculations
Basic 122,646 116,022 119,747 115,290
========= ========= ========= =========
Diluted 145,931 116,022 131,752 115,290
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
March 26, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 128,405 $ (124,262)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 33,822 38,997
Restructuring charge (recovery) (18,932) 34,141
Purchased technology for research and
development expense 7,460 5,000
Change in certain working capital
accounts (112,346) (9,314)
----------- -----------
Net cash provided by (used in) operating
activities 38,409 (55,438)
Cash flows from investing activities:
Capital expenditures, net (38,970) (25,376)
Purchase of short-term investments (1,805,611) (2,691,166)
Sale/maturities of short-term investments 1,785,265 2,845,050
Cash paid for acquisition of technology
for research and development (6,460) (3,000)
Other (5,414) 3,163
----------- -----------
Net cash provided by (used in) investing activities (71,190) 128,671
----------- -----------
Cash flows from financing activities:
Treasury stock repurchase (5,146) (13,216)
Reissuance of treasury stock 13,575 --
Sale of stock, net of issuance costs 39,034 10,780
Principal payments on long-term debt
and capital lease obligations (26,863) (22,676)
Net proceeds from the issuance of short and
long term debt 8,685 12,076
Foreign currency translation adjustment (7,173) (657)
----------- -----------
Net cash provided by (used in) financing activities 22,112 (13,693)
----------- -----------
Net increase (decrease) in cash and
cash equivalents (10,669) 59,540
Cash and cash equivalents at beginning of period 37,965 13,509
----------- -----------
Cash and cash equivalents at end of period $ 27,296 $ 73,049
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 26, 2000
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of Lam Research Corporation (the "Company" or
"Lam") for the fiscal year ended June 30, 1999, which are included in the Annual
Report on Form 10-K, File Number 0-12933.
Effective fiscal year 2000, the Company changed its reporting period to
a fifty-two/fifty-three week fiscal year. The Company's fiscal year end will
fall on the last Sunday of June each year. The Company's current fiscal year
will end on June 25, 2000. Adoption of the change in fiscal year is not expected
to have a material impact on the Company's consolidated financial statements.
NOTE B -- RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements of all public registrants. Changes
in the Company's revenue recognition policy resulting from the interpretation of
SAB 101 would be reported as a change in accounting principle. The change in the
revenue recognition policy would result in a cumulative adjustment in the
quarter the Company adopts SAB 101. The Company is still in the process of
assessing the impact of SAB 101 on its financial statements.
NOTE C -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 26, June 30,
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Raw materials $150,947 $123,311
Work-in-process 56,300 44,181
Finished goods 9,898 16,224
-------- --------
$217,145 $183,716
======== ========
</TABLE>
6
<PAGE> 7
NOTE D -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
March 26, June 30,
2000 1999
--------- ---------
(in thousands)
<S> <C> <C>
Equipment $ 107,801 $ 93,112
Leasehold improvements 106,274 90,902
Furniture & fixtures 50,872 45,427
--------- ---------
264,947 229,441
Accumulated depreciation and amortization (149,644) (126,104)
--------- ---------
$ 115,303 $ 103,337
========= =========
</TABLE>
NOTE E -- STOCKHOLDERS' EQUITY
On March 6, 2000, the Company held a special stockholders' meeting. At
the meeting, the Company's stockholders approved an increase in the number of
authorized shares of the Company's Common Stock from 90 million to 400 million
shares and approved a three-for-one stock split of its outstanding shares of
Common Stock. Stockholders' approval of the amendment to the Company's
Certificate of Incorporation satisfies the condition for the previously
announced three-for-one stock split approved by Lam's Board of Directors on
January 21, 2000. All prior period shares and per share amounts have been
restated to reflect the three-for-one split.
NOTE F -- OTHER INCOME (EXPENSE), NET
The significant components of other income (expense), net are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
March 26, March 31, March 26, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Interest expense $ (4,833) $ (5,202) $(14,588) $(15,194)
Interest income 6,557 5,579 18,179 17,364
Other 159 (477) 1,422 (2,164)
-------- -------- -------- --------
$ 1,883 $ (100) $ 5,013 $ 6
======== ======== ======== ========
</TABLE>
NOTE G -- NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated using the weighted
average number of shares of Common Stock outstanding during the period. For the
quarter ended March 26, 2000, diluted net income per share includes the assumed
exercise of employee stock options and the assumed conversion of the convertible
subordinated notes to common shares. For the nine months ended March 26, 2000,
only the assumed exercise of employee stock options was included; the assumed
conversion of convertible subordinated notes to common shares was excluded from
the computation of diluted net income per share because the effect would have
been antidilutive. Options outstanding during
7
<PAGE> 8
the three and nine month periods ended March 31, 1999 were excluded from the
computation of diluted net loss per share because the effect in periods with a
net loss would have been antidilutive. The shares potentially issuable under the
third party put option transactions have been excluded from the computation of
net income per share because the effect would have been antidilutive.
The Company's basic and diluted net income (loss) per share amounts are
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
March 26, March 31, March 26, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic net income (loss) per share $ 67,015 $ (14,724) $ 128,405 $(124,262)
--------- --------- --------- ---------
Add:
Interest expense on convertible
subordinated notes, net of income taxes 3,717 -- -- --
--------- --------- --------- ---------
Numerator for diluted net income (loss) per share $ 70,732 $ (14,724) $ 128,405 $(124,262)
========= ========= ========= =========
Denominator:
Basic net income (loss) per share -
average shares outstanding 122,646 116,022 119,747 115,290
--------- --------- --------- ---------
Effect of potential dilutive securities:
Convertible subordinated notes 10,596 -- -- --
Employee stock options 12,689 -- 12,005 --
--------- --------- --------- ---------
Total potential net dilutive common shares 23,285 -- 12,005 --
--------- --------- --------- ---------
Diluted net income (loss) per share -
average shares outstanding and other
potential common shares 145,931 116,022 131,752 115,290
========= ========= ========= =========
Basic net income (loss) per share $ 0.55 $ (0.13) $ 1.07 $ (1.08)
========= ========= ========= =========
Diluted net income (loss) per share $ 0.48 $ (0.13) $ 0.97 $ (1.08)
========= ========= ========= =========
</TABLE>
NOTE H -- COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
March 26, March 31, March 26, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 67,015 $ (14,724) $ 128,405 $(124,262)
Foreign currency translation adjustment (579) (94) (7,173) (657)
--------- --------- --------- ---------
Comprehensive income (loss) $ 66,436 $ (14,818) $ 121,232 $(124,919)
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
Accumulated other comprehensive income (loss) presented on the
accompanying consolidated condensed balance sheets consists of the accumulated
foreign currency translation adjustment.
NOTE I -- COMMITMENTS
During the third quarter of fiscal 2000, the Company entered into a five
year Operating Lease Agreement (the "Agreement"), relating to certain buildings
at its Fremont, California campus, in order to obtain more favorable terms and
to reduce the amount of the previous minimum lease payments. As part of the
Agreement, the Company is required to provide a guaranteed residual value of
$25.2 million at the end of the lease term.
NOTE J -- RESTRUCTURING
During the Company's first fiscal 1997 quarter ended September 30, 1996,
the Company projected and announced that revenues would be lower than previous
quarters due to a projected 20% general market decline. The Company's revenues
during that quarter fell to $299.2 million, a decrease of 24% from the prior
quarter. The Company assessed that market conditions would remain depressed and,
therefore, that its revenues would continue to be adversely affected.
Accordingly, and as announced on August 26, 1996, the Company organizationally
restructured its business units into a more centralized structure and cut its
workforce by approximately 11%.
The Company's quarterly revenue would eventually decline to $233.3
million in the March 1997 quarter, 40% lower than the peak reached in the
quarter ended June 1996. Subsequently, in the latter part of calendar 1997, the
industry rebounded quickly and entered into what eventually became a short-lived
upturn cycle. During the June 1997 quarter, the Company's revenues grew back to
$282.6 million and reached $292.1 million by the December 1997 quarter. However,
the Company's outlook in late January 1998 was that the industry was again
entering into a steep downturn brought on by depressed DRAM pricing and the
Asian financial crisis. The Company therefore announced a further set of
restructuring activities in a news release on February 12, 1998. At that time,
the Company's assessment related to industry conditions was that its revenues
for the March and June 1998 quarters would decline by approximately 20%. The
Company's restructuring plans aligned its cost structure to this level of
revenues by exiting part of its Chemical Vapor Deposition ("CVD") business and
all of its Flat Panel Display ("FPD") business, consolidating its manufacturing
facilities and substantially reducing its remaining infrastructure and
workforce. The Company's actual June 1998 revenues were in line with those
expectations; however, by the mid-June 1998 time frame the industry conditions
further deteriorated and the outlook for future quarters significantly worsened.
The Company projected revenues to drop to a run rate of approximately $180
million per quarter and determined it needed once more to reduce its cost
structure in line with the projected reductions in revenue. Accordingly, another
separate restructuring plan was developed and announced in June 1998. As a
result of the restructurings in fiscal 1998, the Company reduced its global
workforce by approximately 28% and exited the remainder of its CVD operations.
9
<PAGE> 10
The Company's revenue outlook in June 1998 was based on the Company's
projection that the worldwide wafer fabrication industry would deteriorate from
a quarterly revenue amount of $4.2 billion to $3.2 billion, or a 25% decline.
The semiconductor equipment market contracted beyond what was
anticipated, to quarterly revenues of $2.6 billion. The Company's shortfall of
revenues during the September 1998 quarter declined in line with the industry as
a whole, and resulted in lower than anticipated revenues, falling to $142.2
million. At that point in time, the Company projected that its quarterly
revenues would remain closer to the $140-$150 million levels for at least the
next several quarters. This necessitated another restructuring plan and further
cost reductions via employee terminations, facilities consolidation and a
contraction of operating activities, all of which resulted in the additional
write-off of plant related assets. This plan was announced and publicly
communicated on November 12, 1998. As a result of the fiscal 1999 restructuring,
the Company reduced further its global workforce by approximately 15%.
Beginning in late fiscal 1999, there were indications of a recovery in
the semiconductor industry. On a global basis, semiconductor makers began adding
new capacity to address an increase in the demand for semiconductors. In
addition to new capacity, the semiconductor industry accelerated a migration to
new materials such as copper and the new interconnect processes required to
implement them. At the end of the second quarter of fiscal 2000, the Company
determined that the upturn would be sustained and is anticipated to continue
through the end of the calendar year.
During the third quarter of fiscal 2000 the Company completed the
majority of its restructuring activities in accordance with its previously
established and announced plans. As a result of the stronger than anticipated
recovery of the semiconductor capital equipment market, the Company was able to
recover a portion of the restructuring charges recorded in prior periods of
approximately $18.9 million. Of this amount, $1.4 million was recovered due to
outplacement services guaranteed by the Company for terminated employees and
other exit costs not being utilized. Another $5.6 million was recovered from a
change in the Company's assessment of its ability to utilize certain
manufacturing and administrative facilities under long-term operating leases
which had been vacated by the Company. Management had or was in the process of
securing subleases for these facilities prior to the upturn in market
conditions. Currently, the Company believes it can reoccupy these facilities and
fully utilize them through the end of their respective lease terms. The Company
also recovered $3.1 million through the sale of previously abandoned and written
off facilities in Korea. Additionally, the Company anticipates future use of
leasehold improvements of $5.5 million in certain manufacturing and
administration facilities under operating lease which have been or will be
reoccupied as a result of the stronger than anticipated rebound in the Company's
business. Approximately $0.8 million was recovered from the salvage of CVD
inventories previously segregated and written off due to requests from former
customers to purchase certain piece parts. The remaining $2.5 million was
recovered due to
10
<PAGE> 11
certain customers not utilizing system return credits they requested and which
were issued by the Company as a result of the decision to exit the CVD and FPD
businesses.
Below is a table summarizing restructuring activity relating to the
fiscal 1999 restructuring:
<TABLE>
<CAPTION>
Severance Lease Payments Credit on
and on Vacated Abandoned Returned
Benefits Facilities Fixed Assets Equipment Total
--------- -------------- ------------ --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fiscal year 1999 provision $ 16,521 $ 1,125 $ 28,141 $ 7,585 $ 53,372
Cash payments (11,663) (440) -- (258) (12,361)
Non-cash charges -- -- (28,141) (1,959) (30,100)
-------- -------- -------- -------- --------
Balance at June 30, 1999 4,858 685 -- 5,368 10,911
Recovery of assets -- -- 4,218 -- 4,218
Cash payments (1,738) (509) -- (275) (2,522)
Non-cash Charges -- -- -- (806) (806)
Reversal of restructuring reserve (274) (176) (4,218) (749) (5,417)
-------- -------- -------- -------- --------
Balance at March 26, 2000 $ 2,846 $ -- $ -- $ 3,538 $ 6,384
======== ======== ======== ======== ========
</TABLE>
Severance and Benefits relates to the salary and fringe benefit expense
for the involuntarily terminated employees representing approximately 15% of the
global workforce. Prior to the date of the financial statements, management,
with the proper level of authority, approved and committed the Company to a plan
of termination and determined the benefits the employees being terminated would
receive. Prior to the financial statement date, the expected termination
benefits were communicated to employees in enough detail that they could
determine their type and amount of benefit. The termination of employees
occurred shortly after the plan of restructuring was finalized.
The Severance and Benefits reserve balance of $2.8 million as of March
26, 2000 will be utilized through the remainder of those former employees'
separation contracts.
Lease Payments on Vacated Facilities generally relates to 24 months of
rent and common area maintenance expense for the vacated facilities. The Company
also estimated, given the then-current real estate market conditions, that it
would take approximately 24 months to sub-lease its excess facilities in
Fremont, California.
The Company wrote-off all leasehold improvements for the excess
facilities, computer equipment, furniture and fixtures related to the
involuntarily terminated employees, and other assets deemed to have no future
use as a result of the restructuring.
Credit on Returned Equipment relates to the charge associated with the
anticipated return of previously purchased CVD systems and spare parts by
certain customers of the Company.
Most of the Credit on Return Equipment reserve balance of $3.5 million
as of March 26, 2000 will be utilized by the end of the current calendar year.
11
<PAGE> 12
Below is a table summarizing restructuring activity relating to the
fiscal 1998 restructuring:
<TABLE>
<CAPTION>
Lease
Payments Abandoned Excess and Credit on Other
Severance On Vacated Fixed Obsolete Returned Exit
and Benefits Facilities Assets Inventory Equipment Costs Total
------------ ---------- --------- ---------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal year 1998 provision $ 40,317 $ 16,998 $ 47,341 $ 31,933 $ 6,547 $ 5,722 $ 148,858
Cash payments (9,766) (1,518) -- -- -- -- (11,284)
Non-cash charges -- -- (47,341) (31,933) (4,135) (5,722) (89,131)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 30,551 15,480 -- -- 2,412 -- 48,443
Adjustment -- -- -- -- 1,528 -- 1,528
Cash payments (19,777) (3,039) -- -- (2,150) -- (24,966)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1999 10,774 12,441 -- -- 1,790 -- 25,005
Recovery of assets -- -- 4,390 849 -- 146 5,385
Cash payments (1,104) (1,930) -- -- -- -- (3,034)
Non-cash charges -- (66) -- -- -- -- (66)
Reversal of restructuring charges (958) (5,382) (4,390) (849) (1,790) (146) (13,515)
--------- --------- --------- --------- --------- --------- ---------
Balance at March 26, 2000 $ 8,712 $ 5,063 $ -- $ -- $ -- $ -- $ 13,775
========= ========= ========= ========= ========= ========= =========
</TABLE>
Severance and Benefits relates to the salary and fringe benefit expense
for the involuntarily terminated employees of the CVD and FPD operations which
were exited, the shutdown of the Wilmington, Massachusetts manufacturing
facility, and the employees impacted by the overall across-the-board reduction
of the employee base. Prior to the date of the financial statements, management,
with the proper level of authority, approved and committed the Company to a plan
of termination and determined the benefits the employees being terminated would
receive. Prior to the financial statement date, the expected termination
benefits were communicated to employees in enough detail that they could
determine their type and amount of benefit. The restructuring plans resulted in
the Company reducing its global workforce by approximately 28%. The termination
of employees occurred shortly after the plan of restructuring was finalized.
The Severance and Benefits reserve balance of $8.7 million as of March
26, 2000 will be utilized through the remainder of those former employees'
separation contracts.
Lease Payments on Vacated Facilities which was included in the
restructuring charge generally related to remaining rent and common area
maintenance on the closed Wilmington, Massachusetts manufacturing facility. The
Company also estimated, given the then-current real estate market conditions,
that it would take approximately 24 months to sub-lease its excess facilities in
Fremont, California. The Company, therefore, included 24 months of rent and
common area maintenance expense related to excess facilities in its
restructuring charge. Subsequently, the Company has subleased some of its excess
facilities.
The Company wrote-off all fixed assets relating to the operations which
were exited, leasehold improvements for the excess facilities, computer
equipment, furniture and fixtures related to the involuntarily terminated
employees, and other assets deemed to have no future use as a result of the
restructuring.
12
<PAGE> 13
The inventory write-off included in the restructuring charge related to
inventory from the operations which were exited. The inventory write-off
included raw material on hand and inventory purchased under non-cancelable
commitments from suppliers, spare parts, work-in-process and finished goods
related to the products from the exited operations.
Credit on Returned Equipment relates to the charge associated with the
anticipated return previously purchased CVD systems and spare parts by certain
customers of the Company. During fiscal 1999, the Company recorded an adjustment
to the restructuring reserve of $1.5 million for the recovery of a previously
written off machine.
Other Exit Costs of $5.7 million relates to the net book value of
licensing and manufacturing agreements related to the restructured operations.
Below is a table summarizing restructuring activity relating to the
fiscal 1997 restructuring:
<TABLE>
<CAPTION>
Lease
Severance Payments on Abandoned
and Vacated Fixed
Benefits Facilities Assets Total
--------- ----------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Fiscal year 1997 provision $ 6,170 $ 1,789 $ 1,062 $ 9,021
Cash payments (5,592) (703) -- (6,295)
Non-cash charges -- -- (1,062) (1,062)
------- ------- ------- -------
Balance at June 30, 1997 578 1,086 -- 1,664
Adjustment 1,086 (1,086) -- --
Cash payments (406) -- -- (406)
------- ------- ------- -------
Balance at June 30, 1998 1,258 -- -- 1,258
Cash payments (409) -- -- (409)
------- ------- ------- -------
Balance at June 30, 1999 849 -- -- 849
Cash payments (134) -- -- (134)
------- ------- ------- -------
Balance at March 26, 2000 $ 715 $ -- $ -- $ 715
======= ======= ======= =======
</TABLE>
Severance and Benefits relates to the salary and fringe benefit expense
for the involuntarily terminated employees, which represented approximately 11%
of the global workforce. Prior to the date of the financial statements,
management, with the proper level of authority, approved and committed the
Company to a plan of termination and determined the benefits the employees being
terminated would receive. Prior to the financial statement date, the expected
termination benefits were communicated to employees in enough detail that they
could determine their type and amount of benefit. The termination of employees
occurred shortly after the plan of restructuring was finalized. During fiscal
1998, the Company revised its estimate relating to severance and benefits and
transferred the excess balance of remaining lease payments on vacated facilities
to severance and benefits.
The Severance and Benefits reserve balance of $0.7 million as of March
26, 2000 will be utilized through the remainder of those former employees'
separation contracts.
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<PAGE> 14
Lease Payments on Vacated Facilities generally relates to remaining rent
and common area maintenance expense for the vacated facilities.
The Company wrote-off all leasehold improvements for the excess
facilities, computer equipment, furniture and fixtures related to the
involuntarily terminated employees, and other assets deemed to have no future
use as a result of the restructuring.
NOTE K -- CHANGE IN FUNCTIONAL CURRENCY
The Company has determined that the functional currency of its European
and Asia Pacific foreign subsidiaries is no longer the U.S. dollar but the
individual subsidiary's local currency. The following are the reasons for the
Company's change in functional currency: the Company's European and Asia Pacific
foreign subsidiaries primarily generate and expend cash in their local currency;
their labor and services are primarily in local currency (workforce is paid in
local currency); their individual assets and liabilities are primarily
denominated in the local foreign currency and do not materially impact the
Company's cash flows and there is an active local sales market for the foreign
subsidiaries' products and services. The European and Asia Pacific foreign
subsidiaries are currently less dependent on the Company's US corporate office
with their daily operations. In addition, the European community adopted a new
Single European Currency, the Euro, which required implementation of that
currency as of January 1, 1999 and transition through January 1, 2002. Upon
implementation of the functional currency to the individual subsidiaries' local
currency as of July 1, 1999, all balance sheet accounts are translated at the
current exchange rate, and income statement accounts are translated at an
average rate for the period. The resulting translation adjustments are recorded
as currency translation adjustments, which is a component of accumulated other
comprehensive income (loss). Previously, some balance sheet accounts were
translated at a historic rate and translation adjustments were made directly to
the statement of operations. The impact of the change in functional currency was
not material to the Company's financial statements.
NOTE L -- LITIGATION
See Part II, item 1 for discussion of litigation.
NOTE M -- PURCHASED TECHNOLOGY FOR RESEARCH AND DEVELOPMENT
During the second quarter of fiscal 2000, the Company purchased
intellectual property rights related to the semiconductor equipment industry
from Oliver Design, Inc. ("Oliver"). The Company recognized an expense for the
purchase of research development technology of approximately $7.5 million and
capitalized $1.5 million related to acquired patents, which will be amortized
ratably over five years. The technology is being used in a single discrete next
generation post-CMP wafer cleaning product development project and has no future
alternative use. The Company may make up to $2.0 million in additional license
payments to Oliver based on product sales in the event it is successful in
commercialization of the technology.
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<PAGE> 15
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, and are subject to the Safe Harbor provisions created by that statute.
Such forward-looking statements include, but are not limited to, statements that
relate to our future revenue, product development, demand, acceptance and market
share, competitiveness, royalty income, gross margins, levels of research and
development and operating expenses, our management's plans and objectives for
our current and future operations, and the sufficiency of financial resources to
support future operations and capital expenditures. Such statements are based on
current expectations and are subject to risks, uncertainties, and changes in
condition, significance, value and effect, including those discussed below under
the heading Risk Factors, and other documents we may file from time to time with
the Securities and Exchange Commission, specifically our last filed Annual
Report on Form 10-K for the fiscal year ended June 30, 1999. Such risks,
uncertainties and changes in condition, significance, value and effect could
cause our actual results to differ materially from those expressed herein and in
ways not readily foreseeable. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof and
of information currently and reasonably known. We undertake no obligation to
release any revisions to these forward-looking statements which may be made to
reflect events or circumstances which occur after the date hereof or to reflect
the occurrence or effect of anticipated or unanticipated events. This discussion
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes presented thereto on pages 3 to 14 of this Form 10-Q for a
full understanding of our financial position and results of operations for the
three and nine month periods ended March 26, 2000.
RESULTS OF OPERATIONS
Total Revenue
Our total revenue for the three and nine month periods ended March 26,
2000 increased 113.3% and 96.0%, respectively, compared to the prior fiscal year
periods. We experienced increased revenues for all of our products during both
the three and nine month periods of fiscal 2000 compared to the year-ago
periods. Our increased revenue in Alliance(TM) cluster system, which utilizes
from one to four chambers each, was the major contributor to our higher total
revenue for both three and nine month periods ended March 26, 2000 compared to
the year ago periods.
15
<PAGE> 16
Geographic breakdown of revenue is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- --------------------------
March 26, March 31, March 26, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
North America 23% 40% 30% 49%
Europe 32% 26% 28% 23%
Asia Pacific 30% 23% 29% 19%
Japan 15% 11% 13% 9%
</TABLE>
During calendar 1998, the global semiconductor industry experienced a
slowdown driven by depressed DRAM pricing, production overcapacity, as well as
uncertainty in the worldwide financial markets. This brought on a slowdown in
equipment demand, which unfavorably impacted our sales for the first nine months
of fiscal 1999. In the last quarter of fiscal 1999, the global semiconductor
equipment industry began to recover, as a result of increased sales and
profitability of semiconductor manufacturers. We experience and anticipate
greater demand for our systems as our customers continue to add capacity in
their most advanced lines, migrate to new lines, small geometries and new
materials such as copper. We expect our net revenue for the next quarter to be
higher than the revenue achieved in the third quarter of fiscal year 2000.
Gross Margin
Our gross margin percentage increased to 44.4% and 43.4%, respectively,
in the three and nine month periods ended March 26, 2000, compared with 35.5%
and 34.7%, respectively, for the year-ago periods. The increase in our gross
margin percentage is due in large part to material cost reductions and greater
sales volume. Also contributing to the gross margin percentage increase is a one
time restructuring reversal credit related to previously written off inventory.
We anticipate that our gross margins will continue to improve through fiscal
2000.
Research and Development
Research and development ("R&D") expenses for the three and nine month
periods ended March 26, 2000 were 28.3% and 19.6% higher than the year-ago
periods, respectively. However, as a percentage of revenue, R&D expenses were
14.1% and 14.6% of total revenue for the three and nine month periods of fiscal
2000, respectively, compared with 23.4% and 24.0%, respectively, for the three
and nine month periods of fiscal 1999. The increase in R&D expenses was a result
of our continued investments in advanced etch applications and to make
enhancements to our existing products, including developing the technology
necessary to incorporate 300MM wafer processing capabilities into our products.
We believe that in order to remain competitive, we must continue to invest
substantially in R&D.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased by 24.0%
and 1.0% for the three and nine month periods ended March 26, 2000 when compared
to the year-ago periods. As a percentage of revenue, SG&A expenses for the three
and nine month periods ended March 26, 2000 were 12.6% and 13.3%, respectively,
of total revenue compared to 21.7% and 25.8%, respectively, of total revenue for
the
16
<PAGE> 17
year-ago periods. The increase in SG&A expenses for the three and nine month
periods ended March 26, 2000, when compared to the prior year period, was a
result of higher sales and marketing expenses related to higher sales volume and
an overall increase in headcount. We anticipate SG&A expenses will increase at a
slower rate than our revenues will expand in the last quarter of fiscal 2000.
Restructuring Charge
Our overall outlook in late January 1998 was that the industry had
entered into a steep downturn brought on by depressed DRAM pricing and the Asian
financial crisis. We therefore announced a set of restructuring activities in a
news release on February 12, 1998. At that time, our assessment related to
industry conditions was that our revenues for the March and June 1998 quarters
would decline by approximately 20%. Our restructuring plans aligned our cost
structure to a lower level of revenues by exiting part of our CVD business and
our FPD business, consolidating our manufacturing facilities and substantially
reducing our remaining infrastructure and workforce. Our actual June 1998
revenues were in line with those expectations; however, by the mid-June 1998
time-frame the industry conditions further deteriorated and the outlook for
future quarters significantly worsened. We projected revenues to decrease to a
run-rate of approximately $180 million per quarter and determined that, once
more, reductions of our cost structure were required to align with the projected
reductions in revenue. Accordingly, another separate restructuring plan was
developed and announced in June 1998. During fiscal 1998, we incurred a total
restructuring charge of $148.9 million relating to severance and benefits, lease
payments on vacated facilities, the write-off of fixed assets, excess and
obsolete inventory, returned equipment credits and other exit costs. As a result
of the fiscal 1998 restructurings, we reduced our global workforce by
approximately 28%. During fiscal 1999, we recorded an adjustment to the
restructuring reserve of $1.5 million for the recovery of a previously
written-off machine. The Severance and Benefits reserve balance of $8.7 million
as of March 26, 2000 will be utilized through the remainder of those former
employees' separation contracts.
17
<PAGE> 18
Below is a table summarizing restructuring activity relating to the
fiscal 1998 restructurings:
<TABLE>
<CAPTION>
Lease
Payments Abandoned Excess and Credit on Other
Severance On Vacated Fixed Obsolete Returned Exit
and Benefits Facilities Assets Inventory Equipment Costs Total
------------ ---------- --------- ---------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal year 1998 provision $ 40,317 $ 16,998 $ 47,341 $ 31,933 $ 6,547 $ 5,722 $ 148,858
Cash payments (9,766) (1,518) -- -- -- -- (11,284)
Non-cash charges -- -- (47,341) (31,933) (4,135) (5,722) (89,131)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 30,551 15,480 -- -- 2,412 -- 48,443
Adjustment -- -- -- -- 1,528 -- 1,528
Cash payments (19,777) (3,039) -- -- (2,150) -- (24,966)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1999 10,774 12,441 -- -- 1,790 -- 25,005
Recovery of assets -- -- 4,390 849 -- 146 5,385
Cash payments (1,104) (1,930) -- -- -- -- (3,034)
Non-cash charges -- (66) -- -- -- -- (66)
Reversal of restructuring
charges (958) (5,382) (4,390) (849) (1,790) (146) (13,515)
--------- --------- --------- --------- --------- --------- ---------
Balance at March 26, 2000 $ 8,712 $ 5,063 $ -- $ -- $ -- $ -- $ 13,775
========= ========= ========= ========= ========= ========= =========
</TABLE>
During the quarter ended September 30, 1998, the semiconductor equipment
market contracted beyond the anticipated $3.2 billion revenue level to $2.6
billion, according to Dataquest. Our shortfall of revenues during the September
1998 quarter was in line with the industry as a whole, and resulted in our
revenues falling to $142.2 million for the quarter ended September 30, 1998. At
that point in time, we projected that our quarterly revenues would remain closer
to the $140-$150 million levels for at least the next several quarters. This
necessitated another restructuring plan and further cost reductions through
employee terminations, facilities consolidation and a contraction of operating
activities, and the write-off of vacated plant related assets. This plan was
announced and publicly communicated on November 12, 1998. During the second
quarter of fiscal 1999, we recorded a restructuring charge of $53.4 million,
relating to severance compensation and benefits for involuntarily terminated
employees worldwide (representing approximately 15% of the global workforce),
lease payments on abandoned facilities, the write-off of related leasehold
improvements and fixed assets and returned equipment credits issued to certain
customers. The Severance and Benefits reserve balance of $2.8 million as of
March 26, 2000 will be utilized through the remainder of those former employees'
separation contracts. Most of the Credit on Return Equipment reserve balance of
$3.5 million as of March 26, 2000 will be utilized by the end of the current
calendar year.
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<PAGE> 19
Below is a table summarizing restructuring activity relating to the
fiscal 1999 restructuring:
<TABLE>
<CAPTION>
Severance Lease Payments Credit on
and on Vacated Abandoned Returned
Benefits Facilities Fixed Assets Equipment Total
--------- -------------- ------------ ---------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fiscal year 1999 provision $ 16,521 $ 1,125 $ 28,141 $ 7,585 $ 53,372
Cash payments (11,663) (440) -- (258) (12,361)
Non-cash charges -- -- (28,141) (1,959) (30,100)
-------- -------- -------- -------- --------
Balance at June 30, 1999 4,858 685 -- 5,368 10,911
Recovery of assets -- -- 4,218 -- 4,218
Cash payments (1,738) (509) -- (275) (2,522)
Non-cash Charges -- -- -- (806) (806)
Reversal of restructuring reserve (274) (176) (4,218) (749) (5,417)
-------- -------- -------- -------- --------
Balance at March 26, 2000 $ 2,846 $ -- $ -- $ 3,538 $ 6,384
======== ======== ======== ======== ========
</TABLE>
We have carried-out, and continue to carry-out, our restructuring
activities according to our original plans. We intend to operate at levels of
spending that are consistent with our ability to generate revenues, therefore
our spending levels may increase or decrease depending upon our assessment of
our current needs.
Beginning in late fiscal 1999, there were indications of a recovery in
the semiconductor industry. On a global basis, semiconductor makers began adding
new capacity to address an increase in the demand for semiconductors. In
addition to new capacity, the semiconductor industry accelerated a migration to
new materials such as copper and the new interconnect processes required to
implement them. At the end of the second quarter of fiscal 2000, we determined
that the upturn would be sustained and is anticipated to continue through the
end of the calendar year.
During the third quarter of fiscal 2000 we completed the majority of our
restructuring activities in accordance with its previously established and
announced plans. As a result of the stronger than anticipated recovery of the
semiconductor capital equipment market, we were able to recover a portion of the
restructuring charges recorded in prior periods of approximately $18.9 million.
Of this amount, $1.4 million was recovered due to outplacement services
guaranteed by us for terminated employees and other exit costs not being
utilized. Another $5.6 million was recovered from a change in our assessment of
the ability to utilize certain manufacturing and administrative facilities under
long-term operating leases which had been vacated by us. Our management had or
was in the process of securing subleases for these facilities prior to the
upturn in market conditions. Currently, we believe we can reoccupy these
facilities and fully utilize them through the end of their respective lease
terms. We also recovered $3.1 million through the sale of previously abandoned
and written off facilities in Korea. Additionally, we anticipate future use of
leasehold improvements of $5.5 million in certain manufacturing and
administration facilities under operating lease which have been or will be
reoccupied as a result of the stronger than anticipated rebound in our business.
Approximately $0.8 million was recovered from the salvage of CVD inventories
previously segregated and written off due to requests from former customers to
purchase certain piece parts. The remaining $2.5 million was recovered due to
certain
19
<PAGE> 20
customers not utilizing system return credits they requested and which were
issued by us as a result of the decision to exit the CVD and FPD businesses.
Purchased Technology for Research and Development
During the second quarter of fiscal 2000, we purchased intellectual
property rights related to the semiconductor equipment industry from Oliver
Design, Inc ("Oliver"). We recognized an expense for the purchase of research
development technology of approximately $7.5 million and capitalized $1.5
million related to acquired patents, which will be amortized ratably over five
years. The technology is being used in a single discrete next generation
post-CMP wafer cleaning product development project and has no future
alternative use. We may make up to $2.0 million in additional license payments
to Oliver based on product sales in the event we are successful in the
commercialization of this technology.
Tax Expenses
Our third fiscal quarter income tax provision was 14% of profits, in
accordance with a revised estimated effective tax rate of 13% for the fiscal
year ending June 25, 2000. This rate reflects the benefit of net operating
losses and research and development tax credits carried over from prior periods.
We expect to increase the effective income tax rate to approximately 30% in
fiscal year 2001, based on our current revenue and profit outlook for that
period.
Transition to Single European Currency
During fiscal 1999, we established a team to address issues raised by
the introduction of the Single European Currency ("Euro") for initial
implementation as of January 1, 1999, and through the transition period to
January 1, 2002. We met all related legal requirements by January 1, 1999, and
we expect to meet all legal requirements through the transition period. We do
not expect the cost of any related system modifications to be material and do
not currently expect that the introduction and use of the Euro will materially
affect our foreign exchange and hedging activities, or will result in any
material increase in transaction costs. We will continue to evaluate the impact
over time of the introduction of the Euro; however, based on currently available
information, our management does not believe that the introduction of the Euro
has or will have a material adverse impact on our financial condition or results
of our operations.
Year 2000 Issues
To date, we have not experienced any material Year 2000 related issues,
and we expect minimal future Year 2000 issues based on the performance to date
of internal systems that we use and the products we supply to our customers.
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<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
As of March 26, 2000, we had $321.5 million in cash, cash equivalents
and short-term investments, compared with $311.8 million at June 30, 1999. We
have a total of $100.0 million available under a syndicated bank line of credit
which is due to expire in April 2001. Borrowings are subject to our compliance
with financial and other covenants set forth in the credit documents. The
syndicated bank line bears interest at rates ranging from 0.55% to 1.25% over
London Interbank Offered Rate ("LIBOR"). At March 26, 2000, we were in
compliance with all our financial and other covenants.
During the third quarter of fiscal 2000, we entered into a five-year
Operating Lease Agreement (the "Agreement"), relating to certain buildings at
our Fremont, California campus, in order to obtain more favorable terms and to
reduce the amount of the previous minimum lease payments. As part of the
Agreement, we are required to provide a guaranteed residual value of $25.2
million at the end of the lease term.
Net cash provided by operating activities was $38.4 million for the nine
months ended March 26, 2000. This primarily resulted from net income of $128.4
million and uses of working capital, particularly increases in accounts
receivable and inventories required to support the increase in sales volume
offset by increase in accrued liabilities related to employee tax accrual. Also
included in net cash provided by operating activities was the restructuring
recovery of $18.9 million and purchased technology for research and development
for $7.5 million. Cash used in investing activities was $71.2 million, which was
primarily from the net purchase of short-term investments of $20.3 million and
net capital expenditures of $39.0 million. Net cash provided by financing
activities was $22.1 million. We made principal payments on long-term debt and
capital lease obligations of $26.9 million offset by proceeds from the issuance
of short-term debt of $8.7 million. We repurchased $5.1 million of Common Stock
and reissued $13.6 million of our treasury stock through our employee option and
stock purchase programs. Net proceeds from the issuance of our Common Stock
generated $39.0 million. Cash payments relating to our restructurings were
approximately $5.7 million.
Given the cyclical nature of the semiconductor equipment industry, we
believe that maintenance of sufficient liquidity reserves is important to ensure
our ability to maintain levels of investment in R&D and capital infrastructure
through ensuing business cycles. Based upon our current business outlook, our
cash, cash equivalents, short-term investments and available lines of credit at
March 26, 2000 are expected to be sufficient to support our currently
anticipated levels of operations and capital expenditures through at least the
next 12 months.
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<PAGE> 22
RISK FACTORS
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE UNPREDICTABLE
Our revenues and operating results may fluctuate significantly from
quarter to quarter due to a number of factors, not all of which are in our
control. These factors include:
- economic conditions in the semiconductor industry generally, and
the equipment industry specifically;
- customer capacity requirements;
- the size and timing of orders from customers;
- customer cancellations or delays in our shipments;
- our ability in a timely manner to develop, introduce and market
new, enhanced and competitive products;
- our competitors' introduction of new products;
- legal or technical challenges to our products and technology;
- changes in average selling prices and product mix; and
- exchange rate fluctuations.
We base our expense levels in part on our expectations of future
revenues. If revenue levels in a particular quarter do not meet our
expectations, our operating results are adversely affected.
We derive our revenue primarily from the sale of a relatively small
number of high-priced systems. Our systems can range in price from approximately
$400,000 to $4 million per unit. Our operating results for a quarter may suffer
substantially if:
- we sell fewer systems than we anticipate in any quarter;
- we do not receive anticipated orders in time to enable actual
shipment during that quarter;
- one or more customers delay or cancel anticipated shipments; or
- shipments are delayed by procurement shortages or manufacturing
difficulties.
Further, because of our continuing consolidation of manufacturing
operations and capacity at our Fremont, California facility, natural, physical,
logistical or other events or disruptions affecting this facility (including
labor disruptions) could adversely impact our financial performance.
WE MAY EXPERIENCE DIFFICULTY TRANSITIONING TO OUR NEW ENTERPRISE
RESOURCE SYSTEM
We implemented a new next-generation enterprise resource planning and
information system in the current quarter of fiscal 2000. It replaced most of
the transactional systems utilized in the past, including core manufacturing,
finance, service, sales, shipping, inventory and warranty operations and other
significant operational systems. Delays in our ability to transition to this new
planning and information system, or disruptions in our internal operations or
systems caused by the transition or the need to free up additional support and
resources in order to ensure our timely transition, could
22
<PAGE> 23
temporarily disrupt certain of our operations. This could include a temporary
delay in our ability to manufacture and ship equipment and/or spare parts to our
customers, which could cause a near-term short fall in quarterly operating
results, including revenues and earnings.
THE SEMICONDUCTOR EQUIPMENT INDUSTRY IS VOLATILE, WHICH AFFECTS OUR
REVENUES AND FINANCIAL RESULTS
Our business depends on the capital equipment expenditures of
semiconductor manufacturers, which in turn depend on the current and anticipated
market demand for integrated circuits and products using integrated circuits.
The semiconductor industry is cyclical in nature and historically experiences
periodic downturns. During the past two years the semiconductor industry has
experienced severe swings of product demand and volatility in product pricing.
In early fiscal 1999 and fiscal 1998, the semiconductor industry reduced or
delayed significantly purchases of semiconductor manufacturing equipment and
construction of new fabrication facilities because of an industry downturn.
However, beginning in late fiscal 1999, we saw indications of a recovery, which
is expected to extend through calendar 2000. Fluctuating levels of investment by
the semiconductor manufacturers and pricing volatility will continue to affect
materially our aggregate bookings, revenues and operating results. Even during
periods of reduced revenues, we must continue to invest in research and
development and to maintain extensive ongoing worldwide customer service and
support capabilities to remain competitive, which may harm our financial
results.
WE DEPEND ON NEW PRODUCTS AND PROCESSES FOR OUR SUCCESS. FOR THIS
REASON, WE ARE SUBJECT TO RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL
CHANGE
Rapid technological changes in semiconductor manufacturing processes
subject us to increased pressure to maintain technological parity with deep
submicron process technology. We believe that our future success depends in part
upon our ability to develop, manufacture and introduce successfully new products
and product lines with improved capabilities, and to continue to enhance our
existing products. Due to the risks inherent in transitioning to new products,
we must forecast accurately demand for new products while managing the
transition from older products. If new products have reliability or quality
problems, reduced orders, higher manufacturing costs, delays in acceptance of
and payment for new products and additional service and warranty expenses may
result. In the past, product introductions caused some delays and reliability
and quality problems. We may be unable to develop and manufacture new products
successfully, or new products that we introduce may fail in the marketplace,
which would materially and adversely affect our results from operations.
We expect to continue to make significant investments in research and
development and to pursue joint development relationships with customers or
other members of the industry. We must manage product transitions or joint
development relationships successfully, as introduction of new products could
adversely affect our sales of existing products. Future technologies, processes
or product developments may render our current product offerings obsolete, or we
may be unable in a timely manner to develop and introduce new products
23
<PAGE> 24
or enhancements to our existing products which satisfy customer needs or achieve
market acceptance. Furthermore, if we are unsuccessful in the marketing and
selling of advanced processes or equipment to customers with whom we have
strategic alliances, we may be unsuccessful in selling existing products to
those customers. In addition, in connection with the development of new
products, we will invest in significant levels of initial production inventory.
Our failure in a timely manner to complete commercialization of these new
products could result in inventory obsolescence, which would adversely affect
our financial results.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH THE INTRODUCTION OF A NEW
PRODUCT
During the second quarter of fiscal 1999, we began shipping units of our
Teres(TM) chemical mechanical planarization system. We expect to face
significant competition from multiple current and future competitors. Among the
companies currently offering polishing systems are Applied Materials, Inc.,
Ebara Corporation and SpeedFam-IPEC, Inc. We believe that other companies are
developing polishing systems and are planning to introduce new products to this
market, which may affect our ability to sell this new product.
During the first quarter of fiscal 2000, we began shipping units of our
Exelan(TM) oxide etch system. We expect to face significant competition. Among
the companies currently offering oxide etch systems are Applied Materials, Inc.,
and Tokyo Electron Limited.
WE ARE SUBJECT TO RISKS RELATING TO PRODUCT CONCENTRATION AND LACK OF
PRODUCT REVENUE DIVERSIFICATION
We derive a substantial percentage of our revenues from a limited number
of products, and we expect these products to continue to account for a large
percentage of our revenues in the near term. Continued market acceptance of our
primary products is, therefore, critical to our future success. Our business,
operating results, financial condition and cash flows could therefore be
adversely affected by:
- a decline in demand for our products;
- a failure to achieve continued market acceptance of our
products;
- an improved version of products being offered by a competitor in
the market we participate in;
- technological change which we are unable to match in our
products; and
- a failure to release new enhanced versions of our products on a
timely basis.
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<PAGE> 25
WE ARE DEPENDENT UPON A LIMITED NUMBER OF KEY SUPPLIERS
We obtain certain components and sub-assemblies included in our products
from a single supplier or a limited group of suppliers. Each of our key
suppliers has a one year blanket purchase contract under which we may issue
purchase orders. We may renew these contracts periodically. Each of these
suppliers sold us products during at least the last four years, and we expect
that we will continue to renew these contracts in the future or that we will
otherwise replace them with competent alternative source suppliers. We believe
that we could obtain alternative sources to supply these products. Nevertheless,
a prolonged inability to obtain certain components could adversely affect our
operating results and result in damage to our customer relationships.
ONCE A SEMICONDUCTOR MANUFACTURER COMMITS TO PURCHASE A COMPETITOR'S
SEMICONDUCTOR MANUFACTURING EQUIPMENT IT TYPICALLY CONTINUES TO PURCHASE
THAT EQUIPMENT, MAKING IT MORE DIFFICULT FOR LAM TO SELL ITS EQUIPMENT
TO THAT CUSTOMER
The semiconductor equipment industry is highly competitive. We expect to
continue to face substantial competition throughout the world. Semiconductor
manufacturers must make a substantial investment to install and integrate
capital equipment into a semiconductor production line. We believe that once a
semiconductor manufacturer selects a particular supplier's capital equipment,
the manufacturer generally relies upon that equipment for that specific
production line application. Accordingly, we expect it to be more difficult to
sell to a given customer if that customer initially selects a competitor's
equipment. We believe that to remain competitive we will require significant
financial resources to offer a broad range of products, to maintain customer
service and support centers worldwide and to invest in product and process
research and development.
WE MAY LACK THE FINANCIAL RESOURCES OR TECHNOLOGICAL CAPABILITIES OF
CERTAIN OF OUR COMPETITORS NEEDED TO CAPTURE INCREASED MARKET SHARE
Large semiconductor equipment manufacturers who have the resources to
support customers on a worldwide basis are increasingly dominating the
semiconductor equipment industry. Certain of our competitors have substantially
greater financial resources and more extensive engineering, manufacturing,
marketing and customer service and support resources than we do. In addition,
there are smaller emerging semiconductor equipment companies that may provide
innovative technology which may have performance advantages over systems we
currently, or expect to, offer.
We expect our competitors to continue to improve the design and
performance of their current products and processes and to introduce new
products and processes with enhanced performance characteristics. If our
competitors enter into strategic relationships with leading semiconductor
manufacturers covering products similar to those we sell or may develop, it
could adversely affect our ability to sell products to those manufacturers. For
these reasons, we may fail to continue to compete successfully worldwide.
25
<PAGE> 26
Our present or future competitors may be able to develop products
comparable or superior to those we offer or that adapt more quickly to new
technologies or evolving customer requirements. In particular, while we
currently are developing additional product enhancements that we believe will
address customer requirements, we may fail in a timely manner to complete the
development or introduction of these additional product enhancements
successfully, or these product enhancements may not achieve market acceptance or
be competitive. Accordingly, we may be unable to continue to compete effectively
in our markets, competition may intensify or future competition may have a
material adverse effect on our revenues, operating results, financial condition
and cash flows.
OUR FUTURE SUCCESS DEPENDS ON INTERNATIONAL SALES
International sales accounted for approximately 54% of our total revenue
in fiscal 1999, 55% in fiscal 1998, 57% in fiscal 1997, 70% for the nine months
ended March 26, 2000 and 51% for the nine months ended March 31, 1999. We expect
that international sales will continue to account for a significant portion of
our total revenue in future years. International sales are subject to risks,
including:
- foreign exchange risks; and
- economic, banking and currency problems in the relevant region.
We currently enter into foreign currency forward contracts to minimize
the short term impact of exchange rate fluctuations on yen-denominated assets,
and will continue to enter into hedging transactions in the future.
A FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS MAY ADVERSELY AFFECT
OUR OPERATING RESULTS
We are subject to a variety of governmental regulations related to the
discharge or disposal of toxic, volatile or otherwise hazardous chemicals used
in the manufacturing process. We believe that we are in general compliance with
these regulations and that we have obtained (or will obtain or are otherwise
addressing) all necessary environmental permits to conduct our business. These
permits generally relate to the disposal of hazardous wastes. Nevertheless, the
failure to comply with present or future regulations could result in fines being
imposed on us, suspension of production, cessation of our operations or
reduction in our customers' acceptance of our products. These regulations could
require us to alter our current operations, to acquire significant equipment or
to incur substantial other expenses to comply with environmental regulations.
Our failure to control the use, sale, transport or disposal of hazardous
substances could subject us to future liabilities.
26
<PAGE> 27
OUR ABILITY TO MANAGE POTENTIAL GROWTH; INTEGRATION OF POTENTIAL
ACQUISITIONS AND POTENTIAL DISPOSITION OF PRODUCT LINES AND TECHNOLOGIES
CREATES RISKS FOR US
Our management may face significant challenges in improving financial
and business controls, management processes, information systems and procedures
on a timely basis, and expanding, training and managing our work force if we
experience additional growth. There can be no assurance that we will be able to
perform such actions successfully. In the future, we may make additional
acquisitions of complementary companies, products or technologies, or we may
reduce or dispose of certain product lines or technologies which no longer
complement our long-term strategy, such as our exiting of Flat Panel Display and
Chemical Vapor Deposition operations. Managing an acquired business or disposing
of product technologies entails numerous operational and financial risks,
including difficulties in assimilating acquired operations and new personnel or
separating existing business or product groups, diversion of management's
attention to other business concerns, amortization of acquired intangible assets
and potential loss of key employees or customers of acquired or disposed
operations. Our success will depend, to a significant extent, on the ability of
our executive officers and other members of our senior management to identify
and respond to these challenges effectively. There can be no assurance that we
will be able to achieve and manage effectively any such growth, integration of
potential acquisitions or disposition of product lines or technologies, or that
our management, personnel or systems will be adequate to support continued
operations. Any such inabilities or inadequacies would have a material adverse
effect on our business, operating results, financial condition and cash flows.
An important element of our management strategy is to review acquisition
prospects that would complement our existing products, augment our market
coverage and distribution ability, or enhance our technological capabilities. We
may acquire additional businesses, products or technologies in the future. Any
acquisitions could result in changes such as potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and the
amortization expense related to goodwill and other intangible assets, any of
which could materially adversely affect our business, financial condition and
results of operations and/or the price of our Common Stock.
THE MARKET FOR OUR COMMON STOCK IS VOLATILE, WHICH MAY AFFECT OUR
ABILITY TO RAISE CAPITAL OR MAKE ACQUISITIONS
The market price for our Common Stock is volatile and has fluctuated
significantly over the past years. The trading price of our Common Stock could
continue to be highly volatile and fluctuate widely in response to factors,
including the following:
- general market or semiconductor industry conditions;
- variations in our quarterly operating results;
- shortfalls in our revenues or earnings from levels securities
analysts expect;
27
<PAGE> 28
- announcements of restructurings, technological innovations,
reductions in force, departure of key employees, consolidations
of operations or introduction of new products;
- government regulations;
- developments in or claims relating to patent or other
proprietary rights;
- disruptions with key customers; or
- political, economic or environmental events occurring globally
or in our key sales regions.
In addition, the stock market has in recent years experienced
significant price and volume fluctuations. Recent fluctuations affecting our
Common Stock were tied in part to the actual or anticipated fluctuations in
interest rates and the price of and market for semiconductors generally. These
broad market and industry factors may adversely affect the market price of our
Common Stock, regardless of our actual operating performance. In the past,
following volatile periods in the market price of stock, many companies become
the object of securities class action litigation. If we are sued in a securities
class action, we could incur substantial costs and it could divert management's
attention and resources and have an effect on the market price for our Common
Stock.
RISK ASSOCIATED WITH OUR CALL AND PUT OPTIONS
We have entered into third party option transactions for the purchase
and sale of our stock. The option position will be of value to us if our stock
price exceeds the exercise price of the call options at the time the options are
exercised. Conversely, our stock price could also decline. If our stock price on
the exercise date of the options were below the put option exercise price, we
would have to settle the put obligation by paying cash or the equivalent value
of our Common Stock obligation.
During fiscal 1999, we entered into third party option transactions for
the purchase and sale of our Common Stock, in order to offset the dilutive
effect of a potential conversion into Common Stock of the $310.0 million
Convertible Subordinated Notes (the "Notes") we previously issued and which are
due September 2, 2002. We have as of March 26, 2000 acquired call options to
purchase 3.72 million shares of our Common Stock. The weighted average exercise
price of these options is $11.29. The call options provide that our maximum
benefit at expiration is $17.97 per option share (the difference between $29.26,
which is the conversion price of the Notes, and the weighted average exercise
price of the call options). We have also entered into put options with the same
third parties covering 5.58 million shares of our Common Stock, giving those
third parties the right to sell to us shares of our Common Stock at a weighted
average price of $9.48 per share.
28
<PAGE> 29
THE POTENTIAL ANTI-TAKEOVER EFFECTS OF OUR BYLAWS PROVISIONS AND THE
RIGHTS PLAN WE HAVE IN PLACE MAY AFFECT OUR STOCK PRICE AND INHIBIT A
CHANGE OF CONTROL DESIRED BY SOME OF OUR STOCKHOLDERS
On January 23, 1997, Lam adopted a Rights Plan (the "Rights Plan") in
which rights were distributed as a dividend at the rate of one right for each
share of our Common Stock, held by stockholders of record as of the close of
business on January 31, 1997, and thereafter. In connection with the adoption of
the Rights Plan, our Board of Directors also adopted a number of amendments to
our Bylaws, including amendments requiring advance notice of stockholder
nominations of directors and stockholder proposals.
The Rights Plan may have certain anti-takeover effects. The Rights Plan
will cause substantial dilution to a person or group that attempts to acquire
Lam in certain circumstances. Accordingly, the existence of the Rights Plan and
the issuance of the related rights may deter certain acquirers from making
takeover proposals or tender offers. The Rights Plan, however, is not intended
to prevent a takeover. Rather it is designed to enhance the ability of our Board
of Directors to negotiate with a potential acquirer on behalf of all of our
stockholders.
In addition, our Certificate of Incorporation authorizes issuance of
5,000,000 shares of undesignated Preferred Stock. Our Board of Directors,
without further stockholder approval, may issue this Preferred Stock on such
terms as the Board of Directors may determine, which also could have the effect
of delaying or preventing a change in control of Lam. The issuance of Preferred
Stock could also adversely affect the voting power of the holders of our Common
Stock, including causing the loss of voting control. Our Bylaws and indemnity
agreements with certain officers, directors and key employees provide that we
will indemnify officers and directors against losses that they may incur in
legal proceedings resulting from their service to Lam. Moreover, Section 203 of
the Delaware General Corporation Law restricts certain business combinations
with "interested stockholders", as defined by that statute.
INTELLECTUAL PROPERTY AND OTHER CLAIMS AGAINST US CAN BE COSTLY AND
COULD RESULT IN THE LOSS OF SIGNIFICANT RIGHTS WHICH ARE NECESSARY TO
OUR CONTINUED BUSINESS AND PROFITABILITY
Other parties may assert infringement, unfair competition or other
claims against us. Additionally, from time to time, other parties send us
notices alleging that our products infringe their patent or other intellectual
property rights. In such cases, it is our policy either to defend the claims or
to negotiate licenses on commercially reasonable terms. However, we may be
unable in the future to negotiate necessary licenses on commercially reasonable
terms, or at all, and any litigation resulting from these claims by other
parties may materially adversely affect our business and financial results.
In October 1993, Varian Associates, Inc. ("Varian") sued us in the
United States District Court for the Northern District of California, seeking
monetary damages and injunctive relief based on our alleged infringement of
certain patents Varian held. We asserted defenses that the subject patents are
invalid and unenforceable, and
29
<PAGE> 30
that our products do not infringe these patents. Litigation is inherently
uncertain and we may fail to prevail in this litigation. However, we believe
that the Varian lawsuit will not materially adversely affect our operating
results or financial position. See Part II Item 1 of this Form 10-Q for a
discussion of the Varian lawsuit.
Additionally, in September 1999, Tegal Corporation ("Tegal") sued us in
the United States District Court for the Eastern District of Virginia, seeking
monetary damages and injunctive relief based on our alleged infringement of
certain patents Tegal holds. Specifically, Tegal identified our 4520XLe(TM) and
Exelan(TM) products as infringing the patents Tegal is asserting. Litigation is
inherently uncertain and we may fail to prevail in this litigation. However, we
believe that the Tegal lawsuit will not materially adversely affect our
operating results or financial position. See Part II Item 1 of this Form 10-Q
for a discussion of the Tegal lawsuit.
WE MAY FAIL TO PROTECT OUR PROPRIETARY TECHNOLOGY RIGHTS, WHICH WOULD
AFFECT OUR BUSINESS
Our success depends in part on our proprietary technology. While we
attempt to protect our proprietary technology through patents, copyrights and
trade secret protection, we believe that our success depends on increasing our
technological expertise, continuing our development of new systems, increasing
market penetration and growth of our installed base, and providing comprehensive
support and service to our customers. However, we may be unable to protect our
technology in all instances, or our competitors may develop similar or more
competitive technology independently. We currently hold a number of United
States and foreign patents and pending patent applications. However, other
parties may challenge or attempt to invalidate or circumvent any patents the
United States or foreign governments issue to us or these governments may fail
to issue pending applications. In addition, the rights granted or anticipated
under any of these patents or pending patent applications may be narrower than
we expect or in fact provide no competitive advantages.
YEAR 2000 COMPLIANCE
See discussion of Year 2000 issues in the section of this report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
30
<PAGE> 31
ITEM 3. Quantitative And Qualitative Disclosures about Market Risk
For financial market risks related to changes in interest rates and
foreign currency exchange rates, refer to Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, in the Company's Annual Report on
Form 10-K for the year ended June 30, 1999.
During fiscal 1999, we entered into third party option transactions for
the purchase and sale of our Common Stock, in order to offset the dilutive
effect of a potential conversion into Common Stock of the $310.0 million
Convertible Subordinated Notes (the "Notes") we previously issued and which are
due September 2, 2002. We have as of March 26, 2000 acquired call options to
purchase 3.72 million shares of our Common Stock. The weighted average exercise
price of these options is $11.29. The call options provide that our maximum
benefit at expiration is $17.97 per option share (the difference between $29.26,
which is the conversion price of the Notes, and the weighted average exercise
price of the call options). We have also entered into put options with the same
third parties covering 5.58 million shares of our Common Stock, giving those
third parties the right to sell to us shares of our Common Stock at a weighted
average price of $9.48 per share.
Below is a table showing, at assumed exercise prices for the put and
call options and market prices for our Common Stock, our gain or (loss) under
the put and call options upon exercise or upon maturity of the option
transactions.
<TABLE>
<CAPTION>
At March 26, 2000 At Maturity
----------------- -----------
Stock Value (in thousands)
- -----------
<S> <C> <C>
$ 5.00 $(20,441) $(24,883)
$ 15.00 $ 7,372 $ 13,988
$ 25.00 $ 22,597 $ 50,417
$ 35.00 $ 31,852 $ 66,162
$ 45.00 $ 37,880 $ 66,722
$ 55.00 $ 42,009 $ 66,729
</TABLE>
31
<PAGE> 32
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In October 1993, Varian brought suit against us in the United States
District Court, for the Northern District of California, seeking monetary
damages and injunctive relief based on our alleged infringement of certain
patents held by Varian. By order of the Court, those proceedings were bifurcated
into an initial phase to determine the validity of the Varian patents and Lam's
infringement (if any), and a secondary phase to determine damages to Varian (if
any) and whether Lam's infringement (if shown) was willful. On April 13, 1999,
the Court issued an interlocutory order construing the meaning of the terms of
the patent claims at issue in the action. To date, however, there has been no
determination as to the actual scope of those claims, or whether our products
have infringed or are infringing Varian's patents. The trial date previously
scheduled for March 2000 has been vacated, pending the court's decision of
certain motions. There have been no findings in the action which have caused us
reasonably to believe that any infringement, if found, or any damages, if
awarded, would have a material adverse effect on our operating results or our
financial position.
In September 1999, Tegal brought suit against us in the United States
District Court for the Eastern District of Virginia, seeking monetary damages
and injunctive relief based on our alleged infringement of certain patents held
by Tegal. Specifically, Tegal identified our 4520XLE and Exelan products as
infringing the patents Tegal is asserting. On our motion, this case was
transferred to California and is now pending in the United States District Court
for the Northern District of California. To date, however, there has been no
determination as to the actual scope of those claims, or whether our products
have infringed or are infringing Tegal's patents. No trial date is currently
scheduled in the action. Furthermore, there have been no findings in the action
which have caused us reasonably to believe that any infringement, if found, or
any damages, if awarded, could have a material adverse effect on our operating
results or our financial position.
From time to time, we have received notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
our products. In such cases, it is our policy to defend the claims or negotiate
licenses on commercially reasonable terms, where considered appropriate.
However, no assurance can be given that we will be able in the future to
negotiate necessary licenses on commercially reasonable terms, or at all, or
that any litigation resulting from such claims would not have a material adverse
effect on our business and financial results.
32
<PAGE> 33
ITEM 4. Submission of Matters to Vote of Security Holders
A Special Meeting of our stockholders (the "Meeting") was held at the
principal executive offices located at 4650 Cushing Parkway, Fremont, California
94538, at 11:00 A.M. on Monday, March 6, 2000. According to the certified list
of stockholders at the date of the Meeting, there were 40,547,716 shares of our
Common Stock outstanding and entitled to vote. There were present at the
Meeting, in person or by proxy, the holders of 37,415,913 shares of our Common
Stock, representing 92% of the total votes eligible to be cast, constituting a
majority and more than a quorum of the outstanding shares entitled to vote.
At the meeting, our stockholders approved an increase in the number of
authorized shares of our Common Stock from 90 million to 400 million shares and
approved a three-for-one stock split of our outstanding shares of Common Stock.
Stockholders' approval of the amendment to our Certificate of Incorporation
satisfies the condition for the previously announced three-for-one stock split
approved by our Board of Directors on January 21, 2000.
<TABLE>
<S> <C>
For 29,005,035
Against 8,392,992
Abstain 17,886
Broker Non-vote N/A
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.70 Lease Agreement between Lam Research Corporation
and Scotiabanc Inc., dated January 10, 2000.
Exhibit 10.71 Participation Agreement between Lam Research
Corporation, Scotiabanc Inc., and The Bank of Nova
Scotia, dated January 19, 2000.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
We filed a Form 8-K on January 24, 2000 making an Item 5
disclosure to disclose our announcement of the Board of
Directors approval, subject to obtaining stockholder approval
for a three-for-one split of our outstanding Common Stock and an
increase in our authorized number of shares of Common Stock to
400 million shares (up from 90 million authorized shares).
We filed a Form 8-K on March 6, 2000 making an Item 5 disclosure
to disclose our announcement of our stockholders approval for a
three-for-one stock split of our outstanding shares of Common
Stock and increase of our authorized Common Stock to 400 million
shares.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 8, 2000
LAM RESEARCH CORPORATION
By: /s/ Mercedes Johnson
----------------------------------------
Mercedes Johnson, Vice President,
Finance & Chief Financial Officer
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
Exhibit 10.70 Lease Agreement between Lam Research Corporation
and Scotiabanc Inc., dated January 10, 2000.
Exhibit 10.71 Participation Agreement between Lam Research
Corporation, Scotiabanc Inc., and The Bank of Nova
Scotia, dated January 19, 2000.
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.70
- --------------------------------------------------------------------------------
LEASE
between
SCOTIABANC INC.,
AS LESSOR,
and
LAM RESEARCH CORPORATION,
AS LESSEE
----------------------------------
Dated as of January 10, 2000
----------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
LEASE
BETWEEN
SCOTIABANC INC.
AND
LAM RESEARCH CORPORATION
This LEASE (this "LEASE"), dated as of January 10, 2000, between
SCOTIABANC INC., having an office at 600 Peachtree Street NE, Suite 2700,
Atlanta, Georgia 30308, as lessor ("LESSOR"), and LAM RESEARCH CORPORATION, a
Delaware corporation, having its principal office at 4650 Cushing Parkway,
Fremont, California 94538, as lessee ("LESSEE").
In consideration of the mutual agreements herein contained, and
of other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
-
- DEFINITIONS. Capitalized terms used but not otherwise defined in this
Lease have the respective meanings specified in Annex A to the
Participation Agreement dated as of the date hereof among Lessee,
Lessor, Agent and the Rent Purchasers named therein.
-
- PROPERTY. Subject to the terms and conditions hereinafter set forth,
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
the Property more fully described in Schedule 1 to the Lease Supplement.
- LEASE TERM. The Property is leased for the Term, unless extended or
earlier terminated in accordance with the provisions of this Lease.
- TITLE. The Property is leased to Lessee without any representation or
warranty, express or implied, by Lessor and subject to the rights of
parties in possession, the existing state of title (including, without
limitation, the Permitted Exceptions) and all applicable Legal
Requirements. Lessee shall in no event have any recourse against Lessor
for any defect in title to the Property except for the failure of Lessor
to remove Lessor Liens at the expiration or earlier termination of this
Lease.
- LEASE SUPPLEMENT. On the Funding Date, Lessee and Lessor shall each
execute and deliver a Lease Supplement [Land] and Lease Supplement
[Improvements] for the Property to be leased on such date in
substantially the form of Exhibit A hereto and thereafter the Property
shall be subject to the terms of this Lease.
1.
<PAGE> 3
-
- RENT.
- On each applicable Payment Date and on any date when this Lease shall
terminate, Lessee shall pay Basic Rent for the Property.
- Basic Rent shall be due and payable in lawful money of the United States
and shall be paid by wire transfer of immediately available funds on the
due date therefor to such account or accounts at such bank or banks or
to such other Person or in such other manner as Lessor shall from time
to time direct.
- Neither Lessee's inability or failure to take possession of all, or any
portion, of the Property when delivered by Lessor, nor Lessor's
inability or failure to deliver all or any portion of the Property to
Lessee, whether or not attributable to any act or omission of Lessee or
any act or omission of Lessor, or for any other reason whatsoever, shall
delay or otherwise affect Lessee's obligation to pay Rent in accordance
with the terms of this Lease.
- PAYMENT OF BASIC RENT. Basic Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount
thereof, without setoff, deduction or reduction.
- SUPPLEMENTAL RENT.
- Lessee shall pay to Lessor or the Person entitled thereto any and all
Supplemental Rent promptly as the same shall become due and payable, and
if Lessee fails to pay any Supplemental Rent, Lessor shall have all
rights, powers and remedies provided for herein or by law or equity or
otherwise in the case of nonpayment of Basic Rent. Lessee shall pay to
Lessor as Supplemental Rent, among other things, on demand, to the
extent permitted by applicable Requirements of Law, interest at the
applicable Overdue Rate on any installment of Basic Rent not paid when
due for the period for which the same shall be overdue and on any
payment of Supplemental Rent not paid when due or demanded by Lessor for
the period from the due date or the date of any such demand, as the case
may be, until the same shall be paid. The expiration or other
termination of Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of Lessee with respect to
Supplemental Rent. Unless expressly provided otherwise in this Lease or
any other Operative Agreement, in the event of any failure on the part
of Lessee to pay and discharge any Supplemental Rent as and when due,
Lessee shall also promptly pay and discharge any fine, penalty, interest
or cost which may be assessed or added for nonpayment or late payment of
such Supplemental Rent, all of which shall also constitute Supplemental
Rent.
- Lessee shall make a payment of Supplemental Rent equal to the Maximum
Residual Guarantee Amount in accordance with Section 21.1(c).
2.
<PAGE> 4
- PERFORMANCE ON A NON-BUSINESS DAY. If any payment is required hereunder
on a day that is not a Business Day, then such payment shall be due on
the next succeeding Business Day (subject to the definition of the term
"INTEREST PERIOD").
- METHOD OF PAYMENT. Each payment of Rent payable by Lessee to Lessor
under this Lease or any other Operative Agreement shall be made by
Lessee to Lessor prior to 10:00 a.m. Pacific Time to the Account in
immediately available funds consisting of lawful currency of the United
States of America on the date when such payment shall be due. Payments
received after 10:00 a.m. Pacific Time on the date due shall for the
purpose of Section 17.1 hereof be deemed received on such day; provided,
however, that for the purposes of the second sentence of Section 3.3(a),
such payments shall be deemed received on the next succeeding Business
Day and shall accrue interest at the Overdue Rate as provided in such
Section 3.3(a).
-
- UTILITY CHARGES. Lessee shall pay, or cause to be paid, all charges for
electricity, power, gas, oil, water, telephone, sanitary sewer service
and all other rents and utilities used in or on the Property during the
Term. Lessee shall be entitled to receive any credit or refund with
respect to any utility charge paid by Lessee and the amount of any
credit or refund received by Lessor on account of any utility charges
paid by Lessee, net of the costs and expenses incurred by Lessor in
obtaining such credit or refund, shall be promptly paid over to Lessee.
All charges for utilities imposed with respect to the Property for a
billing period during which this Lease expires or terminates shall be
adjusted and prorated on a daily basis between Lessor and Lessee, and
each party shall pay or reimburse the other for each party's pro rata
share thereof.
-
- QUIET ENJOYMENT. So long as no Event of Default shall have occurred and
be continuing, Lessee shall peaceably and quietly have, hold and enjoy
the Property for the Term, free of any claim or other action by Lessor
or anyone rightfully claiming by, through or under Lessor with respect
to any matters arising from and after the Closing Date. Such right of
quiet enjoyment is independent of, and shall not affect the rights of
Lessor (or anyone claiming by, through or under Lessor) otherwise to
initiate legal action to enforce, the obligations of Lessee under this
Lease.
-
- NET LEASE; NO SETOFF; ETC. This Lease shall constitute a net lease and,
notwithstanding any other provision of this Lease, it is intended that
Basic Rent and Supplemental Rent shall be paid without counterclaim,
setoff, deduction or defense of any kind and without abatement,
suspension, deferment, diminution or reduction of any kind, and Lessee's
obligation to pay all such amounts, throughout the Term, is absolute and
unconditional. The obligations and liabilities of Lessee hereunder shall
in no way be released, discharged or otherwise affected for any reason,
including, without limitation, to the maximum extent permitted by law:
(a) any defect in the condition, merchantability,
3.
<PAGE> 5
design, construction, quality or fitness for use of any portion of the
Property, or any failure of the Property to comply with all Legal
Requirements, including any inability to occupy or use the Property by
reason of such noncompliance; (b) any damage to, abandonment, loss,
contamination of or Release from or destruction of or any requisition or
taking of the Property or any part thereof, including eviction; (c) any
restriction, prevention or curtailment of or interference with any use
of the Property or any part thereof, including eviction; (d) any defect
in title to or rights to the Property or any Lien on such title or
rights or on the Property; (e) any change, waiver, extension, indulgence
or other action or omission or breach in respect of any obligation or
liability of or by Lessor or any Rent Purchaser; (f) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceedings relating to Lessee, Lessor, Agent
or any Rent Purchaser, or any action taken with respect to this Lease by
any trustee or receiver of Lessee, Lessor, Agent any Rent Purchaser or
any other Person, or by any court, in any such proceeding; (g) any claim
that Lessee has or might have against any Person, including, without
limitation, Lessor, Agent or any Rent Purchaser; (h) any failure on the
part of Lessor to perform or comply with any of the terms of this Lease,
any other Operative Agreement or of any other agreement; (i) any
invalidity, unenforceability or disaffirmance against or by Lessee of
this Lease, or any of the other Operative Agreements, or any provision
hereof or thereof; (j) the impossibility or illegality of performance by
Lessee, Lessor or either of them; (k) any action by any court,
administrative agency or other Governmental Authority; (l) any
restriction, prevention or curtailment of or any interference with the
construction on or any use of the Property or any part thereof; or (m)
any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not Lessee shall have notice or knowledge of any
of the foregoing. This Lease shall be noncancellable by Lessee for any
reason whatsoever except as expressly provided herein, and Lessee, to
the extent permitted by Legal Requirements, waives all rights now or
hereafter conferred by statute or otherwise to quit, terminate or
surrender this Lease, or to any diminution, abatement or reduction of
Rent payable by Lessee hereunder. If for any reason whatsoever this
Lease shall be terminated in whole or in part by operation of law or
otherwise, except as otherwise expressly provided herein, Lessee shall,
unless prohibited by any Requirements of Law, nonetheless pay to Lessor
(or, in the case of Supplemental Rent, to whomsoever shall be entitled
thereto) an amount equal to each Rent payment at the time and in the
manner that such payment would have become due and payable under the
terms of this Lease if it had not been terminated in whole or in part,
and in such case, so long as such payments are made and no Event of
Default shall have occurred and be continuing, Lessor will deem this
Lease to have remained in effect. Each payment of Rent made by Lessee
hereunder shall be final and, absent manifest error in the computation
of the amount thereof, Lessee shall not seek or have any right to
recover all or any part of such payment from Lessor or any Rent
Purchaser or any party to any agreements related thereto for any reason
whatsoever. Lessee assumes the sole responsibility for the condition,
use, operation, maintenance and management of the Property and Lessor
shall have no responsibility in respect thereof or any liability for
damage to the property of Lessee or any subtenant of Lessee on any
account or for any reason whatsoever. Nothing in this Article 6 shall
relieve Lessor from liability to Lessee arising from the gross
negligence or willful misconduct of, or breach of its obligations by,
Lessor hereunder.
4.
<PAGE> 6
- NO TERMINATION OR ABATEMENT. Lessee shall remain obligated under this
Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution or
other proceeding affecting any Participant, or any action with respect
to this Lease which may be taken by any trustee, receiver or liquidator
of any Participant or by any court with respect to any Participant,
except as otherwise expressly provided herein. Lessee hereby waives all
right (i) to terminate or surrender this Lease, except as otherwise
expressly provided herein, or (ii) to avail itself of any abatement,
suspension, deferment, reduction, setoff, counterclaim or defense with
respect to any Rent. Lessee shall remain obligated under this Lease in
accordance with its terms and Lessee hereby waives any and all rights
now or hereafter conferred by statute or otherwise to modify or to avoid
strict compliance with its obligations under this Lease. Notwithstanding
any such statute or otherwise, Lessee shall be bound by all of the terms
and conditions contained in this Lease.
-
- OWNERSHIP OF THE PROPERTY. The parties hereto intend that (a) for
financial accounting purposes with respect to Lessee, Lessor, Agent and
Rent Purchasers (i) this Lease will be treated as an "operating lease"
pursuant to Statement of Financial Accounting Standards (SFAS) No. 13,
as amended, (ii) Lessor will be treated as the owner and lessor of the
Property, and (iii) Lessee will be treated as the lessee of the
Property, but (a) for federal, state and local income tax and all other
purposes (i) this Lease will be treated as a financing arrangement, (ii)
Lessor and Rent Purchasers will be treated as lenders making loans to
Lessee in an amount equal to the sum of the Lessor Contribution and the
Rent Purchaser Advances, which loans are secured by the Property, and
(iii) Lessee will be treated as the owner of the Property and will be
entitled to all tax benefits ordinarily available to an owner of land
and improvements like the Property for such tax purposes.
- LIENS AND SECURITY INTERESTS.
- The parties hereto further intend and agree that, for the purpose of
securing Lessee's obligations for the repayment of the above-described
loans, (i) this Lease shall also be deemed to be a security agreement
and financing statement within the meaning of Article 9 of the Uniform
Commercial Code and a real property mortgage or deed of trust, as
applicable; (ii) Lessee grants to Lessor a security interest in Lessee's
interest in the Trust Property (defined in subsection 7.2(c) below);
(iii) the conveyance provided for in Article 2 shall be deemed a grant
of a security interest in Lessee's beneficial ownership interest in the
Property and all proceeds of the conversion, voluntary or involuntary,
of the foregoing into cash, investments, securities or other property,
whether in the form of cash, investments, securities or other property,
for the benefit of Lessor to secure Lessee's payment of all amounts owed
by Lessee under this Lease and the other Operative Agreements and Lessor
holds title to the Property so as to create and grant a first lien and
prior security interest in the Property pursuant to this Lease for the
benefit of Lessor to secure to Lessor the obligations of Lessee under
the Lease; (iv) the possession by Lessor or any of its agents of notes
and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to
5.
<PAGE> 7
be "possession by the secured party" for purposes of perfecting the
security interest pursuant to Section 9-305 of the Uniform Commercial
Code; and (v) notifications to Persons holding such property, and
acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of Lessee shall be
deemed to have been given for the purpose of perfecting such security
interest under applicable law. In such event, Lessor shall have all of
the rights, powers and remedies of a grantee and a secured party
available under applicable law, including, without limitation, judicial
or nonjudicial foreclosure or power of sale, as and to the extent
available under applicable law. The filing of this Lease (or a
memorandum hereof) shall be deemed to constitute the filing of a deed to
secure debt and the filing of any financing statement in connection with
this Lease shall be deemed to constitute the filing of a financing
statement to perfect the deed to secure debt and security interests in
the Property as aforesaid to secure the payment of all amounts due from
time to time from Lessee to Lessor under this Lease and the other
Operative Documents. If this transaction is treated as a financing, the
obligation arising hereunder shall be with full recourse to Lessee and
shall not be treated as recourse only to the Property. To the fullest
extent permitted by applicable law, Lessor and Lessee intend that the
Property (other than the Land) be and remain at all times personal
property regardless of the manner or extent to which any of the Property
(other than the Land) may be attached or affixed to any real property.
Except as required by applicable law, Lessee shall not under any
circumstances take any action or make any filing or recording which
could cause the Property (other than the Land) to be deemed to be real
property or permit any Person to obtain any interest in the Property
(other than the Land) as a result of the Property (other than the Land)
being deemed to be in whole or in part real property. This Lease secures
and shall be security for any and all future advances made by Lessor to
Lessee. Nothing contained herein shall be deemed an obligation on the
part of Lessor to make any further advances. The parties hereto shall,
to the extent consistent with this Lease, take such actions as may be
necessary to ensure that, if this Lease were deemed to create a security
interest in the Property in accordance with this Section 7.2, such
security interest would be deemed to be a perfected security interest of
first priority under applicable law and will be maintained as such
throughout the Term. Nevertheless, Lessee acknowledges and agrees that
neither Lessor nor any Rent Purchaser has provided nor will provide tax,
accounting or legal advice to Lessee regarding this Lease, the Operative
Agreements or the transactions contemplated hereby and thereby, or made
any representations or warranties concerning the tax, accounting or
legal characteristics of the Operative Agreements, and that Lessee has
obtained and relied upon such tax, accounting and legal advice
concerning the Operative Agreements as it deems appropriate.
- The parties hereto further intend and agree that in the event of any
insolvency or receivership proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency laws or
statutes of the United States of America or any State or Commonwealth
thereof affecting any party hereto, the transactions evidenced by this
Lease shall be regarded as loans made by an unrelated third party lender
to Lessee.
- Specifically, but without limiting the foregoing or the generality of
Section 7.1, Lessee, as trustor, hereby grants, bargains, sells,
warrants, conveys, aliens, remises, releases, assigns, sets over and
confirms to Lessor, as beneficiary, WITH POWER OF SALE, AND RIGHT OF
ENTRY AND INSPECTION, all of Lessee's present and future right,
6.
<PAGE> 8
title, and interest in and to the following (collectively, the "TRUST
Property"): (i) the Land and the Property and Appurtenant Rights
relating thereto and all proceeds, both cash and noncash thereof; (ii)
all easements, rights-of-way, strips and gores of land, vaults, streets,
ways, alleys, passages, sewer rights, waters, water courses, water
rights, minerals, flowers, shrubs, crops, trees, timber and other
emblements now or hereafter located on the Land or under or above the
same or any part or parcel thereof, and all estates, rights, titles,
interests, tenements, hereditaments and appurtenances, reversions and
remainders whatsoever, in any way belonging, relating or appertaining to
the Land and the Property or any part thereof, or which hereafter shall
in any way belong, relate or be appurtenant thereto, whether now owned
or hereafter acquired by Lessee; (iii) all articles of personal property
of every kind and nature whatsoever, tangible or intangible, now,
heretofore or hereafter acquired with any proceeds of the Advances and
now, heretofore or hereafter (A) arising out of or related to the
ownership of the Property, or (B) located in, on or about the Property,
or (C) used or intended to be used with or in connection with the
construction, use, operation or enjoyment of the Property; (iv) all
right, title and interest of Lessee in any and all leases, rental
agreements and arrangements of any sort now or hereafter affecting the
Property or any portion thereof and providing for or resulting in the
payment of money to Lessee for the use of the Property or any portion
thereof, whether the user enjoys the Property or any portion thereof as
tenant for years, licensee, tenant at sufferance or otherwise, and
irrespective of whether such leases, rental agreements and arrangements
be oral or written, and including any and all extensions, renewals and
modifications thereof (the "SUBJECT LEASES") and guaranties of the
performance or obligations of any tenants or lessees thereunder,
together with all income, rents, issues, profits and revenues from the
Subject Leases (including all tenant security deposits and all other
tenant deposits, whether held by Lessee or in a trust account, and all
other deposits and escrow funds relating to any Subject Leases), and all
the estate, right, title, interest, property, possession, claim and
demand whatsoever at law, as well as in equity, of Lessee of, in and to
the same; provided, however, that although this Lease contains (and it
is hereby agreed that this Lease contains) a present, current,
unconditional and absolute assignment of all of said income, rents,
issues, profits and revenues, Lessee shall collect and apply such rental
payments and revenues as provided in the Lease and the other Operative
Agreements; (v) all right, title and interest of Lessee to and under all
agreements, management contracts, consents, authorizations, certificates
and other rights of every kind and character of any Governmental
Authority affecting the Property, to the extent the same are
transferable, service contracts, utility contracts, leases of equipment,
documents and agreements relating to the construction of any
Improvements (including any and all construction contracts,
architectural contracts, engineering contracts, designs, plans,
specifications, drawings, surveys, tests, reports, bonds and
governmental approvals) and all other contracts, licenses and permits
now or hereafter affecting the Property or any part thereof and all
guaranties and warranties with respect to any of the foregoing (the
"SUBJECT CONTRACTS"); (vi) all right, title and interest of Lessee in
any insurance policies or binders now or hereafter relating to the
Property, including any unearned premiums thereon, as further provided
in this Lease; (vii) all right, title and interest of Lessee in any and
all awards, payments, proceeds and the right to receive the same, either
before or after any foreclosure hereunder, as a result of any temporary
or permanent injury or
7.
<PAGE> 9
damage to, taking of or decrease in the value of the Property by reason
of casualty, condemnation or otherwise as further provided in this
Lease; (viii) all right, title and interest of Lessee in all utility,
escrow and all other deposits (and all letters of credit, certificates
of deposit, negotiable instruments and other rights and evidence of
rights to cash) now or hereafter relating to the Property or the
purchase, construction or operation thereof; (ix) all claims and causes
of action arising from or otherwise related to any of the foregoing, and
all rights and judgments related to any legal actions in connection with
such claims or causes of action; and (x) all Modifications, extensions,
additions, improvements, betterments, renewals and replacements,
substitutions, or proceeds of any of the foregoing, and all property of
any nature constituting proceeds acquired with proceeds of any of the
property described hereinabove; all of which foregoing items are hereby
declared and shall be deemed to be a portion of the security for the
indebtedness and Advances herein described, a portion of the above
described collateral being located upon the Land.
-
- CONDITION OF THE PROPERTY. LESSEE ACKNOWLEDGES AND AGREES THAT IT IS
RENTING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR
COVENANT (EXPRESS OR IMPLIED) BY LESSOR AND SUBJECT TO (A) THE EXISTING
STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C)
ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT
SHOW, AND (D) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE
DATE HEREOF. NEITHER LESSOR NOR ANY PARTICIPANT HAS MADE OR SHALL BE
DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR
IMPLIED, INCLUDING THE CONDITION OF ANY IMPROVEMENTS THEREON, THE SOIL
CONDITION, OR ANY ENVIRONMENTAL OR HAZARDOUS MATERIAL CONDITION) OR
SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE,
HABITABILITY, USE, CONDITION, DESIGN, OPERATION OR FITNESS FOR USE OF
THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION,
WARRANTY OR COVENANT WHATSOEVER (EXPRESS OR IMPLIED), WITH RESPECT TO
THE PROPERTY (OR ANY PART THEREOF) AND NEITHER LESSOR NOR ANY
PARTICIPANT SHALL BE LIABLE FOR ANY LATENT, HIDDEN OR PATENT DEFECT
THEREIN OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY
WITH ANY LEGAL REQUIREMENT.
- POSSESSION AND USE OF THE PROPERTY. The Property shall be used for
office, manufacturing and research and development purposes. Lessee
shall pay, or cause to be paid, all charges and costs required in
connection with the use of the Property. Lessee shall not commit or
permit any waste of the Property or any part thereof.
-
8.
<PAGE> 10
- COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS. Subject
to the terms of Article 13 relating to permitted contests, Lessee, at
its sole cost and expense, shall (a) comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements relating
to the Property, including the use, construction, operation,
maintenance, repair and restoration thereof, whether or not compliance
therewith shall require structural or extraordinary changes in the
Improvements or interfere with the use and enjoyment of the Property,
and (b) procure, maintain and comply in all material respects with all
licenses, permits, orders, approvals, consents and other authorizations
required for the construction, renovation, use, maintenance and
operation of the Property and for the use, operation, maintenance,
repair and restoration of the Improvements.
-
- MAINTENANCE AND REPAIR; RETURN.
- Lessee, at its sole cost and expense, shall maintain the Property in
good condition (ordinary wear and tear excepted) and make all necessary
repairs thereto, of every kind and nature whatsoever, whether interior
or exterior, ordinary or extraordinary, structural or nonstructural or
foreseen or unforeseen, in each case as required by all Legal
Requirements and Insurance Requirements and on a basis reasonably
consistent with the operation and maintenance of commercial properties
comparable in type and location to the Property subject, however, to the
provisions of Article 15 with respect to Condemnation and Casualty.
- Lessor's obligation to make the Lessor Contribution is as set forth in
Section 2.1 of the Participation Agreement. Under no circumstances shall
Lessor itself be required to build any Improvements on the Property,
make any repairs, replacements, alterations or renewals of any nature or
description to the Property, make any expenditure whatsoever in
connection with this Lease or maintain the Property in any way. Lessor
shall not be required to maintain, repair or rebuild all or any part of
the Property, and Lessee waives the right to (i) require Lessor to
maintain, repair or rebuild all or any part of the Property, or (ii)
make repairs at the expense of Lessor pursuant to any Legal Requirement,
Insurance Requirement, contract, agreement, covenants, condition or
restriction at any time in effect.
- Lessee shall, upon the expiration or earlier termination of the Term
with respect to the Property not including a purchase thereof by Lessee,
vacate, surrender and transfer the Property to Lessor or, at Lessor's
request, the independent purchaser thereof, at Lessee's own expense,
free and clear of all Liens other than Permitted Liens and Lessor Liens,
in as good condition as it was on the Closing Date, ordinary wear and
tear excepted, and in compliance with all Legal Requirements and the
other requirements of this Lease (and in any event without (x) any
asbestos installed or maintained in any part of the Property, (y) any
polychlorinated biphenyls (PCBs) in, on or used, stored or located at
the Property, and (z) any other Hazardous Substances). Lessee shall
cooperate with any independent purchaser of the Property in order to
facilitate the ownership or leasing and operation by such purchaser of
the Property after such expiration or earlier termination of the Term,
9.
<PAGE> 11
including providing all books, reports and records regarding the
maintenance, repair and ownership of the Property and all data and
technical information relating thereto, granting or assigning all
licenses necessary for the operation and maintenance of the Property and
cooperating in seeking and obtaining all necessary licenses, permits and
approvals of Governmental Authorities. Lessee shall have also paid the
total cost for the completion of all Modifications commenced prior to
such expiration or earlier termination of the Term. The obligation of
Lessee under this Section 10.1(c) shall survive the expiration or
termination of this Lease.
- RIGHT OF INSPECTION. Lessor or any Rent Purchaser may, each not more
than twice each year unless an Event of Default exists, at reasonable
times, and with reasonable prior written notice and in a manner which
minimizes the disruption of Lessee's use of the Property, enter upon,
inspect and examine at its own cost and expense (unless an Event of
Default exists, in which case the out-of-pocket costs and expenses of
such parties shall be paid by Lessee), the Property. Lessee shall
furnish to Lessor statements, no more than once per year, accurate in
all material respects, regarding the condition and state of repair of
the Property. Lessor shall have no duty to make any such inspection or
inquiry and shall not incur any liability or obligation by reason of not
making any such inspection or inquiry.
- ENVIRONMENTAL INSPECTION. Upon surrender of possession of the Property,
or not more than one hundred twenty (120) days nor less than thirty (30)
days prior to the Expiration Date or earlier termination of the Term
(unless Lessee has previously irrevocably exercised the Purchase Option
or Maturity Date Purchase Option), Lessee shall, at its sole cost and
expense, provide to Lessor a report by an environmental consultant
selected by Lessee and reasonably satisfactory to Lessor certifying that
there has been no Release at, on or from the Property and Hazardous
Substances have not at any time during the Term been generated, used,
treated or stored on, transported to or from, or deposited at or on the
Property other than (a) as necessary to use, operate, maintain, repair
and restore the Property and (b) in full compliance with all
Environmental Laws, and no portion of the Property has been used for
such purposes other than in full compliance with all Environmental Laws.
If such is not the case, the report shall set forth a remedial response
plan relating to the Property (which remedial response plan, if required
by any Environmental Law or Governmental Authority, shall be approved by
the appropriate Governmental Authority). Such remedial response plan
shall include, if relevant, but shall not be limited to, plans for full
response, remediation, removal or other corrective action, and the
protection, or mitigative action associated with the protection, of
natural resources including wildlife, aquatic species and vegetation
associated with the Property, as required by all applicable
Environmental Laws. If such report includes a remedial response plan,
Lessee shall promptly deposit funds in escrow with Lessor sufficient to
ensure the full execution and implementation of such plan.
10.
<PAGE> 12
-
- MODIFICATIONS, SUBSTITUTIONS AND REPLACEMENTS.
- So long as no Event of Default has occurred and is continuing, Lessee,
at its sole cost and expense, may at any time and from time to time make
alterations, renovations, improvements and additions to the Property or
any part thereof (collectively, "MODIFICATIONS"); provided, that: (i)
except for any Modification required to be made pursuant to a Legal
Requirement or an Insurance Requirement, no Modification, individually,
or when aggregated with any (A) other Modification or (B) grant,
dedication, transfer or release pursuant to Section 12.2, shall impair
the value of the Property or the utility or useful life of the Property
from that which existed immediately prior to such Modification; (ii) the
Modification shall be performed expeditiously and in a good and
workmanlike manner; (iii) Lessee shall comply with all Legal
Requirements (including all Environmental Laws) and all Insurance
Requirements applicable to the Modification, including the obtaining of
all permits and certificates of occupancy, and the structural integrity
of the Property shall not be adversely affected; (iv) Lessee shall
maintain or cause to be maintained builders' risk insurance at all times
when a Modification is in progress; (v) subject to the terms of Article
13 relating to permitted contests, Lessee shall pay all costs and
expenses and discharge any Liens arising with respect to the
Modification; (vi) such Modifications shall comply with Sections 8.2 and
10.1 and shall not change the primary character of the Property; and
(vii) the Improvements shall not be demolished in total in the making of
the Modification. All Modifications (other than those that may be
readily removed without impairing the value, utility or remaining useful
life of the Property) shall remain part of the Improvements and shall be
subject to this Lease, and title thereto shall immediately vest in
Lessor. So long as no Event of Default has occurred and is continuing,
Lessee may place upon the Property any inventory, trade fixtures,
machinery, equipment or other property belonging to Lessee or third
parties and may remove the same at any time during the term of this
Lease; provided that such inventory, trade fixtures, machinery,
equipment or other property, or their respective operations, do not
materially impair the value, utility or remaining useful life of the
Property.
- Lessee shall notify Lessor of the undertaking of any construction,
repairs or alterations to the Property the cost of which is anticipated
to exceed $1,000,000. Prior to undertaking any such construction or
alterations, Lessee shall deliver to Lessor (i) a brief narrative of the
work to be done and a copy of the plans and specifications relating to
such work; and (ii) an Officer's Certificate stating that such work when
completed will not impair the value, utility or remaining useful life of
the Property. Lessor, by itself or its agents, shall have the right, but
not the obligation, from time to time to inspect such construction to
ensure that the same is completed consistent with such plans and
specifications.
- Lessee shall not, without the consent of Lessor, undertake any
construction or alterations to the Property if such construction or
alterations cannot, in the reasonable judgement of Lessor, be completed
on or prior to the date that is one hundred eighty (180) days prior to
the Expiration Date.
11.
<PAGE> 13
-
- WARRANTY OF TITLE.
- Lessee agrees that, except as otherwise provided herein and subject to
the terms of Article 13 relating to permitted contests, Lessee shall not
directly or indirectly create or allow to remain, and shall promptly
discharge at its sole cost and expense, any Lien, defect, attachment,
levy, title retention agreement or claim, other than a Lessor Lien, upon
the Property or any Modifications or any Lien, attachment, levy or claim
with respect to the Rent or with respect to any amounts held by Lessor
or the Collateral Agent pursuant to the Participation Agreement or the
Pledge Agreement, other than with respect to the Property only,
Permitted Liens. Lessee shall promptly notify Lessor in the event it
receives actual knowledge that a Lien (other than a Permitted Lien)
exists with respect to the Property or that a Lien exists with respect
to the Rent or the Collateral.
- Nothing contained in this Lease shall be construed as constituting the
consent or request of Lessor, expressed or implied, to or for the
performance by any contractor, mechanic, laborer, materialman, supplier
or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or
demolition of or to the Property or any part thereof. NOTICE IS HEREBY
GIVEN THAT NEITHER LESSOR NOR ANY PARTICIPANT IS OR SHALL BE LIABLE FOR
ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE,
OR TO ANYONE HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR,
SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR
IN AND TO THE PROPERTY.
- GRANTS AND RELEASES OF EASEMENTS. Provided that no Event of Default
shall have occurred and be continuing and subject to the provisions of
Articles 8, 9, 10 and 11, Lessor hereby consents to the following
actions by Lessee, in the name and stead of Lessor, but at Lessee's sole
cost and expense: (a) the granting of easements, licenses, rights-of-way
and other rights and privileges in the nature of easements and incurring
of other obligations of Lessee reasonably necessary or desirable for the
development, construction, use, repair, renovation or maintenance of the
Property as herein provided; (b) the release of existing easements or
other rights in the nature of easements which are for the benefit of the
Property or adjacent properties (owned by Lessee); (c) the dedication or
transfer of unimproved portions of the Property for road, highway or
other public purposes; (d) the execution of petitions to have the
Property annexed to any municipal corporation or utility district; and
(e) the execution of amendments to any covenants and restrictions
affecting the Property; provided, that in each case Lessee shall have
delivered to Lessor an Officer's Certificate stating that: (i) such
grant, release, dedication or transfer does not materially impair the
value, utility or remaining useful life of the Property, (ii) such
grant, release, dedication or transfer is necessary in connection with
the construction, use, maintenance, alteration, renovation or
improvement of the Property or adjacent properties (owned or leased by
Lessee), (iii) Lessee shall remain obligated under this Lease and under
any instrument executed by Lessee consenting to the assignment of
Lessor's interest in this Lease as security for indebtedness, in each
such
12.
<PAGE> 14
case in accordance with their terms, as though such grant, release,
dedication or transfer, had not been effected, and (iv) Lessee shall pay
and perform any obligations of Lessor under such grant, release,
dedication or transfer. Without limiting the effectiveness of the
foregoing, provided that no Event of Default shall have occurred and be
continuing, Lessor shall, upon the request of Lessee, and at Lessee's
sole cost and expense, promptly execute and deliver any instruments
necessary or appropriate to confirm any such grant, release, dedication
or transfer to any Person permitted under this Section 12.2.
-
- PERMITTED CONTESTS OTHER THAN IN RESPECT OF IMPOSITIONS. Except to the
extent otherwise provided for in Section 11.2(f) of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole
cost and expense, may contest, by appropriate administrative or judicial
proceedings conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any Legal Requirement
or utility charges payable pursuant to Section 4.1, or any Lien,
attachment, levy, encumbrance or encroachment, and Lessor agrees not to
pay, settle or otherwise compromise any such item, provided that (a) the
commencement and continuation of such proceedings shall suspend the
collection thereof from, and suspend the enforcement thereof against,
the Property, the Rent, the Collateral, Lessor, Agent and Rent
Purchasers; (b) there shall be no risk of the imposition of a Lien
(other than a Permitted Lien) on the Property, or any Lien on any Rent
or the Collateral, and no part of the Property nor any Rent nor any of
the Collateral would be in any danger of being sold, forfeited, lost or
deferred; (c) at no time during the permitted contest shall there be a
risk of the imposition of criminal liability or civil liability on
Lessor or any Participant for failure to comply therewith; and (d) in
the event that, at any time, there shall be a material risk of extending
the application of such item beyond the Expiration Date, then Lessee
shall deliver to Lessor an Officer's Certificate certifying as to the
matters set forth in clauses (a), (b) and (c) of this Section 13.1.
Lessor, at Lessee's sole cost and expense, shall execute and deliver to
Lessee such authorizations and other documents as may reasonably be
required in connection with any such contest and, if reasonably
requested by Lessee, shall join as a party therein at Lessee's sole cost
and expense.
-
- PUBLIC LIABILITY AND WORKERS' COMPENSATION INSURANCE. During the Term,
Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage to property while on the Property. Such
insurance shall be on terms and in amounts that are no less favorable
than insurance maintained by owners of similar properties, that are in
accordance with normal industry practice. The policy shall be endorsed
to name Lessor and each Rent Purchaser as additional insureds. The
policy shall also specifically provide that the policy shall be
considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which Lessor or any Rent
Purchaser may have in force. Lessee shall, in the operation of the
Property, comply with the applicable workers' compensation laws and
protect Lessor and each Rent Purchaser against any liability under such
laws.
13.
<PAGE> 15
- HAZARD AND OTHER INSURANCE.
- During the Term, Lessee shall keep the Property insured against loss or
damage by fire, earthquake and other risks on terms and in amounts that
are no less favorable than insurance maintained by owners of similar
properties, that are in accordance with normal industry practice, and
are in amounts at least equal to the Lease Balance and in the case of
earthquake coverage, with a deductible which is commercially reasonable
for the geographical location of the property. So long as no Event of
Default exists, any loss payable under the insurance policy required by
this Section 14.2 will be paid to and adjusted solely by Lessee, subject
to Article 15. So long as no Event of Default exists, any loss payable
under any title insurance policy covering the Property will be paid to
and adjusted solely by Lessee, subject to Article 15.
- If at any time during the Term the area in which the Property is located
is designated a "flood-prone" area pursuant to the Flood Disaster
Protection Act of 1973 or any amendments or supplements thereto, then
Lessee shall comply with the National Flood Insurance Program as set
forth in the Flood Disaster Protection Act of 1973, as may be amended.
In addition, Lessee will fully comply with the requirements of the
National Flood Insurance Act of 1968 and the Flood Disaster Protection
Act of 1973, as each may be amended from time to time, and with any
other Legal Requirement concerning flood insurance to the extent that it
applies to the Property.
- COVERAGE.
- Lessee shall furnish Lessor with certificates showing the insurance
required under Sections 14.1 and 14.2 to be in effect and naming Lessor
as loss payee with respect to property insurance and Lessor and each
Rent Purchaser as an additional insured with respect to liability
insurance and showing the mortgagee endorsement required by Section
14.3(c). All such insurance may be maintained under blanket policies and
shall be at the cost and expense of Lessee and provided by nationally
recognized, financially sound insurance companies having a rating by
A.M. Best's Key Rating Guide of at least an A and a Financial
Performance Rating of at least VIII. Such certificates shall include a
provision in which the insurer agrees to provide thirty (30) days'
advance written notice by the insurer to Lessor (on behalf of the
beneficiaries of such insurance coverage) in the event of cancellation
or material alteration of such insurance. If an Event of Default has
occurred and is continuing and Lessor so requests, Lessee shall deliver
to Lessor copies of all insurance policies required by this Lease.
- Lessee agrees that the insurance policy or policies required by this
Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in
writing, prior to a loss, any or all rights of recovery against any
party for losses covered by such policy. Lessee hereby waives any and
all such rights against Lessor and each Rent Purchaser to the extent of
payments made under such policies.
- All insurance policies required by Section 14.2 shall include a "New
York" or standard form mortgagee endorsement in favor of Lessor.
14.
<PAGE> 16
- Neither Lessor nor any Rent Purchaser shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor and any Rent
Purchaser may carry separate liability insurance so long as (i) Lessee's
insurance is designated as primary and in no event excess or
contributory to any insurance such party may have in force which would
apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this
Lease to be subject to a coinsurance exception of any kind.
- Lessee shall pay as they become due all premiums for the insurance
required by this Lease, shall renew or replace each policy prior to the
expiration date thereof, shall promptly deliver to Lessor and Rent
Purchaser certificates for renewal and replacement policies, and
otherwise maintain the coverage required by this Lease without any lapse
in coverage.
-
- CASUALTY AND CONDEMNATION.
- Subject to the provisions of this Article 15 and Article 16 (in the
event Lessee delivers, or is obligated to deliver, a Termination
Notice), and prior to the occurrence and continuation of an Event of
Default, Lessee shall be entitled to receive (and Lessor hereby
irrevocably assigns to Lessee all of Lessor's right, title and interest
during such time in) any award, compensation or insurance proceeds to
which Lessee or Lessor may become entitled by reason of their respective
interests in the Property (i) if all or a portion of the Property is
damaged or destroyed in whole or in part by a Casualty or (ii) if the
use, access, occupancy, easement rights or title to the Property or any
part thereof is the subject of a Condemnation; provided, however, if a
Default shall have occurred and be continuing, such award, compensation
or insurance proceeds shall be paid directly to Lessor or, if received
by Lessee, shall be held in trust for Lessor, and shall be paid over by
Lessee to Lessor; and provided, further, that in the event of any
Casualty or Condemnation, the estimated cost of restoration of which is
in excess of $3,000,000, any such award, compensation or insurance
proceeds shall be paid directly to Lessor, or if received by Lessee,
shall be held in trust for Lessor and shall be paid over by Lessee to
Lessor, subject to disbursement in full to Lessee in accordance with
Section 15.1(d) or (e), as applicable.
- So long as no Event of Default has occurred and is continuing, Lessee
may appear in any proceeding or action to negotiate, prosecute, adjust
or appeal any claim for any award, compensation or insurance payment on
account of any such Casualty or Condemnation and shall pay all expenses
thereof; provided that if the estimated cost of restoration of the
Property or the payment on account of such title defect is in excess of
$3,000,000, then Lessor shall be entitled to participate in any such
proceeding or action. At Lessee's reasonable request, and at Lessee's
sole cost and expense, Lessor shall participate in any such proceeding,
action, negotiation, prosecution or adjustment. Lessor and Lessee agree
that this Lease shall control the rights of Lessor, Participants and
Lessee in and to any such award, compensation or insurance payment.
15.
<PAGE> 17
- If any party shall receive notice of a Casualty or a possible
Condemnation of the Property or any interest therein, such party, as the
case may be, shall give notice thereof to Lessor and Lessee promptly
after the receipt of such notice.
- In the event of a Casualty or receipt of notice by Lessee or Lessor of a
Condemnation, Lessee shall, not later than thirty (30) days after such
occurrence, deliver to Lessor an Officer's Certificate stating that
either (i) (x) such Casualty is not a Significant Casualty or (y) such
Condemnation is neither a Total Condemnation nor a Significant
Condemnation and that this Lease shall remain in full force and effect
with respect to the Property and, at Lessee's sole cost and expense,
Lessee shall promptly and diligently restore the Property in accordance
with the terms of Section 15.1(e) or (ii) this Lease shall terminate
with respect to the Property in accordance with Section 16.1.
- If pursuant to Section 15.1(d), this Lease shall continue in full force
and effect following a Casualty or Condemnation with respect to the
Property, Lessee shall, at its sole cost and expense, promptly and
diligently repair any damage to the Property caused by such Casualty or
Condemnation in conformity with the requirements of Sections 10.1 and
11.1 using the as-built plans and specifications for the Property (as
modified to give effect to any subsequent Modifications, any
Condemnation affecting the Property and all applicable Legal
Requirements) so as to restore the Property to the same condition,
operation, function and value as existed immediately prior to such
Casualty or Condemnation. In such event, title to the Property shall
remain with Lessor.
- In no event shall a Casualty or Condemnation with respect to which this
Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.
- Notwithstanding anything to the contrary set forth in Section 15.1(a) or
Section 15.1(e), if during the Term a Casualty occurs with respect to
the Property or Lessee receives notice of a Condemnation with respect to
the Property, and following such Casualty or Condemnation, the Property
cannot reasonably be restored on or before the date which is one hundred
eighty (180) days prior to the Maturity Date to substantially the same
condition as existed immediately prior to such Casualty or Condemnation
or before such day the Property is not in fact so restored, then Lessee
shall exercise its Purchase Option with respect to the Property on the
next Payment Date or irrevocably agree in writing to exercise the
Maturity Date Purchase Option with respect to the Property, and in
either such event such remaining Casualty or Condemnation proceeds shall
be paid to Lessor, which shall pay such funds to Lessee upon the closing
of the purchase of the Property on the Maturity Date.
- ENVIRONMENTAL MATTERS. Promptly upon Lessee's actual knowledge of the
presence of Hazardous Substances in any portion of the Property in
concentrations and conditions that constitute an Environmental
Violation, Lessee shall notify Lessor in writing of such condition. In
the event of such Environmental Violation, Lessee shall, not later than
thirty (30) days after Lessee has actual knowledge of such Environmental
Violation, either deliver to Lessor an Officer's Certificate and a
Termination Notice with respect to the Property pursuant to Section
16.1, if applicable, or, at Lessee's sole cost and expense,
16.
<PAGE> 18
promptly and diligently undertake any response, clean up, remedial or
other action necessary to remove, cleanup or remediate the Environmental
Violation in accordance with the terms of Section 9.1. If Lessee does
not deliver a Termination Notice with respect to the Property pursuant
to Section 16.1, Lessee shall, upon completion of remedial action by
Lessee, cause to be prepared by an environmental consultant reasonably
acceptable to Lessor a report describing the Environmental Violation and
the actions taken by Lessee (or its agents) in response to such
Environmental Violation, and a statement by the consultant that the
Environmental Violation has been remedied in full compliance with
applicable Environmental Laws.
- NOTICE OF ENVIRONMENTAL MATTERS. Promptly, but in any event within five
(5) Business Days from the date Lessee has actual knowledge thereof,
Lessee shall provide to Lessor written notice of any material pending or
threatened claim, action or proceeding involving any Environmental Law
or any Release on or in connection with the Property. All such notices
shall describe in reasonable detail the nature of the claim, action or
proceeding and Lessee's proposed response thereto. In addition, Lessee
shall provide to Lessor, within five (5) Business Days after receipt,
copies of all written communications with any Governmental Authority
relating to any Environmental Violation in connection with the Property.
Lessee shall also promptly provide such detailed reports of any such
environmental claims as reasonably may be requested by Lessor.
-
- TERMINATION UPON CERTAIN EVENTS.
- If: (i) Lessor or Lessee shall have received notice of a Total
Condemnation; or (ii) Lessee or Lessor shall have received notice of a
Condemnation, and Lessee shall have delivered to Lessor an Officer's
Certificate that such Condemnation is a Significant Condemnation; or
(iii) a Casualty occurs, and Lessee shall have delivered to Lessor an
Officer's Certificate that such Casualty is a Significant Casualty; or
(iv) an Environmental Violation occurs or is discovered and Lessee shall
have delivered to Lessor an Officer's Certificate stating that, in the
reasonable, good-faith judgment of Lessee, the cost to remediate the
same will exceed $3,000,000; then Lessee shall, within thirty (30) days
after Lessee receives notice of a Total Condemnation pursuant to the
preceding clause (i), or simultaneously with the delivery of the
Officer's Certificate pursuant to the preceding clause (ii), (iii) or
(iv), deliver a notice of termination of this Lease to Lessor in the
form described in Section 16.2(a) (a "TERMINATION NOTICE").
- PROCEDURES.
- A Termination Notice shall contain: (i) notice of termination of this
Lease on a date not more than thirty (30) days after Lessor's receipt of
such Termination Notice (the "TERMINATION DATE"); (ii) a binding and
irrevocable agreement of Lessee to pay the Termination Value and
purchase the Property on such Termination Date; and (iii) the Officer's
Certificate described in Section 16.1.
17.
<PAGE> 19
- On the Termination Date, Lessee shall pay to Lessor the Termination
Value for the Property, plus all amounts owing in respect of Rent for
such Property (including Supplemental Rent) theretofore accruing and
Lessor shall convey the Property to Lessee (or Lessee's designee) all in
accordance with Section 19.1.
-
- EVENTS OF DEFAULT. If any one or more of the following events (each an
"EVENT OF DEFAULT") shall occur:
- Lessee shall fail to make payment of (i) any Basic Rent within three (3)
days after the same has become due and payable, (ii) the Maximum
Residual Guarantee Amount, Purchase Option Price or Termination Value
after the same has become due and payable or (iii) any Supplemental Rent
other than as provided in clause (ii) within three (3) days after
receipt of notice thereof; or
- Lessee shall fail to maintain insurance as required by Article 14 of
this Lease; or
- Lessee shall fail to observe or perform any term, covenant or condition
of Lessee under this Lease, the Participation Agreement or any other
Operative Agreement to which it is a party (specifically including
without limitation, that affirmative covenant of Lessee set forth in
Section 9.3(f) of the Participation Agreement, but other than those set
forth in Section 17.1(a) or (b), hereof) which failure, if capable of
cure, continues for thirty (30) days after written notice thereof to
Lessee by Lessor (provided that, in the event such cure cannot be
reasonably completed within such 30-day period, then Lessee shall have
such additional time as shall be reasonably necessary, so long as Lessee
commences such cure within such 30-day period and diligently thereafter
prosecutes same to completion) or any representation or warranty by
Lessee set forth in this Lease or in any other Operative Agreement or in
any document entered into in connection herewith or therewith or in any
document, certificate or financial or other statement delivered in
connection herewith or therewith shall be false or inaccurate in any
material way when made or deemed made; or
- Lessee shall (i) admit in writing its inability to pay its debts
generally as they become due, (ii) file a petition under the United
States bankruptcy laws or any other applicable insolvency law or statute
of the United States of America or any State or Commonwealth thereof,
(iii) make a general assignment for the benefit of its creditors, (iv)
consent to the appointment of a receiver of itself or the whole or any
substantial part of its property, (v) fail to cause the discharge of any
custodian, trustee or receiver appointed for Lessee or the whole or a
substantial part of its property within sixty (60) days after such
appointment, or (vi) file a petition or answer seeking or consenting to
reorganization under the United States bankruptcy laws or any other
applicable insolvency law or statute of the United States of America or
any State or Commonwealth thereof; or
- insolvency proceedings or a petition under the United States bankruptcy
laws or any other applicable insolvency law or statute of the United
States of America or any State or Commonwealth thereof shall be filed
against Lessee and not dismissed within sixty (60)
18.
<PAGE> 20
days from the date of its filing, or a court of competent jurisdiction
shall enter an order or decree appointing, without the consent of
Lessee, a receiver of Lessee or the whole or a substantial part of its
property, and such order or decree shall not be vacated or set aside
within sixty (60) days from the date of the entry thereof; or
- Lessee shall fail to (i) provide the Collateral in accordance with the
terms of the Operative Agreements, or (ii) replenish the Collateral as
required by the terms of the Operative Agreements; or
- there shall be entered against Lessee or any Subsidiary one or more
judgments or decrees in an aggregate amount at any one time outstanding
in excess of $10,000,000, and such judgments or decrees shall not have
been satisfied, vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from entry thereof; or
- with respect to any Plan (other than a Multiemployer Plan) as to which
Lessee or any ERISA Affiliate of Lessee may have any liability, there
shall exist, for a period of thirty (30) days, a deficiency which is
material to the consolidated financial condition of Lessee and its
Subsidiaries in the Plan assets available to satisfy the benefits
guaranteeable under ERISA with respect to such Plan, and (i) steps are
undertaken to terminate such Plan, (ii) such Plan is terminated, or
(iii) any Reportable Event which presents a material risk of termination
with respect to such Plan shall occur; or
- Lessee or any of its Subsidiaries (i) shall default in the payment
beyond any applicable grace period, whether at stated maturity or
otherwise, of principal, interest or rent in respect of Indebtedness in
excess of $10,000,000, including, without limitation, the Credit
Facility and the Subordinated Notes; or (ii) shall fail to perform or
observe any other condition or covenant, such that an event of default
shall occur or exist, under any agreement or instrument relating to any
such Indebtedness; or
- Any Operative Agreement shall cease to be in full force and effect or
Lessee or any Person acting by or on behalf of Lessee shall deny or
disaffirm its obligations thereunder or contest the validity of any
Operative Agreement or any Lien granted thereunder in any respect,
either directly or indirectly; or
- (i) any Person or two (2) or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934), directly or indirectly, of voting stock of Lessee (or other
securities convertible into such voting stock) representing greater than
fifty percent (50%) of the combined voting power of all voting stock of
Lessee; or (ii) the first day on which a majority of the members of the
board of directors of Lessee are not Continuing Directors. A "Continuing
Director" shall mean any director who is either (A) a member of such
board of directors on the Closing Date or (B) nominated or elected to
such board of directors with the approval of a majority of the
Continuing Directors who were members of such board at the time of such
nomination or election; or (iii) any Person or two (2) or more Persons
acting in concert shall have acquired by contract or otherwise, or shall
have entered into a contract or arrangement that, upon consummation,
will result in its or their acquisition of, the power to exercise,
19.
<PAGE> 21
directly or indirectly, a controlling influence over the management or
policies of Lessee, or control over voting stock of Lessee (or other
securities convertible into such securities) representing more than
fifty percent (50%) of the combined voting power of all voting stock of
Lessee;
then, in any such event, Lessor may, in addition to the other
rights and remedies provided for in this Article 17 and in Section 18.1,
terminate this Lease by giving Lessee three (3) Business Days' notice of such
termination, and this Lease shall terminate. Lessee shall, to the fullest extent
permitted by law, pay as Supplemental Rent all costs and expenses incurred by or
on behalf of Lessor, including fees and expenses of counsel, as a result of any
Event of Default hereunder. A POWER OF SALE HAS BEEN GRANTED IN THIS LEASE. A
POWER OF SALE MAY ALLOW LESSOR TO TAKE THE PROPERTY AND SELL THE PROPERTY
WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON THE OCCURRENCE OF AN EVENT
OF DEFAULT.
- FINAL LIQUIDATED DAMAGES. If an Event of Default shall have occurred and
be continuing, Lessor shall have the right to recover, by demand to
Lessee and at Lessor's election, and Lessee shall pay to Lessor,
exclusive of the indemnities payable under Section 11 of the
Participation Agreement, and in lieu of all damages beyond the date of
such demand, the sum of (a) the Termination Value, plus (b) all other
amounts owing in respect of Rent and Supplemental Rent theretofore
accruing under this Lease. Upon payment of the amount specified pursuant
to the first sentence of this Section 17.2, Lessee shall be entitled to
receive from Lessor, at Lessee's request and cost, an assignment of
Lessor's right, title and interest in the Property, the Improvements,
the Fixtures and the Modifications, in each case in recordable form and
otherwise in conformity with local custom and free and clear of any
Lessor Liens. The Property shall be conveyed to Lessee (or Lessee's
designee) "AS IS" and in its then present physical condition. If any
statute or rule of law shall limit the amount of such final liquidated
damages to less than the amount agreed upon, Lessor shall be entitled to
the maximum amount allowable under such statute or rule of law; provided
that Lessee shall not be entitled to receive an assignment of Lessor's
interest in the Property, the Improvements, the Fixtures and the
Modifications unless Lessee shall have paid in full the Termination
Value of the Property and all such Rent and Supplemental Rent.
- LEASE REMEDIES. Lessor and Lessee intend that for commercial law and
bankruptcy law purposes, this Lease will be treated as a financing
arrangement, as set forth in Article 7. If, as a result of applicable
state law, which cannot be waived, this Lease is deemed to be a lease of
the Property, rather than a financing arrangement, and Lessor is unable
to enforce the remedies set forth in Section 17.2, the following
remedies shall be available to Lessor:
- SURRENDER OF POSSESSION. If an Event of Default shall have occurred and
be continuing, and whether or not this Lease shall have been terminated
pursuant to Section 17.1, Lessee shall, upon thirty (30) days' written
notice, surrender to Lessor possession of the Property and Lessee shall
quit the same. Lessor may enter upon and repossess the Property by such
20.
<PAGE> 22
means as are available at law or in equity, and may remove Lessee and
all other Persons and any and all personal property and Lessee's
equipment and personality and severable Modifications from the Property.
Lessor shall have no liability by reason of any such entry, repossession
or removal performed in accordance with applicable law.
- RELETTING. If an Event of Default shall have occurred and be continuing,
and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessor may, but shall be under no obligation to, relet
all, or any portion, of the Property, for the account of Lessee or
otherwise, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Term)
and on such conditions (which may include concessions or free rent) and
for such purposes as Lessor may reasonably determine, and Lessor may
collect, receive and retain the rents resulting from such reletting
which rents shall be applied against amounts owing by Lessee. Lessor
shall not be liable to Lessee for any failure to relet the Property or
for any failure to collect any rent due upon such reletting.
- DAMAGES. None of (i) the termination of this Lease pursuant to Section
17.1; (ii) the repossession of the Property; or (iii) except to the
extent required by applicable law, the failure of Lessor to relet all,
or any portion, of the Property, the reletting of all or any portion
thereof, nor the failure of Lessor to collect or receive any rentals due
upon any such reletting shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting. If any Event of Default shall have occurred
and be continuing and notwithstanding any termination of this Lease
pursuant to Section 17.1, Lessee shall forthwith pay to Lessor all Basic
Rent and other sums due and payable hereunder or under the Operative
Agreements to and including the date of such termination. Thereafter, on
the days on which the Basic Rent or Supplemental Rent, as applicable,
are payable under this Lease or would have been payable under this Lease
if the same had not been terminated pursuant to Section 17.1 and until
the end of the Term or what would have been the Term in the absence of
such termination, Lessee shall pay Lessor, as current liquidated damages
(it being agreed that it would be impossible accurately to determine
actual damages) an amount equal to the Basic Rent and Supplemental Rent
that are payable under this Lease or under the Operative Agreements or
would have been payable by Lessee hereunder or under the Operative
Agreements if this Lease had not been terminated pursuant to Section
17.1, less the net proceeds, if any, which are actually received by
Lessor with respect to the period in question of any reletting of the
Property or any portion thereof; provided that Lessee's obligation to
make payments of Basic Rent and Supplemental Rent under this Section
17.3(c) shall continue only so long as Lessor shall not have received
the amounts specified in Section 17.2 or Section 17.3(d). In calculating
the amount of such net proceeds from reletting, there shall be deducted
all of Lessor's and any Rent Purchaser's reasonable expenses in
connection therewith, including repossession costs, brokerage
commissions, fees and expenses for counsel and any necessary repair or
alteration costs and expenses reasonably incurred in preparation for
such reletting. To the extent Lessor receives any damages pursuant to
this Section 17.3(c), such amounts shall be regarded as amounts paid on
account of Rent.
21.
<PAGE> 23
- ACCELERATION OF RENT. If an Event of Default shall have occurred and be
continuing, and this Lease shall not have been terminated pursuant to
Section 17.1, and whether or not Lessor shall have collected any current
liquidated damages pursuant to Section 17.3(c), Lessor may upon written
notice to Lessee accelerate all payments of Basic Rent due hereunder
and, upon such acceleration, Lessee shall immediately pay Lessor, as and
for final liquidated damages and in lieu of all current liquidated
damages on account of such Event of Default beyond the date of such
acceleration (it being agreed that it would be impossible accurately to
determine actual damages) an amount equal to the sum of (i) all Basic
Rent (assuming interest at a rate per annum equal to the Overdue Rate
and including any charges for funding losses), as applicable, due from
the date of such acceleration until the end of the Term, plus (ii) the
Maximum Residual Guarantee Amount that would be payable under Section
21.1(c) assuming the proceeds of the sale pursuant to such Section
21.1(c) are equal to zero, which sum is then discounted to present value
at a rate equal to the rate then being paid on United States treasury
securities with maturities corresponding to the then remaining Term.
Following payment of such amount by Lessee, Lessee will be permitted to
stay in possession of the Property for the remainder of the Term,
subject to the terms and conditions of this Lease, including the
obligation to pay Supplemental Rent, provided that no further Event of
Default shall occur and be continuing, following which Lessor shall have
all the rights and remedies set forth in this Article 17 (but not
including those set forth in this Section 17.3). If any statute or rule
of law shall limit the amount of such final liquidated damages to less
than the amount agreed upon, Lessor shall be entitled to the maximum
amount allowable under such statute or rule of law.
- SUBLETTING OF THE PROPERTY. In addition to the other rights and remedies
set forth herein, Lessor shall have the right to continue this Lease in
effect and, to enforce, by suit or otherwise, all covenants and
conditions hereof to be performed or complied with by Lessee and
exercise all of Lessor's rights and remedies under this Lease,
including, without limitation, the right to recover Basic Rent and
Supplemental Rent from Lessee as it becomes due under this Lease, even
though Lessee shall have breached this Lease and abandoned the Property.
Acts of maintenance or preservation, or efforts by Lessor or on Lessor's
behalf to relet the Property, or the appointment of a receiver upon the
initiative of Lessor to protect Lessor's interest under this Lease shall
not constitute a termination of Lessee's right to possession of the
Property; provided, however, that the foregoing enumeration shall not be
construed as in any way limiting the actions Lessor may take without
terminating Lessee's right to possession. In furtherance of the rights
hereby granted to Lessor, and to the extent, permitted by law, Lessee
hereby appoints Lessor its agent and attorney-in-fact, which appointment
shall be deemed to be coupled with an interest and is irrevocable, with
power of substitution, to enter the Property upon an Event of Default
hereunder and remove therefrom all persons and property (with the right
to store such property on the Property in a public warehouse or
elsewhere at the cost and risk and for the account of Lessee) and to
alter the Property in such manner as Lessor may deem necessary or
advisable so as to put the Property in good order and to make the same
rentable and from time to time sublet the Property or any part thereof
for such term or terms whether or not extending beyond the then current
term of this Lease (but such sublease may provide for a new and
successive lease to commence immediately upon the
22.
<PAGE> 24
termination of this Lease), at such rentals and upon such other terms as
Lessor in its sole discretion may deem advisable, and with the right to
make alterations and repairs to the Property; and Lessee agrees to pay
to Lessor on demand all reasonable expenses incurred by Lessor in such
subletting, and in altering, repairing and putting the Property in good
order and condition, and in reletting the same, including fees of
attorneys and architects, and all other reasonable expenses or
commissions. Lessor shall be Lessee's agent and representative on the
Property in respect of all matters arising under or in connection with
any such sublease made for Lessee by Lessor. Under each such sublease,
Lessee shall retain the right to enter upon and use the Property,
subject to the terms and conditions of such sublease and the rights of
the sublessee thereunder. Lessee further agrees to pay to Lessor,
following the date of such subletting, to and including the date
provided in this Lease for the expiration of the Lease Term, the sums of
money which would have been payable by Lessee as Basic Rent and
Supplemental Rent, deducting only the net amount of rent, if any, which
Lessor shall actually receive (after deducting from the gross receipts
the expenses, costs and payments of Lessor which in accordance with the
terms of this Lease would have been borne by Lessee) in the meantime
from and by any such subletting of the Property, and Lessee hereby
agrees to remain liable for all sums otherwise payable by Lessee under
this Lease, including, but not limited to, the expenses of Lessor
aforesaid, as well as for any deficiency aforesaid. Lessor shall have
the right from time to time to begin and maintain successive actions or
other legal proceedings against Lessee for the recovery of such
deficiency, expenses or damages or for a sum equal to any installments
of Basic Rent or Supplemental Rent and other sums payable hereunder, and
to recover the same upon the liability of Lessee herein provided, which
liability it is expressly covenanted shall survive the commencement or
determination of any action to secure possession of the Property.
Nothing herein contained shall be deemed to require Lessor to wait to
begin such action or other legal proceedings until the date when this
Lease would have expired by limitation had there been no such Event of
Default. Notwithstanding any such subletting without termination,
pursuant to the terms hereof, Lessor shall retain the right to and may
at any time thereafter elect to terminate this Lease or Lessee's right
to possession of the Property for any previous breach which remains
uncured or for any subsequent breach by giving Lessee written notice
thereof as herein provided, and in such event Lessee shall forfeit any
rights or interest under any such sublease and thereafter the
obligations of any such sublessee shall run directly to Lessor for its
own account. Upon application by Lessor, a receiver may be appointed to
take possession of the Property, exercise all rights granted to Lessor
as agent and attorney-in-fact for Lessee set forth in this Section
17.3(e) and apply any rentals collected from the Property as hereinabove
provided. No taking of possession of the Property or other act by Lessor
as the agent and attorney-in-fact for Lessee pursuant to the foregoing
provisions, nor any subletting by Lessor for Lessee pursuant to the
foregoing provisions, nor any such appointment of a receiver shall
constitute or be construed as an election by Lessor to terminate this
Lease or Lessee's right to possession of the Property unless a written
notice of such intention be given to Lessee.
- REPOSSESSION AND RECOVERABLE AMOUNTS. In the event of any termination of
the Term pursuant to Section 17.1 or as permitted by law, Lessee shall
quit and surrender the Property to Lessor, and Lessor may without
further notice enter upon, reenter, possess and repossess the same by
summary proceedings, ejectment or otherwise, and again have,
23.
<PAGE> 25
repossess and enjoy the same as if this Lease had not been made, and in
any such event neither Lessee nor any Person claiming through or under
Lessee by virtue of any law or an order of any court shall be entitled
to possession or to remain in possession of the Property but shall
forthwith quit and surrender the Property, and Lessor shall,
notwithstanding any other provision of this Lease, be entitled to
recover from Lessee the aggregate of all amounts Lessor is permitted to
recover from Lessee, including:
- the worth at the time of award, as computed below, of the unpaid
rent (including, without limitation, Basic Rent and Supplemental
Rent) which had been earned at the time of termination of this
Lease;
- the worth at the time of award of the amount by which the unpaid
rent (including, without limitation, Basic Rent and Supplemental
Rent) which would have been earned after the time of termination
of this Lease until the time of award exceeds the amount of such
rental loss that Lessee proves could have been reasonably
avoided;
- the worth at the time of award of the amount by which the unpaid
rent (including, without limitation, Basic Rent and Supplemental
Rent) for the balance of the Term after the time of award exceeds
the amount of such rental loss for said balance of the Term that
Lessee proves could be reasonably avoided; and
- any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom; including without
limitation any loss or damage arising out of the failure of
Lessor to receive the benefit of the performance by Lessee of any
obligation to purchase the Property under the provisions of this
Lease. Lessee acknowledges and agrees that, in reliance upon this
Lease and Lessee's covenants and agreements hereunder and the
creditworthiness and financial condition of Lessee, Lessor has
entered into certain special transactions to finance the costs of
acquiring the Land and the Improvements and, in connection with
such financing transactions, Lessor has incurred and will
continue to incur indebtedness and liabilities under and pursuant
to the Participation Agreement and the other Operative
Agreements. Lessee acknowledges and agrees that an Event of
Default will cause Lessor substantial damage and detriment due to
its obligations and liabilities under the Participation Agreement
and the other Operative Agreements, including, without
limitation, the failure of Lessor to be fully compensated for the
Advances made to Lessee. Accordingly, in order to compensate
Lessor for all detriment proximately caused by Lessee's failure
to perform its obligations under this Lease, Lessor shall be
permitted to recover from Lessee, without limitation, all amounts
necessary for Lessor to be fully compensated for all of the
Advances made to Lessee.
The "worth at the time of award," of the amounts referred to in
the foregoing subsections 17.3(f) (i) and (ii) shall be computed by allowing
interest at the Overdue Rate (or at the highest rate permitted by applicable
law, whichever is less) on
24.
<PAGE> 26
each rental installment from the date the same was due hereunder to the time of
award. The "worth at the time of award" of the amount referred to in the
foregoing subsection (iii) shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of New York at the time of the award
plus one percent (1%). As used herein, the term "time of award" shall mean
either (A) the date upon which Lessee pays to Lessor the amount recoverable by
Lessor as hereinabove set forth or (B) the date of entry of any determination,
order or judgment of any court, other legally constituted body, or any
arbitrator(s), determining the amount recoverable, whichever first occurs. If
the time of award is determined under clause (B), above, then the amount
recoverable by Lessor hereunder shall bear interest from the time of award until
paid at the Overdue Rate (or at the highest rate permitted by applicable law,
whichever is less). Nothing herein contained shall limit or prejudice the right
of Lessor, and Lessor is hereby expressly granted the right, in any bankruptcy
or reorganization or insolvency proceedings, to prove for and obtain as damages
by reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law whether such amount shall be greater or less than the
amounts referred to above.
- WAIVER OF CERTAIN RIGHTS. If this Lease shall be terminated pursuant to
Section 17.1, Lessee waives, to the fullest extent permitted by law, (a)
any notice of re-entry or the institution of legal proceedings to obtain
re-entry or possession; (b) any right of redemption, re-entry or
repossession; (c) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt; and (d) any
other rights which might otherwise limit or modify any of Lessor's
rights or remedies under this Article 17.
- ASSIGNMENT OF RIGHTS UNDER CONTRACTS. If an Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1, Lessee shall upon Lessor's
demand immediately assign, transfer and set over to Lessor all of
Lessee's right, title and interest in and to each agreement executed by
Lessee in connection with the construction, renovation, development, use
or operation of the Property (including, without limitation, all right,
title and interest of Lessee with respect to all warranty, performance,
service and indemnity provisions), as and to the extent that the same
relate to the construction, renovation, and operation of the Property.
- POWER OF SALE AND FORECLOSURE. Except as expressly provided in this
Lease, for purposes of this Section 17.6, presentment, demand, protest
and all other notices of any kind are hereby expressly waived. In
addition (subject to Article 21 below), upon the occurrence of any Event
of Default, Lessor, as beneficiary, may immediately take such action,
without notice or demand, as it deems advisable to protect and enforce
its rights against Lessee, as trustor, in and to the Trust Property,
including the following actions, at such time and in such manner as
Lessor may determine, in its sole discretion, without impairing or
otherwise affecting the other rights and remedies of Lessor:
- Either in person or by agent, with or without bringing any action or
proceeding, or by a receiver appointed by a court and without regard to
the adequacy of its security, enter upon and take possession of the
Trust Property or any part thereof, with or without legal
25.
<PAGE> 27
action, and do any acts which it deems necessary or desirable to
preserve the value, marketability or rentability of the Trust Property,
or any part thereof (including entering into new leases of all or any
part of the Trust Property) and, with or without taking possession of
the Trust Property, sue for or otherwise collect the rents, issues and
profits thereof, including those past due and unpaid, and apply the
same, less costs and expenses of operation and collection including
reasonable attorneys' fees, to the payment of all of Lessee's
obligations hereunder (including, without limitation, the payment of
Basic Rent, Supplemental Rent and the Termination Value or Purchase
Option Price) (collectively, the "Lease Payment Obligations"), all in
such order as Lessor may determine. The entering upon and taking
possession of the Trust Property, the collection of such rents, issues
and profits and the application thereof as aforesaid, shall not cure or
waive any default or notice of default hereunder or invalidate any act
done in response to such default or pursuant to such notice of default
and, notwithstanding the continuance in possession of the Trust Property
or the collection, receipt and application of rents, issues or profits,
Lessor shall be entitled to exercise every right provided for herein and
the other Operative Documents or by law.
Bring an action in any court of competent jurisdiction to foreclose
on the Trust Property, to appoint a receiver or to enforce any of
the covenants, terms or conditions hereof and Lessor shall have the
right to specific performance, injunction and any other equitable
right or remedy as though other remedies were not provided in this
Lease.
Elect to cause the Trust Property or any part thereof to be sold as
follows, Lessee hereby expressly waiving any right which it may have
to direct the order in which any of the Trust Property may be sold:
(i) Lessor may proceed as if all of the Trust Property were real
property, in accordance with subparagraph (ii) below, or Lessor may
elect to treat any of the Trust Property which consists of personal
property, in accordance with the Section of this Lease entitled
"Security Agreement and Fixture Filing," separate and apart from the
sale of the Land, the remainder of the Trust Property being treated as
real property;
(ii) Lessor may cause any such sale or other disposition to be
conducted immediately following the expiration of any grace period, if
any, herein provided or Lessor may delay any such sale or other
disposition for such period of time as Lessor deems to be in its best
interest. Should Lessor desire that more than one such sale or other
disposition be conducted, Lessor may, at its option, cause the same to
be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Lessor may deem to be in
its best interest;
(iii) Should Lessor elect to sell the Trust Property and Lessor
elects to proceed under the laws governing foreclosure of or sales
pursuant to deeds of trust, Lessor (or any trustee designated by Lessor)
shall give such notice of default
26.
<PAGE> 28
and election to sell as may then be required by law. Thereafter, upon
the expiration of such time and the giving of such notice of sale as may
then be required by law, Lessor (or any trustee designated by Lessor),
at the time and place specified by the notice of sale, shall sell such
Trust Property, or any portion thereof specified by Lessor, at public
auction to the highest bidder for cash in lawful money of the United
States. Lessor may postpone, from time to time, the sale by public
announcement thereof at the time and place noticed therefor. If the
Trust Property consists of several lots or parcels, Lessor may elect to
sell the Trust Property either as a whole or in separate lots or
parcels. If Lessor elects to sell in separate lots or parcels, Lessor
may designate the order in which such lots or parcels shall be offered
for sale or sold. Any person, including Lessee or Lessor, may purchase
at the sale. Upon any sale, Lessor shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold,
but without any covenant or warranty whatsoever, express or implied,
whereupon such purchaser or purchasers shall be let into immediate
possession;
(iv) In the event of a sale or other disposition of any such
property, or any part thereof, and the execution of a deed or other
conveyance pursuant thereto, the recitals therein of facts, such as an
Event of Default, the giving of notice of default and notice of sale,
demand that such sale should be made, postponement of sale, terms of
sale, sale, purchase, payments of purchase money, and any other fact
affecting the regularity or validity of such sale or disposition shall
be conclusive proof of the truth of such facts; and any such deed or
conveyance shall be conclusive against all persons as to such facts
recited therein; and
(v) After deducting all costs, fees and expenses of Lessor,
including all costs of evidence of title and attorneys' fees in
connection with sale, Lessor 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 secured hereby; and the remainder, if
any, to the Person or Persons legally entitled thereto;
- Exercise all other rights and remedies provided herein, in the other
Operative Documents or otherwise available at law or equity.
- With or without notice, and without releasing Lessee from any obligation
hereunder, to cure any default of Lessee and, in connection therewith,
to enter upon the Property and to perform such acts and things as Lessor
deems necessary or desirable to inspect, investigate, assess and protect
the Property, including, without limitation of any of its other rights:
to obtain a court order to enforce Lessor's right to enter and inspect
the Property pursuant to California Civil Code Section 2929.5, to which
the decision of Lessor 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
Section 564 to enforce Lessor's right to enter and inspect the Property
for Hazardous Substances; to appear in and defend any action or
proceeding purporting to affect the
27.
<PAGE> 29
Property or the rights or powers of Lessor hereunder; to pay, purchase,
contest or compromise any encumbrance, charge, lien or claim of lien
which, in the judgment of Lessor, is prior or superior hereto, the
judgment of Lessor 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 Lessor;
- To commence and maintain an action or actions in any court of competent
jurisdiction pursuant to California Code of Civil Procedure 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 Lessor (collectively, the
"ENVIRONMENTAL COSTS") incurred or advanced by Lessor relating to the
cleanup, remediation or other response action required by Legal
Requirements or which Lessor believes necessary to protect its interest
in the Property, it being conclusively presumed between Lessor and
Lessee that all such Environmental Costs incurred or advanced by Lessor
relating to the cleanup, remediation or other response action of or to
the Property were made by Lessor in good faith. All Environmental Costs
incurred by Lessor pursuant to this Section 17.6(g) (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 Overdue Rate from the date of expenditure
until said sums have been paid. Lessor shall be entitled to bid, at the
sale of the Property held pursuant to Section 17.6(c) above, the amount
of said costs, expenses and interest in addition to the amount of the
other Lease Payment Obligations hereby secured as a credit bid, the
equivalent of cash. For the purposes of any action brought under this
Section 17.6(f), Lessee hereby waives the defense of laches and any
applicable statute of limitations; and
- 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 Section 726.5 and to exercise any and all rights and remedies
of an unsecured creditor against Lessee and all of Lessee'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. As between Lessor
and Lessee, for purposes of California Code of Civil Procedure Section
726.5, Lessee shall have the burden of proving that Lessee or any
related party (or any affiliate or agent of Lessee or any related party)
was not in any way negligent in permitting the release or threatened
release of the Hazardous Substance. For the purposes of any action
brought under this paragraph, Lessee hereby waives the defense of laches
and any applicable statute of limitations.
- All costs and expenses incurred by Lessor pursuant to this Section 17.6
(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 Overdue Rate, from
the date of expenditure until said sums have been paid. Lessor shall be
entitled to bid, at the sale of the Property held pursuant to subsection
17.4(c) above, the amount of said costs, expenses and interest in
addition to the amount of the other Lease
28.
<PAGE> 30
Payment Obligations hereby secured as a credit bid, which shall be
deemed the equivalent of cash.
- In no event shall Lessor (or any trustee designation by Lessor), in the
exercise of the remedies provided in this Section 17.6 (including,
without limitation, in connection with the appointment of a receiver and
the entry of such receiver on to all or any part of the Trust Property),
be deemed a "mortgagee in possession," and Lessor shall not in any way
be made liable for any act, either of commission or omission, in
connection with the exercise of such remedies.
- Lessee hereby waives any right to require that any security given
hereunder or under any other agreement securing the Lease Payment
Obligations be marshaled and further waives any right otherwise
available in respect to marshalling of assets which secure any Lease
Payment Obligation or to require Lessor to pursue its remedies against
any such assets.
- SECURITY AGREEMENT AND FIXTURE FILING.
- It is the intention of the parties hereto that this Lease shall
constitute a Security Agreement within the meaning of the Uniform
Commercial Code (the "UCC") of the State of California. If an Event of
Default shall occur under this Lease, then in addition to having any
other right or remedy available at law or in equity, Lessor shall have
the option of either (i) proceeding under the UCC and exercising such
rights and remedies as may be provided to a secured party by the UCC
with respect to all or any portion of the Trust Property which is
personal property (including, without limitation, taking possession of
and selling such property) or (ii) treating such property as real
property and proceeding with respect to both the real and personal
property constituting the Trust Property in accordance with Lessor's
rights, powers and remedies with respect to the real property (in which
event the default provisions of the UCC shall not apply). If Lessor
shall elect to proceed under the UCC, then ten (10) business days notice
of sale of the personal property shall be deemed reasonable notice and
the reasonable expenses of retaking, holding, preparing for sale,
selling and the like incurred by Lessor shall include, but not be
limited to, attorneys' fees and legal expenses. At Lessor's request,
Lessee shall assemble the personal property and make it available to
Lessor at a place designated by Lessor which is reasonably convenient to
both parties.
- Lessee and Lessor agree, to the extent permitted by law, that this Lease
(or a memorandum thereof) upon recording or registration in the real
estate records of the proper office shall constitute a financing
statement filed as a "fixture filing" within the meaning of Sections
9313 and 9402 of the UCC.
- Lessee, upon request by Lessor from time to time, shall execute,
acknowledge and deliver to Lessor one or more separate security
agreements, in form reasonably satisfactory to Lessor, covering all or
any part of the Trust Property and will further execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, any
financing statement, affidavit, continuation statement or certificate or
other document as Lessor may reasonably request in order to perfect,
preserve, maintain, continue or extend
29.
<PAGE> 31
the security interest under and the priority of this Lease and such
security instrument. Lessee further agrees to pay to Lessor on demand
all reasonable costs and expenses incurred by Lessor in connection with
the preparation, execution, recording, filing and re-filing of any such
document and all reasonable costs and expenses of any record searches
for financing statements Lessor shall reasonably require. Lessee shall
from time to time, on request of Lessor, deliver to Lessor an inventory
in reasonable detail of any of the Trust Property which constitutes
personal property. If Lessee shall fail to furnish any financing or
continuation statement within ten (10) days after request by Lessor,
then pursuant to the provisions of the UCC, Lessee hereby authorizes
Lessor, without the signature of Lessee, to execute and file any such
financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or
chattels shall not be construed as in any way impairing the right of
Lessor to proceed against any personal property encumbered by this Lease
as real property, as set forth above.
- REMEDIES CUMULATIVE. The remedies herein provided shall be cumulative
and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise.
- LESSEE'S RIGHT TO CURE. Notwithstanding any provision contained in this
Lease or any other Operative Agreement, if an Event of Default has
occurred and is continuing, Lessee shall have the right to cure such
Event of Default by exercising its Purchase Option at any time prior to
such time as a foreclosure upon or sale of the Property has been
completed.
-
- LESSOR'S RIGHT TO CURE LESSEE'S DEFAULTS. Lessor, without waiving or
releasing any obligation or Event of Default, may (but shall be under no
obligation to) remedy any Event of Default for the account and at the
sole cost and expense of Lessee, including the failure by Lessee to
maintain any insurance required by Article 14, and may, to the fullest
extent permitted by law, and notwithstanding any right of quiet
enjoyment in favor of Lessee, enter upon the Property for such purpose
and take all such action thereon as may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All
out-of-pocket costs and expenses so incurred (including the fees and
expenses of counsel), together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid by Lessor, shall
be paid by Lessee to Lessor on demand as Supplemental Rent.
-
- PROVISIONS RELATING TO LESSEE'S TERMINATION OF THIS LEASE OR EXERCISE OF
PURCHASE OPTIONS. In connection with any termination of this Lease with
respect to the Property pursuant to the terms of Section 16.2 or Article
17, or in connection with Lessee's exercise of its Purchase Option or
Maturity Date Purchase Option, upon the date on which this Lease is to
terminate with respect to the Property or upon the Expiration Date with
respect to the Property, and upon tender by Lessee of the amounts set
forth in Section 16.2(b), 17.2, 20.1 or 20.2, as applicable:
30.
<PAGE> 32
- Lessor shall execute and deliver to Lessee (or to Lessee's designee) at
Lessee's cost and expense an assignment of Lessor's entire interest in
the Property, in each case in recordable form and otherwise in
conformity with local custom and free and clear of the Lien of this
Lease and any Lessor Liens; and
- The Property shall be conveyed to Lessee "AS IS" and in its then present
physical condition.
-
- PURCHASE OPTION. Subject to Section 17.8, Lessee shall have the option
on any Payment Date (exercisable by giving Lessor irrevocable written
notice (the "PURCHASE NOTICE") of Lessee's election to exercise such
option not less than thirty (30) days prior to the date of purchase
pursuant to such option) to purchase the Property on the date specified
in such Purchase Notice at a price equal to the Termination Value plus
all Basic Rent and Supplemental Rent due and owing on such date of
purchase (the "PURCHASE OPTION PRICE") (which the parties do not intend
to be a "bargain" purchase price) of the Property. If Lessee exercises
its option to purchase the Property pursuant to this Section 20.1 (the
"PURCHASE OPTION"), Lessor shall transfer to Lessee or Lessee's designee
all of Lessor's right, title and interest in and to the Property as of
the date specified in the Purchase Notice upon receipt of the Purchase
Option Price and all Rent and other amounts then due and payable under
this Lease and any other Operative Agreement, in accordance with Section
19.1.
- MATURITY DATE PURCHASE OPTION. Not less than one hundred eighty (180)
days prior to the Maturity Date, Lessee may give Lessor and Agent
irrevocable written notice (the "MATURITY DATE ELECTION NOTICE") that
Lessee is electing to exercise the Maturity Date Purchase Option or its
option to remarket the Property pursuant to Section 21.1. If Lessee does
not give a Maturity Date Election Notice on or before the date one
hundred eighty (180) days prior to the Maturity Date, then Lessee shall
be deemed to have exercised its Maturity Date Purchase Option. If Lessee
has elected, or is deemed to have elected, to exercise the Maturity Date
Purchase Option, then on the Maturity Date Lessee shall pay to Lessor an
amount equal to the Termination Value plus all Basic Rent and
Supplemental Rent due and owing on such date of purchase for the
Property (which the parties do not intend to be a "bargain" purchase
price) and, upon receipt of such amount plus all Rent and other amounts
then due and payable under this Lease and any other Operative Agreement,
Lessor shall transfer to Lessee or Lessee's designee all of Lessor's
right, title and interest in and to the Property in accordance with
Section 19.1.
- EXTENSION OF EXPIRATION DATE. Lessee may extend the Expiration Date and
the Maturity Date subject to, and in accordance with, the terms and
conditions of Section 16 of the Participation Agreement.
31.
<PAGE> 33
-
- SALE PROCEDURE.
- Provided that no Default or Event of Default shall have occurred and be
continuing, at the expiration of the Term, unless Lessee shall have (i)
elected to extend the Expiration Date, (ii) elected (or be deemed to
have elected) to purchase the Property and paid the Purchase Option
Price with respect thereto, or (iii) otherwise terminated this Lease
with respect thereto and paid the Termination Value with respect
thereto, Lessee may elect to terminate this Lease and remarket the
Property as provided in Section 20.2, in which event Lessee shall (i)
pay to Lessor the Maximum Residual Guarantee Amount for the Property,
and (ii) sell the Property to one or more third parties for cash in
accordance with Section 21.1(b). In the event that Lessee elects to
terminate the Lease and remarket the Property, Lessee hereby covenants
and agrees that, to the extent the Property is not in compliance with
all Legal Requirements, or would not be in such compliance upon its sale
to a third party, and the cost to put the Property into such compliance
is in excess of $200,000, Lessee shall pay such excess to Lessor
immediately upon demand.
- During the Marketing Period, Lessee, as nonexclusive broker for Lessor,
shall use its best efforts to obtain bids for the cash purchase of the
Property for the highest price available in the relevant market, shall
notify Lessor promptly of the name and address of each prospective
purchaser and the cash price which each prospective purchaser shall have
offered to pay for the Property and shall provide Lessor with such
additional information about the bids and the bid solicitation procedure
as Lessor may request from time to time. Lessor may reject any and all
bids and may assume sole responsibility for obtaining bids by giving
Lessee written notice to that effect; provided, however, that
notwithstanding the foregoing, Lessor may not reject a bid if such bid
is greater than or equal to the sum of the Limited Recourse Amount and
all costs and expenses of sale and is a bona fide offer by a third party
purchaser who is not an Affiliate of Lessee. If the price which a
prospective purchaser shall have offered to pay for all or any of the
Property is less than the sum of the Limited Recourse Amount and all
costs and expenses of sale, Lessor may elect to retain the Property by
giving Lessee at least two (2) Business Days' prior written notice of
Lessor's election to retain the Property, and upon receipt of such
notice, Lessee shall surrender the Property to Lessor pursuant to
Section 10.1(c). Unless Lessor shall have elected to retain the Property
pursuant to the preceding sentence, Lessor shall sell the Property free
of any Lessor Liens attributable to it, without recourse or warranty,
for cash to the purchaser or purchasers identified by Lessee or Lessor,
as the case may be, and Lessee shall surrender the Property to such
purchaser in the condition specified in Section 10.1.
- On the date during the Marketing Period on which the Property is sold
pursuant to Section 21.1(b), or on the Maturity Date if the Property
remains unsold, Lessee shall pay to Lessor the Maximum Residual
Guarantee Amount for the Property.
- APPLICATION OF PROCEEDS OF SALE. Lessor shall apply the proceeds of sale
of the Property pursuant to the provisions of Section 12.4 of the
Participation Agreement; provided, however, upon any sale of the
Property pursuant to this Article 21, the Lessor shall obtain
32.
<PAGE> 34
an appraisal which shall allocate the proceeds of such sale between the
Land and the Improvements thereon. To the extent such appraisal
indicates that the respective proceeds received with respect to Land and
Improvements exceeds, after giving effect to the payment required under
Section 21.1(c) hereof, the remaining Land Investment Balance and
Improvements Investment Balance, respectively, such excess shall be
promptly returned to Lessee. In no event shall any excess proceeds
received with respect to the Land be applied to any deficiency with
respect to the Improvements Investment Balance, nor shall any excess
proceeds received with respect to the Improvements be applied to any
deficiency with respect to the Land Investment Balance.
- INDEMNITY FOR EXCESSIVE WEAR. If the proceeds of the sale described in
Section 21.1(b) with respect to the Property, less all expenses incurred
by Lessor in connection with such sale, shall be less than the Limited
Recourse Amount for the Property at the time of such sale and if it
shall have been determined (pursuant to the Appraisal Procedure) that
the Fair Market Sales Value of the Property shall have been impaired by
greater than expected wear and tear during the Term, Lessee shall pay to
Lessor within ten (10) days after receipt of Lessor's written statement
(a) the amount of such excess wear and tear determined by the Appraisal
Procedure or (b) the amount of the Net Sale Proceeds Shortfall,
whichever amount is less.
- APPRAISAL PROCEDURE. For determining the Fair Market Sales Value of the
Property or any other amount which may, pursuant to any provision of any
Operative Agreement, be determined by an appraisal procedure, Lessor and
Lessee shall use the following procedure (the "APPRAISAL PROCEDURE").
Lessor and Lessee shall endeavor to reach a mutual agreement as to such
amount for a period of ten (10) days from commencement of the Appraisal
Procedure, and if they cannot agree within ten (10) days, then two
qualified appraisers, one chosen by Lessee and one chosen by Lessor,
shall mutually agree thereupon, but if either party shall fail to choose
an appraiser within twenty (20) days after notice from the other party
of the selection of its appraiser, then the appraisal by such appointed
appraiser shall be binding on Lessee and Lessor. If the two appraisers
cannot agree within twenty (20) days after both shall have been
appointed, then a third appraiser shall be selected by the two
appraisers or, failing agreement as to such third appraiser within
thirty (30) days after both shall have been appointed, by the American
Arbitration Association. The decisions of the three appraisers shall be
given within twenty (20) days of the appointment of the third appraiser
and the decision of the appraiser most different from the average of the
other two shall be discarded and such average shall be binding on Lessor
and Lessee; provided that if the highest appraisal and the lowest
appraisal are equidistant from the third appraisal, the third appraisal
shall be binding on Lessor and Lessee. The fees and expenses of all of
the appraisers shall be paid by Lessee.
- CERTAIN OBLIGATIONS CONTINUE. During the Marketing Period, the
obligation of Lessee to pay Rent with respect to the Property (including
the installment of Basic Rent due on the Maturity Date) shall continue
undiminished until payment in full to Lessor of the sale proceeds, the
Maximum Residual Guarantee Amount, if any, the amount due under Section
21.3, if any, and all other amounts due to Lessor with respect to the
Property. Lessor shall have the right, but shall be under no duty, to
solicit bids, to inquire into the
33.
<PAGE> 35
efforts of Lessee to obtain bids or otherwise to take action in
connection with any such sale, other than as expressly provided in this
Article 21.
-
- HOLDING OVER. If Lessee shall for any reason remain in possession of the
Property after the expiration or earlier termination of this Lease
(unless the Property is conveyed to Lessee), such possession shall be as
a tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the
Lease then in full force and effect with respect to the Property and
Lessee shall continue to pay Basic Rent at an annual rate equal to the
rate payable hereunder immediately preceding such expiration or earlier
termination; provided, however, that from and after the sixtieth (60th)
day Lessee shall remain in possession of the Property after such
expiration or earlier termination, Lessee shall pay Basic Rent at an
annual rate equal to two hundred percent (200%) of the Basic Rent
payable hereunder immediately preceding such expiration or earlier
termination. Such Basic Rent shall be payable from time to time upon
demand by Lessor. During any period of tenancy at sufferance, Lessee
shall, subject to the second preceding sentence, be obligated to perform
and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent
given by law to tenants at sufferance, to continue its occupancy and use
of the Property. Nothing contained in this Article 22 shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee
after the expiration or earlier termination of this Lease as to the
Property and nothing contained herein shall be read or construed as
preventing Lessor from maintaining a suit for possession of the Property
or exercising any other remedy available to Lessor at law or in equity.
-
- RISK OF LOSS. The risk of loss of or decrease in the enjoyment and
beneficial use of the Property as a result of the damage or destruction
thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by Lessee, and Lessor shall in no event be
answerable or accountable therefor.
-
- SUBLETTING AND ASSIGNMENT. Lessee may not assign this Lease or any of
its rights or obligations hereunder in whole or in part. Lessee may,
without the consent of Lessor, sublease the Property or a portion
thereof to any Person. No sublease or other relinquishment of possession
of the Property shall in any way discharge or diminish any of Lessee's
obligations to Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to the Property, or any portion
thereof, so sublet. Any sublease of the Property shall be made subject
to and subordinate to this Lease and to the rights of Lessor hereunder,
and shall expressly provide for the surrender of the Property after an
Event of Default hereunder.
34.
<PAGE> 36
- SUBLEASES. Promptly following the execution and delivery of any sublease
permitted by this Article 24, Lessee shall deliver a copy of such
executed sublease to Lessor.
-
- ESTOPPEL CERTIFICATES. At any time and from time to time upon not less
than twenty (20) days' prior request by Lessor, Lessee shall furnish to
Lessor a certificate signed by an individual having the office of vice
president or higher in Lessee certifying that this Lease is in full
force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications); the dates to which the
Basic Rent and Supplemental Rent have been paid; to the best knowledge
of the signer of such certificate, whether or not Lessor is in default
under any of its obligations hereunder (and, if so, the nature of such
alleged default); and such other matters under this Lease as Lessor may
reasonably request. Any such certificate furnished pursuant to this
Article 25 may be relied upon by Lessor, and any existing or prospective
mortgagee, purchaser or lender, and any accountant or auditor, of, from
or to Lessor (or any Affiliate thereof).
-
- NO WAIVER. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment
of Rent during the continuance of any such default, shall constitute a
waiver of any such default or of any such term. To the fullest extent
permitted by law, no waiver of any default shall affect or alter this
Lease, and this Lease shall continue in full force and effect with
respect to any other then existing or subsequent default.
-
- ACCEPTANCE OF SURRENDER. Except as otherwise expressly provided in this
Lease, no surrender to Lessor of this Lease or of all or any portion of
the Property or of any interest therein shall be valid or effective
unless agreed to and accepted in writing by Lessor and no act by Lessor
or any representative or agent of Lessor, other than a written
acceptance, shall constitute an acceptance of any such surrender.
-
- NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, in whole or in
part, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate, (b) the fee estate in
the Property, except as may expressly be stated in a written instrument
duly executed and delivered by the appropriate Person, or (c) a
beneficial interest in Lessor.
35.
<PAGE> 37
-
- NOTICES. Unless otherwise specifically provided herein, all notices,
consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to
any Person shall be given in writing by nationally recognized courier
service and any such notice shall become effective one Business Day
after delivery to such nationally recognized courier service specifying
overnight delivery and shall be directed to the address of such Person
as indicated:
If to Lessee:
LAM RESEARCH CORPORATION
4650 Cushing Parkway
Fremont, California 94538
Attn: Craig Garber, Treasurer
Telephone No: (510) 572-1875
Telecopy No: (510) 572-1586
If to Lessor:
Scotiabanc Inc.
600 Peachtree Street NE, Suite 2700
Atlanta, Georgia 30308
Attention: William Brown, Managing Director
Telephone No.: (404) 877-1501
Telecopy No.: (404) 888-8998
or such additional parties and/or other address as such party may hereafter
designate.
-
- MISCELLANEOUS. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of Lessee or Lessor
arising from events commencing prior to the expiration or earlier
termination of this Lease shall survive such expiration or earlier
termination. If any term or provision of this Lease or any application
thereof shall be declared invalid or unenforceable, the remainder of
this Lease and any other application of such term or provision shall not
be affected thereby. If any right or option of Lessee provided in this
Lease, including any right or option described in Articles 15, 16, 20 or
21, would, in the absence of the limitation imposed by this sentence, be
invalid or unenforceable as being in violation of the rule against
perpetuities or any other rule of law relating to the vesting of an
interest in or the suspension of the power of alienation of property,
then such right or option shall be exercisable only during the period
which shall end twenty-one (21) years after the date of death of the
last survivor of the descendants of Franklin D. Roosevelt, the former
President of the United States, Henry Ford, the deceased automobile
manufacturer, and John D. Rockefeller, the founder of the Standard Oil
Company, known to be alive on the date of the execution and delivery of
this Lease.
36.
<PAGE> 38
- AMENDMENTS AND MODIFICATIONS. Neither this Lease nor any provision
hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.
- SUCCESSORS AND ASSIGNS. All the terms and provisions of this Lease shall
inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
- HEADINGS AND TABLE OF CONTENTS. The headings and table of contents in
this Lease are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
- COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be an original, but all of which shall together
constitute one and the same instrument.
- GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
- ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE
CREATION, PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND
THE EXERCISE OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE
PROPERTY IS LOCATED.
- LIMITATIONS ON RECOURSE. Except as expressly set forth in the Operative
Agreements, Lessee agrees to look solely to Lessor's estate and interest
in the Property, the proceeds of sale thereof, any insurance proceeds or
any other award or any third party proceeds received by Lessor in
connection with the Property for the collection of any judgment
requiring the payment of money by Lessor in the event of liability by
Lessor, and no other property or assets of Lessor or any shareholder,
owner or partner (direct or indirect) thereof, or any director, officer,
employee, beneficiary, Affiliate of any of the foregoing shall be
subject to levy, execution or other enforcement procedure for the
satisfaction of Lessee's remedies under or with respect to this Lease,
the relationship of Lessor and Lessee hereunder or Lessee's use of the
Property or any other liability of Lessor to Lessee; provided that
nothing in this Section 30.7 shall be construed to impair or limit the
rights of Lessee against Lessor under the Operative Agreements. Nothing
in this Section 30.7 shall be interpreted so as to limit the terms of
Section 6.1 or 6.2.
- RECORDATION OF LEASE. A memorandum of this Lease shall be recorded in
the jurisdiction in which the Property is located, at Lessee's sole cost
and expense.
37.
<PAGE> 39
IN WITNESS WHEREOF, the parties have caused this Lease be duly executed
and delivered as of the date first above written.
LESSEE: LAM RESEARCH CORPORATION
By: /s/ Craig Garber
-------------------------------
Name: Craig Garber
-------------------------------
Title: Treasurer
-------------------------------
LESSOR: SCOTIABANC INC.
By: /s/ F.C.H. Ashby
-------------------------------
Name: F.C.H. Ashby
-------------------------------
Title: Senior Manager, Loan Operations
-------------------------------
<PAGE> 40
EXHIBIT A
LEASE SUPPLEMENT
<PAGE> 41
EXHIBIT B
<TABLE>
<CAPTION>
<S> <C>
LAND INVESTMENT BALANCE $10,695,405.14
IMPROVEMENTS INVESTMENT BALANCE $16,450,780.11
--------------
$27,146,185.25
==============
</TABLE>
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
article 1..............................................................................
1.1 Definitions.............................................................1
article 2..............................................................................
2.1 Property................................................................1
2.2 Lease Term..............................................................1
2.3 Title...................................................................1
article 3..............................................................................
3.1 Rent....................................................................2
3.2 Payment of Basic Rent...................................................2
3.3 Supplemental Rent.......................................................2
3.4 Performance on a Non-Business Day.......................................2
3.5 Method of Payment.......................................................3
article 4..............................................................................
4.1 Utility Charges.........................................................3
</TABLE>
i.
<PAGE> 43
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
article 5..............................................................................
5.1 Quiet Enjoyment.........................................................3
article 6..............................................................................
6.1 Net Lease; No Setoff; Etc...............................................3
6.2 No Termination or Abatement.............................................4
article 7..............................................................................
7.1 Ownership of the Property...............................................5
7.2 Liens and Security Interests............................................5
article 8..............................................................................
8.1 Condition of the Property...............................................7
8.2 Possession and Use of the Property......................................8
article 9..............................................................................
9.1 Compliance with Legal Requirements and Insurance Requirements...........8
article 10.............................................................................
10.1 Maintenance and Repair; Return..........................................8
</TABLE>
ii.
<PAGE> 44
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
10.2 Right of Inspection.....................................................9
10.3 Environmental Inspection................................................9
article 11.............................................................................
11.1 Modifications, Substitutions and Replacements...........................10
article 12.............................................................................
12.1 Warranty of Title.......................................................11
12.2 Grants and Releases of Easements........................................11
article 13.............................................................................
13.1 Permitted Contests Other Than in Respect of Impositions.................12
article 14.............................................................................
14.1 Public Liability and Workers' Compensation Insurance....................12
14.2 Hazard and Other Insurance..............................................13
14.3 Coverage................................................................13
article 15.............................................................................
15.1 Casualty and Condemnation...............................................14
</TABLE>
iii.
<PAGE> 45
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
15.2 Environmental Matters...................................................15
15.3 Notice of Environmental Matters.........................................16
article 16.............................................................................
16.1 Termination upon Certain Events.........................................16
16.2 Procedures..............................................................16
article 17.............................................................................
17.1 Events of Default.......................................................17
17.2 Final Liquidated Damages................................................19
17.3 Lease Remedies..........................................................19
17.4 Waiver of Certain Rights................................................23
17.5 Assignment of Rights Under Contracts....................................24
17.6 Power of Sale and Foreclosure...........................................24
17.7 Security Agreement and Fixture Filing...................................27
17.8 Remedies Cumulative.....................................................28
17.9 Lessee's Right to Cure..................................................28
</TABLE>
iv.
<PAGE> 46
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
article 18.............................................................................
18.1 Lessor's Right to Cure Lessee's Defaults................................28
article 19.............................................................................
19.1 Provisions Relating to Lessee's Termination of this Lease or
Exercise of Purchase Options............................................29
article 20.............................................................................
20.1 Purchase Option.........................................................29
20.2 Maturity Date Purchase Option...........................................29
20.3 Extension of Expiration Date............................................30
article 21.............................................................................
21.1 Sale Procedure..........................................................30
21.2 Application of Proceeds of Sale.........................................31
21.3 Indemnity for Excessive Wear............................................31
21.4 Appraisal Procedure.....................................................31
21.5 Certain Obligations Continue............................................31
</TABLE>
v.
<PAGE> 47
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
article 22.............................................................................
22.1 Holding Over............................................................32
article 23.............................................................................
23.1 Risk of Loss............................................................32
article 24.............................................................................
24.1 Subletting and Assignment...............................................32
24.2 Subleases...............................................................32
article 25.............................................................................
25.1 Estoppel Certificates...................................................33
article 26.............................................................................
26.1 No Waiver...............................................................33
article 27.............................................................................
27.1 Acceptance of Surrender.................................................33
article 28.............................................................................
28.1 No Merger of Title......................................................33
</TABLE>
vi.
<PAGE> 48
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
article 29.............................................................................
29.1 Notices.................................................................33
article 30.............................................................................
30.1 Miscellaneous...........................................................34
30.2 Amendments and Modifications............................................34
30.3 Successors and Assigns..................................................34
30.4 Headings and Table of Contents..........................................34
30.5 Counterparts............................................................35
30.6 Governing Law...........................................................35
30.7 Limitations on Recourse.................................................35
30.8 Recordation of Lease....................................................35
Exhibit A LEASE SUPPLEMENT.....................................................37
</TABLE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
vii.
<PAGE> 49
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
</TABLE>
viii.
<PAGE> 1
EXHIBIT 10.71
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
among
LAM RESEARCH CORPORATION,
as Lessee,
SCOTIABANC INC.,
as Lessor,
THE BANK OF NOVA SCOTIA,
as a Rent Purchaser and as Agent for the Rent Purchasers
-----------------------------
Dated as of January 19, 2000
-----------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of January 19, 2000 (this
"Agreement"), is among LAM RESEARCH CORPORATION, a Delaware corporation (the
"Lessee"); SCOTIABANC INC., a Delaware corporation, as Lessor (the "Lessor"),
and THE BANK OF NOVA SCOTIA, as a Rent Purchaser (together with the other
financial institutions as may from time to time become Rent Purchasers, the
"Rent Purchasers") and as Agent for the Rent Purchasers (in such capacity, the
"Agent"). Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings set forth in Annex A hereto.
PRELIMINARY STATEMENT
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
-
THE RENT PURCHASE
The Rent Purchasers have agreed to purchase from the Lessor an interest
in the Lease Balance ("Rent Purchaser Advances") in an aggregate principal
amount of up to $23,942,935.39 in order for the Lessor to acquire the Land and
Improvements, and to pay other Project Costs. In consideration of the receipt of
the proceeds of such Rent Purchaser Advances, the Lessor does hereby absolutely
sell, assign, transfer and convey unto the Rent Purchasers all of the Lessor's
right, title and interest in and to the interests with respect to the Lease
Balance Debt; provided that this sale is without recourse to the Lessor (except
to the extent of its representations expressly set forth herein).
The sale of the interests in the Lease Balance Debt herein is a
presently effective, absolute and unconditional assignment and transfer of such
interests. As a further inducement to the Rent Purchasers, the Lessor covenants
and agrees not to assert any claim or cause of action against the Rent
Purchasers or seek to recover such interests on the grounds that the agreement
in this Section 1 is a collateral assignment or is given as security for
indebtedness rather than as an absolute present assignment.
The Rent Purchasers shall receive interest on the Rent Purchaser
Advances at the Lease Rate applicable to LIBOR Rent Purchaser Advances or ABR
Rent Purchaser Advances, as the case may be, and shall be entitled to the
benefits of the Pledge Agreement in accordance with their pro rata share of the
Lease Balance together with the Lessor.
On the Funding Date, each Rent Purchaser shall make a payment in respect
of its purchase of the interest being funded by it on such date by making its
Rent Purchaser Advance available to the Agent prior to 12:00 noon New York time
by wire transfer in
1.
<PAGE> 3
immediately available funds at the account of the Agent at its payment office as
set forth on SCHEDULE 2.6, or at such other account as to which the Agent shall
notify such Rent Purchaser in writing, and the Agent shall forward such amounts
to the Lessor's account at its payment office as set forth on SCHEDULE 2.6, or
such other account as the Lessor may specify in writing, not later than 2:00
p.m. New York time on the same date. In the event a Rent Purchaser shall fail to
make available to the Agent the full amount of such Rent Purchaser Advance by
12:00 noon New York time and unless Agent receives notice from such Rent
Purchaser that it will not make available its pro rata share of the Rent
Purchaser Advance, the Agent may (but shall not be required to) fund such Rent
Purchaser Advance, and the amount of the Rent Purchaser Advance so funded shall
be for the account of such Rent Purchaser. Such Rent Purchaser shall pay to the
Agent on demand the amount of such Advance with interest thereon at a rate equal
to the average federal funds rate for the period from the Funding Date to the
date on which such Rent Purchaser makes such Advance available to the Agent in
immediately available funds at the account referenced above. If such Rent
Purchaser does not make such advance available to the Agent within three (3)
Business Days after the Funding Date, the Agent shall be entitled to recover
such advance with interest thereon at the Overdue Rate, on demand, from the Rent
Purchaser.
Upon the request of a Rent Purchaser, the Lessor agrees that it will
cause a Uniform Commercial Code financing statement or statements covering all
the interests sold to such Rent Purchaser pursuant to this Agreement to be
executed and delivered by the Lessor, as debtor, specifying such Rent Purchaser
as secured party, and such financing statement or statements will be duly filed
in all places necessary to perfect the sale of the interests sold to such Rent
Purchaser pursuant to this Agreement, and all filing and recordation fees
payable in connection therewith will be paid by such Rent Purchaser. Such
financing statements shall state that they are being filed to perfect a sale of
such interests, and that no inference that a security interest has been granted
to such Rent Purchaser shall be made as a result of such filing.
-
LESSOR CONTRIBUTIONS
- LESSOR CONTRIBUTIONS. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties of each
of the parties hereto contained herein or made pursuant hereto, on the
Funding Date the Lessor shall contribute ("Lessor Contribution") an
amount equal to the Lessor's Commitment Percentage of the amount of the
aggregate Advance requested by the Lessee prior to the Funding Date. The
aggregate amount of the Lessor Contribution made by the Lessor shall not
exceed the Lessor Commitment as set forth in SCHEDULE 2.1 hereto.
Notwithstanding any other provision hereof, the Lessor shall not be
obligated to make any Advance if, after giving effect thereto, (i) the
aggregate outstanding amounts of the Rent Purchaser Advances and the
Lessor Contribution would exceed the Aggregate Commitment Amount, or
(ii) the Lease Balance would exceed the lesser of (x) 110 percent of the
Project Costs and (y) the
2.
<PAGE> 4
Fair Market Sales Value of the Property as set forth in the Appraisal of
the Property delivered pursuant to Section 6.2 hereof. Notwithstanding
any other provision hereof, Lessor shall not be obligated to make
available the Lessor Contribution if, after giving effect to the
proposed Lessor Contribution, the outstanding aggregate amount of the
Lessor Contribution would exceed the Lessor Commitment. The Lessor shall
use the Lessor Contribution to pay a portion of the Project Costs
simultaneously and pro rata with the fundings by the Rent Purchasers.
- YIELD.
- The amount of outstanding Rent Purchaser Advances shall accrue interest
as set forth in SECTION 1 hereof. The amount of Lessor contributions
outstanding from time to time shall accrue yield at the Lease Rate
applicable to LIBOR Lessor Contributions or ABR Lessor Contributions, as
the case may be. Such interest and yield are referred to collectively
herein as "Yield".
- Yield shall be calculated using the actual number of days elapsed and on
, when the Lease Rate is based on the Adjusted LIBOR, a 360-day year
basis and, if calculated at the ABR, a 360-day year basis if the ABR is
calculated at the Federal Funds Effective Rate, and a 365-, or, if
applicable, 366-, day year basis if the ABR is calculated at the Base
Rate. If all or any portion of the Lease Balance, any interest or Yield
payable thereon or any other amount payable hereunder shall not be paid
when due (whether at stated maturity, acceleration thereof or
otherwise), such overdue amount shall bear interest at a rate per annum
which is equal to the Overdue Rate. Upon the occurrence, and during the
continuance of an Event of Default, the amount of and, to the extent
permitted by law, interest on (or Yield on) the Lease Balance and any
other amounts owing hereunder or under the other Operative Agreements
shall bear interest, payable on demand, at a per annum rate which is
equal to the Overdue Rate.
- The Lessor shall distribute, in accordance with Section 12.1, the Lessor
Basic Rent, the Debt Basic Rent and all other amounts due with respect
to the Lessor Contribution and Rent Purchaser Advances paid to the
Lessor by the Lessee under the Lease or the other Operative Agreements
from time to time.
- Yield on the outstanding Lessor Contribution and Rent Purchaser Advances
shall be due and payable by the Lessee in cash on each Specified
Interest Payment Date.
- If not repaid sooner, the outstanding aggregate Lessor Contribution and
Rent Purchaser Advances shall be repaid in full on the Maturity Date.
- INTEREST PERIOD SELECTION ELECTIONS. By delivering an Interest Period
Selection Notice to the Lessor with respect to the Lessor Contribution
and to the Agent with respect to Rent Purchaser Advances, respectively,
the Lessee may from time to time during the Term irrevocably select, on
not less than three (3) nor more than five (5) Business Days' notice
(other than the initial Interest Period with respect to the Advance to
be made on the Funding Date, where such Advance is to bear interest at a
rate equal to the ABR and notice may be given on the Funding Date), the
duration for the next succeeding Interest Period; provided, however,
that (a) in the absence of a delivery of an Interest Period
3.
<PAGE> 5
Selection Notice with respect to any Rent Purchaser Advance or Lessor
Contribution at least three (3) Business Days before the last day of the
then current Interest Period with respect thereto, the Lessee shall be
deemed to have selected a one (1) month Interest Period for such Rent
Purchaser Advance or Lessor Contribution, (b) each such selection shall
be prorated among the applicable outstanding Rent Purchaser Advances and
Lessor Contribution of all Participants, and (c) the outstanding Rent
Purchaser Advances and Lessor Contribution may not be apportioned into
more than five (5) separate Interest Periods pursuant to this Section
2.3 at any one time.
- PREPAYMENTS.
- VOLUNTARY PREPAYMENTS. The Lessee shall have the right to prepay an
amount equal to the aggregate outstanding Lease Balance in whole, but
not in part, pursuant to the exercise of the purchase options permitted
under the Lease without premium or penalty, except for any payments due
pursuant to Section 11.6 below.
- MANDATORY PREPAYMENTS.
- If at any time the sum of the aggregate amount of outstanding Rent
Purchaser Advances and Lessor Contribution shall exceed the Aggregate
Commitment Amount, the Lessee shall immediately make payment on the Rent
Purchaser Advances or Lessor Contribution in an amount sufficient to
eliminate such excess. Payments required to be made hereunder shall be
applied first to ABR Rent Purchaser Advances or ABR Lessor Contributions
and second to LIBOR Rent Purchaser Advances or LIBOR Lessor
Contributions in direct order of their Interest Period maturities.
All amounts payable by the Lessee pursuant to Article 15, 16, 17, 20 or
21 of the Lease shall be applied to the Rent Purchaser Advances and the
Lessor Contribution in the manner set forth in Section 12.
- NOTICE. The Lessee will provide irrevocable notice to the Lessor and the
Agent of any prepayment of the Lessor Contribution or Rent Purchaser
Advances at least three (3) Business Days prior to the date of
prepayment.
- FEES. The Lessee agrees to pay to the Lessor, the Agent and the Rent
Purchasers fees in accordance with the Fee Letter.
- PAYMENTS. All payments (including prepayments) to be made by the Lessee
hereunder and under the Lease, whether on account of the Lessor
Contribution, Rent Purchaser Advances or Yield or interest thereon or
otherwise, shall be made without setoff or counterclaim and shall be
made prior to 10:00 a.m., San Francisco time, on the due date thereof to
the Lessor for the account of the Rent Purchasers and the Lessor, at the
4.
<PAGE> 6
Lessor's office specified in SCHEDULE 2.6 hereto, in Dollars and in
immediately available funds.
-
SUMMARY OF THE TRANSACTIONS
- OPERATIVE AGREEMENTS. On the Closing Date, each of the respective
parties thereto shall execute and deliver this Agreement, the Lease, the
Pledge Agreement and such other documents, instruments, certificates and
opinions of counsel as are required by the terms hereof or agreed to by
the parties hereto.
- PROPERTY ACQUISITION AND LEASE. On the Funding Date and subject to the
terms and conditions of this Agreement, (a) the Lessor will make the
Lessor Contribution in accordance with Section 2 hereof, (b) the Rent
Purchasers will make Rent Purchaser Advances in accordance with Section
5 hereof, (c) the Lessor will acquire the Land and the Improvements, and
(d) the Lessor will simultaneously lease all of its right, title and
interest in the Property to the Lessee.
-
THE CLOSING
All documents and instruments required to be delivered on the Closing
Date shall be delivered at the offices of Cooley Godward LLP, 5 Palo Alto
Square, 3000 El Camino Real, Palo Alto, CA 94306, or at such other location as
may be determined by the Lessor and the Lessee.
-
FUNDING OF ADVANCES
- GENERAL. To the extent funds have been made available to or advanced by
the Lessor as Rent Purchaser Advances and the Lessor Contribution, the
Lessor will make advances of such funds in accordance with the terms and
conditions of this Agreement and the other Operative Agreements in order
to provide sufficient funds to: (i) allow the Lessor, at the direction
of the Lessee, to acquire the Land and the Improvements in accordance
with the terms of this Agreement and the other Operative Agreements;
(ii) allow the Lessor, on behalf of the Lessee, to pay Transaction
Expenses; and (iii) pay all other Project Costs.
- PROCEDURES FOR FUNDING.
- Not less than three (3) Business Days prior to the proposed Funding Date
(other than the Advance to be made on the Funding Date, where such
Advance is to bear interest at a rate equal to the ABR and notice may be
given on the Funding Date), the Lessee shall deliver to the Lessor and
the Agent, a request for Advance and an Interest Period Selection
Notice.
- So long as no Default or Event of Default has occurred and is continuing
and subject to the Lessor and the Agent having each received the
materials required by Section 6.2 on
5.
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the Funding Date (i) the Rent Purchasers shall make Rent Purchaser
Advances to the Lessor in an aggregate amount equal to eighty-eight and
two tenths percent (88.20%) of the funds requested up to an aggregate
principal amount equal to the Available Rent Purchaser Commitments; (ii)
the Lessor shall make the Lessor Contribution in an amount equal to
eleven and eight tenths percent (11.8%) of the funds requested, up to an
amount equal to the Available Lessor Commitment; and (iii) the total
amount of such Rent Purchaser Advances and the Lessor Contribution shall
be paid to the Lessor to pay the Project Costs.
- ALLOCATION OF ADVANCES BETWEEN LAND AND IMPROVEMENTS. In the event the
Fair Market Sales Value of the Land leased pursuant to the Lease as set
forth in the Appraisal is greater than twenty-five percent of the
aggregate Fair Market Sales Value of the Property as set forth in the
Appraisal, Lessor shall determine a separate Land Investment Balance and
Improvements Investment Balance for the Property and the same as of the
Closing Date shall be set forth in Exhibit B to the Lease, and Lessee
shall execute and deliver a separate Lease Supplement for each of the
Land and the Improvements.
- PLEDGED COLLATERAL.
- MANDATORY PLEDGED COLLATERAL. If as of the last day of any Fiscal
Quarter (i) the Lessee's EBITDA equals an amount less than (x) through
the Fiscal Quarter ending December 31, 1999, $92,000,000, (y) from
January 1, 2000 through March 31, 2000, $167,000,000, and (z)
thereafter, $200,000,000, or (ii) the Lessee's Cash Balance equals an
amount less than $200,000,000, provided, that if as of the date six (6)
months prior to the Maturity Date, the Lessee has not refinanced the
Subordinated Notes, there shall be deducted from the Cash Balance at all
times thereafter the principal amount of such outstanding Subordinated
Notes in determining the Cash Balance under this clause (ii), then (x)
in the case of clause (i), on or before the third Business Day (or if
such date is not a Business Day, the next succeeding Business Day) (the
"Deposit Date") following the date on which financial statements are
delivered pursuant to Section 9.3(a)(i) or (ii) hereof until the third
Business Day following the date on which financial statements are
delivered pursuant to Section 9.3(a)(i) or (ii) hereof for the Fiscal
Quarter when the Lessee shall satisfy such tests, and (y) in the case of
clause (ii), on such specified date (also, a "Deposit Date") for so long
as any Obligations remain outstanding or until the third Business Day
following the date on which financial statements are delivered pursuant
to Section 9.3(a)(i) or (ii) hereof for the second consecutive Fiscal
Quarter when the Lessee shall satisfy such tests, the Lessee shall
deliver Pledged Collateral to the Collateral Agent in an amount equal to
100% of the aggregate outstanding Advances plus $300,000. Thereafter,
the Lessee covenants to maintain the Value of the Pledged Collateral at
a level equal to 100% of the aggregate outstanding Advances plus
$300,000, and within two (2) Business Days after receipt of notice from
the Collateral Agent that the Value of the Pledged Collateral is less
than 100% of the aggregate outstanding Advances plus $300,000, the
Lessee shall be obligated to deliver a portion of the Pledged Collateral
in an amount required to maintain the Value of the Pledged Collateral at
a level equal to 100% of the aggregate outstanding Advances plus
$300,000. Each such deposit (collectively, the "Pledge") shall be the
6.
<PAGE> 8
property of the Collateral Agent and shall be held and administered in
accordance with the Pledge Agreement.
- OPTIONAL PLEDGED COLLATERAL. Notwithstanding the requirements of Section
5.4(a), from time to time, the Lessee may make a deposit of additional
Pledged Collateral to the Collateral Agent in an amount equal to not
less than 100% of the aggregate outstanding Advances in order to have a
lower Applicable Margin apply to the outstanding Advances. In order to
maintain a lower Applicable Margin, the Lessee covenants to maintain the
Value of the Pledged Collateral at a level equal to 100% of the
aggregate outstanding Advances, and within two (2) Business Days after
receipt of notice from the Collateral Agent that the Value of the
Pledged Collateral is less than 100% of the aggregate outstanding
Advances, the Lessee shall deliver a portion of Pledged Collateral in an
amount required to maintain the Value of the Pledged Collateral at a
level equal to 100% of the aggregate outstanding Advances. Each such
deposit shall constitute part of the Pledge, shall be the property of
the Collateral Agent and shall be held and administered in accordance
with the Pledge Agreement.
-
CONDITIONS OF THE CLOSING AND ADVANCES
- GENERAL CONDITIONS TO THE CLOSING DATE. The Closing Date is subject to
the satisfaction, immediately prior to or concurrently therewith, of the
following conditions precedent:
- OPERATIVE AGREEMENTS. Each of the Operative Agreements entered into on
the Closing Date or subsequently shall have been duly authorized,
executed, acknowledged and delivered by the parties thereto and shall be
in full force and effect, and no Default shall exist thereunder (both
before and after giving effect to the transactions contemplated by the
Operative Agreements), and the Rent Purchasers and the Lessor shall have
received a fully executed copy of each of the Operative Agreements.
- TAXES. All taxes, fees and other charges in connection with the
execution, delivery, and, where applicable, recording, filing and
registration of the Operative Agreements shall have been paid or
provisions for such payment shall have been made to the reasonable
satisfaction of the Agent and the Lessor.
- GOVERNMENTAL APPROVALS. All necessary (or, in the reasonable opinion of
the Agent, the Lessor and their respective counsel, advisable)
Governmental Actions shall have been obtained or made and be in full
force and effect.
- LITIGATION. No action or proceeding shall have been instituted before
any Governmental Authority, nor shall any order, judgment or decree have
been issued or proposed to be issued by any Governmental Authority (i)
to set aside, restrain, enjoin or prevent the full
7.
<PAGE> 9
performance of this Agreement, any other Operative Agreement or any of
the transactions contemplated hereby or thereby or (ii) other than as
set forth on Schedule 7.2, which is reasonably likely to have a Material
Adverse Effect.
- LEGAL REQUIREMENTS. In the opinion of the Agent, the Lessor and their
respective counsel, the transactions contemplated by the Operative
Agreements do not and will not violate in any material respect any Legal
Requirements and do not and will not subject the Rent Purchasers or the
Lessor to any adverse regulatory prohibitions or constraints.
- CORPORATE PROCEEDINGS OF THE LESSEE. The Agent and the Lessor shall have
received a copy of the resolutions or minutes, in form and substance
reasonably satisfactory to the Agent and the Lessor, of the Board of
Directors of the Lessee authorizing the execution, delivery and
performance of this Agreement and the other Operative Agreements to
which it is a party, certified by the Secretary or an Assistant
Secretary of the Lessee as of the Closing Date, which certificate shall
be in form and substance reasonably satisfactory to the Agent and the
Lessor and shall state that the resolutions or minutes thereby certified
have not been amended, modified, revoked or rescinded.
- LESSEE INCUMBENCY CERTIFICATE. The Agent and the Lessor shall have
received a certificate of the Lessee, dated the Closing Date, as to the
incumbency and signature of the officers of the Lessee executing any
Operative Agreement reasonably satisfactory in form and substance to the
Agent and the Lessor, executed by the Secretary or any Assistant
Secretary of the Lessee.
- LESSEE'S OFFICER'S CERTIFICATE. The Agent and the Lessor shall each have
received a Certificate of the President or any Vice President of the
Lessee, dated as of the Closing Date, stating that (i) each and every
representation and warranty of the Lessee contained in the Operative
Agreements to which it is a party is true and correct on and as of the
Closing Date; (ii) no Default or Event of Default has occurred and is
continuing under any Operative Agreement; (iii) each Operative Agreement
to which the Lessee is a party is in full force and effect with respect
to it; and (iv) the Lessee has duly performed and complied with all
covenants, agreements and conditions contained herein or in any
Operative Agreement required to be performed or complied with by it on
or prior to the Closing Date.
- GOOD STANDING. The Agent and the Lessor shall have received (i)
Certificates of the Secretaries of State of the State of Delaware and
the State of California dated as of a recent date stating that the
Lessee is a corporation in good legal standing under the laws of such
states, and (ii) Certificates of the Franchise Tax Boards of the State
of Delaware and the State of California dated as of a recent date
stating that the Lessee is in good standing under the laws of such
states.
- LESSEE'S CORPORATE DOCUMENTS. The Agent and the Lessor shall have
received true and complete copies of the certificate or articles of
incorporation and by-laws of the Lessee, certified as of the Closing
Date as complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Lessee.
8.
<PAGE> 10
- CONSENTS, LICENSES AND APPROVALS. The Agent and the Lessor shall have
received a certificate of the President or a Vice President of the
Lessee stating that any consents, licenses and filings required to
consummate the transaction contemplated by this Agreement are in full
force and effect, and each such consent, authorization and filing shall
be in form and substance reasonably satisfactory to the Agent and the
Lessor.
- LEGAL OPINION. The Agent and the Lessor shall have received the executed
legal opinion of Heller Ehrman White & McAuliffe, special counsel to the
Lessee.
- ENVIRONMENTAL AUDIT.
- The Lessor and the Agent shall have received not less than ten
(10) days prior to the Funding Date an Environmental Audit with
respect to the Land being acquired on the Funding Date, prepared
by the Environmental Engineer, and the results of the
Environmental Audit shall be in form and substance satisfactory
to the Lessor and the Agent; and
- the Lessor and the Agent shall have received letters from the
Environmental Engineer stating, among other things, that the Rent
Purchasers and the Lessor may rely in all respects on the Environmental
Audit and other environmental reports with respect to the Property which
have been prepared by such firm as if they were addressed to them.
- SURVEY. The Lessor and the Agent shall have received, and the Title
Company shall have received, a survey of the Property being acquired on
the Funding Date, certified to the Lessor and the Title Company in a
manner satisfactory to them, dated as of a date within three (3) months
of the Funding Date, by an independent professionally licensed land
surveyor satisfactory to the Lessor, which survey shall be made in
accordance with the Minimum Standard Detail Requirements for Land Title
Surveys jointly established and adopted by the American Land Title
Association and the American Congress on Surveying and Mapping in 1992,
and, without limiting the generality of the foregoing, there shall be
surveyed and shown on such survey the following: (i) the locations on
such Property of all the buildings, structures and other improvements,
if any, and the established building setback lines; (ii) the lines of
streets abutting such Property; (iii) all access and other easements
appurtenant to such Property; (iv) all roadways, paths, driveways,
easements, encroachments and overhanging projections and similar
encumbrances affecting such Property, whether recorded, apparent from a
physical inspection of the Property or otherwise known to the surveyor;
(v) any encroachments on any adjoining property by the building,
structures and improvements on such Property; and (vi) if such Property
is described as being on a filed map, a legend relating the survey to
said map.
- APPRAISAL. The Lessor and the Agent shall have received an Appraisal of
the Property, which Appraisal shall show as of the Funding Date the Fair
Market Sales Value of the Property, and meet the other applicable
requirements set forth in the definition of the term "Appraisal"
contained in Annex A.
- LIEN SEARCHES. The Lessor and the Agent shall have received the results
of a recent search by a Person reasonably satisfactory to the Lessor and
the Agent, of the Uniform
9.
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Commercial Code, judgement and tax lien filings which may have been
filed in State of California with respect to personal property of the
Lessee, and the results of such search shall be satisfactory to the
Lessor and the Agent.
- REPRESENTATIONS. The representations and warranties of the Lessee and
the Lessor contained herein and in each of the other Operative
Agreements shall be true and correct.
- PERFORMANCE OF AGREEMENTS. The parties hereto and thereto shall have
performed their respective agreements to be performed on or prior to the
Closing Date contained herein and in the other Operative Agreements on
or prior to the Closing Date.
- FEES. The Lessor and the Agent and the Rent Purchasers shall have
received the fees pursuant to the Fee Letter.
- CONDITIONS TO RENT PURCHASERS' AND LESSOR'S OBLIGATIONS TO MAKE RENT
PURCHASER ADVANCES AND LESSOR CONTRIBUTIONS. The agreement of each Rent
Purchaser to make the Rent Purchaser Advance to the Lessor, and of the
Lessor to make the Lessor Contribution is further subject to the
satisfaction, immediately prior to or concurrently with the making of
such Rent Purchaser Advances and Lessor Contribution, of the following
conditions precedent:
- TITLE. Title to the Property being acquired on the Funding Date shall
conform to the representations and warranties set forth in Section
7.2(w).
- TITLE POLICY. The Lessor shall have received an owner's title policy, or
marked up unconditional binder for such insurance, dated the Funding
Date, for the Property being acquired on the Funding Date, insuring the
Lessor that the Lien of the Lease is a first and primary Lien in the
Lessee's interest in the Improvements and the Land; and the Lessor shall
have received evidence reasonably satisfactory to it that all premiums
in respect of such policy have been paid or provision made therefor.
- TITLE DOCUMENTS. The Lessor shall have received a copy of all recorded
documents referred to, or listed as exceptions to title in, the title
policy referred to above.
- INSURANCE. The Lessor and the Agent shall have received evidence in form
and substance satisfactory to them that all of the requirements of
Article 14 of the Lease shall have been satisfied.
- LEASE. The Lessor and the Agent shall have received the Lease
Supplement, executed by the Lessee, and assuming proper recordation of
the Memorandum of Lease, the Lease shall constitute a valid and
perfected first lien on the Property and the Improvements, subject only
to Permitted Exceptions.
- ACTIONS TO PERFECT LIENS. The Lessor shall have received evidence in
form and substance satisfactory to it that all filings, recordings,
registrations and other actions, including, without limitation, the
filing of duly executed financing statements on form
10.
<PAGE> 12
UCC-1, necessary or, in the opinion of the Lessor and the Agent,
desirable to perfect the Liens created by the Security Documents shall
have been completed.
- BRINGDOWN CERTIFICATE. The Lessor and the Agent shall have received an
Officer's Certificate on behalf of the Lessee dated as of the Funding
Date stating that (i) the representations and warranties of the Lessee
contained herein and in each of the other Operative Agreements are true
and correct in all material respects as of the Funding Date as though
made as of the Funding Date, and (ii) no Default or Event of Default has
occurred and is continuing.
- PERFORMANCE OF AGREEMENTS. The parties hereto and thereto shall have
performed their respective agreements contained herein and in the other
Operative Agreements on or prior to such Funding Date.
-
REPRESENTATIONS AND WARRANTIES
- REPRESENTATIONS AND WARRANTIES OF THE LESSOR ON THE CLOSING DATE. The
Lessor represents and warrants to each of the other parties hereto as of
the Closing Date as follows:
- DUE ORGANIZATION, ETC. It is a duly organized and validly existing
corporation in good standing under the laws of the jurisdiction of its
organization and has the power and authority to carry on its business as
now conducted and to enter into and perform its obligations under this
Agreement, each Operative Agreement to which it is a party and each
other agreement, instrument and document executed and delivered by it on
the Closing Date in connection with or as contemplated by each such
Operative Agreement to which it is or will be a party.
- AUTHORIZATION; NO CONFLICT. The execution, delivery and performance of
each Operative Agreement to which it is a party have been duly
authorized by all necessary action on its part and neither the execution
and delivery thereof by the Lessor, nor the consummation of the
transactions contemplated thereby by the Lessor, nor compliance by it
with any of the terms and provisions thereof (i) requires or will
require any approval of (which approval has not been obtained) the
shareholders of, or approval or consent of any trustee or holders of any
indebtedness or obligations of the Lessor, (ii) contravenes or will
contravene any Legal Requirement applicable to or binding on it as of
the date hereof, (iii) does or will contravene or result in any breach
of or constitute any default under its articles of incorporation or
by-laws or equivalent documents, or result in the creation of any Lessor
Lien upon the Property or any part thereof, or (iv) does or will require
any Governmental Action by any Governmental Authority.
- ENFORCEABILITY, ETC. Each Operative Agreement to which it is a party has
been duly executed and delivered by it and constitutes a legal, valid
and binding obligation enforceable against it in accordance with the
terms thereof, subject, in each case, as to enforceability, bankruptcy,
insolvency, reorganization and other similar laws affecting enforcement
of creditor rights generally (insofar as any such law relates to the
bankruptcy, insolvency, reorganization or similar event of the Lessor)
and, as to the
11.
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availability of specific performance or other injunctive relief, subject
to the discretionary power of a court to deny such relief and to general
equitable principles.
- ERISA. The Lessor is making the Lessor Contribution contemplated to be
made by it hereunder for its own account and with its general corporate
assets in the ordinary course of its business, and no part of such
amount constitutes the assets of any Employee Benefit Plan.
- LITIGATION. No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or threatened by or
against the Lessor (a) with respect to any of the Operative Agreements
or any of the transactions contemplated hereby or thereby, or (b) which
could reasonably be expected to have a material adverse effect on the
assets, liabilities, operations, business or financial condition of the
Lessor.
- ASSIGNMENT. It has not assigned or transferred any of its right, title
or interest in or under the Lease, any Operative Document or the
Property, except in accordance with the other Operative Agreements.
- NO DEFAULT. The Lessor is not in default under or with respect to any of
its Contractual Obligations in any respect which could have a material
adverse effect on the assets, liabilities, operations, business or
financial condition of the Lessor. No Default or Event of Default
attributable to it has occurred and is continuing.
- USE OF PROCEEDS. The proceeds of the Rent Purchaser Advances and the
Lessor Contribution shall be applied by the Lessor solely in accordance
with the provisions of the Operative Agreements.
- CHIEF PLACE OF BUSINESS. The Lessor's chief place of business, chief
executive office and office where the documents, accounts and records
relating to the transactions contemplated by this Agreement and each
other Operative Agreement are kept are located at 600 Peachtree Street
NE, Suite 2700, Atlanta, Georgia 30308.
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Lessor set forth in the Operative Agreements are true and correct.
The Lessor is in compliance with its respective obligations under the
Operative Agreements.
- CONDITIONS PRECEDENT CONTAINED IN THE OPERATIVE AGREEMENTS. All
conditions precedent contained in this Agreement and in the other
Operative Agreements to be satisfied by the Lessor relating to the
Advances have been satisfied in full.
- REPRESENTATIONS AND WARRANTIES OF THE LESSEE ON THE CLOSING DATE AND THE
FUNDING DATE. Subject to SCHEDULE 7.2 hereto, the Lessee represents and
warrants to each of the other parties hereto as of the Closing Date and
the Funding Date as follows:
- ORGANIZATION; POWERS. Each of the Lessee and its Subsidiaries (i) is
duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, (ii) has all requisite power and
authority to own its property and assets and
12.
<PAGE> 14
to carry on its business as now conducted and as proposed to be
conducted, (iii) is qualified to do business in every jurisdiction where
such qualification is required, except where the failure so to qualify
would not result in a Material Adverse Effect, and (iv) has the power
and authority to execute, deliver and perform its obligations under each
of the Operative Agreements and each other agreement or instrument
contemplated thereby to which it is or will be a party.
- AUTHORIZATION. The execution, delivery and performance by the Lessee of
each of the Operative Agreements to which it is a party (i) have been
duly authorized by all requisite action, including, if required,
stockholder action on the part of the Lessee and (ii) will not (A)
violate (1) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents
or by-laws of the Lessee or any Subsidiary, (2) any order of any
Governmental Authority, or (3) any provision of any indenture, agreement
or other instrument to which the Lessee or any Subsidiary is a party or
by which any of them or any of their property is or may be bound,
including, without limitation, the Credit Facility and the Subordinated
Notes, (B) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or (C) result in the creation
or imposition of any Lien upon or with respect to any property or assets
now owned or hereafter acquired by the Lessee or any Subsidiary except
in accordance with the Operative Agreements.
- ENFORCEABILITY. This Agreement and each of the other Operative
Agreements to which the Lessee is a party has been duly executed and
delivered by the Lessee and constitutes a legal, valid and binding
obligation of the Lessee enforceable against the Lessee in accordance
with its terms, subject, in each case as to enforceability, to
bankruptcy, insolvency, reorganization and other similar laws affecting
enforcement of creditor rights generally (insofar as any such law
relates to the bankruptcy, insolvency, reorganization or similar event
of the Lessee) and, as to the availability of specific performance or
other injunctive relief, subject to the discretionary power of a court
to deny such relief and to general equitable principles.
- GOVERNMENTAL APPROVALS. No action, consent or approval of, registration
or filing with or any other action by any Governmental Authority is or
will be required by the Lessee in connection with the purchase, leasing
or financing of the Property (the "Transactions"), except such as have
been made or obtained and are in full force and effect.
- FINANCIAL STATEMENTS. The consolidated balance sheet of the Lessee and
its Subsidiaries as at June 30, 1999, and the related consolidated
statements of income and cash flows of the Lessee and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Ernst &
Young LLP, independent auditors, and the consolidated balance sheet of
the Lessee and its Subsidiaries as at September 30, 1999, and the
related consolidated statements of income and cash flows of the Lessee
and its Subsidiaries for the three (3) months then ended, duly certified
by the chief financial officer of the Lessee, copies of which have been
furnished to the Lessor and the Agent, fairly present, subject, in the
case of said balance sheet as at September 30, 1999, and said statements
of income and cash flows for the three (3) months then ended, to
year-end audit adjustments, the consolidated financial condition of the
Lessee and its Subsidiaries as at such dates and the consolidated
results of the Lessee and its Subsidiaries for the periods ended on such
dates, all in
13.
<PAGE> 15
accordance with GAAP consistently applied. Since June 30, 1999, no event
has occurred which could have a Material Adverse Effect.
- NO MATERIAL ADVERSE CHANGE. As of the Closing Date, there has been no
material adverse change in the business, assets, property or condition,
financial or otherwise, of the Lessee and its Subsidiaries since June
30, 1999.
- TITLE TO PROPERTIES; POSSESSION UNDER LEASES.
- Each of the Lessee and its Subsidiaries has good and marketable
title to, or valid leasehold interests in, all its material
properties and assets. All such properties and assets are free
and clear of Liens, other than Liens expressly permitted by any
of the Operative Agreements.
- Each of the Lessee and its Subsidiaries has complied with all
obligations under all leases to which it is a party and all such
leases are in full force and effect. Each of the Lessee and its
Subsidiaries enjoys peaceful and undisturbed possession under all
such leases.
- LITIGATION, COMPLIANCE WITH LAWS.
- There are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or
threatened against the Lessee or any Subsidiary or any business,
property or rights of any such person (A) which involve any
Operative Agreements or the Transactions or (B) to the Lessee's
knowledge, which might have a Material Adverse Effect.
- Neither the Lessee nor any of its Subsidiaries is in violation of
any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental
Authority, where such violation or default could reasonably be
anticipated to result in a Material Adverse Effect.
- FEDERAL RESERVE REGULATIONS. Neither the Lessee nor any of its
Subsidiaries is engaged principally in, and does not have as one of its
most important activities, the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning
of Regulation U of the Board), and no part of the proceeds of the
Advances will be used by it to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any
such margin stock or for any purpose that violates, or is inconsistent
with, the provisions of Regulations T, U or X of the Board.
- INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. Neither the
Lessor nor any of its Subsidiaries is (i) an "investment company" or a
company controlled by an "investment company" within the meaning of the
Investment Company Act, or (ii) a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of
1935.
- AGREEMENTS.
14.
<PAGE> 16
- Neither the Lessee nor any of its Subsidiaries is a party to any
agreement or instrument or subject to any corporate or other
restriction that has resulted or could reasonably be anticipated
to result in a Material Adverse Effect.
- Neither the Lessee nor any of its Subsidiaries is in default in
any manner under any provision of any indenture or other
agreement or instrument evidencing Indebtedness, or any other
material agreement or instrument to which it is a party or by
which it or any of its properties or assets are or may be bound,
where such default could reasonably be anticipated to result in a
Material Adverse Effect.
- TAX RETURNS. Each of the Lessee and its Subsidiaries has filed or caused
to be filed all Federal, state, local and foreign tax returns required
to have been filed by it and has paid or caused to be paid all taxes
shown to be due and payable on such returns or on any assessments
received by it, except taxes that are being contested in good faith by
appropriate proceedings and for which the Lessee or such Subsidiary
shall have set aside on its books adequate reserves.
- NO MATERIAL MISSTATEMENTS. No information, report, financial statement,
exhibit or schedule furnished by or on behalf of the Lessee to the
Lessor, the Agent or any Rent Purchaser in connection with the
negotiation of any Operative Agreement or included therein or delivered
pursuant thereto contained, contains or will contain any misstatement of
a material fact or omitted, omits or will omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were, are or will be made, not
misleading.
- EMPLOYEE BENEFIT PLANS. Each of the Lessee and its ERISA Affiliates is
in compliance in all material respects with the applicable provisions of
ERISA and the regulations and published interpretations thereunder. No
Reportable Event has occurred as to which the Lessee or any ERISA
Affiliate was required to file a report with the PBGC, and the present
value of all benefit liabilities under each Plan (based on those
assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed by more than $1,000,000 the
value of the assets of such Plan. Neither the Lessee nor any ERISA
Affiliate has incurred any Withdrawal Liability which remains unpaid and
that could result in a Material Adverse Effect. Neither the Lessee nor
any ERISA Affiliate has received any notification that any Multiemployer
Plan is in reorganization or has been terminated within the meaning of
Title IV of ERISA, and to the best knowledge of the Lessee no
Multiemployer Plan is reasonably expected to be in reorganization or to
be terminated, where such reorganization or termination has resulted or
could reasonably be expected to result, through increases in the
contributions required to be made to such Plan or otherwise, in a
Material Adverse Effect.
- ENVIRONMENTAL MATTERS. To the best of Lessee's knowledge after due
inquiry, the Property is free of contamination from any Release of
Hazardous Substances. Neither the Lessee nor any of its Subsidiaries has
any material contingent liability related to noncompliance with any
Environmental Laws, or related to any Release or threatened Release of a
Hazardous Substance or the generation, use, storage or disposal of
Hazardous Substances associated with the Property. The Lessee and each
Subsidiary is conducting its respective business in compliance with all
applicable Environmental Laws.
15.
<PAGE> 17
Neither the Lessee nor any of its Subsidiaries has received notice of
any failure to so comply. The Lessee and its Subsidiaries, at the
Lessee's and its Subsidiaries' facilities, do not manage any hazardous
wastes, hazardous substances, hazardous materials, toxic substances,
toxic pollutants or substances similarly denominated, as those terms or
similar terms are used in the Environmental Laws, in violation of any
such law or any regulations promulgated pursuant thereto. Neither the
Lessee nor any of its Subsidiaries has caused or suffered to occur any
Release with respect to any Hazardous Substance at, under, above or upon
any real property which it owns or leases or to which it transported,
disposed or arranged for disposal of Hazardous Substances that would
result in a Material Adverse Effect. Neither the Lessee nor any of its
Subsidiaries is involved in operations which are reasonably likely to
result in the imposition of any material liability on the Lessee or any
of its Subsidiaries under any Environmental Law, and neither the Lessee
nor any of its Subsidiaries has permitted any tenant or occupant of such
premises to engage in any such activities.
- INSURANCE. The Lessee has obtained insurance coverage covering the
Property which meets the requirements of Section 14.1 of Lease and such
coverage is in full force and effect.
- NATURE OF THE PROPERTY. The Lessee shall use the Property for office,
manufacturing and research and development purposes.
- FLOOD ZONE. No portion of the Property being acquired by the Lessor on
the Funding Date is located in an area identified as a special flood
hazard area by the Federal Emergency Management Agency or other
applicable agency, or if the Property is located in an area identified
as a special flood hazard area by the Federal Emergency Management
Agency or other applicable agency, then flood insurance has been
obtained for such Property in accordance with Section 14.2(b) of the
Lease and in accordance with the National Flood Insurance Act of 1968,
as amended.
- LEGAL REQUIREMENTS. The Property being acquired by the Lessor complies
with all Legal Requirements (including all zoning and land use laws and
Environmental Laws).
- CONSENTS, ETC. All consents, licenses and building permits required by
all Legal Requirements by the time required by such Legal Requirements
for construction, completion, occupancy and operation of the Property
have been or will be obtained and are or will be in full force and
effect.
- SOLVENCY. The fair salable value of Lessee's assets exceeds the fair
value of its liabilities; the Lessee is not left with unreasonably small
capital after consummation of the transactions contemplated by the
Operative Documents; and Lessee is able to pay its debts (including
trade debts) as they mature.
- YEAR 2000. Lessee has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications used by Lessee
may be unable to recognize and properly perform date-sensitive functions
16.
<PAGE> 18
involving certain dates prior to, on or after December 31, 1999). Based
on such review and program, the Year 2000 Problem could not reasonably
be expected to have a Material Adverse Effect.
- TITLE TO PROPERTY. As of the Funding Date, the Lessor has a valid fee
interest in the Land, subject only to the Permitted Exceptions. The
Lessor will at all times have good and marketable title to the
Improvements, subject only to Permitted Exceptions.
- PROPERTY-RELATED MATTERS. The Property will comply with all Legal
Requirements (including all applicable zoning and land use laws and
Environmental Laws) and Insurance Requirements. No Improvements on the
Property will encroach in any manner onto any adjoining land (except as
permitted by express written easements or variance) and such
Improvements and the use thereof by the Lessee and its agents,
assignees, employees, invitees, lessees, licensees and tenants will
comply with all applicable Legal Requirements (including all applicable
Environmental Laws and building, planning, zoning and fire codes). There
are no defects to such Improvements including, without limitation, the
plumbing, heating, air conditioning and electrical systems thereof, and
all water, sewer, electric, gas, telephone and drainage facilities and
all other utilities required to adequately service such Improvements for
their intended use will be available pursuant to adequate permits
(including any that may be required under applicable Environmental
Laws). There is no action, suit or proceeding (including any proceeding
in condemnation or eminent domain or under any applicable Environmental
Law) pending or threatened which adversely affects the title to, or the
use, operation or value of, the Property. No fire or other casualty with
respect to the Property has occurred which fire or other casualty
involves an uninsured loss in excess of $500,000. All utilities serving
the Property are located in, and in the future will be located in, and
vehicular access to the Improvements on the Property is provided by,
either public rights-of-way abutting the Property or Appurtenant Rights.
All applicable licenses, approvals, authorizations, consents, permits
(including, without limitation, building, demolition and environmental
permits, licenses, approvals, authorizations and consents), easements
and rights-of-way, including proof of dedication, required for the use
and operation of the Improvements as permitted pursuant to the Lease
have been obtained from the appropriate Governmental Authorities having
jurisdiction or from private parties.
- LEASE REQUIREMENTS. The Improvements will comply with all requirements
and conditions set forth in the Lease and all other conditions and
requirements of the Operative Documents.
-
PAYMENT OF CERTAIN EXPENSES
The Lessee agrees, for the benefit of the Lessor, the Agent and each of
the Rent Purchasers, to:
- TRANSACTION EXPENSES. On the Closing Date and the Funding Date, pay, or
cause to be paid, all fees, expenses and disbursements of each of the
Lessor, the Agent and their respective counsel in connection with the
transactions contemplated by the Operative Agreements and incurred in
connection with the Closing Date and the Funding Date,
17.
<PAGE> 19
including all Transaction Expenses, reasonable syndication expenses and
all other expenses in connection with the Closing Date and the Funding
Date, including all expenses relating to the Appraisal, and all fees,
taxes and expenses for the recording, registration and filing of
documents.
- BROKERS' FEES AND STAMP TAXES. Pay or cause to be paid brokers' fees and
any and all stamp, transfer and other similar taxes, fees and excises,
if any, including any interest and penalties, which are payable in
connection with the transactions contemplated by this Agreement and the
other Operative Agreements.
- CERTAIN FEES AND EXPENSES. (a) Pay or cause to be paid (i) all costs and
expenses incurred by the Lessee, the Lessor, the Agent and each Rent
Purchaser in entering into any future amendments or supplements with
respect to any of the Operative Agreements, whether or not such
amendments or supplements are ultimately entered into, or giving or
withholding of waivers of consents hereto or thereto, which have been
requested by the Lessee, and (ii) all costs and expenses incurred by the
Lessor and each Rent Purchaser (A) in connection with any purchase of
all or any portion of Property by the Lessee or any other Person
pursuant to Articles 16, 17, 20 or 21 of the Lease, or (B) in respect of
enforcement of any of their rights and remedies in respect of the
Operative Agreements.
- COMMITMENT FEE. During the Commitment Period, the Lessee agrees to pay
or to cause to be paid to the Lessor for the account of the Lessor and
each Rent Purchaser, respectively, a commitment fee (the "Commitment
Fee") equal to the product of the Commitment for the Lessor and each
Rent Purchaser multiplied by .500% per annum. Such Commitment Fee shall
be calculated on the basis of a year of three hundred sixty (360) days
for the actual days elapsed and shall be payable in arrears on the
Commitment Fee Payment Date. If all or a portion of any such Commitment
Fee shall not be paid when due, such overdue amount shall bear interest,
payable by the Lessee on demand, at the Overdue Rate from the date of
such non-payment until such amount is paid in full.
-
OTHER COVENANTS AND AGREEMENTS
- COOPERATION WITH THE LESSEE. The Lessor, the Agent and the Rent
Purchasers shall, to the extent reasonably requested by the Lessee (but
without assuming additional liabilities on account thereof), at the
Lessee's expense, cooperate with the Lessee in connection with its
covenants contained herein or in any of the Operative Agreements,
including, without limitation, at any time and from time to time, upon
the request of the Lessee, to promptly and duly execute and deliver any
and all such further instruments, documents and financing statements
(and continuation statements related thereto) as the Lessee may
reasonably request in order to perform such covenants. The Lessor agrees
that, to the extent it shall obtain actual knowledge of the occurrence
of a Default caused by the Lessor or any of its Affiliates, it shall
promptly notify the Lessee describing the same in reasonable detail.
- COVENANTS OF THE LESSOR. The Lessor hereby agrees as to itself that so
long as this Agreement is in effect:
18.
<PAGE> 20
- DISCHARGE OF LIENS. The Lessor will not create or permit to exist at any
time, and will, at its own cost and expense, promptly take such action
as may be necessary duly to discharge, or to cause to be discharged, all
Lessor Liens on the Property attributable to it or any of its
Affiliates; provided, however, that the Lessor shall not be required to
so discharge any such Lessor Lien while the same is being contested in
good faith by appropriate proceedings diligently prosecuted so long as
such proceedings shall not involve any material danger of impairment of
the Liens of the Security Documents or of the sale, forfeiture or loss
of, and shall not interfere with the use or disposition of, the Property
or title thereto or any interest therein or the payment of Rent.
- CHANGE OF CHIEF PLACE OF BUSINESS. The Lessor shall give prompt notice
to the Lessee and the Agent if the Lessor's chief place of business or
chief executive office, or the office where the records concerning the
accounts or contract rights relating to the Property are kept, shall
cease to be located at the address set forth on SCHEDULE 2.1 hereto or
if it shall change its name.
- OPERATIVE DOCUMENTS. Neither Lessor nor Agent shall:
- Modify this Section 9.2 without the consent of all of the Rent
Purchasers;
- increase the aggregate amount of any Rent Purchaser's Commitment,
increase the aggregate amount of any Advances required to be made
by a Rent Purchaser pursuant to its Commitments, or extend the
Term without the consent of such Rent Purchaser;
- extend the due date for any scheduled repayment of principal of
any Rent Purchaser's Advance or reduce the principal amount of or
rate of interest on any Rent Purchaser's Advance or extend the
date on which interest or fees are payable in respect of such
Rent Purchaser's Advance, in each case, without the consent of
such Rent Purchaser;
- reduce the percentage set forth in the definition of "Majority
Rent Purchasers" or any requirement hereunder that any particular
action be taken by all Rent Purchasers without the consent of all
Rent Purchasers;
- except as otherwise expressly provided in this Agreement or
another Operative Agreement, release all or any substantial part
of the Collateral under the Operative Agreements, in either case
without the consent of all Rent Purchasers; or
- without the prior written consent of Majority Rent Purchasers,
execute any other waiver, modification or amendment of the
Operative Agreements, except a waiver, modification or amendment
that the Lessee requests pursuant to express provisions of the
Operative Agreements and that the Lessor believes in good faith
it must execute to satisfy the requirements of the Operative
Agreements.
- COVENANTS OF THE LESSEE. The Lessee hereby agrees that so long as this
Agreement is in effect:
19.
<PAGE> 21
- INFORMATION. The Lessee will deliver to the Lessor and the Agent:
- as soon as available and in any event within one hundred (100)
days after the end of each fiscal year of the Lessee a statement
of financial position of the Lessee and its consolidated
subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, shareholder's equity and cash
flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all
reported on by independent accountants of nationally recognized
standing, together with an Officer's Certificate from the chief
financial officer of the Lessee substantially containing a
computation of, and showing compliance with, each of the
financial ratios and restrictions contained in this Section 9.3
and stating that no Default or Event of Default has occurred or
is continuing or, if any Default or Event of Default has occurred
and is continuing, describing it and the steps, if any, being
taken to cure it;
- as soon as available and in any event within fifty (50) days
after the end of each of the first three (3) quarters of each
fiscal year of the Lessee, an unaudited consolidated statement of
financial position of the Lessee as of the end of such period and
the related consolidated statements of income, shareholders'
equity and cash flows for such period and for the portion of the
Lessee's fiscal year ended at the end of such period, setting
forth in each case in comparative form the figures for the same
period in the previous fiscal year, together with an Officer's
Certificate of the chief financial officer of the Lessee or other
officer responsible for the financial affairs of the Lessee
containing a computation of, and showing compliance with, each of
the financial ratios and restrictions contained in this Section
9.3 and stating that no Default or Event of Default has occurred
or is continuing or, if any Default or Event of Default has
occurred and is continuing, describing it and the steps, if any,
being taken to cure it;
- promptly after the filing thereof, if applicable, copies of all
reports on Forms 10-K, 10-Q and 8-K (or their equivalents),
prospectuses and registration statements which the Lessee shall
have filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended;
- if and when any member of the ERISA Group (1) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which
might constitute grounds for a termination of such Plan under
Title IV or ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event
given or required to be given to the PBGC; (2) receives notice of
complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (3)
receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or appoint a trustee
to administer any Plan, a copy of such notice; (4) applies for a
waiver of the minimum funding standard under Section 412 of the
Code, a copy of such application; (5) gives notice of intent to
terminate any Plan under Section 4041(c)
20.
<PAGE> 22
of ERISA, a copy of such notice and other information filed with
the PBGC; (6) gives notice of withdrawal from any Plan pursuant
to Section 4063 of ERISA, a copy of such notice; or (7) fails to
make any payment or contribution to any Plan or Multiemployer
Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted
or could result in the imposition of a Lien or the posting of a
bond or other security, a certificate of the chief financial
officer or the chief accounting officer of the Lessee setting
forth details as to such occurrence and action, if any, which the
Lessee or applicable member of the ERISA Group is required or
proposes to take;
- promptly after the occurrence of any Default or Event of Default,
notice thereof in writing by an authorized officer of the Lessee,
together with information regarding the steps, if any, being
taken or proposed to be taken to cure it;
- at least ten (10) Business Days prior to the expiration of any
policy of insurance required by Section 14 of the Lease,
confirmation of renewal;
- within three days of the end of each month during which Lessee is
required to maintain Pledged Collateral pursuant to Section
5.4(a)(ii) hereof, a written certification of the Chief Financial
Officer of Lessee as to Lessee's Cash Balance at the end of such
month; and
- from time to time such additional information regarding the
Lessee or the Property as the Lessor or the Agent, at the request
of the Lessor or any Rent Purchaser, may reasonably request.
- COMPLIANCE WITH LAWS. The Lessee will, and will cause its Subsidiaries
to, comply in all material respects with all applicable laws,
ordinances, rules, regulations, orders and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA
and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate
proceedings and such contest is not reasonably likely to result in a
Material Adverse Effect.
- FURTHER ASSURANCES. The Lessee shall take or cause to be taken from time
to time all action necessary to assure during the Term that title to the
Property remains in the Lessor as contemplated by Section 12.1 of the
Lease, that the Lessor holds a perfected Lien on the Property securing
the Lease Balance as contemplated by Section 7.1 of the Lease, and that
the Lessor and the Agent for the benefit of the Rent Purchasers hold a
perfected Lien on the Pledged Collateral securing the Obligations.
- EXISTENCE; FRANCHISES; BUSINESSES. Except as otherwise expressly
permitted in this Agreement, the Lessee shall, and shall cause each
Subsidiary to (i) maintain in full force and effect its separate
existence and all rights, licenses, leases and franchises reasonably
necessary to the conduct of its business, and (ii) continue doing
business as a whole in the substantially the same types of business in
which they were engaged on the Closing Date.
- BOOKS AND RECORDS. The Lessee shall, and shall cause each Subsidiary to,
maintain its books and records in accordance with GAAP, and permit the
Lessor and the Agent to
21.
<PAGE> 23
make or cause to be made inspections and audits of any books, records
and papers of the Lessee and its Subsidiaries and to make extracts
therefrom at all such reasonable times and as often as any such Person
may reasonably require.
- FUNDAMENTAL CHANGES. The Lessee shall not, nor shall it permit any
Subsidiary to, enter into any merger, consolidation or amalgamation,
where it is not the surviving entity, or liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); convey, sell, assign,
transfer or otherwise dispose of all or substantially all of the
property, business or assets of the Lessee and its Subsidiaries;
provided, however, that if (i) at least thirty (30) days prior to the
consummation of such transaction the Lessee shall have furnished to the
Lessor and the Agent an Officer's Certificate of the chief financial
officer of the Lessee that no Default or Event of Default shall occur
after giving effect thereto, and (ii) no Default or Event of Default
shall have occurred before or after giving effect thereto, then:
- any Subsidiary of the Lessee may be merged or consolidated with
or into the Lessee (provided, however, that the Lessee shall be
the continuing or surviving corporation) or with or into any one
or more wholly-owned Subsidiaries of the Lessee (provided,
however, that the wholly-owned Subsidiary or Subsidiaries shall
be the continuing or surviving corporation); and
- any wholly-owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Lessee or any other wholly-owned
Subsidiary of the Lessee.
- LIENS. The Lessee shall not create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
- any Lien existing on property of the Lessee on the Funding Date
and set forth in SCHEDULE 9.3 securing Indebtedness outstanding
on such date;
- any Lien created under any Operative Document;
- Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty;
- carrier's, warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without
penalty;
- Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business
in connection with workers' compensation, unemployment insurance
and other social security legislation;
- Liens on the property of the Lessee securing (A) the
non-delinquent performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, (B)
contingent obligations on surety and appeal bonds, and (C) other
22.
<PAGE> 24
non-delinquent obligations of a like nature; in each case,
incurred in the ordinary course of business;
- Liens arising solely by virtue of any statutory or common law
provisions relating to banker's liens, rights of set-off or
similar rights and remedies as to deposit accounts or other funds
maintained with a depository institution; provided, however, that
(A) such deposit account is not a dedicated cash collateral
account and is not subject to restrictions against access by the
Lessee in excess of those set forth by regulations promulgated by
the Board, and (B) such deposit account is not intended by the
Lessee or any Subsidiary to provide collateral to the depository
institution;
- Permitted Liens; and
- Liens otherwise permitted under the Credit Facility as of the
Closing Date.
- INTENTIONALLY OMITTED.
- FINANCIAL COVENANTS OF LESSEE. The Lessee and its Subsidiaries shall
maintain, on a consolidated basis, all of the following financial
covenants. The Lessee agrees and understands that (except as expressly
provided herein) all covenants under this Section 9.3(i) shall be
subject to compliance as measured as of the last day of each Fiscal
Quarter.
- MINIMUM QUICK RATIO. Maintain a Quick Ratio of not less than 1.35
to 1.0.
- MAXIMUM SENIOR INDEBTEDNESS RATIO. Maintain a Senior Indebtedness
Ratio of not greater than 0.25 to 1.0.
- MINIMUM TANGIBLE NET WORTH. Maintain Tangible Net Worth on any
date of determination (such date to be referred to herein as a
"determination date") which occurs after December 27, 1998 (such
date to be referred to herein as the "base date") to be less than
the sum on such determination date of the following: (A)
$350,000,000; plus (B) Seventy-five percent (75%) of the sum of
the Lessee's consolidated quarterly net income (ignoring any
quarterly losses) for each quarter ending after the base date
through and including the quarter ending immediately prior to the
determination date; plus (C) one hundred percent (100%) of the
Net Issuance Proceeds of all Equity Securities issued by the
Lessee and its Subsidiaries during the period commencing on the
base date and ending on the determination date; plus (D) one
hundred percent (100%) of the aggregate decrease in the total
liabilities of the Lessee and its Subsidiaries resulting from
conversions of convertible Subordinated Indebtedness or other
liabilities of the Lessee and its Subsidiaries into Equity
Securities of the Lessee and its Subsidiaries during the period
commencing on the base date and ending on the determination date.
- MINIMUM DEBT SERVICE COVERAGE RATIO. Maintain a Debt Service
Coverage Ratio of not less than the ratio set forth opposite such
period below:
23.
<PAGE> 25
Through December 26, 1999 1.50 to 1.00
December 27, 1999 - March 26, 2000 1.75 to 1.00
March 27, 2000 - June 25, 2000 2.00 to 1.00
June 26, 2000 - September 24, 2000 2.75 to 1.00
Thereafter 3.00 to 1.00
-
TRANSFER OF INTEREST
- ASSIGNMENTS. Each Participant may, after consultation with, and, so long
as no Default or Event of Default then exists, the agreement of, the
Lessee (such agreement not to be unreasonably withheld and provided that
no agreement by Lessee shall be required in the case of an assignment to
an Eligible Rent Purchaser), assign all or a portion of its rights and
obligations hereunder pursuant to an assignment agreement substantially
in the form of EXHIBIT B (an "Assignment and Acceptance") to one or more
Persons, with respect to Rent Purchaser Commitments and Rent Purchaser
Advances or the Lessor Commitment and Lessor Contribution, provided that
each such assignment shall be of a constant, not varying, percentage of
all of the assigning Participant's rights and obligations under the
Operative Agreements. In the case of assignments made by a Rent
Purchaser, any such assignment shall (a) be to an Eligible Rent
Purchaser and (b) be in a minimum aggregate amount of $5,000,000 of its
Rent Purchaser Commitment (or the balance of such Rent Purchaser
Commitment, if less) and the aggregate remaining Rent Purchaser
Commitment of the assigning Rent Purchaser shall, after giving effect to
the proposed assignment, be at least $5,000,000 or if less, zero. In the
case of assignments made by Lessor, any such assignment shall (a) be to
an Eligible Lessor and (b) be in a minimum aggregate amount of
$1,000,000 of its Lessor Commitment (or the balance of such Lessor
Commitment, if less) and the aggregate remaining Lessor Commitment of
the assigning Lessor shall, after giving effect to the proposed
assignment, be at least $1,000,000 or if less, zero. Any assignment
hereunder shall be effective upon delivery to the Lessor of written
notice of the assignment together with a transfer fee of $3,500 payable
by the assignor Participant or the assignee Participant to the Agent for
its own account. The assigning Participant will give prompt notice to
the Agent and the Lessee of any such assignment. Upon the effectiveness
of any such assignment (and after notice to and agreement of the Lessee
and the Lessor, as provided herein), the assignee shall become a "Rent
Purchaser" or "Lessor," as the case may be, for all purposes of the
Operative Agreements and, to the extent of such assignment, the
assigning Participant shall be relieved of its obligations hereunder to
the extent of the Advances or Lessor Contribution, as the case may be,
and Commitment components being assigned. The Lessee shall not be
responsible for any costs or expenses incurred by any Participant in
connection with an assignment of all or any of its rights and
obligations in connection with an assignment pursuant to this Section
10.1.
24.
<PAGE> 26
- PARTICIPATIONS. Each Participant may sell, transfer, grant or assign
participations in all or any part of such Participant's interests and
obligations hereunder; provided, that (a) such selling Participant shall
remain a "Rent Purchaser" or "Lessor", as the case may be, for all
purposes under the Operative Agreements (such selling Participant's
obligations under the Operative Agreements remaining unchanged) and the
sub-participant shall not constitute a Rent Purchaser or a Lessor, as
the case may be, hereunder, (b) no such sub-participant shall have, or
be granted, rights to approve any amendment or waiver relating to the
Operative Agreements except to the extent any such amendment or waiver
would (i) reduce the principal of or rate of interest on or fees in
respect of any Rent Purchaser Advances or the Lessor Contribution in
which the sub-participant is participating, (ii) postpone the date fixed
for any payment of principal (including extension of the Expiration Date
or the date of any mandatory prepayment), interest or fees in which the
sub-participant is participating, or (iii) release all or substantially
all of the collateral or guarantees (except as expressly provided in the
Operative Agreements) supporting any of the Rent Purchaser Advances or
Lessor Contribution or Commitments in which the sub-participant is
participating, and (c) sub-sub-participations by the sub-participant
(except to an Affiliate, parent company or Affiliate of a parent company
of the participant) shall be prohibited. In the case of any such
participation, the sub-participant shall not have any rights under the
Operative Agreements (the sub-participants rights against the selling
Participant in respect of such participation to be those set forth in
the participation agreement with such Participant creating such
participation) and all amounts payable by the Lessee hereunder shall be
determined as if such Participant had not sold such participation;
provided, however, that such sub-participant shall be entitled to
receive additional amounts under Sections 11.2 and 11.6 on the same
basis as if it were a Participant (but only to the extent that the
Participant would have been entitled to receive such additional amounts
with respect to the interest participated had it not sold such
participation). The Lessee shall not be responsible for any costs or
expenses incurred by any Participant in connection with a sale,
transfer, grant or assignment of participations pursuant to this Section
10.2.
- DISCLOSURE OF INFORMATION; PLEDGE UNDER REGULATION A.
- Any Participant may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10,
disclose to such assignee or participant or proposed assignee or
participant, any information relating to Lessee or the Transactions,
provided, that prior to such disclosure such proposed assignee or
participant shall have agreed in writing to keep any such information
confidential substantially on the terms of Section 10.3(b).
- The Agent, the Rent Purchasers and the Lessor understand that some of
the information and documents furnished to it pursuant to the Operative
Agreements may be confidential and each of them agrees that it will keep
all non-public information, documents and agreements so furnished to it
confidential and will make no disclosure to other Persons of such
information or agreements until it shall have become public, except
disclosure may be made (i) to the extent required in connection with
matters involving operations under or enforcement or amendment of the
Operative Agreements; (ii) to the Rent Purchasers' and the Lessor's
examiners and auditors or in accordance with the Rent Purchasers' or
Lessor's obligations under law or regulations or pursuant to subpoenas
or other process to
25.
<PAGE> 27
make information available to governmental agencies and examiners or to
others; (iii) to any corporate Affiliate of any Participant so long as
such Affiliate agrees to accept such information or agreement subject
too the restrictions provided in this Section 10.3(b); (iv) to the
Participant's counsel and other professional advisors so long as such
Persons are instructed to keep such information confidential in
accordance with the provisions of this Section 10.3(b); (v) to proposed
assignees and participants in accordance with Section 10.3(a); and (vi)
with the prior written consent of the Lessee.
- Anything in this Section 10 to the contrary notwithstanding, any
Participant may without the consent of Lessee, the Agent, the Rent
Purchasers or the Lessor assign and pledge all or any portion of the
Obligations held by it to any Federal Reserve Bank, the United States
Treasury or to any other financial institution as collateral security
pursuant to Regulation A of the Federal Reserve Board and any operating
circular issued by the Federal Reserve System and/or the Federal Reserve
Bank or otherwise; provided, any payment by Lessee for the benefit of
the assigning or pledging Participant shall be deemed to satisfy the
Lessee's obligations with respect thereto.
-
INDEMNIFICATION
- GENERAL INDEMNITY. The Lessee, whether or not any of the transactions
contemplated hereby shall be consummated, hereby assumes liability for
and agrees to defend, indemnify and hold harmless each Indemnified
Person on an After Tax Basis from and against any Claims which may be
imposed on, incurred by or asserted against an Indemnified Person in any
way relating to or arising or alleged to arise out of (a) the financing,
refinancing, ground lease purchase, acceptance, rejection, ownership,
design, construction, delivery, acceptance, nondelivery, leasing,
subleasing, possession, use, operation, repair, maintenance,
modification, transportation, condition, operation, sale, return,
repossession (whether by summary proceedings or otherwise), or any other
disposition of the Property or any part thereof, (b) any latent or other
defects in any property whether or not discoverable by an Indemnified
Person or the Lessee; (c) a violation of any Legal Requirement or
Requirement of Law, including any violation of Environmental Laws, the
Release, presence or use of Hazardous Substances on, at, under or
emanating from the Property or other loss of or damage relating to the
Property; (d) the Operative Agreements, or any transaction contemplated
thereby; (e) any breach by the Lessee of any of its representations or
warranties under the Operative Agreements or failure by the Lessee to
perform or observe any covenant or agreement to be performed by it under
any of the Operative Agreements; (f) personal injury, death or property
damage relating to the Property, including Claims based on strict
liability in tort; (g) the existence of any Lien on or with respect to
the Property, the Improvements, the Equipment, any Basic Rent or
Supplemental Rent, title thereto, or any interest therein, including any
Liens which arise out of the possession, use, occupancy, construction,
repair or rebuilding of the Property or by reason of labor or materials
furnished or claimed to have been furnished to the Lessee, the Lessor,
or any of their contractors or agents or by reason of the financing of
the Property or any personally or equipment purchased or leased by the
Lessee or Improvements or Modifications constructed by the Lessee,
except Lessor Liens and Liens in favor of the Agent or the Lessor; and
(h) the Transactions contemplated hereby or by any other Operative
Agreement, in respect of the
26.
<PAGE> 28
application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any
prohibited transaction described in Section 4975(c) of the Code; but in
any event excluding (x) Claims to the extent such Claims arise solely
out of events occurring after the expiration of the Term and after the
Lessee's discharge of all its obligations under the Lease and the other
Operative Agreements or (y) as to any Indemnified Person, any Claim to
the extent resulting from the willful misconduct or gross negligence of
such Indemnified Person. The Lessee shall be entitled to control, and
shall assume full responsibility for the defense of, any Claim;
provided, however, that any Indemnified Person named in such Claim may
retain separate counsel reasonably acceptable to the Lessee at the
expense of the Lessee in the event of and to the extent of an actual
conflict. The Lessee and each Indemnified Person agree to give each
other prompt written notice of any Claim hereby indemnified against but
the giving of any such notice by an Indemnified Person shall not be a
condition to the Lessee's obligations under this Section 11.1, except to
the extent failure to give such notice materially prejudices the
Lessee's rights hereunder. After an Indemnified Person has been fully
indemnified for a Claim pursuant to this Section 11.1, and so long as no
Event of Default shall have occurred and be continuing, the Lessee shall
be subrogated to any right of such Indemnified Person with respect to
such Claim. None of the Indemnified Persons shall settle a Claim without
the consent of the Lessee, which consent shall not be unreasonably
withheld or delayed.
- GENERAL IMPOSITIONS INDEMNITY.
- INDEMNIFICATION. The Lessee shall pay and assume liability for, and does
hereby agree to indemnify, protect and defend the Property and all
Indemnified Persons, and hold them harmless against, all Impositions on
an After Tax Basis.
- PAYMENTS.
- Subject to the terms of Section 11.2(f), the Lessee shall pay or
cause to be paid all Impositions directly to the taxing
authorities where feasible and otherwise to the Indemnified
Person, as appropriate, and the Lessee shall at its own expense,
upon such Indemnified Person's reasonable request, furnish to
such Indemnified Person copies of official receipts or other
satisfactory proof evidencing such payment.
- In the case of Impositions for which no contest is conducted
pursuant to Section 11.2(f) and which the Lessee pays directly to
the taxing authorities, the Lessee shall pay such Impositions
thirty (30) days prior to the latest time permitted by the
relevant taxing authority for timely payment. In the case of
Impositions for which the Lessee reimburses an Indemnified
Person, the Lessee shall do so within twenty (20) days after
receipt by the Lessee of demand by such Indemnified Person
describing in reasonable detail the nature of the Imposition and
the basis for the demand (including the computation of the amount
payable), but in no event shall the Lessee be required to pay
such reimbursement prior to thirty (30) days before the latest
time permitted by the relevant taxing authority for timely
payment. In the case of Impositions for which a contest is
conducted pursuant to Section 11.2(f), the Lessee shall pay such
Impositions or reimburse such Indemnified Person for such
Impositions, to the extent not previously paid or
27.
<PAGE> 29
reimbursed pursuant to subsection (a), thirty (30) days prior to
the latest time permitted by the relevant taxing authority for
timely payment after conclusion of all contests under Section
11.2(f).
- Impositions imposed with respect to the Property for a billing
period during which the Lease expires or terminates (unless a
Renewal Term is to apply or the Lessee has exercised the Purchase
Option or the Maturity Date Purchase Option with respect to the
Property) shall be adjusted and prorated on a daily basis between
the Lessee and the Lessor, whether or not such Imposition is
imposed before or after such expiration or termination and each
party shall pay or reimburse the other for each party's pro rata
share thereof.
- At the Lessee's request, the amount of any indemnification
payment by the Lessee pursuant to subsection (a) shall be
verified and certified by an independent public accounting firm
mutually acceptable to the Lessee and the Indemnified Person. The
fees and expenses of such independent public accounting firm
shall be paid by the Lessee unless such verification shall result
in an adjustment in the Lessee's favor of 10% or more of the
payment as computed by the Indemnified Person, in which case such
fee shall be paid by the Indemnified Person.
- REPORTS AND RETURNS. (i) The Lessee shall be responsible for preparing
and filing any real and personal property or ad valorem tax returns in
respect of the Property. In case any other report or tax return shall be
required to be made with respect to any obligations of the Lessee under
or arising out of subsection (a) and of which the Lessee has knowledge
or should have knowledge, the Lessee, at its sole cost and expense,
shall notify the relevant Indemnified Person of such requirement and
(except if such Indemnified Person notifies the Lessee that such
Indemnified Person intends to file such report or return) (A) to the
extent required or permitted by and consistent with applicable law, make
and file in its own name such return, statement or report; and (B) in
the case of any other such return, statement or report required to be
made in the name of such Indemnified Person, advise such Indemnified
Person of such fact and prepare such return, statement or report for
filing by such Indemnified Person or, where such return, statement or
report shall be required to reflect items in addition to any obligations
of the Lessee under or arising out of subsection (a), provide such
Indemnified Person at the Lessee's expense with information sufficient
to permit such return, statement or report to be properly made with
respect to any obligations of the Lessee under or arising out of
subsection (a). Such Indemnified Person shall, upon the Lessee's request
and at the Lessee's expense, provide any data maintained by such
Indemnified Person (and not otherwise available to or within the control
of the Lessee) with respect to the Property which the Lessee may
reasonably require to prepare any required tax returns or reports. Each
Indemnified Person agrees to use commercially reasonable efforts to send
to the Lessee a copy of any written request or other notice that the
Indemnified Person receives with respect to any reports or returns
required to be filed with respect to the Property or the transactions
contemplated by the Operative Documents, it being understood that no
Indemnified Person shall have any liability for failure to provide such
copies.
- INCOME INCLUSIONS. If as a result of the payment or reimbursement by the
Lessee of any expenses of any Lessor or the payment of any Transaction
Expenses incurred in
28.
<PAGE> 30
connection with the transactions contemplated by the Operative
Documents, the Lessor or any Rent Purchaser shall suffer a net increase
in any federal, state or local income tax liability, the Lessee shall
indemnify such Persons (without duplication of any indemnification
required by subsection (a)) on an After Tax Basis for the amount of such
increase. The calculation of any such net increase shall take into
account any current or future tax savings realized or reasonably
expected to be realized by such person in respect thereof, as well as
any interest, penalties and additions to tax payable by the Lessor, the
Lender or such Affiliate, in respect thereof.
- WITHHOLDING TAXES. As between the Lessee on one hand, and any
Participant on the other hand, the Lessee shall be responsible for, and,
subject to the provisions of Sections 11.2(g) and (h), the Lessee shall
indemnify and hold harmless the Participants (without duplication of any
indemnification required by subsection (a)) on an After Tax Basis
against, any obligation for United States or foreign withholding taxes
imposed in respect of payments with respect to the Rent Purchaser
Advances or the Lessor Contribution or with respect to Rent payments
under the Lease or payments of the Termination Value or the Purchase
Option Price (and, if any Participant receives a demand for such payment
from any taxing authority, the Lessee shall discharge such demand on
behalf of such Participant).
- CONTESTS OF IMPOSITIONS.
- If a written claim is made against any Indemnified Person or if
any proceeding shall be commenced against such Indemnified Person
(including a written notice of such proceeding), for any
Impositions, such Indemnified Person shall promptly notify the
Lessee in writing and shall not take action with respect to such
claim or proceeding without the consent of the Lessee for thirty
(30) days after the receipt of such notice by the Lessee;
provided, however, that, in the case of any such claim or
proceeding, if action shall be required by law or regulation to
be taken prior to the end of such 30-day period, such Indemnified
Person shall, in such notice to the Lessee, inform the Lessee of
such shorter period, and no action shall be taken with respect to
such claim or proceeding without the consent of the Lessee before
two days before the end of such shorter period; provided,
further, that the failure of such Indemnified Person to give the
notices referred to in this sentence shall not diminish the
Lessee's obligation hereunder except to the extent such failure
precludes the Lessee from contesting all or part of such claim.
- If, within thirty (30) days of receipt after such notice from the
Indemnified Person (or such shorter period as the Indemnified
Person has notified the Lessee as required by law or regulation
for the Indemnified Person to commence such contest), the Lessee
shall request in writing that such Indemnified Person contest
such Imposition, the Indemnified Person shall, at the expense of
the Lessee, in good faith conduct and control such contest
(including, without limitation, by pursuit of appeals) relating
to the validity, applicability or amount of such Impositions
(provided, however, that (A) if such contest involves a tax other
than a tax on net income and can be pursued independently from
any other proceeding involving a tax liability of such
Indemnified Person, the Indemnified Person, at the Lessee's
request, shall allow the Lessee to conduct and control such
contest
29.
<PAGE> 31
and (B) in the case of any contest, the Indemnified Person may
request the Lessee to conduct and control such contest) by, in
the sole discretion of the Person conducting and controlling such
contest, (1) resisting payment thereof, (2) not paying the same
except under protest, if protest is necessary and proper, or (3)
if the payment be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial
proceedings.
- The party controlling any contest shall consult in good faith
with the non-controlling party and shall keep the non-controlling
party reasonably informed as to the conduct of such contest;
provided, that all decisions ultimately shall be made in the sole
discretion of the controlling party. The parties agree that an
Indemnified Person may at any time decline to take further action
with respect to the contest of any Imposition and may settle such
contest if such Indemnified Person shall waive its rights to any
indemnity from the Lessee that otherwise would be payable in
respect of such claim and shall pay to the Lessee any amount
previously paid or advanced by the Lessee pursuant to this
Section 11.2 by way of indemnification or advance for the payment
of an Imposition other than expenses of such contest.
- Notwithstanding the foregoing provisions of this Section 11.2, an
Indemnified Person shall not be required to take any action and
the Lessee shall not be permitted to contest any Impositions in
its own name or that of the Indemnified Person unless (A) the
Lessee shall have agreed to pay in writing and shall pay to such
Indemnified Person on demand and on an After Tax Basis all
reasonable costs, losses and expenses that such Indemnified
Person actually incurs in connection with contesting such
Impositions, including, without limitation, all reasonable legal,
accounting and investigatory fees and disbursements and the
contested claim if ultimately required to be paid, (B) in the
case of a claim that must be pursued in the name of an
Indemnified Person (or an Affiliate thereof), the amount of the
potential indemnity exceeds $50,000, (C) the Indemnified Person
shall have reasonably determined that the action to be taken will
not result in any material danger of sale, forfeiture or loss of
the Property or the Defeasance Deposit Collateral, or any part
thereof or interest therein, will not interfere with the payment
of Rent, and will not result in risk of criminal liability, (D)
if such contest shall involve the payment of the Imposition prior
to the contest, the Lessee shall provide to the Indemnified
Person an interest-free advance in an amount equal to the
Imposition that the Indemnified Person is required to pay (with
no additional net after-tax cost to such Indemnified Person), (E)
the Lessee shall have provided to such Indemnified Person an
opinion of independent tax counsel selected by the Lessee and
reasonably satisfactory to the Indemnified Person stating that a
reasonable basis exists to contest such claim (or, in the case of
an appeal of an adverse determination, an opinion of such counsel
to the effect that the position asserted in such appeal will more
likely than not prevail), and (F) no Event of Default shall have
occurred and be continuing. In no event shall an Indemnified
Person be required to appeal an adverse judicial determination to
the United States Supreme Court. In addition, an Indemnified
Person shall not be required to contest any claim in its name (or
that of an Affiliate) if the subject matter thereof shall be of a
continuing nature and shall have previously been decided
adversely by a court of competent jurisdiction pursuant to the
contest provisions of this Section 11.2,
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<PAGE> 32
unless there shall have been a change in law (or interpretation
thereof) and the Indemnified Person shall have received, at the
Lessee's expense, an opinion of independent tax counsel selected
by the Indemnified Person and reasonably acceptable to the Lessee
stating that as a result of such change in law (or interpretation
thereof), it is more likely than not that the Indemnified Person
will prevail in such contest.
- DOCUMENTATION OF WITHHOLDING STATUS. Each Participant (or any successor
thereto or Transferee thereof) that is organized under the laws of a
jurisdiction outside of the United States of America shall:
- on or before the date it becomes a party to any Operative
Agreement, deliver to the Lessee any certificates, documents or
other evidence that shall be required by the Code or Treasury
Regulations issued pursuant thereto to establish its exemption
from United States Federal withholding requirements, including
(A) two (2) valid, duly completed, original copies of Internal
Revenue Service Form 1001 or Form 4224 or successor applicable
form, properly and duly executed, certifying in each case that
such party is entitled to receive payments pursuant to the
Operative Documents without deduction or withholding of United
States Federal income taxes, and (B) a valid, duly completed,
original copy of Internal Revenue Service Form W-8 or Form W-9 or
applicable successor form, properly and duly executed, certifying
that such party is entitled to an exemption from United States of
America backup withholding tax; and
- or before the date that any such form described above expires or
becomes obsolete, or after the occurrence of any event requiring
a change in the most recent such form previously delivered to the
Lessee, deliver to the Lessee two (2) further valid, duly
completed, original copies of any such form or certification,
properly and duly executed.
- LIMITATION ON TAX INDEMNIFICATION. The Lessee shall not be required to
indemnify any Indemnified Person, or to pay any increased amounts to any
Indemnified Person or tax authority with respect to any Impositions
pursuant to this Section 11.2 to the extent that (i) any obligation to
withhold, deduct, or pay amounts with respect to Tax existed on the date
such Indemnified Person became a party to any Operative Agreement (and,
in such case, the Lessee may deduct and withhold such Tax from payments
pursuant to the Operative Agreements), or (ii) such Indemnified Person
fails to comply with the provisions of Section 11.2(g) (and, in such
case, the Lessee may deduct and withhold all Taxes required by law as a
result of such noncompliance from payments made by the Lessee pursuant
to the Operative Agreements). With respect to any Transferee of any
Participant (including a transfer resulting from any change in the
designation of the lending office of a Participant), the Transferee
shall not be entitled to any greater payment or indemnification under
this Section 11.2 than the transferor would have been entitled to.
- LIBOR LENDING UNLAWFUL. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof occurring after the Closing Date
shall make it unlawful for any Participant to make, continue or maintain
LIBOR Rent Purchaser Advances or LIBOR Lessor Contributions as
contemplated by the Operative Agreements, (a) such Participant shall
31.
<PAGE> 33
promptly give written notice of such circumstances to the Lessee, the
Lessor and the Rent Purchasers (which notice shall be withdrawn whenever
such circumstances no longer exist), (b) such Participant shall
undertake reasonable efforts to propose a money rate comparable to LIBOR
(the "LIBOR Alternative"), (c) the commitment of such Rent Purchaser or
Lessor, as the case may be, hereunder to make, continue or maintain
LIBOR Rent Purchaser Advances or LIBOR Lessor Contributions shall
forthwith be canceled and, until such time as it shall no longer be
unlawful for such Participant to make, continue or maintain LIBOR Rent
Purchaser Advances or LIBOR Lessor Contributions, such Participant shall
then have a commitment only to make or maintain Rent Purchaser Advances
or the Lessor Contributions based on ABR or the LIBOR Alternative, if
any, when a LIBOR Rent Purchaser Advance or LIBOR Lessor Contribution is
requested and (d) such Participant's Rent Purchaser Advances and Lessor
Contributions then outstanding as LIBOR Rent Purchaser Advances or LIBOR
Lessor Contributions, if any, shall be converted automatically to Rent
Purchaser Advances or Lessor Contributions based on ABR or the LIBOR
Alternative, if any, on the respective last days of the then current
Interest Periods with respect to such Rent Purchaser Advances and Lessor
Contributions or within such earlier period as required by law. If any
such conversion of LIBOR Rent Purchaser Advances or LIBOR Lessor
Contributions occurs on a day which is not the last day of the then
current Interest Period with respect thereto, the Lessee shall pay to
such Participant such amounts, if any, as may be required pursuant to
Section 11.6. In any such case, interest and principal (if any) shall be
payable contemporaneously with the related LIBOR Rent Purchaser Advances
or LIBOR Lessor Contributions of the other Participants.
- DEPOSITS UNAVAILABLE. If any of the Participants shall have determined
that:
- Dollar deposits in the relevant amount and for the relevant Interest
Period are not available to the Participant in its relevant market; or
- by reason of circumstances affecting the Participant's relevant market,
adequate means do not exist for ascertaining the interest rate or Yield,
as the case may be, applicable to such Participant's LIBOR Rent
Purchaser Advances or LIBOR Lessor Contributions;
then, upon notice from such Participant to the Lessee and the other
Participants, (x) the obligations of the Participants to make or continue any
Rent Purchaser Advances or the Lessor Contributions as, or to convert any Rent
Purchaser Advances or the Lessor Contribution into, LIBOR Rent Purchaser
Advances or LIBOR Lessor Contributions shall be suspended, and (y) each
outstanding LIBOR Rent Purchaser Advance or LIBOR Lessor Contribution shall
automatically convert into an Rent Purchaser Loan or Lessor Contribution based
on ABR or the LIBOR Alternative, if any, on the last day of the current Interest
Period applicable thereto.
- INCREASED COSTS, ETC.
- If the adoption of or any change in a Requirement of Law or in the
interpretation or application thereof applicable to any Participant, or
compliance by any Participant with any request or directive (whether or
not having the force of law) from any central bank or
32.
<PAGE> 34
other Governmental Authority, in each case made subsequent to the
Closing Date (or, if later, the date on which such Participant becomes a
Participant):
- shall subject such Participant to any tax of any kind whatsoever
with respect to any LIBOR Rent Purchaser Advances or LIBOR Lessor
Contributions made, continued or maintained by it or its
obligation to make, continue or maintain LIBOR Rent Purchaser
Advances or LIBOR Lessor Contributions, or change the basis of
taxation of payments to such Participant in respect thereof; or
- shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
Rent Purchaser Advances and the Lessor Contribution, advances or
other extensions of credit by, or any other acquisition of funds
by, any office of such Participant which is not otherwise
included in the determination of the Adjusted LIBOR Rate
hereunder; or
- shall impose on such Participant any other condition (excluding
any Tax of any kind) whatsoever in connection with the Operative
Agreements;
and the result of any of the foregoing is to increase the cost to such
Participant, by an amount which such Participant reasonably deems to be
material, of making, continuing or maintaining LIBOR Advances or LIBOR Lessor
Contributions or to reduce any amount receivable hereunder in respect thereof,
then, in any such case, upon notice to the Lessee from such Participant, through
the Lessor or the Agent, in accordance herewith, the Lessee shall pay such
Participant any additional amounts necessary to compensate such Participant for
such increased cost or reduced amount receivable; provided, that, in any such
case, the Lessee may elect to convert the LIBOR Rent Purchaser Advances or LIBOR
Lessor Contributions made by such Participant hereunder to Rent Purchaser
Advances or Lessor Contributions based on ABR or the LIBOR Alternative, if any,
by giving the Lessor and the Agent at least one (1) Business Day's notice of
such election, in which case the Lessee shall promptly pay to such Participant,
upon demand, without duplication, such amounts, if any, as may be required
pursuant to Section 11.6. All payments required by this Section 11.5 shall be
made by the Lessee within ten (10) Business Days after demand by the affected
Participant. The Lessee shall not be obligated to reimburse any Participant for
any increased cost or reduced return incurred more than one hundred eighty (180)
days after the date that such Participant receives actual notice of such
increased cost or reduced return unless such Participant gives notice thereof to
the Lessee in accordance with this Section 11.5 during such one hundred eighty
(180) day period. If any Participant becomes entitled to claim any additional
amounts pursuant to this subsection, it shall provide prompt notice thereof to
the Lessee, through the Lessor, certifying (x) that one of the events described
in this clause (a) has occurred and describing in reasonable detail the nature
of such event, (y) as to the increased cost or reduced amount resulting from
such event, and (z) as to the additional amount demanded by such Participant and
a reasonably detailed explanation of the calculation thereof (including the
method by which such Participant allocated such amounts to the Lessee). Such a
certificate as to any additional amounts payable pursuant to this clause
submitted by such Participant, through the Lessor, to the Lessee shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Rent Purchaser Advances and
the Lessor Contribution and all other amounts payable hereunder.
33.
<PAGE> 35
- Each Participant shall use its reasonable efforts to reduce or eliminate
any claim for compensation pursuant to this Section 11.5, including,
without limitation, a change in the office of such Participant at which
its obligations related to this Agreement are maintained if such change
will avoid the need for or reduce the amount of, such compensation and
will not, in the reasonable judgment of such Participant, be otherwise
disadvantageous to it. If any such claim for compensation shall not be
eliminated or waived, the Lessee shall have the right to replace the
affected Participant with a new financial institution that shall succeed
to the rights of such Participant under this Participation Agreement;
provided, that such Participant shall not be replaced hereunder until it
has been paid in full such claim and all other amounts owed to it
hereunder.
- FUNDING LOSSES. The Lessee agrees to indemnify each Indemnified Person
and to hold each Indemnified Person harmless from any loss or expense
which such Indemnified Person may sustain or incur (other than through
such Person's own gross negligence or willful misconduct) as a
consequence of (a) default by the Lessee in making a borrowing of or
continuation of Rent Purchaser Advances or the Lessor Contribution which
are LIBOR Rent Purchaser Advances or LIBOR Lessor Contributions after
the Lessee has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Lessee in making any
prepayment of a Rent Purchaser Advance or the Lessor Contribution which
is a LIBOR Rent Purchaser Advance or a LIBOR Lessor Contribution after
the Lessee has given a notice thereof in accordance with the provisions
of this Agreement, or (c) the making of a prepayment of Rent Purchaser
Advances or the Lessor Contribution which are LIBOR Rent Purchaser
Advances or LIBOR Lessor Contributions on a day which is not the last
day of an Interest Period with respect thereto. This covenant shall
survive the termination of this Agreement or any other Operative
Agreement and the payment of the Rent Purchaser Advances, the Lessor
Contribution and all other amounts payable under the Operative
Agreements.
- CAPITAL ADEQUACY.
- If the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Participant with any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable
agency, in each case made subsequent to the Closing Date, has or will
have the effect of reducing the rate of return on any Participant's or
its parent company's capital by an amount such Participant reasonably
deems to be material, as a consequence of its commitments or obligations
hereunder to a level below that which such Participant or its parent
company could have achieved but for such adoption, effectiveness, change
or compliance (taking into consideration such Participant's or its
parent company's policies with respect to capital adequacy), then, upon
notice from such Participant, the Lessee shall pay to such Participant
such additional amount or amounts as will compensate such Participant
and its parent company for such reduction (it being understood that such
parent company shall not be reimbursed to the extent its subsidiary
Participant is reimbursed by the Lessee in connection with the same or a
similar law, rule, regulation, change, request or directive applicable
to such Participant). All payments required by this Section 11.7 shall
be made by the Lessee within ten (10) Business Days
34.
<PAGE> 36
after demand by the affected Participant. The Lessee shall not be
obligated to reimburse any Participant for any reduced return incurred
more than one hundred eighty (180) days after the date that such
Participant receives actual notice of such reduced return unless such
Participant gives notice thereof to the Lessee in accordance with this
Section 11.7 during such one hundred eighty (180) day period. If any
Participant becomes entitled to claim any additional amounts pursuant to
this Section 11.7, it shall provide prompt notice thereof to the Lessee,
through the Lessor and the Agent, certifying (i) that one of the events
described in this clause (a) has occurred and describing in reasonable
detail the nature of such event, (ii) as to the increased cost or
reduced amount resulting from such event and (iii) as to the additional
amount demanded by such Participant and a reasonably detailed
explanation of the calculation thereof. Such a certificate as to any
additional amounts payable pursuant to this clause submitted by such
Participant, through the Lessor, to the Lessee shall be conclusive in
the absence of manifest error. This covenant shall survive the
termination of this Agreement and the other Operative Agreements and the
payment of the Rent Purchaser Advances, the Lessor Contribution and all
other amounts payable hereunder and thereunder.
- Each Participant shall use its commercially reasonable efforts to reduce
or eliminate, any claim for compensation pursuant to this Section 11.7,
including, without limitation, a change in the office of such
Participant at which its obligations related to the Operative Agreements
are maintained if such change will avoid the need for, or reduce the
amount of, such compensation and will not, in the reasonable judgment of
such Participant, be otherwise disadvantageous to it. If any such claim
for compensation shall not be eliminated or waived, the Lessee shall
have the right to replace the affected Participant with a new financial
institution that shall succeed to the rights of such Participant under
the Operative Agreements; provided, however, that such Participant shall
not be replaced hereunder until it has been paid in full such claim and
all other amounts owed to it hereunder.
-
DISTRIBUTION
- BASIC RENT. Each payment of Basic Rent (and any payment of interest on
overdue installments of Basic Rent) received by the Lessor shall be
distributed by the Lessor to the Lessor and the Agent for the Rent
Purchasers pro rata in accordance with, and for application to the Basic
Rent then due, as well as any overdue interest or Yield due to the
Lessor or the Rent Purchasers (to the extent permitted by applicable
law).
- PURCHASE PAYMENTS BY THE LESSEE. Any payment received by the Lessor as a
result of:
- the purchase of the Property in connection with the exercise of the
Purchase Option or Maturity Date Purchase Option under Section 20.1 or
20.2 of the Lease; or
- compliance with the obligation to purchase the Property in accordance
with Section 17.2 of the Lease; or
35.
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- the payment of the Termination Value in accordance with Section 16.1 of
the Lease shall be distributed by the Lessor to the Lessor and the Rent
Purchasers in the following order of priority:
First, to the Rent Purchasers, pro rata, to pay the Lease
Balance Debt; and
Second, to the Lessor to pay the Lease Balance Equity.
- PAYMENT OF LEASE BALANCE DEBT. In accordance with Section 21.1 of the
Lease upon the exercise of the remarketing option, the payment of the
Maximum Residual Guarantee Amount received by the Lessor shall be
distributed to the Agent on behalf of the Rent Purchasers for
application to pay in full the Participant Balance of each Rent
Purchaser, pro rata among the Rent Purchasers without priority of one
over the other in the proportion that the Participant Balance of each
such Rent Purchaser bears to the aggregate Participant Balances of all
Rent Purchasers.
- SALES PROCEEDS OF REMARKETING OF PROPERTY. Any payments received by the
Lessor as proceeds from the sale of the Property sold pursuant to the
exercise of the remarketing option pursuant to Article 21 of the Lease,
together with any payment made as a result of an appraisal pursuant to
Section 21.3 of the Lease, shall be distributed by the Lessor in the
funds so received in the following order of priority:
First, to cover the costs and expenses of such sale;
Second, to the extent not previously paid as required by Section
12.3 hereof, an amount equal to the amount of the Lease Balance Debt remaining
unpaid shall be distributed to the Rent Purchasers, pro rata, as set forth in
Section 12.3;
Third, an amount equal to the aggregate Lease Balance Equity
shall be distributed to the Lessor for application to the Participant Balance of
the Lessor; and
Fourth, the balance, if any, shall be promptly paid to the
Lessee.
- SUPPLEMENTAL RENT. All payments of Supplemental Rent received by the
Lessor (excluding any amounts payable pursuant to the preceding
provisions of this Section 12) shall be distributed promptly by the
Lessor upon receipt thereof to the Persons entitled thereto pursuant to
the Operative Agreements.
- DISTRIBUTION OF PAYMENTS AFTER EVENT OF DEFAULT.
- During the continuance of an Event of Default and subject to clause (b)
below, all proceeds received by the Lessor from the sale of the Property
shall be distributed by the Lessor in the following order of priority:
First, so much of such payment or amount as shall be required to
pay or reimburse the Lessor and the Agent for any tax, fees, expense,
indemnification or other
36.
<PAGE> 38
loss incurred by the Lessor or the Agent (to the extent incurred in connection
with any duties as the Lessor or as the Agent), shall be distributed to the
Lessor for its own account in accordance with the amount of such payment or
amount payable to such Person;
Second, so much of such payments or amounts as shall be required
to pay the Rent Purchasers and the Lessor the amounts payable to them pursuant
to any expense reimbursement or indemnification provisions of the Operative
Documents shall be distributed to each such Rent Purchaser and the Lessor
without priority of one over the other in accordance with the amount of such
payment or payments payable to each such Person;
Third, to the Rent Purchasers for application to pay in full the
Lease Balance Debt, pro rata among the Rent Purchasers without priority of one
over the other in the proportion that the Participant Balance of each such Rent
Purchaser bears to the aggregate Participant Balances of all Rent Purchasers
and, in the case where the amounts so distributed shall be insufficient to pay
in full as aforesaid, then pro rata among the Rent Purchasers without priority
of one over the other in the proportion that the Participant Balance of each
such Rent Purchaser bears to the aggregate Participant Balances of all Rent
Purchasers;
Fourth, to the Lessor in an amount equal to the aggregate Lease
Balance Equity shall be distributed to the Lessor for application to the
Participant Balance of the Lessor; and
Fifth, the balance, if any, of such payment or amounts remaining
thereafter shall be promptly distributed to, or as directed by, the Lessee.
- All payments received and amounts realized by the Lessor in connection
with any Casualty or Condemnation during the continuance of an Event of
Default shall be distributed by the Lessor as follows:
- in the event that the Lessor elects to pay all or a portion of
such amounts to the Lessee for the repair of damage caused by
such Casualty or Condemnation, then such amounts shall be
distributed to the Lessee; and
- in the event that the Lessor elects to apply all or a portion of
such amounts to the purchase price of the Property, then such
amounts shall be distributed in accordance with clause (a) above.
- OTHER PAYMENTS.
- Except as otherwise provided in Sections 12.1, 12.2, 12.6 and clause (b)
below, any payment received by the Lessor for which no provision as to
the application thereof is made in the Operative Agreements or elsewhere
in this Section 12 (including any balance remaining after the
application in full of amounts to satisfy any expressed provision) shall
37.
<PAGE> 39
be distributed pro rata among the Rent Purchasers and the Lessor without
priority of one over the other, in the proportion that the Participant
Balance of each bears to the aggregate of all the Participant Balances.
- Except as otherwise provided in Sections 12.1, 12.2 and 12.6, all
payments received and amounts realized by the Lessor under the Lease or
otherwise with respect to the Property to the extent received or
realized at any time after the indefeasible payment in full of the
Participant Balances of all of the Rent Purchasers and the Lessor and
any other amounts due and owing to the Rent Purchasers or the Lessor,
shall be distributed forthwith by the Lessor, in the order of priority
set forth in Section 12.6(a).
- Except as otherwise provided in Sections 12.1 and 12.2, any payment
received by the Lessor for which provisions as to the application
thereof is made in an Operative Agreement but not elsewhere in this
Section 12 shall be distributed forthwith by the Lessor to the Person
and for the purpose for which such payment was made in accordance with
the terms of such Operative Agreement.
- CASUALTY AND CONDEMNATION AMOUNTS. Subject to Section 12.6(b), any
amounts payable to and received by the Lessor as a result of a Casualty
or Condemnation pursuant to Section 15.1 of the Lease shall be
distributed as follows:
- all amounts payable to and received by the Lessee for the repair of
damage caused by such Casualty or Condemnation in accordance with
Section 15.1(a) of the Lease shall be distributed to the Lessee; and
- all amounts that are to be applied to the purchase price of the Property
in accordance with Article 16 of the Lease shall be distributed by the
Lessor upon receipt thereof to the Rent Purchasers and the Lessor in the
following order of priority:
First, to the Rent Purchasers, pro rata, to pay the Lease
Balance Debt; and
Second, to the Lessor to pay the Lease Balance Equity.
- ORDER OF APPLICATION. To the extent any payment made to any Rent
Purchaser or the Lessor pursuant to Sections 12.2, 12.3, 12.4, 12.6 or
12.7 is insufficient to pay in full the Participant Balance of such Rent
Purchaser or the Lessor, then each such payment shall first be applied
to accrued Yield and then to principal on the Rent Purchaser Advances or
the Lessor Contributions, as applicable.
-
THE LESSOR
- DELEGATION OF DUTIES. The Lessor may execute any of its duties hereunder
or under the other Operative Agreements by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning
all matters pertaining to such duties. The Lessor shall not be
responsible for the negligence or misconduct of any agents or attorneys
in fact selected by it with reasonable care.
38.
<PAGE> 40
- ACTION BY LESSOR. The obligations of the Lessor hereunder and under the
other Operative Agreements are only those expressly set forth herein and
therein. Without limiting the generality of the foregoing, the Lessor
shall not be required to take any action with respect to any Default or
Event of Default, except as expressly provided herein and in the other
Operative Agreements.
- CONSULTATION WITH EXPERTS. The Lessor may consult with legal counsel
(who may be counsel for the Lessee, a Rent Purchaser or any Affiliate of
any of them), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
- EXCULPATORY PROVISIONS. Neither the Lessor nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be
responsible for or have any duty to ascertain, inquire into or verify
(a) any statement, warranty or representation made in connection with
the Operative Agreements; (b) the performance or observance of any of
the covenants or agreements of the Lessee; (c) the satisfaction of any
condition precedent specified herein or in any other Operative
Agreement; (d) the validity, effectiveness or genuineness of any of the
Operative Agreements or any other instrument or writing furnished in
connection herewith or therewith; (e) the use of the proceeds of any
Advance; (f) the existence of any Default or Event of Default; or (g)
the properties, books or records of the Lessee.
- RELIANCE ON COMMUNICATIONS. The Lessor shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document
or conversation reasonably believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons and
upon advice and statements of legal counsel (including, without
limitation, counsel to the Lessee, independent accountants and other
experts selected by the Lessor). The Lessor may deem and treat the Rent
Purchasers as the owners of their respective interests hereunder and
under the other Operative Agreements for all purposes unless a written
notice of assignment, negotiation or transfer thereof shall have been
filed with the Lessor in accordance with Section 10 of this Agreement.
The Lessor, acting in its capacity as Lessor, shall be fully justified
in failing or refusing to take any action under this Agreement or under
any of the other Operative Agreements unless it shall first receive such
advice or concurrence of the Rent Purchasers as it deems appropriate or
it shall first be indemnified to its satisfaction by the Rent Purchasers
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Lessor shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder or under any of the other Operative Agreements in accordance
with a request of the Rent Purchasers and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the
Rent Purchasers (including their successors and assigns).
- NOTICE OF DEFAULT. The Lessor shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder
unless the Lessor has received notice from a Rent Purchaser or the
Lessee referring to the Operative Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of
39.
<PAGE> 41
default." In the event that the Lessor receives such a notice, the
Lessor shall give prompt notice thereof to the Rent Purchasers. The
Lessor shall (subject to Section 9.2) take such action with respect to
such Default or Event of Default as shall be directed by the Majority
Rent Purchasers; provided that unless and until the Lessor shall have
received such directions, the Lessor may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to
such Default or Event of Default as it shall deem advisable or in the
best interest of the Rent Purchasers except to the extent that this
Agreement expressly requires that such action be taken, or not be taken,
only with the consent or upon the authorization of the Majority Rent
Purchasers or all Rent Purchasers.
- NON-RELIANCE ON LESSOR AND OTHER PARTICIPANTS. Each Rent Purchaser
expressly acknowledges that neither the Lessor (other than in its role
as Participant) nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Lessor or any affiliate thereof
hereafter taken, including any review of the affairs of the Lessee,
shall be deemed to constitute any representation or warranty by the
Lessor to any Participant. Each Participant represents to the Lessor
that it has, independently and without reliance upon the Lessor or any
other Participant, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Lessee and made its own decision
to make its proportionate share of the Rent Purchaser Advances hereunder
and under the other Operative Agreements and enter into this
Participation Agreement and the other Operative Agreements. Each
Participant also represents that it will, independently and without
reliance upon the Lessor or any other Participant, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Participation Agreement, and to
make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of Lessee. Except for notices, reports
and other documents expressly required to be furnished to the
Participants by the Lessor hereunder, the Lessor shall not have any duty
or responsibility to provide any Participant with any credit or other
information concerning: the business, operations, assets, property,
financial or other conditions, prospects or creditworthiness of Lessee
which may come into the possession of the Lessor or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
- FAILURE TO ACT. Except for action expressly required of the Lessor
hereunder, the Lessor shall in all cases be fully justified in failing
or refusing to act hereunder unless it shall be indemnified to its
satisfaction by the Rent Purchasers against any and all liability and
expense which may be incurred by it by reason of taking or continuing to
take any such action.
- DISTRIBUTIONS. The Lessor shall, as promptly as practicable, distribute
to each Participant its appropriate portion, if any, of payments
received (in good, collected funds) by the Lessor from the Lessee for
the account of the Participants or of any such payments so received for
the account of such Participant.
40.
<PAGE> 42
-
THE AGENT
- APPOINTMENT AND AUTHORIZATION; "AGENT". Each Rent Purchaser hereby
irrevocably (subject to Section 14.9) appoints, designates and
authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Operative Document and to
exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any other Operative Document,
together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Operative Document, the Agent shall not
have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary
relationship with any Rent Purchaser, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or any other Operative Document or otherwise
exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market
custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
- DELEGATION OF DUTIES. The Agent may execute any of its duties under this
Agreement or any other Operative Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Agent
shall not be responsible for the negligence or misconduct of any agent
or attorney-in-fact that it selects with reasonable care.
- LIABILITY OF AGENT. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates
(collectively, the "Agent-Related Persons") shall (a) be liable for any
action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Operative Document or the
transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (b) be responsible in any manner to any of the
Rent Purchasers for any recital, statement, representation or warranty
made by the Lessee or any Subsidiary or Affiliate of the Lessee, or any
officer thereof, contained in this Agreement or in any other Operative
Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Operative Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Operative Document, or for any failure of
the Lessee or any other party to any Operative Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be
under any obligation to any Rent Purchaser to ascertain or to inquire as
to the observance or performance of any of the agreements contained in,
or conditions of, this Agreement or any other Operative Document, or to
inspect the properties, books or records of the Lessee or any of the
Lessee's Subsidiaries or Affiliates.
- RELIANCE BY AGENT.
41.
<PAGE> 43
- The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including
counsel to the Lessee), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Operative
Document unless it shall first receive such advice or concurrence of the
Majority Rent Purchasers as it deems appropriate and, if it so requests,
it shall first be indemnified to its satisfaction by the Rent Purchasers
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall
in all cases be fully protected in acting, or in refraining from acting,
under this Agreement or any other Operative Document in accordance with
a request or consent of the Majority Rent Purchasers and such request
and any action taken or failure to act pursuant thereto shall be binding
upon all of the Rent Purchasers.
- For purposes of determining compliance with the conditions specified in
Sections 6.1 and 6.2, each Rent Purchaser that has executed this
Agreement shall be deemed to have consented to, approved or accepted or
to be satisfied with, each document or other matter either sent by the
Agent to such Rent Purchaser for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by
or acceptable or satisfactory to the Rent Purchaser.
- NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Rent Purchasers,
unless the Agent shall have received written notice from a Rent
Purchaser or the Lessee referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default." The Agent will notify the Rent Purchasers of its receipt of
any such notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Majority Rent
Purchasers in accordance with Section 13.6 hereof; provided, however,
that unless and until the Agent has received any such request, the Agent
may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as
it shall deem advisable or in the best interest of the Rent Purchasers.
- CREDIT DECISION. Each Rent Purchaser acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and
that no act by the Agent hereinafter taken, including any review of the
affairs of the Lessee and its Subsidiaries, shall be deemed to
constitute any representation or warranty by any Agent-Related Person to
any Rent Purchaser. Each Rent Purchaser represents to the Agent that it
has, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition
and credit worthiness of the Lessee and its Subsidiaries, and all
applicable Rent Purchaser regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this
Agreement. Each Rent Purchaser also represents that it will,
independently and without reliance upon any Agent-Related Person and
based on
42.
<PAGE> 44
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Operative
Documents, and to make such investigations as it deems necessary to
inform itself as to the business, prospects, operations, property,
financial and other condition and credit worthiness of the Lessee.
Except for notices, reports and other documents expressly herein
required to be furnished to the Rent Purchasers by the Agent, the Agent
shall not have any duty or responsibility to provide any Rent Purchaser
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or credit worthiness
of the Lessee which may come into the possession of any of the
Agent-Related Persons.
- INDEMNIFICATION OF AGENT. Whether or not the transactions contemplated
hereby are consummated, the Rent Purchasers shall indemnify upon demand
the Agent-Related Persons (to the extent not reimbursed by or on behalf
of the Lessee and without limiting the obligation of the Lessee to do
so), pro rata, from and against any and all Indemnified Liabilities;
provided, however, that no Rent Purchaser shall be liable for the
payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each Rent
Purchaser shall reimburse the Agent upon demand for its ratable share of
any costs or out-of-pocket expenses (including fees and disbursements of
any law firm or internal or external counsel) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations,
legal proceedings or otherwise) of, or legal advice in respect of rights
or responsibilities under, this Agreement, any other Operative Document,
or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of
the Lessee. The undertaking in this Section 14.7 shall survive the
termination of this Agreement and the resignation or replacement of the
Agent.
- AGENT IN INDIVIDUAL CAPACITY. The Bank of Nova Scotia and its Affiliates
may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any
kind of lending, trust, financial advisory, underwriting or other
business with the Lessee and its Subsidiaries and Affiliates as though
The Bank of Nova Scotia were not the Agent hereunder and without notice
to or consent of the Rent Purchasers. The Rent Purchasers acknowledge
that, pursuant to such activities, The Bank of Nova Scotia or its
Affiliates may receive information regarding the Lessee or its
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Lessee or such Subsidiary) and acknowledge
that the Agent shall be under no obligation to provide such information
to them. With respect to its Rent Purchaser Commitment, The Bank of Nova
Scotia shall have the same rights and powers under this Agreement as any
other Rent Purchaser and may exercise the same as though it were not the
Agent, and the terms "Rent Purchaser" and "Rent Purchasers" include The
Bank of Nova Scotia in its individual capacity.
- SUCCESSOR AGENT. The Agent may resign as Agent upon thirty (30) days'
notice to the Rent Purchasers. If the Agent resigns under this
Agreement, the Majority Rent Purchasers shall appoint from among the
Rent Purchasers a successor agent for the Rent Purchasers. If no
successor agent is appointed prior to the effective date of the
resignation of the
43.
<PAGE> 45
Agent, the Agent may appoint, after consulting with the Rent Purchasers
and the Lessee, a successor agent from among the Rent Purchasers. Upon
the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and duties of
the retiring Agent and the term "Agent" shall mean such successor agent
and the retiring Agent's appointment, powers and duties as the Agent
shall be terminated. After any retiring Agent's resignation hereunder as
the Agent, the provisions of this Section 14 and Sections 11.1 and 11.2
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under this Agreement. If no successor
agent has accepted appointment as Agent by the date which is thirty (30)
days following a retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become effective and
the Rent Purchasers shall perform all of the duties of the Agent
hereunder until such time, if any, as the Majority Rent Purchasers
appoint a successor agent as provided for above.
-
MISCELLANEOUS
- SURVIVAL OF AGREEMENTS. The representations, warranties, covenants,
indemnities and agreements of the parties provided for in the Operative
Agreements, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Agreement, any
disposition of any interest of the Lessor in the Property or the
Improvements, the payment of the Rent Purchaser Advances and any
disposition thereof and shall be and continue in effect notwithstanding
any investigation made by any party and the fact that any party may
waive compliance with any of the other terms, provisions or conditions
of any of the Operative Agreements. Except as otherwise expressly set
forth herein or in other Operative Agreements, the indemnities of the
parties provided for in the Operative Agreements shall survive the
expiration or termination of any thereof.
- NO BROKER, ETC. Each of the parties hereto represents to the others that
it has not retained or employed any broker, finder or financial adviser
to act on its behalf in connection with this Agreement, nor has it
authorized any broker, finder or financial adviser retained or employed
by any other Person so to act except as set forth on SCHEDULE 15.2
hereto. Any party who is in breach of this representation or who has
retained or employed a broker, finder or financial advisor shall
indemnify and hold the other parties harmless from and against any
liability arising out of such breach of this representation, retainage
or employment.
- NOTICES. Unless otherwise specifically provided herein, all notices,
consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to
any Person shall be given in writing by nationally recognized courier
service and any such notice shall become effective one (1) Business Day
after delivery to a nationally recognized courier service specifying
overnight delivery and shall be directed to the address of such Person
as indicated:
If to the Lessee, to it at:
Lam Research Corporation
4650 Cushing Parkway
44.
<PAGE> 46
Fremont, CA 94538
Attention: Craig Garber, Treasurer
Telephone No.: (510) 572-1875
Telecopy No.: (510) 572-1586
If to the Lessor, to it at:
Scotiabanc Inc.
600 Peachtree Street NE, Suite 2700
Atlanta, Georgia 30308
Attention: William Brown, Managing Director
Telephone No.: (404) 877-1501
Telecopy No.: (404) 888-8998
If to the Agent, to it at:
The Bank of Nova Scotia
580 California Street, Suite 2100
San Francisco, California 94104
Attention: Chris Osborn
Telephone No.: (415) 986-1100
Telecopy No.: (415) 397-0791
If to any Rent Purchaser, to it at such address as may be
specified on SCHEDULE 2.1 or otherwise in writing to the other parties hereto.
From time to time any party may designate a new address for purposes of
notice hereunder by notice to each of the other parties hereto.
- COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
- AMENDMENTS AND TERMINATION. Neither this Agreement nor any of the terms
hereof may be terminated, amended, supplemented, waived or modified
except by an instrument in writing signed by the party against which the
enforcement of the termination, amendment, supplement, waiver or
modification shall be sought. This Agreement may be terminated by an
agreement signed in writing by the parties hereto.
- HEADINGS, ETC. The Table of Contents and headings of the various
Sections and Subsections of this Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the
terms or provisions hereof.
- PARTIES IN INTEREST. Except as expressly provided herein, none of the
provisions of this Agreement are intended for the benefit of any Person
except the parties hereto.
45.
<PAGE> 47
- GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK. THE LESSEE, THE AGENT, THE RENT PURCHASERS AND THE
LESSOR EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER OPERATIVE DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE LESSEE, THE AGENT, THE RENT
PURCHASERS AND THE LESSOR EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
OPERATIVE DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS.
- SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
- LIABILITY LIMITED.
- The parties hereto agree that except as specifically set forth herein or
in any other Operative Agreement, the Lessor shall have no personal
liability whatsoever to any Participant or their respective successors
and assigns for any claim based on or in respect hereof or any of the
other Operative Agreements or arising in any way from the transactions
contemplated hereby or thereby and recourse, if any, shall be solely had
against the Lessor's interest in the Property; provided, however, that
the Lessor shall be liable in its individual capacity (i) for its own
willful misconduct or gross negligence, (ii) breach of any of its
representations, warranties or covenants under the Operative Agreements,
or (c) for any Tax based on or measured by any fees, commission or
compensation received by it for acting as a Lessor as contemplated by
the Operative Agreements. It is understood and agreed that, except as
provided in the preceding sentence: (i) the Lessor shall have no
personal liability under any of the Operative
46.
<PAGE> 48
Agreements as a result of acting pursuant to and consistent with any of
the Operative Agreements; (ii) all obligations of the Lessor to any Rent
Purchaser are solely nonrecourse obligations except to the extent that
the Lessor has received the proceeds to the Rent Purchaser Advances);
and (iii) all such personal liability of the Lessor is expressly waived
and released as a condition of, and as consideration for, the execution
and delivery of the Operative Agreements by the Lessor.
- No Participant shall have any obligation to any other Participant or to
Lessee, the Lessor or the Rent Purchasers with respect to transactions
contemplated by the Operative Agreements, except those obligations of
such Participant expressly set forth in the Operative Agreements or
except as set forth in the instruments delivered in connection
therewith, and no Participant shall be liable for performance by any
other party hereto of such other party's obligations under the Operative
Agreements except as otherwise so set forth.
- FURTHER ASSURANCES. The parties hereto shall promptly cause to be taken,
executed, acknowledged or delivered, at the sole expense of the Lessee,
all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in order to carry
out and effectuate the intent and purposes of this Agreement, the other
Operative Agreements and the transactions contemplated hereby and
thereby (including, without limitation, the preparation, execution and
filing of any and all Uniform Commercial Code financing statements and
other filings or registrations which the parties hereto may from time to
time request to be filed or effected). The Lessee, at its own expense,
shall take such action as may be reasonably requested in order to
maintain and protect all security interests provided for hereunder or
under any other Operative Agreement.
- SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
-
RENEWALS
- EXTENSIONS OF MATURITY DATE AND EXPIRATION DATE. So long as the Lessee
has not elected the remarketing option, and no Default or Event of
Default shall then exist, the Lessee may, not earlier than one (1) year
before the Maturity Date, direct a written request to the Lessor and the
Agent that the Expiration Date then in effect under the Lease be
extended on terms mutually agreeable to Lessor, Agent and Lessee. Any
such renewal term (each, a "Renewal Term") shall be effective only upon
the consent of all Participants and each Participant may grant or deny
its consent to a renewal of the Lease in its sole discretion.
47.
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
LAM RESEARCH CORPORATION,
as Lessee
By: /s/ Craig Garber
-------------------------------
Name: Craig Garber
-------------------------------
Title: Treasurer
-------------------------------
[PARTICIPATION AGREEMENT]
<PAGE> 50
SCOTIABANC INC.,
as Lessor
By: /s/ F.C.H. Ashby
-------------------------------
Name: F.C.H. Ashby
-------------------------------
Title: Senior Manager, Loan Operations
-------------------------------
<PAGE> 51
THE BANK OF NOVA SCOTIA,
as Agent
By: /s/ Chris Osborn
-------------------------
Name: Chris Osborn
-------------------------
Title: Director
------------------------
THE BANK OF NOVA SCOTIA,
as a Rent Purchaser
By: /s/ Chris Osborn
-------------------------
Name: Chris Osborn
-------------------------
Title: Director
------------------------
[PARTICIPATION AGREEMENT]
<PAGE> 52
SCHEDULE 2.1
LESSOR COMMITMENT
<TABLE>
<CAPTION>
Amount of Lessor
Name and Address of Lessor Commitment
- ---------------------------- ----------------
<S> <C>
Scotiabanc Inc.
600 Peachtree Street NE, Suite 2700
Atlanta, Georgia 30308 $3,203,249.86
</TABLE>
RENT PURCHASER COMMITMENT
<TABLE>
<CAPTION>
Amount of Rent
Name and Address of Rent Purchaser Purchaser Commitment
- ---------------------------------- --------------------
<S> <C>
The Bank of Nova Scotia
580 California Street
San Francisco, California 94104 $23,942,935.39
</TABLE>
<PAGE> 53
SCHEDULE 2.6
Payment Instructions
FOR THE BANK OF NOVA SCOTIA:
The Bank of Nova Scotia
New York Agency
1 Liberty Plaza
New York, NY
ABA # 026002532
Credit Account # 0610135
BNS San Francisco -- Loan Service
Reference -- Lam Research Corporation
FOR SCOTIABANC INC.:
The Bank of Nova Scotia
New York Agency
1 Liberty Plaza
New York, NY
ABA # 026002532
Credit Account # 0735639
Scotiabanc Inc.
Reference -- Lam Research Corporation
<PAGE> 54
SCHEDULES
Schedule 2.1 Lessor Commitment and Rent Purchaser Commitments
Schedule 2.6 Payment Instructions
Schedule 7.2 Exceptions to Representations and Warranties of the Lessee
Schedule 15.2 Brokers, Finders and Financial Advisors
EXHIBITS
Exhibit A Form of Pledge Agreement
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Officer's Certificate
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 THE RENT PURCHASE...................................................1
SECTION 2 LESSOR CONTRIBUTIONS................................................2
2.1 Lessor Contributions...................................................2
2.2 Yield..................................................................2
2.3 Interest Period Selection Elections....................................3
2.4 Prepayments............................................................4
2.5 Fees...................................................................4
2.6 Payments...............................................................4
SECTION 3 SUMMARY OF THE TRANSACTIONS.........................................4
3.1 Operative Agreements...................................................4
3.2 Property Acquisition and Lease.........................................4
SECTION 4 THE CLOSING.........................................................5
SECTION 5 FUNDING OF ADVANCES.................................................5
5.1 General.................................................................5
5.2 Procedures for Funding.................................................5
5.4 Pledged Collateral.....................................................6
SECTION 6 CONDITIONS OF THE CLOSING AND ADVANCES..............................7
6.1 General Conditions to the Closing Date.................................7
6.2 Conditions to Rent Purchasers' and Lessor's Obligations to
Make Rent Purchaser Advances and Lessor Contributions..................9
SECTION 7 REPRESENTATIONS AND WARRANTIES.....................................10
7.1 Representations and Warranties of the Lessor on the Closing Date......10
7.2 Representations and Warranties of the Lessee on the Closing Date
and the Funding Date..................................................12
SECTION 8 PAYMENT OF CERTAIN EXPENSES........................................17
8.1 Transaction Expenses..................................................17
8.2 Brokers' Fees and Stamp Taxes.........................................17
8.3 Certain Fees and Expenses.............................................17
8.4 Commitment Fee........................................................17
SECTION 9 OTHER COVENANTS AND AGREEMENTS.....................................18
9.1 Cooperation with the Lessee...........................................18
9.2 Covenants of the Lessor...............................................18
9.3 Covenants of the Lessee...............................................19
SECTION 10 TRANSFER OF INTEREST..............................................23
10.1 Assignments...........................................................23
10.2 Participations........................................................24
10.3 Disclosure of Information; Pledge Under Regulation A. ................24
SECTION 11 INDEMNIFICATION...................................................25
11.1 General Indemnity.....................................................25
</TABLE>
i.
<PAGE> 56
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
11.2 General Impositions Indemnity....................................26
11.3 LIBOR Lending Unlawful...........................................30
11.4 Deposits Unavailable.............................................31
11.5 Increased Costs, etc.............................................31
11.6 Funding Losses...................................................33
11.7 Capital Adequacy.................................................33
SECTION 12 DISTRIBUTION.....................................................34
12.1 Basic Rent.......................................................34
12.2 Purchase Payments by the Lessee..................................34
12.3 Payment of Lease Balance Debt....................................34
12.4 Sales Proceeds of Remarketing of Property........................35
12.5 Supplemental Rent................................................35
12.6 Distribution of Payments after Event of Default..................35
12.7 Other Payments...................................................36
12.8 Casualty and Condemnation Amounts................................36
12.9 Order of Application.............................................37
SECTION 13 THE LESSOR.......................................................37
13.1 Delegation of Duties.............................................37
13.2 Action by Lessor.................................................37
13.3 Consultation with Experts........................................37
13.4 Exculpatory Provisions...........................................37
13.5 Reliance on Communications.......................................38
13.6 Notice of Default................................................38
13.7 Non-Reliance on Lessor and Other Participants....................38
13.8 Failure to Act...................................................39
13.9 Distributions....................................................39
SECTION 14 THE AGENT........................................................39
14.1 Appointment and Authorization; "Agent"...........................39
14.2 Delegation of Duties.............................................39
14.3 Liability of Agent...............................................40
14.4 Reliance by Agent................................................40
14.5 Notice of Default................................................40
14.6 Credit Decision..................................................41
14.7 Indemnification of Agent.........................................41
14.8 Agent in Individual Capacity.....................................42
14.9 Successor Agent..................................................42
SECTION 15 MISCELLANEOUS....................................................42
15.1 Survival of Agreements...........................................42
15.2 No Broker, etc...................................................42
</TABLE>
ii.
<PAGE> 57
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
15.3 Notices.............................................. 43
15.4 Counterparts......................................... 44
15.5 Amendments and Termination........................... 44
15.6 Headings, etc........................................ 44
15.7 Parties in Interest.................................. 44
15.8 Governing Law; Waiver Of Jury Trial.................. 44
15.9 Severability......................................... 44
15.10 Liability Limited.................................... 45
15.11 Further Assurances................................... 45
15.12 Successors and Assigns............................... 45
SECTION 16 RENEWALS........................................... 45
16.1 Extensions of Maturity Date and Expiration Date...... 45
</TABLE>
iii.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-25-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-26-2000
<CASH> 27,296
<SECURITIES> 294,182
<RECEIVABLES> 310,846
<ALLOWANCES> 4,166
<INVENTORY> 217,145
<CURRENT-ASSETS> 926,999
<PP&E> 264,947
<DEPRECIATION> 149,644
<TOTAL-ASSETS> 1,185,348
<CURRENT-LIABILITIES> 284,640
<BONDS> 309,868
0
0
<COMMON> 124
<OTHER-SE> 577,527
<TOTAL-LIABILITY-AND-EQUITY> 1,185,348
<SALES> 856,551
<TOTAL-REVENUES> 856,551
<CGS> 485,078
<TOTAL-COSTS> 713,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,588
<INCOME-PRETAX> 148,033
<INCOME-TAX> 19,628
<INCOME-CONTINUING> 128,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,405
<EPS-BASIC> 1.07
<EPS-DILUTED> 0.97
</TABLE>
