Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-12390
QUANTUM CORPORATION
Incorporated Pursuant to the Laws of the State of Delaware
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IRS Employer Identification Number 94-2665054
500 McCarthy Blvd., Milpitas, California 95035
(408) 894-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 28, 1997: 136,166,230
<PAGE>
QUANTUM CORPORATION
10-Q REPORT
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 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 9
PART II - OTHER INFORMATION 25
SIGNATURE 27
2
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QUANTUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales $ 1,553,491 $ 1,124,144 $ 2,999,635 $ 2,277,646
Cost of sales 1,255,407 988,666 2,425,618 2,000,889
----------- ----------- ----------- ------------
Gross profit 298,084 135,478 574,017 276,757
Operating expenses:
Research and development 74,493 69,549 148,522 136,214
Sales and marketing 41,971 29,812 83,704 66,007
General and administrative 24,268 16,988 51,739 38,475
----------- ----------- ----------- ------------
140,732 116,349 283,965 240,696
Income from operations 157,352 19,129 290,052 36,061
Other (income) expense:
Interest expense 8,293 12,973 14,328 24,006
Interest income and other income and
expense, net 8,818 (24) 5,060 682
----------- ----------- ----------- ------------
17,111 12,949 19,388 24,688
Income before income taxes 140,241 6,180 270,664 11,373
Income tax provision 36,463 1,607 70,372 2,957
----------- ----------- ----------- ------------
Net income $ 103,778 $ 4,573 $ 200,292 $ 8,416
=========== =========== =========== ============
Net income per share:
Primary $ 0.71 $ 0.04 $ 1.40 $ 0.07
Fully diluted $ 0.62 $ 0.04 $ 1.23 $ 0.07
Weighted average common and common equivalent shares:
Primary 145,791 117,264 143,337 116,478
Fully diluted 172,501 117,264 167,506 116,478
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
September 28, March 31,
1997 1997
------------- ----------
(unaudited) (Note 1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 637,744 $ 345,125
Accounts receivable, net of allowance for
doubtful accounts of $ 10,194 and $ 10,610 1,029,829 887,477
Inventories 386,525 252,802
Deferred taxes 122,899 122,899
Other current assets 42,713 80,116
---------- ----------
Total current assets 2,219,710 1,688,419
Property and equipment, net of accumulated
depreciation of $ 188,231 and $ 226,691 258,859 407,206
Purchased intangibles, net 15,017 42,131
Other assets 158,112 20,507
---------- ----------
$2,651,698 $2,158,263
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 626,938 $ 502,069
Accrued warranty expense 84,446 94,989
Accrued compensation 65,870 63,093
Income taxes payable 44,476 31,153
Current portion of long-term debt 893 44,229
Other accrued liabilities 82,782 80,045
---------- ----------
Total current liabilities 905,405 815,578
Deferred taxes 33,709 33,587
Convertible subordinated debt 528,850 241,350
Long-term debt 40,463 177,668
Redeemable preferred stock 3,888 3,888
Shareholders' equity:
Common stock 512,700 459,800
Retained earnings 626,683 426,392
---------- ----------
Total shareholders' equity 1,139,383 886,192
---------- ----------
$2,651,698 $2,158,263
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
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<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<CAPTION>
Six Months Ended
September 28, September 29,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 200,292 $ 8,416
Items not requiring the current use of cash:
Depreciation 39,553 46,134
Amortization 5,986 13,764
Compensation related to stock plans 1,733 851
Changes in assets and liabilities:
Accounts receivable (142,352) (40,550)
Inventories (133,723) 100,679
Accounts payable 124,869 (135,858)
Income taxes payable 13,323 (2,989)
Accrued warranty expense (10,543) (17,564)
Other assets and liabilities 42,122 (110,788)
--------- ---------
Net cash provided by (used in) operating activities 141,260 (137,905)
--------- ---------
Cash flows from investing activities:
Investment in property and equipment (78,804) (114,126)
Proceeds from disposition of property and equipment 23,785 11,134
Purchase of equity securities (15,000) --
Purchase of intangible assets (10,000) --
Proceeds from sale of interest in recording heads operations 94,000 --
--------- ---------
Net cash provided by (used in) investing activities 13,981 (102,992)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term credit facilities -- 300,091
Proceeds from issuance of convertible subordinated note 287,500 --
Proceeds from mortgage loan -- 42,105
Principal payments on credit facilities (180,541) (137,815)
Proceeds from issuance of common stock 30,419 20,358
--------- ---------
Net cash provided by (used in) financing activities 137,378 224,739
--------- ---------
Net increase (decrease) in cash and cash equivalents 292,619 (16,158)
Cash and cash equivalents at beginning of period 345,125 164,752
--------- ---------
Cash and cash equivalents at end of period $ 637,744 $ 148,594
========= =========
Supplemental disclosure of cash flow information:
Note received on disposition of property and equipment $ 18,000
Cash paid during the period for:
Interest $ 10,504 $ 24,899
Income Taxes $ 21,517 $ 6,003
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
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QUANTUM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments, consisting only of normal recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of the results for
the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year. Certain
prior period amounts have been reclassified to conform to the current period's
presentation. The condensed consolidated balance sheet as of March 31, 1997 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accompanying
financial statements should be read in conjunction with the audited financial
statements of Quantum Corporation for the fiscal year ended March 31, 1997.
2. Inventories
Inventories consisted of the following:
(In thousands)
September 28, March 31,
1997 1997
------------- ---------
Materials and purchased parts $ 52,225 $ 39,898
Work in process 35,058 48,005
Finished goods 299,242 164,899
--------- ---------
$386,525 $252,802
========= =========
3. Net income per share
Net income per share amounts are computed by dividing net income amounts by the
weighted average of common and common equivalent shares (when dilutive)
outstanding during the period. Primary net income per share computations for the
three and six month periods ended September 28, 1997 and September 29, 1996 were
computed based on weighted average shares outstanding, including the dilutive
impact of common stock equivalents, which consist of outstanding stock options.
Net income per share computed on a fully diluted basis for the three and six
month periods ended September 28, 1997 assumes conversion of the Company's
outstanding convertible subordinated debentures as of the beginning of the
respective periods. Net income per share computed on a fully diluted basis for
the three and six month periods ended
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September 29, 1996 did not assume conversion of the Company's outstanding
convertible debt because the effect would have been anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted in the Company's
fiscal quarter ending December 28, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements, primary earnings per
share is replaced by basic earnings per share, for which the dilutive effect of
stock options will be excluded. Under Statement 128, basic earnings per share
will exceed previously computed primary earnings per share in periods with net
income. The impact of Statement 128 on the calculation of fully diluted earnings
per share is not expected to be material.
4. Debt & Capital
The previously outstanding revolving credit line, term loan, and equipment loan,
which had carrying amounts of $110 million, $56 million, and $14 million,
respectively, as of March 31, 1997, were repaid and terminated in the first
fiscal 1998 quarter.
In June 1997, the Company entered into an unsecured senior credit facility which
provides a $500 million revolving credit line and expires in June 2000. At the
option of the Company, borrowings under the revolving credit line bear interest
at either LIBOR plus a margin determined by a total funded debt ratio, or a base
rate, with option periods of one to six months. As of September 28, 1997, there
was no outstanding balance drawn on this line.
The Company extended until September 1998 an $85 million unsecured Letter of
Credit facility with certain banks to issue letters of credit to
Matsushita-Kotobuki Electronics and its affiliates.
In July 1997, the Company issued $288 million of 7% convertible subordinated
notes. The notes mature on August 1, 2004, and are convertible at the option of
the holder at any time prior to maturity, unless previously redeemed, into
shares of the Company's common stock at a conversion price of $46.325 per share.
The notes are redeemable at the Company's option on or after August 1, 1999 and
prior to August 1, 2001, under certain conditions related to the price of the
Company's common stock. Subsequent to August 1, 2001, the notes are redeemable
at the Company's option at any time. In the event of certain changes involving
all or substantially all of the Company's common stock, the notes would become
redeemable at the option of the holder. Redemption prices range from 107% of the
principal to 100% at maturity. The notes are unsecured obligations subordinated
in right of payment to all existing and future senior indebtedness of the
Company.
5. Litigation
The Company and certain of its current and former officers and directors have
been named as defendants in two class action lawsuits, one filed on August 28,
1996 in the Superior Court of Santa Clara County, California, and one filed on
August 30, 1996 in the U.S. District Court for the Northern District of
California. The plaintiff in both class actions purports to represent a class of
all persons who purchased the Company's common stock between February 26, 1996
and June 13,
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1996. The complaints allege that the defendants violated various federal
securities laws and California statutes by concealing and/or misrepresenting
material adverse information about the Company and that individual defendants
sold shares of the Company's stock based upon material nonpublic information.
On February 25, 1997, in the Santa Clara County action, the Court sustained
defendants' demurrer to most of the causes of action in the complaint, with
leave to amend. At a June 12, 1997 demurrer hearing in state court, the judge
dismissed the action as to four of the individual defendants with prejudice and
as to three of the individual defendants without prejudice. The demurrer as to
the Company was overruled. Defendants' motion that the action not be permitted
to proceed as a class action was denied without prejudice and the hearing on
class certification has been continued for ninety days.
With respect to the federal action, defendants filed their motion to dismiss on
April 16, 1997. The Court granted defendants' motion to dismiss without
prejudice. On September 11, 1997, plaintiff filed an amended complaint.
Defendants filed a motion to dismiss the complaint on October 24, 1997.
Certain of the Company's current and former officers and directors were also
named as defendants in a derivative lawsuit, which was filed on November 8, 1996
in the Superior Court of Santa Clara County. The derivative complaint was based
on factual allegations substantially similar to those alleged in the class
action lawsuits. Defendants' demurrer to the derivative complaint was sustained
without prejudice on April 14, 1997. Plaintiffs did not file an amended
complaint. On August 7, 1997, the Court issued an order of dismissal and entered
final judgment dismissing the complaint.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis includes:
o Business overview.
o Strategic developments.
o A comparison of Quantum's results of operations in the three and six
months ended September 28, 1997 with the results in the corresponding
periods in fiscal 1997.
o A discussion of Quantum's operating liquidity and capital resources.
o A discussion of trends and uncertainties, which include those related to
the information storage industry and those related to more specific
characteristics of Quantum.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements usually contain the
words "estimate," "anticipate," "expect" or similar expressions. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties. These uncertainties could
cause actual results to differ materially from those expected for the reasons
set forth below under Trends and Uncertainties. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
Business Overview
Founded in 1980, Quantum Corporation ("Quantum" or the "Company"), has developed
leadership positions in both fixed and removable storage products. As one of the
highest volume global suppliers of hard disk drives, and the leader in the
mid-range tape market, Quantum is widely recognized as the storage industry's
quality leader. The Company sells a broad range of storage products to original
equipment manufacturers (OEM) and distribution customers worldwide.
Operating in a single business segment, Quantum designs, develops, and markets
information storage products, including high-performance, high-quality hard disk
drives, half-inch cartridge tape drives, tape media, and solid state disk
drives. The half-inch cartridge tape drives and solid state disk drives are
manufactured by the Company. The Company combines its engineering and design
expertise with the high-volume manufacturing capabilities of its exclusive
manufacturing partner, Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE")
of Japan, a subsidiary of Matsushita Electric Industrial Co., Ltd., to produce
high-quality hard disk drives. Quantum is
9
<PAGE>
also involved in the research development and manufacture of magnetoresistive
("MR") recording heads that are used in hard disk drives produced for the
Company.
The Company's strategy is to offer a diversified product portfolio that features
leading-edge technology and high-quality manufacturing for a broad range of
market applications. Inherent in this strategy is a focus on meeting and
anticipating customers' information storage needs and on the research and
development of storage product technology.
The Company markets its products worldwide to major original equipment
manufacturers ("OEMs"), a broad range of distributors, resellers, and systems
integrators.
The Company's information storage business currently includes the following four
components:
Desktop and Portable Storage Products. Quantum designs, develops, and
markets hard disk drives designed to meet the storage needs of desktop
systems. These products are designed for entry-level to high-end
desktop personal computers ("PCs") for use in both home and business
environments. The Company's current desktop product offerings include:
The Quantum Bigfoot family of 5.25-inch drives, with 1.2 to 6.4
gigabytes (GB) of storage. These drives give home PC users an
economical high-capacity desktop storage solution.
The Company has announced and begun volume production of the Quantum
Bigfoot TX series of 5.25-inch hard disk drives which will feature
capacities of 4GB, 6GB, 8GB and 12GB; and will feature MR heads, a PRML
read channel, hign internal data rates and an Ultra ATA interface. The
Bigfoot TX drive series is intended to meet the storage requirements of
entry-level commercial systems, as well as mainstream PCs.
The Quantum Fireball family of 3.5-inch drives, including the Fireball
TM series in capacities from 1.0GB to 3.8GB, the Fireball ST series in
capacities from 1.6GB to 6.4GB and the Fireball SE in capacities of
2.1GB to 8.4GB. The Fireball family of drives are targeted for use in
power and corporate business PCs, as well as entry-level workstations
and servers. The Quantum Fireball drive family are intended to meet the
storage requirements of powerful central processing units (CPUs), and
complex operating systems and applications. By combining MR head and
PRML read channel technologies, the Fireball drive family provides
leading areal density and innovative technology for capacity-demanding
desktop systems and servers.
The Quantum Pioneer SG drives are available in 1.0GB and 2.1GB
capacities, and are Quantum's first drives with proximity recording
head technology. The Pioneer SG drives fulfill the storage needs of
corporate and small office/home office computer users.
Specialty Storage Products. Quantum designs, develops, manufactures,
and markets half-inch cartridge tape drives based on DLT TM technology
and solid state disk drives. Quantum also designs, develops and markets
the DLT TM tape media. The DLT TM tape drives (30 GB to 70 GB) use
advanced linear recording technology and a highly accurate tape guide
system to perform data backup for mid-range and high-end computer
systems. Quantum has exclusive worldwide manufacturing rights for the
DLT TM technology and is the sole manufacturer of DLT TM tape drives.
The Company believes that DLT TM tape drives have become the primary
market standard in the mid-range segment of the storage tape market.
The Company's solid state disk drives have high
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execution speeds required for applications such as imaging, multimedia,
video-on-demand, on-line transaction processing, material requirements
planning, and scientific modeling.
The Company's current DLT TM tape drives product offerings include:
Quantum DLT TM 2000XT, DLT TM 4000 and DLT TM 7000 tape drives. The
Quantum DLT TM 2000XT tape drive features a native storage capacity of
15GB and a sustained data transfer rate of 1.25MB per second. The
Quantum DLT TM 4000 features a formatted storage capacity of 20GB per
cartridge and a sustained data transfer rate of 1.5MB per second. The
Quantum DLT TM 7000 tape drive offers a combination of 35GB native
capacity and a sustained data transfer rate of 5MB per second.
The Quantum DLTstor(TM) autoloader and libraries. Each library consists
of an elevator mechanism that provides random or sequential cartridge
access between a tape drive and cartridge magazines. The libraries and
autoloaders are available as 5, 7 and 14 cartridge units.
The Company's current solid state disk drives product offerings
include:
The Quantum ESP3000, ESP3053R-V (volatile), ESP3080R-V (volatile) and
ESP5000 products which are 3.5-inch and 5.25-inch SCSI-2 Solid State
Disks that provide fast data access time which is up to 15 times faster
than magnetic disk drives. The solid state disk drives are available in
megabyte (MB) capacities of 134MB, 268MB, 475MB, 536MB, 804MB and
950MB.
Workstation and Systems Storage Products. Quantum designs, develops,
and markets technologically advanced hard disk drives for the demanding
storage needs of high-end desktop systems, workstations, network
servers, minicomputers, and storage subsystems. These products are
designed for storage-intensive applications, such as graphics, disk
arrays, desktop publishing systems, multimedia computing systems, and
networked data bases and file servers. The Company's current high-end
product offerings include:
The Quantum Viking (7,200 RPM) hard disk drive which is intended to
meet the requirements of desktop workstations and PC-based servers. The
Viking drives include capacities of 2.2GB and 4.5GB, MR heads, PRML
read channels, a high internal data rate of 83 to 139 megabits per
second, and a wide selection of Ultra SCSI-3 interfaces which provide
burst data transfer rates up to 40MB per second.
The Company has announced but has not begun shipment of the Quantum
Viking II (7,200 RPM) hard disk drive which will feature new Ultra-2
low voltage differential (LVD) SCSI-3 interface that doubles the burst
data transfer rates up to 80MB per second. The Viking II drives will
include capacities of 4.5GB and 9.1GB, and are intended to meet the
requirements of high-end desktop computers, workstations and PC-based
servers.
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The Quantum Atlas II (7,200RPM) hard disk drive includes the capacity,
performance and reliability required by high-end systems such as video
and database servers, RAID subsystems, mid-range workstations and
mini-computers. Atlas II drives include capacities of 2.2GB, 4.5GB and
9.1GB, MR heads, Ultra SCSI-3 and fibre channel interfaces to meet the
requirements of the high-end marketplace.
The Company has announced but has not yet begun shipment of the Quantum
Atlas III (7,200 RPM) hard disk drive which will offer capacities up to
18.2GB for storage-intensive applications such as data warehousing. The
Atlas III will have broad interface availability with new Ultra-2 LVD
SCSI-3, Ultra single-ended SCSI-3 and Fibre Channel Arbitrated Loop
(FC-AL).
The Quantum Viking and Quantum Atlas II products are Quantum's first
high-end drives to be manufactured by MKE.
Quantum is also involved in the design, development, and manufacture of MR
recording heads used in the Company's products. The Company believes that MR
technology, which provides higher capacity per disk than conventional thin-film
heads, is replacing thin-film heads as the leading recording head technology.
The Company does not currently market thin-film or MR heads to other companies.
Effective May 16, 1997, the Company's involvement in the design, development,
and manufacture of recording heads is through a 49% ownership interest in a
joint venture with MKE, MKE-Quantum Components LLC (MKQC).
Quantum operates in an industry characterized by rapid technological change. The
Company is currently concentrating its product development efforts on broadening
its existing disk and tape drive product lines through the introduction of new
products, including new tape drives, new high-capacity hard disk drive products
to be manufactured by MKE, as well as new products targeted specifically for the
increasing storage needs of the desktop market. As discussed in the Strategic
Developments section, efforts include developing optical drives based on Near
Field Recording TM technology. The Company is also focusing its efforts on
applying its MR technology to new generations of disk drives.
Strategic Developments
Quantum and TeraStor - Strategic Cooperation. In September 1997, Quantum and
TeraStor entered into a strategic agreement involving Near Field Recording TM
(NFR) disk drives and technology. Under the terms of the agreement, Quantum
licensed TeraStor's initial removable disk drive products and related
technology. Quantum and TeraStor will cooperate in the development of certain
future products, including the development of a disk drive that is optimized for
use in robotic libraries. Each company will manufacture, market, and sell the
initial products resulting from this agreement. Quantum will also have the right
to develop, manufacture, and market a variety of future products based on
TeraStor's NFR technology. NFR technology is a combination of Solid Immersion
Lens (which is an optical element), flying head and first surface recording
technologies. To date, there are not yet NFR based products in production.
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High-end Disk Drives - Operating Considerations. Quantum is in the process of
considering its alternatives to address the current operating losses associated
with the Company's high-end disk drive products. The actions being contemplated
revolve around transition planning for the Company's next generation of high-end
disk drive products in light of the changing competitive dynamics in the
high-end marketplace. Some actions being considered could, if selected, result
in non-recurring charges in the third fiscal 1998 quarter. Such potential
non-recurring charges that may result from future decisions and actions based on
market conditions in the third fiscal 1998 quarter could range up to an
estimated $35 million, after tax.
Results of Operations
Sales. Sales for the three and six months ended September 28, 1997, were $1.553
billion and $3.000 billion, respectively, compared to $1.124 billion and $2.278
billion, respectively, for the corresponding periods in fiscal 1997. The sales
increases reflect an increase in shipments of DLT TM tape drives, DLT TM tape
drive-related products and desk top disk drives, as well as an increase in the
average price. The increase in the average price reflected a change in the sales
mix to a higher proportion of tape drives which have a higher unit price than
hard disk drive products, as well as a desktop hard disk drive sales mix shift
to higher capacity drives which have a higher unit price than the lower capacity
hard disk drives sold in the prior year periods. Although the Company
experienced a decline in unit sales and price erosion in the high-end portion of
the Company's hard disk drive product line on a sequential quarterly basis,
reflecting intense competition, the sales for this portion of the Company's
business increased on a year-over-year basis. This increase reflects a larger
current customer base and the impact of the transition of the high-end disk
drive manufacturing to MKE during the three and six months ended September 29,
1996.
Sales of desktop hard drives for the three and six months ended September 28,
1997, represented 69% and 68% of total sales, respectively, and the Company
anticipates that desktop products will continue to constitute a majority of
sales in the future. Sales of DLT TM product continued to increase and
represented 22% and 20% of sales in the three and six months ended September 28,
1997, respectively, compared to 14% and 12%, respectively, in the corresponding
periods in fiscal 1997. The Company expects that sales of DLT TM product will
continue to increase as a percentage of the Company's total sales and operating
profits in the future. For the third quarter of fiscal 1998, the Company expects
sales to follow seasonal trends and be higher than the sales level achieved in
the second quarter of fiscal 1998.
Sales to the Company's top five customers for the three and six months ended
September 28, 1997, represented 39% and 41% of sales, respectively, compared to
39% and 40% of sales, respectively, for the corresponding periods in fiscal
1997. Sales to Compaq Computer, Inc. were 11% and 10% of sales in the three and
six months ended September 28, 1997, respectively, compared to 12% and 11% of
sales, respectively, in the corresponding periods of fiscal 1997. Sales to
Hewlett-Parkard were 10% and 11% of sales in the three and six months ended
September 28, 1997, respectively, and were less than 10% of sales for both of
the corresponding periods in fiscal 1997.
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Gross Margin Rate. The gross margin rate increased 7.1 percentage points to
19.2% in the quarter ended September 28, 1997, from 12.1% in the quarter ended
September 29, 1996. The gross margin rate for the first six months of fiscal
1998 was 19.1%, compared to 12.2% in the corresponding period in fiscal 1997.
These margin rate increases reflected a higher proportion of tape drive and tape
drive related product sales in the three and six months ended September 28,
1997, compared to the corresponding periods in fiscal 1997. This improved the
margin rate as the tape products achieve a higher gross margin rate compared to
sales of the Company's hard disk drive products. The gross margin rate increase
also reflected an increase in storage capacity within the mix of desktop
products sold in the three and six months ended September 28, 1997, compared to
the corresponding periods in fiscal 1997. This improved the margin rate as the
higher capacity drives earned a higher gross margin rate than the lower capacity
drives. Although the Company experienced margin reduction stemming from sales
erosion in the high-end portion of the Company's hard disk drive product line on
a sequential quarterly basis, reflecting intense competition, the gross margin
rate for this portion of the Company's business increased on a year-over-year
basis. This increase reflected that the gross margin rate earned on high-end
disk drives had largely been eroded during the three and six months ended
September 29, 1996, while the Company transitioned high-end disk drive
manufacturing to MKE. The margin rate increases also reflect a minor impact as a
result of the application of the equity method of accounting to the Company's
involvement in the recording heads operations, effective May 16, 1997.
Research and Development Expenses. In the three and six months ended September
28, 1997, the Company's research and development expenses were $74 million, or
4.8% of sales, and $149 million, or 5.0% of sales, respectively; compared to $70
million, or 6.2% of sales, and $136 million, or 6.0% of sales, respectively, in
the corresponding periods of fiscal 1997. These decreases in research and
development expense as a percentage of sales reflect the timing of certain
pre-production activity which varies from quarter to quarter. The decrease also
reflects the impact of applying the equity method of accounting to the Company's
involvement in the recording heads operations, effective May 16, 1997. For the
third fiscal 1998 quarter, the Company expects increased expenditures associated
with pre-production activity for hard drive and tape drive products in
development. Reflecting management's continued focus on the development and
timely introduction of new information storage products and technologies,
research and development expenses for the third fiscal 1998 quarter are expected
to increase over the level achieved in the second fiscal 1998 quarter.
Sales and Marketing Expenses. Sales and marketing expenses in the three and six
months ended September 28, 1997, were $42 million, or 2.7% of sales, and $84
million, or 2.8% of sales, respectively; compared to $30 million, or 2.7% of
sales, and $66 million, or 2.9% of sales, respectively, in the corresponding
periods in fiscal 1997. The increases in sales and marketing expenses were
related to the costs of supporting the Company's higher volumes of sales.
General and Administrative Expenses. General and administrative expenses in the
three and six months ended September 28, 1997, were $24 million, or 1.6% of
sales, and $52 million, or 1.7% of sales, respectively; compared to $17 million,
or 1.5% of sales, and $38 million, or 1.7% of sales,
14
<PAGE>
respectively, in the corresponding periods in fiscal 1997. The increases in
general and administrative expenses reflected expansion of the Company's
infrastructure.
Interest and Other Income/Expense. Net interest income and other income and
expense in the three and six months ended September 28, 1997 was a net expense
of $17 million and $19 million, respectively, compared to $13 million and $25
million, respectively, in the corresponding periods in fiscal 1997. The change
in net expense reflects decreases in interest expense corresponding to a
decrease in the average amount of debt outstanding and an increase in interest
income corresponding to an increase in the average cash balances. Effective May
16, 1997, the Company's involvement in the recording heads operations is through
its investment in the MKE/Quantum joint venture and this investment is accounted
for under the equity method. Prior to May 16, 1997, the recording head
operations were fully consolidated by Quantum. Comparing the year-over-year
second fiscal quarter net expense, the increase reflects a full quarter's impact
of the Company's equity loss related to its investment in the MKE/Quantum joint
venture. This equity loss reflects the adverse impact on the MKE/Quantum joint
venture of sequential quarterly sales erosion in the high-end portion of the
Company's hard disk drive product line for which the joint venture is a
supplier.
Income Taxes. The effective tax rate for the three and six months ended
September 28, 1997, at 26% was flat compared to the rate in the corresponding
periods ended September 29, 1996.
Liquidity and Capital Resources
At September 28, 1997, the Company had $638 million in cash and cash
equivalents, compared to $345 million at March 31, 1997. For the six month
period ended September 28, 1997, cash was provided by operating and financing
activities. Operating activities included cash provided from net income and an
increase in accounts payable, which were partially offset by an increase in
inventory and accounts receivable. Financing activities included $288 million of
proceeds from the issuance of 7% convertible subordinated notes in the second
quarter of fiscal 1998. The financing proceeds were partially offset by the
repayment of the outstanding senior credit facility in the first fiscal 1998
quarter. Cash provided by investing activities, including a $94 million payment
from MKE as part of the formation of the recording heads joint venture company,
were largely offset by investments in property and equipment and other activity.
In the second fiscal 1998 quarter, the Company extended until September 1998 an
$85 million unsecured Letter of Credit facility with certain banks to issue
letters of credit to Matsushita-Kotobuki Electronics and its affiliates.
The Company has filed a registration statement which became effective on July
24, 1997, pursuant to which the Company may issue debt or equity securities, in
one or more series or issuances, limited to $450 million aggregate public
offering price. Under the registration statement, in July 1997, the Company
issued $288 million of 7% convertible subordinated notes. The notes mature on
August 1, 2004, and are convertible at the option of the holder at any time
prior to maturity,
15
<PAGE>
unless previously redeemed, into shares of the Company's common stock at a
conversion price of $46.325 per share. The notes are redeemable at the Company's
option on or after August 1, 1999 and prior to August 1, 2001, under certain
conditions related to the price of the Company's common stock. Subsequent to
August 1, 2001, the notes are redeemable at the Company's option at any time. In
the event of certain changes involving all or substantially all of the Company's
common stock, the notes would become redeemable at the option of the holder.
Redemption prices range from 107% of the principal to 100% at maturity. The
notes are unsecured obligations subordinated in right of payment to all existing
and future senior indebtedness of the Company.
The revolving credit line, term loan, and equipment loan, which were paid off
and terminated in the first fiscal 1998 quarter had carrying amounts of $110
million, $56 million, and $14 million, respectively, as of March 31, 1997.
In June 1997, the Company entered into an unsecured senior credit facility which
provides a $500 million revolving credit line and expires in June 2000. At the
option of the Company, borrowings under the revolving credit line bear interest
at either LIBOR plus a margin determined by a total funded debt ratio, or a base
rate, with option periods of one to six months. As of September 28, 1997, there
was no outstanding balance drawn on this line.
The Company expects to spend approximately $185 million for capital equipment,
expansion of the Company's facilities, and leasehold improvements in fiscal
1998. These capital expenditures will support the tape business, research and
development, and general corporate operations. Refer to the Future Capital Needs
section of the Trends and Uncertainties section for additional discussion of
capital.
The Company believes that its existing and available capital resources,
including its unsecured senior credit facility and any cash generated from
operations will be sufficient to meet all currently planned expenditures and
sustain operations for the remainder of the fiscal year. However, this belief
assumes that operating results and cash flow from operations will meet the
Company's expectations, and actual results could vary due to certain of the
factors described in the Trends and Uncertainties section that follows.
Trends and Uncertainties
Operating in the information storage industry, Quantum is affected by numerous
trends and uncertainties, some of which are specific to the industry while
others relate more specifically to Quantum. These are discussed below.
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<PAGE>
Trends and Uncertainties - Information Storage Industry
Key trends and uncertainties inherent in the information storage industry and
how these trends and uncertainties specifically impact the Company are
summarized below.
o Intense competition - The information storage products industry in
general, and the disk drive market in particular, is characterized by
intense competition that results in rapid price erosion; short
product life cycles; and continuous introduction of new, more
cost-effective products offering increased levels of capacity and
performance.
o Rapid technological change - Technology advancement in the
information storage industry is increasingly rapid.
o Customer concentration - High-purchase-volume customers for
information storage products are concentrated within a small number
of computer system manufacturers, distribution channels, and system
integrators.
o Fluctuating product demand - The demand for hard disk drive products
depends on the demand for the computer systems in which hard disk
drives are used, which in turn is affected by computer system product
cycles and by prevailing economic conditions.
o Intellectual property conflicts - The hard disk drive industry has
been characterized by significant litigation relating to patent and
other intellectual property rights.
Intensely Competitive Industry. To compete within the information storage
industry, Quantum frequently introduces new products and transitions to newer
versions of existing products. Product introductions and transitions are
significant to the operating results of Quantum, and if they are not successful,
the Company would be materially and adversely affected. The hard disk drive
market, in particular, also tends to experience periods of excess product
inventory and intense price competition. If price competition intensifies, the
Company may be forced to lower prices more than expected, which could materially
adversely affect the Company. In addition, the Company's customers could
commence the manufacture of disk and tape drives for their own use or for sale
to others. Any such loss of customers could have a material adverse effect on
the Company.
17
<PAGE>
Quantum faces direct competition from a number of companies, including Seagate,
Western Digital, IBM, Maxtor, Exabyte and Sony. In the event that the Company is
unable to compete effectively with these or any other company, the Company would
be materially adversely affected. The Company's information storage product
competition can be further broken down as follows:
Desktop Storage Products. In the market for desktop products, Quantum
competes primarily with Seagate, Western Digital, Maxtor, IBM and Fujitsu.
Quantum and its competitors have developed and are developing a number of
products targeted at particular segments of this market, such as business
users and home PC buyers, and factors such as time to market can have a
significant effect on the success of any particular product. The desktop
market is characterized by more competitiveness and shorter product life
cycles than the information storage industry in general.
Specialty Storage Products. In the market for tape drives, the Company
competes with other companies that have tape drive product offerings and
alternative formats, including Hewlett Packard, Exabyte, Storage
Technology, and Sony. The Company targets a market segment that requires a
mission critical backup system and competes in this segment based on the
reliability, data integrity, performance, capacity and scalability of its
tape drives. Although the Company has experienced excellent market
acceptance of its tape drive products, the market may become more
competitive as other companies broaden their product line in this market.
As a result, the Company could experience increased price competition. If
price competition occurs, the Company may be forced to lower prices, in
which case the Company could be materially adversely affected.
Workstation and System Storage Products. The Company faces competition in
the high-capacity disk drive market primarily from Seagate, IBM and
Fujitsu. Seagate has the largest share of the market for high-capacity
disk drives. Although the same competitive factors identified above as
being generally applicable to the overall disk drive industry apply to
high-capacity disk drives, the Company believes that the performance,
quality and reliability of its products are even more important to the
users in this market than to users in the desktop market. However, this
does not lessen the intensely competitive nature of the high-end of the
hard disk drive market. For example, in the second fiscal 1998 quarter,
intense competition resulted in approximately $20 million of after tax
operating losses associated with the Company's high-end disk drive
products. The Company does not anticipate that the high-end disk drive
products will return to profitability prior to shipping next generation
products and there can be no assurance as to the profitability of next
generation products. The Company's operating results in the high-capacity
market during the foreseeable future is dependent on the successful
development, timely introduction, market acceptance, and product
transition of key new products, as to which there can be no positive
assurance.
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<PAGE>
Rapid Technological Change, New Product Development, and Qualification. The
combination of an environment of rapid technological changes, short product life
cycles and competitive pressures results in gross margins on specific products
decreasing rapidly. Accordingly, any delay in the introduction of more advanced
and more cost-effective products can result in significantly lower sales and
gross margins. The Company's future is therefore dependent on its ability to
anticipate what customers will demand and to develop the new products to meet
this demand. The Company must also qualify new products with its customers,
successfully introduce these products to the market on a timely basis, and
commence volume production to meet customer demands. Due to these factors, the
Company expects that sales of new products will continue to account for a
significant portion of its future sales and that sales of older products will
decline accordingly.
The Company is frequently in the process of qualifying new products with its
customers. The customer qualification process for disk drive products,
particularly high-capacity products, can be lengthy, complex, and difficult. In
addition, the Company transitioned the manufacturing of its high capacity
products to MKE during the first half of fiscal 1997, and MKE has been in volume
production of high-end products since the completion of the transition. In the
event that the Company is unable to obtain additional customer qualifications
for new products in a timely manner, or at all, or in the event that MKE is
unable to continue to manufacture such products in volume and with consistent
high quality, the Company would be materially adversely affected.
There can be no assurance that the Company will be successful in the development
and marketing of any new products and components in response to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products and components; or that the
Company's new products and components will adequately meet the requirements of
the marketplace and achieve market acceptance. In addition, technological
advances in magnetic, optical or other technologies, or the development of new
technologies, could result in the introduction of competitive products with
superior performance to and substantially lower prices than the Company's
products. Further, the Company's new products and components are subject to
significant technological risks. If the Company experiences delays in the
commencement of commercial shipments of new products or components, the Company
could experience delays or loss of product sales. If the Company is unable, for
technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or customer
requirements, the Company would be materially adversely affected.
As part of the Company's strategy to remain technologically competitive, the
Company has invested in technologies, such as in NFR through a strategic
alliance with and investment in TeraStor, and its investment in MR recording
heads through the joint venture, MKQC. There can be no assurance that the
technologies, companies and ventures in which the Company has invested will be
be profitable in the information storage industry. Adverse technological or
operating outcomes could result in impairment and write down of associated
investments which could have a material adverse impact on the Company.
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<PAGE>
Customer Concentration. In addition to the information storage industry and the
Company's customer base being concentrated, the customers generally are not
obligated to purchase any minimum volume of the Company's products, and the
Company's relationships with its customers are generally terminable at will by
its customers.
Sales of the Company's desktop and tape products, which together comprise a
majority of its overall sales, were concentrated with several key customers in
the six months ended September 28, 1997, and the fiscal year ended March 31,
1997. Sales to the Company's top five customers for the six months ended
September 28, 1997, represented 41% of sales, and 38% of sales for the fiscal
year ended March 31, 1997. In the six month period ended September 28, 1997,
revenue from the top five customers was derived from both the OEM and
Distribution sales channel, 30% and 11% respectively. Two OEMs, Hewlett Packard
and Compaq represented 11% and 10%, respectively, of total revenue. No single
distribution channal customer represented 10% or more of total revenue. Because
of the rapid and unpredictable changes in market conditions, the Company is
unable to predict whether or not there will be any significant change in demand
for any of its customers' products in the future. In the event that any such
changes result in decreased demand for the Company's products, whether by loss
of or delays in orders, the Company could be materially adversely affected.
Fluctuation in Product Demand. Fluctuation in demand for the Company's products
generally results in fluctuations in the Company's operating results. Demand for
computer systems-especially in the PC market segment, where the Company derives
a significant amount of its disk drive sales has historically been subject to
significant fluctuations. Such fluctuations in end-user demand have in the past,
and may in the future, result in the deferral or cancellation of orders for the
Company's products, each of which could have a material adverse effect on the
Company. During the past several years, there has been significant growth in the
demand for PCs, a portion of which represented sales of PCs for use in the home.
However, many analysts predict that future growth may be at a moderately slower
rate than the rate experienced in recent years.
Sales of tape drives and tape drive-related products have tended to be more
stable and have become a significant component of sales for the Company.
Beginning in the second quarter of fiscal 1998, sales of DLT TM tape drives and
DLT TM tape drive-related products achieved gross margin and profitability
roughly comparable to that achieved from the sale of the Company's desktop hard
drive products. In this regard the company expects sales of DLT TM products,
which represented 20% of sales and a much higher percentage of operating profits
for the six months ended September 28, 1997, will continue to increase as a
percentage of the Company's total sales and operating profits in the future. On
a sequential quarterly basis in Fiscal 1998, the Company expects the rate of
sales growth to lessen significantly as compared to the rates achieved over the
past year. However, there can be no assurance that any growth expectations will
be achieved or that current market conditions will continue.
The Company has experienced longer product cycles for its tape drives and tape
drive-related products, compared with the short product cycles of disk drive
products. However, there is no assurance that this trend will continue.
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<PAGE>
The Company could experience decreases in demand for any of its products in the
future, which could have a material adverse effect on the Company. For the third
fiscal 1998 quarter, the Company expects to experience continued gross margin
pressure with respect to its high-end hard disk drive products.
The hard disk drive industry has also been subject, from time to time, to
seasonal fluctuations in demand. The Company has typically experienced
increasing demand in the quarter ending December 31 compared with the quarter
ending September 30. The Company expects this trend to continue with respect to
the quarter ended December 28, 1997. In addition, the Company's shipments tend
to be highest in the third month of each quarter, which occurred in the quarter
ended September 28, 1997 and which the Company expects to occur again in the
quarter ending December 28, 1997. As a result, and because the Company has no
long-term purchase commitments from its customers, future demand is difficult to
predict. The failure by the Company to complete shipments in the final month of
a quarter due to a decline in customer demand, manufacturing problems or other
factors would adversely affect the Company's operating results for that quarter.
Intellectual Property Matters. From time to time, the Company is approached by
companies and individuals alleging Quantum's need for a license under patented
technology that Quantum assertedly uses. If required, there can be no assurance
that licenses to any such technology could be obtained or obtained on
commercially reasonable terms. Adverse resolution of any intellectual property
litigation could subject the Company to substantial liabilities and require it
to refrain from manufacturing certain products. In addition, the costs of
engaging in such litigation may be substantial, regardless of the outcome.
Trends and Uncertainties More Specific to Quantum
Certain trends and uncertainties relate more specifically to Quantum and are not
necessarily indicative of the information storage industry as a whole. These
trends and uncertainties include dependence on MKE for the manufacture of the
disk drives that Quantum develops and markets, costs associated with the MR
recording head development and manufacture, the recording heads joint venture
with MKE, dependence on suppliers, component shortages, future capital needs,
warranty costs, foreign manufacturing, and price volatility of Quantum common
stock. For information regarding litigation refer to Note 5 of the Notes to
Condensed Consolidated Financial Statements.
Dependence on MKE Relationship. Quantum is dependent on MKE for the manufacture
of its disk drive products. Approximately 80% of the Company's sales in the six
months ended September 28, 1997, and 81% of the sales in year ended March
31,1997, were derived from products manufactured by MKE. In addition, the
formation of the joint venture with MKE to produce recording heads used in disk
drive production in combination with the transition of the manufacturing of the
Company's high-capacity products to MKE in fiscal 1997 has resulted in an
increased dependence on MKE. The Company's relationship with MKE is therefore
critical to the Company's business and financial performance.
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<PAGE>
In May 1997, Quantum completed renegotiation of its master agreement with MKE,
which covers the general terms of the business relationship. The agreement was
extended for a period of 10 years, unless terminated sooner as a result of
certain specified events including a change-in-control of either Quantum or MKE.
MKE currently manufactures all of the hard disk drives developed and marketed by
Quantum. Quantum's relationship with MKE, which dates from 1984, is built on
Quantum's engineering and design expertise and MKE's high-volume, high-quality
manufacturing expertise.
The Company's dependence on MKE entails, among others, the following principal
risks:
Quality and Delivery. The Company relies on MKE's ability to bring new
products rapidly to volume production at low cost, to meet the Company's
stringent quality requirements, and to respond quickly to changing product
delivery schedules from the Company. This requires, among other things,
close and continuous collaboration between the Company and MKE in all
phases of design, engineering, and production. The Company's business and
financial results would be adversely affected if products manufactured by
MKE fail to satisfy the Company's quality requirements or if MKE is unable
to meet the Company's delivery commitments. In the event MKE is unable to
satisfy Quantum's production requirements, the Company would not have an
alternative manufacturing source to meet the demand without substantial
delay and disruption of the Company's operations. As a result, the Company
would be materially adversely affected.
Volume and Pricing. MKE's production schedule is based on the Company's
forecasts of its product purchase requirements, and the Company has
limited contractual rights to modify short-term purchase orders issued to
MKE. Further, the demand in the desktop business is inherently volatile,
and there is no assurance that the Company's forecasts are accurate. In
addition, the Company periodically negotiates pricing arrangements with
MKE. The failure of the Company to accurately forecast its requirements or
successfully adjust MKE's production schedule, which could lead to
inventory shortages or surpluses, or the failure to reach pricing
agreements reasonable to the Company would have a material adverse effect
on the Company.
Manufacturing Capacity and Capital Commitment. The Company believes that
MKE's current and committed manufacturing capacity should be adequate to
meet the Company's requirements at least through the end of fiscal 1998.
The Company's future growth will require, however, that MKE continue to
devote substantial financial resources to property, plant and equipment
and working capital to support manufacture of the Company's products, as
to which there can be no assurance. In the event that MKE is unable or
unwilling to meet the Company's manufacturing requirements, there can be
no assurance that the Company would be able to obtain an alternate source
of supply. Any such failure to obtain an alternative source would have a
material adverse effect on the Company.
22
<PAGE>
MR Recording Heads Development and Manufacturing. Since the fiscal 1995
acquisition of MR recording heads technology as part of the acquisition of
certain businesses of the Storage Business Unit of Digital Equipment
Corporation, Quantum has made significant efforts to advance the development of
its MR recording heads capability. To further this effort, MKE and Quantum
formed a joint venture, MKQC in the first quarter of fiscal 1998 to partner in
the research, development, and production of MR heads and technology. However,
MR technology is relatively complex and, to date, the Company and MKQC's
manufacturing yields for its MR heads have been lower than would be necessary
for cost effective production of MR recording heads. The Company does not expect
cost-effective production of MR recording heads to be realized in the near term.
Until that time, the Company will incur losses based on its pro rata ownership
interest in the new joint venture. However, there can be no assurance that the
anticipated benefits of the joint venture will be realized on a timely basis or
at all. The Company currently obtains 80% to 85% of its MR heads from outside
sources.
Dependence on Suppliers of Components and Sub-Assemblies; Component Shortages.
Each of the Company and its manufacturing partner, MKE, are dependent on
qualified suppliers for components and sub-assemblies, including recording
heads, media, and integrated circuits, which are essential to the manufacture of
the Company's disk drive and tape drive products. In connection with certain
products, the Company and MKE qualify only a single source for certain
components and sub-assemblies, which can magnify the risk of shortages.
Component shortages have constrained the Company's sales growth in the past, and
the Company believes that the industry will periodically experience component
shortages. For example, during the quarter ended September 28, 1997, the
Company's ability to meet customer demand for its tape drive products was
somewhat constrained by component availability and manufacturing capacity. If
component shortages occur, or if the Company experiences quality problems with
component suppliers, shipments of products could be significantly delayed or
costs significantly increased, which would have a material adverse effect on the
Company.
Future Capital Needs. The information storage industry is capital and research
and development intensive and the Company will need to maintain adequate
financial resources for capital expenditures, working capital, and research and
development, in order to remain competitive in the information storage business.
The Company believes that it will be able to fund these capital requirements at
least through fiscal 1998. However, if the Company decides to increase its
capital expenditures further, or sooner than presently contemplated, or if
results of operations do
23
<PAGE>
not meet the Company's expectations, the Company could require additional debt
or equity financing. There can be no assurance that such additional funds will
be available to the Company or will be available on favorable terms. The Company
may also require additional capital for other purposes not presently
contemplated. If the Company is unable to obtain sufficient capital, it could be
required to curtail its capital equipment and research and development
expenditures, which could adversely affect the Company.
Warranty. Quantum generally warrants its products against defects for a period
of one to five years. A provision for estimated future costs relating to
warranty expense is recorded when products are shipped. The actual warranty
expenditures could have a material unfavorable impact on the Company if the
actual rate of unit failure or the cost to repair a unit is greater than what
the Company has used in estimating the warranty expense accrual.
Risks Associated with Foreign Manufacturing. Many of the Company's products are
currently manufactured outside the United States. As a result, the Company is
subject to certain risks associated with contracting with foreign manufacturers,
including obtaining requisite United States and foreign governmental permits and
approvals, currency exchange fluctuations, currency restrictions, political
instability, labor problems, trade restrictions, and changes in tariff and
freight rates.
Foreign Exchange Contracts. The Company manages the impact of foreign currency
exchange rate changes on certain foreign currency receivables and payables using
foreign currency forward exchange contracts. With this approach the Company
expects to minimize the impact of changing foreign exchange rates on the
Company's net income. However, there can be no assurance that all foreign
currency exposures will be adequately managed, and the Company could incur
material charges as a result of changing foreign exchange rates.
Volatility of Stock Price. The market price of the Company's common stock has
been, and may continue to be, extremely volatile. Factors such as new product
announcements by the Company or its competitors; quarterly fluctuations in the
operating results of the Company, its competitors, and other technology
companies; and general conditions in the computer market may have a significant
impact on the market price of the common stock. In particular, if the Company
were to report operating results that did not meet the expectations of the
analysts, the market price of the common stock could be materially adversely
affected.
24
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QUANTUM CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements.
Item 2. Changes in securities - Not Applicable.
Item 3. Defaults upon senior securities - Not Applicable
Item 4. Submission of matters to a vote of security holders
The 1997 Annual Meeting of Shareholders was held on July 22, 1997. The matters
voted on were management's candidates for the Board of Directors; an amendment
to Quantum's Employee Stock Purchase Plan for the purpose of increasing the
number of shares reserved for issuance thereunder by 5,800,000 shares; an
amendment to the 1993 Long-Term Incentive Plan for the purpose of adding stock
option grant limitations in order to comply with Section 162(m) of the Internal
Revenue Code of 1986, as amended; and the appointment of Ernst & Young LLP to
serve as Quantum's independent auditors for the fiscal year ending March 31,
1998.
The shareholders approved management's candidates for the Board of Directors.
The votes were as follows:
For Withheld Authority
--- ------------------
Stephen M. Berkley 109,975,924 2,545,514
David A. Brown 112,014,612 506,826
Michael A. Brown 112,022,134 499,304
Robert J. Casale 112,023,406 498,032
Edward M. Esber, Jr. 112,023,924 497,514
Steven C. Wheelwright 112,017,806 503,632
The shareholders approved and ratified the amendment to Quantum's Employee Stock
Purchase Plan for the purpose of increasing the number of shares reserved for
issuance thereunder by 5,800,000 shares. The number of votes For were
89,188,652; the number of votes Against were 20,363,118; the number of votes
Abstained were 529,664; and the number of Broker Non-Votes were 2,440,004.
The shareholders approved and ratified the amendment to the 1993 Long-Term
Incentive Plan for the purpose of adding stock option grant limitations in order
to comply with Section 162(m) of the
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<PAGE>
Internal Revenue Code of 1986, as amended. The number of votes For were
103,740,316; the number of votes Against were 5,859,942; the number of votes
Abstained were 481,176; and the number of Broker Non-Votes were 2,440,004.
The shareholders approved the appointment of Ernst & Young LLP to serve as
Quantum's independent auditors for the fiscal year ending March 31, 1998. The
number of votes For were 112,357,792; the number of votes Against were 63,942;
the number of votes Abstained were 99,704; and there were zero Broker Non-Votes.
Item 5. Other information - Not Applicable
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits. The exhibits listed on the
accompanying index to exhibits immediately
following the signature page are filed as
part of this report.
(b) Reports on Form 8-K.
(1) Form 8-K dated July 28, 1997
(2) Form 8-K dated August 6, 1997
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<PAGE>
SIGNATURE
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 hereunto duly authorized.
QUANTUM CORPORATION
(Registrant)
Date: October 29, 1997 By: /s/ Richard L. Clemmer
---------------------------------
Richard L. Clemmer
Executive Vice President, Finance
and Chief Financial Officer
27
<PAGE>
QUANTUM CORPORATION
INDEX TO EXHIBITS
Exhibit
Number
10.1 MASTER LEASE dated as of August 22, 1997 between LEASE PLAN NORTH
AMERICA, INC., as the Lessor and Quantum Corporation, as the
Lessee.
10.2 PARTICIPATION AGREEMENT dated as of August 22, 1997 among Quantum
Corporation, as Lessee, LEASE PLAN NORTH AMERICA, INC., as Lessor
and as a Participant, ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as a Participant, and ABN AMRO BANK N.V.,
SAN FRANCISCO INTERNATIONAL BRANCH, as Agent.
10.3 APPENDIX 1 to Participation Agreement, Master Lease and
Construction Deed of Trust each dated as of August 22, 1997
(Specialty Storage Product Group Facilities)
10.4 Second Extension and Modification of Credit Agreement, dated
September 18, 1997, among Quantum Corporation and the Banks and
THE SUMITOMO BANK, LIMITED, acting through its San Francisco
Branch, as agent for the Banks and as Issuer.
11.1 Statement of Computation of Net Income Per Share
27 Financial Data Schedule
28
<PAGE>
Prepared by and upon recording return to:
John R. Grier, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
================================================================================
MASTER LEASE
dated as of August 22, 1997
between
LEASE PLAN NORTH AMERICA, INC.,
as the Lessor
and
QUANTUM CORPORATION,
as the Lessee
================================================================================
Specialty Storage Product Group Facilities
================================================================================
This Lease is superior to a deed of trust in favor of ABN AMRO Bank N.V., San
Francisco International Branch, as Agent (the "Agent") under the Participation
Agreement, dated as of August 22, 1997, among the Lessee, the Lessor, the Agent
and the Participants. This Lease has been executed in counterparts. To the
extent, if any, that this Lease constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no lien on this Lease may be created through the transfer or
possession of any counterpart other than the original counterpart containing the
receipt therefor executed by the Agent on the signature page hereof.
THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES.
SEE ARTICLE VII.
MASTER LEASE
THIS MASTER LEASE (including all Lease Supplements and
Equipment Schedules from time to time executed and delivered, this "Lease"),
dated as of August 22, 1997,
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TABLE OF CONTENTS
<S> <C>
ARTICLE I.........................................................................................................2
1.1. Definitions; Interpretation.....................................................................2
ARTICLE II........................................................................................................2
2.1. Acceptance and Lease of Property................................................................2
2.2. Acceptance Procedure............................................................................3
2.3. Lease Term......................................................................................3
2.4. Title...........................................................................................3
ARTICLE III.......................................................................................................4
3.1. Rent............................................................................................4
3.2. Payment of Basic Rent...........................................................................4
3.3. Supplemental Rent...............................................................................4
3.4. Method of Payment...............................................................................4
ARTICLE IV........................................................................................................5
4.1. Utility Charges.................................................................................5
ARTICLE V.........................................................................................................5
5.1. Quiet Enjoyment.................................................................................5
ARTICLE VI........................................................................................................5
6.1. Net Lease.......................................................................................5
6.2. No Termination or Abatement.....................................................................6
ARTICLE VII.......................................................................................................7
7.1. Ownership of the Property.......................................................................7
ARTICLE VIII......................................................................................................9
8.1. Condition of the Property.......................................................................9
8.2. Possession and Use of the Property..............................................................9
ARTICLE IX........................................................................................................9
9.1. Compliance with Requirements of Law and Insurance Requirements..................................9
ARTICLE X........................................................................................................10
10.1. Maintenance and Repair; Return.................................................................10
ARTICLE XI.......................................................................................................11
11.1. Modifications, Substitutions and Replacements..................................................11
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ARTICLE XII......................................................................................................11
12.1. Warranty of Title..............................................................................11
12.2. Grants and Releases of Easements...............................................................12
ARTICLE XIII.....................................................................................................12
13.1. Permitted Contests Other Than in Respect of Indemnities........................................12
ARTICLE XIV......................................................................................................13
14.1. Public Liability and Workers' Compensation Insurance...........................................13
14.2. Hazard and Other Insurance.....................................................................14
14.3. Coverage.......................................................................................14
14.4. Indemnification................................................................................15
ARTICLE XV.......................................................................................................16
15.1. Casualty and Condemnation......................................................................16
15.2. Environmental Matters..........................................................................18
15.3. Notice of Environmental Matters................................................................18
ARTICLE XVI......................................................................................................19
16.1. Termination by the Lessee upon Certain Events..................................................19
16.2. Procedures.....................................................................................19
16.3. Termination by the Lessor upon Certain Events..................................................19
16.4. Purchase of Property...........................................................................20
ARTICLE XVII.....................................................................................................20
17.1. Lease Events of Default........................................................................20
17.2. Remedies.......................................................................................23
17.3. Waiver of Certain Rights.......................................................................25
17.4. Power of Sale and Foreclosure..................................................................26
17.5. Remedies Cumulative............................................................................26
17.6. Lessee's Right to Cure.........................................................................26
ARTICLE XVIII....................................................................................................27
18.1. The Lessor's Right to Cure the Lessee's Lease Defaults.........................................27
ARTICLE XIX......................................................................................................27
19.1. Provisions Relating to the Lessee's Termination of this Lease or Exercise of
Purchase Option or Obligation and Conveyance Upon Remarketing and
Conveyance Upon Certain Other Events...........................................................27
ARTICLE XX.......................................................................................................28
20.1. Purchase Option................................................................................28
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20.2. Expiration Date Purchase Obligation............................................................28
20.3. Acceleration of Purchase Obligation............................................................29
ARTICLE XXI......................................................................................................29
21.1. Renewal........................................................................................29
ARTICLE XXII.....................................................................................................30
22.1. Option to Remarket.............................................................................30
22.2. Certain Obligations Continue...................................................................33
22.3. Support Obligations............................................................................33
ARTICLE XXIII....................................................................................................33
23.1. Holding Over...................................................................................33
ARTICLE XXIV.....................................................................................................34
24.1. Risk of Loss...................................................................................34
ARTICLE XXV......................................................................................................34
25.1. Subletting and Assignment......................................................................34
ARTICLE XXVI.....................................................................................................35
26.1. Estoppel Certificates..........................................................................35
ARTICLE XXVII....................................................................................................35
27.1. Right to Inspect...............................................................................35
27.2. No Waiver......................................................................................35
ARTICLE XXVIII...................................................................................................35
28.1. Acceptance of Surrender........................................................................36
ARTICLE XXIX.....................................................................................................36
29.1. No Merger of Title.............................................................................36
ARTICLE XXX......................................................................................................36
30.1. Notices........................................................................................36
ARTICLE XXXI.....................................................................................................37
31.1. Miscellaneous..................................................................................37
31.2. Amendments and Modifications...................................................................37
31.3. Successors and Assigns.........................................................................37
31.4. Headings and Table of Contents.................................................................38
31.5. Counterparts...................................................................................38
31.6. GOVERNING LAW..................................................................................38
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31.7. Limitations on Recourse........................................................................38
31.8. Original Lease.................................................................................38
31.9. Usury Savings Clause...........................................................................39
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APPENDICES
SCHEDULE 1 Amortization of Property Improvements Cost
EXHIBITS
EXHIBIT A Form of Lease Supplement
EXHIBIT B Form of Equipment Schedule
SCHEDULE
APPENDIX I Definitions and Interpretation
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between LEASE PLAN NORTH AMERICA, INC., an Illinois corporation, having its
principal office at 135 S. LaSalle Street, Chicago, Illinois 60603, as the
lessor (the "Lessor"), and QUANTUM CORPORATION, a Delaware corporation, having a
principal office at 500 McCarthy Boulevard, Milpitas, California 95305, as the
lessee (the "Lessee").
W I T N E S S E T H:
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A. WHEREAS, the Lessor will purchase the Land Interest from the
Existing Owner on the Land Interest Acquisition Date;
B. WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee
desires to lease from the Lessor, such Property; and
C. WHEREAS, with respect to such Property the Lessee, as Construction
Agent, will construct certain Improvements which as constructed will be the
property of the Lessor and will become part of such Property and subject to the
terms of this Lease;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1. Definitions; Interpretation. Capitalized terms used but not
otherwise defined in this Lease have the respective meanings specified in
Appendix 1 to this Lease; and the rules of interpretation set forth in Appendix
1 to this Lease shall apply to this Lease.
ARTICLE II
2.1. Acceptance and Lease of Property. Effective as of the Effective
Date, the Lessor, subject to the satisfaction or waiver of the conditions set
forth in Section 6 of the Participation Agreement, hereby agrees to accept
delivery of the Land Interest to be delivered on the Land Interest Acquisition
Date pursuant to the terms of the Participation Agreement, and simultaneously to
lease to the Lessee hereunder for the Term (as defined in Section 2.3), the
Lessor's interest in such Land Interest and the Lessor's interest in any
Improvements existing thereon, and to lease to the Lessee any Improvements which
thereafter may be constructed thereon and any Equipment, if any, which may be
purchased, utilizing proceeds of an Advance, for use in connection therewith
pursuant to the Construction Agency Agreement, this Lease or the Participation
Agreement, and the Lessee hereby agrees, expressly for the direct benefit of the
Lessor, to lease commencing on the Land Interest Acquisition Date from the
Lessor for the Term, the Lessor's interest in such Land Interest to be delivered
on such Land Interest Acquisition Date and any Improvements existing thereon and
to lease any Improvements which thereafter may be
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constructed thereon and such Equipment pursuant to the Construction Agency
Agreement, this Lease and the Participation Agreement.
2.2. Acceptance Procedure. (a) The Lessor hereby authorizes one or more
employees of the Lessee, to be designated by the Lessee, as the authorized
representative or representatives of the Lessor to accept delivery on behalf of
the Lessor of the Property identified on the Acquisition Request or an Equipment
Schedule.
(b) The Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
the Lessee on the Land Interest Acquisition Date of a Lease Supplement in the
form of Exhibit A hereto (appropriately completed) shall, without further act,
constitute the irrevocable acceptance by the Lessee of the Property which is the
subject thereof for all purposes of this Lease and the other Operative Documents
on the terms set forth therein and herein, and that the Property (including the
Improvements constructed thereon) shall be deemed to be included in the
leasehold estate of this Lease and shall be subject to the terms and conditions
of this Lease as of the Land Interest Acquisition Date.
(c) The Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
the Lessee of an Equipment Schedule in the form of Exhibit B hereto
(appropriately completed) on or prior to the applicable Funding Date with
respect to the acquisition of Equipment shall, without further act, constitute
the irrevocable acceptance of the Equipment which is the subject thereof for all
purposes of this Lease and the other Operative Documents on the terms set forth
therein and herein, and that the Equipment shall be deemed to be included in the
leasehold estate of this Lease and shall be subject to the terms and conditions
of this Lease as of such Funding Date.
2.3. Lease Term. The term of this Lease (the "Term") shall begin on the
Land Interest Acquisition Date and shall end on the fifth anniversary of the
Effective Date, unless the Term is renewed or earlier terminated in accordance
with the provisions of this Lease.
2.4. Title. The Property is leased to the Lessee without any
representation or warranty of title, condition of the Improvements or permitted
uses, express or implied, by the Lessor and subject to the rights of parties in
possession, the existing state of title (including, without limitation, the
Permitted Exceptions) and all applicable Requirements of Law. The Lessee shall
in no event have any recourse against the Lessor for any defect in or exception
to title to the Property, other than for any such defect or exception
constituting a Lessor Lien. The Lessee expressly waives and releases the Lessor
from any common law or statutory covenant of quiet enjoyment, provided that the
Lessor shall be obligated to remove Lessor Liens.
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ARTICLE III
3.1. Rent. (a) During the Term, the Lessee shall pay Basic Rent on each
Payment Date, on the date required under Section 22.1(i) in connection with the
Lessee's exercise of the Remarketing Option and on any date on which this Lease
shall terminate.
(b) Basic Rent shall be due and payable (i) during the Construction
Period, in the manner set forth in Section 3.8(d) of the Participation Agreement
and (ii) thereafter, 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 the Agent or in such other
manner as the Agent shall from time to time direct.
(c) Neither the Lessee's inability or failure to take possession of all
or any portion of the Property when delivered by the Lessor, nor the Lessor's
inability or failure to deliver all or any portion of the Property to the Lessee
on or before the Land Interest Acquisition Date or the applicable Funding Date,
whether or not attributable to any act or omission of the Lessee or any act or
omission of the Lessor, or for any other reason whatsoever, shall delay or
otherwise affect the Lessee's obligation to pay Rent for the Property from and
after commencement of the Term.
3.2. Payment of Basic Rent. Basic Rent shall be paid absolutely net to
the Lessor, so that this Lease shall yield to the Lessor the full amount
thereof, without setoff, deduction or reduction, whether or not the Lessee's
quiet possession of the Property is disturbed, except as otherwise expressed
herein and in Section 13.5(e) of the Participation Agreement.
3.3. Supplemental Rent. The Lessee shall pay to the Lessor or the
Person entitled thereto any and all Supplemental Rent promptly as the same shall
become due and payable, and if the Lessee fails to pay any Supplemental Rent,
the 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. The Lessee
shall pay to the Lessor, as Supplemental Rent, among other things, on demand, to
the extent permitted by Applicable 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 the 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 the Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of the Lessee with respect to Supplemental
Rent. Unless expressly provided otherwise in this Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added under any agreement
with a third party for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent.
3.4. Method of Payment. Each payment of Rent shall be made by the
Lessee to the Agent by 12:00 noon, San Francisco time at the place of payment in
funds consisting of lawful currency of the United States of America which shall
be immediately available on the scheduled date when such payment shall be due,
unless such scheduled date shall not be a Business Day,
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in which case such payment shall be made on the next succeeding Business Day or
as otherwise required by the definition of the term "Interest Period" set forth
in Appendix 1 hereto. Payments initiated after 12:00 noon, San Francisco time
shall be deemed received on the next succeeding Business Day.
ARTICLE IV
4.1. Utility Charges. The 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. The Lessee shall be entitled to receive any credit or refund with respect
to any utility charge paid by the Lessee and the amount of any credit or refund
received by the Lessor on account of any utility charges paid by the Lessee, net
of the costs and expenses reasonably incurred by the Lessor in obtaining such
credit or refund, shall be promptly paid over to the 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 the Lessor and the Lessee, and each party shall pay or reimburse the
other for each party's pro rata share thereof, except that if the Lessee retains
possession of the Property after termination or expiration of this Lease, no
such adjustment and proration shall be made.
ARTICLE V
5.1. Quiet Enjoyment. Subject to the rights of the Lessor contained in
Section 17.2 and the other terms of this Lease and so long as no Event of
Default shall have occurred and be continuing, the Lessee shall peaceably and
quietly have, hold and enjoy the property for the Term, free of any claim or
other action by the Lessor or anyone rightfully claiming by, through or under
the Lessor (other than the Lessee) with respect to any matters arising from and
after the first day of the Lease Term.
ARTICLE VI
6.1. Net Lease. This Lease shall constitute a net lease. It is the
further express intent of Lessor and Lessee that the obligations of Lessor and
Lessee hereunder shall be separate and independent covenants and agreements and
that the Basic Rent and Supplemental Rent, and all other charges and sums
payable by Lessee hereunder, shall commence at the times provided herein and
shall continue to be payable in all events unless the obligations to pay the
same shall be terminated pursuant to an express provision in this Lease. Any
present or future law to the contrary notwithstanding, this Lease shall not
terminate, nor shall the Lessee be entitled to any abatement, suspension,
deferment, reduction, setoff, counterclaim, or defense with respect to the Rent,
nor shall the obligations of the Lessee hereunder be affected (except as
expressly herein permitted and by performance of the obligations in connection
therewith) by reason of: (i) any defect in the condition, merchantability,
design, construction, quality or fitness for use of the Property or any part
thereof, or the failure of the Property to comply with all Requirements of Law,
including any inability to occupy or use the Property by reason of such
non-compliance; (ii) any damage to, removal, abandonment, salvage, loss,
contamination of or Release from, scrapping or destruction of or any requisition
or taking of the Property or any part thereof; (iii) any restriction, prevention
or curtailment of or interference with any use of the
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Property or any part thereof including eviction; (iv) any defect in title to or
rights to the Property or any Lien on such title or rights or on the Property
(other than Lessor Liens); (v) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by the Lessor, the Agent or any Participant; (vi) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceedings relating to the Lessee, the Lessor, the Agent, any Participant, or
any other Person, or any action taken with respect to this Lease by any trustee
or receiver of the Lessee, the Lessor, the Agent, any Participant or any other
Person, or by any court, in any such proceeding; (vii) any claim that the Lessee
has or might have against any Person, including without limitation the Lessor,
any vendor, manufacturer, contractor of or for the Property, the Agent or any
Participant; (viii) any failure on the part of the Lessor to perform or comply
with any of the terms of this Lease, any other Operative Document or any other
agreement; (ix) any invalidity or unenforceability or illegality or
disaffirmance of this Lease or against or by the Lessee or any provision hereof
or any of the other Operative Documents or any provision of any thereof; (x) the
impossibility or illegality of performance by the Lessee, the Lessor or both;
(xi) any action by any court, administrative agency or other Governmental
Authority; (xii) any restriction, prevention or curtailment of or interference
with the construction on or any use of the Property or any part thereof; or
(xiii) any other cause or circumstances whether similar or dissimilar to the
foregoing and whether or not the Lessee shall have notice or knowledge of any of
the foregoing. The parties intend that the obligations of the Lessee hereunder
shall be covenants and agreements that are separate and independent from any
obligations of the Lessor hereunder or under any other Operative Documents and
the obligations of the Lessee shall continue unaffected unless such obligations
shall have been modified or terminated in accordance with an express provision
of this Lease.
6.2. No Termination or Abatement. The 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 the Lessor, the Agent or any Participant, or any action
with respect to this Lease or any Operative Document which may be taken by any
trustee, receiver or liquidator of the Lessor, the Agent or any Participant or
by any court with respect to the Lessor, the Agent or any Participant. The
Lessee hereby waives all right (i) to terminate or surrender this Lease (except
as provided herein) or (ii) except as otherwise provided in this Lease or the
Participation Agreement with regard to withholding taxes, to avail itself of any
abatement, suspension, deferment, reduction, setoff, counterclaim or defense
(other than the defense of payment) with respect to any Rent. The Lessee shall
remain obligated under this Lease in accordance with its terms and the 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, the Lessee shall be
bound by all of the terms and conditions contained in this Lease.
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ARTICLE VII
7.1. Ownership of the Property. (a) It is the intent of the parties
hereto that: (i) this Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of federal, state, and local
income or franchise taxes and for any other tax imposed on or measured by
income, the transaction contemplated hereby is a financing arrangement and
preserves ownership in the Property in the Lessee. Nevertheless, the Lessee and
the Lessor acknowledge and agree that none of the Lessee, the Agent, the Lessor
nor any Participant has made any representations or warranties to the Lessee
concerning the tax, accounting or legal characteristics of the Operative
Documents and that they have obtained and relied upon such tax, accounting and
legal advice concerning the Operative Documents as they deem appropriate.
Accordingly, and notwithstanding any provision of this Lease to the contrary,
the Lessor and the Lessee agree and declare that: (i) the transactions
contemplated hereby are intended to have a dual, rather than a single, form; and
(ii) all references in this Lease to the "lease" of the Property which fail to
reference such dual form do so as a matter of convenience only and do not
reflect the intent of the Lessor and the Lessee as to the true form of such
arrangements.
(b) Anything to the contrary in the Operative Documents
notwithstanding, the Lessor and the Lessee intend and agree that with respect to
the nature of the transactions evidenced by this Lease in the context of the
exercise of remedies under the Operative Documents, including, without
limitation, in the case of any insolvency or receivership proceedings or a
petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee, the Lessor, or any Participant or any
enforcement or collection actions, (i) the transactions evidenced by this Lease
are loans made by the Lessor and the Participants as unrelated third party
lenders to the Lessee secured by the Property, (ii) the obligations of the
Lessee under this Lease to pay Basic Rent and Supplemental Rent or Asset
Termination Value in connection with a purchase of the Property pursuant to this
Lease shall be treated as payments of interest on and principal of,
respectively, loans from the Lessor and the Participants to the Lessee, and
(iii) this Lease grants a security interest and mortgage or deed of trust or
lien, as the case may be, in the Property and the collateral described in the
Mortgage to the Lessor, the Agent and the Participants to secure the Lessee's
performance under and payment of all amounts under this Lease and the other
Operative Documents.
(c) Specifically, without limiting the generality of subsection (b) of
this Section 7.1, the Lessor and the Lessee further intend and agree that, for
the purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Lessor and the Participants to the Lessee, (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
specifically, a construction mortgage, as said term is defined in Section
9-313(1)(c) of the Uniform Commercial Code) and a real property mortgage or deed
of trust; (ii) the conveyance provided for in Article II shall be deemed to be a
grant by the Lessee to the Lessor, the Agent and the Participants of a mortgage
lien and security interest in all of the Lessee's right, title and interest
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in and to the Property and the collateral described in the Mortgage 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 (it being understood that the Lessee
hereby mortgages and warrants and grants a security interest in the Property and
the collateral described in the Mortgage to the Lessor, the Agent and the
Participants to secure such loans); (iii) the possession by the 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 be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to Section 9-305 of the Uniform Commercial Code; and (iv) all Accounts
established with Defeasance Deposit Depositary Bank pursuant to the Cash
Collateral Agreement shall be "Security Accounts" within the meaning of Section
8501 of the UCC, all Collateral from time to time on deposit in any such Account
shall be deemed to be a "Financial Asset" within the meaning of Section
8102(a)(9) of the UCC, and the execution and delivery by Lessee and Agent of the
Notice of Security Interest attached to the Cash Collateral Agreement as
Attachment No. 2 and the execution and delivery of the Acknowledgement and
Agreement of Depositary Bank attached to the Notice of Security Interest shall
be deemed to grant to Agent "control" of the Collateral within the meaning of
Section 8106 of the UCC for the purpose of perfecting a security interest in a
Financial Asset pursuant to Section 9115(1)(e) of the UCC; provided however, if
any Account is determined to be a deposit account within the meaning of Section
9302(1)(g) of the UCC, the Notice of Security Interest delivered pursuant to the
Cash Collateral Agreement constitutes notice for the purpose of perfecting a
security interest in a deposit account pursuant to that Section. The Lessor and
the Lessee shall, to the extent consistent with this Lease, take such actions
and execute, deliver, file and record such other documents, financing
statements, mortgages and deeds of trust 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, 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.
(d) Specifically, without limiting the generality of anything contained
in this Section 7.1, the Lessor and the Lessee further intend and agree that,
for purposes of filing federal, state and local returns, reports and other
statements relating to income or franchise taxes, or any other taxes imposed
upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor the
Participants shall take a position on their respective federal, state and local
returns, reports and other statements relating to income or franchise taxes that
is inconsistent with the Lessee's status as owner of the Property, provided that
the Lessor and any Participant may take a position that is inconsistent with the
Lessee's status as owner of the Property if: (x) there has been a change in law
or regulation so requiring as supported by an opinion of counsel reasonably
acceptable to the Lessee that there is not substantial authority for such a
consistent reporting position; or (y) (A) there has been an administrative or
judicial holding that the Lessee is not the owner of the Property for such tax
purposes, (B) the Lessee has no right to contest such holding pursuant to
Section 13.5 of the Participation Agreement, and (C) the Lessee's lack of right
to contest is not the result of an Indemnitee's waiver of its right to
indemnification pursuant to Section 13.5(f)(iii) of the Participation Agreement
or failure of
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the amount at issue to exceed the minimum amount set forth in Section
13.5(f)(iv)(B) of the Participation Agreement.
ARTICLE VIII
8.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT
ALTHOUGH THE LESSOR WILL HOLD FEE TITLE TO THE PROPERTY, THE LESSEE IS SOLELY
RESPONSIBLE FOR THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS. THE
LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING THE PROPERTY "AS IS"
WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR,
THE AGENT OR ANY PARTICIPANT AND IN EACH CASE 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 REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF. NEITHER
THE LESSOR, THE AGENT NOR ANY PARTICIPANT HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE
DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (INCLUDING BUT NOT
LIMITED TO ANY IMPLIED LIABILITY RELATING TO A COVENANT OF QUIET ENJOYMENT,
WHICH THE LESSEE HEREBY EXPRESSLY WAIVES), 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 THE LESSOR, THE
AGENT 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 REQUIREMENT OF LAW. THE FOREGOING IS SUBJECT TO THE PROVISIONS OF
SECTION 5.1 HEREOF AND SECTION 10.3(a) OF THE PARTICIPATION AGREEMENT.
8.2. Possession and Use of the Property. The Property may be used only
for such purposes as are permitted by Applicable Law and consistent with all
Insurance Requirements and in compliance with any covenants, conditions and
restrictions of record and any ordinance or law affecting the use and occupancy
of the Property; and provided that such uses do not Materially increase the
liability, directly or indirectly, of the Lessor or Materially adversely affect
the value, utility or remaining useful life of the Property from that which
would obtain if the Property were to be used as administration, manufacturing,
design, research and development and warehouse facilities. The Lessee shall pay,
or cause to be paid, all charges and costs required in connection with the use
of the Property as contemplated by this Lease and the Construction Agency
Agreement. The Lessee shall not commit or permit any waste of the Property or
any part thereof (provided, that waste shall not include ordinary wear and tear
and damage by fire or other peril).
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ARTICLE IX
9.1. Compliance with Requirements of Law and Insurance Requirements.
Subject to the terms of Article XIII relating to permitted contests, the Lessee,
at its sole cost and expense, shall (a) comply with all Requirements of Law
(including all Environmental Laws) and comply with all Insurance Requirements
relating to the Property, including the construction, use, operation,
maintenance, repair and restoration thereof and the remarketing thereof pursuant
to Article XXII, 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 with all
licenses, permits, orders, approvals, consents and other authorizations required
for the construction, use, maintenance and operation of the Property and for the
use, operation, maintenance, repair and restoration of the Improvements.
ARTICLE X
10.1. Maintenance and Repair; Return. (a) Except for ordinary wear and
tear, the Lessee, at its sole cost and expense, shall maintain the Property in
good working order, mechanical condition and repair 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 Requirements of Law and Insurance
Requirements and on a basis consistent with the operation and maintenance of
commercial properties comparable in type and location to the Property and in
compliance with prudent industry practice.
(b) The Lessor shall under no circumstances 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 (except for Advances required under the
Participation Agreement) or maintain the Property in any way. The Lessor shall
not be required to maintain, repair or rebuild all or any part of the Property,
and the Lessee waives any right to (i) require the Lessor to maintain, repair,
or rebuild all or any part of the Property, or (ii) make repairs at the expense
of the Lessor pursuant to any Requirement of Law, Insurance Requirement,
contract, agreement, or covenant, condition or restriction in effect at any time
during the Term.
(c) The Lessee shall, upon the expiration or earlier termination of
this Lease, vacate and surrender the Property to the Lessor in its then-current,
"AS IS" condition, subject to Sections 9.1, 10.1(a), 11.1, 12.1, 15.1(e), 15.2,
20.1, 22.1 and 23.1.
(d) The Lessee warrants that it shall cause the Improvements currently
under construction or currently planned to be constructed on the Property to be
designed and constructed in a workmanlike manner and in accordance with all
Requirements of Law, prior to the Outside Completion Date so that, prior to such
date, such Improvements will be fit for their intended purpose.
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ARTICLE XI
11.1. Modifications, Substitutions and Replacements. (a) The 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 and substitutions and replacements therefor (collectively,
"Modifications"); provided that: (i) no Modification shall Materially impair the
value, utility or useful life of the Property or any part thereof from that
which existed immediately prior to such Modification; (ii) the Modification
shall be done expeditiously and in a good and workmanlike manner; (iii) subject
to the provisions of Article XIII concerning contests, the Lessee shall comply
with all Requirements of Law (including all Environmental Laws) and comply with
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) subject to the
terms of Article XIII relating to permitted contests, the Lessee shall pay all
costs and expenses and shall discharge (or cause to be insured or bonded over)
within sixty (60) days after the same shall be filed (or otherwise become
effective) any Liens arising with respect to the Modification; and (v) such
Modifications shall comply with Sections 8.2 and 10.1. All Modifications
required to be made pursuant to a Requirement of Law generally applicable to
buildings comparable to the Property or an Insurance Requirement ("Required
Modification") and all Modifications which are replacements or substitutions of
the Property, all Modifications of the utility and building services Equipment
and sections of the Improvements which are not readily removable without
impairing the utility or remaining useful life of the Property shall remain part
of the realty and shall be subject to this Lease, and title thereto shall
immediately vest in the Lessor. All other Modifications and all trade fixtures,
machinery, equipment or other tangible personal property (other than Equipment
or replacements or substitutions for Equipment) shall at all times be Lessee's
property ("Lessee's Property") and Lessee may remove the same at any time during
the Term, subject, however, to the terms of Section 10.1(a); provided that such
trade fixtures, machinery, equipment or other property do not impair the value,
utility or remaining useful life of the Property; provided, further, that the
Lessee shall keep and maintain at the Property and shall not remove from the
Property any Equipment.
(b) The Lessee shall deliver to the Lessor and the Agent a brief
written narrative of any Modification, other than as described in the Plans and
Specifications delivered by the Lessee to the Lessor and the Agent on the Land
Interest Acquisition Date, to be done in connection with any Modification to the
Property the cost of which is anticipated to exceed $500,000 in the aggregate.
ARTICLE XII
12.1. Warranty of Title. (a) The Lessee agrees that except as otherwise
provided herein and subject to the terms of Article XIII relating to permitted
contests, the 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 upon the Property (or the
Lessor's interest therein) or any Modifications or any Lien, attachment, levy or
claim with respect
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to the Rent or with respect to any amounts held by the Agent pursuant to the
Participation Agreement or the other Operative Documents, other than Permitted
Exceptions and Lessor Liens.
(b) Nothing contained in this Lease shall be construed as constituting
the consent or request of the 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 THE LESSOR, ANY
PARTICIPANT NOR THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE OR TO ANYONE HOLDING THE
PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE AND THAT NO MECHANIC'S
OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR
AFFECT THE INTEREST OF THE LESSOR IN AND TO THE PROPERTY.
12.2. Grants and Releases of Easements. Provided that no Lease Event of
Default shall have occurred and be continuing and subject to the provisions of
Articles VIII, IX, X and XI, the Lessor hereby consents in each instance to the
following actions by the Lessee, in the name and stead of the Lessor, but at the
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
reasonably necessary or desirable for the completion of construction of the
Improvements, use, repair, operation 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; (c) the execution of
petitions to have the Property annexed to any municipal corporation or utility
district; and (d) the execution of amendments to any covenants and restrictions
affecting the Property; provided, however, in each case the Lessee shall have
delivered to the Lessor a Responsible Officer's Certificate stating that (i)
such grant, release, dedication or transfer does not materially impair the
value, utility and remaining useful life of the Property, (ii) such grant,
release, dedication or transfer is reasonably necessary in connection with the
completion of construction of the Improvements, use, operation maintenance,
alteration or improvement of the Property, (iii) the Lessee shall remain
obligated under this Lease and under any instrument executed by the Lessee
consenting to the assignment of the Lessor's interest in this Lease as security
for indebtedness, in each such case in accordance with their terms, as though
such grant, release, dedication or transfer, had not been effected, and (iv) the
Lessee shall pay and perform any obligations of the Lessor under such grant,
release, dedication or transfer, and (v) such easements, rights-of-way and other
rights shall be subordinate and subject to the Lien of the Mortgage. Without
limiting the effectiveness of the foregoing, provided that no Lease Event of
Default shall have occurred and be continuing, the Lessor shall, upon the
request of the Lessee, and at the Lessee's sole cost and expense, 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.
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ARTICLE XIII
13.1. Permitted Contests Other Than in Respect of Indemnities. Except
to the extent otherwise provided for in Section 13 of the Participation
Agreement, the Lessee, on its own or on the Lessor's behalf but at the 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 Requirement of Law, or utility
charges payable pursuant to Section 4.1 or any Lien, attachment, levy,
encumbrance or encroachment, and the 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 Lessor, the Agent and
the Participants or the Lessee shall have bonded or otherwise secured such
amount in a manner satisfactory to the Lessor and the Agent; (b) there shall be
no risk of the imposition of a Lien (other than Permitted Exceptions or Liens
for which adequate security (in the opinion of the Lessor) for payments in the
event of an unsuccessful contest has been posted) on the Property and no part of
the Property nor any Rent 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 material civil liability on the
Lessor, the Agent or any Participant for failure to comply therewith (unless, in
the case of civil liability, the Lessee shall have bonded or otherwise secured
such amount in a manner satisfactory to the Lessor and the Agent); and (d) in
the event that, at any time, there shall be a material risk of extending the
application of such item beyond the end of the Term, then the Lessee shall
deliver to the Lessor a Responsible Officer's Certificate certifying as to the
matters set forth in clauses (a), (b) and (c) of this Section 13.1. The Lessor,
at the Lessee's sole cost and expense, shall execute and deliver to the Lessee
such authorizations and other documents as may reasonably be required in
connection with any such contest and, if reasonably requested by the Lessee,
shall join as a party therein at the Lessee's sole cost and expense.
ARTICLE XIV
14.1. Public Liability and Workers' Compensation Insurance. During the
Term, the Lessee shall procure and carry, at the Lessee's sole cost and expense,
commercial general liability insurance, including contractual liability, for
claims for injuries or death sustained by persons or damage to property while on
the Property and such other public liability coverages as are ordinarily
procured by Persons who own or operate similar properties and consistent with
prudent business practice, which policies shall include contractual liability
endorsements covering the Lessee's indemnification obligations in Section 14.4.
Such insurance shall be on terms and in amounts (which shall be reasonably
acceptable to the Lessor and in the event of liability insurance shall not
require coverage in excess of $10,000,000) that are no less favorable than
insurance maintained by the Lessee with respect to similar properties that it
owns and that are in accordance with prudent business practice and may be
provided under blanket policies maintained by or on behalf of the Lessee. The
policy shall be endorsed to name the Lessor, the Agent and each Participant as
additional insureds. The policy shall also
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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
the Lessor, the Agent or the Participants may have in force. The Lessee shall,
in the construction of the Improvements and the operation of the Property
(including in connection with any Modifications thereof) comply with the
applicable workers' compensation laws and protect the Lessor, the Agent and the
Participants against any liability under such laws.
14.2. Hazard and Other Insurance. During the Term, the Lessee shall
keep, or cause to be kept, the Property insured against loss or damage by fire,
flood, and other risks typically included in policies in the state of Colorado
for facilities similar to the Property in an amount not less than the then
current replacement cost of the buildings and improvements on the Property
(provided, that the Lessee's flood insurance may have a sublimit of not less
than $50,000,000) and on terms that are no less favorable than insurance
covering other similar properties owned or leased by the Lessee or any of its
Affiliates and that are in accordance with prudent business practice. The Lessee
may provide such coverage under blanket policies maintained by the Lessee.
During the construction of any Improvements the Lessee shall also maintain
builders' risk insurance. Each policy of insurance maintained by the Lessee
pursuant to this Section 14.2 shall provide that all insurance proceeds in
respect of any loss or occurrence shall be paid to and adjusted solely by the
Lessee except from and after the date on which the insurer receives written
notice from the Lessor or the Agent that a Lease Event of Default exists (and
unless and until such insurer receives written notice from the Lessor or the
Agent that all Lease Events of Default have been cured), all losses shall be
adjusted solely by, and all insurance proceeds shall be paid solely to, the
Agent (or the Lessor if the Participation Interests have been fully paid) for
application pursuant to Article XV.
14.3. Coverage. (a) The Lessee shall furnish the Lessor and the Agent
with certificates showing the insurance required under Sections 14.1 and 14.2 to
be in effect and naming the Lessor, the Agent and each Participant as additional
insureds and, with respect to the insurance required under Section 14.2, loss
payees along with the Lessee, as their respective interests may appear, and
showing the mortgagee endorsement required by Section 14.3(c). All such
insurance shall be at the cost and expense of the Lessee. Such certificates
shall include a provision for thirty (30) days' advance written notice by the
insurer to the Lessor and the Agent in the event of cancellation of or any
reduction to less than 90% of Replacement Value (or, in the case of Flood
insurance, less than 90 percent of the sublimit specified in Section 14.2) in
the coverage provided by such insurance.
(b) The Lessee agrees that the insurance policy or policies required by
Sections 14.1 and 14.2 shall include (i) a clause in substantially the following
form pursuant to which such policy shall provide that it will not be invalidated
should the Lessee waive, in writing, prior to a loss, any or all rights of
recovery against any party for losses covered by such policy, and that the
insurance in favor of the Lessor, the Agent and the Participants, and their
respective rights under and interests in said policies shall not be invalidated
or reduced by any act or omission or negligence of the Lessee or any other
Person having any interest in the Property, and (ii) a so-called "Waiver of
Subrogation Clause". The Lessee hereby waives any and all such rights against
the Lessor, the Agent and the Participants to the extent of payments
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made under such policies. The Lessor, the Agent and the Participants hereby
waive all such rights against the Lessee to the extent of payments made to the
Lessor under any of such policies.
(c) All such insurance shall be written by reputable insurance
companies that are financially sound and solvent and otherwise reasonably
appropriate considering the amount and type of insurance being provided by such
companies. Any insurance company selected by the Lessee which is rated in Best's
Key Rating Guide or any successor thereto (or if there be none, an organization
having a similar national reputation) shall have a general policyholder rating
of "A-" and a financial rating of at least 10 in Best's Key Rating Guide or be
otherwise acceptable to the Lessor, the Agent and the Required Participants. All
insurance policies required by Section 14.2 shall include a standard form
mortgagee endorsement in favor of the Agent.
(d) The Lessor shall not carry separate insurance concurrent in kind or
form or contributing in the event of loss with any insurance required under this
Article XIV except that the Lessor may carry separate liability insurance (at
its sole cost) so long as (i) the Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance the Lessor may have in
force which would apply to a loss covered under the Lessee's policy and (ii)
each such insurance policy will not cause the Lessee's insurance required under
this Article XIV to be subject to a coinsurance exception of any kind.
(e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 14.1 and Section 14.2, and shall renew or replace
each policy prior to the expiration date thereof. Throughout the Term, at the
time each of the Lessee's insurance policies is renewed (but in no event less
frequently than once each year), the Lessee shall deliver to the Lessor and the
Agent certificates of insurance evidencing that all insurance required by this
Article XIV is being maintained by the Lessee with respect to the Property and
is in effect.
(f) Notwithstanding the other provisions of this Article XIV, the
Lessee may provide the insurance coverage required under this Article XIV
through its self-insurance program, so long as the Lessee remains in compliance
with the Tangible Net Worth covenant in Section 10.1(r)(ii) of the Participation
Agreement.
(g) Notwithstanding anything to the contrary contained in the Operative
Documents: (A) the Lessee hereby waives, releases and discharges the Lessor, the
Agent and each Participant and their agents and employees from all claims
whatsoever arising out of loss, claim, expense or damage to or destruction
covered or coverable by insurance required under this Article XIV
notwithstanding that such loss, claim, expense or damage may have been caused by
the Lessor, the Agent or any Participant or any of their agents or employees,
and the Lessee agrees to look to the insurance coverage only in the event of
such loss; and (B) the Lessor, the Agent and the Participants hereby waive,
release and discharge the Lessee and its agents and employees from all claims
whatsoever arising out of loss, claim, expense, or damage to or destruction
covered by insurance required under this Article XIV to the
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extent of payments made to the Lessor notwithstanding that such loss, claim,
expense or damage may have been caused by the Lessee or any of its agents or
employees.
14.4. Indemnification. In addition to the indemnification provisions
provided for in Section 13 of the Participation Agreement, to the fullest extent
allowed by law, the Lessee shall at all times during the Term, and to the extent
resulting from acts or events occurring prior to or during the Term or during
any other period when the Lessee is in possession and control of the Property,
indemnify, defend and hold each Indemnitee harmless against and from any and all
Claims by or on behalf of any Person arising from the construction of the
Improvements or conduct or management, or from any work or things whatsoever
done in or about the Property, and will further indemnify, defend and hold each
Indemnitee harmless against and from any and all Claims arising during the Term
of this Lease, from any condition of the Property, the Improvements or any
street, curb or sidewalk adjoining the Property, or of any passageways or space
therein or appurtenant thereto, or arising from any breach or default on the
part of the Lessee in the performance of any covenant or agreement on the part
of the Lessee to be performed, pursuant to the terms of this Lease or the
Construction Agency Agreement, or arising from any act or negligence of the
Lessee, its agents, servants, employees or licensees, or arising from any
accident, injury or damage whatsoever caused to any Person occurring during the
term of this Lease, in or about the Property, or upon the sidewalk and the land
adjacent thereto, other than in any of the foregoing cases (a) any Claim
resulting from a voluntary act or omission of the Indemnitee not in compliance
with any of the terms of the Operative Documents not caused by or attributable
to acts or omissions of the Lessee or any third party who is not an Affiliate or
an employee, agent or contractor of an Indemnitee or its Affiliates, and (b) any
Claim resulting from the gross negligence or willful misconduct of an
Indemnitee. Any action, suit or proceeding in respect of any such Claim shall be
handled in the manner set forth in Section 13.4 of the Participation Agreement.
ARTICLE XV
15.1. Casualty and Condemnation. (a) Subject to the provisions of this
Article XV and Article XVI (in the event the Lessee delivers, or is obligated to
deliver, a Termination Notice), and except during the occurrence and
continuation of a Lease Default, the Lessee shall be entitled to receive (and
the Lessor shall pay over to the Lessee, if received by the Lessor, and hereby
irrevocably assigns to the Lessee all of the Lessor's right, title and interest
in) any award, compensation or insurance proceeds to which the Lessee or the
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 Lease Default shall have occurred and be
continuing, such award, compensation or insurance proceeds shall be paid
directly to the Agent or, if received by the Lessee, shall be held in trust for
the Agent, and shall be paid over by the Lessee to the Agent (or, if the
Participation Interests have been fully paid, to the Lessor) and held in
accordance with the terms of this paragraph (a). If, contrary to such
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provision, any such award, compensation or insurance proceeds are paid to the
Lessor or the Lessee, rather than to the Agent, the Lessor and the Lessee, as
the case may be, hereby agree to transfer any such payment to the Agent. All
amounts held by the Lessor or the Agent when a Lease Default exists hereunder on
account of any award, compensation or insurance proceeds either paid directly to
the Lessor or the Agent or turned over to the Lessor or the Agent shall either
be (i) paid to the Lessee for the repair of damage caused by such Casualty or
Condemnation in accordance with paragraph (e) of this Section 15.1, or (ii) held
in an interest bearing account reasonably acceptable to the Lessor and the
Lessee until applied to the purchase price of the Property on the Termination
Date, with any Excess Proceeds being payable to the Lessee.
(b) The 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. At the Lessee's reasonable request, and at the Lessee's sole
cost and expense, the Lessor and the Agent shall participate in any such
proceeding, action, negotiation, prosecution or adjustment. The Lessor and the
Lessee agree that this Lease shall control the rights of the Lessor and the
Lessee in and to any such award, compensation or insurance payment.
(c) If the Lessor or the Lessee shall receive notice of a Casualty or
of an actual, pending or threatened Condemnation of the Property or any interest
therein, the Lessor or the Lessee, as the case may be, shall give notice thereof
to the other and to the Agent promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by the Lessee or
the Lessor of a Condemnation, the Lessee may deliver to the Lessor and the Agent
a Termination Notice with respect to the Property pursuant to Section 16.1. If
the Lessee does not deliver a Termination Notice within seventy-five (75) days
after such occurrence, then this Lease shall (subject to the terms and
conditions thereof) remain in full force and effect, and the Lessee shall, at
the Lessee's sole cost and expense, promptly and diligently restore the Property
pursuant to paragraph (e) of this Section 15.1 and otherwise in accordance with
this Lease. If the Lessee delivers a Termination Notice within seventy-five (75)
days after such occurrence, a Significant Event shall irrevocably be deemed to
have occurred with respect to the Property, and, in such event, this Lease shall
terminate and the Lessee shall purchase the Property on the next Payment Date
(but in no event later than seventy-five (75) days after such occurrence) (a
"Termination Date") pursuant to Article XVI hereof.
(e) If pursuant to this Section 15.1 this Lease shall continue in full
force and effect following a Casualty or Condemnation, the Lessee shall, at its
sole cost and expense (and, without limitation, if any award, compensation or
insurance payment is not sufficient to restore the Property in accordance with
this paragraph, the Lessee shall pay the shortfall), promptly and diligently
repair any damage to the Property caused by such Casualty or Condemnation or
substitute new Equipment for the affected Equipment 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
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affecting the Property and all applicable Requirements of Law) so as to restore
the Property to at least the same condition, operation, function and value as
existed immediately prior to such Casualty or Condemnation; provided, the
substitution of any Equipment for any such affected Equipment previously
financed with an Advance shall, at the Lessor's reasonable request, be subject
to delivery of an independent third-party appraisal reasonably satisfactory to
the Lessor and the Required Participants by an appraiser satisfactory to the
Lessor and the Required Participants showing both (i) a current Fair Market
Sales Value and (ii) expected Fair Market Sales Value as of the then current
Expiration Date and the dates on which any potential Renewal Term would expire,
in each case equal to or greater than such values at such dates for the
Equipment being replaced. In the event of such restoration, title to the
Property shall remain with the Lessor; provided, that (i) title to any such
substituted equipment shall vest in the Lessor in the event that such equipment
replaces Equipment previously financed with an Advance and such equipment shall
constitute Equipment thereafter for all purposes of this Lease, and (ii) the
Lessor shall assign all of its right, title and interest to the Lessee in any
such replaced equipment in the event that such equipment replaces Equipment
previously financed with an Advance without representation or warranty of any
kind other than that such equipment is free of Lessor Liens. Upon completion of
such restoration, the Lessee shall furnish the Lessor an architect's certificate
of substantial completion and a Responsible Officer's Certificate confirming
that such restoration has been completed pursuant to this Lease.
(f) 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 the
Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its
obligations and pay any amounts due on the Expiration Date or pursuant to
Articles XIX and XX.
(g) Any Excess Proceeds received by the Lessor or the Agent in respect
of a Casualty or Condemnation shall be turned over to the Lessee, provided that
no Lease Event of Default or Lease Default has occurred and is continuing. Any
Excess Proceeds which are not turned over to the Lessee due to the existence of
a Lease Event of Default or a Lease Default shall be applied against the
Lessee's obligations under the Lease, and any excess remaining after such
obligations have been satisfied shall be paid to the Lessee.
15.2. Environmental Matters. Promptly upon the 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, the
Lessee shall notify the Lessor in writing of such condition. In the event of
such Environmental Violation, the Lessee shall, not later than thirty (30) days
after the Lessee has actual knowledge of such Environmental Violation, either,
if such Environmental Violation is a Significant Event, deliver to the Lessor
and the Agent a Responsible Officer's Certificate and a Termination Notice with
respect to the Property pursuant to Section 16.1, or, if such Environmental
Violation is not a Significant Event, at the Lessee's sole cost and expense,
promptly and diligently commence any Response Actions necessary to investigate,
remove, clean up or remediate the Environmental Violation in accordance with the
terms of Section 9.1. If the Lessee does not deliver a Termination Notice with
respect to the Property pursuant to Section 16.1, the Lessee shall, upon
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completion of Response Actions by the Lessee, cause to be prepared by an
environmental consultant reasonably acceptable to the Lessor a report describing
the Environmental Violation and the Response Actions taken by the Lessee (or its
agents) for such Environmental Violation, and a statement by the consultant that
the Environmental Violation has been remedied in compliance in all material
respects with applicable Environmental Law. Each such Environmental Violation
shall be remedied prior to the Expiration Date. Nothing in this Article XV shall
reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or 13.3 of
the Participation Agreement.
15.3. Notice of Environmental Matters. Promptly, but in any event
within the thirty (30) Business Days from the date the Lessee has actual
knowledge thereof, the Lessee shall provide to the 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 the Lessee's proposed response thereto. In addition, the Lessee
shall provide to the Lessor, within thirty (30) Business Days of receipt, copies
of all material written communications with any Governmental Authority relating
to any Environmental Law in connection with the Property. The Lessee shall also
promptly provide such detailed reports of any such Material environmental claims
as may reasonably be requested by the Lessor and the Agent.
ARTICLE XVI
16.1. Termination by the Lessee upon Certain Events. If either: (i) the
Lessee or the Lessor shall have received notice of a Condemnation, and the
Lessee shall have delivered to the Lessor a Responsible Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and the Lessee shall have delivered to the Lessor a Responsible Officer's
Certificate that such Casualty is a Significant Casualty; or (iii) an
Environmental Violation occurs or is discovered and the Lessee shall have
delivered to the Lessor a Responsible Officer's Certificate stating that, in the
reasonable, good-faith judgment of the Lessee, the cost to remediate the same
will cause the same to be a Significant Event, or (iv) if the Lessee shall not
have delivered a Termination Notice with respect to such Environmental Violation
described in clause (iii) but the requirements of Section 16.4 are met with
respect to such Environmental Violation; then, (A) the Lessee shall,
simultaneously with the delivery of the Responsible Officer's Certificate
pursuant to the preceding clause (i), (ii) or (iii) deliver a written notice in
the form described in Section 16.2(a) (a "Termination Notice"), or (B) if clause
(iv) is applicable, the Lessor may deliver a Termination Notice pursuant to
Section 16.4; provided, that if such Environmental Violation was not caused by
nor within the control of the Lessee, the Lessee may exercise either its
Purchase Option or Remarketing Option pursuant to Section 17.2(h).
16.2. Procedures. (a) A Termination Notice shall contain: (i) notice of
termination of this Lease with respect to the Property or the affected portion
thereof on a date that is no later than thirty (30) days after the occurrence of
the applicable event described in clause (i), (ii) or
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(iii) of Section 16.1 (the "Termination Date"), such termination to be effective
upon the Lessee's payment of the Asset Termination Value (or portion thereof
representing the Property Cost of the affected portion of the Property); and
(ii) a binding and irrevocable agreement of the Lessee to pay the Asset
Termination Value and purchase the Property on the Termination Date.
(b) On the Termination Date, the Lessee shall pay to the Lessor the
Asset Termination Value (or such portion thereof, as applicable), plus all other
amounts owing in respect of Rent for the Property (including Supplemental Rent)
theretofore accruing, and the Lessor shall convey the Lessor's interest in the
Property or such portion thereof to the Lessee (or the Lessee's designee) all in
accordance with Section 19.1, as well as any Net Proceeds with respect to the
Casualty or Condemnation giving rise to the termination of this Lease with
respect to the Property theretofore received by the Lessor.
16.3. Termination by the Lessor upon Certain Events. If the Lessor
reasonably determines that any change in, or change by a Governmental Authority
in the interpretation of, any applicable law after the date hereof would result
in it or any Participant being unable to continue to hold legal or beneficial
title to all or any portion of the Property or, except as provided in Section
16.4 hereof, subject it or any Participant to onerous regulations or onerous
liability on account thereof, the Lessor may deliver a Termination Notice with
respect to the Lease to the Agent, the Participants and the Lessee, such
termination to be effective on the Termination Date specified therein, which
date shall not be earlier than 30 days following the date the notice is
delivered to the Lessee. In the event the Lessor exercises its termination
option, the Lessee may exercise the Remarketing Option provided in Section 22.1
hereof by giving notice to the Lessor within ten (10) Business Days of receipt
of the notice from the Lessor. If the Lessee does not exercise its Remarketing
Option, the Lessee shall be obligated to purchase the Property in accordance
with Section 20.2 hereof on the Termination Date for the purchase price set
forth therein.
16.4. Purchase of Property. Upon receipt of any notice pursuant to
Section 15.2 or 15.3, the Lessor or the Required Participants, at the Lessee's
expense, shall have the right to select an independent environmental consultant
acceptable to the Lessee, which acceptance shall not be unreasonably withheld or
delayed, to determine the estimated cost of conducting any clean-up or
remediation required as a result of the Environmental Violation disclosed in
such notice. If such independent environmental consultant determines that the
cost of any such clean-up or remediation would exceed $5,000,000, the Lessor
shall, subject to the proviso at the end of Section 16.1, at the direction of
the Required Participants, by written notice require the Lessee to purchase, or
arrange for an Affiliate or other third party to purchase, the Property on the
Expiration Date by delivering a Termination Notice following the requirements of
Section 16.2 hereof, unless the Environmental Violation was not caused by nor
within the control of the Lessee, in which later case the provisions of Section
17.2(h) shall apply.
ARTICLE XVII
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17.1. Lease Events of Default. The occurrence of any one or more of the
following events (whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall constitute a "Lease Event of
Default":
(a) the Lessee shall fail to make payment of (i) any Basic Rent (other
than a payment of Basic Rent due on the Expiration Date or Termination Date)
within five (5) Business Days after the same has become due and payable or (ii)
Basic Rent, Purchase Option Price, Asset Termination Value or Residual Value
Guarantee Amount or other amounts due on the Expiration Date or the Termination
Date, including, without limitation, amounts due pursuant to Sections 16.2,
16.3, 16.4, 20.1, 20.2, 20.3 or 22.1, after the same has become due and payable;
(b) the Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in clause (a) of this Section) due and
payable within thirty (30) days after written notice thereof;
(c) the Lessee shall fail to maintain insurance as required by Article
XIV of this Lease, and such failure is either a failure to have in force a
policy of insurance substantially meeting the requirements of Article XIV, or if
such policy is in effect, then any deviation of such policy from the
requirements of Article XIV is not cured within twenty(20) days after the
earlier of (i) receipt of written notice thereof or (ii) the Lessee having
knowledge thereof;
(d) the Lessee shall fail to observe or perform any term, covenant or
condition of the Lessee under this Lease, the Participation Agreement or any
other Operative Document to which it is a party (other than those described in
Section 17.1(a), (b),or (c) hereof), or any representation or warranty set forth
in this Lease or in any other Operative Document 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, and such failure or misrepresentation or
breach of warranty shall remain uncured for a period of thirty (30) days after
receipt of written notice thereof; provided, that if such failure to perform is
not capable of being cured within such period but is capable of being cured
within one hundred eighty (180) days after the occurrence of such default and
the Lessee is proceeding diligently to cure such default, the Lessee shall be
entitled to request an additional period (not to exceed one hundred eighty (180)
days from the date of such default) to cure such default;
(e) the Lessee or any of the Lessee's Subsidiaries (A) shall fail to
make a payment or payments in an aggregate amount of $2,500,000 or more when due
under the terms of any Funded Debt to be paid by such Person (excluding this
Lease or any intercompany indebtedness between the Lessee and any of its
Subsidiaries, but including any other evidence of indebtedness of the Lessee or
any of its Subsidiaries to any Participant) and such failure shall continued
beyond any period of grace provided with respect thereto, or (B) shall fail to
make any other payment or payments when due under or otherwise default in the
observance
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or performance of any other agreement, term or condition contained in any such
Funded Debt, and the effect of such failure or default is to cause, or permit
the holder or holders thereof to cause, indebtedness in an aggregate amount of
$10,000,000 or more to become due prior to its stated date of maturity; or (ii)
there shall occur to exist any other event or condition which causes, or permits
the holder or holders of such indebtedness to cause, indebtedness in an
aggregate amount of $10,000,000 or more to become due prior to its stated date
of maturity (whether through holder puts, mandatory redemptions or prepayments
or otherwise);
(f) the Lessee or any of Lessee's Material Subsidiaries (except with
respect to clause (v) below) shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of it or any of its creditors, (iv) be dissolved or
liquidated in full or in part, (v) no longer be Solvent; (vi) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vii) take any
action for the purpose of effecting any of the foregoing;
(g) proceedings for the appointment of a receiver, trustee, liquidator
or custodian of the Lessee or any of the Lessee's Material Subsidiaries or of
all or a substantial part of the property thereof, or an involuntary case or
other proceedings seeking liquidation, reorganization or other relief with
respect to the Lessee or any of the Lessee's Material Subsidiaries or the debts
thereof under any bankruptcy, insolvency or other similar law now or hereafter
in effect shall be commenced and an order for relief entered or such proceeding
shall not be dismissed or discharged within sixty (60) days of commencement;
(h) a final nonappealable judgment or order for the payment of money in
excess of $10,000,000 (exclusive of amounts which are covered by insurance
issued by an insurer satisfying the requirements set forth in Section 10.1(d) of
the Participation Agreement) shall be rendered against the Lessee or any of its
Subsidiaries and the same shall remain undischarged and unpaid for a period of
thirty (30) days during which execution shall not be effectively stayed;
(i) any Reportable Event occurs which constitutes grounds for the
termination of any Employee Benefit Plan by the PBGC or for the appointment of a
trustee by the PBGC to administer any Employee Benefit Plan, or any Employee
Benefit Plan shall be terminated with unfunded liabilities within the meaning of
Title IV of ERISA or a trustee shall be appointed by the PBGC to administer any
Employee Benefit Plan, in each case which could reasonably be expected to have a
Material Adverse Effect;
(j) any Change of Control shall occur;
(k) a Guarantee Event of Default shall have occurred and be continuing;
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(l) if the Lessee shall not have exercised its Purchase Option pursuant
to Section 20.1 hereof and the Lessee shall have validly exercised its
Remarketing Option pursuant to Section 22.1 hereof, the Lessee shall have failed
(A) to consummate a sale of the Property in the manner provided therein on the
Expiration Date and to pay to the Agent (or such other Person as the Agent may
direct) pursuant to such Section the Residual Value Guarantee Amount and the
other amounts required thereby, or (B) to purchase the Lessor's interest in the
Property on the Expiration Date as provided in Section 20.2 hereof and to pay to
the Lessor the Asset Termination Value therefor on the Expiration Date as
required thereby;
(m) a Construction Agency Agreement Event of Default shall have
occurred and be continuing;
(n) the Lessee shall have abandoned or constructively abandoned all or
any material portion of the Property for a period of thirty (30) consecutive
days; or
(o) an Environmental Violation shall occur that, in the reasonable
opinion of the Lessor and the Required Participants, based on an Environmental
Audit, constitutes a Significant Event and the Lessee shall not, within thirty
(30) days after notice from the Lessor, have delivered a Termination Notice with
respect thereto pursuant to Section 16.1 hereof or, if so delivered, repurchase
of the Property shall not have been consummated on the Termination Date pursuant
to Section 16.2 hereof; or
(p) the Lessee shall have elected to or be required to purchase the
Property pursuant to Sections 16.3 or 16.4 hereof and such purchase shall not
have been consummated on the Termination Date pursuant to either such Section.
17.2. Remedies. Upon the occurrence of any Lease Event of Default and
at any time thereafter, the Lessor may, so long as such Lease Event of Default
is continuing, do one or more of the following as the Lessor in its sole
discretion shall determine, without limiting any other right or remedy the
Lessor may have on account of such Lease Event of Default (including, without
limitation, the obligation of the Lessee to purchase the Property as set forth
in Section 20.3) upon notice to the Lessee (if not otherwise provided for
below):
(a) The Lessor may, by notice to the Lessee, rescind or terminate this
Lease only as to all of the Property as of the date specified in such notice;
however, (i) no reletting, reentry or taking of possession of the Property (or
any portion thereof) by the Lessor will be construed as an election on the
Lessor's part to terminate this Lease unless a written notice of such intention
is given to the Lessee, (ii) notwithstanding any reletting, reentry or taking of
possession, the Lessor may at any time thereafter elect to terminate this Lease
for a continuing Lease Event of Default, (iii) no act or thing done by the
Lessor or any of its agents, representatives or employees and no agreement
accepting a surrender of the Property shall be valid unless the same be made in
writing and executed by the Lessor and (iv) no termination pursuant to this
Section shall terminate Lessee's right to cure such Lease Event of
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Default set forth in Section 17.6 hereof by purchasing the Property pursuant to
Section 20.1 hereof prior to such time as a foreclosure upon or sale of the
Property has been completed.
(b) The Lessor may (i) demand that the Lessee, and the Lessee shall
upon the written demand of the Lessor, return the Property promptly to the
Lessor in the manner and condition required by, and otherwise in accordance with
all of the provisions of, Articles VIII, IX and X hereof as if the Property were
being returned at the end of the Term, and the Lessor shall not be liable for
the reimbursement of the Lessee for any costs and expenses incurred by the
Lessee in connection therewith and (ii) without prejudice to any other remedy
which the Lessor may have for possession of the Property, and to the extent and
in the manner permitted by Applicable Law, enter upon the Property and take
immediate possession of (to the exclusion of the Lessee) the Property or any
part thereof and expel or remove the Lessee and any other Person who may be
occupying the Property, by summary proceedings or otherwise, all without
liability to the Lessee for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise and, in addition to the Lessor's other damages, to the extent and in
the manner permitted by Applicable Law with respect to remedies for a breach of
a real estate lease, the Lessee shall be responsible for all costs and expenses
incurred by the Lessor and/or the Agent or the Participants in connection with
any reletting, including, without limitation, brokers' fees and all costs of any
alterations or repairs made by the Lessor;
(c) The Lessor may (i) sell all or any part of the Property at public
or private sale, as the Lessor may determine, free and clear of any rights of
the Lessee and without any duty to account to the Lessee with respect to such
action or inaction or any proceeds with respect thereto (except to the extent
required by clause (ii) below if the Lessor shall elect to exercise its rights
thereunder) in which event the Lessee's obligation to pay Basic Rent hereunder
for periods commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be; and (ii) if the Lessor shall so
elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the
Lessor, on the date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (the parties agreeing that the Lessor's actual damages
would be difficult to predict, but the aforementioned liquidated damages
represent a reasonable approximation of such amount) (in lieu of Basic Rent due
for periods commencing on or after the Payment Date coinciding with such date of
sale (or, if the sale date is not a Payment Date, the Payment Date next
preceding the date of such sale)), an amount equal to (A) the excess, if any, of
(1) the Asset Termination Value calculated as of such Payment Date (including
all Rent due and unpaid to and including such Payment Date), over (2) the net
proceeds of such sale, if any (that is, after deducting all costs and expenses
incurred by the Lessor, the Agent and the Participants incident to such
conveyance, including, without limitation, repossession costs, brokerage
commissions, prorations, transfer taxes, fees and expenses for counsel, title
insurance fees, survey costs, recording fees, and any repair or alteration
costs); plus (B) interest at the Overdue Rate on the foregoing amount from such
Payment Date until the date of payment, and any excess of the sale proceeds over
such Asset Termination Value and any other sums owing by the Lessee under the
Operative Documents shall be remitted to the Lessee;
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(d) The Lessor may, at its option, not terminate the Lease with respect
to the Property, and continue to collect all Basic Rent, Supplemental Rent, and
all other amounts due the Lessor (together with all costs of collection) and
enforce the Lessee's obligations under this Lease as and when the same become
due, or are to be performed, and at the option of the Lessor, upon any
abandonment of the Property by the Lessee or re-entry of same by the Lessor, the
Lessor may, in its sole and absolute discretion, elect not to terminate this
Lease and may make such reasonable alterations and necessary repairs in order to
relet the Property, and relet the Property or any part thereof for such term or
terms (which may be for a term extending beyond the Term of this Lease) and at
such rental or rentals and upon such other terms and conditions as the Lessor in
its reasonable discretion may deem advisable; and upon each such reletting all
rentals actually received by the Lessor from such reletting shall be applied to
the Lessee's obligations hereunder and the other Operative Documents in such
order, proportion and priority as the Lessor may elect in the Lessor's sole and
absolute discretion. If such rentals received from such reletting during any
period be less than the Rent with respect to the Property to be paid during that
period by the Lessee hereunder, the Lessee shall pay any deficiency, as
calculated by the Lessor, to the Lessor on the next Payment Date;
(e) Unless the Property has been sold in its entirety, the Lessor may,
whether or not the Lessor shall have exercised or shall thereafter at any time
exercise any of its rights under paragraph (b), (c) or (d) of this Section 17.2
with respect to the Property or portions thereof, demand, by written notice to
the Lessee specifying a date (a "Termination Date") not earlier than 10 days
after the date of such notice, that the Lessee purchase, on such Termination
Date, the Property (or the remaining portion thereof) in accordance with the
provisions of Article XIX and Section 20.3;
(f) The Lessor may exercise any other right or remedy that may be
available to it under the Operative Documents or otherwise under Applicable Law,
or proceed by appropriate court action (legal or equitable) to enforce the terms
hereof or to recover damages for the breach hereof. Separate suits may be
brought to collect any such damages for any period(s), and such suits shall not
in any manner prejudice the Lessor's right to collect any such damages for any
subsequent period(s), or the Lessor may defer any such suit until after the
expiration of the Term, in which event such suit shall be deemed not to have
accrued until the expiration of the Term; or
(g) The Lessor may retain and apply against the Lessor's damages all
sums which the Lessor would, absent such Lease Event of Default, be required to
pay to, or turn over to, the Lessee pursuant to the terms of this Lease.
(h) Notwithstanding anything contained in this Lease to the contrary,
in the event that (A) the Lease Event of Default resulting in the exercise of
remedies by the Lessor hereunder is solely the result of a Construction Agency
Agreement Event of Default pursuant to Section 5.1(b) or (c) of the Construction
Agency Agreement or is a Lease Event of Default under Section 17.1(o) where the
occurrence of such Environmental Violation was not caused by or within the
control of the Lessee or under Section 10.1(d) (each, a"Specified Event of
Default"), or (B) the
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proviso at the end of Section 16.1 applies, the Lessee shall have the option to
(i) remarket the Property for one hundred eighty (180) days after the occurrence
of such Specified Event of Default in accordance with Article XXII (which period
shall constitute the Remarketing Period), with the purchase of the Property to
be consummated no later than the date that is one hundred eighty (180) days
following the occurrence of such Specified Event of Default (which date shall
constitute the Expiration Date if such option is exercised), or (ii) exercise
its Purchase Option under Section 20.1, with the purchase of the Property by the
Lessee to be consummated, and the other payments required thereunder to be made
to the Lessor, on the next Payment Date following the occurrence of such
Specified Event of Default (which date shall constitute the Expiration Date if
such option is exercised). The Lessee shall notify the Lessor within ten (10)
days after the occurrence of such Specified Event of Default which option it is
exercising. If the Lessee elects to remarket the Property the Lessee shall pay
to the Lessor (i) the maximum Residual Value Guarantee Amount on the date it
furnishes such notice of exercise of the Remarketing Option (the "Option Notice
Date"), (ii) all breakage costs incurred by the Participants for the duration of
all then current Interest Periods under the Participation Agreement with respect
to the amount so paid following notices thereof by the Agent, (iii) Basic Rent
with respect to the Tranche A Participation Interests on the amount so paid
accrued to and payable on the Option Notice Date, (iv) Basic Rent when due with
respect to the unpaid portion of the Tranche B Participation Interests and/or
Tranche C Participation Interests to the date of sale of the Property and (v)
the other payments required under Section 22.1 when required thereunder and no
later than the Expiration Date. If the Lessee exercises neither of such options
or, if one of such options is exercised but the Lessor does not receive the
payments required above or by such Article or Section on the dates referred to
above, such failure to exercise or failure to receive payment shall constitute a
Lease Event of Default that is not a Specified Event of Default and the Lessor
shall be entitled to exercise any of its remedies set forth in Sections 17.2(a)
- - (g). If the Lessee properly exercises its Remarketing Option under this
Section 17.2(h), pays the Residual Value Guarantee Amount as required above and
is unable to arrange for the sale of the Property on the new Expiration Date,
such failure to sell the Property shall constitute a Lease Event of Default that
is not a Specified Event of Default and the Lessor shall be entitled to exercise
any of its remedies set forth in Sections 17.2(a) - (g); provided that in such
event the portion of Asset Termination Value which may be recovered from the
Lessee under any of such Sections shall not exceed, in addition to any other
payments required by such Sections, that portion of the Asset Termination Value
that remains unpaid after payment of the Residual Value Guarantee Amount as
provided in this Section 17.2(h).
17.3. Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.2, the 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 or limiting the Lessor with respect
to the election of remedies; and (d) any other rights which might otherwise
limit or modify any of the Lessor's rights or remedies under this Article XVII.
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17.4. Power of Sale and Foreclosure. In the event that a court of
competent jurisdiction rules that this Lease constitutes a mortgage, deed of
trust or other secured financing as is the intent of the parties pursuant to
Section 7.1, and subject to the availability of such remedy under applicable
law, then the Lessor and the Lessee agree that (i) the Lessee hereby grants a
Lien against the Property WITH POWER OF SALE, and that, upon the occurrence of
any Lease Event of Default the Lessor shall have the power and authority, to the
extent provided by law, after proper notice and lapse of such time as may be
required by law, to sell the Property at the time and place of sale fixed by the
Lessor in said notice of sale, either as a whole, or in separate lots or parcels
or items and in such order as the Lessor may elect, at auction to the highest
bidder for cash in lawful money of the United States payable at the time of
sale; accordingly, it is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN
THIS INSTRUMENT; A POWER OF SALE MAY ALLOW THE LESSOR TO TAKE THE PROPERTY AND
SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
LESSEE UNDER THIS INSTRUMENT, and (ii) upon the occurrence of a Lease Event of
Default, the Lessor, in lieu of or in addition to exercising any power of sale
hereinabove given, may proceed by a suit or suits in equity or at law, whether
for a foreclosure hereunder, or for the sale of the Property, or against the
Lessee on a recourse basis for the Asset Termination Value, or the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Property, or for the
enforcement of any other appropriate legal or equitable remedy. The parties
hereto intend that, in addition to any other debt or obligation secured by the
Lien granted pursuant to this Section 17.4, such Lien shall secure unpaid
balances of Rent and Supplemental Rent and other extensions of credit made by
the Lessor to the Lessee after this Lease is delivered to the appropriate
recording offices of Colorado, whether made pursuant to an obligation of the
Lessee or otherwise, and such Rent and Supplemental Rent shall be secured to the
same extent as if such future payment obligations of Rent and Supplemental Rent
were on account of obligatory advances to be made under a construction loan;
provided such obligations secured hereby at any one time shall not exceed the
lesser of : (i) the maximum principal sum permitted by the laws of Colorado; or
(ii) one hundred thirty-two million Dollars ($132,000,000) together with
interest or Yield thereon calculated at the rates provided in the Participation
Agreement.
17.5. 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, including, without limitation, any
mortgage foreclosure remedies.
17.6. Lessee's Right to Cure. Notwithstanding any provision contained
in the Lease or any other Operative Agreement, if a Lease Event of Default has
occurred and is continuing, the Lessee shall have the right to cure such Lease
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.
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ARTICLE XVIII
18.1. The Lessor's Right to Cure the Lessee's Lease Defaults. The
Lessor, without waiving or releasing any obligation or Lease Event of Default,
may (but shall be under no obligation to) remedy any Lease Default or Lease
Event of Default (other than those described in Sections 7.1(g), (h) and (i))for
the account and at the sole cost and expense of the Lessee, including the
failure by the Lessee to maintain the insurance required by Article XIV, and
may, to the fullest extent permitted by law, and notwithstanding any right of
quiet enjoyment in favor of the 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 the Lessee. All out-of-pocket costs
and expenses so incurred (including 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 the Lessor, shall be paid by the Lessee to the Lessor on
demand, as Supplemental Rent.
ARTICLE XIX
19.1. Provisions Relating to the Lessee's Termination of this Lease or
Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and
Conveyance Upon Certain Other Events. (a) In connection with any termination of
this Lease pursuant to the terms of Article XVI (if the Lessee is obligated to
purchase the Property), or in connection with the Lessee's exercise of its
Purchase Option, Remarketing Option or Expiration Date Purchase Obligation, upon
the date on which this Lease is to terminate or upon the Expiration Date, and
upon tender by the Lessee of the amounts set forth in Sections 16.2(b), 17.2(h),
20.1, 20.2, 20.3, or 22.1 as applicable, the Lessor shall execute and deliver to
the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a
quitclaim or warranty deed to the extent required by local custom and by the
Lessee's title insurance company to the extent necessary to enable the Lessee to
obtain customary title insurance at closing of the Lessor's right, title and
interest in the Property (which shall include a release, quitclaim and
assignment of all of the Lessor's right, title and interest in and to any Net
Proceeds not previously received by the Lessor), subject to the Permitted Liens
and the Permitted Exceptions (other than Lessor Liens) and any encumbrance
caused by the fault, neglect or intention of the Lessee, in recordable form and
otherwise in conformity with local custom and free and clear of the Mortgage and
any Lessor Liens attributable to the Lessor; provided that in the event a
warranty deed is required, the Lessee shall defend, indemnify and hold harmless
the Lessor from and against any and all Claims relating to title to the Property
other than Lessor Liens. The Improvements and the Equipment shall be conveyed to
the Lessee "AS IS" and in their then present condition of title and physical
condition.
(b) If the Lessee properly exercises the Remarketing Option, then the
Lessee shall, on the Expiration Date, and at its own cost, transfer possession
of the Property to the independent purchaser thereof, by surrendering the same
into the possession of the Lessor or such purchaser, as the case may be, free
and clear of all Liens other than Lessor Liens, in good condition (as modified
by Modifications permitted by this Lease), ordinary wear and tear
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excepted, in compliance with Applicable Law, and in "broom-swept clean"
condition. The Lessee shall cooperate reasonably with the Lessor and the
independent purchaser of the Property in order to facilitate the purchase by
such purchaser of the Property which cooperation shall include the following,
all of which the Lessee shall do on or before the Expiration Date: providing all
books and records regarding the maintenance and ownership of the Property and
all know-how, data and technical information relating thereto, providing a
current copy of the "as built" Plans and Specifications for the Property,
granting or assigning all licenses necessary for the operation and maintenance
of the Property and cooperating reasonably in seeking and obtaining all
necessary Governmental Action. The obligations of the Lessee under this
paragraph shall survive the expiration or termination of this Lease.
ARTICLE XX
20.1. Purchase Option. Without limitation of the Lessee's purchase
obligation pursuant to Sections 20.2 or 20.3, unless the Lessee shall have given
notice of its intention to exercise the Remarketing Option and the Lessor shall
have entered into a binding contract to sell the Property, the Lessee shall have
the option (exercisable by giving the Lessor irrevocable written notice (the
"Purchase Notice") of the Lessee's election to exercise such option) to
purchase, or to designate a third party to purchase, the Property on the date
specified in such Purchase Notice, which date shall be a Payment Date. The
purchase price shall be equal to the Asset Termination Value plus all other
amounts owing in respect of Rent (including Supplemental Rent) theretofore
accruing (the "Purchase Option Price"). The Lessee shall deliver the Purchase
Notice to the Lessor not less than thirty (30) days prior to the purchase date
or as otherwise provided pursuant to Section 17.2(h). If the Lessee exercises
its option to purchase the Property pursuant to this Section 20.1 (the "Purchase
Option"), the Lessor shall transfer to the Lessee all of the 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 Document,
in accordance with Section 19.l(a). The Lessee may assign the Purchase Option to
a third party separately from any permitted assignment by the Lessee of its
rights and obligations under Section 25.1 hereof without the consent of the
Lessor; provided that the Lessee shall remain primarily liable for the
performance of any such assignees in connection with the exercise of the
Purchase Option in accordance with the provisions of Section 25.1 hereof.
20.2. Expiration Date Purchase Obligation. Unless (a) the Lessee shall
have properly exercised the Purchase Option pursuant to Section 20.1 and
purchased the Property pursuant thereto, (b) the Lessee shall have properly
exercised the Remarketing Option and shall have fulfilled all of the conditions
of clauses (a) through (k) of Section 22.1 hereof and the Lessor shall have sold
its interest in the Property pursuant thereto, or (c) the Lessee shall have
properly exercised the Renewal Option pursuant to Section 21.1 and the terms and
conditions of a Renewal Term shall have been agreed upon pursuant to such
Section, then, subject to the terms, conditions and provisions set forth in this
Article, and in accordance with the terms of Section 19.1(a), the Lessee shall
purchase from the Lessor, and the Lessor shall assign to the
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Lessee without recourse, on the Expiration Date of the Term (as such Term may be
renewed pursuant to Section 21.1) all of the Lessor's right, title and interest
in the Property (subject to all existing Liens, other than the Mortgage and
Lessor Liens) for an amount equal to the Asset Termination Value. The Lessee may
designate, in a notice given to the Lessor not less than ten (10) Business Days
prior to the closing of such purchase (time being of the essence), the
transferee or transferees to whom the conveyance shall be made (if other than to
the Lessee), in which case such conveyance shall (subject to the terms and
conditions set forth herein) be made to such designee; provided, however, that
such designation of a transferee or transferees shall not cause the Lessee to be
released, fully or partially, from any of its obligations under this Lease,
including, without limitation, the obligation to pay the Lessor an amount equal
to the Asset Termination Value that was not fully and finally paid by such
designee on such Expiration Date.
20.3. Acceleration of Purchase Obligation. (a) The Lessee shall be
obligated to purchase for an amount equal to the Asset Termination Value, the
Lessor's interest in the Property (notwithstanding any prior election to
exercise its Purchase Option pursuant to Section 20.1) (i) automatically and
without notice upon the occurrence of any Lease Event of Default specified in
clause (f) or (g) of Section 17.1, and (ii) as provided for at Section 17.2(e)
immediately upon written demand of the Lessor upon the occurrence of any other
Lease Event of Default.
(b) The Lessee shall be obligated to purchase for an amount equal to
the Asset Termination Value (plus all other amounts owing in respect of Rent
(including Supplemental Rent) theretofore accruing), immediately upon written
demand of the Lessor, the Lessor's interest in the Property at any time during
the Term when the Lessor's interest in the Property is foreclosed due to an
event arising out of a violation of the warranty of title contained in Section
12.1 hereof and the Lessor ceases to have title as contemplated by Section 12.1.
20.4. Cash Collateral. To the extent the Depository Bank holds any
Collateral pursuant to the Cash Collateral Agreement and if, under the Cash
Collateral Agreement or any Attachment thereto or Notice thereunder, the Lessor
is entitled to give notice to the Depository Bank to apply such Collateral to
any of its obligations hereunder or under the Operative Documents, whether in
connection with the exercise of its Purchase Option, any purchase obligation or
the exercise of its Remarketing Option, the Lessor or the Agent shall, upon
receipt of such notice from the Lessee, direct the Depository Bank to apply such
Cash Collateral to such obligations of the Lessee to the extent so directed by
the Lessee.
ARTICLE XXI
21.1. Renewal.
(a) Subject to the conditions set forth herein, the Lessee, at any time
after the first anniversary of the Effective Date, shall have the option (the
"Renewal Option") by written
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request (the "Renewal Request") to the Lessor, each Participant and the Agent
given not later than 90 days prior to the then Expiration Date to renew the Term
for a one-year period commencing on the date following the Expiration Date then
in effect. No later than the date (the "Renewal Response Date") which is thirty
(30) days after such request has been delivered to each of the Lessor, each
Participant and the Agent, the Lessor will notify the Lessee in writing (with a
copy to the Agent) whether or not it consents to such Renewal Request (which
consent may be granted or denied in its sole discretion and may be conditioned
on receipt of such financial information or other documentation as may be
specified by the Lessor including without limitation a satisfactory appraisal of
the Property), provided that if the Lessor shall fail to notify the Lessee on or
prior to the Renewal Response Date, it shall be deemed to have denied such
Renewal Request. The renewal of the Term contemplated by any Renewal Request
shall become effective as of the Expiration Date then in effect on or after the
Renewal Response Date on which the Lessor shall have consented to such Renewal
Request; provided that such renewal shall be subject to and conditioned upon the
following:
(A) on both the Expiration Date then in effect and the date of
the Renewal Request, (i) no Lease Default or Lease Event of Default
shall have occurred and be continuing, and (ii) the Lessor and the
Agent shall have received a Responsible Officer's Certificate of the
Lessee as to the matters set forth in clause (i) above,
(B) the Lessee shall not have exercised the Remarketing
Option, and
(C) the Participants shall have agreed to extend the Maturity
Date contemporaneously therewith pursuant to Section 3.6 of the
Participation Agreement such that the Renewal Term will expire on the
same date as the extended Maturity Date.
(b) The renewal of this Lease shall be on the same terms and conditions
as are set forth in this Lease for the original Term, with such modifications
thereto, if any, as the parties hereto and to the other Operative Documents may
negotiate based upon the current credit information regarding the Lessee,
interest rates and such other factors as the Lessor may consider relevant.
ARTICLE XXII
22.1. Option to Remarket. Subject to the fulfillment of each of the
conditions set forth in this Section 22.1, the Lessee shall have the option (the
"Remarketing Option") to market for the Lessor and complete the sale of all, but
not less than all, of the Lessor's interest in the Property on the Expiration
Date for the Lessor or in the event the conditions specified in Section 17.2(h)
have occurred.
The Lessee's effective exercise and consummation of the Remarketing
Option shall be subject to the due and timely fulfillment of each of the
following provisions as of the dates set forth below.
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(a) Not later than one hundred eighty (180) days prior to the
Expiration Date, the Lessee shall give to the Lessor written notice of the
Lessee's exercise of the Remarketing Option, which exercise shall be irrevocable
(except by delivery of a Purchase Notice and consummation of the exercise of the
Purchase Option prior to the earlier of (i) the Expiration Date or (ii) the date
on which the Lessor enters into a binding contract to sell the Property pursuant
to the exercise of the Remarketing Option).
(b) The Lessee shall deliver to the Lessor an Environmental Audit of
the Property together with its notice of exercise of the Remarketing Option.
Such Environmental Audit shall be prepared by an environmental consultant
selected by the Lessor in the Lessor's reasonable discretion and shall contain
conclusions reasonably satisfactory to the Lessor as to the environmental status
of the Property. If such Environmental Audit indicates any material exceptions
reasonably requiring remedy or further investigation, the Lessee shall have also
delivered a Phase Two environmental assessment by such environmental consultant
prior to the Expiration Date showing the completion of the remedying of such
exceptions in compliance with Applicable Law.
(c) On the date of the Lessee's notice to the Lessor of the Lessee's
exercise of the Remarketing Option (other than pursuant to Section 17.2(h)), no
Lease Event of Default or Lease Default shall exist, and thereafter, no uncured
Lease Event of Default or Lease Default shall exist.
(d) The Lessee shall have completed in all Material respects all
Modifications, restoration and rebuilding of the Property pursuant to Sections
11.1 and 15.1 (as the case may be) and shall have fulfilled in all Material
respects all of the conditions and requirements in connection therewith pursuant
to said Sections, in each case by the date on which the Lessor receives the
Lessee's notice of the Lessee's exercise of the Remarketing Option (time being
of the essence), regardless of whether the same shall be within the Lessee's
control. The Lessee shall have also paid the cost of all Modifications commenced
prior to the Expiration Date. The Lessee shall not have been excused pursuant to
Section 13.1 from complying with any Applicable Law that involved the extension
of the ultimate imposition of such Applicable Law beyond the last day of the
Term. Any Liens (other than Lessor Liens) on the Property that were contested by
the Lessee shall have been removed before the Expiration Date.
(e) During the Marketing Period, the Lessee shall, as nonexclusive
agent for the Lessor, use commercially reasonable efforts to sell the Lessor's
interest in the Property on or prior to the Expiration Date (without diminishing
the Lessee's obligation to consummate the sale on the Expiration Date) and will
attempt to obtain the highest purchase price therefor and for not less than the
Fair Market Sales Value. The Lessee will be responsible for hiring and
compensating brokers and making the Property available for inspection by
prospective purchasers. The Lessee shall promptly upon request permit inspection
of the Property and any maintenance records relating to the Property by the
Lessor, any Participant and any potential purchasers, and shall otherwise do all
things necessary to sell and deliver possession of the Property to any
purchaser. All such marketing of the Property shall be at the Lessee's
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sole expense. The Lessee shall allow the Lessor and any potential qualified
purchaser reasonable access to the Property for the purpose of inspecting the
same.
(f) The Lessee shall submit all bids to the Lessor, the Agent and the
Participants, and the Lessor will have the right to review the same and the
right to submit any one or more bids. All bids shall be on an all-cash basis
unless the Lessor, the Agent and the Participants shall otherwise agree in their
sole discretion. The Lessee shall procure bids from one or more bona fide
prospective purchasers and shall deliver to the Lessor, the Agent and the
Participants not less than ninety (90) days prior to the Expiration Date a
binding written unconditional (except as set forth below), irrevocable offer by
such purchaser or purchasers offering the highest bid to purchase the Property.
No such purchaser shall be the Lessee, or any Subsidiary or Affiliate of the
Lessee. The written offer must specify the Expiration Date as the closing date
unless the Lessor, the Agent and the Participants shall otherwise agree in their
sole discretion.
(g) In connection with any such sale of the Property, the Lessee will
provide to the purchaser all customary "seller's" indemnities, representations
and warranties regarding title, absence of Liens (except Lessor Liens) and the
condition of the Property, as well as such other terms and conditions as may be
negotiated between the Lessee and the purchaser. The Lessee shall have obtained,
at its cost and expense, all required governmental and regulatory consents and
approvals and shall have made all filings as required by Applicable Law in order
to carry out and complete the transfer of the Property and the Lessor shall
reasonably cooperate, at the Lessees's expense, with the Lessee to obtain said
items. As to the Lessor, any such sale shall be made on an "as is, with all
faults" basis without representation or warranty by the Lessor other than the
absence of Lessor Liens. Any agreement as to such sale shall be made subject to
the Lessor's rights under this Section 22.1.
(h) The Lessee shall pay directly, and not from the sale proceeds, all
prorations, credits, costs and expenses of the sale of the Property, whether
incurred by the Lessor or the Lessee, including without limitation, the cost of
all title insurance, surveys, environmental reports, appraisals, transfer taxes,
the Lessor's and the Agent's reasonable attorneys' fees, the Lessee's attorneys'
fees, commissions, escrow fees, recording fees, and all applicable documentary
and other transfer taxes.
(i) The Lessee shall pay to the Agent on or prior to the Expiration
Date (or to such other Person as the Agent shall notify the Lessee in writing,
or in the case of Supplemental Rent, to the Person entitled thereto) an amount
equal to the Residual Value Guarantee Amount, plus all Rent and all other
amounts under this Lease and the other Operative Documents which have accrued or
will accrue prior to or as of the Expiration Date, in the type of funds
specified in Section 3.4 hereof.
(j) If the selling price of the Property is less than the difference
between (A) the Asset Termination Value minus (B) the Residual Value Guarantee
Amount, then the Lessee shall have caused to be delivered to the Lessor, the
Agent and each Participant the appraisal required by Section 13.2 of the
Participation Agreement thirty (30) Business Days prior to the
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Expiration Date and shall pay to the Agent on or prior to the Expiration Date
(or to such other person as the Agent shall notify the Lessee in writing) the
amounts required to be paid pursuant to Section 13.2 of the Participation
Agreement.
(k) The purchase of the Property shall be consummated on the Expiration
Date following the payment by the Lessee pursuant to paragraphs (i) and (j)
above and contemporaneously with the Lessee's surrender of the Property pursuant
to Section 19.1(b) and the gross proceeds (the "Gross Proceeds") of the sale of
the Property (i.e., without deduction for any marketing, closing or other costs,
prorations or commissions) shall be paid directly to the Agent; provided,
however, that if the sum of the Gross Proceeds from such sale plus the Residual
Value Guarantee Amount paid by the Lessee pursuant to paragraph (i) above and
the proceeds of the collateral applied thereto under Section 20.4 exceeds the
Asset Termination Value, then the excess shall be paid to the Lessee on the
Expiration Date.
(l) The Lessee shall not be entitled to exercise or consummate the
Remarketing Option if a circumstance that would permit the Lessor to require the
Lessee to repurchase the Property under Section 16.3 exists and is continuing.
If one or more of the foregoing provisions shall not be fulfilled as of
the date set forth above, or the Property is not purchased as aforesaid, then
the Lessor shall declare by written notice to the Lessee the Remarketing Option
to be null and void as to the Property, in which event all of the Lessee's
rights under this Section 22.1 shall immediately terminate and the Lessee shall
be obligated to purchase all of the Lessor's interest in the Property pursuant
to Section 20.2 on the Expiration Date. Notwithstanding the foregoing, the
Lessee may at any time during the Marketing Period exercise its Purchase Option
in accordance with Section 20.2 hereof, provided, that the Lessee shall bear all
costs arising out of or attributable to the cessation of remarketing efforts,
including any costs, expenses, damages or liability which may be alleged by any
prospective purchaser of the Property.
Except as expressly set forth herein, the Lessee shall have no right,
power or authority to bind the Lessor in connection with any proposed sale of
the Property.
22.2. Certain Obligations Continue. During the Marketing Period, the
obligation of the Lessee to pay Rent (including the installment of Basic Rent
due on the fifth anniversary of the Effective Date or at the end of a Renewal
Term, or on the Expiration Date, as the case may be) shall continue undiminished
until payment in full to the Agent of the Gross Proceeds, the Residual Value
Guarantee Amount, and all other amounts due to the Lessor with respect to the
Property under the Operative Documents. The Lessor shall have the right, but
shall be under no duty, to solicit bids, to inquire into the efforts of the
Lessee to obtain bids or otherwise to take action in connection with any such
sale, other than as expressly provided in this Article XXII.
22.3. Support Obligations. In the event that the Lessee does not elect
to purchase the Property on the Expiration Date or, pursuant to the Lessor's
exercise of remedies under Article XVII, this Lease is terminated, the Lessee
shall provide the Lessor, effective on the
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Expiration Date, with (i) all permits, certificates of occupancy, governmental
licenses and authorizations necessary to use and operate the Property for its
intended purposes (to the extent such items are transferable or may be obtained
by the Lessee on behalf of another party), (ii) such easements, licenses,
rights-of-way and other rights and privileges in the nature of an easement as
are reasonably necessary or desirable in connection with the use, repair, access
to or maintenance of the Property as the Lessor shall request, and (iii) a
services agreement covering such services as the Lessor may request in order to
use and operate the Property for its intended purposes at such rates (not in
excess of arm's length fair market rates) as shall be acceptable to the Lessor
and the Lessee. All assignments, licenses, easements, agreements and other
deliveries required by clauses (i) and (ii) of this Section 22.3 shall be in
form satisfactory to the Lessor and shall be fully assignable (including both
primary assignments and assignments given in the nature of security) without
payment of any fee, cost or other charge.
ARTICLE XXIII
23.1. Holding Over. If the 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 the Lessee), such possession shall be
as a tenancy at sufferance during which time the Lessee shall continue to pay
Supplemental Rent that would be payable by the Lessee hereunder were the Lease
then in full force and effect and the Lessee shall continue to pay Basic Rent at
an annual rate equal to 110% of the average rate of Basic Rent payable hereunder
during the Term. Such Basic Rent shall be payable from time to time upon demand
by the Lessor. During any period of tenancy at sufferance, the 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 XXIII shall constitute the consent, express or implied, of the
Lessor to the holding over of the Lessee after the expiration or earlier
termination of this Lease (unless the Property is conveyed to the Lessee), and
nothing contained herein shall be read or construed to relieve the Lessee of its
obligations to purchase or remarket the Property on the Expiration Date pursuant
to Article XX or Article XXII or as preventing the Lessor from maintaining a
suit for possession of the Property or exercising any other remedy available to
the Lessor at law or in equity or hereunder.
ARTICLE XXIV
24.1. Risk of Loss. During the Term 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 the Lessee, and the Lessor shall in no event be
answerable or accountable therefor.
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ARTICLE XXV
25.1. Subletting and Assignment. The Lessee may assign with recourse
this Lease or any of its rights or obligations hereunder in whole or in part to
any Person, in which case the Lessee shall guarantee performance of the
obligations of such assignee under this Lease by a guaranty in form and
substance reasonably acceptable to the Lessor and the Required Participants. The
Lessee may, without the consent of the Lessor, sublease the Property or portion
thereof to any Person, provided, that no such sublease shall, materially and
adversely affect any of the Lessor's interests, rights or remedies under the
Lease or the Lessor's title to the Property. No assignment, sublease or other
relinquishment of possession of the Property shall in any way discharge or
diminish any of the Lessee's obligations to the Lessor hereunder and the Lessee
shall remain directly and primarily liable under this Lease as to the Property,
or portion thereof, so assigned or sublet. Any sublease of the Property shall be
made subject to and subordinated to this Lease and to the rights of the Lessor
hereunder, and shall expressly provide for the surrender of the Property (or
portion thereof) if, after a Lease Event of Default has occurred, the Lease is
terminated. All such subleases shall expressly provide for termination at or
prior to the earlier of the applicable Expiration Date or other date of
termination of this Lease unless either (x) the Lessee shall purchase the
Property pursuant to Article XX or (y) the Lessor shall have (i) received a true
and correct copy of the relevant sublease agreement which shall be in form and
substance, and on terms and conditions, acceptable to the Lessor, and (ii)
received an agreement of the Lessee, in form and substance reasonably acceptable
to the Lessor, to remain liable for any diminution of the market value in the
Property as a consequence of the sublease between the Expiration Date or other
date of termination of this Lease and the later expiration of the sublease
agreement. If requested by the Lessee, the Lessor and the applicable sublessee
shall, at the Lessee's expense, execute and deliver a subordination,
nondisturbance and attornment agreement with respect to any such sublease
extending beyond the Expiration Date or other date of termination of this Lease
in form reasonably satisfactory to the Lessor, the Lessee and the sublessee. No
assignee or sublessee shall be permitted to engage in any activities on the
Property to the extent they are substantially different from those engaged in by
the Lessee without the prior written consent of the Lessor, which consent shall
not be unreasonably withheld, except that any Assignee or Sublessee may use the
Property for light manufacturing, research and development, office, storage,
warehouse and related uses and for any other lawful use that is not more
burdensome than Lessee's intended use as administration, manufacturing, design
research and development and warehouse facilities so long as such use is
permitted by Applicable Law, is approved by Lessor, which approval shall not be
unreasonably withheld, and does not adversely affect the value, utility or
remaining useful life of the Property.
ARTICLE XXVI
26.1. Estoppel Certificates. At any time and from time to time upon not
less than twenty (20) days' prior request by the Lessor or the Lessee (the
"Requesting Party"), the other party (whichever party shall have received such
request, the "Certifying Party") shall furnish to the Requesting Party (but not
more than four times per year unless required to satisfy the
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requirements of any sublessees and only to the extent that the required
information has been provided to the Certifying Party by the other party) a
certificate signed by an individual having the office of vice president or
higher in the Certifying Party 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 the Requesting Party 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 the Requesting Party may reasonably request. Any
such certificate furnished pursuant to this Article XXVI may be relied upon by
the Requesting Party, and any existing or prospective mortgagee, purchaser or
lender, and any accountant or auditor, of, from or to the Requesting Party (or
any Affiliate thereof).
ARTICLE XXVII
27.1. Right to Inspect. During the Term, the Lessee shall upon
reasonable notice from the Lessor (except that no notice shall be required if a
Lease Event of Default has occurred and is continuing), permit the Lessor, the
Agent and their respective authorized representatives to inspect the Property
during normal business hours, provided that such inspections shall not
unreasonably interfere with the Lessee's business operations at the Property.
27.2. No Waiver. No failure by the Lessor or the 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.
ARTICLE XXVIII
28.1. Acceptance of Surrender. No surrender to the Lessor of this Lease
or of all or any portion of any Property or of any part of any thereof or of any
interest therein shall be valid or effective unless agreed to and accepted in
writing by the Lessor and, prior to the payment or performance of all
obligations owed to the Participants under the Participation Agreement or the
other Operative Documents and termination of the Participants' Commitments, the
Agent, and no act by the Lessor or the Agent or any representative or agent of
the Lessor or the Agent, other than a written acceptance, shall constitute an
acceptance of any such surrender.
ARTICLE XXIX
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29.1. 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, or (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.
ARTICLE XXX
30.1. Notices. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and delivered (i) personally,
(ii) by a nationally recognized overnight courier service, (iii) by mail (by
registered or certified mail, return receipt requested, postage prepaid) or (iv)
by facsimile, addressed to the respective parties, as follows:
If to the Lessee:
Quantum Corporation
500 McCarthy Boulevard
Milpitas, California 95305
Attention: Ed McClammy
Telephone: (408) 894-5703
Facsimile: (408) 894-4562
If to the Lessor:
Lease Plan North America, Inc.
135 S. LaSalle Street, Suite 711
Chicago, Illinois 60603
Attention: David M. Shipley
Telephone: (312) 904-2183
Facsimile: (312) 904-6217
If to the Agent:
ABN AMRO Bank N.V., San Francisco International Branch
101 California Street
Suite 4550
San Francisco, California 94111
Attention: Robin Yim
Telephone: (415) 984-3712
Facsimile: (415) 362-3524;
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or such additional parties and/or other address as such party may hereafter
designate (provided, however, in no event shall either party be obligated to
notify, in the aggregate, more than five (5) designees of the other party), and
shall be effective upon receipt or refusal thereof.
ARTICLE XXXI
31.1. Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of the Lessee or the 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 the
Lessee provided in this Lease, including any right or option described in
Articles XV, XVI, XX, XXI or XXII, 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, acknowledgment and delivery of this Lease.
31.2. Amendments and Modifications. Subject to the requirements,
restrictions and conditions set forth in the Participation Agreement, neither
this Lease, any Lease Supplement nor any provision hereof may be amended,
waived, discharged or terminated except by an instrument in writing in
recordable form signed by the Lessor and the Lessee. In the event of any
conflict or inconsistency between the terms hereof and the terms of the
Participation Agreement, the Participation Agreement shall control.
31.3. 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.
31.4. 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.
31.5. 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.
31.6. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
-39-
<PAGE>
STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO
MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATE HEREUNDER AND THE
EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH SUCH ESTATE IS
LOCATED. WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THIS LEASE IS DEEMED
TO CONSTITUTE A FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF
THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL
GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY,
BUT THE LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH SUCH ESTATE IS
LOCATED.
31.7. Limitations on Recourse. The parties hereto agree that the Lessor
shall have no personal liability whatsoever to the Lessee or its respective
successors and assigns for any claim based on or in respect of this Lease or any
of the other Operative Documents or arising in any way from the transactions
contemplated hereby or thereby; provided, however, that the Lessor shall be
liable in its individual capacity (a) for its own willful misconduct or gross
negligence (or negligence in the handling of funds), (b) for liabilities that
may result from the incorrectness of any representation or warranty expressly
made by it in Section 8.1 of the Participation Agreement or (c) for any Taxes
based on or measured by any fees, commission or compensation received by it for
acting as the Lessor as contemplated by the Operative Documents. It is
understood and agreed that, except as provided in the preceding proviso: (i) the
Lessor shall have no personal liability under any of the Operative Documents as
a result of acting pursuant to and consistent with any of the Operative
Documents; (ii) all obligations of the Lessor to the Lessee are solely
nonrecourse obligations except to the extent that it has received payment from
others and are enforceable solely against the Lessor's interest in the Property;
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 Documents by the Lessor. Notwithstanding anything contained
herein, the restriction stated in the preceding provisions of this Section 31.7
shall not apply to liability of the Lessor arising because of a breach of the
Lessor's obligation to remove Lessor Liens or because of its receiving Advances
and failing to disburse Advances to Lessee in accordance with the Operative
Documents, or failure to disburse proceeds from sale of the Property in
accordance with this Lease.
31.8. Original Lease. The single executed original of this Lease marked
"THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page
thereof and containing the receipt of the Agent therefor on or following the
signature page thereof shall be the Original Executed Counterpart of this Lease
(the "Original Executed Counterpart"). To the extent that this Lease constitutes
chattel paper, as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction, no security interest in this Lease may be
created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
-40-
<PAGE>
31.9. Usury Savings Clause. Nothing continued in this Lease or the
other Operative Documents shall be deemed to require the payment of interest or
other charges by the Lessee or any other Person in excess of the amount which
may lawfully be charged under any applicable usury laws. In the event that the
Lessor or any other Person shall collect moneys under this Lease or any other
Operative Document which are deemed to constitute interest (including, without
limitation, the Basic Rent or Supplemental Rent) which would increase the
effective interest rate to a rate in excess of that permitted to be charged by
applicable law, all such sums deemed to constitute interest in excess of the
legal rate shall, upon such determination, at the option of the Person to whom
such payment was made, be returned to the Person making such payment or credited
against other amounts owed by the person making such payment.
[signature page follows]
-41-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease be duly executed
and delivered as of the date first above written.
LEASE PLAN NORTH AMERICA, INC.,
an Illinois corporation, as Lessor
By: /s/ DAVID M. SHIPLEY
______________________________________
Name: DAVID M. SHIPLEY
Title: VICE PRESIDENT
<PAGE>
STATE OF ILLINOIS )
) SS.:
COUNTY OF COOK )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared David Shipley, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be a Vice President of LEASE PLAN
NORTH AMERICA, INC., the within named bargainor, a corporation, and that he as
such Vice President, being duly authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such Vice President.
WITNESS my hand and seal, at office, on this the 21 day of
August, 1997.
- ---------------------------------
"OFFICIAL SEAL"
CHARLES A. DERBIGNY IV
Notary Public, State of Illinois
My Commission Expires 9-4-2000
- ---------------------------------
/s/ Charles A. Derbigny IV
------------------------------
Notary Public
My Commission Expires:
9/4/00
- ----------------------------
<PAGE>
QUANTUM CORPORATION,
a Delaware corporation, as Lessee
By: /s/ G.E. McCLAMMY
______________________________________
Name: G.E. McCLAMMY
Title: V.P. Finance & Treasurer
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
================================================================================
State of California
County of Santa Clara
On August 20, 1997 before me, Kim L. Armstrong
------------------- -----------------------------------------------
DATE NAME, TITLE OF OFFICER - E.G., JANE DOE, NOTARY PUBLIC
personally appeared G.E. McClammy
------------------------------------------------------------
NAME(S) OF SIGNER(S)
[X] proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his
signature on the instrument the person or the entity
upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal
/s/ Kim L. Armstrong
-------------------------------------------------------
SIGNATURE OF NOTARY
=============================== OPTIONAL =======================================
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL
[X] CORPORATE OFFICER
VP FINANCE & TREASURER MASTER LEASE
------------------------------- -----------------------------------
TITLE(S) TITLE OR TYPE OF DOCUMENT
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL -----------------------------------
[ ] ATTORNEY-IN-FACT NUMBER OF PAGES
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER: 8/22/97
--------------------------- -----------------------------------
--------------------------- DATE OF DOCUMENT
---------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
QUANTUM CORPORATION
------------------------------- -----------------------------------
------------------------------- SIGNER(S) OTHER THAN NAMED ABOVE
================================================================================
(C) 1993 NATIONAL NOTARY ASSOCIATION-8236 REMMET AVE, P.O. BOX 7184-CANOGA PARK,
CA 91309-7184
<PAGE>
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of August 22, 1997
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as Agent
By: /s/ Robin S. Yim
------------------------------------
Name: Robin S. Yim
Title: Group Vice President
By: /s/ Robert N. Hartinger
------------------------------------
Name: Robert N. Hartinger
Title: Senior Vice President
<PAGE>
SCHEDULE 1
TO THE LEASE
Amortization of Property Improvements Cost
None
<PAGE>
Prepared by and upon recording return to:
John R. Grier, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
EXHIBIT A TO
THE LEASE
LEASE SUPPLEMENT NO. 1
(And Memorandum of Lease)
THIS LEASE SUPPLEMENT NO. 1 (And Memorandum of Lease) (this "Lease
Supplement") dated as of August 22, 1997, between Lease Plan North America,
Inc., an Illinois corporation, not in its individual capacity but solely as
lessor (the "Lessor"), and Quantum Corporation, a Delaware corporation, as
lessee (the "Lessee").
WHEREAS, the Lessor is the fee owner of the Land Interest described on
Schedule 1 hereto and wishes to lease the Land Interest and all Improvements
thereon or which may thereafter be constructed thereon pursuant to the
Construction Agency Agreement or the Lease to the Lessee (the Land Interest and
such Improvements being collectively called the "Property");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Definitions; Interpretation. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix 1 to the Master Lease, dated as
of August 22, 1997, between the Lessee and the Lessor; and the rules of
interpretation set forth in Appendix 1 to the Lease shall apply to this Lease
Supplement.
SECTION 2. The Property. Attached hereto as Schedule I is the
description of a certain Land Interest. Effective upon the execution and
delivery of this Lease Supplement by the Lessor and the Lessee, the Property
shall be subject to the terms and provisions of the Lease. Subject to the terms
and conditions of the Lease, the Lessor hereby leases to the Lessee for the Term
(as defined below) of the Lease, the Lessor's interest in the Property, and the
Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease
from the Lessor for the Term, the Lessor's interest in the Property.
SECTION 3. Parties and Addresses. The Lease is dated as of August 22,
1997, between the Lessor, whose principal office is at 135 S. LaSalle Street,
Chicago, Illinois 60603 and the Lessee, whose principal office is 500 McCarthy
Boulevard, Milpitas, California 95305.
<PAGE>
SECTION 4. Lease Term. The term of this Lease (the "Term") shall begin
on August 22, 1997, and shall end on August 22, 2002, unless the Term is renewed
or earlier terminated in accordance with the provisions of the Lease. The Lease
contains option periods of one year each, which give Lessee the right, subject
to the terms thereof, to extend the term of the Lease.
SECTION 5. Ownership of the Property. (a) It is the intent of the
parties hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of Federal and state income
tax, the transaction contemplated hereby and by the Lease is a financing
arrangement and preserves ownership in the Property in the Lessee. Nevertheless,
the Lessee acknowledges and agrees that neither the Agent, the Lessor nor any
Participant has made any representations or warranties to the Lessee concerning
the tax, accounting or legal characteristics of the Operative Documents and that
the Lessee has obtained and relied upon such tax, accounting and legal advice
concerning the Operative Documents as it deems appropriate. Accordingly, and
notwithstanding any provision of this Lease to the contrary, the Lessor and the
Lessee agree and declare that: (i) the transactions contemplated hereby are
intended to have a dual, rather than a single, form; and (ii) all references in
this Lease to the "lease" of the Property which fail to reference such dual form
do so as a matter of convenience only and do not reflect the intent of the
Lessor and the Lessee as to the true form of such arrangements.
(b) Anything to the contrary in the Operative Documents
notwithstanding, the Lessor and the Lessee intend and agree that with respect to
the nature of the transactions evidenced by the Lease in the context of the
exercise of remedies under the Operative Documents, including, without
limitation, in the case of any insolvency or receivership proceedings or a
petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee, the Lessor or any Participant or any
enforcement or collection actions, (i) the transactions evidenced by the Lease
are loans made by the Lessor and the Participants as unrelated third party
lenders to the Lessee secured by the Property, (ii) the obligations of the
Lessee under the Lease to pay Basic Rent and Supplemental Rent or Asset
Termination Value in connection with any purchase of the Property pursuant to
the Lease shall be treated as payments of interest on and principal of,
respectively, loans from the Lessor and the Participants to the Lessee, and
(iii) the Lease grants a security interest and mortgage or deed of trust or
lien, as the case may be, in the Property and the collateral described in the
Mortgage to the Lessor, the Agent and the Participants to secure the Lessee's
performance under and payment of all amounts under the Lease and the other
Operative Documents.
(c) Specifically, but without limiting the generality of subsection (b)
of this Section 5, the Lessor and the Lessee further intend and agree that, for
the purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Certificate Purchaser and the Lenders to the
Lessee, (i) the 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; (ii) the conveyance provided
for hereby and in Article II of the Lease shall be deemed to be a grant by the
Lessee to the Lessor, the Agent
-2-
<PAGE>
and the Participants of a mortgage lien and security interest in all of the
Lessee's right, title and interest in and to the Property and the collateral
described in the Mortgage 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
(it being understood that the Lessee hereby mortgages and warrants and grants a
security interest in the Property and the collateral described in the Mortgage
to the Lessor, the Agent and the Participants to secure the loans); (iii) the
possession by the 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 be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (iv) notifications to Persons holding such property, and
acknowledgments, receipts or confirmations from financial intermediaries,
bankers or agents (as applicable) of the Lessee shall be deemed to have been
given for the purpose of perfecting such security interest under Applicable Law.
The Lessor and the Lessee shall, to the extent consistent with the Lease, take
such actions and execute, deliver, file and record such other documents,
financing statements, mortgages and deeds of trust as may be necessary to ensure
that, if the Lease and this Lease Supplement were deemed to create a security
interest in the Property in accordance with this Section, 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.
(d) Specifically, without limiting the generality of anything contained
in this Section 5, the Lessor and the Lessee further intend and agree that, for
purposes of filing federal, state and local returns, reports and other
statements relating to income or franchise taxes, or any other taxes imposed
upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor the
Participants shall take a position on their respective federal, state and local
returns, reports and other statements relating to income or franchise taxes that
is inconsistent with the Lessee's status as owner of the Property, provided that
the Lessor and any Participant may take a position that is inconsistent with the
Lessee's status as owner of the Property if: (x) there has been a change in law
or regulation so requiring as supported by an opinion of counsel reasonably
acceptable to the Lessee that there is not substantial authority for such a
consistent reporting position; or (y) (A) there has been an administrative or
judicial holding that the Lessee is not the owner of the Property for such tax
purposes, (B) the Lessee has no right to contest such holding pursuant to
Section 13.5 of the Participation Agreement, and (C) the Lessee's lack of right
to contest is not the result of an Indemnitee's waiver of its right to
indemnification pursuant to Section 13.5(f)(iii) of the Participation Agreement
or failure of the amount at issue to exceed the minimum amount set forth in
Section 13.5(f)(iv)(B) of the Participation Agreement.
SECTION 6. Remedies. Without limiting any other remedies set forth in
the Lease, in the event that a court of competent jurisdiction rules that the
Lease constitutes a mortgage, deed or trust or other secured financing as is the
intent of the parties, then the Lessor and the Lessee agree that (i) the Lessee
hereby grants a Lien against the Property WITH POWER OF SALE, and that upon the
occurrence of a Lease Event of Default, the Lessor shall have the power and
authority, to the extent provided by law, after proper notice and lapse of such
time as may be
-3-
<PAGE>
required by law, to sell the Property at the time and place of sale fixed by the
Lessor in said notice of sale, either as a whole, or in separate lots or parcels
or items and in such order as the Lessor may elect, at auction to the highest
bidder for cash in lawful money of the United States payable at the time of
sale; accordingly, it is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN
THIS INSTRUMENT; A POWER OF SALE MAY ALLOW THE LESSOR TO TAKE THE PROPERTY AND
SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
LESSEE UNDER THIS INSTRUMENT, and (ii) upon the occurrence of a Lease Event of
Default, the Lessor, in lieu of or in addition to exercising any power of sale
hereinabove given, may proceed by a suit or suits in equity or at law, whether
for a foreclosure hereunder, or for the sale of the Property, or against the
Lessee on a recourse basis for the Asset Termination Value, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Property, or for the
enforcement of any other appropriate legal or equitable remedy. The parties
hereto intend that, in addition to any other debt or obligation secured by the
Lien granted pursuant to this Section 6, such Lien shall secure unpaid balances
of Rent and Supplemental Rent and other extensions of credit made by the Lessor
to the Lessee after this Lease is delivered to the appropriate recording offices
of Colorado, whether made pursuant to an obligation of the Lessee or otherwise,
and such Rent and Supplemental Rent shall be secured to the same extent as if
such future payment obligations of Rent and Supplemental Rent were on account of
obligatory advances to be made under a construction loan; provided such
obligations secured hereby at any one time shall not exceed the lesser of : (i)
the maximum principal sum permitted by the laws of Colorado; or (ii) [one
hundred thirty-two million dollars ($132,000,000)] together with interest or
Yield thereon calculated at the rates provided in the Participation Agreement.
SECTION 7. Purchase Option. Sections 17.2(h), 19 and 20 of the Lease
contain various purchase options which may be exercised by Lessee during the
term of the Lease subject to the terms and conditions of said Sections 19 and 20
of the Lease.
SECTION 8. Liens. (a) THIS LEASE IS SUPERIOR TO A DEED OF TRUST IN
FAVOR OF ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH, AS AGENT (THE
"AGENT") UNDER THE PARTICIPATION AGREEMENT, DATED AS OF AUGUST 22, 1997, AMONG
THE LESSEE, THE LESSOR, THE AGENT AND THE PARTICIPANTS, EXCEPT AS AMENDED OR
SUPPLEMENTED.
(b) NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, ANY PARTICIPANT NOR
THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY PART
THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANICS'S OR OTHER LIENS FOR
ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF
THE LESSOR IN AND TO THE PROPERTY.
SECTION 9. Ratification. Except as specifically modified hereby, the
terms and provisions of the Lease are hereby ratified and confirmed and remain
in full force and effect.
-4-
<PAGE>
SECTION 10. Original Lease Supplement. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the Original
Executed Counterpart of this Lease Supplement (the "Original Executed
Counterpart"). To the extent that this Lease Supplement constitutes chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 11. GOVERNING LAW. THE LEASE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO
THE CREATION OF THE LEASEHOLD ESTATE THEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE ESTATE IS LOCATED. WITHOUT
LIMITING THE FOREGOING, IN THE EVENT THAT THE LEASE IS DEEMED TO CONSTITUTE A
FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN THE
CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT THE
LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE ESTATE IS
LOCATED.
SECTION 12. Counterpart Execution. This Lease Supplement may be
executed in any number of counterparts and by each of the parties hereto in
separate counterparts, all such counterparts together constituting but one and
the same instrument.
[signature page follows]
-5-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
LEASE PLAN NORTH AMERICA, INC.,
an Illinois corporation, as Lessor
By: /s/ David M. Shipley
------------------------------
Name: David M. Shipley
Title: Vice President
<PAGE>
STATE OF ILLINOIS )
) SS.:
COUNTY OF COOK )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared David Shipley, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be a Vice President of LEASE PLAN
NORTH AMERICA, INC., the within named bargainor, a corporation, and that he as
such Vice President, being duly authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such Vice President.
WITNESS my hand and seal, at office, on this the 21 day of
August, 1997.
- ---------------------------------
"OFFICIAL SEAL"
CHARLES A. DERBIGNY IV
Notary Public, State of Illinois
My Commission Expires 9-4-2000
- ---------------------------------
/s/ Charles A. Derbigny IV
------------------------------
Notary Public
My Commission Expires:
9/4/00
- ----------------------------
<PAGE>
QUANTUM CORPORATION,
a Delaware corporation, as Lessee
By: /s/ G. E. McClammy
-----------------------------------
Name: G. E. McClammy
Title: VP Finance & Treasurer
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
================================================================================
State of California
County of Santa Clara
On August 20, 1997 before me, Kim L. Armstrong
------------------- -----------------------------------------------
DATE NAME, TITLE OF OFFICER - E.G., JANE DOE, NOTARY PUBLIC
personally appeared G.E. McClammy
------------------------------------------------------------
NAME(S) OF SIGNER(S)
[X] proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his
signature on the instrument the person or the entity
upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal
/s/ Kim L. Armstrong
-------------------------------------------------------
SIGNATURE OF NOTARY
=============================== OPTIONAL =======================================
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL
[X] CORPORATE OFFICER
VP FINANCE & TREASURER LEASE SUPPLEMENT NO. 1
------------------------------- -----------------------------------
TITLE(S) TITLE OR TYPE OF DOCUMENT
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL -----------------------------------
[ ] ATTORNEY-IN-FACT NUMBER OF PAGES
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER: 8/22/97
--------------------------- -----------------------------------
--------------------------- DATE OF DOCUMENT
---------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
QUANTUM CORPORATION
------------------------------- -----------------------------------
------------------------------- SIGNER(S) OTHER THAN NAMED ABOVE
================================================================================
(C) 1993 NATIONAL NOTARY ASSOCIATION-8236 REMMET AVE, P.O. BOX 7184-CANOGA PARK,
CA 91309-7184
<PAGE>
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART.
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of August 22, 1997.
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as Agent
By: /s/ Robin S. Yim
------------------------------------
Name: Robin S. Yim
Title: Group Vice President
By: /s/ Robert N. Hartinger
------------------------------------
Name: Robert N. Hartinger
Title: Senior Vice President
<PAGE>
SCHEDULE I
TO THE LEASE SUPPLEMENT NO. 1
Property Description
[SEE ATTACHED]
S-1
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF THE PROPERTY
A portion of the Southwest 1/4 of Section 21 and a portion of the Northwest
Quarter of Section 28 and a portion of the Northeast Quarter of Section 29,
Township 12 South, Range 66 West of the 6th P.M., El Paso County, Colorado, more
particularly described as follows:
BEGINNING, at the northeast corner of Lot 1, Fairlane Technology Park Filing No.
3, as recorded in Plat Book H-6 at Page 35 of the records of said El Paso
County, thence S82 degrees 54'39"E on the south Right-of-Way line of Federal
Drive, a distance of 319.33 feet to a point of curve; thence continuing on said
south Right-of-Way line on said curve to the left having a central angle of 48
degrees 00'00", a radius of 732.00 feet for a distance of 613.24 feet; thence
continuing on said south Right-of-Way line N49 degrees 05'21"E for a distance of
380.00 feet to a point of curve; thence continuing on said south Right-of-Way
line on said curve to the left having a central angle of 15 degrees 33'55", a
radius of 1632.00 feet for a distance of 443.36 feet; thence S47 degrees 30'55"E
a distance of 795.09 feet to the north Right-of-Way line of Kettle Creek Road as
shown on the plat of Pendleton Subdivision recorded in Plat Book N-2 at Page 31
of the records of said El Paso County; thence S42 degrees 29'05"W on said north
Right-of-Way line of Kettle Creek Road, a distance of 1411.35 feet to the north
Right-of-Way line of Old Ranch Road; thence S87 degrees 21'45"W on the north
Right-of-Way line of said Old Ranch Road, a distance of 945.63 feet; thence S89
degrees 13'55"W on said north Right-of-Way line, a distance of 147.13 feet to
the southeast corner of said Fairlane Technology Park Filing No. 3; thence N00
degrees 26'11"W on the east line of said Filing No. 3, a distance of 908.64 feet
to the Point of Beginning.
<PAGE>
EXHIBIT B TO THE LEASE
[FORM OF EQUIPMENT SCHEDULE]
EQUIPMENT SCHEDULE NO.
Forming a part of Master Lease dated as of August 22, 1997 (the "Lease"),
between Lease Plan North America, Inc., as Lessor (the "Lessor"), and Quantum
Corporation, a Delaware corporation, as Lessee (the "Lessee").
1. EQUIPMENT. The Equipment leased hereunder shall be as set forth in
the schedule attached hereto as Annex A.
TOTAL PROPERTY IMPROVEMENTS COST: $____________
2. TERM. Upon and after the date of execution hereof, the Equipment
shall be subject to the terms and conditions provided herein and in the Lease
(which is incorporated herein by reference).
3. RENT. From and after the date hereof, the Basic Rent for said
Equipment during the Basic Lease Term shall be payable on the dates and in the
amounts set forth in Article III of the Lease which is incorporated herein by
reference.
4. LESSEE CONFIRMATION. Lessee hereby confirms and warrants to Lessor
that the Equipment: (a) was duly delivered to Lessee on or prior to the date
hereof at the locations specified in Section 5 hereof; (b) has been received,
inspected and determined to be in compliance with all applicable specifications
and that the Equipment is hereby accepted for all purposes of the Lease; and (c)
is a part of the "Equipment" referred to in the Lease and is taken subject to
all terms and conditions therein and herein provided.
5. LOCATION OF EQUIPMENT. The locations of the Equipment are specified
on the Schedule of Equipment attached hereto as Annex A.
6. FINANCING STATEMENTS. Annex B attached hereto specifies the location
of all UCC financing statements or other similar documents under applicable law
covering the Equipment.
<PAGE>
Date of Execution: ____________, ____
LEASE PLAN NORTH AMERICA, INC., QUANTUM
an Illinois corporation CORPORATION, a Delaware corporation
By: ______________________ By: _________________________
Name: ______________________ Name: _________________________
Title: _________________________ Title: _________________________
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<PAGE>
ANNEX A TO
EQUIPMENT SCHEDULE
<TABLE>
<CAPTION>
EQUIPMENT
Approved by _____________________________ Page No. ___ of ___ total pages
(Lessee to initial each
page)
<S> <C>
Attached Bill of Sale dated Equipment located at:
_______________, _________
______________________
and Street No.
________________ ____________ _______________ __________
Equipment Schedule No. ___. City County State Zip
</TABLE>
This location is ____ owned, _x_ leased, _x_ mortgaged.
Manufacturer and/or
Vendor Name & Description Equipment Cost
Invoice No.
See Schedule 1 Attached
-3-
<PAGE>
ANNEX B TO
EQUIPMENT SCHEDULE
FINANCING STATEMENTS COVERING
EQUIPMENT
Secured Party Statement No. Filing Date Filing Location
- ------------- ------------- ----------- ---------------
-4-
================================================================================
PARTICIPATION AGREEMENT
dated as of August 22, 1997
among
QUANTUM CORPORATION,
as Lessee
LEASE PLAN NORTH AMERICA, INC.,
as Lessor and as a Participant,
ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH,
as a Participant,
and
ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH,
as Agent
================================================================================
Specialty Storage Product Group Facilities
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1
DEFINITIONS; INTERPRETATION..............................................................................2
SECTION 2
CLOSING DATE.............................................................................................2
SECTION 3
ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES.........................................................2
SECTION 3.1 Lessor Commitment......................................................................2
SECTION 3.2 Participants' Commitments..............................................................2
SECTION 3.3 Procedures for Acquisition of the Land Interest........................................3
SECTION 3.4 Procedures for Advances................................................................3
SECTION 3.5 Allocation of Commitments..............................................................3
SECTION 3.6 Use of Commitments.....................................................................4
SECTION 3.7 Termination, Extension or Reduction of Participants' Commitments.......................4
SECTION 3.8 Interest Rates; Yield and Payment Dates................................................6
SECTION 3.9 Computation of Interest and Yield......................................................7
SECTION 3.10 Pro Rata Treatment and Payments...............................................7
SECTION 3.11. The Account...................................................................8
SECTION 3.12. Basic Rent....................................................................8
SECTION 3.13 Purchase Payments by Lessee...................................................9
SECTION 3.14 Residual Value Guarantee Amount Payment by Lessee............................10
SECTION 3.15 Sales Proceeds of Remarketing of Property....................................10
SECTION 3.16 Supplemental Rent............................................................11
SECTION 3.17 Excepted Payments............................................................11
SECTION 3.18 Distribution of Payments After Event of Default..............................11
SECTION 3.19 Other Payments...............................................................13
SECTION 3.20 Casualty and Condemnation Amounts............................................13
SECTION 3.21 Order of Application.........................................................13
SECTION 4 FEES...................................................................................................14
SECTION 4.1 Commitment Fees.......................................................................14
SECTION 4.2 Lease Arrangement Fee.................................................................14
SECTION 4.3 Administrative Fee....................................................................14
SECTION 4.4 Extension Fee.........................................................................14
SECTION 4.5 Overdue Fees..........................................................................14
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<PAGE>
SECTION 5
CERTAIN INTENTIONS OF THE PARTIES.......................................................................14
SECTION 5.1 Nature of Transaction.................................................................14
SECTION 5.2 Amounts Due Under Lease...............................................................15
SECTION 6
CONDITIONS PRECEDENT TO
ACQUISITION OF LAND INTEREST AND ADVANCES...............................................................16
SECTION 6.1 Conditions Precedent -- Documentation.................................................16
(a) Acquisition and Funding Request.......................................................16
(b) Closing Date; Operative Documents.....................................................16
(c) Environmental Certificate.............................................................17
(d) Preliminary Letter of Value...........................................................17
(e) Deed..................................................................................17
(f) Lease Supplement; Equipment Schedule..................................................17
(g) Survey and Title Insurance............................................................18
(h) Evidence of Recording and Filing......................................................18
(i) Evidence of Insurance.................................................................18
(j) Evidence of Use of Proceeds...........................................................18
(k) Taxes.................................................................................18
(l) Opinions of Counsel...................................................................18
(m) Approvals.............................................................................19
(n) Litigation............................................................................19
(o) Requirements of Law...................................................................19
(p) Responsible Officer's Certificate of the Lessee.......................................19
(q) The Lessee's Resolutions and Incumbency Certificate, etc..............................19
(r) Responsible Officer's Certificate of the Guarantor....................................20
(s) The Guarantor's Resolutions and Incumbency Certificate, etc...........................20
(t) Land Interest Acquisition Date........................................................20
(u) No Material Adverse Effect............................................................20
(v) Responsible Officer's Certificate of the Lessor.......................................20
(w) The Lessor's Resolutions and Incumbency Certificate, etc..............................20
(x) Construction Budget...................................................................21
(y) Termination of Liens..................................................................21
(z) Property Purchase Agreement Conditions................................................21
SECTION 6.2 Further Conditions Precedent..........................................................21
(a) Representations and Warranties........................................................21
(b) Performance of Covenants..............................................................22
(c) Title.................................................................................22
(d) No Default............................................................................22
SECTION 6.3 Further Condition Precedent................................................................22
(a) Appraisal.............................................................................22
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<PAGE>
SECTION 7
COMPLETION DATE CONDITIONS..............................................................................23
SECTION 7.1 Conditions............................................................................23
(a) Architect's Certificate...............................................................23
(b) Construction Completion...............................................................23
(c) Lessee Certification..................................................................23
SECTION 8
REPRESENTATIONS.........................................................................................23
SECTION 8.1 Representations of the Lessor.........................................................23
(a) Due Organization, etc.................................................................24
(b) Authorization; No Conflict............................................................24
(c) Enforceability, etc...................................................................24
(d) Litigation............................................................................24
(e) Assignment............................................................................24
(f) Defaults..............................................................................24
(g) Use of Proceeds.......................................................................24
(h) Securities Act........................................................................25
(i) Chief Place of Business...............................................................25
(j) Federal Reserve Regulations...........................................................25
(k) Investment Company Act................................................................25
(l) No Plan Assets........................................................................25
(m) Equity Source.........................................................................25
SECTION 8.2 Representations of the Participants...................................................25
(a) No Plan Assets........................................................................25
(b) Due Organization, etc.................................................................26
(c) Authorization; No Conflict............................................................26
(d) Enforceability, etc...................................................................26
(e) Litigation............................................................................26
SECTION 8.3 Representations of the Lessee.........................................................26
(a) Corporate Status......................................................................26
(b) Corporate Power and Authority.........................................................27
(c) No Violation..........................................................................27
(d) Litigation............................................................................27
(e) Governmental Approvals................................................................27
(f) Investment Company Act................................................................28
(g) Public Utility Holding Company Act....................................................28
(h) Accuracy of Information Furnished.....................................................28
(i) Taxes.................................................................................28
(j) Compliance with ERISA.................................................................28
(k) Environmental and Other Regulations...................................................28
(l) Offer of Securities, etc..............................................................29
(m) Financial Statements..................................................................29
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<PAGE>
SECTION 8.4 Representations of the Lessee With Respect to the Property on the
Land Interest Acquisition Date.................................................................30
(a) Representations.......................................................................30
(b) Property..............................................................................30
(c) Title.................................................................................31
(d) Insurance.............................................................................32
(e) Lease.................................................................................32
(f) Protection of Interests...............................................................32
(g) Flood Hazard Areas....................................................................32
(h) Conditions Precedent..................................................................32
SECTION 8.5 Representations of the Lessee With Respect to Each Advance............................32
(a) Representations.......................................................................32
(b) Improvements..........................................................................33
(c) No Liens..............................................................................33
(d) Advance...............................................................................33
(e) Lease.................................................................................33
(f) Protection of Interests...............................................................33
(g) Title Insurance Date Down Endorsement.................................................33
SECTION 9
PAYMENT OF CERTAIN EXPENSES.............................................................................34
SECTION 9.1 Transaction Expenses..................................................................34
SECTION 9.2 Brokers' Fees and Stamp Taxes.........................................................34
SECTION 9.3 Obligations...........................................................................34
SECTION 10
OTHER COVENANTS AND AGREEMENTS..........................................................................35
SECTION 10.1. Covenants of the Lessee......................................................35
(a) Financial Statements, Reports, etc....................................................35
(b) Books and Records. ...................................................................36
(c) Inspections. .........................................................................36
(d) Insurance. ...........................................................................37
(e) Governmental Charges. ................................................................37
(f) General Business Operations. .........................................................37
(g) Indebtedness. ........................................................................38
(i) Asset Dispositions. ..................................................................42
(j) Mergers, Acquisitions, Etc. ..........................................................43
(k) Investments. .........................................................................43
(l) Dividends, Redemptions, Etc. .........................................................46
(m) Change in Business. ..................................................................47
(n) Certain Indebtedness Payments, Etc. ..................................................47
(o) ERISA. ...............................................................................48
(p) Transactions With Affiliates. ........................................................48
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<PAGE>
(q) Accounting Changes. ..................................................................48
(r) Financial Covenants...................................................................48
(s) Appraisal.............................................................................49
SECTION 10.2. Cooperation with the Lessee..................................................50
SECTION 10.3. Covenants of the Lessor......................................................50
(a) Discharge of Liens....................................................................50
(b) Change of Chief Place of Business.....................................................50
SECTION 11.
PARTICIPATIONS..........................................................................................50
SECTION 11.1. Amendments; Actions on Default...............................................50
SECTION 11.2. General......................................................................52
SECTION 11.3 Conflicts....................................................................52
SECTION 11.4. Refusal to Give Consents or Fund.............................................53
SECTION 11.5. Required Repayments..........................................................54
SECTION 11.6. Indemnification..............................................................54
SECTION 11.7. Required Supplemental Payments...............................................55
SECTION 11.8. Application of Payments Received From Defaulting Participant As a
Cure For Payment Defaults......................................................................55
SECTION 11.9. Order of Application.........................................................55
SECTION 11.10. Investments Pending Dispute Resolution; Overnight Investments................55
SECTION 11.11. Agent to Exercise Lessor's Rights............................................56
SECTION 11.12. Exculpatory Provisions Regarding the Lessor..................................56
SECTION 12.
TRANSFERS OF PARTICIPANTS' INTERESTS....................................................................57
SECTION 12.1. Restrictions on and Effect of Transfer by Participants.......................57
(a) Required Notice and Effective Date....................................................57
(b) Assumption of Obligations.............................................................57
(c) Employee Benefit Plans................................................................58
(d) Representations.......................................................................58
(e) Amounts; Agent's Fee..................................................................58
(f) Applicable Law........................................................................58
(g) Effect................................................................................58
SECTION 12.2. Covenants and Agreements of Participants.....................................59
(a) Participations........................................................................59
(b) Transferee Indemnities................................................................59
SECTION 12.3. Future Participants..........................................................59
SECTION 13.
INDEMNIFICATION.........................................................................................59
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<PAGE>
SECTION 13.1. General Indemnification......................................................59
SECTION 13.2. End of Term Indemnity........................................................62
SECTION 13.3. Environmental Indemnity......................................................63
SECTION 13.4. Proceedings in Respect of Claims.............................................64
SECTION 13.5. General Impositions Indemnity................................................65
(a) Indemnification.......................................................................65
(b) Payments..............................................................................65
(c) Reports and Returns...................................................................66
(d) Income Inclusions.....................................................................66
(e) Withholding Taxes.....................................................................67
(f) Contests of Impositions...............................................................67
(g) Documentation of Withholding Status...................................................69
(h) Limitation on Tax Indemnification.....................................................69
SECTION 13.6. Funding Losses...............................................................70
SECTION 13.7. Regulation D Compensation....................................................70
SECTION 13.8. Basis for Determining Interest Rate Inadequate or Unfair.....................70
SECTION 13.9. Illegality...................................................................71
SECTION 13.10. Increased Cost and Reduced Return............................................72
SECTION 13.11. Substitution of Participant..................................................73
SECTION 13.12. Indemnity Payments in Addition to Residual Value Guarantee Amount............73
SECTION 14.
THE AGENT...............................................................................................73
SECTION 14.1. Appointment..................................................................73
SECTION 14.2. Delegation of Duties.........................................................74
SECTION 14.3. Exculpatory Provisions.......................................................74
SECTION 14.4. Reliance by Agent............................................................74
SECTION 14.5. Notice of Default............................................................75
SECTION 14.6. Non-Reliance on Agent and Other Participants.................................75
SECTION 14.7. Indemnification..............................................................75
SECTION 14.8. Agent in its Individual Capacity.............................................76
SECTION 14.9. Successor Agent..............................................................76
SECTION 15.
MISCELLANEOUS...........................................................................................76
SECTION 15.1. Survival of Agreements.......................................................76
SECTION 15.2. No Broker, etc...............................................................77
SECTION 15.3. Notices......................................................................77
SECTION 15.4. Counterparts.................................................................77
SECTION 15.5. Amendments...................................................................77
SECTION 15.6. Headings, etc................................................................78
SECTION 15.7. Parties in Interest..........................................................78
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<PAGE>
SECTION 15.8. GOVERNING LAW................................................................79
SECTION 15.9. Severability.................................................................79
SECTION 15.10. Liability Limited............................................................79
SECTION 15.11. Further Assurances...........................................................80
SECTION 15.12. Submission to Jurisdiction...................................................80
SECTION 15.13. Confidentiality..............................................................80
SECTION 15.14. WAIVER OF JURY TRIAL.........................................................81
SECTION 15.15. Usury Savings Clause.........................................................81
-vii-
<PAGE>
SCHEDULES
---------
SCHEDULE I Participants' Commitments
SCHEDULE II Pricing Grid
SCHEDULE III Notice Information and Funding Offices
SCHEDULE IV Environmental Matters
SCHEDULE V External LC Agreement Covenants
APPENDICES
----------
APPENDIX 1 Definitions and Interpretation
EXHIBITS
--------
EXHIBIT A Form of Acquisition Request
EXHIBIT B Form of Funding Request
EXHIBIT C Form of Environmental Certificate
EXHIBIT D Opinion of Special Counsel to Lessee
EXHIBIT E Opinion of Local Counsel to Lessee
EXHIBIT F Opinion of Special Counsel to Lessor
EXHIBIT G Opinion of Internal Counsel to Lessor
EXHIBIT H Form of Architect's Completion Certificate
EXHIBIT I Form of Lessee's Completion Certificate
EXHIBIT J Form of Assignment and Acceptance
EXHIBIT K Form of Participant's Letter
EXHIBIT L Assignment of Lease and Consent to Assignment
EXHIBIT M Construction Agency Agreement
EXHIBIT N Construction Agency Agreement Assignment
EXHIBIT O Guarantee
EXHIBIT P Mortgage
EXHIBIT Q Form of Compliance Certificate
EXHIBIT R Form of Subordinated Debt Terms
EXHIBIT S Form of Cash Collateral Agreement
-viii-
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of August 22, 1997 (this
"Participation Agreement"), is entered into by and among QUANTUM CORPORATION, a
Delaware corporation, as Lessee (together with its permitted successors and
assigns, the "Lessee"); LEASE PLAN NORTH AMERICA, INC., an Illinois corporation,
as Lessor (together with its permitted successors and assigns, the "Lessor") and
as a Participant; ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH, as a
Participant (together with its permitted successors and assigns and Lease Plan
North America, Inc., in its capacity as a Participant, each a "Participant" and
collectively the "Participants"); and ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as Agent (in such capacity, together with its successors
in such capacity, the "Agent") for the Participants.
PRELIMINARY STATEMENT
In accordance with the terms of this Participation Agreement, the Lease
and the other Operative Documents,
A. the Lessor contemplates purchasing certain parcels of land
designated by the Lessee located in Colorado Springs, Colorado;
B. using Advances from the Lessor, the Lessee contemplates
building, as Construction Agent, administration, manufacturing, design,
research and development and warehouse facilities on such parcels of
land for the Lessor, acquiring certain items of Equipment to be used in
connection with such Improvements and leasing, as Lessee, such
Equipment, Improvements and Land Interest from the Lessor under the
Lease; and
C. the Lessor wishes to obtain, and the Participants are
willing to provide, financing of the funding of the costs of
acquisition of such Land Interest, the construction of the Improvements
and the acquisition of such Equipment through the purchase of
Participation Interests in the Lease and the Rent.
In consideration of the mutual agreements contained in this
Participation Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
SECTION 1
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1 hereto
for all purposes hereof; and the rules of interpretation set forth in Appendix 1
hereto shall apply to this Participation Agreement.
SECTION 2
CLOSING DATE
The closing date (the "Closing Date") shall occur on the earliest date
on which all the conditions precedent thereto set forth in Sections 6.1 and 6.2
hereof shall have been satisfied or waived by the applicable parties as set
forth therein.
SECTION 3
ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES
SECTION 3.1 Lessor Commitment. Subject to the conditions and terms
hereof, the Lessor shall take the following actions at the written request of
the Lessee from time to time during the Commitment Period:
(a) make Advances (out of funds provided by the Participants)
for the purpose of financing the acquisition of the Land Interest and
the Equipment and construction of the Improvements;
(b) acquire the Land Interest and the Equipment (using funds
provided by the Participants); and
(c) lease the Property as lessor to the Lessee under the
Lease.
SECTION 3.2 Participants' Commitments. Subject to the terms and
conditions hereof, each Participant severally shall purchase a Participation
Interest in the Advances being made by the Lessor at the request of the Lessee
from time to time during the Commitment Period by making available to the Lessor
on each Funding Date an amount in immediately available funds equal to such
Participants' Commitment Percentage of the amount of the Advance being funded on
such Funding Date. Notwithstanding any other provision hereof, no Participant
shall be obligated to purchase its Participation Interest in any Advance if (i)
the amount of such purchase would exceed its Available Commitment, or (ii) if,
after giving effect to the proposed Advance, the outstanding aggregate amount of
such Participant's Participation Interest in the Advances would exceed such
Participant's Commitment. Notwithstanding the foregoing, until the conditions
precedent set forth
-2-
<PAGE>
in Section 6.3 have been satisfied, the Lessee shall not be permitted to
request, and the Participants and the Lessor shall not be obligated to fund,
Advances exceeding $38,348,000 in aggregate.
SECTION 3.3 Procedures for Acquisition of the Land Interest. The Lessee
shall give the Lessor and the Agent prior written notice not later than 10:00
a.m., San Francisco time, on the proposed Land Interest Acquisition Date,
pursuant to an Acquisition Request substantially in the form of Exhibit A (an
"Acquisition Request"), specifying with respect to such Land Interest: (i) the
proposed Land Interest Acquisition Date, (ii) the Land Interest to be acquired,
(iii) the Existing Owner of the Land Interest and the Land Interest Acquisition
Cost, and (iv) the date on which the Lessee will request the Lessor to fund the
Land Interest Acquisition Cost of such Land Interest. The Agent shall promptly
forward a copy of such Acquisition Request to each Participant.
SECTION 3.4 Procedures for Advances. With respect to each funding of an
Advance, the Lessee shall give the Lessor and the Agent prior written notice not
later than 10:00 a.m., San Francisco time, three Business Days prior to (or, in
the case of the initial Advance made on the Land Interest Acquisition Date, on
the day of) the proposed Funding Date, pursuant, in each case, to a Funding
Request substantially in the form of Exhibit B (a "Funding Request"), specifying
(i) the proposed Funding Date, (ii) the amount and purpose of the Advance
requested, (iii) the Type of Advance, (iv) the initial Interest Period for such
Advance, (v) the payee of such Advance, and (vi) the allocation of such Advance
to the respective Land Interest Acquisition Cost and Property Improvements Costs
of the Property (and pro rata portions of the related remittances from the
Participants shall likewise be deemed to be so allocated). The Agent shall
promptly forward a copy of such Funding Request to each Participant. The Lessee
shall not request more than one Funding Date during any calendar month. Each
Advance (other than an Interest Payment Advance) shall be in a minimum amount of
$1,000,000 or in amounts of $100,000 in excess thereof. Subject to the
satisfaction or waiver of the conditions precedent to such Advance set forth in
Section 6, each Participant shall purchase its Participation Interest in such
Advance by making available to the Lessor its proportionate share of such
Advance in immediately available federal funds by wire transfer to the Agent for
deposit to the Lessee's demand deposit account with the Agent not later than
12:00 noon, San Francisco time, on the applicable Funding Date. Upon (i) the
Lessee's receipt of the funds provided by the Participants with respect to an
Advance, and (ii) satisfaction or waiver of the conditions precedent to such
Advance set forth in Section 6, the Lessee shall (1) in the case of an Advance
for the acquisition of the Land Interest, pay the acquisition price for such
Land Interest to the Existing Owner, and (2) in the case of other Advances, pay
or retain as payment or reimbursement of, Property Improvements Costs, in each
case from the funds provided by the Participants for such Advance.
SECTION 3.5 Allocation of Commitments. Schedule I hereto contains an
allocation for each Participant of (i) the amount of its Commitment representing
its Tranche A Participation Interest ("Tranche A Participation Interest
Commitment"), (ii) the amount of its Commitment representing its Tranche B
Participation Interest ("Tranche B Participation Interest Commitment"), (iii)
the amount of its Commitment representing its Tranche C Participation Interest
("Tranche C Participation Interest Commitment"), (iv) the amount of its
Commitment (and allocation to its Tranche A Participation Interest Commitment,
Tranche B Participation Interest Commitment and Tranche C Participation Interest
Commitment) allocated to the 364 Day Commitment, (v) the
-3-
<PAGE>
amount of its Commitment (and allocation to its Tranche A Participation Interest
Commitment, Tranche B Participation Interest Commitment and Tranche C
Participation Interest Commitment) allocated to the Two Year Commitment, and
(vi) the percentage referred to in the definition of the term "Participation
Interest". The Lessee, the Lessor and the Participants have approved all such
allocations and percentages. Schedule I shall be amended as required to reflect
changes in the allocations set forth thereon due to the addition of additional
Participants pursuant to Section 12.1.
SECTION 3.6 Use of Commitments. (a) All remittances by each Participant
to the Lessor to fund Advances shall be allocated first, to the 364 Day
Commitment of such Participant, and second, to the Two Year Commitment of such
Participant. Unless extended as provided in this Section 3.6, the 364 Day
Commitment shall terminate on the day which is 364 days after the Effective Date
and the unused portion thereof shall not be available to the Lessor thereafter.
The Lessee shall notify the Lessor, the Agent and each Participant not less than
forty-five (45) days prior to the expiration date of the 364 Day Commitment
whether it wishes to extend the availability of the unused portion of the 364
Day Commitment to the Six Month Extension Termination Date. The availability of
the unused portion of the 364 Day Commitment shall not be extended unless the
Agent and each Participant, in its sole discretion, has notified the Lessor
within fifteen (15) days prior to such termination date that it will permit the
unused portion of its 364 Day Commitment to be extended to the Six Month
Extension Termination Date commencing on the Extension Date. The Agent and each
Participant may make such decision based upon such credit information regarding
the Lessee, interest rates, market conditions and such other factors as the
Agent and such Participant may consider relevant. The Lessor shall notify the
Lessee whether the Agent and the Participants have agreed to permit the
extension of such unused portion of the 364 Day Commitment to the Six Month
Extension Termination Date. Any portion that is so extended shall bear
Commitment Fees from and after the Extension Date at a rate applicable to the
364 Day Commitment. The parties hereto shall amend Schedule I hereto in
connection with any such extension. The Lessee shall have the right, upon not
less than three Business Days' written notice to the Agent, to reduce the 364
Day Commitment and/or the Two Year Commitment; provided, that after giving
effect to such notification, the aggregate outstanding amount of the Advances
shall not exceed the aggregate Commitments as so reduced.
(b) If the 364 Day Commitment is extended pursuant to Section
3.6(a), the Lessee shall pay to each Participant its pro rata share of the
Extension Fee on the Extension Date.
SECTION 3.7 Termination, Extension or Reduction of Participants'
Commitments. (a) The Lessor shall have the right, upon not less than three
Business Days' written notice to the Agent, to terminate the Participants'
Commitments or, from time to time, to reduce the amount of the Participants'
Commitments, provided that (i) after giving effect to such reduction, the
aggregate outstanding principal amount of the Tranche A Participation Interests
shall not exceed the aggregate Tranche A Participation Interest Commitments,
(ii) after giving effect to such reduction, the aggregate outstanding principal
amount of the Tranche B Participation Interests shall not exceed the aggregate
Tranche B Participation Interest Commitments, (iii) after giving affect to such
reduction, the aggregate outstanding equity investment of the Tranche C
Participation Interests shall not exceed the aggregate Tranche C Participation
Interest Commitments, and (iv) any such reduction shall be made pro rata among
the Participants' Commitments within each Tranche. As long as there
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<PAGE>
exists no Event of Default that has occurred and is continuing, the Lessor shall
exercise such right only as directed by the Lessee, and after the occurrence and
during the continuance of an Event of Default the Lessor shall exercise such
right only as directed by the Required Participants. In the event that, after
the occurrence and during the continuance of an Event of Default, the Lessor and
the Participants exercise such right, the Lessee may exercise its Purchase
Option under Section 20.1 of the Lease upon not less than ten (10) days' written
notice to the Lessor.
(b) The Lessee may, at any time after the first anniversary of
the Effective Date, by written request to the Lessor and Agent (which the Agent
shall promptly forward to each Participant) given not later than 90 days prior
to the then current Maturity Date, request (an "Extension Request") that the
Maturity Date be extended to the date that is one (1) year after such Maturity
Date. No later than the date (the "Extension Response Date") which is 30 days
after such request has been delivered to each of the Participants, each
Participant will notify the Lessor in writing (with a copy to the Agent and the
Lessee) whether or not it consents to such Extension Request (which consent may
be granted or denied by each Participant in its sole discretion and may be
conditioned on receipt of such financial information or other documentation as
may be specified by such Participant including without limitation satisfactory
appraisals of the Property), provided that any Participant that fails to so
advise the Lessor on or prior to the Extension Response Date shall be deemed to
have denied such Extension Request. The extension of the Maturity Date
contemplated by any Extension Request shall become effective as of the Maturity
Date then in effect (the "Extension Effective Date") on or after the Extension
Response Date on which all of the Participants (other than Non-Consenting
Participants which have been replaced by Replacement Participants in accordance
with Section 3.7(c)) shall have consented to such Extension Request; provided
that:
(A) on both the date of the Extension Request and the
Extension Effective Date, (x) each of the representations and
warranties made by the Lessee and the Lessor in or pursuant to the
Operative Documents shall be true and correct in all material respects
as if made on and as of each such date, except for representations and
warranties made as of a specific date, which shall be true and correct
in all material respects as of such date and matters waived by the
Required Participants or all of the Participants, as applicable, (y) no
Event of Default shall have occurred and be continuing, and (z) on each
of such dates the Agent shall have received a certificate of the Lessee
and the Lessor, each as to itself, as to the matters set forth in
clause (x) above and from the Lessee as to the matters set forth in
clause (y) above;
(B) on the date that is 90 days prior to the date of
the Extension Effective Date that is the fifth anniversary of the
Closing Date (and on each Extension Effective Date, if any, that is
every fifth anniversary thereafter), the Lessee shall deliver to the
Lessor and the Agent (with sufficient copies for each Participant) an
Appraisal of the Property in form and substance satisfactory to the
Lessor and the Agent; and
(C) the Agent and the Required Participants shall
have received satisfactory evidence that the Expiration Date shall,
after giving effect to any extension thereof which
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has become effective on or prior to such Extension Effective Date,
occur on the Maturity Date as so extended.
(c) The Lessee shall be permitted to replace any
Non-Consenting Participant with a replacement bank or other financial
institution (a "Replacement Participant") at any time on or prior to the date
which is 30 days after the relevant Extension Response Date; provided that (i)
such replacement does not conflict with any Requirement of Law, (ii) the
Replacement Participant shall purchase, at par, all of the Participation
Interest of such Non-Consenting Participant on or prior to the date of
replacement, (iii) the Lessee shall be liable to such Non-Consenting Participant
under Section 13 of this Agreement if any Advance (or Participation Interest
therein) shall be prepaid (or purchased) other than on the last day of the
Interest Period or Interest Periods relating thereto, (iv) the Replacement
Participant, if not already a Participant, shall be reasonably satisfactory to
the Required Participants, (v) such replacement shall be made in accordance with
the provisions of Section 12 of this Agreement (provided that the relevant
Replacement Participant (or the Lessee for the benefit of such Replacement
Participant) shall be obligated to pay the Transaction Expenses arising in
connection therewith), (vi) the Replacement Participant shall have agreed to be
subject to all of the terms and conditions of this Agreement (including the
extension of the Maturity Date contemplated by the relevant Extension Request)
and other Operative Documents, and (vii) during the continuation of an Event of
Default, the Lessee shall have the exclusive right to designate the Replacement
Participant. The Agent hereby agrees to cooperate with the Lessee in the
Lessee's efforts to arrange one or more Replacement Participants as contemplated
by this Section 3.7(c).
SECTION 3.8 Interest Rates; Yield and Payment Dates. (a) The Tranche A
Participation Interest and the Tranche B Participation Interest in each Advance
shall bear interest at a rate of interest equal to (i) the Alternate Base Rate,
or (ii) at the Lessee's election in accordance with Section 3.4 or this Section
3.8, for each day during each Interest Period with respect thereto at a rate per
annum for such Interest Period equal to the Eurodollar Rate determined for such
day plus the Applicable Margin. The Tranche A Participation Interest and the
Tranche B Participation Interest in the initial Advance shall bear interest at a
rate equal to the Alternate Base Rate until commencement of the initial Interest
Period with respect thereto. The Lessee shall give irrevocable notice to the
Agent, in accordance with the applicable provisions of Section 3.4 or this
Section 3.8, of the length of each Interest Period to be applicable to each
portion of each Advance. There shall not be more than twelve Interest Periods
outstanding under Sections 3.8(a) and (b) at any time.
(b) The equity portion of each Advance (represented by the
Tranche C Participation Interest in such Advance) shall accrue equity yield (the
"Yield") at a rate equal to (i) the Alternate Base Rate, or (ii) at the Lessee's
election in accordance with Section 3.4 or this Section 3.8, for each day during
each Interest Period with respect thereto, the Eurodollar Rate determined for
such day plus the Applicable Margin. This Tranche C Participation Interest in
the initial Advance shall accrue Yield at a rate equal to the Alternate Base
Rate until commencement of the initial Interest Period with respect thereto.
(c) If all or a portion of (i) the principal amount or equity
portion of any Advance, (ii) any interest or Yield payable thereon or (iii) any
other amount payable hereunder shall not be
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paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest at a rate per annum which is equal to
the Overdue Rate.
(d) Interest and Yield shall be payable in cash (except as
provided in paragraph (e) below) in arrears on each Scheduled Payment Date,
provided that (i) interest or Yield accruing pursuant to paragraph (c) of this
Section 3.8 shall be payable from time to time on demand and (ii) each
prepayment of Advances shall be accompanied by accrued interest and Yield to the
date of such prepayment on the amount of Advances so prepaid.
(e) On each date which is three Business Days prior to any
Scheduled Payment Date during the Construction Period, the Lessee shall be
deemed to have requested an Advance comprised of an Interest Payment Advance
pursuant to Section 3.4 and the Lessor shall be deemed to have requested a
purchase pursuant to Section 3.2 of Participation Interests in such Advance in
an amount equal to the aggregate amount of the Basic Rent due and payable on
such date with respect to accrued interest and accrued Yield on outstanding
Advances. The Funding Date with respect to any such Interest Payment Advance and
purchase of Participation Interests therein shall be the relevant Scheduled
Payment Date (provided that such Advance and the purchase of such Participation
Interests shall be subject to satisfaction of the applicable conditions
precedent set forth in Section 6) and the proceeds of such payment shall be
applied to pay such accrued interest and accrued Yield. On each such Funding
Date, the Property Cost shall be increased by an amount equal to the Basic Rent
paid on such date with respect to such Property with the proceeds of such
payment, and the Land Interest Acquisition Cost and Property Improvements Costs
shall be increased by their pro rata portions of such Advance.
SECTION 3.9 Computation of Interest and Yield. (a) Whenever it is
calculated on the basis of the Alternate Base Rate, interest and Yield shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed; and, otherwise, interest and Yield shall be calculated on
the basis of a 360-day year for the actual days elapsed. The Agent shall as soon
as practicable after the commencement of each Interest Period notify the Lessor,
the Lessee and the Participants of each determination of a Eurodollar Rate. Any
change in the interest rate or Yield rate on an Advance resulting from a change
in the Alternate Base Rate or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Agent shall as soon as practicable notify the Lessor, the Lessee
and the Participants of the effective date and the amount of each such change in
interest rate or Yield rate.
(b) Each determination of an interest rate or Yield rate by
the Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Lessor, the Lessee and the Participants in the absence of
manifest error. The Agent shall, at the request of such parties, deliver to such
parties a statement showing the quotations used by the Agent in determining any
interest rate pursuant to Section 3.9(a).
SECTION 3.10 Pro Rata Treatment and Payments. (a) Each participation in
the Advances by the Participants hereunder and each reduction of the Commitments
of the Participants shall be made pro rata among the Tranche A Participants,
Tranche B Participants and Tranche C Participants according to the respective
Commitment Percentages of each such Participant. Except as otherwise
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provided in Sections 3.11 - 3.21, each payment (including each prepayment) by
the Lessor on account of Participation Interests representing the principal
amount of or equity investment in and interest or Yield on the Advances shall be
made pro rata among the Tranche A Participants, Tranche B Participants and
Tranche C Participants according to the respective Participation Interests of
each such Participant. All payments (including prepayments) to be made by the
Lessor hereunder to the Participants with respect to their Participation
Interests, whether on account of principal, equity investment, interest, Yield
or otherwise, shall be payable to the extent received by the Lessor from or on
behalf of the Lessee and shall be made without setoff or counterclaim and shall
be made prior to 12:00 noon, San Francisco time, on the due date thereof to the
Agent, for the account of the Participants, at the Agent's office referred to in
Section 15.3 of this Agreement, in Dollars and in immediately available funds.
The Agent shall distribute such payments to the Participants promptly upon
receipt in like funds as received. If any payment hereunder (other than payments
of Participation Interests in the Advances) becomes due and payable on a day
other than a Business Day, such payment shall be extended to the next succeeding
Business Day. If any payment of Participation Interests in an Advance becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension or shortening of the due date of any payment pursuant
to the preceding two sentences, interest or Yield thereon shall be payable at
the then applicable rate during such extension or until such shortened due date,
as the case may be.
(b) Unless the Agent shall have been notified in writing by any
Participant prior to funding its Participation Interest in an Advance that such
Participant will not make its share of such Advance available to the Agent, the
Agent may assume that such Participant is making such amount available to the
Agent, and the Agent may, in reliance upon such assumption, make available to
the Lessor a corresponding amount. If such amount is not made available to the
Agent by the required time on the Funding Date therefor, such Participant,
without right of reimbursement from the Lessee to such Participant, shall pay to
the Agent, on demand, such amount with interest thereon at a rate equal to the
daily average Federal Funds Effective Rate for the period until such Participant
makes such amount immediately available to the Agent. A certificate of the Agent
submitted to any Participant with respect to any amounts owing under this
Section 3.10(b) shall be conclusive in the absence of manifest error. If such
Participant's share of such Advance is not made available to the Agent by such
Participant within three Business Days of such Funding Date, the Agent shall
also be entitled to recover such amount with interest thereon at the rate borne
by such Advance, on demand, from the Lessee, to the extent the Agent has made a
corresponding amount of the Advance to the Lessee.
SECTION 3.11 The Account. The Agent may if it so desires establish an
account (the "Account") into which the Agent shall deposit all payments,
receipts and other consideration of any kind whatsoever paid under the Lease and
received by the Agent pursuant to this Agreement, the Lease and any other
Operative Document. The Agent shall make distributions of such payments,
receipts and other consideration (and, if an Account is used, from the Account)
pursuant to the requirements of Sections 3.12 -3.21 hereof.
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SECTION 3.12 Basic Rent. (a) Each payment (or portion thereof) of Basic
Rent comprising interest or Yield on the Advances (and any payment of interest
on overdue installments of such component of Basic Rent) received by the Agent
shall be distributed by the Agent as promptly as possible (it being understood
that any payments of such component of Basic Rent received by the Agent on a
timely basis and in accordance with the provisions of the Lease shall be
distributed on the date received in the funds so received) to the Participants
pro rata in accordance with, and for application to, the portion of their
Participation Interests in such portion of Basic Rent, as well as in any overdue
interest due to such Participant (to the extent permitted by applicable law).
(b) Each payment (or portion thereof) of Basic Rent comprising
principal of, or a redemption of the equity investment in, the Advances (and any
payment of interest on overdue installments of such component of Basic Rent)
received by the Agent shall be distributed as promptly as possible (it being
understood that any payments of such component of Basic Rent received by the
Agent on a timely basis and in accordance with the provisions of the Lease shall
be distributed on the date received in the funds so received) to the
Participants pro rata in accordance with, and for application to, the portion of
their Participation Interests in such portion of Basic Rent then due each
Participant.
SECTION 3.13 Purchase Payments by Lessee. Any payment received (or
offset against the Cash Collateral) by the Agent as a result of:
(a) the purchase of the Lessor's interest in the Property in
connection with the Lessee's exercise of its Purchase Option under
Section 20.1 of the Lease, or
(b) the Lessee's compliance with its obligation to purchase
the Lessor's interest in the Property in accordance with Section 20.2
of the Lease, or
(c) the payment of the Asset Termination Value in accordance
with Sections 16.2(b), 16.3 or 16.4 of the Lease, or
(d) the Lessee failing to fulfill one or more of the
conditions to exercise of the Remarketing Option pursuant to Section
22.1 of the Lease and the Agent's receipt pursuant to the next-to-last
paragraph of Section 22.1 of the Lease of the Asset Termination Value
in accordance with Section 20.2 of the Lease,
shall be distributed by the Agent as promptly as possible (it being understood
that any such payment received by the Agent on a timely basis and in accordance
with the provisions of the Lease shall be distributed on the date on which such
funds are so received) to pay in full or redeem the Participant Balance of each
Participant and in the case that the amount so distributed shall be insufficient
to pay in full as aforesaid, then pro rata among the Participants without
priority of one over the other, in the proportion that the Participant Balance
of each bears to the aggregate of all of the Participant Balances.
(e) Notwithstanding any other provision in this Agreement, the
Lease or any other Operative Document to the contrary, the Lessee, the Agent,
the Participants and the Lessor
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agree that upon the maturity or acceleration of the Lessee's obligation to pay
the Asset Termination Value, Residual Value Guarantee Amount or Purchase Option
Price, any and all amounts of Cash Collateral that have been deposited by the
Lessee pursuant to the Cash Collateral Agreement and that have not been
withdrawn by the Lessee or offset or applied by the Lessor, the Agent or any
Participant (in accordance with the terms of the Cash Collateral Agreement) as
of such maturity or acceleration date, shall be required to be applied by the
Agent and the Lessor to satisfy the Lessee's obligation to pay the unpaid amount
of such portion of the Asset Termination Value, Purchase Option Price or
Residual Value Guarantee represented by the Cash Collateral, notwithstanding the
fact that such amounts may not then be actually available, for any reason
attributable to the Lessor, the Agent or any Participant. Such reasons include,
without limitation, any fraud or misapplication of funds by the Lessor, the
Agent or any Participant, decline in value of the Collateral or the filing by or
against the Lessor, the Agent or any Participant of any insolvency, bankruptcy,
dissolution, liquidation, reorganization or similar proceeding, but except to
the extent resulting from a proceeding involving the solvency of the Lessee).
SECTION 3.14 Residual Value Guarantee Amount Payment by Lessee. The
payment by the Lessee of the Residual Value Guarantee Amount to the Agent in
accordance with Article XXII of the Lease upon the Lessee's exercise of the
Remarketing Option shall be distributed by the Agent as promptly as possible (it
being understood that any such payment received by the Agent on a timely basis
in accordance with the provisions of the Lease shall be distributed on the date
on which such funds are so received) in the following order of priority:
first, to the Tranche A Participants for application to pay in
full the Tranche A Participation Interest Balance of each Tranche A
Participant;
second, to the Tranche B Participants for application to pay
in full the Tranche B Participation Interest Balance of each Tranche B
Participant, and in the case where the amounts so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche B Participants without priority of one Tranche B Participant
over the other in the proportion that each such Tranche B Participant's
Tranche B Participation Interest Balance bears to the aggregate Tranche
B Participation Interest Balances of all Tranche B Participants; and
third, to the Tranche C Participants for application to redeem
the Tranche C Participation Interest Balance of each Tranche C
Participant, and in the case where the amounts so distributed shall be
insufficient to fully redeem as aforesaid, then pro rata among the
Tranche C Participants without priority of one Tranche C Participant
over the other in the proportion that each such Tranche C Participant's
Tranche C Participation Interest Balance bears to the aggregate Tranche
C Participation Interest Balances of all Tranche C Participants.
SECTION 3.15 Sales Proceeds of Remarketing of Property. Any payments
received by the Agent as proceeds from the sale of the Property sold pursuant to
the Lessee's exercise of the Remarketing Option pursuant to Article XXII of the
Lease, together with any payment made by the Lessee as a result of an appraisal
pursuant to Section 13.2 of this Agreement, shall be distributed by
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the Agent as promptly as possible (it being understood that any such payment
received by the Agent on a timely basis and in accordance with the provisions of
the Lease shall be distributed on the date received) in the funds so received in
the following order of priority:
first, to the Tranche B Participants for application to pay in
full the Tranche B Participation Interest Balance of each Tranche B
Participant, and in the case where the amount so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche B Participants without priority of one Tranche B Participant
over the other in the proportion that each Tranche B Participant's
Tranche B Participation Interest Balance bears to the aggregate Tranche
B Participation Interest Balances of all Tranche B Participants;
second, to the Tranche C Participants for application to
redeem the Tranche C Participation Interest Balance of each Tranche C
Participant, and in the case where the amount so distributed shall be
insufficient to fully redeem as aforesaid, then pro rata among the
Tranche C Participants without priority of one Tranche C Participant
over the other in the proportion that each Tranche C Participant's
Tranche C Participation Interest Balance bears to the aggregate Tranche
C Participation Interest Balances of all Tranche C Participants;
third, to the Tranche A Participants for application to pay in
full the Tranche A Participation Interest Balance of each Tranche A
Participant, and in the case where the amount so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche A Participants without priority of one Tranche A Participant
over the other in the proportion that each Tranche A Participant's
Tranche A Participation Interest Balance bears to the aggregate Tranche
A Participation Interest Balances of all Tranche A Participants; and
fourth, the balance, if any, shall be promptly distributed to,
or as directed by, the Lessee.
SECTION 3.16 Supplemental Rent. All payments of Supplemental Rent
received by the Agent (excluding any amounts payable pursuant to the preceding
provisions of this Section 3) shall be distributed promptly by Agent upon
receipt thereof to the Persons entitled thereto pursuant to the Operative
Documents.
SECTION 3.17 Excepted Payments. Notwithstanding any other provision of
this Agreement or the Operative Documents, any Excepted Payment received at any
time by the Agent shall be distributed promptly to the Person entitled to
receive such Excepted Payment pursuant to the Operative Documents.
SECTION 3.18 Distribution of Payments After Event of Default. (a) All
payments received and amounts realized by the Lessor or the Agent after an Event
of Default exists, including under the Guarantee, the Deed of Trust or the Cash
Collateral Agreement, and proceeds from the sale of any of the Property,
proceeds of any amounts from any insurer or any Governmental
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Authority in connection with any Casualty or Condemnation during the
continuation of an Event of Default, or from Lessee as payment in accordance
with the Lease, including any payment received from Lessee pursuant to Section
17 of the Lease, shall, if received by Lessor, be paid to the Agent as promptly
as possible and shall be distributed by the Agent as promptly as possible (it
being understood that any such payment received by the Agent on a timely basis
and in accordance with the provisions of the Operative Documents shall be
distributed on the date received in the funds so received) in the following
order of priority:
first, so much of such payment or amount as shall be required
to reimburse the Lessor or the Agent for any tax, expense or other loss
incurred by the Lessor or the Agent (including, to the extent not
previously reimbursed, those incurred in connection with any duties of
the Agent as the Agent) and any unpaid ongoing fees of the Lessor and
the Agent shall be distributed to each of them for its own account;
second, so much of such payments or amounts as shall be
required to reimburse the then existing or prior Participants for
payments made by them to the Lessor pursuant to Section 18.1 of the
Lease (to the extent not previously reimbursed) and to pay such then
existing or prior Participants the amounts payable to them pursuant to
any expense reimbursement or indemnification provisions of the
Operative Documents shall be distributed to each such Participant
without priority of one over the other in accordance with the amount of
such payment or payments payable to each such Person;
third, in the case of a sale of the Property, receipt of Cash
Collateral or application of the Cash Collateral, in the order of
priority set forth in Section 3.15;
fourth, to the Tranche B Participants for application to pay
in full the Tranche B Participation Interest Balance of each Tranche B
Participant, and in the case where the amount so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche B Participants without priority of one Tranche B Participant
over the other in the proportion that each Tranche B Participant's
Tranche B Participation Interest Balance bears to the aggregate Tranche
B Participation Interest Balances of all Tranche B Participants:
fifth, to the Tranche C Participants for application to redeem
the Tranche C Participation Interest Balance of each Tranche C
Participant, and in the case where the amount so distributed shall be
insufficient to fully redeem as aforesaid, then pro rata among the
Tranche C Participants without priority of one Tranche C Participant
over the other in the proportion that each Tranche C Participant's
Tranche C Participation Interest Balance bears to the aggregate Tranche
C Participation Interest Balances of all Tranche C Participants;
sixth, to the Tranche A Participants for application to pay in
full the Tranche A Participation Interest Balance of each Tranche A
Participant, and in the case where the amount so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche A Participants without priority of one Tranche A Participant
over the other in
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the proportion that each Tranche A Participant's Tranche A
Participation Interest Balance bears to the aggregate Tranche A
Participation Interest Balances of all Tranche A Participants; and
seventh, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as directed
by, the Lessee.
SECTION 3.19 Other Payments. (a) Except as otherwise provided in
Sections 3.12, 3.13, 3.18 and paragraph (b) below,
(i) any payment received by the Agent for which no
provision as to the application thereof is made in the Operative
Documents or elsewhere in this Section 3, and
(ii)all payments received and amounts realized by the
Agent under the Lease or otherwise with respect to the Property, the
Deed of Trust or the Cash Collateral to the extent received or realized
at any time after indefeasible payment in full or redemption of the
Participant Balances of all of the Participants and any other amounts
due and owing to the Lessor, the Participants or the Agent,
shall be distributed forthwith by the Agent in the order of priority set forth
in Section 3.13 (in the case of any payment described in clause (i) above) or in
Section 3.18 hereof (in the case of any payment described in clause (ii) above),
except, that (i) in the case of any payment described in clause (ii) above, such
payment shall be distributed omitting clause third of such Section 3.18; and the
balance, if any (in the case of any payment described in clause (i) or (ii)
above), shall be distributed to, or as directed by, the Lessee, and (ii) any
payments received under the Guaranty shall be distributed solely to the
Participants in accordance with the priorities set forth in Section 3.18.
(b) Except as otherwise provided in Sections 3.12 and 3.13
hereof, any payment received by the Agent for which provision as to the
application thereof is made in an Operative Document but not elsewhere in this
Section 3 shall be distributed forthwith by the Agent to the Person and for the
purpose for which such payment was made in accordance with the terms of such
Operative Document.
SECTION 3.20 Casualty and Condemnation Amounts. Any amounts payable to
the Lessor as a result of a Casualty or Condemnation pursuant to Section 15.1 of
the Lease (but excluding any amounts payable pursuant to Section 16.2 of the
Lease) shall, if no Lease Event of Default exists, be paid over to Lessee for
the rebuilding or restoration of that portion of the Property to which such
Casualty or Condemnation applied, and any excess proceeds shall be paid to the
Lessee. If a Lease Event of Default exists, then during the continuance of such
Lease Event of Default, all such amounts shall be held by the Agent as Cash
Collateral and upon exercise of the Lessor's remedies hereunder shall be
distributed pursuant to Section 3.18.
SECTION 3.21 Order of Application. To the extent any payment made to
any Participant pursuant to Sections 3.13, 3.14, 3.15 or 3.16 is insufficient to
pay in full the Participant Balance of
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such Participant, then each such payment shall first be applied to its
Participation Interest in accrued interest and then to its Participation
Interest in principal of the Advances.
SECTION 4
FEES
SECTION 4.1 Commitment Fees. The Lessee shall pay to the Agent for the
account of each Participant a commitment fee (the "Commitment Fees") for the
period from and including the Closing Date to the earlier of (i) the Completion
Date or (ii) the Outside Completion Date, computed in the case of each
Participant at a rate per annum equal to the Commitment Fee Rate applicable to
the 364 Day Commitment or the Two Year Commitment, as the case may be, in each
case during the period for which payment is made, payable on each Commitment Fee
Payment Date. Commitment Fees shall be calculated on the basis of a 360 day year
for the actual days elapsed.
SECTION 4.2 Lease Arrangement Fee. The Lessee shall pay to the Arranger
the lease arrangement fee (the "Lease Arrangement Fee") referred to in, and at
such times as provided in, the Agent/Arranger Fee Letter.
SECTION 4.3 Administrative Fee. The Lessee shall pay an administrative
fee (the "Administrative Fee") to the Arranger for its own account as referred
to in, and at such times as provided in, the Agent/Arranger Fee Letter.
SECTION 4.4 Extension Fee. The Lessee shall pay the Extension Fee to
the Agent for the account of each Participant agreeing to an extension of the
364 Day Commitment if any portion of the 364 Day Commitment is extended pursuant
to Section 3.6. The Extension Fee shall be payable on the Extension Date.
SECTION 4.5 Overdue Fees. If all or a portion of any fee due hereunder
shall not be paid when due, such overdue amount shall bear interest, payable by
the Lessee on demand, at a rate per annum equal to the Overdue Rate from the
date of such nonpayment until such amount is paid in full (as well after as
before judgment).
SECTION 5
CERTAIN INTENTIONS OF THE PARTIES
SECTION 5.1 Nature of Transaction. (a) It is the intent of the parties
hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of federal, state and local
income or franchise taxes and for any other tax imposed on or measured by
income, the transaction contemplated hereby is a financing arrangement and
preserves ownership in the Property in the Lessee. Nevertheless, the Lessee
acknowledges and agrees that neither the Agent, the Lessor
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nor any Participant has made any representations or warranties to the Lessee
concerning the tax, accounting or legal characteristics of the Operative
Documents and that the Lessee has obtained and relied upon such tax, accounting
and legal advice concerning the Operative Documents as it deems appropriate.
Notwithstanding any provision of this Participation Agreement
to the contrary, the parties hereto agree and declare that: (i) the transactions
contemplated by the Lease are intended to have a dual, rather than single, form;
and (ii) all references in this Participation Agreement to the "lease" of the
Property which fail to reference such dual form do so as a matter of convenience
only and do not reflect the intent of the parties hereto as to the true form of
such arrangements. The parties hereto agree that, in accordance with their
intentions expressed herein and the substance of the transactions contemplated
hereby, Lessee (and not Lessor) shall be treated as the owner of the Property
for federal, state, and local income and property tax purposes and the Lease
shall be treated as a financing arrangement. Lessee shall be entitled to take
any deduction, credit, allowance or other reporting, filing or other tax
position consistent with such characterizations. The Lessor and the Participants
shall file any federal, state or local income tax returns, reports or other
statements in a manner which is consistent with the foregoing provisions of this
Section 5.1; provided, that the Lessor and any Participant may take a position
that is inconsistent with the Lessee's status as owner of the Property if: (x)
there has been a change in law or regulation so requiring as supported by an
opinion of counsel reasonably acceptable to the Lessee that there is not
substantial authority for such a consistent reporting position; or (y) (A) there
has been an administrative or judicial holding that the Lessee is not the owner
of the Property for such tax purposes, (B) the Lessee has no right to contest
such holding pursuant to Section 13.5 of the Participation Agreement, and (C)
the Lessee's lack of right to contest is not the result of an Indemnitee's
waiver of its right to indemnification pursuant to Section 13.5(f)(iii) of the
Participation Agreement or failure of the amount at issue to exceed the minimum
amount set forth in Section 13.5(f)(iv)(B) of the Participation Agreement.
(b) Specifically, without limiting the generality of
subsection (a) of this Section 5.1, the parties hereto intend and agree that
with respect to the nature of the transactions evidenced by the Lease in the
context of the exercise of remedies under the Operative Documents, including,
without limitation, in the case of any insolvency or receivership proceedings or
a petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee, the Lessor or any Participant or any
enforcement or collection actions, (i) the transactions evidenced by the
Operative Documents are loans made by the Lessor and the Participants as
unrelated third party lenders to the Lessee secured by the Property, (ii) the
obligations of the Lessee under the Lease to pay Basic Rent and Supplemental
Rent or Asset Termination Value in connection with any purchase of the Property
pursuant to the Lease shall be treated as payments of interest on and principal
of, respectively, loans from the Lessor and the Participants to the Lessee,
(iii) the Lease grants a security interest and mortgage or deed of trust or
lien, as the case may be, in the Property and the collateral described in the
Mortgage to the Lessor, the Agent and the Participants to secure the Lessee's
performance and payment of all amounts under the Lease and the other Operative
Documents.
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SECTION 5.2 Amounts Due Under Lease. Anything else herein or elsewhere
to the contrary notwithstanding, it is the intention of the Lessee, the Lessor,
the Participants and the Agent that: (i) the amount and timing of installments
of Basic Rent due and payable from time to time from the Lessee under the Lease
shall be equal to the aggregate payments due to the Participants in respect of
their Participation Interests on each Payment Date; (ii) if the Lessee elects
the Purchase Option or becomes obligated to purchase the Property under the
Lease, the Participation Interests, all fees and all of the interest on overdue
amounts thereon and all other obligations of the Lessee owing to the Lessor, the
Participants and the Agent shall be paid in full by the Lessee; (iii) if the
Lessee properly elects the Remarketing Option, the Lessee shall only be required
to pay to the Lessor the proceeds of the sale of the Property, the Residual
Value Guarantee Amount and any amounts due pursuant to Section 13 of this
Participation Agreement and Section 22.2 of the Lease (which aggregate amounts
may be less than the Asset Termination Value); and (iv) upon an Event of Default
resulting in an acceleration of the Lessee's obligation to purchase the Property
under the Lease, the amounts then due and payable by the Lessee under the Lease
shall include all amounts necessary to pay in full the Asset Termination Value,
plus all other amounts then due from the Lessee to the Participants, the Agent
and the Lessor under the Operative Documents.
SECTION 6
CONDITIONS PRECEDENT TO
ACQUISITION OF LAND INTEREST AND ADVANCES
SECTION 6.1 Conditions Precedent -- Documentation. The obligation of
the Lessor to acquire the Land Interest on the Land Interest Acquisition Date
and to make the Advance in respect of such Property on the Funding Date
applicable thereto, the obligation of the Lessor to make an Advance to finance
the acquisition of Equipment or the construction of any Improvements or the
funding of any Interest Payment Advance on any Funding Date, and the obligation
of each Participant to purchase its Participation Interest in, and to make
available to the Lessor its related portion of, each such Advance on such
Funding Date are subject to satisfaction or waiver of the following conditions
precedent and the conditions precedent set forth in Section 6.2 (it being
understood that the Lessor's obligation to acquire such Land Interest or to
finance such Equipment, if any, or Improvements shall not be subject to the
conditions precedent set forth in this Section 6.1 or Section 6.2 to the extent
such conditions are actions required of the Lessor) on or prior to the Closing
Date, the Land Interest Acquisition Date or such Funding Date, as the case may
be:
(a) Acquisition and Funding Request. Prior to the Land
Interest Acquisition Date or the applicable Funding Date, the Agent and the
Lessor shall have received a fully executed counterpart of the Acquisition
Request or Funding Request, as the case may be, appropriately completed by the
Lessee, in accordance with Sections 3.3 and 3.4, respectively; provided, that
this condition shall be deemed to have been satisfied in connection with an
Interest Payment Advance pursuant to Section 3.8(d) hereof.
(b) Closing Date; Operative Documents. The Closing Date shall
have occurred or shall occur simultaneously with the earlier of the initial
Funding Date or Land Interest
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Acquisition Date and each of the Operative Documents to be entered into on the
Closing Date shall have been duly authorized, executed and delivered by the
parties thereto, and shall be in full force and effect, including, without
limitation, (i) this Participation Agreement, (ii) the Lease, (iii) the Lease
Supplement; (iv) the Guarantee, (v) the Construction Agency Agreement, (vi) the
Construction Agency Agreement Assignment, (vii) the Mortgage, (viii) the
Assignment of Lease and Supplement to Assignment of Lease, (ix) the Consent to
Assignment, (x) the Assignment of Property Purchase Agreement, (xi) the Deed and
(xii) the Cash Collateral Agreement. No Default or Event of Default shall exist
thereunder and be continuing (both before and after giving effect to the
transactions contemplated by the Operative Documents), and the Lessor, the Agent
and each Participant shall each have received a fully executed copy of each of
such Operative Documents (other than the Lease and Lease Supplement, of which
the Agent shall receive the original and the Lessor and the Participants shall
receive specimens). On or prior to the Closing Date or the Land Interest
Acquisition Date, as applicable, the Operative Documents (or memoranda thereof),
any supplements thereto and any financing statements in connection therewith
required under the Uniform Commercial Code shall have been recorded, registered
and filed, if necessary, in such manner as to enable the Lessee's counsel to
render its opinion referred to in clauses l(i)(A) and (B) below.
(c) Environmental Certificate. The Agent, each Participant and
the Lessor shall have received an Environmental Certificate substantially in the
form of Exhibit C (an "Environmental Certificate") with respect to the Property,
provided that such Environmental Certificate shall be delivered not less than
five (5) Business Days prior to the Land Interest Acquisition Date and shall
have been approved by the Agent, the Required Participants and the Lessor, and
accompanied by the Environmental Audit for the Property prepared by Harding
Lawson Associates, dated August 13, 1997.
(d) Preliminary Letter of Value. On or prior to the Land
Interest Acquisition Date, the Agent, the Lessor and the Participants shall have
received a Preliminary Letter of Value of the Property prepared by the appraiser
preparing the Appraisal referred to in Section 10.1(s), which Preliminary Letter
of Value shall (i) show that the Fair Market Sales Value of the Land Interest
with respect to such Property as of the projected Completion Date shall not
exceed 25% of the Fair Market Sales Value of such Land Interest and the
Improvements to be constructed thereon in accordance with the Plans and
Specifications for Property, and (ii) show as of the projected Completion Date
the Fair Market Sales Value of such Land Interest and the Improvements to be
constructed thereon in accordance with the Plans and Specifications, and (iii)
meet the other applicable requirements set forth in clauses (i) and (ii) of the
definition of the "Appraisal" contained in Appendix 1.
(e) Deed. On or prior to the Land Interest Acquisition Date,
the Lessor shall have received a special warranty deed (the "Deed"), in
conformity with Applicable Law and appropriate for recording with the applicable
Governmental Authorities, with respect to the Land Interest (and all
Improvements located thereon), conveying fee simple title to the Land Interest
(and all Improvements located thereon) to the Lessor, subject only to Permitted
Exceptions.
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(f) Lease Supplement; Equipment Schedule. The Lessee and the
Lessor shall have delivered (i) on or prior to the Land Interest Acquisition
Date, the original counterpart of the Lease Supplement executed by the Lessee
and the Lessor to the Agent and (ii) on or prior to the applicable Funding Date,
a duly executed Equipment Schedule covering any Equipment, if any, being
acquired with the proceeds of such Advance by the Lessor, together with invoices
or appraisals in form and substance satisfactory to the Agent, the Lessor and
the Participants.
(g) Survey and Title Insurance. On or prior to the Land
Interest Acquisition Date, the Lessee shall have delivered (i) an ALTA/ACSM
(1992)(Urban) Survey of the Property, including Table A numbers 1, 2, 3, 4, 6,
8, 9, 10 and 11, certified to the Lessor, the Participants and the title company
and otherwise in form reasonably acceptable to the Participants, (ii) an ALTA
(1992) owners title insurance policy with extended coverage over the general
exceptions, insuring fee title in the Lessor to the Property, subject only to
the Permitted Exceptions, (iii) an ALTA (1992) Loan Policy insuring the Agent
that the Lien of the Mortgage is a first and primary lien in the Lessor's
interest in the Master Lease and in the fee title to the Property, subject only
to pending disbursements for construction and the Permitted Exceptions, and (iv)
an ALTA (1992) Loan Policy insuring the Agent that the Lien of the Master Lease
is a first and primary Lien in the Lessee's interest in the Property; such
policies each in an amount not less than the estimated Property Cost and to be
reasonably satisfactory to the Lessor, the Agent and the Participants with
extended coverage, access, tax parcel, survey identicality, variable rate,
future advances, usury, comprehensive, fraudulent conveyances, doing business,
mechanics liens and zoning endorsements and such other endorsements as and to
the extent available in such jurisdiction where the Property is located, if
requested by the Agent.
(h) Evidence of Recording and Filing. On or prior to the Land
Interest Acquisition Date, the Agent shall have received evidence reasonably
satisfactory to it that each of the Deed, the Lease Supplement, the Assignment
of Lease and Supplement to Assignment of Lease, the Consent to Assignment and
the Mortgage shall have been or are being recorded with the appropriate
Governmental Authorities in the order in which such documents are listed in this
clause, and the UCC Financing Statements with respect to the Property being
acquired shall have been or are being filed with the appropriate Governmental
Authorities.
(i) Evidence of Insurance. On or prior to the Land Acquisition
Date, the Agent, the Lessor and each Participant shall have received evidence of
insurance with respect to the Property required to be maintained pursuant to the
Lease, setting forth the respective coverages, limits of liability, carrier,
policy number and period of coverage.
(j) Evidence of Use of Proceeds. On or prior to the Land
Interest Acquisition Date or the applicable Funding Date, the Agent and each
Participant shall have received evidence reasonably satisfactory to the Agent
and each Participant as to the use of the proceeds of the Advance in accordance
with the provisions of Section 8.1(g), which conditions shall be satisfied by
delivery of the applicable duly executed Funding Request with respect thereto.
(k) Taxes. On or prior to the Land Interest Acquisition Date,
all taxes, fees and other charges in connection with the execution, delivery,
recording, filing and registration of the
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Operative Documents shall have been paid or provisions for such payment shall
have been made to the satisfaction of the Agent, each Participant and the
Lessor.
(l) Opinions of Counsel. On or prior to the Land Interest
Acquisition Date, (i) the Lessee shall have delivered to the Agent, each
Participant and the Lessor (A) an opinion of Wilson, Sonsini, Goodrich & Rosati,
counsel to the Lessee, as to the matters set forth in Exhibit D; and (B) an
opinion of local counsel licensed to practice in the jurisdiction where the
Property is located as to the matters set forth in Exhibit E; and (ii) the
Lessor shall have delivered to the Agent and each Participant (A) an opinion of
special counsel in the form set forth on Exhibit F; and (B) an opinion of
internal counsel to the Lessor to the effect and in the form set forth in
Exhibit G.
(m) Approvals. All necessary (or, in the reasonable opinion of
the Lessor, the Participants or the Agent or any of their respective counsel,
advisable) Governmental Actions and covenants and approvals of or by any
Governmental Authority or other Person, in each case required by any Requirement
of Law, covenant or restriction affecting the Property or the transactions
contemplated thereby to have been obtained by such date shall have been obtained
or made and be in full force and effect.
(n) Litigation. No action or proceeding shall have been
instituted, nor shall any action or proceeding be threatened, 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 performance of this Participation
Agreement, the Lease or any other Operative Document or any transaction
contemplated hereby or thereby or (ii) which is reasonably likely to have a
Material Adverse Effect.
(o) Requirements of Law. In the reasonable opinion of the
Lessor, the Participants, the Agent and their respective counsel, the
transactions contemplated by the Operative Documents do not and will not violate
any Requirement of Law and do not and will not subject the Lessor, the Agent or
any Participant to any adverse regulatory or tax prohibitions or constraints.
(p) Responsible Officer's Certificate of the Lessee. On or
prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date, the Lessor, each Participant and the Agent shall each have
received a Responsible Officer's Certificate, dated as of the Land Interest
Acquisition Date, of the Lessee stating that (i) each and every representation
and warranty of the Lessee contained in the Operative Documents to which it is a
party is true and correct on and as of the Closing Date; (ii) no Default or
Event of Default under the Lease, the Property Purchase Agreement or the
Construction Agency Agreement has occurred and is continuing; (iii) each
Operative Document 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
Document required to be performed or complied with by it on or prior to the
earlier of the initial Funding Date or the Land Interest Acquisition Date.
(q) The Lessee's Resolutions and Incumbency Certificate, etc.
On or prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date, the Lessor, each Participant and the Agent shall each have
received (i) a certificate of the Secretary or an Assistant Secretary of
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the Lessee attaching and certifying as to (A) the resolutions of the Board of
Directors of the Lessee, duly authorizing the execution, delivery and
performance by the Lessee of documents and agreements of the type represented by
each Operative Document to which it is or will be a party, (B) its articles of
incorporation and bylaws, and (C) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative Documents to which
it is a party, and (ii) a good standing certificate from the appropriate officer
of the state in which the Property is located.
(r) Responsible Officer's Certificate of the Guarantor. On or
prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date, the Lessor, each Participant and the Agent shall each have
received a Responsible Officer's Certificate, dated as of the Land Interest
Acquisition Date, of the Guarantor stating that (i) each and every
representation and warranty of the Guarantor contained in the Operative
Documents to which it is a party is true and correct on and as of the Closing
Date; (ii) no Default or Event of Default under the Guarantee has occurred and
is continuing; (iii) each Operative Document to which the Guarantor is a party
is in full force and effect with respect to it; and (iv) the Guarantor has duly
performed and complied with all covenants, agreements and conditions contained
herein or in any Operative Document required to be performed or complied with by
it on or prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date.
(s) The Guarantor's Resolutions and Incumbency Certificate,
etc. On or prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date, the Lessor, each Participant and the Agent shall each have
received a certificate of the Secretary or an Assistant Secretary of the
Guarantor attaching and certifying as to (i) the resolutions of its Board of
Directors duly authorizing the execution, delivery and performance by the
Guarantor of documents and agreements of the type represented by each Operative
Document to which it is or will be a party (ii) its articles of incorporation
and by-laws, and (iii) the incumbency and signature of persons authorized to
execute and deliver on its behalf the Operative Documents to which it is a
party.
(t) Land Interest Acquisition Date. The Land Interest
Acquisition Date shall occur on or prior to September 30, 1997.
(u) No Material Adverse Effect. As of each Funding Date, there
shall not have occurred any Material adverse change in the Lessee's, the
Guarantor's and their respective subsidiaries capital structure, ownership or
consolidated assets, liabilities, results of operations, or financial condition
taken as a whole from that set forth or contemplated in the most recent
financial statements referred to in Section 8.3(m), and no event or condition
shall have occurred that would result in a Material Adverse Effect.
(v) Responsible Officer's Certificate of the Lessor. On or
prior to the Land Interest Acquisition Date, the Lessee, the Agent and each
Participant shall have received a certificate of an authorized officer of the
Lessor, dated as of the Land Interest Acquisition Date, stating that (i) each
and every representation and warranty of the Lessor contained in the Operative
Documents to which it is a party is true and correct on and as of the Closing
Date, (ii) each Operative Document to which the Lessor is a party is in full
force and effect with respect to it, and (iii) the Lessor has duly performed and
complied with all covenants, agreements and conditions contained herein or in
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any Operative Document required to be performed or complied with by it on or
prior to the Land Interest Acquisition Date.
(w) The Lessor's Resolutions and Incumbency Certificate, etc.
On or prior to the Land Interest Acquisition Date, the Lessee, the Agent and
each Participant shall have received a certificate of the Secretary or an
Assistant Secretary of the Lessor attaching and certifying as to (i) the
resolutions of the Board of Directors duly authorizing the execution, delivery
and performance by the Lessor of documents and agreements of the type
represented by each Operative Document to which it is or will be a party, (ii)
the pertinent provisions of its by-laws and (iii) the incumbency and signature
of persons authorized to execute and deliver on its behalf the Operative
Documents to which it is a party.
(x) Construction Budget. On or prior to the Land Interest
Acquisition Date, the Lessor, the Agent and each Participant shall have received
a construction budget with respect to the Property reasonably satisfactory to
each of them.
(y) Termination of Liens. On or prior to the Land Interest
Acquisition Date, the Agent, each Participant and the Lessor shall have received
a pay-off letter from each Existing Lender, together with duly executed UCC-3
termination statements, mortgage releases and such other instruments, in form
and substance satisfactory to the Agent, each Participant and the Lessor, as
shall be necessary to terminate and satisfy all Liens created pursuant to the
Existing Financing and all other Liens except Permitted Exceptions.
(z) Property Purchase Agreement Conditions. On or prior to the
Land Interest Acquisition Date, the Lessor, the Agent and the Participants shall
have received a copy of the Property Purchase Agreement; the Property Purchase
Agreement shall be in full force and effect and shall have been validly assigned
to the Lessor pursuant to the Assignment of Property Purchase Agreement; and the
conditions to closing under the Property Purchase Agreement shall have been
satisfied to satisfaction of, or waived by, the Lessor, the Agent and the
Participants.
SECTION 6.2 Further Conditions Precedent. The obligation of the Lessor
to acquire the Land Interest on the Land Acquisition Date or to make an Advance
on any Funding Date and the obligation of each Participant to purchase its
Participation Interest in, and to make available its related portion of, such
Advance on such Funding Date are subject to satisfaction or waiver of the
following conditions precedent and to satisfaction on or before the Closing
Date, Land Interest Acquisition Date or such Funding Date of the conditions
precedent set forth in Section 6.1 (it being understood that the Lessor's
obligations to acquire the Land Interest and to make Advances to the Lessee and
each Participant's obligation to fund the purchase of its Participation Interest
in an Advance shall not be subject to the conditions precedent set forth in
Section 6.1 and this Section 6.2 to the extent such conditions are actions
required of the Lessor or such Participant):
(a) Representations and Warranties. (i) On the Closing Date,
the representations and warranties of the Lessee, the Guarantor, the Lessor and
each Participant contained herein and in each of the other Operative Documents
shall be true and correct as though made on and as of such date, except to the
extent such representations or warranties relate solely to an earlier date, in
which
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case such representations and warranties shall have been true and correct on and
as of such earlier date; and (ii) on the Land Interest Acquisition Date (if such
date occurs after the Closing Date) and each other Funding Date, the
representations and warranties of the Lessee contained herein and in each of the
Operative Documents shall be true and correct as though made on and as of such
date; in each case except to the extent such representations or warranties
relate solely to an earlier date, in which case such representations and
warranties shall have been true an correct on and as of such earlier date.
(b) Performance of Covenants. (i) On the Closing Date the
parties hereto shall have performed their respective agreements contained herein
and in the other Operative Documents to be performed by them on or prior to such
date, and (ii) on the Land Interest Acquisition Date (if such date occurs after
the Closing Date) and each other Funding Date the Lessee shall have performed
its respective agreements contained herein and in the other Operative Documents
to be performed by it on or prior to such date.
(c) Title. Title to the Property shall conform to the
representations and warranties set forth in Section 8.4(c).
(d) No Default. There shall not have occurred and be
continuing any Default or Event of Default under any of the Operative Documents,
and no Default or Event of Default under any of the Operative Documents will
have occurred after giving effect to the acquisition of the Property and/or the
making of the Advance requested by such Funding Request, as the case may be.
SECTION 6.3 Further Condition Precedent. The obligation of the Lessor
to make any Advance in respect of the Property on a Funding Date after the Land
Interest Acquisition Date, the obligation of the Lessor to make the initial
Advance to finance the acquisition of Equipment or the construction of any
Improvements or the funding of any Interest Payment Advance on any Funding Date,
and the obligation of each Participant to purchase its Participation Interest
in, and to make available to the Lessor its related portion of, each such
Advance on such Funding Date are subject to satisfaction or waiver of the
following condition precedent and the conditions precedent set forth in Section
6.1 and Section 6.2 (it being understood that the Lessor's obligation to finance
such Equipment, if any, or Improvements shall not be subject to the conditions
precedent set forth in this Section 6.3 or Section 6.1 or Section 6.2 to the
extent such conditions are actions required of the Lessor) on or prior to such
Funding Date:
(a) Appraisal. On or prior to such Funding Date, the Agent,
the Lessor and the Participants shall have received an Appraisal of that portion
of the Property not subject to the Appraisal referred to in Section 10.1(s) and
prepared by the appraiser preparing the Appraisal referred to in Section
10.1(s), which Appraisal shall (i) show that the Fair Market Sales Value of that
portion of the Land Interest with respect to such Property as of the projected
Completion Date shall not exceed 25% of the Fair Market Sales Value of such
portion of the Land Interest and the Improvements to be constructed thereon in
accordance with the Plans and Specifications for such Property, and (ii) show as
of the projected Completion Date the Fair Market Sales Value of such Land
Interest and the Improvements to be constructed thereon in accordance with the
Plans and
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Specifications, and (iii) meet the other applicable requirements set forth in
the definition of the "Appraisal" contained in Appendix 1.
If any of the conditions precedent set forth in this Section
6.3 or in Section 6.1 or Section 6.2 (if such conditions apply to subsequent
Funding Dates) shall not have been satisfied on any Funding Date subsequent to
the initial Funding Date and the Lessor and the Participants refuse to fund the
requested Advance, the Lessee may exercise its Purchase Option under Section
20.1 of the Lease upon not less than ten (10) days' written notice to the
Lessor, the Agent and the Participants.
SECTION 7
COMPLETION DATE CONDITIONS
SECTION 7.1 Conditions. The occurrence of the Completion Date shall be
subject to the fulfillment to the satisfaction of, or waiver by, the Required
Participants of the following conditions precedent:
(a) Architect's Certificate. The Lessee shall have furnished
to the Lessor and Agent a (i) certificate of the Architect (substantially in the
form of Exhibit H) dated at or about the Completion Date and stating that (a)
the Improvements have been completed substantially in accordance with the Plans
and Specifications and the Property is ready for occupancy, (b) the Property, as
so completed, complies in all material respects with all Applicable Laws, and
certifying that attached thereto are true and complete copies of an "as built"
or "record" set of the Plans and Specifications, and a plat of survey of the
Property "as built" showing all paving, driveways, fences and exterior
improvements; and (ii) a date-down endorsement to or amendment and restatement
of the title insurance policies described in Section 6.1(g).
(b) Construction Completion. The construction of the
Improvements shall have been completed substantially in accordance with the
Plans and Specifications and all Applicable Law, and such Property shall be
ready for occupancy and operation. All Fixtures, Equipment and other
Improvements contemplated under the Plans and Specifications to be incorporated
into or installed in the Property shall have been incorporated or installed free
and clear of all Liens except for Permitted Liens.
(c) Lessee Certification. The Lessee shall have furnished the
Lessor and the Agent with a certification of the Lessee (substantially in the
form of Exhibit I) as follows:
(i) The representations and warranties of the Lessee
with respect to the Property set forth in Section 8.4(b) are true and
correct as of the Completion Date. All amounts owing to third parties
for the construction of the Improvements have been paid in full.
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(ii) No changes or modifications were made to the
related Plans and Specifications after the Closing Date that have had a
Material adverse effect on the value, use or useful life of the
Property.
SECTION 8
REPRESENTATIONS
SECTION 8.1 Representations of the Lessor. The Lessor represents and
warrants to each of the other parties hereto as follows:
(a) Due Organization, etc. It is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois
and has the corporate power and authority to enter into and perform its
obligations under each of the Operative Documents to which it is or will be a
party and each other agreement, instrument and document to be executed and
delivered by it in connection with or as contemplated by each such Operative
Document to which it is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Document to which it is or will be a party has
been duly authorized by all necessary action on its part and neither the
execution and delivery thereof, nor the consummation of the transactions
contemplated thereby, nor compliance by it with any of the terms and provisions
thereof (i) does or will require any approval or consent of any trustee or
holders of any of its indebtedness or obligations, (ii) does or will contravene
any current United States or Illinois law, governmental rule or regulation,
(iii) does or will contravene or result in any breach of or constitute any
default under, or result in the creation of any Lien upon any of its property
under, its articles of incorporation or by-laws, or any indenture, mortgage,
deed of trust, conditional sales contract, credit agreement or other agreement
or instrument to which it is a party or by which it or its properties may be
bound or affected or (iv) does or will require any Governmental Action by any
Governmental Authority, except such as have been obtained on the Lessee's or the
Lessor's behalf.
(c) Enforceability, etc. Each Operative Document to which the
Lessor is or will be a party has been, or on or before the Closing Date or
applicable Funding Date or Land Interest Acquisition Date will be, duly executed
and delivered by the Lessor and each such Operative Document to which the Lessor
is a party constitutes, or upon execution and delivery will constitute, a legal,
valid and binding obligation enforceable against the Lessor in accordance with
the terms thereof, except as the same may be limited by insolvency, bankruptcy,
reorganization or other laws relating to or affecting creditors' rights or by
general equitable principles.
(d) Litigation. There is no action or proceeding pending or,
to its knowledge, threatened to which it is a party, before any Governmental
Authority that, if adversely determined, would materially and adversely affect
its ability to perform its obligations under the Operative Documents to which it
is a party, would have a material adverse effect on the financial condition of
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the Lessor or would question the validity or enforceability of any of the
Operative Documents to which it is or will become a party.
(e) Assignment. It has not assigned or transferred any of its
right, title or interest in or under the Lease except to the Agent, for the
benefit of the Participants, in accordance with this Agreement and the other
Operative Documents.
(f) Defaults. No Default or Event of Default under the
Operative Documents attributable to it has occurred and is continuing.
(g) Use of Proceeds. The proceeds of the purchase of the
Participation Interests shall be applied by the Lessor solely in accordance with
the provisions of the Operative Documents.
(h) Securities Act. Neither the Lessor nor any Person
authorized by the Lessor to act on its behalf has offered or sold any interest
in the Lease, or in any similar security relating to the Property, or in any
security the offering of which for the purposes of the Securities Act would be
deemed to be part of the same offering as the offering of the aforementioned
securities to, or solicited any offer to acquire any of the same from, any
Person other than the Agent and the Participants, and neither the Lessor nor any
Person authorized by the Lessor to act on its behalf will take any action which
would subject the issuance or sale of any interest in the Lease or the Property
to the provisions of Section 5 of the Securities Act or require the
qualification of any Operative Document under the Trust Indenture Act of 1939,
as amended.
(i) 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 Participation
Agreement and each other Operative Document are kept are located at 135 South
LaSalle Street, Chicago, Illinois 60603.
(j) Federal Reserve Regulations. The Lessor is not engaged
principally in, and does not have as one of its 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 purchase of the Participation Interests 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 Regulation G, T, U, or X of
the Board.
(k) Investment Company Act. The Lessor is not an "investment
company" or a company controlled by an "investment company" within the meaning
of the Investment Company Act.
(l) No Plan Assets. The Lessor is not acquiring its interests
in the Property with the assets of any "employee benefit plan" (as defined in
Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
defined in Section 4975(e)(1) of the Code).
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(m) Equity Source. (i) The source of its 3.50% initial minimum
equity investment in the Tranche C Participation Interest is full recourse debt
the obligee of which is ABN AMRO, the ultimate parent of the Lessor; (ii) the
Lessor will not obtain residual insurance or any other residual guarantee to
ensure recovery of its equity investment; and (iii) the Lessor will be liable
for any decline in the fair value of the residual interest and has, and is
expected to continue to have during the term of the Lease, other significant
assets, in addition to and of a value that exceeds its equity investment, that
are at risk.
SECTION 8.2 Representations of the Participants. Each Participant
represents and warrants to the Lessor, each of the other Participants and the
Lessee as follows:
(a) No Plan Assets. Such Participant is not and will not be
funding its Participation Interest hereunder, and is not performing its
obligations under the Operative Documents, with the assets of an "employee
benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I
of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code). The
advancing of any amount with respect to its Participation Interest on any
Funding Date shall constitute an affirmation by the subject Participant of the
preceding representation and warranty.
(b) Due Organization, etc. It is either (i) a duly organized
and validly existing corporation in good standing under the laws of the state of
its incorporation, or (ii) a national banking association duly organized and
validly existing under the laws of the United States or (iii) a banking
corporation duly organized and validly existing under the laws of the
jurisdiction of its organization, and, in each case, has the corporate power and
authority to execute, deliver and carry out the terms and provisions of the
Operative Documents to which it is a party.
(c) Authorization; No Conflict. The execution, delivery and
performance of each Operative Document to which it is or will be a party has
been duly authorized by all necessary action on its part and neither the
execution and delivery thereof, nor the consummation of the transactions
contemplated thereby, nor compliance by it with any of the terms and provisions
thereof (i) does or will require any approval or consent of any trustee or
holders of any of its indebtedness or obligations, (ii) does or will contravene
any current law, governmental rule or regulation of the United States or the
state or country of its organization, (iii) does or will contravene or result in
any breach of or constitute any default under, or result in the creation of any
Lien upon any of its property under, its certificate of incorporation or bylaws,
articles of association or other organizational documents or any indenture,
mortgage, deed of trust, conditional sales contract, credit agreement or other
agreement or instrument to which it is a party or by which it or its properties
may be bound or affected or (iv) does or will require any Governmental Action by
any Governmental Authority.
(d) Enforceability, etc. Each Operative Document to which it
is a party has been, or on or before the Closing Date or applicable Funding Date
or Land Interest Acquisition Date will be, duly executed and delivered by it and
each such Operative Document to which it is a party constitutes, or upon
execution and delivery will constitute, a legal, valid and binding obligation
enforceable against it in accordance with the terms thereof, except as the same
may be limited by
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insolvency, bankruptcy, reorganization or other laws relating to or affecting
creditors' rights or by general equitable principles.
(e) Litigation. There is no action or proceeding pending or,
to its knowledge, threatened to which it is or will be a party before any
Governmental Authority that is reasonably likely to be adversely determined and,
if adversely determined, would materially and adversely affect its ability to
perform its obligations under the Operative Documents to which it is a party.
SECTION 8.3 Representations of the Lessee. The Lessee represents and
warrants to each of the other parties hereto that:
(a) Corporate Status. The Lessee (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and (ii) has duly qualified and is authorized to do business and has
obtained a certificate of authority to transact business as a foreign
corporation in the States of California and Colorado and in each other
jurisdiction where the failure to so qualify is reasonably likely to be
Material.
(b) Corporate Power and Authority. The Lessee has corporate
power and authority to execute, deliver and carry out the terms and provisions
of the Operative Documents to which it is or will be a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Operative Documents to which it is or will be a party and has or will
have duly executed and delivered each Operative Document required to be executed
and delivered by it and, assuming the due authorization, execution and delivery
thereof on the part of each other party thereto, each such Operative Document
constitutes or will constitute a legal, valid and binding obligation enforceable
against it in accordance with its terms, except as the same may be limited by
insolvency, bankruptcy, reorganization or other laws relating to or affecting
the enforcement of creditors' rights or by general equitable principles.
(c) No Violation. Neither the execution, delivery and
performance by the Lessee of the Operative Documents to which it is or will be a
party nor compliance with the terms and provisions thereof, nor the consummation
by the Lessee of the transactions contemplated therein (i) will result in a
violation by the Lessee of any applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any court or governmental
instrumentality having jurisdiction over the Lessee or the Property that would
(x) adversely affect the validity or enforceability of the Operative Documents
to which the Lessee is a party, or the title to, or value or condition of, the
Property, or (y) have a Material Adverse Effect on the consolidated financial
position, business or consolidated results of operations of the Lessee, or (z)
have an adverse effect on the ability of the Lessee to perform its obligations
under the Operative Documents, (ii) will conflict with or result in any breach
under, or (other than pursuant to the Operative Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of Lessee pursuant to the terms of, any indenture,
loan agreement or other agreement for borrowed money to which the Lessee is a
party or by which it or any of its property or assets is bound or to which it
may be subject (other than Permitted Liens), or (iii) will violate any provision
of the certificate or articles of incorporation or bylaws of the Lessee.
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(d) Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Lessee, threatened (i) that are reasonably
likely to have a Material Adverse Effect or (ii) that question the validity of
the Operative Documents or the rights or remedies of the Lessor, the Agent or
the Participants with respect to the Lessee or the Property under the Operative
Documents.
(e) Governmental Approvals. No Governmental Action by any
Governmental Authority having jurisdiction over the Lessee or the Property is
required to authorize or is required in connection with (i) the execution,
delivery and performance by the Lessee of any Operative Document or (ii) the
legality, validity, binding effect or enforceability against the Lessee of any
Operative Document, except for the filing or recording of the Operative
Documents listed in Section 8.4(f) hereof with the appropriate Governmental
Authorities, all of which will have been completed on or prior to the Land
Interest Acquisition Date.
(f) Investment Company Act. The Lessee is not an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act.
(g) Public Utility Holding Company Act. The Lessee is not a
"holding company, or a "subsidiary company," or an "affiliate" of a "holding
company, or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
(h) Accuracy of Information Furnished. None of the Operative
Documents and none of the other certificates, statements or information
furnished to the Lessor, the Agent or any Participant by or on behalf of the
Lessee or any of its Subsidiaries in connection with the Operative Documents or
the transactions contemplated thereby (taken together with all such Operative
Documents, certificates, statements or information) contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood by the Lessor,
the Agent or any Participant that the projections and forecasts provided by the
Lessee are not to be viewed as facts and that actual results during the period
or periods covered by such projections and forecasts may differ from the
projected or forecasted results).
(i) Taxes. All United States federal income tax returns and
all other Material tax returns which are required to have been filed have been
or will be prepared in accordance with applicable law and filed by or on behalf
of the Lessee by the respective due dates, including extensions, and all taxes
due with respect to the Lessee pursuant to such returns or pursuant to any
assessment received by the Lessee have been or will be paid. The charges,
accruals and reserves on the books of the Lessee in respect of taxes or other
governmental charges are, in the opinion of the Lessee, adequate.
(j) Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all Material respects
with the presently applicable provisions of ERISA
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and the Code with respect to each Plan. No member of the ERISA Group has (i)
sought a waiver of the minimum funding standard under Section 412 of the Code in
respect of any Plan, (ii) failed to make any contribution or payment to any Plan
or Multiemployer Plan or in respect of any Benefit Arrangement, or made 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 under
ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other
than a liability to the PBGC for premiums under Section 4007 of ERISA.
(k) Environmental and Other Regulations. Except as set forth
in Schedule III attached hereto, the Lessee and the Property are in compliance
with all Environmental Laws relating to pollution and environmental control or
employee safety in the jurisdiction in which the Property is located and in all
other domestic jurisdictions, other than, with respect to such other
jurisdictions, those Environmental Laws the non-compliance with which would not
have a Material Adverse Effect.
(l) Offer of Securities, etc. Neither the Lessee nor the
Guarantor nor any Person authorized to act on their behalf has, directly or
indirectly, offered any interest in the Property or the Lease or any other
interest similar thereto (the sale or offer of which would be integrated with
the sale or offer of such interest in the Property or the Lease), for sale to,
or solicited any offer to acquire any of the same from, any Person other than
the Participants, the Lessor and other "accredited investors" (as defined in
Regulation D of the Securities and Exchange Commission).
(m) Financial Statements. The audited consolidated statement
of financial position of the Lessee and its consolidated Subsidiaries as of
March 31, 1997 and the related consolidated statements of income, shareholder's
equity and cash flows for the fiscal year then ended, reported on by Ernst &
Young, LLP, a copy of which has been delivered to each of the Lessor, the
Participants and the Agent, present fairly in all material respects, in
conformity with generally accepted accounting principles, the financial position
of the Lessee as of such date and its results of operations and cash flows for
such fiscal year.
(n) No Violation or Default. Neither the Lessee nor any of the
Lessee's Subsidiaries is in violation of or in default with respect to (i) any
Requirement of Law applicable to such Person or (ii) any Contractual Obligation
of such Person, where, in each case, such violation or default is reasonably
likely to have a Material Adverse Effect. Without limiting the generality of the
foregoing, neither the Lessee nor any of the Lessee's Subsidiaries (A) is in
violation of any Environmental Laws, (B) to the best of the Lessee's knowledge,
has any liability or potential liability under any Environmental Laws or (C) has
received written notice or other written communication of an investigation or is
under investigation by any Governmental Authority having jurisdiction over the
Lessee or any of the Lessee's Subsidiaries having authority to enforce
Environmental Laws, where, in each case, such violation, liability or
investigation could reasonably be expected to have a Material Adverse Effect,
nor, to the best of the Lessee's knowledge, have any Hazardous Materials been
released or disposed of on any of the properties owned by the Lessee or the
Lessee's Subsidiaries which, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect. No Event of Default or
Default has occurred and is continuing.
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(o) Title; Possession Under Leases. The Lessee and the
Lessee's Subsidiaries (i) own and have good title (without regard to minor
defects of title), or leasehold interests in, all their other respective
properties and assets which are material to the business of the Lessee and its
Subsidiaries taken as a whole as reflected in the most recent Financial
Statements delivered to the Agent (except those assets and properties disposed
of since the date of such Financial Statements in compliance with this
Agreement) and (ii) own and have good title (without regard to minor defects of
title) to, or leasehold interests in, all respective properties and assets
acquired by the Lessee and the Lessee's Subsidiaries since such date which are
material to the business of the Lessee and its Subsidiaries taken as a whole
(except those assets and properties disposed of in compliance with this
Agreement). Such assets and properties are subject to no Lien, except for
Permitted Liens.
(p) Patent and Other Rights. The Lessee and the Lessee's
Subsidiaries own or license under validly existing agreements (or could obtain
such ownership, possession or license on terms not materially adverse to the
Lessee and its Subsidiaries, taken as a whole, and under circumstances that
could not reasonably be expected to have a Material Adverse Effect), and have
the full right to license without the consent of any other Person, all patents,
licenses, trademarks, trade names, trade secrets, service marks, copyrights and
all rights with respect thereto, which are material to conduct the businesses of
the Lessee and its Subsidiaries (taken as a whole) as now conducted.
(q) Solvency, Etc. The Lessee and each of its Material
Subsidiaries is Solvent and, after the execution and delivery of the Operative
Documents and the consummation of the transactions contemplated thereby, will be
Solvent.
(r) Catastrophic Events. Neither the Lessee nor any of the
Lessee's Subsidiaries and none of their properties is affected by any fire,
explosion, strike, lockout or other labor dispute, earthquake, embargo or other
casualty that is reasonably likely to have a Material Adverse Effect. As of the
Closing Date, there are no disputes presently subject to grievance procedure,
arbitration or litigation under any of the collective bargaining agreements,
employment contracts or employee welfare or incentive plans to which the Lessee
or any of the Lessee's Subsidiaries is a party, an there are no strikes,
lockouts, work stoppages or slowdowns, or, to the best knowledge of the Lessee,
jurisdictional disputes or organizing activities occurring or threatened which
alone or in the aggregate are reasonably likely to have a Material Adverse
Effect.
SECTION 8.4 Representations of the Lessee With Respect to the Property
on the Land Interest Acquisition Date. The Lessee hereby represents and warrants
as follows:
(a) Representations. The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative Documents are true
and correct. The Construction Agent and the Lessee are in compliance in with
their respective obligations under the Operative Documents and there exists no
Default or Event of Default.
(b) Property. Such Property consists of the Land Interest on
which administration, manufacturing design and warehouse facilities will be
constructed pursuant to the Construction Agency Agreement. Such Property is
located in the State of Colorado. Such Property
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as improved in accordance with the related Plans and Specifications and the use
thereof by the Lessee and its agents, assignees, employees, invitees, lessees,
licensees, contractors and tenants will comply in all material respects with all
Requirements of Law (including, without limitation, Title III of the Americans
with Disabilities Act, all zoning and land use laws and Environmental Laws) and
Insurance Requirements, except for such Requirements of Law as the Lessee shall
be contesting in good faith by appropriate proceedings. The related Plans and
Specifications have been or will be prepared in all material respects in
accordance with applicable Requirements of Law (including, without limitation,
Title III of the Americans with Disabilities Act, applicable Environmental Laws
and building, planning, zoning and fire codes) and upon completion of the
facility in accordance with the Plans and Specifications, such facility and the
other Improvements on such Property will not encroach in any manner onto any
adjoining land (except as permitted by express written easements or as insured
by appropriate title insurance) and such facility and other Improvements will
comply in all Material respects with all applicable Requirements of Law
(including, without limitation, Title III of the Americans with Disabilities
Act, all applicable Environmental Laws and building, planning, zoning and fire
codes). Upon completion of such facility in accordance with the related Plans
and Specifications, the Improvements including, without limitation, structural
members, the plumbing, heating, air conditioning and electrical systems thereof,
and all water, sewer, electric, gas, telephone and drainage facilities will be
completed in a workmanlike manner and in accordance with the Plans and
Specifications and will be in first class working condition and fit for use as
administration, manufacturing design and warehouse facilities, and all other
utilities required to adequately service the Improvements for their intended use
are or will be available and "tapped on" and hooked up 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 Environmental Law) pending or, to
the best of the Lessee's knowledge, threatened with respect to the Lessee, its
Affiliates or such Property which adversely affects the title to, or the use,
operation or value of, the Property. As of the Land Interest Acquisition Date,
no fire or other casualty with respect to the Property shall have occurred, and
as of each other Funding Date, no fire or other casualty with respect to the
Property shall have occurred that constitutes a Significant Casualty with
respect to which the Lessee shall have delivered a Termination Notice under
Section 16.1 of the Lease. The Property has or will have available all material
services of public facilities and other utilities necessary for use and
operation of such facility and the other Improvements for their primary intended
purposes, including, without limitation, adequate water, gas and electrical
supply, storm and sanitary sewerage facilities, telephone, other required public
utilities and means of access to such facility from publicly dedicated streets
and public highways for pedestrians and motor vehicles. All utilities serving
such Property, or proposed to serve such Property in accordance with the related
Plans and Specifications, are located in, and vehicular access to the
Improvements on such Property is provided by, either public rights-of-way
abutting such Property or Appurtenant Rights. All material 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 and dedication, required
for (x) the use, treatment, storage, transport, disposal or disposition of any
Hazardous Substance on, at, under or from such Property during the construction
of the Improvements thereon, and (y) construction of such Improvements in
accordance with the related Plans and Specifications and the Construction Agency
Agreement have either been obtained from the appropriate Governmental
Authorities having jurisdiction or from private parties,
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as the case may be, or will be obtained from the appropriate Governmental
Authorities having jurisdiction or from private parties, as the case may be,
prior to commencing any such construction or use and operation, as applicable
and will in each case be maintained by the Lessee during the periods for which
they are required by Applicable Law or such Governmental Authorities.
(c) Title. The Deed providing for the acquisition of the
Property is sufficient to convey title to the Property in fee simple, subject
only to Permitted Exceptions. Upon conveyance of the Deed on the Land Interest
Acquisition Date, the Lessor will own fee simple title in the Land Interest and
any Improvements and will have the right to grant the Mortgage on the Property.
The Lessor will at all times during the Term have good title to all Equipment
wherever located and to any Improvements.
(d) Insurance. The Lessee has obtained insurance coverage
covering the Property which meets the requirements of Article XIV of the Lease,
and such coverage is in full force and effect.
(e) Lease. Upon the execution and delivery of the Lease
Supplement to the Lease, (i) the Lessee will have unconditionally accepted the
Property and will be bound by the terms of the Lease Supplement and will have a
valid leasehold interest in the Property, subject only to the Permitted
Exceptions; (ii) the Lessee's obligation to pay Rent will be an independent
covenant and no right of deduction or offset will exist with respect to any Rent
or other sums payable under the Lease; and (iii) no Rent under the Lease will
have been prepaid and the Lessee will have no right to prepay the Rent, except
as specifically set forth therein.
(f) Protection of Interests. (i) On the Land Interest
Acquisition Date, the Lease Supplement, the Assignment of Lease, the Supplement
to Assignment of Lease, the Consent to Assignment and the Mortgage are each in a
form sufficient, and have been recorded in all recording offices necessary, to
grant perfected first priority liens on the Property to the Agent or the Lessor,
as the case may be, (ii) the Agent Financing Statements are each in a form
sufficient, and have been filed in all filing offices necessary, to create a
valid and perfected first priority security interest in the Lessor's interest in
all Equipment, if any, to be located on the Property and the Improvements; and
(iii) the Lessor Financing Statements are each in a form sufficient, and have
been filed in all filing offices necessary, to perfect the Lessor's interest
under the Lease to the extent the Lease is a security agreement.
(g) Flood Hazard Areas. No portion of the Property is located
in an area identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, or if any portion of 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 the Property or such portion thereof in accordance with
Section 14.2(b) of the Lease and in accordance with the National Flood Insurance
Act of 1968, as amended.
(h) Conditions Precedent. All conditions precedent contained
in this Agreement and in the other Operative Documents relating to the
acquisition and leasing of the Property by the Lessor have been satisfied in
full or waived.
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SECTION 8.5 Representations of the Lessee With Respect to Each Advance.
The Lessee hereby represents and warrants as of each Funding Date on which an
Advance is made as follows:
(a) Representations. The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative Documents
(including the representations and warranties set forth in Sections 8.3 and 8.4)
are true and correct in all Material respects on and as of such Funding Date,
except to the extent such representations or warranties relate solely to an
earlier date, in which case such representations and warranties shall have been
true and correct in all Material respects on and as of such earlier date. The
Construction Agent and the Lessee are in compliance in all Material respects
with their respective obligations under the Operative Documents and there exists
no Default or Event of Default which is continuing. No Default or Event of
Default will occur as a result of, or after giving effect to, the Advance
requested by the Acquisition Request or the Funding Request on such date.
(b) Improvements. Construction of the Improvements to date has
been performed in a good and workmanlike manner, substantially in accordance
with the Plans and Specifications and in compliance with all Insurance
Requirements and Requirements of Law.
(c) No Liens. There have been no Liens against the Property
since the recordation of the Deed, the Lease Supplement, the Assignment of
Lease, the Consent to Assignment or the Mortgage other than Permitted Exceptions
and Liens that have been removed or bonded by or on behalf of the Lessee to the
satisfaction of the Lessor and the Agent. The Participation Interests funding
such Advance are secured by the Lien of the Mortgage.
(d) Advance. The amount of the Advance requested represents
amounts owing in respect of the acquisition price of the Land Interest or
amounts that the Lessee reasonably believes will be due in the sixty (60) days
following such Advance from the Lessee to third parties in respect of Property
Improvements Costs, or amounts paid by the Lessee to third parties in respect of
Property Costs for which the Lessee has not previously been reimbursed by an
Advance. The conditions precedent to such Advance and the related remittances by
the Participants with respect thereto set forth in Section 6 have been
satisfied.
(e) Lease. Upon the execution and delivery of each Equipment
Schedule to the Lease, the Lessee will have unconditionally accepted the
Equipment, if any, subject to the Lease Supplement and will have good and
marketable title to a valid and subsisting leasehold interest in such Equipment,
subject only to Permitted Exceptions.
(f) Protection of Interests. On each Funding Date for the
acquisition of Equipment, (i) the Lease Supplement, the applicable Equipment
Schedule and the Mortgage are each a form sufficient to grant perfected Liens on
the Lessee's and the Lessor's interests, respectively, in the Equipment to the
Lessor and Agent, respectively, (ii) the Agent Financing Statements are each in
a form sufficient, and have been filed in all filing offices necessary, to
create a valid and perfected first priority security interest in such interest
in such Equipment, and (iii) the Lessor Financing Statements are each in a form
sufficient, and have been filed in all filing offices necessary, to perfect
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the Lessor's interest in such Equipment under the Lease to the extent the Lease
is a security agreement.
(g) Title Insurance Date Down Endorsement. Prior to each
Advance during the Construction Period and prior to an Advance following the
Construction Period for Property Improvement Costs to which a mechanics' lien
could take priority over the lien of the Mortgage or the lien of the Lease, the
Lessee shall furnish the Lessor at the Lessee's expense an endorsement or other
coverage reasonably acceptable to the Agent from the title insurance company
issuing the policies pursuant to Section 6.1, insuring the Lessor and the Agent
that (i) all mechanics' or similar liens and claims for such liens which could
arise from that part of the Property Improvements Costs previously paid for, if
any, or to be paid for with the then proposed Advance, have been waived and (ii)
there has not been filed with respect to all or any parts of the Land Interest
and Improvements any mechanics' or similar liens or claims of such liens that
are not discharged of record, or insured over by the title insurance company, in
respect of any part of the Land Interest and Improvements.
SECTION 9
PAYMENT OF CERTAIN EXPENSES
The Lessee agrees, for the benefit of the Lessor, the Agent
and the Participants, that:
SECTION 9.1 Transaction Expenses. (a) The Lessee shall pay, or cause to
be paid, from time to time all Transaction Expenses in respect of the
transactions consummated on the Closing Date, the Land Interest Acquisition Date
or any Funding Date, it being understood and agreed that neither the Agent, the
Lessor nor any Participant shall be required to advance any Transaction Expenses
in connection with the closing. Such Transaction Expenses and the Lease
Arrangement Fee may be added to the Property Cost to the extent supported by the
Appraisal and agreed by the Agent and the Participants.
(b) The Lessee shall pay or cause to be paid (i) all
Transaction Expenses of the Lessor, (ii) the Commitment Fees, (iii) the Lease
Arrangement Fee, (iv) the Administrative Fee, (v) all Transaction Expenses
reasonably incurred by the Lessee, the Agent, ABN AMRO or the Lessor in entering
into any future amendments or supplements with respect to any of the Operative
Documents, whether or not such amendments or supplements are ultimately entered
into, or giving or withholding of waivers or consents hereto or thereto, in each
case (except after the occurrence of an Event of Default) which have been
requested by or approved by the Lessee, (vi) all Transaction Expenses incurred
by the Lessor, the Lessee, ABN AMRO or the Agent in connection with any purchase
of the Property by the Lessee or other Person pursuant to Articles XVI, XVII, XX
or XXII of the Lease, and (vii) all Transaction Expenses incurred by any of the
other parties hereto in respect of enforcement of any of their rights or
remedies against the Lessee in respect of the Operative Documents.
SECTION 9.2 Brokers' Fees and Stamp Taxes. The Lessee shall pay or
cause to be paid any brokers' fees and any and all stamp, transfer and other
similar taxes, fees and excises, if any,
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including any interest and penalties, which are payable in connection with the
transactions contemplated by this Participation Agreement and the other
Operative Documents.
SECTION 9.3 Obligations. The Lessee shall pay, on or before the due
date thereof, all costs, expenses and other amounts required to be paid by the
Mortgage and the Assignment of Lease.
SECTION 10
OTHER COVENANTS AND AGREEMENTS
SECTION 10.1. Covenants of the Lessee. The Lessee hereby agrees that so
long as this Participation Agreement is in effect:
(a) Financial Statements, Reports, etc. The Lessee shall
furnish to the Agent (and the Agent shall promptly thereupon furnish to
each Participant) the following, each in such form and such detail as
the Agent shall reasonably request:
(i) As soon as available and in no event later than
forty-five (50) days after the last day of each fiscal quarter
of the Lessee which is not a fiscal year end, a copy of the
unaudited Financial Statements of the Lessee for such quarter
and for the fiscal year to date (excluding statements of
shareholders' equity), certified by an Executive Officer of
the Lessee to present fairly the financial condition, results
of operations and other information reflected therein and to
have been prepared in accordance with GAAP (subject to normal
year-end audit adjustments);
(ii) As soon as available and in no event later than
ninety (105) days after the close of each fiscal year of the
Lessee, (A) copies of the audited consolidated Financial
Statements of the Lessee for such fiscal year, audited by a
nationally recognized accounting firm and (B) copies of the
unqualified opinions (or qualified opinions reasonably
acceptable to the Agent);
(iii) Contemporaneously with the quarterly and year-end
Financial Statements required by the foregoing clauses (i) and
(ii), (A) a certificate of an Executive Officer of the Lessee
in the form of Exhibit Q, appropriately completed, together
with such financial computations as the Agent may reasonably
request to determine compliance with the terms of this
Agreement (a "Compliance Certificate") and (B) management's
discussion of the Lessee's operations for the period covered
by such Financial Statements in the form supplied to the
Lessee's stockholders, including a comparison with the
Lessee's operations for the corresponding quarter in the
immediately preceding fiscal year or with the immediately
preceding fiscal year, as the case may be, as set forth in the
Lessee's 10-K and 10-Q reports filed by the Lessee or any of
its Subsidiaries with the Securities and Exchange Commission;
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(iv) As soon as possible and in no event later than five
(5) Business Days after any Executive Officer of the Lessee or
any Vice President of Human Resources of the Lessee knows of
the occurrence or existence of (A) any Reportable Event under
any Employee Benefit Plan or Multiemployer Plan, (B) any
litigation, suits or claims against the Lessee or its
Subsidiaries involving claimed monetary damages payable by the
Lessee or any of its Subsidiaries of $25,000,000 or more not
covered by insurance, (C) any other event or condition which
is reasonably likely to have a Material Adverse Effect, or (D)
any Default or Event of Default; the statement of an Executive
Officer of the Lessee setting forth details of such event,
condition, Default or Event of Default and the action which
the Lessee proposes to take with respect thereto;
(v) As soon as available and in no event later than five
(5) Business Days after they are sent, made available or
filed, copies of (A) all registration statements filed on
forms S-1, S-2, S-3 or S-4 and 8-K, 10-K and 10-Q reports and
such additional material reports filed by the Lessee or any of
its Subsidiaries with any securities exchange or the
Securities and Exchange Commission; (B) all reports, proxy
statements and financial statements sent or made available by
the Lessee or any of its Subsidiaries to its public security
holders generally; and (C) all press releases and other
similar public statements concerning any material developments
in the business of the Lessee or any of the Lessee's
Subsidiaries made available by the Lessee or any of the
Lessee's Subsidiaries to the public generally; and
(vi) Such other certificates, opinions, statements,
documents and information relating to the operations or
condition (financial or otherwise) of the Lessee or any of its
Subsidiaries, and compliance by the Lessee with the terms of
this Agreement and the other Operative Documents as any
Participant through the Agent may from time to time reasonably
request.
Notwithstanding the foregoing, it is understood and agreed that to the
extent the Lessee files Forms 10-K and 10-Q (or any successor forms)
with the Securities and Exchange Commission (or any successor agency)
and such forms are required to contain the same information as required
by clauses (i), (ii) and (iii) (B) of Section 10.1(a), the Lessee may
deliver copies of such forms with respect to the relevant time periods
in lieu of the deliveries specified in clauses (i), (ii) and (iii) (B)
of Section 10.1(a) when such reports are required to be filed with the
Securities and Exchange Commission.
(b) Books and Records. The Lessee and its Subsidiaries shall
at all times keep proper books of record and account in accordance with
good business practices and GAAP (and, in the case of Subsidiaries
other than Domestic Subsidiaries, local accounting rules or GAAP to the
extent required).
(c) Inspections. The Lessee and its Subsidiaries shall permit
personnel of the Agent and, if no Default or Event of Default has
occurred and is continuing, with the consent of the Lessee (which
consent shall not be unreasonably withheld or delayed; provided that
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the Lessee's consent shall not be required with respect to an
inspection of the Property permitted under Section 27.1 of the Lease),
any Person designated by the Agent, upon reasonable notice and during
normal business hours, to visit and inspect any of the properties and
offices of the Lessee and its Subsidiaries, to examine the books and
records of the Lessee and its Subsidiaries and make copies thereof and
to discuss the affairs, finances and accounts of the Lessee and its
Subsidiaries with, and to be advised as to the same by, their officers,
auditors and accountants, all at such times and intervals as the Agent
may reasonably request. Notwithstanding any provision of this Agreement
to the contrary, so long as no Default or Event of Default shall have
occurred and be continuing, neither the Lessee nor any of its
Subsidiaries shall be required to disclose, permit the inspection,
examination, photocopying or making extracts of, or discuss, any
document, information or other matter that (i) constitutes
non-financial trade secrets or non-financial proprietary information or
(ii) the disclosure of which to any Participant, or their designated
representative, is then prohibited by law or any agreement binding on
the Lessee or any of its Subsidiaries that was not entered into by the
Lessee or any such Subsidiary for the purpose of concealing information
from the Participants.
(d) Insurance. The Lessee and its Subsidiaries shall:
(i) Carry and maintain insurance of the types and in the
amounts customarily carried from time to time during the Lease
Term by others engaged in substantially the same business as
such Person and operating in the same geographic area as such
Person, including, but not limited to, fire, public liability,
property damage and worker's compensation; and
(ii) Deliver to the Agent from time to time, as the Agent
may request, schedules setting forth all insurance then in
effect.
(iii) Notwithstanding clauses (i) and (ii) above, the
Lessee and any of its Subsidiaries may self-insure in lieu of
maintaining all or a portion of the insurance required to be
maintained pursuant to this Section 10.1(d) to the extent
determined by the Lessee's Board of Directors to be
appropriate and in the best interests of the Lessee and its
Subsidiaries taken as a whole and except to the extent
provided in Article XV of the Lease with respect to the
Property.
(e) Governmental Charges. The Lessee and its Subsidiaries
shall promptly pay and discharge when due all taxes and other
Governmental Charges prior to the date upon which penalties accrue
thereon which, if unpaid, are reasonably likely to have a Material
Adverse Effect, except such taxes and other Governmental Charges as may
in good faith be contested or disputed, or for which arrangements for
deferred payment have been made, provided that in each such case
appropriate reserves are maintained in accordance with GAAP, and except
as otherwise provided in Section 13 hereof or Article XIII of the
Lease.
(f) General Business Operations. Each of the Lessee and its
Subsidiaries shall, subject to the provisions of the Lease and the
Operative Documents (i) subject to Section
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10.1(i) and 10.1(j), preserve and maintain its corporate existence and
all of its material rights, privileges and franchises reasonably
necessary to the conduct of its business, (ii) conduct its business
activities in compliance with all Applicable Law and Contractual
Obligations applicable to such Person, the violation of which is
reasonably likely to have a Material Adverse Effect, (iii) keep all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted in accordance with prudent
business practices, and (iv) pay and perform all Contractual
Obligations as and when due (except to the extent disputed in good
faith by the Lessee or the appropriate Subsidiary and where non-payment
would not be reasonably expected to have a Material Adverse Effect).
The Lessee shall maintain its chief executive office and principal
place of business in the United States and shall not relocate its chief
executive office or principal place of business outside of California
without providing the Agent with prior written notice.
(g) Indebtedness. Neither the Lessee nor any of its
Subsidiaries shall create, incur, assume or permit to exist any
Indebtedness or any Guaranty Obligations except for the following
("Permitted Indebtedness"):
(i) The obligations of the Lessee under the Operative
Documents and the Credit Documents;
(ii) Indebtedness listed in the Disclosure Letter
existing on June 6, 1997;
(iii) Indebtedness of the Lessee and its Subsidiaries
under loans and Capital Leases incurred by the Lessee or any
of its Subsidiaries to finance the acquisition by such Person
of real property, fixtures, equipment or other fixed assets
provided that in each case, (A) such Indebtedness is incurred
by such Person at the time of, or not later than six (6)
months after, the acquisition by such Person of the property
so financed and (B) such Indebtedness does not exceed the
purchase price of the property so financed;
(iv) Indebtedness arising from the endorsement of
instruments for collection in the ordinary course of the
Lessee's or a Subsidiary's business;
(v) Indebtedness of the Lessee under the Convertible
Subordinated Debentures;
(vi) Indebtedness of the Lessee under the External LC
Agreement, provided that (A) the only credit extended to the
Lessee pursuant to the External LC Agreement consists of
letters of credit issued for the benefit of MKE or its
affiliates to secure obligations owed by the Lessee to the
beneficiaries for the purchase price of inventory; (B) the sum
at any time of the aggregate face amount of all letters of
credit issued and outstanding under the External LC Agreement
plus the aggregate amount of all unreimbursed drawings under
such letters of credit does not exceed eighty-five million
Dollars ($85,000,000); (C) the Indebtedness of the Lessee
under the External LC Agreement is at all times either
unsecured or secured by Liens
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permitted pursuant to clause (xvii) of Section 10.1(h); and
(D) the financial covenants of the Lessee set forth in the
External LC Agreement are less restrictive than the financial
covenants set forth on Schedule V;
(vii) Subordinated Debt of the Lessee to any Person,
provided that (A) such Indebtedness contains subordination
provisions no less favorable to the Agents and the
Participants than those set forth on Exhibit R or as otherwise
approved by the Required Participants; and (B) the aggregate
principal amount of all Subordinated Debt of the Lessee
outstanding (including the Convertible Subordinated
Debentures), measured at the time of issuance of such
Subordinated Debt, does not exceed $700,000,000;
(viii) Indebtedness of the type described in clause (h)
of the definition of "Indebtedness" or clause (iii) of the
definition of "Contingent Obligations";
(ix) Indebtedness of the Lessee and its Subsidiaries
with respect to surety, appeal, indemnity, performance or
other similar bonds in the ordinary course of business;
(x) Indebtedness of the Lessee and its Subsidiaries
under initial or successive refinancings of any Indebtedness
permitted by clause (i), (ii), (iii) or (vi) above, provided
that the principal amount of any such refinancing does not
exceed the principal amount of the Indebtedness being
refinanced;
(xi) Indebtedness of the Lessee and its Subsidiaries for
trade accounts payable, provided that (A) such accounts arise
in the ordinary course of business and (B) no material part of
such account is more than ninety (90) days past due (unless
subject to a bona fide dispute and for which adequate reserves
have been established);
(xii) Indebtedness of the Lessee and its Subsidiaries
for expense accruals in the ordinary course of business;
(xiii) Guaranty Obligations or Contingent Obligations of
the Lessee in respect of Permitted Indebtedness of its
Subsidiaries or Guaranty Obligations or Contingent Obligations
of any Subsidiary of the Lessee of the Permitted Indebtedness
of one or more other Subsidiaries of the Lessee or of
Permitted Indebtedness of the Lessee;
(xiv) Indebtedness of the Lessee to any of the Lessee's
Subsidiaries, Indebtedness of any of the Lessee's Subsidiaries
to the Lessee or Indebtedness of any of the Lessee's
Subsidiaries to any of the Lessee's other Subsidiaries;
(xv) Indebtedness of the Lessee and its Subsidiaries in
respect of any Permitted Receivables Facility;
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(xvi) Indebtedness of the Lessee and its Subsidiaries
under Synthetic Leases;
(xvii) Indebtedness of the Lessee and its Subsidiaries
incurred in connection with MKE-Quantum and constituting a
Permitted Investment; and
(xviii) Indebtedness of the Lessee and its Subsidiaries
not otherwise permitted hereunder, provided that the aggregate
principal amount of all such Indebtedness does not exceed at
any time ten percent (10%) of the total assets of the Lessee
and its Subsidiaries determined as of the end of the fiscal
quarter immediately preceding the date of determination.
(h) Liens. Neither the Lessee nor any of its Subsidiaries
shall create, incur, assume or permit to exist any Lien on or with
respect to any of its assets or property of any character, whether now
owned or hereafter acquired, except for the following ("Permitted
Liens"):
(i) Liens in favor of (x) any of the Agent or any
Participant securing the obligations of the Lessee under the
Operative Documents and (y) any of the Administrative Agent or
any Bank securing the Credit Agreement Obligations;
(ii) Liens listed in the Disclosure Letter existing on
June 6, 1997;
(iii) Liens for taxes or other governmental charges not at
the time delinquent or thereafter payable without penalty or
being contested in good faith, provided that adequate reserves
for the payment thereof have been established in accordance
with GAAP;
(iv) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords and other similar Liens
imposed by law incurred in the ordinary course of business for
sums (A) not overdue or (B) being contested in good faith
provided that adequate reserves for the payment thereof have
been established in accordance with GAAP;
(v) Deposits under workers' compensation, unemployment
insurance and social security laws or to secure the
performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, or to secure statutory
obligations of surety or appeal bonds or to secure indemnity,
performance or other similar bonds in the ordinary course of
business;
(vi) Zoning restrictions, easements, rights-of-way,
title irregularities and other similar encumbrances, which
alone or in the aggregate are not substantial in amount and do
not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business
of the Lessee or any of its Subsidiaries;
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(vii) Liens securing Indebtedness which constitutes
Permitted Indebtedness under clause (iii) of Section 10.1(g)
provided that, in each case, such Lien (A) covers only those
assets, the acquisition of which was financed by such
Permitted Indebtedness (together with accessions, additions,
replacements and proceeds thereof), and (B) secures only such
Permitted Indebtedness and any related obligations of the
Lessee or any of its Subsidiaries;
(viii) Liens on the property or assets of any Subsidiary
of the Lessee in favor of the Lessee or any other Subsidiary
of the Lessee;
(ix) Banker's Liens and similar Liens (including set-off
rights) in respect of bank deposits;
(x) Liens incurred in connection with the extension,
renewal or refinancing of the Indebtedness secured by the
Liens described in clause (ii) or (vii) above, provided that
any extension, renewal or replacement Lien (A) is limited to
the property covered by the terms of the existing Lien and (B)
secures Indebtedness which is no greater in amount and has
material terms no less favorable to the Participants than the
Indebtedness secured by the existing Lien;
(xi) Liens on property or assets of any corporation which
becomes a Subsidiary of the Lessee after the date of this
Agreement, provided that (A) such Liens exist at the time the
stock of such corporation is acquired by the Lessee and (B)
such Liens were not created in contemplation of such
acquisition by the Lessee;
(xii) Judgement Liens, provided that such Liens do not
have a value in excess of $10,000,000 or such Liens are
released, stayed, vacated or otherwise dismissed within thirty
(30) days after issue or levy and, if so stayed, such stay is
not thereafter removed;
(xiii) Rights of vendors or lessors under conditional sale
agreements, Capital Leases or other title retention
agreements, provided that, in each case, (A) such rights
secure or otherwise relate to Permitted Indebtedness, (B) such
rights do not extend to any property other than property
acquired with the proceeds of such Permitted Indebtedness
(together with accessions, additions, replacements and
proceeds thereof) and (C) such rights do not secure any
Indebtedness other than such Permitted Indebtedness;
(xiv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
and in connection with the importation of goods in the
ordinary course of the Lessee's and its Subsidiaries'
businesses;
(xv) Liens on insurance proceeds in favor of insurance
companies with respect to the financing of insurance premiums;
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(xvi) Liens in respect of any Permitted Receivables
Facility;
(xvii) Liens on cash or Cash Equivalents securing
reimbursement obligations of the Lessee under letters of
credit (other than any Letters of Credit) in an aggregate
amount of all such cash and Cash Equivalents does not exceed
$100,000,000;
(xviii) Liens securing Indebtedness and any related
obligations of the Lessee or any of its Subsidiaries which
constitutes Permitted Indebtedness under clause (xvi) of
Section 10.1(g) (or refinancings of such Indebtedness under
clause (x) of Section 10.1(g)), provided that such Lien covers
only those assets subject to such Synthetic Leases (together
with accessions, additions, replacements and proceeds
thereof);
(xix) Liens securing any obligations of the Lessee or any
of its Subsidiaries under the Prior Credit Agreement or any
security agreements, pledge agreements, charges, debentures,
agreements, documents, certificates or undertakings entered
into in connection therewith or pursuant thereto; provided
that the Lessee, its Subsidiaries and the Agents and the banks
that are a party to the Prior Credit Agreement shall use their
best efforts to terminate any such Liens within three (3)
months of June 6, 1997;
(xx) Liens incurred in connection with leases, subleases,
licenses and sublicenses granted to Persons not interfering in
any material respect with the business of the Lessee and its
Subsidiaries and any interest or title of the Lessee or
licensee under any such leases, subleases, licenses or
sublicenses;
(xxi) Liens securing Indebtedness and any related
obligations which constitute Permitted Indebtedness under
clause (xvii) of Section 10.1(g) or Investments constituting
Permitted Investments under clause (ix) of Section 10.1(j);
(xxiii) Liens on the property or assets of the Lessee and
its Subsidiaries not otherwise permitted hereunder, provided
that (A) the aggregate principal amount of all Indebtedness
secured by such Liens does not exceed at any time ten percent
(10%) of the total assets of the Lessee and its Subsidiaries
determined as of the end of the fiscal quarter immediately
preceding the date of determination and (B) such Liens do not
encumber current assets of the Lessee and its Subsidiaries in
excess of $50,000,000.
(i) Asset Dispositions. Neither the Lessee nor any of its
Subsidiaries shall Transfer all or any of its assets or property,
whether now owned or hereafter acquired, except for the following:
(i) Transfers by the Lessee and its Subsidiaries in the
ordinary course of their businesses;
(ii) Transfers of surplus, damaged, worn or obsolete
assets or properties or Transfers of other assets or
properties which are promptly being replaced;
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(iii) Transfers of assets on commercially reasonable terms
of account receivables in connection with a Permitted
Receivables Facility by the Lessee and its Subsidiaries (it
being understood that any determination as to whether a
particular Transfer is on commercially reasonable terms shall
take into consideration any larger business transaction to
which such particular Transfer is related);
(iv) Transfers by the Lessee to any of the Lessee's
Subsidiaries or by any of the Lessee's Subsidiaries to the
Lessee or any of the Lessee's other Subsidiaries;
(v) Transfers which constitute the making of or
liquidation of Permitted Investments;
(vi) Transfers in connection with Indebtedness permitted
pursuant to clause (iii) of Section 10.1(g);
(vii) Transfers of assets and property not otherwise
permitted hereunder, provided that the aggregate value of all
such assets and property (based upon the greater of the fair
market or book value of such assets and property) so
transferred in any period of four consecutive fiscal quarters
does not exceed twenty percent (20%) of Tangible Net Worth as
determined as of the end of the fiscal quarter immediately
preceding the date of determination; and
(viii) Transfers of the Property permitted or required by
the Lease and the other Operative Documents, including in
connection with the exercise of remedies thereunder.
(j) Mergers, Acquisitions, Etc. Neither the Lessee nor any of
its Subsidiaries shall consolidate with or merge into any other Person
or permit any other Person to merge into it, except that:
(i) Any Subsidiary of the Lessee may merge into or
consolidate with any other Subsidiary of the Lessee;
(ii) Any Subsidiary of the Lessee may merge into or
consolidate with the Lessee provided that the Lessee is the
surviving corporation;
(iii) the Lessee may merge into or consolidate with any
other Person, provided that (A) the Lessee is the surviving
corporation and (B) immediately after giving effect to such
merger or consolidation no Default or Event of Default shall
have occurred and be continuing; and
(iv) Any Subsidiary of the Lessee may merge into or
consolidate with any other Person to the extent such
transaction is a Transfer otherwise permitted under Section
10.1(i) or an Investment otherwise permitted under Section
10.1(k) and
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immediately after giving effect to such merger or
consolidation no Default or Event of Default shall have
occurred and be continuing.
(k) Investments. Neither the Lessee nor any of its
Subsidiaries shall make any Investment except the following ("Permitted
Investments"):
(i) Direct obligations of, or obligations the principal
and interest on which are unconditionally guaranteed by, the
United States of America or obligations of any agency of the
United States of America to the extent such obligations are
backed by the full faith and credit of the United States of
America, in each case maturing within one year from the date
of acquisition thereof;
(ii) Certificates of deposit maturing within one year
from the date of acquisition thereof issued by a commercial
bank or trust company organized under the laws of the United
States of America or a state thereof or that is a Bank,
provided that (A) such deposits are denominated in Dollars,
(B) such bank or trust company has capital, surplus and
undivided profits of not less than $100,000,000 and (C) such
bank or trust company has certificates of deposit or other
debt obligations rated at least A-1 (or its equivalent) by S&P
or P-1 (or its equivalent) by Moody's;
(iii) Open market commercial paper maturing within 270
days from the date of acquisition thereof issued by a
corporation organized under the laws of the United States of
America or a state thereof, provided such commercial paper is
rated at least A-1 (or its equivalent) by S&P or P-1 (or its
equivalent) by Moody's;
(iv) Any repurchase agreement entered into with a
commercial bank or trust company organized under the laws of
the United States of America or a state thereof or that is a
Bank, provided that (A) such bank or trust company has
capital, surplus and undivided profits of not less than
$100,000,000, (B) such bank or trust company has certificates
of deposit or other debt obligations rated at least A-1 (or
its equivalent) by S&P or P-1 (or its equivalent) by Moody's,
(C) the repurchase obligations of such bank or trust company
under such repurchase agreement are fully secured by a
perfected security interest in a security or instrument of the
type described in clause (i), (ii) or (iii) above and (D) such
security or instrument so securing the repurchase obligations
has a fair market value at the time such repurchase agreement
is entered into of not less than one hundred percent (100%) of
such repurchase obligations;
(v) Any transaction permitted by Section 10.1(j);
(vi) Money market mutual funds registered with the
Securities and Exchange Commission, meeting the requirements
of Rule 2a.-7 promulgated under the Investment Company Act of
1940;
(vii) Investments listed in the Disclosure Letter
existing on June 6, 1997;
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(viii) Investments in other assets properly classified as
"marketable securities" or "cash" or "cash equivalents" under
GAAP, and which conform to the investment policies adopted by
the Board of Directors of the Lessee from time to time;
(ix) (A) Investments in MKE-Quantum in the form of (w)
non-exclusive licenses of technology to MKE-Quantum, (x) tax
or other indemnity obligations of the Lessee or any of its
Subsidiaries in favor of MKE-Quantum, (y) advances against
product to be purchased by the Lessee or any of its
Subsidiaries from MKE-Quantum within a period of one year from
the date of the making of the advance, and (z) (1) the value
of any property transferred or leased to MKE-Quantum, (2)
employee benefit obligations of the Lessee or any of its
Subsidiaries in favor of any employees of MKE-Quantum, (3) the
value of the administrative services provided by the Lessee or
any of its Subsidiaries in favor of MKE-Quantum, (4) the value
of any personnel services provided by the Lessee or any of its
Subsidiaries in favor of MKE-Quantum, and (5) the value of the
use and occupancy of any facilities provided by the Lessee or
any of its Subsidiaries, in the case of each of (1) through
(5) above, to the extent the Lessee or any of its Subsidiaries
is, or expects to be, reimbursed therefor, within one year of
when such value is provided to MKE-Quantum, and (B) additional
Investments in MKE-Quantum, provided that the aggregate amount
of all such Investments made or incurred after June 6, 1997
pursuant to subclause (B) of this clause (ix) in any rolling
four fiscal quarter period of the Lessee does not exceed the
sum of $100,000,000 plus any amounts actually received by the
Lessee or any of its Subsidiaries as a return of Investments
in MKE-Quantum during such rolling four quarter period plus
any reductions in the primary obligations in underlying
Investments constituting Guaranty Obligations during such
rolling four fiscal quarter period; provided further that for
purposes hereof, Investments constituting Indebtedness of
MKE-Quantum acquired by the Lessee or any of its Subsidiaries
shall be deemed to be in an amount equal to such Indebtedness
and to be made when such Indebtedness is acquired (unless such
Investment is a primary obligation underlying a Guaranty
Obligation previously counted as an Investment) and
Investments constituting Guaranty Obligations shall be deemed
to be in an amount equal to the corresponding primary
obligations and to be made at the time such primary
obligations are incurred;
(x) Investments received by the Lessee and its
Subsidiaries in connection with the bankruptcy or
reorganization of customers and suppliers and in settlement of
delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(xi) Investments arising from rights received by the
Lessee and its Subsidiaries upon the required payment of any
permitted Contingent Obligations of the Lessee and its
Subsidiaries;
(xii) Investments in or to the Lessee or any
Wholly-Owned Subsidiary of the Lessee;
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(xiii) Investments of any Subsidiary of the Lessee existing
at the time it becomes a Subsidiary of the Lessee provided
that such Investments were not made in anticipation of such
Person becoming a Subsidiary of the Lessee;
(xiv) Investments received by the Lessee or any of its
Subsidiaries as consideration in connection with Transfers
otherwise permitted under Section 10.1(i);
(xv) Investments in the nature of acquisitions provided
that the aggregate amount of such acquisitions in any period
of four consecutive fiscal quarters does not exceed twenty
percent (20%) of Tangible Net Worth as determined as of the
fiscal quarter immediately preceding the date of
determination;
(xvi) Investments consisting of loans to employees,
officers and directors, the proceeds of which shall be used to
purchase equity securities of the Lessee or its Subsidiaries
and other loans to employees, officers and directors;
(xvii) Investments of the Lessee and its Subsidiaries in
interest rate protection, currency swap and foreign exchange
arrangements, provided that all such arrangements are entered
into in connection with bona fide hedging operations and not
for speculation;
(xviii) Deposit accounts;
(xix) Investments constituting Cash Collateral; and
(xx) Investments (other than of the type set forth in
clause (xiv) above) not otherwise permitted hereunder,
provided that the aggregate amount of such other Investments
made after June 6, 1997 (less any return of such Investment)
does not exceed twenty percent (20%) of Tangible Net Worth as
determined as of the fiscal quarter immediately preceding the
date of determination.
(l) Dividends, Redemptions, Etc. Neither the Lessee nor any of
its Subsidiaries shall pay any dividends or make any distributions on
its Equity Securities; purchase, redeem, retire, decease or otherwise
acquire for value any of its Equity Securities; return any capital to
any holder of its Equity Securities as such; make any distribution of
assets, Equity Securities, obligations or securities to any holder of
its Equity Securities as such; or set apart any sum for any such
purpose, except as follows:
(i) the Lessee may pay dividends on its Equity
Securities payable solely in the Lessee's own Equity
Securities;
(ii) the Lessee may purchase, redeem, retire, defease or
otherwise acquire for value Equity Securities in connection
with or pursuant to any of its Employee Benefit Plans or in
connection with the employment or compensation of officers or
directors;
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(iii) the Lessee may purchase, redeem, retire, defease or
otherwise acquire for value Equity Securities with the
proceeds received from a substantially concurrent issue of new
Equity Securities or with other Equity Securities;
(iv) the Lessee may purchase Equity Securities pursuant
to stock repurchase programs provided that the aggregate
payments under such programs do not exceed ten percent (10%)
of Tangible Net Worth in any fiscal year as determined as of
the fiscal quarter immediately preceding the date of
determination;
(v) the Lessee may distribute rights pursuant to a
shareholder rights plan or redeem such rights provided such
redemption is in accordance with the terms of such shareholder
rights plan;
(vi) Any Subsidiary of the Lessee may pay dividends or
make distributions to the Lessee or any Wholly-Owned
Subsidiary of the Lessee;
(vii) Any Subsidiary of the Lessee may purchase and redeem
shares of their own Equity Securities from the Lessee or any
Wholly-Owned Subsidiary of the Lessee; or
(viii) Any Subsidiary of the Lessee may declare or pay
any dividends in respect of its Equity Securities or purchase
or redeem shares of its Equity Securities or make
distributions to shareholders not otherwise permitted
hereunder provided that the aggregate amount paid or
distributed in any period of four consecutive quarters
(excluding any amounts covered by clauses (vi) or (vii) above)
does not exceed five percent (5%) of Tangible Net Worth as
determined as of the fiscal quarter immediately preceding the
date of determination.
(m) Change in Business. Neither the Lessee nor any of its
Subsidiaries shall engage, either directly or indirectly through
Affiliates, in any line of business other than the digital storage
business, any other business incidental or reasonably related thereto,
or any businesses that are, as determined by the Board of Directors of
the Lessee, appropriate extensions thereof.
(n) Certain Indebtedness Payments, Etc. Neither the Lessee nor
any of its Subsidiaries shall pay, prepay, redeem, purchase, defease or
otherwise satisfy in any manner prior to the scheduled payment thereof
any Subordinated Debt except as otherwise permitted under this clause
(n); amend, modify or otherwise change the terms of any document,
instrument or agreement evidencing Subordinated Debt such that such
amendment, modification or change would (i) cause the outstanding
aggregate principal amount of all such Subordinated Debt so amended,
modified or changed to be increased as a consequence of such amendment,
modification or change, (ii) cause the subordination provisions
applicable to such Subordinated Debt to be less favorable to the Agents
and the Participants than those set forth on Exhibit R, (iii) increase
the interest rate applicable thereto or (iv) accelerate the scheduled
payment thereof, except that the Lessee may call for redemption the
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entire outstanding amount of the Convertible Subordinated Debentures
and, to the extent such Convertible Subordinated Debentures are not
converted prior to the redemption date, redeem such Convertible
Subordinated Debentures, provided that (A) no Default or Event of
Default has occurred and is continuing or would result from such call
for redemption or redemption and (B) the closing price of the common
stock shall have exceeded one hundred twenty percent (120%) of the then
applicable conversion price for twenty (20) trading days within a
period of thirty (30) consecutive trading days ending within five (5)
trading days prior to the notice of redemption. The Lessee shall not
cause or permit any of its obligations, except the obligations
constituting Senior Indebtedness to constitute "Designated Senior
Indebtedness" under the indentures governing the Convertible
Subordinated Debentures (it being understood that the obligations of
the Lessee under the Operative Documents to purchase or to cause a
third party purchase the Property and to pay Rent shall at all times
constitute "Designated Senior Indebtedness").
(o) ERISA. Neither the Lessee nor any ERISA Affiliate shall
(i) adopt or institute any defined benefit Employee Benefit Plan that
is an employee pension benefit plan within the meaning of Section 3(2)
of ERISA, (ii) take any action which will result in the partial or
complete withdrawal, within the meanings of sections 4203 and 4205 of
ERISA, from a Multiemployer Plan, (iii) engage or permit any Person to
engage in any transaction prohibited by section 406 of ERISA or section
4975 of the Code involving any Employee Benefit Plan or Multiemployer
Plan which would subject either the Lessee or any ERISA Affiliate to
any tax, penalty or other liability including a liability to indemnify,
(iv) incur or allow to exist any accumulated funding deficiency (within
the meaning of section 412 of the Code or section 302 of ERISA),
excluding all extensions permitted by law or contract, (v) fail to make
full payment when due of all amounts due as contributions to any
Employee Benefit Plan or Multiemployer Plan, (vi) fail to comply with
the requirements of section 4980B of the Code or Part 6 of Title I(B)
of ERISA, or (vii) adopt any amendment to any Employee Benefit Plan
which would require the posting of security pursuant to section
401(a)(29) of the Code, if any of such actions or inactions described
in clauses (vi)-(vii), either individually or cumulatively, would have
a Material Adverse Effect.
(p) Transactions With Affiliates. Neither the Lessee nor any
of its Subsidiaries shall enter into any Contractual Obligation with
any Affiliate or engage in any other transaction with any Affiliate
except upon terms at least as favorable to the Lessee or such
Subsidiary as an arms-length transaction with unaffiliated Persons.
(q) Accounting Changes. Neither the Lessee nor any of its
Subsidiaries shall change (i) its fiscal year (currently April 1 -
March 31) or (ii) its accounting practices except as permitted by GAAP.
(r) Financial Covenants.
(i) the Lessee shall not permit its Quick Ratio to be
less than 1.00 to 1.00 on the last day of each fiscal quarter.
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(ii) the Lessee shall not permit its Tangible Net Worth
on any date of determination (such date to be referred to
herein as a "determination date") which occurs after March 31,
1997 (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) $760,000,000;
plus
(B) Seventy-five percent (75%) of the sum of the
Lessee's consolidated quarterly net income (ignoring
any quarterly losses) for each quarter after the base
date through and including the quarter ending
immediately prior to the determination date;
plus
(C) Seventy-Five percent (75%) of the Net
Proceeds of all Equity Securities issued by the
Lessee and its Subsidiaries (excluding any issuance
where the total proceeds are less than $10,000,000)
during the period commencing on the base date and
ending on the determination date;
plus
(D) Ninety percent (90%) of the Net Proceeds
derived from the conversion of the Convertible
Subordinated Debentures;
minus
(E) the lesser of (1) the aggregate amount paid
by the Lessee to repurchase its capital stock and (2)
$50,000,000.
(iii) In any consecutive four-quarter period, the Lessee
shall not permit (A) more than two quarterly net losses
aggregating to more than five percent (5%) of its Tangible Net
Worth as determined as of the fiscal quarter immediately
preceding the date of determination or (B) its cumulative net
income for any consecutive four-quarter period to be less than
one Dollar.
(iv) The Lessee shall not permit its Senior Funded Debt
Ratio on the last day of any fiscal quarter to exceed
thirty-five percent (35%).
(s) Appraisal. On or prior to the date that is not later than
30 days (or such later date as is acceptable to the Agent and the Lessor) after
the Land Interest Acquisition Date, the Agent, the Lessor and the Participants
shall have received an Appraisal of that portion of the Phase I project on the
Land Interest described in the Preliminary Letter of Value delivered pursuant to
Section 6.1(d), which Appraisal shall (i) show that the Fair Market Sales Value
of the Land Interest
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with respect to such Property as of the projected Completion Date shall not
exceed 25% of the Fair Market Sales Value of such Land Interest and the
Improvements to be constructed thereon in accordance with the Plans and
Specifications for Property, and (ii) show as of the projected Completion Date
the Fair Market Sales Value of such Land Interest and the Improvements to be
constructed thereon in accordance with the Plans and Specifications, and (iii)
meet the other applicable requirements set forth in the definition of the term
"Appraisal" contained in Appendix 1.
(t) No Impairment of Deposits. The Lessee shall not, nor shall
it permit any of its Subsidiaries to, directly or indirectly, enter into or
become bound by any agreement, instrument, indenture or other obligation which
could directly or indirectly restrict, prohibit or require the consent of any
Person to the making by the Lessee of any deposit of Cash Collateral or the
realization thereon or utilization thereof (or of any earnings thereon or of any
other Collateral) by the Lessor, the Agent or any of the Participants.
SECTION 10.2. Cooperation with the Lessee. The Lessor, the Participants
and the Agent shall, to the extent reasonably requested by the Lessee (but
without assuming additional liabilities, duties or other obligations on account
thereof), at the Lessee's expense, cooperate with the Lessee in connection with
its covenants contained herein 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.
SECTION 10.3. Covenants of the Lessor. The Lessor hereby agrees that so
long as this Participation Agreement is in effect:
(a) 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; 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 Lease or 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.
(b) 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 135 South LaSalle Street, Chicago, Illinois 60603, or if it
shall change its name, identity or corporate structure.
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SECTION 11.
PARTICIPATIONS
SECTION 11.1. Amendments; Actions on Default. (a) The Lessor shall have
the right to forebear from exercising rights against the Lessee to the extent
the Lessor shall determine in good faith that such forbearance is appropriate
and is permitted by Section 15.5 and Sections 11.1, 11.2 and 11.3. Upon the
direction of the Required Participants, the Lessor shall execute any waiver,
modification or amendment of the Lease or the Construction Agency Agreement
requested by the Lessee; provided, that: (i) the waiver, modification or
amendment is not prohibited by the forgoing provisions of this Agreement, (ii)
the waiver, modification or amendment does not (A) increase the amount the
Lessor may be required to pay to the Lessee or anyone else, or (B) reduce or
postpone (and cannot reasonably be expected to reduce or postpone) any payments
that the Lessor would, but for such modification or amendment, be expected to
receive, or (C) release the Lessor's interest in all or a substantial part of
the Property; and (iii) the Lessor is not excused from executing the waiver,
modification or amendment by Section 11.3.
(b) The Lessor will, with reasonable promptness, provide each
Participant with copies of all default notices it sends or receives under the
Lease or Construction Agency Agreement and notify each Participant of any Event
of Default under the Lease of which it is aware and of any other matters which,
in the Lessor's reasonable judgment, are likely to materially affect the
payments each Participant will be required to make or be entitled to receive
under this Agreement, but the Lessor will not in any event be liable to any
Participant for the Lessor's failure to do so unless such failure constitutes
gross negligence or willful misconduct on the part of the Lessor.
(c) Before taking possession of the Property or exercising
foreclosure or offset rights against the Property or filing any lawsuit against
the Lessee because of any breach by the Lessee of the Operative Documents or if
requested in writing by any Participant at any time when an Event of Default has
occurred and is continuing, the Lessor shall promptly call a meeting with each
Participant and the Agent to discuss what, if anything, the Lessor should do.
Such meeting shall be scheduled during regular business hours in the offices of
the Agent, or another appropriate location in San Francisco, California, not
earlier than five (5) and not later than twenty (20) Business Days after the
Lessor's receipt of the written request from a Participant. If the Required
Participants shall direct the Lessor in writing to (a) send any default notices
required before a Default can become an Event of Default, or (b) bring a lawsuit
against the Lessee to enforce the Operative Documents when an Event of Default
has occurred and is continuing, then the Lessor shall send the notice or bring
the suit, and the Lessor shall prosecute any such suit with reasonable diligence
using reputable counsel. However, if the Agent is not a member of the Required
Participants voting pursuant to this subsection 11.1(d) in favor of the giving
of any such notice or the bringing of any such suit, then the Lessor may require
that it first receive the written agreement (in form reasonably acceptable to
the Lessor) of the members of the Required Participants so voting to indemnify
the Agent and the Lessor from and against all costs, liabilities and claims that
may be incurred by or asserted against the Lessor because of the action the
Required Participants direct the Agent or the Lessor to take. In no event shall
any Participant instigate any suit or other action directly against the Lessee
with respect to the Operative Documents or the Property, even if such
Participant would,
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but for this agreement, be entitled to do so as a third party beneficiary or
otherwise under the Operative Documents.
(d) In the event the Lessee or its designee fails to purchase
the Property after any exercise of its Purchase Option or Expiration Date
Purchase Obligation or following the occurrence and continuance of an Event of
Default, the Lessor shall, if the Required Participants shall agree in writing,
bring suit against the Lessee to enforce the Operative Documents in such form as
shall be recommended by reputable counsel, and thereafter the Lessor shall
prosecute the suit with reasonable diligence in accordance with the advice of
reputable counsel. If the Lessor acquires the interests of the Lessee in any of
the Property as a result of such suit or otherwise, the Lessor shall thereafter
proceed with reasonable diligence to sell the Property in a commercially
reasonable manner to one or more bona fide third party purchasers and shall in
any event endeavor to consummate the sale of the entire Property (through a
single sale of the entire Property or a series of sales of parts) within five
(5) years following the date the Lessor recovers possession of the Property at
the best price or prices the Lessor believes are reasonably attainable within
such time. Further, after the Designated Payment Date and prior to the Lessor's
sale of the entire Property, the Lessor shall retain a property management
company experienced in the area where the Property is located to manage the
operation of the Property and pursue the leasing of any completed Improvements
which are part of the Property. The Lessor shall not retain an Affiliate of the
Lessor to act as the property manager except under a bona fide, arms-length
management contract containing commercially reasonable terms. Further, after the
Designated Payment Date and until the Lessor sells the Property, the Lessor
shall (i) endeavor in good faith to maintain, or shall obtain the agreement of
one or more of such tenants to maintain, the Property in good order and repair,
(ii) procure and maintain casualty insurance against risks customarily insured
against by owners of comparable properties, in amounts sufficient to eliminate
the effects of coinsurance, (iii) keep and allow each Participant to review
accurate books and records covering the operation of the Property, and (iv) pay
prior to delinquency all taxes and assessments lawfully levied against the
Property.
(e) Notwithstanding the foregoing, Defaulting Participants
shall have no voting or consent rights under this Section 11.1 and no rights to
require the Lessor to call a meeting pursuant to Section 11.1(d) until they
cease to be Defaulting Participants. During any period that any Defaulting
Participants have no voting rights under this Section 11.1, only the Commitment
Percentages of the other Participants that still have voting rights will be
considered for purposes of determining the Required Participants.
SECTION 11.2. General. Subject to the limitations set forth in Section
11.1 and Section 14:
(a) The Lessor shall have the exclusive right to take any
action and to exercise any available powers, rights and remedies to enforce the
obligations of the Lessee under the Operative Documents, or to refrain from
taking any such action or exercising any such power, right or remedy.
(b) The Lessor shall be entitled to (i) give any consent,
waiver or approval requested by the Lessee with respect to any construction or
other approval contemplated in the Lease or (ii) waive or consent to any adverse
title claims affecting the Property, provided that, in either
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case, such action will not have a material adverse effect on the Lessee's
obligations or ability to make the payments required under the Operative
Documents, the Lessor's rights and remedies under the Operative Documents or any
Participant's rights hereunder.
SECTION 11.3 Conflicts. Notwithstanding anything to the contrary herein
contained, the Lessor shall be entitled, even over the objection of each
Participant or the Required Participants, (i) to take any action required of the
Lessor by, or to refrain from taking any action prohibited by, the Operative
Documents or any law, rule or regulation to which the Lessor is subject
(provided, that this Section shall not be construed to authorize the Lessor to
take any action required by a modification of the Operative Documents prohibited
by Section 11.1), and (ii) after notice to the Participants, to bring and
prosecute a suit against the Lessee in the form recommended by and in accordance
with advice of reputable counsel at any time when a breach of the Operative
Documents by the Lessee shall have put the Lessor (or any of its officers or
employees) at risk of criminal prosecution or significant liability to third
parties or at any time after the Lessee or its designee fails to purchase the
Property on the Designated Payment Date. Nothing herein contained shall be
construed to require the Lessor to agree to modify the Operative Documents or to
take any action or refrain from taking any action in any manner that could
increase the Lessor's liability to the Lessee or others, that could reduce or
postpone payments to which the Lessor is entitled thereunder, or that could
reduce the scope and coverage of the indemnities provided for the Lessor's
benefit therein.
SECTION 11.4. Refusal to Give Consents or Fund. If any Participant
declines to consent to any amendment, modification, waiver, release or consent
for which such Participant's consent is requested or required by reason of this
Agreement, or if any Participant fails to pay any amount owed by it hereunder,
the Lessor shall have the right, but not the obligation and without limiting any
other remedy of the Lessor, to terminate such Participant's rights to receive
any further payments under Section 3 of this Agreement (other than payments
required because of the Lessor's collection of any Rent applied by the Lessor as
reimbursement for a Defaulted Amount or interest on a Defaulted Amount) by
paying such Participant a termination fee equal to the total of:
(i) all amounts actually advanced by such Participant to the
Lessor under Section 3.4 hereof before the termination; excluding,
however, any such amounts that were repaid to such Participant before
the termination by actual payments made to such Participant by the
Lessor of, or the Lessor's offset against, sums representing:
(A) Such Participant's Commitment Percentage times
any payments of Rent received by the Lessor under the
Lease; plus
(B) Such Participant's Commitment Percentage times
any sales proceeds received by the Lessor under the
Lease; and
(ii) Such Participant's Commitment Percentage, times:
(A) the then accrued but unpaid Basic Rent and
Commitment Fees due under the Lease and hereunder;
plus
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(B) interest on past due amounts described in the
preceding clause (A) computed at the Federal Funds
Effective Rate; plus
(C) interest on any amounts (other than interest
itself) past due from the Lessee or its designees
under the Operative Documents, computed at the
Federal Funds Effective Rate.
Such Participant's rights to receive payments equal to such Participant's
Commitment Percentage of any Rent applied by the Lessor as reimbursement for a
Defaulted Amount or interest on a Defaulted Amount shall not be impaired or
affected by any termination contemplated in this Section 11.4; accordingly, the
Lessor shall not, as a condition to such a termination, be required to reimburse
such Participant for any payments such Participant has made in connection with
Defaulted Amounts pursuant to Section 3.3.
SECTION 11.5. Required Repayments. Each Participant shall repay to the
Lessor, upon written request or demand by the Lessor (i) any sums paid by the
Lessor to such Participant under this Agreement from, or that were computed by
reference to, any Rent or other amounts which the Lessor shall be required to
return or pay over to another party, whether pursuant to any bankruptcy or
insolvency law or proceeding or otherwise and (ii) any interest or other amount
that the Lessor is also required to pay to another party with respect to such
sums. Such repayment by any Participant shall not constitute a release of such
Participant's right to receive such Participant's Commitment Percentage times
the amount of any such Rent or any such other amount (or any interest thereon)
that the Lessor may later recover.
SECTION 11.6. Indemnification. Each Participant agrees to indemnify and
defend the Lessor (to the extent not reimbursed by the Lessee within ten (10)
days after demand) from and against such Participant's Commitment Percentage of
any and all liabilities, obligations, claims, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this Section 11.6 collectively called "Covered
Liabilities") which to any extent (in whole or in part) may be imposed on,
incurred by or asserted against the Lessor growing out of, resulting from or in
any other way associated with the Property or the Operative Documents (including
the enforcement thereof, whether exercised upon the Lessor's own initiative or
upon the direction of the Required Participants) and the transactions and events
at any time associated therewith or contemplated therein. The foregoing
indemnification shall apply whether or not such Covered Liabilities are in any
way or to any extent caused, in whole or in part, by any negligent act or
omission of any kind by the Lessor; provided, only that no Participant shall be
obligated under this Section 11.6 to indemnify the Lessor (i) for Covered
Liabilities incurred in connection with any transfer or assignment by the Lessor
of its right to receive Rent or its rights and interests in and to the Property,
the Operative Documents or this Agreement to its Affiliates or (ii) for that
portion or percentage, if any, of any of the Covered Liabilities which is
proximately caused by: (A) the Lessor's own gross negligence or willful
misconduct; (B) any representation made by the Lessor in the Operative Documents
that is false in any material respect and that the Lessor knew was false at the
time of the Lessor's execution of the Operative Documents; or (C) Lessor Liens
not claimed by, through or under any of the Participants. After each Participant
has paid its Percentage of any Covered Liabilities, each Participant shall be
entitled to payment from the Lessor of an
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amount equal to the Adjusted Percentage (as defined below) of any payments
subsequently received by the Lessor as Excess Reimbursement (as defined below)
for such Covered Liabilities. As used in this Section "Adjusted Percentage"
shall equal (i) such Participant's Commitment Percentage, divided by (ii) the
sum of the Commitment Percentages of all Participants who have paid the Lessor
their respective shares of the Covered Liabilities at issue. As used in this
Section, the term "Excess Reimbursement" shall mean, for the Covered Liabilities
at issue, amounts reimbursed or paid by the Lessee to or on behalf of the Lessor
on account of such Covered Liabilities in excess of (i) such Covered
Liabilities, times (ii) the Commitment Percentages of any Participants that have
not paid the Lessor their respective Percentages of such Covered Liabilities.
SECTION 11.7. Required Supplemental Payments. In the event that the
Lessee fails to pay any Required Supplemental Payment when due (a "Defaulted
Amount"), the Lessor shall notify each Participant of such Defaulted Amount,
whereupon each Participant shall pay to the Lessor an amount equal to such
Participant's Commitment Percentage times the Defaulted Amount; such payment
from Participant to the Lessor shall be due prior to 2:00 p.m., San Francisco
time, on the date of such notice if such notice is given by 12:00 noon, San
Francisco time, otherwise prior to 12:00 noon, San Francisco time, on the next
Business Day following such notice. After payment of a Participant's Commitment
Percentage times the Defaulted Amount, any payments subsequently received by the
Lessor from the Lessee as reimbursement for such Defaulted Amount, and any
interest received by the Lessor from the Lessee that accrued on the Defaulted
Amount after the date of such Participant's payment of its Commitment Percentage
times the Defaulted Amount, will constitute Supplemental Rent for purposes of
computing payments due such Participant under this Agreement.
SECTION 11.8. Application of Payments Received From Defaulting
Participant As a Cure For Payment Defaults. If after a failure to make a payment
required by Section 3.4, any Defaulting Participant cures such failure, in whole
or in part, by paying to the Lessor all or part of such payment and interest
thereon at the Late Payment Rate, then the Lessor shall apply the payments so
made to the Lessor, net of the costs of collecting such payments (the "Net Cure
Proceeds"), or other funds available to the Lessor equal to the Net Cure
Proceeds, in the following order before applying the same to any other purpose:
(i) first, to make payments to the Lessor itself equal to its
Excess Investment (if any) until the Lessor shall no longer have any
Excess Investment; and
(ii) second, to make further Advances to the Lessee under this
Agreement to the extent the Lessor is required or deems it appropriate
to do so; provided, that such further Advances do not cause the total
Property Cost to exceed the sum of the Commitments.
SECTION 11.9. Order of Application. For purposes of this Agreement, the
Lessor shall be entitled, but not required, to apply any payments received from
the Lessee under the Operative Documents to satisfy (1) unpaid Required
Supplemental Payments (and interest thereon) not included in Rent, if any, and
(2) costs incurred by the Lessor because of any sale under the Lease before
applying such payments to satisfy the Lessee's other obligations, regardless of
how the Lessee may have designated such payments.
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SECTION 11.10. Investments Pending Dispute Resolution; Overnight
Investments. Whenever the Lessor in good faith determines that it does not have
all information needed to determine how payments to Participants must be made on
account of any then existing Participation Interests which the Lessor has
received, or whenever the Lessor in good faith determines that there is any
dispute among the Participants about payments which must be made on account of
Participation Interests actually received by the Lessor, the Lessor may choose
to defer the payments which are the subject of such missing information or
dispute. However, to minimize any such deferral, the Lessor shall attempt
diligently to obtain any missing information needed to determine how payments to
the Participants must be made. Also, pending any such deferral, or if the Lessor
is otherwise required to invest funds pending distribution to the Participants,
the Lessor shall invest funds equal to (i) the total of the Commitment
Percentages of all Participants to whom payments have not been made with respect
to the Participation Interests at issue, times (ii) the total percentages at
issue. In addition, the Lessor shall endeavor to invest payments of
Participation Interests it receives after 12:00 noon, San Francisco time, on the
day in question that are to be paid to a Participant on the next Business Day
pursuant to Section 3; provided that the Lessor shall have no liability to any
Participant if the Lessor is unable to make such investments. Investments by the
Lessor shall be in the overnight federal funds market pending distribution, and
the interest earned on each dollar of principal so invested shall be paid to the
Person entitled to receive such dollar of principal when the principal is paid
to such Person.
SECTION 11.11. Agent to Exercise Lessor's Rights. The Lessor has
assigned its interest in the Lease to the Agent, for the benefit of the
Participants, pursuant to the Assignment of Lease. To the extent provided
therein, the rights, remedies, duties and responsibilities of the Lessor
contained in this Section 11 and in the other Operative Documents with respect
thereto shall be exercisable by, binding upon and inure to the benefit of the
Agent, for the benefit of the Participants.
SECTION 11.12. Exculpatory Provisions Regarding the Lessor. Subject to
the provisions of Section 11.11, each Participant hereby irrevocably authorizes
the Lessor to take such actions on its behalf as are expressly vested in or
delegated to the Lessor by the terms of this Agreement and the other Operative
Documents, together with such powers as are reasonably incidental thereto. The
provisions of the following Sections of this Agreement are hereby incorporated
by reference into this Section 11.12, substituting the word "Lessor" for "Agent"
therein:
(i) Section 14.1 - second sentence.
(ii) Section 14.2 - all.
(iii) Section 14.3 - all.
(iv) Section 14.4 - all.
(v) Section 14.5 - first sentence.
(iv) Section 14.6 - last sentence.
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SECTION 12.
TRANSFERS OF PARTICIPANTS' INTERESTS
SECTION 12.1. Restrictions on and Effect of Transfer by Participants.
No Participant may (without the prior written consent of the Agent and Lessee
(not to be unreasonably withheld)) assign, convey or otherwise transfer
(including pursuant to a participation) all or any portion of its right, title
or interest in, to or under its Participation Interest or any of the Operative
Documents or the Property, provided that (x) any Participant may pledge its
interest without the consent of the Agent or the Lessee to any Federal Reserve
Bank, (y) without the prior written consent of the Agent, any Participant may
transfer all or any portion of its interest to any Affiliate of such Participant
or to any other existing Participant and (z) the Lessor may not transfer its
Tranche C Participation Interest in the absence of an Event of Default;
provided; further, that in the case of any transfer (other than to such
Affiliate) each of the following conditions and any other applicable conditions
of the other Operative Documents are satisfied:
(a) Required Notice and Effective Date. Any Participant
desiring to effect a transfer of its interest shall give written notice of each
such proposed transfer to the Lessee, the Agent and each other Participant at
least five (5) Business Days prior to such proposed transfer, setting forth the
name of such proposed transferee, the percentage or interest to be retained by
such Participant, if any, and the date on which such transfer is proposed to
become effective. All reasonable out-of-pocket costs (including, without
limitation, legal expenses) incurred by the Lessor, the Agent or any Participant
in connection with any such disposition by a Participant under this Section 12.1
shall be borne by such transferring Participant. In the event of a transfer
under this Section 12.1, any expenses incurred by the transferee in connection
with its review of the Operative Documents and its investigation of the
transactions contemplated thereby shall be borne by such transferee or the
relevant Participant, as they may determine, but shall not be considered costs
and expenses which the Lessee is obligated to pay or reimburse under Section 9.
Any such proposed transfer shall become effective upon the later of (i) the date
proposed in the transfer notice referred to above and (ii) the date on which all
conditions to such transfer set forth in this Section 12.1 shall have been
satisfied.
(b) Assumption of Obligations. Any transferee pursuant to this
Section 12.1 shall execute and deliver to the Agent and the Lessee an Assignment
and Acceptance in substantially the form attached as Exhibit J ("Assignment and
Acceptance"), duly executed by such transferee and the transferring Participant,
and a letter in substantially the form of the Participant's Letter attached
hereto as Exhibit K ("Participant's Letter"), and thereupon the obligations of
the transferring Participant under the Operative Documents shall be
proportionately released and reduced to the extent of such transfer. Upon any
such transfer as above provided, the transferee shall be deemed to be bound by
all obligations (whether or not yet accrued) under, and to have become a party
to, all Operative Documents to which its transferor was a party, shall be deemed
the pertinent "Participant" for all purposes of the Operative Documents and
shall be deemed to have made that portion of the payments pursuant to this
Participation Agreement previously made or deemed to have been made by the
transferor represented by the interest being conveyed; and each reference herein
and in the other Operative Documents to the pertinent "Participant" shall
thereafter be
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deemed a reference to the transferee, to the extent of such transfer, for all
purposes. Upon any such transfer, the Agent shall deliver to each Participant,
the Lessor and the Lessee a new Schedule I and Schedule II to this Agreement,
revised to reflect the relevant information for such new Participant and the
Commitment of such new Participant (and the revised Commitment of the transferor
Participant if it shall not have transferred its entire interest).
(c) Employee Benefit Plans. No Participant may make any such
assignment, conveyance or transfer to or in connection with any arrangement or
understanding in any way involving any employee benefit plan (or its related
trust), as defined in Section 3(3) of ERISA, or with the assets of any such plan
(or its related trust), as defined in Section 4975(e)(1) of the Code.
(d) Representations. Notwithstanding anything to the contrary
set forth above, no Participant may assign, convey or transfer its interest to
any Person, unless such Person shall have delivered to the Agent and the Lessee
a certificate confirming the accuracy of the representations and warranties set
forth in Section 8 with respect to such Person (other than as such
representation or warranty relates to the execution and delivery of Operative
Documents) and representing that such Person has, independently and without
reliance upon the Agent, any other Participant or, except to the extent of the
Lessee's representations made under the Operative Documents when made, the
Lessee, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into this transaction,
the Property and the Lessee and made its own decision to enter into this
transaction.
(e) Amounts; Agent's Fee. Any transfer of a Tranche A
Participation Interest shall be in a principal amount which is equal to or
greater than $2,000,000; provided, that no such minimum transfer limitation
shall be imposed on a transfer of a Tranche B Participation Interest or, if
permitted to be transferred under Section 12.1, a Tranche C Participation
Interest. Each transferring Participant shall pay to the Agent a transfer fee of
$2,500.
(f) Applicable Law. Such transfer shall comply with Applicable
Law and shall not require registration under any securities law applicable
thereto.
(g) Effect. From and after any transfer of its Participation
Interest the transferring Participant shall be released, to the extent assumed
by the transferee, from its liability and obligations hereunder and under the
other Operative Documents to which such transferor is a party in respect of
obligations to be performed on or after the date of such transfer. Upon any
transfer by a Participant as above provided, any such transferee shall be deemed
a "Participant" for all purposes of such documents and each reference herein to
a Participant shall thereafter be deemed a reference to such transferee for all
purposes to the extent of such transfer, except as the context may otherwise
require. Notwithstanding any transfer as provided in this Section 12.1, the
transferor shall be entitled to all benefits accrued and all rights vested prior
to such transfer, including, without limitation, rights to indemnification under
this Participation Agreement or any other Operative Document.
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SECTION 12.2. Covenants and Agreements of Participants.
(a) Participations. Each Participant covenants and agrees that
it will not grant Participations in its Participation Interest to any Person (a
"Sub-Participant") unless such participation complies with Applicable Law and
does not require registration under any securities law applicable thereto and
such Sub-Participant (i) is a bank or other financial institution and (ii)
represents and warrants, in writing, to such Participant for the benefit of the
Participants, the Lessor and the Lessee that (A) no part of the funds used by it
to acquire an interest in any Participation Interest constitutes assets of any
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code)
and (B) such Sub-Participant is acquiring its interest for investment purposes
without a view to the distribution thereof. Any such Person shall require any
transferee of its interest in its Participation Interest to make the
representations and warranties set forth in the preceding sentence, in writing,
to such Person for its benefit and the benefit of the Participants, the Lessor
and Lessee. In the event of any such sale by a Participant of a participating
interest in its Participation Interest to a Sub-Participant, such Participant's
obligations under this Participation Agreement and under the other Operative
Documents shall remain unchanged, such Participant shall remain solely
responsible for the performance thereof, such Participant shall remain the
holder of its Participation Interest, for all purposes under this Participation
Agreement and under the other Operative Documents, and the Lessor, the Agent
and, except as set forth in Section 12.2(b), the Lessee shall continue to deal
solely and directly with such Participant in connection with such Participant's
rights and obligations under this Participation Agreement and under the other
Operative Documents.
(b) Transferee Indemnities. Each Sub-Participant shall be
entitled to the benefits of Sections 13.5, 13.6, and 13.7 and 13.10 with respect
to its participation in the Participation Interests outstanding from time to
time; provided that no Sub-Participant shall be entitled to receive any greater
amount pursuant to such Sections than the transferor Participant would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Participant to such Sub-Participant had no such transfer or
participation occurred.
SECTION 12.3. Future Participants. Each Participant shall be deemed to
be bound by and, upon compliance with the requirements of this Section 12, will
be entitled to all of the benefits of the provisions of, this Participation
Agreement.
SECTION 13.
INDEMNIFICATION
SECTION 13.1. General Indemnification. The Lessee agrees, whether or
not any of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After Tax Basis, from and against, any and all Claims that may
be imposed on, incurred by or asserted against such Indemnitee (whether because
of action or omission by such Indemnitee or otherwise), whether or not such
Indemnitee shall also be indemnified as to any such Claim by any other Person
and whether or not
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such Claim arises or accrues prior to the Closing Date or after the Expiration
Date, in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby or any violation thereof, and any amendment, modification
or waiver in respect thereof;
(b) the Property, the Lease or any part thereof or interest
therein;
(c) the purchase, design, construction, preparation,
installation, inspection, delivery, non-delivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition or
substitution, storage, transfer of title, redelivery, use, financing,
refinancing, disposition, operation, condition, sale (including, without
limitation, any sale pursuant to Sections 16.2, 16.3, 16.4, 17.2(c), 17.2(e) or
17.4 of the Lease or any sale pursuant to Articles XX or XXII of the Lease,
return or other disposition of all or any part or any interest in the Property
or the imposition of any Lien (or incurring of any liability to refund or pay
over any amount as a result of any Lien) thereon, including, without limitation:
(1) Claims or penalties arising from any violation of federal, state or local
law, rule, regulation or order or in tort (strict liability or otherwise), (2)
latent or other defects, whether or not discoverable, (3) any Claim based upon a
violation or alleged violation of the terms of any restriction, easement,
condition or covenant or other matter affecting title to the Property, (4) the
making of any Modifications in violation of any standards imposed by any
insurance policies required to be maintained by Lessee pursuant to the Lease
which are in effect at any time with respect to the Property or any part
thereof, (5) any Claim for patent, trademark or copyright infringement, and (6)
Claims arising from any public improvements with respect to the Property
resulting in any charge or special assessments being levied against the Property
or any plans to widen, modify or realign any street or highway adjacent to the
Property;
(d) the offer, issuance or sale of the Participation
Interests, provided that (i) the Lessor shall not be entitled to indemnification
under this clause (d) if it shall have been determined by a court of competent
jurisdiction to have breached its representation set forth in Section 8.1(h),
(ii) no Participant shall be entitled to indemnification under this clause (d)
if it shall have been determined by a court of competent jurisdiction to have
breached its representation set forth in Section 8.2(f) and (iii) neither the
Lessor nor any Participant shall be entitled to indemnification under this
clause (d) with respect to any Claim which a court of competent jurisdiction
determines to have arisen out of the gross negligence or willful misconduct of
the Lessor, the Agent or any Participant or its agents, employees or contractors
(other than the Lessee) or any misrepresentation of a material fact made by the
Lessor, the Agent or such Participant, unless the misrepresentation was made in
reliance upon and in conformity with information furnished to the Lessor or such
Participant, as applicable, by the Lessee or its agents, employees or
contractors;
(e) the breach by the Lessee of any covenant, representation
or warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;
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(f) the retaining or employment of any broker, finder or
financial advisor by the Lessee to act on its behalf in connection with this
Participation Agreement, or the incurring of any fees or commissions to which
the Lessor might be subjected by virtue of entering into the transactions
contemplated by this Participation Agreement;
(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 Existing Owner, the Lessor or any of their
contractors or agents or by reason of the financing of the Property or any
personalty 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;
(h) the transactions contemplated by the Lessee hereby or by
any other Operative Document, in respect of the 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 (other than any Claim resulting from a breach of
representation or warranty of the Lessor or any Participant); or
(i) the Existing Financing, any documentation relating
thereto, the Existing Participants, the Existing Owner, or the purchase of the
Property by the Lessor, or any matters arising therefrom or related thereto;
provided, however, the Lessee shall not be required to indemnify (x) the Lessor
for any Claim to the extent arising from any misrepresentation by the Lessor
under Section 8.1 (e) or (l) or from the failure by the Lessor to comply with
Section 10.3 (a), or (y) any Indemnitee under this Section 13.1 for any of the
following: (1) any Claim to the extent resulting from the willful misconduct or
gross negligence of such Indemnitee or its agents, employees or contractors
(other than the Lessee and its agents, employers or contractors) (it being
understood that the Lessee shall be required to indemnify an Indemnitee even if
the ordinary (but not gross) negligence of such Indemnitee caused or contributed
to such Claim), (2) any Claim resulting from Lessor Liens which the Lessor is
responsible for discharging under the Operative Documents, (3) any Claim to the
extent attributable to acts or events occurring after the expiration of the Term
or the termination of the Lessee's right to possess and control the Property
(but not any claim to the extent attributable to acts or events occurring prior
to or during the Term or occurring at any time that the Lessee is in actual
possession or control of the Property), (4) any Imposition or other claims for
Taxes, and (5) any Claims of the type(s) described in Sections 13.2 (only with
respect to claims in respect of a decline in the Fair Market Sales Value of the
Property as a result of an event described in Section 13.2(b) and the Lessee's
exercise of the Remarketing Option), 13.6, 13.7, 13.8 and 13.10. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of and shall be separate and independent from any
remedy under the Lease or any other Operative Document. Without limiting the
express rights of any Indemnitee under this Section 13.1, this Section 13.1
shall be construed as an indemnity only and not a guaranty of residual value of
the Property or as a guaranty of the Participation Interests.
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SECTION 13.2. End of Term Indemnity.
(a) If the Lessee elects the Remarketing Option and there
would, after giving effect to the proposed remarketing transactions, be a
Shortfall Amount, then prior to the Maturity Date and as a condition to the
Lessee's right to complete the remarketing of the Property pursuant to Section
22.1 of the Lease, the Lessee shall cause to be delivered to the Lessor at least
30 days prior to either the Expiration Date or the last day of the Remarketing
Period, if Section 17.2(h) of the Lease is applicable, at the Lessee's sole cost
and expense, a report from an appraiser selected by the Lessor and reasonably
satisfactory to the Agent and the Required Participants in form and substance
satisfactory to the Lessor, the Agent and the Required Participants (the "End of
the Term Report") which shall state the appraiser's conclusions as to the reason
for any decline in the Fair Market Sales Value of the Property from that
anticipated for such date in the Appraisal delivered on the Closing Date.
(b) Prior to the Expiration Date, the Lessee shall pay to the
Lessor an amount (not to exceed the Shortfall Amount) equal to the portion of
the Shortfall Amount that the End of the Term Report demonstrates was the result
of a decline in the Fair Market Sales Value of the Property due to:
(i) extraordinary wear and tear, excessive usage,
failure to maintain, to repair, to restore, to rebuild or to replace,
failure to comply with the Lease and all applicable laws, failure to
use, workmanship, method of installation or removal or maintenance,
repair, rebuilding or replacement (excepting in each case ordinary wear
and tear);
(ii) any Modification made to, or any rebuilding of,
the Property or any part thereof by the Lessee or any sublessee; or
(iii) the existence of any Hazardous Activity,
Hazardous Substance or Environmental Violations; or
(iv) any restoration or rebuilding carried out by
the Lessee or any sublessee; or
(v) any condemnation of any portion of the Property
pursuant to Article XV of the Lease; or
(vi) any use of the Property or any part thereof by
the Lessee or any sublessee other than as permitted by the Operative
Documents; or
(vii) any grant, release, dedication, transfer,
annexation or amendment made pursuant to Section 12.2 of the Lease; or
(viii) the failure of the Lessor to have good and
marketable fee title to the Property free and clear of all Liens
(including Permitted Liens and Permitted Exceptions) and exceptions to
title, except (A) such Liens or exceptions to title that existed on the
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Closing Date and were disclosed in the policy of title insurance
delivered pursuant to Section 6.1; (B) Lessor Liens; and (C) to the
extent any such liability arising as a result of a title defect is
offset by the proceeds of title insurance.
SECTION 13.3. Environmental Indemnity. Without limitation of the other
provisions of this Section 13, the Lessee hereby agrees to indemnify, hold
harmless and defend each Indemnitee from and against any and all claims
(including without limitation third party claims for personal injury or real or
personal property damage), losses (including but not limited to any loss of
value of the Property), damages, liabilities, fines, penalties, charges,
administrative and judicial proceedings (including informal proceedings) and
orders, judgments, remedial action, requirements, enforcement actions of any
kind, and all reasonable and documented costs and expenses incurred in
connection therewith (including but not limited to reasonable and documented
attorneys' and/or paralegals' fees and expenses), including, but not limited to,
all costs incurred in connection with any investigation or monitoring of site
conditions or any clean-up, remedial, removal or restoration work by any
federal, state or local government agency, which such Indemnitee becomes subject
to because of its involvement with the Property, the transactions contemplated
by the Operative Documents or any other matter referred to in paragraphs (a)
through (i) of Section 13.1 arising in whole or in part, out of:
(a) the presence on or under the Property of any Hazardous
Substances, or any Releases or discharges of any Hazardous Substances on, under,
from or onto the Property;
(b) any activity, including, without limitation, construction,
carried on or undertaken on or off the Property, and whether by the Lessee, the
Lessor, the Existing Owner or any predecessor in title or any employees, agents,
contractors or subcontractors of the Lessee, the Lessor (if such activity was
undertaken with the consent or at the direction of the Lessee), the Existing
Owner or any predecessor in title, or any other Persons (including such
Indemnitee), in connection with the handling, treatment, removal, storage,
decontamination, cleanup, transport or disposal of any Hazardous Substances that
at any time are located or present on or under or that at any time migrate,
flow, percolate, diffuse or in any way move onto or under the Property;
(c) loss of or damage to any property or the environment
(including, without limitation, cleanup costs, response costs, remediation and
removal costs, cost of corrective action, costs of financial assurance, fines
and penalties and natural resource damages), or death or injury to any Person,
and all expenses associated with the protection of wildlife, aquatic species,
vegetation, flora and fauna, and any mitigative action required by or under
Environmental Laws;
(d) any claim concerning lack of compliance with Environmental
Laws, or any act or omission causing an environmental condition that requires
remediation or would allow any Governmental Authority to record a Lien on the
land records;
(e) any residual contamination on or under the Property, or
affecting any natural resources, or any contamination of any property or natural
resources arising in connection with the generation, use, handling, storage,
transport or disposal of any such Hazardous Substances, and
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irrespective of whether any of such activities were or will be undertaken in
accordance with applicable Environmental Laws; or
(f) any material inaccuracies, misrepresentations,
misstatements, and omissions and any conflicting information contained in or
omitted from the Environmental Audit;
provided, however, the Lessee shall not be required to indemnify any Indemnitee
under this Section 13.3 for (1) any Claim to the extent resulting from the
willful misconduct or gross negligence of such Indemnitee or its agents,
employees and contractors (other than the Lessee and its agents, employees and
contractors) (it being understood that the Lessee shall be required to indemnify
an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee
caused or contributed to such Claim), (2) subject to the provisions Section 15.2
of the Lease, any Claim to the extent attributable to acts or events occurring
after the expiration of the Term or the termination of the Lessee's right to
possess and control the Property (but not any claim to the extent attributable
to acts or events occurring prior to or during the Term or occurring at any time
that the Lessee is in actual possession or control of the Property), (3) any
Imposition or other claims for Taxes of the type(s) described in Section 13.5 or
(4) any Claims of the type(s) described in Sections 13.2 (only with respect to
claims in respect of a decline in the Fair Market Sales Value of the Property
and the Lessee's exercise of the Remarketing Option), 13.6, 13.7, 13.8 and
13.10. It is expressly understood and agreed that the indemnity provided for
herein shall survive the expiration or termination of and shall be separate and
independent from any remedy under the Lease or any other Operative Document.
SECTION 13.4. Proceedings in Respect of Claims. With respect to any
amount that the Lessee is requested by an Indemnitee to pay by reason of Section
13.1 or 13.3, such Indemnitee shall, if so requested by the Lessee and prior to
any payment, submit such additional information to the Lessee as the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment.
In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof,
and the Lessee shall be entitled, at its expense, to participate in, and, to the
extent that the Lessee desires to, assume and control the defense thereof;
provided, however, that the Lessee shall have acknowledged in writing its
obligation to fully indemnify such Indemnitee in respect of such action, suit or
proceeding, and the Lessee shall keep such Indemnitee fully apprised of the
status of such action, suit or proceeding and shall provide such Indemnitee with
all information with respect to such action, suit or proceeding as such
Indemnitee shall reasonably request, and provided further, that the Lessee shall
not be entitled to assume and control the defense of any such action, suit or
proceeding if and to the extent that, (A) in the reasonable opinion of such
Indemnitee, (x) such action, suit or proceeding involves any possibility of
imposition of criminal liability or any risk of material civil liability on such
Indemnitee or will involve a material risk of the sale, forfeiture or loss of,
or the creation of any Lien (other than
a Permitted Exception) on the Property or any part thereof unless, in the case
of civil liability or Lien, the Lessee shall have posted a bond or other
security satisfactory to the relevant Indemnitee in respect to such risk or (y)
the control of such action, suit or proceeding would involve an actual or
potential conflict of interest, (B) such proceeding involves Claims not fully
indemnified
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by the Lessee which the Lessee and the Indemnitee have been unable to sever from
the indemnified claim(s), or (C) an Event of Default under the Lease has
occurred and is continuing. The Indemnitee may participate in a reasonable
manner at its own expense and with its own counsel in any proceeding conducted
by the Lessee in accordance with the foregoing. The Lessee shall not enter into
any settlement or other compromise with respect to any Claim which is entitled
to be indemnified under Section 13.1 or 13.3 without the prior written consent
of the Indemnitee which consent shall not be unreasonably withheld in the case
of a money settlement not involving an admission of liability of such
Indemnitee.
Each Indemnitee shall at the expense of the Lessee cooperate with and
supply the Lessee with such information and documents reasonably requested by
the Lessee as are necessary or advisable for the Lessee to participate in any
action, suit or proceeding to the extent permitted by Section 13.1 or 13.3.
Unless an Event of Default under the Lease shall have occurred and be
continuing, no Indemnitee shall enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section 13.1
or 13.3 without the prior written consent of the Lessee, which consent shall not
be unreasonably withheld, unless such Indemnitee waives its right to be
indemnified under Section 13.1 or 13.3 with respect to such Claim.
Upon payment in full of any Claim by the Lessee pursuant to Section
13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be necessary to preserve
any such claims and otherwise cooperate with the Lessee and give such further
assurances as are necessary or advisable to enable the Lessee vigorously to
pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable and, if requested by the Lessee, such determination shall be verified
by a nationally recognized independent accounting firm mutually acceptable to
the Lessee and the Indemnitee at the expense of the Lessee.
SECTION 13.5. General Impositions Indemnity.
(a) Indemnification. The Lessee shall pay and assume liability
for, and does hereby agree to indemnify, protect and defend the Property and all
Indemnitees, and hold them harmless against, all Impositions on an After Tax
Basis.
(b) Payments. (i) Subject to the terms of Section 13.5(f), the
Lessee shall pay or cause to be paid all Impositions directly to the taxing
authorities where feasible and otherwise to the Indemnitee, as appropriate, and
the Lessee shall at its own expense, upon such Indemnitee's reasonable request,
furnish to such Indemnitee copies of official receipts or other satisfactory
proof evidencing such payment.
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(ii) In the case of Impositions for which no contest
is conducted pursuant to Section 13.5(f) and which the Lessee pays directly to
the taxing authorities, the Lessee shall pay such Impositions 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 Indemnitee, the
Lessee shall do so within twenty (20) days after receipt by the Lessee of demand
by such Indemnitee 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
ten (10) 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 13.5(f), the Lessee shall pay such Impositions or reimburse
such Indemnitee for such Impositions, to the extent not previously paid or
reimbursed pursuant to subsection (a), prior to the latest time permitted by the
relevant taxing authority for timely payment after conclusion of all contests
under Section 13.5(f).
(iii) 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 Indemnitee. 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 5% or more
of the payment as computed by the Indemnitee, in which case such fee shall be
paid by the Indemnitee.
(c) 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 Indemnitee of such requirement and (except if such Indemnitee notifies
the Lessee that such Indemnitee 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 Indemnitee, advise such Indemnitee of such fact and prepare such return,
statement or report for filing by such Indemnitee 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
Indemnitee 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 Indemnitee shall,
upon the Lessee's request and at the Lessee's expense, provide any data
maintained by such Indemnitee (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
Indemnitee agrees to use its best efforts to send to the Lessee a copy of any
written request or other notice that the Indemnitee 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 Indemnitee shall have any liability for failure to provide such copies.
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(d) Income Inclusions. If as a result of the payment or
reimbursement by the Lessee of any expenses of the Lessor or the payment of any
Transaction Expenses incurred in connection with the transactions contemplated
by the Operative Documents, the Lessor or any Participant 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, or any Participant or such Affiliate, in respect thereof.
(e) Withholding Taxes. As between the Lessee on one hand, and
the Lessor or the Agent and any Participant on the other hand, the Lessee shall
be responsible for, and, subject to the provisions of Sections 13.5(g) and (h),
the Lessee shall indemnify and hold harmless the Lessor, the Agent and 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
Participation Interests or with respect to Rent payments under the Lease or
payments of the Asset Termination Value or Purchase Option Price (and, if the
Lessor, the Agent or any Participant receives a demand for such payment from any
taxing authority, the Lessee shall discharge such demand on behalf of the
Lessor, the Agent or such Participant). Notwithstanding the foregoing provisions
of this Section 13.5(e) or any other provision of any Operative Document to the
contrary, the Lessee shall not be responsible for and shall not be required to
indemnify or otherwise hold harmless any Person from or against any withholding
tax imposed as a collection device for, or in substitution or lieu of, an
income, franchise or similar tax to the extent such income, franchise or similar
tax would not otherwise be subject to indemnification pursuant to this Section
13.5 (a "Qualified Withholding Tax"). As used herein, Qualified Withholding
Taxes include, without limitation, any withholding taxes arising under Section
871, 881, 1441 or 1442 of the Code and any similar taxes arising under state,
local or foreign law as well as any withholding tax imposed as a collection
device for, or in substitution or lieu of the Imposition that qualifies as an
"income tax" within the meaning of United States Treasury Regulation Section
1.901-2.
(f) Contests of Impositions. (i) If a written claim is made
against any Indemnitee or if any proceeding shall be commenced against such
Indemnitee (including a written notice of such proceeding), for any Impositions,
such Indemnitee 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 Indemnitee 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 2 days before the
end of such shorter period; provided, further, that the failure of such
Indemnitee to give the notices referred to 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.
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(ii) If, within thirty (30) days of receipt of such
notice from the Indemnitee (or such shorter period as the Indemnitee has
notified the Lessee is required by law or regulation for the Indemnitee to
commence such contest), the Lessee shall request in writing that such Indemnitee
contest such Imposition, the Indemnitee 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 an unindemnified tax liability of such Indemnitee, the
Indemnitee, at the Lessee's request, shall allow the Lessee to conduct and
control such contest and (B) in the case of any contest, the Indemnitee 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, (3) if the payment be made, using reasonable efforts to
obtain a refund thereof in appropriate administrative and judicial proceedings,
or (4) taking such other action as is reasonably requested by the Lessee from
time to time.
(iii) 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 except that no decision shall be made to concede an indemnified issue
without the prior consent of Lessee (which consent shall not be unreasonably
withheld). The parties agree that an Indemnitee may at any time decline to take
further action with respect to the contest of any Imposition and may settle such
contest if such Indemnitee shall waive its rights to any indemnity from the
Lessee that otherwise would be payable in respect of such claim (and any future
claim by any taxing authority, the contest of which is precluded by reason of
such resolution of such claim) and shall pay to the Lessee any amount previously
paid or advanced by the Lessee pursuant to this Section 13.5 by way of
indemnification or advance for the payment of an Imposition other than expenses
of such contest.
(iv) Notwithstanding the foregoing provisions of this
Section 13.5, an Indemnitee 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 Indemnitee unless (A) the Lessee shall have agreed such Imposition is
subject to indemnity hereunder and shall pay to such Indemnitee on demand and on
an After Tax Basis all reasonable costs, losses and expenses that such
Indemnitee actually incurs in connection with contesting such Impositions,
including, without limitation, all reasonable legal, accounting and
investigatory fees and disbursements, (B) in the case of a claim that must be
pursued in the name of an Indemnitee (or an Affiliate thereof), the amount of
the potential indemnity (taking into account all similar or logically related
claims that have been or could be raised in any audit involving such Indemnitee
for which the Lessee may be liable to pay an indemnity under this Section 13.5)
exceeds $10,000, (C) the Indemnitee 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 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 Indemnitee an interest-free
advance in an amount equal to the Imposition that the Indemnitee is required to
pay (with no additional net after-tax cost to such Indemnitee), (E) in the case
of a claim that must be pursued in the name of an Indemnitee (or an
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Affiliate thereof), the Lessee shall have provided to such Indemnitee an opinion
of independent tax counsel selected by the Indemnitee and reasonably
satisfactory to the Lessee stating that a reasonable basis exists to contest
such claim (or, in the case of an appeal of an adverse judicial determination,
an opinion of such counsel to the effect that there is substantial authority for
the position asserted in such appeal) and (F) no Event of Default hereunder
shall have occurred and be continuing. In no event shall an Indemnitee be
required to appeal an adverse judicial determination to the United States
Supreme Court. In addition, an Indemnitee 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 a contest completed in accordance
with the provisions of this Section 13.5, unless there shall have been a change
in law (or interpretation thereof) and the Indemnitee shall have received, at
the Lessee's expense, an opinion of independent tax counsel selected by the
Indemnitee 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 Indemnitee will prevail in such contest.
(g) 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 and each Lessor that is
organized under the laws of a jurisdiction outside of the United States of
America shall:
(i) on or before the date it becomes a party to any
Operative Document, 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 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, or (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
(ii) so long as it shall be legally entitled to do so,
on 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
further valid, duly completed, original copies of any such
form or certification, properly and duly executed.
(h) Limitation on Tax Indemnification. The Lessee shall not be
required to indemnify any Indemnitee, or to pay any increased amounts to any
Indemnitee or tax authority with respect to any Impositions pursuant to this
Section 13.5 to the extent that (i) such Imposition is attributable to such
Indemnitee's failure to comply with the provisions of Section 13.5(g); or (ii)
to the extent such Imposition constitutes or is collected by means of a
Qualified Withholding Tax.
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(i) Tax Savings. In the event an Indemnitee receives a refund
(or similar tax savings) in respect of any Imposition paid or reimbursed by the
Lessee which was not considered in calculating the After Tax Basis with respect
to such payment or reimbursement by Lessee, such Indemnitee shall within thirty
(30) days thereafter remit the amount of such refund (or tax savings) to the
Lessee, provided that the amount so remitted shall not exceed the lesser of: (i)
the amount received by such Indemnitee as a refund (or tax savings) net of all
reasonable costs and expenses incurred by such Indemnitee in connection with
obtaining and paying such amount; and (ii) (a) the amount of all prior payments
by the Lessee to such Indemnitee with respect to Impositions, plus any refunded
interest, less (b) the amount of all prior payments by the Indemnitee to the
Lessee under this Section 13.5(i).
SECTION 13.6. Funding Losses. If any payment of any Advance or any
portion of any Participation Interest is made on any day other than the last day
of an Interest Period applicable thereto, or if the Lessee fails to utilize the
proceeds of any purchase of Participation Interests after notice has been given
to any Participant in accordance with Section 3 or 4, the Lessee shall reimburse
each Participant within fifteen (15) days after demand for any Funding Losses
provided that such Participant shall have delivered to the Lessee a certificate
as to the amount of such loss or expense, which certificate shall be conclusive
in the absence of manifest error, and provided further that such loss shall in
no event exceed the interest on the Advances which would have been payable for
the balance of such Interest Period or other period, less the amount actually
earned by such Participant on such Advances. Such Participant will, at the
request of the Lessee, furnish such additional information concerning the
determination of such loss as the Lessee may reasonably request.
SECTION 13.7. Regulation D Compensation. For so long as any Participant
is required by a Change of Law to increase its existing reserve percentage above
that applicable under existing law as of the Effective Date against
"Eurocurrency Liabilities" (or any other category of liabilities which include
deposits by reference to which the interest rate on its Participation Interest
in any Advance is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Participant to
United States residents), and, as a result, the cost to such Participant (or its
Funding Office) of purchasing or maintaining its Participation Interest in any
Advance is increased, then such Participant may require the Lessee to pay,
contemporaneously with each payment of interest or Yield on the Advances an
additional amount on the Participation Interest of such Participant in the
Advances at a rate per annum up to but not exceeding the excess of (i) (A) the
applicable Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve
Requirements and (ii) the applicable Eurodollar Rate. Any Participant wishing to
require payment of such additional amount (x) shall so notify the Lessee and the
Agent, in which case such additional interest on its Participation Interest in
any Advance shall be payable to such Participant at the place indicated in such
notice with respect to each Interest Period commencing at least three (3)
Business Days after the giving of such notice and (y) shall furnish to the
Lessee at least five (5) Business Days prior to each date on which interest is
payable on the Advance an officer's certificate setting forth the amount to
which such Participant is then entitled under this Section (which shall be
consistent with such Participant's good faith estimate of the level at which the
related reserves are maintained by it). Each such certificate shall be
accompanied by such information as the Lessee may reasonably request as to the
computation set forth therein.
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SECTION 13.8. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period:
(a) deposits in dollars (in the applicable amounts) are not
being offered to the Agent in the relevant market for such Interest Period or
any Participants shall advise the Agent that the Eurodollar Rate as determined
by the Agent will not adequately and fairly reflect the cost to such Participant
of funding its Participation Interest in any Advance for such Interest Period;
or
(b) any Participant determines that, by reason of the
adoption, on or after the date of this Participation Agreement, of any
applicable law, rule or regulation, 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 (or its Funding Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or governmental agency, it is restricted, directly or
indirectly, in the amount it may hold of (i) a category of liabilities that
includes deposits by reference to which, or on the basis of which, the interest
rates applicable to Advances to fund its Participation Interest Commitment based
on the Eurodollar Rate are directly or indirectly determined, or (ii) the
category of assets which includes Advances to fund its Participation Interest
Commitment based on the Eurodollar Rate;
the Agent shall forthwith give notice thereof to the Lessee and the
Participants, whereupon until the Agent notifies the Lessee that the
circumstances giving rise to such suspension no longer exist, each outstanding
Advance shall begin to bear interest on the last day of the then current
Interest Period applicable thereto at a rate per annum equal to the sum of (i)
the Participants' average cost of funds employed to fund their Participation
Interests, as notified to the Agent and the Lessee, plus (ii) the Applicable
Margin for Eurodollar Rate-based Advances at such time.
SECTION 13.9. Illegality. If, on or after the date of this
Participation Agreement, the adoption of any applicable law, rule or regulation,
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 (or its Funding Office) with any request or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency (a "Charge of Law"), shall make it unlawful or impossible for any
Participant (or its Funding Office) to purchase, maintain or fund its
Participation Interest in any Advance and such Participant shall so notify the
Agent, the Agent shall forthwith give notice thereof to the other Participants
and the Lessee, whereupon until such Participant notifies the Lessee and the
Agent that the circumstances giving rise to such suspension no longer exist, the
obligation of such Participant to purchase its Participation Interest in any
Advance shall be suspended. Before giving any notice to the Agent pursuant to
this Section, such Participant shall, if practicable, with the consent of the
Lessee (which consent shall not unreasonably be withheld), designate a different
Funding Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Participant, be otherwise disadvantageous
to such Participant. If such notice is given (i) the Lessee shall be entitled
upon its request to a reasonable explanation of the factors underlying such
notice and (ii) each outstanding Participation Interest in any Advance of such
Participant then outstanding shall begin to bear interest at the Alternate Base
Rate either (a)
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on the last day of the then current Interest Period applicable to such Advance
if such Participant may lawfully continue to maintain and fund such
Participation Interest to such day or (b) immediately if such Participant shall
determine that it may not lawfully continue to maintain and fund such
Participation Interest to such day. If such notice is given the Lessee may
exercise its Purchase Option under Section 20.1 of the Lease upon not less than
ten (10) days' written notice to the Lessor, the Agent and the Participants.
SECTION 13.10. Increased Cost and Reduced Return. (a) In the event that
the adoption of any applicable law, rule or regulation, or any change therein or
in the interpretation or application 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 after the date hereof (whether or not having the force of law) of any
such authority, central bank or comparable agency:
(i) does or shall subject such Participant to any
additional tax of any kind whatsoever with respect to the Operative
Documents or any purchase of a Participation Interest in any Advance,
or change the basis or the applicable rate of taxation of payments to
such Participant of its Participation Interest or any other amount
payable hereunder (except for the imposition of or change in (x) any
tax on or measured by the overall net income of such Participant
including, without limitation, any tax that qualifies as an "income
tax" within the meaning of United States Treasury Regulation Section
1.901-2 and which is not an Imposition or (y) any Qualified Withholding
Tax);
(ii) does or shall impose, modify or hold applicable
any reserve, special deposit, insurance assessment, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of
such Participant which are not otherwise included in determination of
the rate of interest on Advances hereunder; or
(iii) does or shall impose on such Participant any
other condition;
and the result of any of the foregoing is to increase the cost to such
Participant of purchasing or maintaining its Participation Interest in any
Advance or to reduce any amount receivable hereunder with respect thereto, then
in any such case, the Lessee shall promptly pay such Participant, upon its
demand, any additional amounts necessary to compensate such Participant for such
increased cost or reduced amount receivable which such Participant deems to be
material as determined by such Participant provided, however, that the Lessee
shall not be obligated to pay any Participant for any such increased costs or
reduced amounts incurred more than sixty (60) days prior to the date of such
Participant's demand for payment if such demand was made more than sixty (60)
days after the latest of (A) the date such Participant received actual notice of
such increased cost or reduced amount, (B) the effective date of such change or
(C) the date such change occurred or was enacted.
(b) If any Participant shall have determined that, after the
date hereof, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein,
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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 any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency has or would have the effect of reducing the
rate of return on capital of such Participant (or any entity directly or
indirectly controlling such Participant) as a consequence of such Participant's
obligations under the Operative Documents to a level below that which such
Participant (or any entity directly or indirectly controlling such Participant)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Participant to be material, then from time to time, within 15
days after demand by such Participant (with a copy to the Agent), the Lessee
shall pay to such Participant such additional amount or amounts as will
compensate such Participant (or its parent) for such reduction.
(c) Each Participant will promptly notify the Lessee and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Participant to compensation pursuant to this Section and
will, if practicable, with the consent of the Lessee (which consent shall not
unreasonably be withheld), designate a different Funding Office or take any
other reasonable action if such designation or action will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Participant, be otherwise disadvantageous to such Participant. A certificate of
any Participant claiming compensation under this Section and setting forth in
reasonable detail its computation of the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Participant may use any reasonable averaging and
attribution methods. This Section shall survive the termination of this
Participation Agreement and payment of the outstanding Advances and
Participation Interests.
SECTION 13.11. Substitution of Participant. If (i) the obligation of
any Participant to purchase or maintain its Participation Interest has been
suspended pursuant to this Section 13, or (ii) any Participant has demanded
compensation or given notice of its intention to demand compensation under
Sections 13.1, 13.2, 13.5 or 13.10, the Lessee shall have the right, with the
assistance of the Agent, to seek one or more mutually satisfactory substitute
banks or financial institutions (which may be one or more of the Participants)
to replace such Participant under the Operative Documents.
SECTION 13.12. Indemnity Payments in Addition to Residual Value
Guarantee Amount. The Lessee acknowledges and agrees that its obligations to
make indemnity payments under this Section 13 are separate from, in addition to,
and do not reduce, its obligation to pay the Residual Value Guarantee Amount
under the Lease; provided, that except as otherwise set forth in Section 13.2
hereof, the Shortfall Amount payable by the Lessee in connection with the
Remarketing Option under the Lease shall not be increased under this Section 13.
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SECTION 14.
THE AGENT
SECTION 14.1. Appointment. Each Participant hereby irrevocably
designates and appoints the Agent as the agent of such Lender under this
Agreement and the other Operative Documents, and each Participant irrevocably
authorizes the Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Operative Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms of this Agreement and the other Operative Documents, together
with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Agent shall not have
any duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Participant or any other party to the Operative
Documents, 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.
SECTION 14.2. Delegation of Duties. The Agent may execute any of its
duties under this Agreement and the other Operative Documents by or through
agents 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 agents or attorneys-in-fact
selected by it with reasonable care.
SECTION 14.3. Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Operative
Document (except for its or such Person's own gross negligence or willful
misconduct) or (b) responsible in any manner to any of the Participants or any
other party to the Operative Documents for any recitals, statements,
representations or warranties made by the Lessor or the Lessee or any officer
thereof contained in this Agreement or 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 for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Operative Document
or for any failure of the Lessor or the Lessee to perform its obligations
hereunder or thereunder. The Agent shall not be under any obligation to any
Participant or any other party to the Operative Documents 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 Lessor or the Lessee.
SECTION 14.4. Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order 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, without
limitation, counsel to the Lessor
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or 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 Required Participants as it deems
appropriate or it shall first be indemnified to its satisfaction by the
Participants 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 and the other Operative Documents in accordance with a request of the
Required Participants, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Participants.
SECTION 14.5. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received notice from a Participant, the Lessor or the Lessee
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the other parties hereto. Subject to the
provisions of Section 11 and Section 15.5 hereof, the Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Participants; provided that unless and until the Agent
shall have received such directions, 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 in the best interests of
the Participants.
SECTION 14.6. Non-Reliance on Agent and Other Participants. Each
Participant expressly acknowledges that neither the Agent 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 Agent hereinafter
taken, including any review of the affairs of the Lessor or the Lessee, shall be
deemed to constitute any representation or warranty by the Agent to any
Participant. Each Participant represents to the Agent that it has, independently
and without reliance upon the Agent 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, operations, property, financial and
other condition and creditworthiness of the Lessor, the Lessee and the Property
and made its own decision to purchase its Participation Interest hereunder and
enter into this Agreement. Each Participant also represents that it will,
independently and without reliance upon the Agent, 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 Agreement and the other
Operative Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Lessor and the Lessee. Except for notices,
reports and other documents expressly required to be furnished to the
Participants by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Participant with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Lessor or the Lessee which may
come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
SECTION 14.7. Indemnification. The Participants agree to indemnify the
Agent in its capacity as such (to the extent not reimbursed by the Lessee and
without limiting the obligation of
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the Lessee to do so), ratably according to their respective Commitment
Percentages in effect on the date on which indemnification is sought under this
Section 14.7 (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Participation Interests shall have
been paid in full, ratably in accordance with their Commitment Percentages
immediately prior to such date), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the
Participation Interests) be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of, the Commitments, this Agreement,
the Property, any of the other Operative Documents or any documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by any of them under or in connection
with any of the foregoing; provided that no Participant shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the gross negligence or willful misconduct of the Agent. The
agreements in this Section 14.7 shall survive the payment of the Participation
Interests and all other amounts payable hereunder.
SECTION 14.8. Agent in its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Lessor or the Lessee as though the Agent were not the
Agent hereunder and under the other Operative Documents. With respect to its
Participation Interest purchased by it, the Agent shall have the same rights and
powers under this Agreement and the other Operative Documents as any Participant
and may exercise the same as though it were not the Agent, and the terms
"Participant" and "Participants" shall include the Agent in its individual
capacity.
SECTION 14.9. Successor Agent. The Agent may resign as Agent upon 20
days' notice to the Participants, the Lessor or the Lessee. If the Agent shall
resign as Agent under this Agreement and the other Operative Documents, then the
Required Participants shall appoint a successor agent for the Participants,
which successor agent shall be a commercial bank organized under the laws of the
United States of America or any State thereof or under the laws of another
country which is doing business in the United States of America and having a
combined capital, surplus and undivided profits of at least $100,000,000 (and if
no Default or Event of Default exists, shall be approved by the Lessee (which
consent shall not be unreasonably withheld)), whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon such appointment and
approval, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. If no successor Agent has
accepted appointment as Agent by the date which is 20 days following a resigning
Agent's notice of resignation, the resigning Agent's resignation shall
nevertheless thereupon become effective and the Participants shall perform all
of the duties of the Agent hereunder until such time, if any, as the Required
Participants appoint a successor Agent as provided above. After any retiring
Agent's resignation as Agent, all of the provisions of this Section 14 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement and the other Operative Documents.
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<PAGE>
SECTION 15.
MISCELLANEOUS
SECTION 15.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Participation Agreement, the
transfer of the Property to the Lessor, the construction of any Improvements,
any disposition of any interest of the Lessor in the Property or any
Improvements, payment of the Advances and the Participation Interests 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
Documents. Except as otherwise expressly set forth herein or in other Operative
Documents, the indemnities of the parties provided for in the Operative
Documents shall survive the expiration or termination of any thereof.
SECTION 15.2. 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 Participation Agreement or
the transactions contemplated herein, nor has it authorized any broker, finder
or financial adviser retained or employed by any other Person so to act. Any
party who is in breach of this representation shall indemnify and hold the other
parties harmless from and against any liability arising out of such breach of
this representation.
SECTION 15.3. 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 and delivered (i) personally, (ii) by a
nationally recognized overnight courier service, (iii) by mail (by registered or
certified mail, return receipt requested, postage prepaid) or (iv) by facsimile,
in each case directed to the address of such Person as indicated on Schedule
III. Any such notice shall be effective upon receipt or refusal.
From time to time any party may designate a new address for purposes of
notice hereunder by written notice to each of the other parties hereto in
accordance with this Section.
SECTION 15.4. Counterparts. This Participation 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.
SECTION 15.5. Amendments. Subject to the provisions of Section 11
hereof, no Operative Document nor any of the terms thereof may be terminated,
amended, supplemented, waived or modified with respect to the Lessee, the
Lessor, the Agent or any Participant, except (a) in the case of a termination,
amendment, supplement, waiver or modification to be binding on the Lessee, the
Lessor or the Agent, with the written agreement or consent of such party, and
(b) in the case of a termination, amendment, supplement, waiver or modification
to be binding on the
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<PAGE>
Participants, with the written agreement or consent of the Required
Participants; provided, however, that
(x) no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each Participant:
(i) modify any of the provisions of Section 11 of
this Agreement or this Section 15.5, change the definition of "Required
Participants" or modify or waive any provision of an Operative
Agreement requiring action by the foregoing;
(ii) amend, modify, waive or supplement any of the
provisions of Sections 3.6, 3.7 or 3.10 - 3.21 of this Agreement or the
representations of such Participant in Section 8 or the covenants in
Sections 7 and 10 of this Participation Agreement;
(iii) reduce, modify, amend or waive any fees or
indemnities in favor of any Participant, including without limitation
amounts payable pursuant to Section 13 (except that any Person may
consent to any reduction, modification, amendment or waiver of any
indemnity or fee payable to it);
(iv) modify, postpone, reduce or forgive, in whole or
in part, any payment of Rent (other than pursuant to the terms of any
Operative Agreement), any payment in respect of its Participation
Interest, or any payment of the Asset Termination Value, Commitment
Fee, Extension Fees, Residual Value Guarantee Amount, amounts due
pursuant to Section 22.2 of the Lease, or interest or, subject to
clause (iii) above, any other amount payable under the Lease or this
Participation Agreement, or modify the definition or method of
calculation of Rent (other than pursuant to the terms of any Operative
Agreement), Participation Interest, Asset Termination Value, Commitment
Fee, Shortfall Amount, Residual Value Guarantee Amount, Required
Supplemental Payments, Property Improvements Cost, Participant Balance,
Tranche A Participation Interest Balance, Tranche B Participation
Interest Balance, or any other definition which would affect the
amounts to be advanced or which are payable under the Operative
Documents; or
(v) consent to any assignment of the Lease, releasing
the Lessee from its obligations in respect of the payments of Rent and
the Asset Termination Value or changing the absolute and unconditional
character of such obligation; and
(y) no other termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor and
the Required Participants, be made to the Lease or Section 6 of this
Participation Agreement or the definition of "Event of Default".
SECTION 15.6. Headings, etc. The Table of Contents and headings of the
various Sections of this Agreement are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
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<PAGE>
SECTION 15.7. Parties in Interest. Except as expressly provided herein,
none of the provisions of this Participation Agreement are intended for the
benefit of any Person except the parties hereto. Subject to the provisions of
Section 25.1 of the Lease, the Lessee shall not assign or transfer any of its
rights or obligations under the Operative Documents without the prior written
consent of the Lessor, the Agent and the Participants, except that the Lessee
may without such consent assign rights or obligations of the Lessee under the
Operative Documents to an Affiliate of the Lessee, provided that the Lessee
remains primarily liable with respect to such obligations and provides its full
unconditional and irrevocable guaranty of such Subsidiary's obligations under
the Operative Documents, such guaranty to be in form and substance reasonably
satisfactory to the Required Participants. If the Lessor, the Agent and the
Participants consent to any such assignment or transfer to a Person not an
Affiliate of the Lessee, the Lessee shall remain primarily liable with respect
to such obligations and provide its full and unconditional guaranty of such
Person's obligations under the Operative Documents, such guaranty to be in form
and substance reasonably satisfactory to the Required Participants.
SECTION 15.8. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY
CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF
THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
SECTION 15.9. Severability. Any provision of this Participation
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.
SECTION 15.10. Liability Limited. (a) The parties hereto agree that the
Lessor shall have no personal liability whatsoever to the Lessee, the Agent or
any Participant or their respective successors and assigns for any claim based
on or in respect of the Lease or any of the other Operative Documents or arising
in any way from the transactions contemplated hereby or thereby; provided,
however, that the Lessor shall be liable in its individual capacity (a) for its
own willful misconduct or gross negligence (or negligence in the handling of
funds), (b) for liabilities that may result from its breach of the covenant to
remove Lessor Liens set forth in Section 10.3, or (c) for any Tax based on or
measured by any fees, commission or compensation received by it for acting as
the Lessor as contemplated by the Operative Documents. It is understood and
agreed that, except as provided in the preceding proviso: (i) the Lessor shall
have no personal liability under any of the Operative Documents; (ii) all
obligations of the Lessor to the Lessee, the Agent and the Participants are
solely nonrecourse obligations and shall be enforceable solely against the
interest of the Lessor in the Property; 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 Documents by the
Lessor. Notwithstanding anything contained herein, the limitations on liability
stated in the preceding provisions of this Section 15.10(a) shall not apply to
liability of the Lessor arising because of a breach of the Lessor's obligation
to remove Lessor Liens or because of its receiving Advances
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<PAGE>
and failing to disburse Advances to the Lessee in accordance with the Operative
Documents, or failure to disburse proceeds from the sale of the Property in
accordance with the Lease and this Participation Agreement.
(b) No Participant shall have any obligation to any other
Participant or to the Lessee, the Lessor or the Agent with respect to
transactions contemplated by the Operative Documents, except those obligations
of such Participant expressly set forth in the Operative Documents 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 Documents except as otherwise so
set forth.
SECTION 15.11. 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 Participation Agreement, the other
Operative Documents, 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 and without need of any prior
request from any other party, shall take such action as may be necessary
(including any action specified in the preceding sentence), or (if the Lessor
shall so request) as so requested, in order to maintain and protect all security
interests provided for hereunder or under any other Operative Document.
SECTION 15.12. Submission to Jurisdiction. The Lessee hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Northern District of Illinois and of any Illinois state court sitting in Cook
County for purposes of all legal proceedings arising out of or relating to the
Operative Documents or the transactions contemplated hereby. The Lessee
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
SECTION 15.13. Confidentiality. The Lessor, the Agent and each
Participant represent that they will maintain the confidentiality of the
transactions contemplated by, and of any written or oral information provided
under, the Operative Documents by or on behalf of the Lessee (hereinafter
collectively called "Confidential Information"), subject to the Lessor's, the
Agent's and each Participant's (a) obligation to disclose any such Confidential
Information pursuant to a request or order under applicable laws and regulations
or pursuant to a subpoena or other legal process, (b) right to disclose any such
Confidential Information to its bank examiners, Affiliates, auditors, counsel
and other professional advisors and to other Participants, (c) right to disclose
any such Confidential Information in connection with any litigation or dispute
involving the Participants and the Lessee or any of its Subsidiaries and
Affiliates and (d) right to provide such information to Sub-Participants,
prospective Sub-Participants to which sales of participating interests are
permitted pursuant to this Participation Agreement and prospective assignees to
which assignments of interests are permitted pursuant to this Participation
Agreement, but only if (i) such Sub-Participant, prospective Sub-Participant or
prospective assignee agrees in writing to maintain the confidentiality
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<PAGE>
of such information on terms substantially similar to those of this Section as
if it were a "Participant" party hereto and (ii) the Lessee receives copies of
such written agreement prior to the release of such information. Notwithstanding
the foregoing, any such information supplied to a Participant, Sub-Participant,
prospective Sub-Participant or prospective assignee under this Participation
Agreement shall cease to be Confidential Information if it is or becomes known
to such Person by other than unauthorized disclosure, or if it becomes a matter
of public knowledge.
SECTION 15.14. WAIVER OF JURY TRIAL. EACH OF THE LESSEE, THE AGENT, THE
LESSOR, AND EACH PARTICIPANT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 15.15. Usury Savings Clause. Nothing contained in this
Participation Agreement or the other Operative Documents shall be deemed to
require the payment of interest or other charges by the Lessee or any other
Person in excess of the amount which may be may lawfully be charged under any
applicable usury laws. In the event that the Lessor or any other Person shall
collect moneys under the Participation Agreement or any other Operative Document
which are deemed to constitute interest (including, without limitation, the
Basic Rent or Supplemental Rent) which would increase the effect interest rate
to a rate in excess of that permitted to be charged by applicable law, all such
sums deemed to constitute interest in excess of the legal rate shall, upon such
determination, at the option of the Person to whom such payment was made, be
returned to the Person making such payment or credited against other amounts
owed by the person making such payment.
[signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Participation Agreement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.
QUANTUM CORPORATION, as Lessee
By: /s/ G. E. McClammy
-------------------------------------
Name: G. E. McClammy
Title: V.P. Finance & Treasurer
<PAGE>
LEASE PLAN NORTH AMERICA, INC., as Lessor
By: /s/ David M. Shipley
-------------------------------------
Name: David M. Shipley
Title: Vice President
<PAGE>
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as Agent
By: /s/ Robin S. Yim
-------------------------------------
Name: Robin S. Yim
Title: Group Vice President
By: /s/ Robert N. Hartinger
-------------------------------------
Name: Robert N. Hartinger
Title: Senior Vice President
<PAGE>
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as a Participant
By: /s/ Robin S. Yim
-------------------------------------
Name: Robin S. Yim
Title: Group Vice President
By: /s/ Robert N. Hartinger
-------------------------------------
Name: Robert N. Hartinger
Title: Senior Vice President
<PAGE>
LEASE PLAN NORTH AMERICA, INC., as a
Participant
By: /s/ David M. Shipley
-------------------------------------
Name: David M. Shipley
Title: Vice President
<PAGE>
<TABLE>
SCHEDULE I
<CAPTION>
Commitment
Participant Commitments Percentage
- ----------- ----------- ----------
<S> <C> <C> <C>
364 Day Commitment
------------------
ABN AMRO BANK N.V., Tranche A
SAN FRANCISCO Participation
INTERNATIONAL BRANCH Interest: $42,500,000 85.00%
Tranche B
Participation
Interest: $5,750,000 11.50%
LEASE PLAN NORTH
AMERICA, INC. Tranche C
Participation
Interest: $1,750,000 3.50%
Total 364 Day Commitment: $50,000,000 100.00%
Two Year Commitment
-------------------
ABN AMRO BANK N.V., Tranche A
SAN FRANCISCO Participation
INTERNATIONAL BRANCH Interest: $13,600,000 85.00%
Tranche B
Participation
Interest: $1,840,000 11.50%
LEASE PLAN NORTH
AMERICA, INC. Tranche C
Participation
Interest: $560,000 3.50%
Total Two Year Commitment: $16,000,000 100.00%
TOTAL COMMITMENT: $66,000,000
===========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
PRICING GRID
<CAPTION>
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
PERIOD PERIOD PERIOD PERIOD PERIOD
<S> <C> <C> <C> <C> <C>
APPLICABLE MARGINS .40% .55% 0.70% 0.90% 1.10%
(other than a Tranche C
Participation Interest):
APPLICABLE MARGINS 2.00% 2.00% 2.00% 2.00% 2.00%
FOR TRANCHE C
PARTICIPATION
INTERESTS:
COMMITMENT FEE
RATE APPLICABLE TO .150% .200% .250% .300% .375%
TWO YEAR
COMMITMENT:
</TABLE>
EXPLANATION
1. The Applicable Margin for each Eurodollar Rate Advance and the
Commitment Fee Rate will be set for each Pricing Period and will vary
depending upon whether such period is a Level 1 Period, a Level 2
Period, a Level 3 Period, a Level 4 Period or a Level 5 Period.
2. The first Pricing Period, which commences on the date of this Agreement
and ends on September 30, 1997, will be a Level 3 Period.
3. The Second Pricing Period, which commences on October 1, 1997 and ends
on November 30, 1997, will be a Level 1 Period, a Level 2 Period, a
Level 3 Period, a Level 4 Period or a Level 5 Period depending upon
Lessee's Total Funded Debt Ratio (and, with respect to determining
pricing at Level 1 Pricing only, EBITDA) for the consecutive
four-fiscal quarter period ending on June 30, 1997 as follows:
(a) If, during the Second Pricing Period (i) Lessee's Total Funded
Debt Ratio is 1.00 or less and (ii) Lessee's EBITDA for the
previous four quarters is $400,000,000 or more, Lessee's
pricing will be a Level 1 Period.
(b) If, during the Second Pricing Period, (i) Lessee's Total
Funded Debt Ratio is more than 1.00 but less than or equal to
1.50, or (ii) Lessee's Total Funded Debt Ratio is less than or
equal to 1.00 but Lessee's EBITDA for the previous four
quarters is less than $400,000,000, Lessee's pricing will be a
Level 2 Period.
(c) If, during the Second Pricing Period, Lessee's Total Funded
Debt Ratio is more than 1.50 but less than or equal to 2.00,
Lessee's pricing will be a Level 3 Period.
<PAGE>
(d) If, during the Second Pricing Period, Lessee's Total Funded
Debt Ratio is more than 2.00 but less than or equal to 2.50,
Lessee's pricing will be Level 4 Period.
(e) If, during the Second Pricing Period, Lessee's Total Funded
Debt Ratio is more than 2.50, Lessee's pricing will be Level 5
Period.
4. Each Pricing Period thereafter will be a Level 1 Period, a Level 2
Period, a Level 3 Period, a Level 4 Period or a Level 5 Period
depending upon Lessee's Total Funded Debt Ratio (and, with respect to
determining pricing at Level 1 Pricing only, EBITDA) for the most
recent consecutive four-fiscal quarter period ending prior to the first
day of such Pricing Period as follows:
(a) If, during any Pricing Period (i) Lessee's Total Funded Debt
Ratio is 1.00 or less and (ii) Lessee's EBITDA for the
previous four quarters is $400,000,000 or more, Lessee's
pricing will be a Level 1 Period.
(b) If, during any Pricing Period, (i) Lessee's Total Funded Debt
Ratio is more than 1.00 but less than or equal to 1.50, or
(ii) Lessee's Total Funded Debt Ratio is less than or equal to
1.00 but Lessee's EBITDA for the previous four quarters is
less than $400,000,000, Lessee's pricing will be a Level 2
Period.
(c) If, during any Pricing Period, Lessee's Total Funded Debt
Ratio is more than 1.50 but less than or equal to 2.00,
Lessee's pricing will be a Level 3 Period.
(d) If, during any Pricing Period, Lessee's Total Funded Debt
Ratio is more than 2.00 but less than or equal to 2.50,
Lessee's pricing will be Level 4 Period.
(e) If, during any Pricing Period, Lessee's Total Funded Debt
Ratio is more than 2.50, Lessee's pricing will be Level 5
Period.
5. Level 1 Period will also apply during any Pricing Period (other than
the first Pricing Period) in which Lessee's senior long term debt
rating from S&P or Moody's is equal to or better than either BBB- or
Baa3 or Lessee's subordinated debt rating from S&P or Moody's is equal
to or better than BB+ or Bal.
<PAGE>
SCHEDULE III
Notice Information and Funding Offices
Lessee: QUANTUM CORPORATION
500 McCarthy Boulevard
Milpitas, California 95035
Attention: Ed McClammy
Telephone: (408) 894-5996
Facsimile: (408) 894-4562
Lessor: LEASE PLAN NORTH AMERICA, INC.
135 S. LaSalle Street, Suite 711
Chicago, Illinois 60603
Attention: David M. Shipley
Telephone: (312) 904-2183
Facsimile: (312) 904-6217
Agent: ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH
101 California Street, Suite 4500
San Francisco, CA 94111
Attention: Robin S. Yim
Telephone: (415) 984-3712
Facsimile: (415) 362-3524
Operations Contact:
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH
101 California Street, Suite 4500
San Francisco, CA 94111
Attention: Gloria Chang Lee
Telephone: (415) 983-2904
Facsimile: (415) 362-3524
Participant: ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH
101 California Street, Suite 4500
San Francisco, CA 94111
Attention: Robin S. Yim
Telephone: (415) 984-3712
Facsimile: (415) 362-3524
Payment
Instructions: Bank: Federal Reserve Bank of New York
Acct: ABN AMRO New York
ABA#: 026009580
Further
Credit to: ABN AMRO San Francisco
Acct#: 6510010545-1
Re: Quantum Corporation
LEASE PLAN NORTH AMERICA, INC.
135 S. LaSalle Street, Suite 711
Chicago, Illinois 60603
Attention: David M. Shipley
Telephone: (312) 904-2183
Facsimile: (312) 904-6217
<PAGE>
SCHEDULE IV
Environmental Matters
[TO BE COMPLETED BY QUANTUM]
<PAGE>
SCHEDULE V
External LC Agreement Covenants
See Disclosure Letter
APPENDIX 1
to
Participation Agreement, Master Lease and
Construction Deed of Trust
each dated as of August 22, 1997
(Specialty Storage Product Group Facilities)
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative
Document), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the
other Operative Documents and reference to any promissory note includes
any promissory note which is an extension or renewal thereof or a
substitute or replacement therefor;
(v) reference to any Applicable Law means such Applicable Law
as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder, and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision;
(vi) reference in any Operative Document to any Article,
Section, Appendix, Schedule, or Exhibit means such Article or Section
thereof or Appendix, Schedule or Exhibit thereto;
(vii) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to an Operative Document as a whole
and not to any particular Article, Section or other provision thereof;
<PAGE>
(viii) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding".
B. Accounting Terms. In each Operative Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
C. Conflict in Operative Documents. If there is any conflict between
any Operative Documents, such Operative Document shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict but, to the
extent (and only to the extent) of such conflict, the Lease shall prevail and
control.
D. Legal Representation of the Parties. The Operative Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Operative Document to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
E. Defined Terms. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Operative Document.
"ABN AMRO" means ABN AMRO Bank N.V., San Francisco International
Branch.
"Account" is defined in Section 3.11 of the Participation Agreement and
in Section 1 of the Cash Collateral Agreement.
"Acquisition Request" is defined in Section 3.3 of the Participation
Agreement.
"Adjusted Percentage" is defined in Section 11.6 of the Participation
Agreement.
"Administrative Agent" means the Administrative Agent under, and as
defined in, the Credit Agreement.
"Administrative Fee" is defined in Section 4.3 of the Participation
Agreement.
"Advance" means an advance of funds by the Lessor pursuant to Section 3
of the Participation Agreement which will be used to pay Land Interest
Acquisition Costs or Property Improvements Costs.
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<PAGE>
"Affiliate" means, when used with respect to any Person, any other
Person directly or indirectly Controlling or Controlled by or under direct or
indirect common control with such Person.
"After Tax Basis" means, with respect to any payment to be received,
the amount of such payment increased so that, after deduction of the amount of
all taxes required to be paid by the recipient calculated at the then maximum
marginal federal and state income tax rates generally applicable to Persons of
the same type as the recipient (less any tax savings realized as a result of the
payment of the indemnified amount) with respect to the receipt by the recipient
of such amounts, such increased payment (as so reduced) is equal to the payment
otherwise required to be made.
"Agent" means ABN AMRO, as agent for the Participants pursuant to the
Participation Agreement, or any successor or additional agent appointed in
accordance with the terms of the Participation Agreement.
"Agent/Arranger Fee Letter" means the letter from the Arranger to the
Lessee, dated as of August 19, 1997.
"Agent Financing Statements" means UCC financing statements
appropriately completed and executed for filing in the applicable jurisdiction
in order to perfect a security interest in favor of the Agent for the ratable
benefit of the Participants in the Equipment located on the Property or in any
Improvements on the Property.
"Alternate Base Rate" means, for any period, an interest rate per annum
equal to the lower of (i) the Prime Rate or (ii) the Federal Funds Effective
Rate most recently determined by the Agent plus 0.50%. If either of the
aforesaid rates or equivalent changes from time to time after the date of the
Participation Agreement, the Alternate Base Rate shall be automatically
increased or decreased, if appropriate and as the case may be, without notice to
the Lessee or the Lessor, as of the effective time of each change.
"Alternate Basic Rate Advance" means an Advance bearing interest or
Yield determined with reference to the Alternate Base Rate as provided in the
Participation Agreement.
"Applicable Law" means all existing and future applicable laws, rules,
regulations (including Environmental Laws), statutes, treaties, codes,
ordinances, permits, certificates, covenants, restrictions, requirements, orders
and licenses of and interpretations by, any Governmental Authorities, and
applicable judgments, decrees, injunctions, writs, orders or like action of any
court, arbitrator or other administrative, judicial or quasi-judicial tribunal
or agency of competent jurisdiction (including those pertaining to health,
safety or the environment (including, without limitation, wetlands) and those
pertaining to the construction, use or occupancy of the Property) and any
restrictive covenant or deed restriction or easement affecting the Property.
"Applicable Margin" means at any time with respect to any Eurodollar
Rate Advance, either (i) at any time amounts are deposited in an Account subject
to the Cash Collateral Agreement, and with respect to that portion of the
Advances represented by such Collateral, .25% per annum margin
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<PAGE>
with respect to Tranche A Participation Interests and Tranche B Participation
Interests therein and 1.25% per annum margin with respect to Tranche C
Participation Interests therein, or (ii) at any other time, the per annum margin
which is determined pursuant to the Pricing Grid, and, in each case, added to
the Eurodollar Rate for such Advance.
"Appraisal" means, with respect to the Property, an appraisal, prepared
by a reputable appraiser approved by the Lessor, the Agent and the Required
Participants, which in the judgment of counsel to the Lessor, the Agent and the
Required Participants, complies with all of the provisions of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules
and regulations adopted pursuant thereto, and all other applicable Requirements
of Law, which appraisal will (i) appraise the Fair Market Sales Value of the
Property as built in accordance with the Plans and Specifications; on the fifth
anniversary of the Effective Date; as of the commencement of the Renewal Term,
if any; and at the end of the Renewal Term, if any; and (ii) contain an estimate
of the useful life of the Improvements as of each such date, all in a form
satisfactory to the Lessor, the Agent and the Required Participants.
"Appurtenant Rights" means (i) all agreements, easements, rights of way
or use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to any Land Interest or the Improvements, including, without limitation, the use
of any streets, ways, alleys, vaults or strips of land adjoining, abutting,
adjacent or contiguous to any Land Interest and (ii) all permits, licenses and
rights, whether or not of record, appurtenant to any Land Interest.
"Arranger" means ABN AMRO North America, Inc.
"Asset Termination Value" means, as of any date of determination, an
amount equal to (i) the sum of (A) the outstanding Advances, (B) all accrued and
unpaid interest on the Advances, and (C) all other amounts owing by the Lessee
under the Operative Documents, less (ii) the sum of all payments received by the
Lessor, the Agent or the Participants on account of payments to reduce Asset
Termination Value, including reductions resulting from payments by the Lessor,
the Lessee or the Guarantor and/or the proceeds from the sale of the Property
and/or amounts realized from the Collateral pursuant to the Cash Collateral
Agreement.
"Assignment and Acceptance" is defined in Section 12.1(b) of the
Participation Agreement.
"Assignment of Construction Documents" means the Assignment of
Construction Documents, dated as of the Effective Date, in the form attached as
Exhibit A to the Construction Agency Agreement.
"Assignment of Lease" means the Assignment of Lease, dated as of the
Effective Date, from the Lessor to the Agent for the benefit of the
Participants, and consented to by the Lessee pursuant to that certain Lessee's
Consent, dated as of the Effective Date (the "Consent to Assignment") by the
Lessee, as obligor, in favor of the Agent for the benefit of the Participants,
in each case in the respective forms set forth in Exhibit L to the Participation
Agreement.
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<PAGE>
"Assignment of Purchase Agreement" means the Assignment of Certain
Rights under Purchase and Sale Agreement, dated as of the Land Interest
Acquisition Date, by and among the Lessee, as assignor, the Lessor, as assignee
and the Existing Owner, as seller.
"Available Commitments" means as to any Participant at any time, an
amount equal to the excess, if any, of (a) the amount of such Participant's
Commitment over (b) the aggregate amount of its Participation Interest in all
Advances made by the Lessor then outstanding.
"Banks" means the Banks from time to time party to, and as defined in,
the Credit Agreement.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect.
"Basic Rent" means the sum of (i) that portion of the Property
Improvements Costs due on any Payment Date, if any, as set forth on Schedule 1
to the Lease and (ii) the interest or Yield on Advances due on any Payment Date
as set forth in Section 3.8 of the Participation Agreement.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Board" means the Board of Governors of the Federal Reserve System of
the United States (or any successor).
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banks in Chicago, Illinois, San Francisco,
California or (if interest is being determined by reference to the Eurodollar
Rate) London, England, are generally authorized or obligated, by law or
executive order, to close.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is, or is required to be, accounted for as a capital lease
on the balance sheet of that Person.
"Capitalized Lease Obligations" means any amount payable with respect
to any Capital Lease or any lease of any tangible or intangible property
(whether real, personal or mixed), however denoted, which either (i) is required
by GAAP to be reflected as a liability on the face of the balance sheet of the
lessee thereunder or (ii) based on actual circumstances existing and
ascertainable, either at the commencement of the term of such lease or at any
subsequent time at which any property becomes subject thereto, can reasonably be
anticipated to impose on such lessee substantially the same economic risks and
burdens, having regard to such lessee's obligations and the lessor's rights
thereunder both during and at the termination of such lease, as would be imposed
on such lessee by any lease which is required to be so reflected or by the
ownership of the leased property.
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<PAGE>
"Cash Collateral" is defined in Section 1 of the Cash Collateral
Agreement.
"Cash Collateral Agreement" means the Cash Collateral Agreement dated
as of the Effective Date among the Lessee, the Lessor, the Agent and the
Participants, in the form of Exhibit S to the Participation Agreement.
"Cash Equivalents" means Investments of the type permitted pursuant to
clauses (i) through (iv), (vi), (viii) and (xviii) in Section 10.1(k) of the
Participation Agreement.
"Casualty" means any damage or destruction of all or any portion of the
Property as a result of a fire or other casualty.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. ss.ss. 9601 et seq., as amended by the
Superfund Amendments and Reauthorization Act of 1986.
"Certifying Party" is defined in Section 26.1 of the Lease.
"Change of Control" means with respect to the Lessee, the occurrence of
any of the following events: (i) any person or group of persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall (A) acquire beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of forty percent (40%) or more of the
outstanding Equity Securities of the Lessee entitled to vote for members of the
board of directors, or (B) acquire all or substantially all of the assets of the
Lessee and its Subsidiaries taken as a whole, or (ii) during any period of
fifteen (15) consecutive calendar months, individuals who are directors of the
Lessee on the first day of such period ("Initial Directors") and any directors
of the Lessee who are specifically approved by two-thirds of the directors of
the Lessee who are Initial Directors or previously-approved Approved Directors
("Approved Directors") shall cease to constitute a majority of the Board of
Directors of the Lessee before the end of such period.
"Change of Law" is defined in Section 13.9 of the Participation
Agreement.
"Claims" means any and all obligations, liabilities, losses, actions,
suits, judgments, penalties, fines, claims, demands, settlements, costs and
expenses (including, without limitation, reasonable legal fees and expenses) of
any nature whatsoever, including, as they relate to issues involving any
Environmental Law or Environmental Violation, those matters set forth in Section
13.3 of the Participation Agreement.
"Closing Date" is defined in Section 2 of the Participation Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto.
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<PAGE>
"Collateral" means the Collateral under the Cash Collateral Agreement.
"Commitment" means (i) as to any Participant, the obligation of such
Participant to purchase a Participation Interest in Advances to be made by the
Lessor under the Participation Agreement, in an aggregate amount at any one time
outstanding not to exceed the amount set forth opposite such Participant's name
on Schedule I to the Participation Agreement, as such amount may be reduced from
time to time in accordance with the provisions of the Participation Agreement,
and (ii) as to the Lessor, the obligation of the Lessor to make Advances from
amounts received from the Participants pursuant to the purchase of Participation
Interests under the Participation Agreement.
"Commitment Fee" is defined in Section 4.1 of the Participation
Agreement.
"Commitment Fee Payment Date" means the last day of each March, June,
September and December during the Commitment Period and the Outside Completion
Date or such earlier date as the Commitments shall terminate as provided in the
Operative Documents.
"Commitment Fee Rate" means, as to each Participant (i) as to such
Participant's 364 Day Commitment and any permitted extension thereof, .125% per
annum and (ii) as to such Participant's Two Year Commitment, the per annum
percentage determined pursuant to the Pricing Grid.
"Commitment Percentage" means, as to any Participant at any time, the
percentage which such Participant's Commitment then constitutes of the aggregate
Commitments of the Participants (or, at any time after the Commitments of the
Participants shall have expired or terminated, the percentage which the
aggregate amount of such Participant's Participation Interest then outstanding
constitutes of the aggregate amount of the Participation Interests then
outstanding).
"Commitment Period" means the period from and including the Effective
Date to but not including the earlier of the Completion Date or the Outside
Completion Date, or such earlier date on which the Commitments shall terminate
as provided in the Operative Documents or such later date as may be provided for
the Completion of construction in the Construction Agency Agreement due to the
existence of a Force Majeure Event.
"Completion" means such time as (i) the conditions set forth in Section
7 of the Participation Agreement are satisfied and (ii) the Improvements are
ready for occupancy.
"Completion Date" means, with respect to the Property, the date on
which Completion of the Improvements on such Property has occurred.
"Compliance Certificate" is defined in Section 10.1(a) of the
Participation Agreement.
"Condemnation" means any condemnation, requisition, confiscation,
seizure or other taking or sale of the use, access, occupancy, easement rights
or title to the Property or any part thereof, wholly or partially (temporarily
or permanently), by or on account of any actual or threatened eminent domain
proceeding or other taking of action by any Person having the power of eminent
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<PAGE>
domain, including an action by a Governmental Authority to change the grade of,
or widen the streets adjacent to, the Property or alter the pedestrian or
vehicular traffic flow to the Property so as to result in change in access to
the Property, or by or on account of an eviction by paramount title or any
transfer made in lieu of any such proceeding or action. A "Condemnation" shall
be deemed to have occurred on the earliest of the dates that use, occupancy or
title is taken.
"Confidential Information" is defined in Section 15.13 of the
Participation Agreement.
"Consent to Assignment" is defined in the definition of the term
"Assignment of Lease".
"Consent to Construction Agency Agreement Assignment" means the Consent
dated as of the Effective Date by the Lessee to the Construction Agency
Agreement Assignment in the form attached to the Construction Agency Agreement
Assignment.
"Construction Agency Agreement" means the Construction Agency
Agreement, dated as of the Effective Date, between the Lessor and the
Construction Agent, in the form of Exhibit M to the Participation Agreement.
"Construction Agency Agreement Assignment" means the Assignment of
Construction Agency Agreement, dated as of the Effective Date, from the Lessor
to the Agent, for the benefit of the Participants, in the form of Exhibit N to
the Participation Agreement.
"Construction Agency Agreement Event of Default" means a "Construction
Agency Agreement Event of Default" as defined in Section 5.1 of the Construction
Agency Agreement.
"Construction Agent" means the Lessee, as construction agent under the
Construction Agency Agreement.
"Construction Commencement Date" is defined in Section 2.3 of the
Construction Agency Agreement.
"Construction Period" means, with respect to the Property, the period
commencing on the Construction Commencement Date and ending on the earlier of
the Completion Date and the Outside Completion Date for such Property.
"Contingent Obligation" means, with respect to any Person without
duplication, (a) any Guaranty Obligation of that Person; and (b) any direct or
indirect monetary obligation or liability, contingent or otherwise, of that
Person (i) in respect of any letter of credit or similar instrument issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, (ii) to purchase any materials, supplies or other
property from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be made
regardless of whether delivery of such materials, supplies or other property is
ever made or tendered, or such services are ever performed or tendered if and to
the extent such obligations are not designated as
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<PAGE>
accounts payable in accordance with GAAP, or (iii) incurred pursuant to any
interest rate swap, cap or collar agreements, interest rate future or option
contracts, currency swap agreements, currency future or option contracts or
other similar agreements relating to interest rates or currencies. The amount of
any Contingent Obligation shall be deemed equal to the liability in respect
thereof reasonably anticipated in accordance with GAAP.
"Contractual Obligation" of any Person means any indenture, note,
lease, loan agreement, security, deed of trust, mortgage, security agreement,
guaranty, instrument, contract, agreement or other form of contractual
obligation or undertaking to which such Person is a party or by which such
Person or any of its property is bound.
"Control" means (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, the possession directly or indirectly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Covered Liabilities" is defined in Section 11.6 of the Participation
Agreement.
"Convertible Subordinated Debentures" means (i) the 5% Convertible
Subordinated Notes due 2003 in the original principal amount of $241,350,000
issued by the Lessee pursuant to the Indenture dated February 15, 1996 between
the Lessee and LaSalle National Trust Company, N.A., as Trustee and (ii) the 7%
Convertible Subordinated Notes due 2004 issued by the Lessee pursuant to the
Indenture dated as of August 1, 1997 as supplemented by the Supplemental Trust
Indenture dated as of August 1, 1997 between the Lessee and LaSalle National
Trust Company, N.A.
"Credit Agreement" means that certain Credit Agreement, dated as of
June 6, 1997, among the Lessee, the Banks, ABN AMRO, as syndication agent for
the Banks, Bank of America National Trust and Savings Association, as
documentation agent for the Banks, and Canadian Imperial Bank of Commerce, as
administrative agent for the Banks, as such Credit Agreement is in effect on the
Effective Date.
"Credit Agreement Obligations" means the Obligations under, and as
defined in, the Credit Agreement.
"Credit Documents" means the Credit Documents entered into in
connection with, and as defined in, the Credit Agreement.
"Deed" is defined in Section 6.1(e) of the Participation Agreement.
"Default" means any event or condition which, with the lapse of time or
the giving of notice, or both, would constitute an Event of Default.
"Defaulted Amount" is defined in Section 11.7 of the Participation
Agreement.
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"Defaulting Participant" means, at any time, any of the Participants
which at such time has (i) failed to make a payment when due to the Lessor equal
to its Commitment Percentage of an Advance, (ii) has been notified of such
failure by the Lessor, and (iii) has not cured such failure by making such
payment, together with interest at the Late Payment Rate.
"Depositary Bank" is defined in Section 1 of the Cash Collateral
Agreement.
"Designated Payment Date" means the Expiration Date, the Termination
Date or other date of termination of the Lease.
"Disclosure Letter" means the letter from the Lessee to the Lessor and
the Agent, dated the Effective Date, which identifies itself as the "Disclosure
Letter" under the Participation Agreement.
"Dollars" and "$" mean dollars in lawful currency of the United States
of America.
"Domestic Subsidiary" means, with respect to any Person, any Subsidiary
of such Person which is created or organized in the United States or under the
laws of the United States or any state of the United States.
"EBITDA" means, with respect to any Person for any period, the sum of
the following, determined on a consolidated basis in accordance with GAAP where
applicable:
(a) The net income or net loss of such Person and its
Subsidiaries for such period before provision for income taxes;
(b) The sum (to the extent deducted in calculating net income
or loss in clause (a) above) of (i) all Interest Expenses of such Person and its
Subsidiaries accruing during such period and (ii) all depreciation and
amortization of such Person and its Subsidiaries accruing during such period.
"Effective Date" means August 22, 1997.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of section 3(3) of ERISA maintained or contributed to by the Lessee or
any ERISA Affiliate, other than a Multiemployer Plan.
"End of the Term Report" is defined in Section 13.2 of the
Participation Agreement.
"Environmental Audit" means a Phase One environmental site assessment
(the scope and performance of which meets or exceeds ASTM Standard Practice
E1527-93 Standard Practice for Environmental Site Assessments: Phase One
Environmental Site Assessment Process) of the Property to be leased by the
Lessor on the Closing Date or of the Property to be remarketed under the
Remarketing Option under the Lease.
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<PAGE>
"Environmental Certificate" is defined in Section 6.1 of the
Participation Agreement.
"Environmental Law" means, whenever enacted or promulgated, any
Federal, state, county or local law, statute, ordinance, rule, regulation,
license, permit, authorization, approval, covenant, criteria, guideline,
administrative or court order, judgment, decree, injunction, code or requirement
or any agreement with a Governmental Authority:
(x) relating to pollution (or the cleanup, removal,
remediation or encapsulation thereof, or any other response thereto),
or the regulation or protection of human health, safety or the
environment, including air, water, vapor, surface water, groundwater,
drinking water, land (including surface or subsurface), plant, aquatic
and animal life, or
(y) concerning exposure to, or the use, containment, storage,
recycling, treatment, generation, discharge, emission, Release or
threatened Release, transportation, processing, handling, labeling,
containment, production, disposal or remediation of any Hazardous
Substance, Hazardous Condition or Hazardous Activity;
in each case as amended and as now or hereafter in effect, and any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries (whether personal or property) or
damages due to or threatened as a result of the presence of, exposure to, or
ingestion of, any Hazardous Substance, whether such common law or equitable
doctrine is now or hereafter recognized or developed. Applicable laws include,
but are not limited to, CERCLA; the Resource Conservation and Recovery Act of
1976, 42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. ss. 1251 et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.; the
National Environmental Policy Act, 42 U.S.C. ss. 4321; the Refuse Act, 33 U.S.C.
ss.ss. 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49
U.S.C. ss.ss. 1801-1812; the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601
et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
ss.ss. 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq.;
and the Occupational Safety and Health Act of 1970, each as amended and as now
or hereafter in effect, and their state and local counterparts or equivalents,
including any regulations promulgated thereunder.
"Environmental Violation" means any activity, occurrence or condition
or omission that violates or results in non-compliance with any Environmental
Law.
"Equipment" means equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever purchased by the Lessor
using the proceeds of the Participation Interests in the Advances now or
subsequently attached to, contained in or used or usable in any way in
connection with any operation or letting of the Property, including but without
limiting the generality of the foregoing, all semiconductor manufacturing
equipment, screens, awnings, shades, blinds, curtains, draperies, artwork,
carpets, rugs, storm doors and windows, shelving, counters, furniture and
furnishings, heating, electrical, and mechanical equipment, lighting,
switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus,
refrigerating, and incinerating equipment, escalators, elevators, loading and
unloading equipment and systems, cleaning systems
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<PAGE>
(including window cleaning apparatus), telephones, communication systems
(including satellite dishes and antennae), televisions, computers, sprinkler
systems and other fire prevention and extinguishing apparatus and materials,
security systems, motors, engines, machinery, pipes, pumps, tanks, conduits,
appliances, fittings and fixtures of every kind and description.
"Equipment Schedule" means each Equipment Schedule in the form of
Exhibit B to the Lease.
"Equity Securities" of any Person means (a) all common stock, preferred
stock, participations, shares, partnership interests or other equity interests
in such Person (regardless of how designated and whether or not voting or
non-voting) and (b) all warrants, options and other rights to acquire any of the
foregoing, other than convertible debt securities which have not been converted
into common stock, preferred stock, participations, shares, partnership
interests or other equity interests in any such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time or any successor Federal statute.
"ERISA Affiliate" means each entity required to be aggregated with the
Lessee pursuant to the requirements of Section 414(b) or (c) of the Code.
"ERISA Group" means the Lessee and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Lessee, are treated as a single employer
under Section 414 of the Code.
"Eurocurrency Reserve Requirements" means, for any day as applied to an
Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Rate" means, with respect to each day during each Interest
Period, the rate per annum determined by the Agent to be the offered rate per
annum at which deposits in Dollars appear with respect to such Interest Period
on the Reuters Screen LIBOR Page (or any successor page), or if such offered
rate is not available, then the rate per annum at which deposits in Dollars
appear with respect to such Interest Period on the Telerate Page 3750 (or any
successor page) in each case as of 11:00 a.m. (London time), two Business Days
prior to the beginning of such Interest Period or in the event that the
foregoing offered rates are not available, then the average (rounded upward to
the nearest whole multiple of one sixteenth of one percent per annum, if such
average is not such a multiple) of the respective rates notified to the Agent by
each of the Participants as the rates at which such Participant's Funding Office
is offered Dollar deposits at or about 11:00 a.m. (London time), two Business
Days prior to the beginning of such Interest Period in the interbank Eurodollar
market
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<PAGE>
for delivery on the first day of such Interest Period for the number of days
comprised therein in an amount comparable to the amount of the Advances
estimated to be outstanding during such Interest Period.
"Eurodollar Rate Advance" means on Advance bearing interest or Yield
determined with reference to the Eurodollar Rate as provided in the
Participation Agreement.
"Event of Default" means a Lease Event of Default, a Construction
Agency Agreement Event of Default or a Guarantee Event of Default.
"Excepted Payments" means:
(a) all indemnity payments (including indemnity payments made
pursuant to Section 13 of the Participation Agreement) to which the
Lessor, or any of its Affiliates, agents, officers, directors or
employees is entitled;
(b) any amounts (other than Basic Rent or amounts payable by
Lessee pursuant to Section 16.2, Section 16.3, Section 16.4 or Articles
XVII, XX or XXII of the Lease) payable under any Operative Document to
reimburse the Lessor or any of its respective Affiliates (including the
reasonable expenses of the Lessor incurred in connection with any such
payment) for performing or complying with any of the obligations of the
Lessee under and as permitted by any Operative Document, except to the
extent that one or more Participants have indemnified the Lessor with
respect thereto pursuant to the Participation Agreement;
(c) any amount payable to the Lessor by any Participant or
transferee permitted under the Operative Documents of the interest of
the Lessor as the purchase price of such Participant's Participation
Interest;
(d) any insurance proceeds (or payments with respect to risks
self-insured or policy deductibles) under liability policies other than
such proceeds or payments payable to the Agent or the Lessor;
(e) any insurance proceeds under policies maintained by the
Lessor;
(f) Transaction Expenses or other amounts or expenses paid or
payable to or for the benefit of the Lessor;
(g) all right, title and interest of the Lessor to the
Property or any portion thereof or any other property to the extent any
of the foregoing has been released from the Lien of the Mortgage, the
Assignment of Lease and the Construction Agency Agreement Assignment
pursuant to the terms thereof following the payment of the Participant
Balances of all of the Participants and all amounts due and owing to
the Agent; and
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(h) any payments in respect of interest to the extent
attributable to payments referred to in clauses (a) through (g) above.
"Excess Investment" of the Lessor means the excess (if any) of the
outstanding Participant Balance of the Lessor in the Property from time to time
over the amount that would have been the Lessor's Participant Balance if, in
connection with all Advances actually made under the Participation Agreement,
all Participants had paid to the Lessor an amount equal to such Advances times
their respective Commitment Percentages, as such excess may be determined by the
Lessor. Absent the existence of a Defaulting Participant, a failure by
Participant to make a payment required by Section 3.4 or some other unexpected
contingency, it is expected that the Lessor will have no Excess Investment.
"Excess Proceeds" means the excess, if any, of the aggregate of all
awards, compensation or insurance proceeds payable in connection with a Casualty
or Condemnation over the Asset Termination Value paid by the Lessee pursuant to
Articles XIV and XV of the Lease with respect to such Casualty or Condemnation.
"Excess Reimbursement" is defined in Section 11.6 of the Participation
Agreement.
"Executive Officer" means, with respect to the Lessee, the Chairman,
Chief Executive Officer, Chief Operating Officer, President, Chief Financial
Officer, Treasurer, General Counsel or Vice President of Corporate Development
and Planning of the Lessee or any division President or Executive Vice President
of the Lessee (or, if the titles are changed, the persons having similar
responsibilities for the Lessee).
"Existing Financing" means the debt and equity financing provided to
the Existing Owner to purchase and/or construct the Land Interest and any
Improvements.
"Existing Participants" means the lenders and holders of equity
interests under the Existing Financing.
"Existing Owner" means Schuck Holdings LLC, a Colorado limited
liability company.
"Expiration Date" means the later of (i) the fifth anniversary of the
Effective Date or (ii) the scheduled expiration of any Renewal Term, if any.
"Expiration Date Purchase Obligation" means the Lessee's obligation,
pursuant to Section 20.2 of the Lease, to purchase all (but not less than all)
of the Property on the Expiration Date.
"Extension Date" means, if the Extension Fee is payable, the date which
is 364 days after the Effective Date.
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<PAGE>
"Extension Fee" means an amount equal to (i) 0.125% multiplied by (ii)
the aggregate amount of the 364 Day Commitment that is extended until the Six
Month Termination Date pursuant to Section 3.6 of the Participation Agreement.
"External LC Agreement" means the Credit Agreement, dated as of
September 22, 1995, among the Lessee, The Sumitomo Bank, Limited and other banks
from time to time parties thereto (as amended, modified and supplemented from
time to time in accordance with the Participation Agreement), or such other
agreement between or among the Lessee and any other financial institution or
financial institutions pursuant to which the Lessee may incur Indebtedness under
letters of credit of the type permitted under clause (vi) of Section 10.1(a) of
the Participation Agreement.
"Fair Market Sales Value" means, with respect to the Property, the
amount, which in any event shall not be less than zero, that would be paid in
cash in an arm's-length transaction between an informed and willing purchaser
and an informed and willing seller, neither of whom is under any compulsion to
purchase or sell, respectively, for the ownership of the Property. The Fair
Market Sales Value of the Property shall be determined based on the assumption
that, except for purposes of Article XVII of the Lease and Section 13.2 of the
Participation Agreement, the Property is in the condition and state of repair
required under Section 10.1 of the Lease and the Lessee is in compliance with
the other requirements of the Operative Documents.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of quotations for such day on such transaction received by the Agent
from three Federal funds brokers of recognized standing selected by it.
"Financial Statements" means, with respect to any accounting period for
any Person, consolidated statements of income, shareholders' equity and cash
flows of such Person for such period, and a balance sheet of such Person as of
the end of such period, setting forth in each case in comparative form figures
for the corresponding period in the preceding fiscal year if such period is less
than a full fiscal year or, if such period is a full fiscal year, corresponding
figures from the preceding annual audit, all prepared in reasonable detail and
in accordance with GAAP.
"Fixtures" means all fixtures relating to the Improvements, including
all components thereof, located in or on the Improvements which are acquired
with Advances and all replacements and Modifications thereto, other than
Lessee's Property.
"Force Majeure Event" means with respect to the Property any event (the
existence or potentiality of which was not known and could not have been
discovered through the exercise of due diligence by the Lessee prior to the
Closing Date) beyond the reasonable control of the Construction Agent, other
than a Casualty or Condemnation, including, but not limited to, strikes,
lockouts, adverse soil conditions, acts of God, adverse weather conditions,
inability to obtain labor or materials, government activities, civil commotion
and enemy action; but excluding any event, cause
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or condition that results from the Construction Agent's financial condition or
failure to pay or any event, causeor condition which could be remedied through
the exercise of commercially reasonable efforts or the commercially reasonable
expenditure of funds.
"Funded Debt" of any Person means, without duplication, Indebtedness of
the type set forth in clauses (a) - (f) of the definition of "Indebtedness" less
Cash or Cash Equivalents used as collateral to secure any such Indebtedness.
"Funding Date" means any Business Day on which Advances are funded
pursuant to the Participation Agreement.
"Funding Losses" means with respect to any repayment, prepayment or
conversion of any Eurodollar Rate Advance, the amount (which shall not be less
than zero) computed in accordance with the following formula:
Funding Losses = (R-T x P x D)
-------------
360
where R = the interest rate or Yield that was or would have been
applicable to such Eurodollar Rate Advance;
T = the Eurodollar Rate for the date of such repayment,
prepayment, conversion, failure to borrow, failure to
contribute or failure to convert for new Eurodollar Rate
Advances, of the same principal amount or equity
contribution made for an assumed Interest Period (the
"Remaining Period") which begins on the date of such
repayment, prepayment, conversion, failure to borrow,
failure to contribute or failure to convert and ends on
the last day of the actual Interest Period that was or
would have been applicable to the Eurodollar Rate
Advance that was repaid, prepaid or converted or that
was not borrowed, contributed or converted;
P = the principal amount of the Eurodollar Rate Advance that
was repaid, prepaid or converted or that was not
borrowed, contributed or converted; and
D = the number of days in the Remaining Period.
"Funding Office" means the office of each Participant identified on
Schedule II to the Participation Agreement as its Funding Office.
"Funding Request" is defined in Section 3.4 of the Participation
Agreement.
"GAAP" means United States generally accepted accounting principles
(including principles of consolidation), in effect from time to time,
consistently applied.
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"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any Applicable Law, and shall include, without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operation of the Property.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Charges" means, with respect to any Person, all levies,
assessments, fees, claims or other charges imposed by any Governmental Authority
upon such Person or any of its property or otherwise payable by such Person.
"Gross Proceeds" is defined in Section 22.1(k) of the Lease.
"Guarantee" means the Guarantee executed by the Guarantor in favor of
the Agent, for the benefit of the Participants, in the form of Exhibit O to the
Participation Agreement.
"Guarantee Event of Default" is defined in the Guarantee.
"Guarantor" means Quantum Corporation, a Delaware corporation.
"Guaranty Obligation" means, with respect to any Person, any direct or
indirect liability of that Person with respect to any indebtedness, lease,
dividend, letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that Person,
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary obligation
(except to the extent of the fair market value of such property, securities or
services to be purchased), or (d) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof. The
amount of any Guaranty Obligation shall be deemed equal to the liability in
respect thereof reasonably anticipated under GAAP.
"Hazardous Activity" means any activity, process, procedure or
undertaking that directly or indirectly (i) produces, generates or creates any
Hazardous Substance; (ii) causes or results in (or threatens to cause or result
in) the Release of any Hazardous Substance into the environment (including air,
water vapor, surface water, groundwater, drinking water, land (including surface
or subsurface), plant, aquatic and animal life); (iii) involves the containment
or storage of any
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Hazardous Substance; or (iv) would be regulated as hazardous waste treatment,
storage or disposal within the meaning of any Environmental Law.
"Hazardous Condition" means any condition that violates or threatens to
violate, or that results in or threatens noncompliance with, any Environmental
Law.
"Hazardous Substance" means any of the following: (i) any petroleum or
petroleum product, explosives, radioactive materials, asbestos, formaldehyde,
polychlorinated biphenyls, lead and radon gas; (ii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas, medical
waste or pollutant, in each case whether naturally occurring, man-made or the
by-product of any process, that is toxic, harmful or hazardous to the
environment or human health or safety; or (iii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas, medical
waste or pollutant that would support the assertion of any claim under any
Environmental Law, whether or not defined as hazardous as such under any
Environmental Law.
"Impositions" means, except to the extent described in the following
sentence, any and all liabilities, losses, expenses, costs, charges and Liens of
any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings ("Taxes") including (i) real and personal property
taxes, including personal property taxes on any property covered by the Lease
that is classified by Governmental Authorities as personal property, and real
estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes,
use taxes and other similar taxes (including rent taxes and intangibles taxes);
(iii) any excise taxes; (iv) real estate transfer taxes, mortgage taxes,
conveyance taxes, stamp taxes and documentary recording taxes and fees; (v)
taxes that are or are in the nature of franchise, income, value added, privilege
and doing business taxes, license and registration fees; (vi) assessments on the
Property, including all assessments for public improvements or benefits, whether
or not such improvements are commenced or completed within the Term; and (vii)
any tax, Lien, assessment or charge asserted, imposed or assessed by the PBGC or
any governmental authority succeeding to or performing functions similar to, the
PBGC, and in each case all interest, additions to tax and penalties thereon,
which at any time prior to, during or with respect to the Term or in respect of
any period for which the Lessee shall be obligated to pay Supplemental Rent, may
be levied, assessed or imposed by any Governmental Authority upon or with
respect to (a) the Property or any part thereof or interest therein; (b) the
purchase, sale, leasing, financing, refinancing, demolition, construction,
alteration, substitution, subleasing, assignment, control, condition, occupancy,
servicing, maintenance, repair, ownership, possession, activity conducted on,
delivery, insuring, use, operation, improvement, transfer of title, return or
other disposition of the Property or any part thereof or interest therein; (c)
the Participation Interests with respect to the Property or any part thereof or
interest therein; (d) the rentals, receipts or earnings arising from the
Property or any part thereof or interest therein; (e) the Operative Documents,
the performance thereof, or any payment made or accrued pursuant thereto; (f)
the income or other proceeds received with respect to the Property or any part
thereof or interest therein upon the sale or disposition thereof; (g) any
contract (including the Construction Agency Agreement) relating to the
construction, acquisition or delivery of the Improvements or any part thereof or
interest therein; or (h) otherwise in connection with the transactions
contemplated by the Operative Documents.
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The term "Imposition" shall not mean or include the following (except
to the extent that such Taxes apply in consequence of the Lease being treated
other than as a loan for such Tax purposes and exceed the amount of such Taxes
that would have applied if the Lease had been so treated as a loan:
(i) Taxes and impositions (other than Taxes that are, or are
in the nature of, sales, use, transfer or property taxes) that are
imposed on an Indemnitee by the United States federal or any foreign
government that are based on or measured by the net income (including
taxes based on capital gains and minimum taxes) of such Person;
provided, that this clause (i) shall not be interpreted to prevent a
payment from being made on an After Tax Basis if such payment is
otherwise required to be so made;
(ii) Taxes and impositions (other than Taxes that are, or are
in the nature of, sales, use, transfer or property taxes) that are
imposed by any state or local jurisdiction or taxing authority within
any state or local jurisdiction and that are franchise taxes or are
based upon or measured by net income or net receipts; provided, that
this clause (ii) shall not be interpreted to prevent a payment from
being made on an After Tax Basis if such payment is otherwise required
to be so made (anything to the contrary notwithstanding, nothing in the
Operative Documents shall be construed to impose upon Lessee any
liability for Taxes imposed upon an Indemnitee to the extent imposed
with respect to any activities of such Indemnitee other than under the
transactions contemplated by the Operative Documents);
(iii) any Tax or imposition for so long as, but only for so
long as, it is being contested in accordance with the provisions of
Section 13.5 of the Participation Agreement;
(iv) any Taxes which are imposed on an Indemnitee as a result
of the gross negligence or wilful misconduct of such Indemnitee itself
(as opposed to gross negligence or wilful misconduct imputed to such
Indemnitee), but not Taxes imposed as a result of ordinary negligence
of such Indemnitee; or
(v) any Tax or imposition to the extent, but only to such
extent, it relates to any act, event or omission that occurs after the
termination of the Lease and redelivery or sale of the Property in
accordance with the terms of the Lease (but not any Tax or imposition
that relates to any period prior to such termination and redelivery).
Any Tax excluded from the defined term "Imposition" in any one of the foregoing
clauses (i) through (iv) shall not be construed as constituting an Imposition by
any provision of any other of the aforementioned clauses. For purposes of the
foregoing, taxes based upon or measured by net income shall be deemed to
include, without limitation, any Imposition that qualifies as an "income tax"
within the meaning of United States Treasury Regulation Section 1.901-2.
"Improvements" means all buildings, structures, Fixtures, Equipment,
and other improvements of every kind existing on the Land Interest Acquisition
Date and at any time and from time to time and either constructed pursuant to
the Construction Agency Agreement or those
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purchased with amounts advanced by the Participants pursuant to the
Participation Agreement (or those becoming the property of the Lessor pursuant
to Article XI of the Lease) on or under the Land Interest, together with any and
all appurtenances to such buildings, structures, or improvements, including
sidewalks, utility pipes, conduits and lines, parking areas and roadways, and
including all Modifications and other additions to or changes in the
Improvements at any time, other than Lessee's Property.
"Indebtedness" of any Person means, without duplication (in each case,
measured in accordance with GAAP):
(a) All monetary obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments and all other
obligations of such Person for borrowed money;
(b) All monetary obligations of such Person for the deferred
purchase price of property or services (including obligations under
letters of credit and other credit facilities which secured or financed
such purchase price), other than trade payables incurred by such Person
in the ordinary course of its business on ordinary terms;
(c) All monetary obligations of such Person under conditional
sale or other title retention agreements with respect to property
acquired by such Person other than pursuant to leases classified as
operating leases under GAAP (to the extent of the value of such
property if the rights and remedies of the seller or lender under such
agreement in the event of default are limited solely to repossession or
sale of such property);
(d) All monetary obligations of such Person as lessee with
respect to the capitalized portion of Capital Leases of such Person
(other than capitalized interest) calculated in accordance with GAAP;
(e) all monetary obligations of such Person (other than
inchoate indemnity obligations) with respect to any Synthetic Leases;
provided, however, that the amount of monetary obligations for the
purpose of this clause (e) shall be equal to the aggregate present
value of scheduled rental payments under each such Synthetic Lease
(excluding any component thereof in the nature of operating expenses,
taxes or similar obligations), together with the purchase price payable
by such Person at the end of such Synthetic Lease, discounted by the
interest rate implicit in such Synthetic Lease;
(f) all monetary obligations of such Person (other than
inchoate indemnity obligations) with respect to any sale, transfer or
assignment of accounts receivable and related rights and property by
such Person with recourse to such Person;
(g) All monetary obligations of such Person, contingent or
otherwise, under or with respect to letters of credit, banker's
acceptances or other similar facilities;
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(h) All monetary obligations of such Person, contingent or
otherwise, under or with respect to interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts or other similar
agreements relating to interest rates or currencies;
(i) All Contingent Obligations of such Person with respect to
the obligations of such Person or other Persons of the types described
in clauses (a) - (h) above; and
(j) All obligations of other Persons of the types described in
clauses (a) - (h) above to the extent secured by (or for which any
holder of such obligations has an existing right, contingent or
otherwise, to be secured by) any Lien in any property (including
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
obligations; provided, however, that the amount of such Indebtedness
under this clause (j) shall be the lesser of (i) the fair market value
of the property subject to such Lien and (ii) the amount of the
monetary obligations of such other Person.
"Indemnitee" means the Lessor, the Agent, the Participants, their
respective Affiliates and their respective successors, assigns, directors,
shareholders, partners, officers, employees and agents.
"Insurance Requirements" means all terms and conditions of any
insurance policy required by the Lease to be maintained by the Lessee, and all
requirements of the issuer of any such policy.
"Interest Expenses" means, with respect to any Person for any period,
the sum, determined on a consolidated basis in accordance with GAAP, of (a) all
interest accruing on the Indebtedness of such Person during such period
(including interest attributable to Capital Leases and financing charges
attributable to Synthetic Leases whether calculated as interest expenses or
rental expenses), (b) all letter of credit fees payable by such Person accruing
during such period and (c) interest or discount associated with Permitted
Receivables Facilities not otherwise included in clause (a) above.
"Interest Payment Advance" means any Advance made to fund the payment
of interest or Yield accruing on the Advances during the Construction Period.
"Interest Period" means, with respect to any Advance:
(a) during the Syndication Period:
(i) initially, the period commencing on the funding with
respect to such Advance and ending one month
thereafter; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such
Advance and ending one month thereafter; and
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(b) subsequent to the Syndication Period, each period
commencing on the last day of the next preceding Interest Period
applicable to such Advance and ending one, two, three or six months
thereafter, as selected by the Lessee by irrevocable notice to the
Lessor and the Agent not less than three (3) Business Days prior to the
last day of the then current Interest Period with respect thereto;
provided that, the foregoing provisions relating to Interest Periods
are subject to the following:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day
unless the result of such extension would be to carry
such Interest Period into another calendar month in
which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend
beyond the Expiration Date shall end on the
Expiration Date;
(ii) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar
month at the end of the Interest Period) shall end on
the last Business Day of a calendar month;
(iv) the Lessee shall select Interest Periods so as not to
require a payment or prepayment of any Advance during
an Interest Period for such Advance; and
(v) if the Lessee shall fail to notify the Lessor and the
Agent of the next Interest Period, such Advance shall
automatically convert to an Alternate Base Rate
Advance on the last day of the current Interest
Period therefor.
"Investment" of any Person means any loan or advance of funds by such
Person to any other Person (other than advances to employees of such Person for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business or the purchase by such Person in the ordinary
course of business of residences for employees in connection with the relocation
by such Person of such employees), any purchase or other acquisition of any
Equity Securities or Indebtedness of any other Person, any capital contribution
by such Person to or any other investment by such Person in any other Person
(including any Guaranty Obligations of such Person and any Indebtedness of such
Person of the type described in clause (j) of the definition of "Indebtedness"
on behalf of any other Person); provided, however, that Investments shall not
include (a) accounts receivable or other indebtedness owed by customers of such
Person which are current assets and arose from sales of inventory or the
performance of services in the ordinary course of such Person's business or (b)
prepaid expenses of such Person incurred and prepaid in the ordinary course of
business.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, together with the rules and regulations promulgated thereunder.
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"Land Interest" means fee title to the parcel of real property
described on Schedule 1 of the Lease Supplement and all Appurtenant Rights
attached thereto.
"Land Interest Acquisition Cost" means, with respect to the Property,
the amount funded by the Lessor under the Participation Agreement as the
purchase price of the Land Interest as set forth in the Acquisition Request
therefor, including closing costs and fees in connection therewith.
"Land Interest Acquisition Date" means the date on which the Lessor
acquires the Land Interest, which date shall be specified in the Acquisition
Request.
"Late Payment Rate" means (a) for each day (other than as set forth in
clause (b) of this definition) the Federal Funds Effective Rate or (b) for the
purpose of computing interest on past due payments for each day following the
fifth day after such payments first became due, a rate of two percent (2%) per
annum in excess of the Alternate Base Rate then in effect; provided, the Late
Payment Rate shall not, notwithstanding anything to the contrary herein
contained, exceed the maximum rate of interest permitted by applicable law.
"Lease" means the Master Lease, dated as of the Effective Date, between
the Lessor and the Lessee, together with the Lease Supplement and all Equipment
Schedules thereto.
"Lease Arrangement Fee" is defined in Section 4.2 of the Participation
Agreement.
"Lease Balance" means, as of any date of determination, an amount equal
to (i) the sum of the outstanding amount of the Advances, all accrued and unpaid
interest and Yield on the Advances, and all other amounts owing by the Lessee
under the Operative Documents, less (ii) the sum of all payments received by the
Lessor, the Agent or the Participant on account of payments to reduce the Lease
Balance, including reductions resulting from payments by the Lessor, the Lessee
and the Guarantor, proceeds from the sale of the Property and/or amounts
realized from the Collateral pursuant to the Cash Collateral Agreement.
"Lease Default" means any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute a Lease Event of
Default.
"Lease Event of Default" is defined in Section 17.1 of the Lease.
"Lease Supplement" means the Lease Supplement substantially in the form
of Exhibit A to the Lease together with all attachments and schedules thereto,
as such Lease Supplement may be supplemented, amended or modified from time to
time.
"Lessee" means Quantum Corporation, a Delaware corporation, as lessee
under the Lease, and its successors and assigns expressly permitted under the
Operative Documents.
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"Lessee's Property" is defined in Section 11.1 of the Lease.
"Lessor" means Lease Plan North America, Inc., as Lessor under the
Lease, and its successors and assigns expressly permitted under the Operative
Documents.
"Lessor Financing Statements" means UCC financing statements
appropriately completed and executed for filing in the applicable jurisdiction
in order to protect the Lessor's interest under the Lease to the extent the
Lease is a security agreement.
"Lessor Lien" means any Lien, true lease or sublease or disposition of
title arising as a result of (a) any claim against the Lessor not resulting from
the transactions contemplated by the Operative Documents, (b) any act or
omission of the Lessor which is not required by the Operative Documents or is in
violation of any of the terms of the Operative Documents, (c) any claim against
the Lessor with respect to Taxes or Transaction Expenses against which Lessee is
not required to indemnify the Lessor, pursuant to Sections 9 or 13.5 of the
Participation Agreement or (d) any claim against the Lessor arising out of any
transfer by the Lessor of all or any portion of the interest of the Lessor in
the Property or the Operative Documents other than the transfer of title to or
possession of the Property by the Lessor pursuant to and in accordance with the
Lease or the Participation Agreement or pursuant to the exercise of the remedies
set forth in Article XVII of the Lease.
"Lien" means, with respect to any property, any security interest,
mortgage, pledge, lien or other encumbrance in, of, or on such property or the
income therefrom, including, without limitation, the interest of a vendor or
lessor under a conditional sale agreement, Capital Lease or other title
retention agreement.
"Marketing Period" and "Remarketing Period" mean the period commencing
on the date one hundred eighty (180) days prior to the Expiration Date and
ending on the Expiration Date or such other 180 day period as is referred to in
Section 17.2(h) of the Lease.
"Material", "Materially", and "Material Adverse Effect" mean material
to, or a material adverse effect on, (i) the business, assets, operations or
financial or other condition of the Lessee or the Guarantor and their respective
Subsidiaries taken as a whole, (ii) the ability of the Lessee or the Guarantor
to perform its obligations under any of the Operative Documents, (iii) the value
or condition of the Property or the Lessor's interests therein or title thereto,
or (iv) the rights and remedies of the Lessor, the Agent and the Participants
under the Participation Agreement or any other Operative Document taken as a
whole.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
"Material Subsidiaries" means each Subsidiary of the Lessee which has
assets with a total book value greater than ten percent (10%) of the
consolidated total assets of the Lessee and its Subsidiaries, each determined as
of the end of the fiscal quarter immediately preceding the date of
determination.
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"Maturity Date" means the fifth anniversary of the Effective Date.
"MKE" means Matsushita-Kotobuki Electronics Industries, Ltd., a
Japanese corporation.
"MKE-Quantum" means MKE-Quantum Components, L.L.C., a Delaware limited
liability company.
"Modifications" is defined in Section 11.1(a) of the Lease.
"Moody's" means Moody's Investors Service, Inc. and any successor
thereto that is a nationally-recognized rating agency.
"Mortgage" means, with respect to the Property, a Construction Deed of
Trust, Security Agreement and Financing Statement substantially in the form
attached as Exhibit P to the Participation Agreement, made by the Lessor in
favor of a trustee for the Agent for the benefit of the Participants and
satisfactory in form and substance to the Agent and the Required Participants in
order to create a first priority mortgage lien on the Lessor's fee interest in
the Property and a first priority security interest in the Equipment.
"Mortgage Documents" is defined in Section 6.1 of the Participation
Agreement.
"Mortgage Taxes" is defined in Section 6.1 of the Participation
Agreement.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Net Cure Proceeds" is defined in Section 11.8 of the Participation
Agreement.
"Net Proceeds" means all amounts paid in connection with any Casualty
or Condemnation, and all interest earned thereon, less the expense of claiming
and collecting such amounts, including all costs and expenses in connection
therewith for which the Agent or the Lessor is entitled to be reimbursed
pursuant to the Lease.
"Net Sales Proceeds" means the Gross Proceeds actually received by the
Lessor upon any sale by the Lessor of any part of the Property pursuant to
Articles XVII or XXII of the Lease, including, without limitation, (i) any such
payments made to the Lessor by the Lessee or any purchaser, (ii) any Shortfall
Amount paid to the Lessor by the Lessee, and (iii) any interest paid by the
Lessee to the Lessor on past due amounts under the Lease; but excluding any
payments applied by the Lessor to pay, or received by the Lessor as
reimbursement for, bona fide costs of the sale and further excluding any excess
net sales proceeds received from a purchaser that the Lessor is required to pay
over to the Lessee. In the event that for any reason whatsoever, including a
default by the
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Lessee, the Lessor does not sell the Property pursuant to the Lease on the
Designated Payment Date, "Net Sales Proceeds" shall nonetheless include any
Shortfall Amount actually received by the Lessor. Further, if the Lessor does
not sell the Property pursuant to the Lease, then "Net Sales Proceeds" shall
also include the excess, if any, of:
(A) all rents and all sales, condemnation and insurance
proceeds actually received by the Lessor from any sale or lease after
the Designated Payment Date of any interest in, or because of any
subsequent taking or damage to, the Property; over
(B) the sum of (i) all costs of collecting the rents and
proceeds described in the preceding clause (A) plus (ii) all ad valorem
taxes, insurance premiums and other costs of every kind incurred by the
Lessor with respect to the ownership, operation or maintenance of the
Property.
However, for purposes of computing any excess described in the preceding
sentence, costs described in clause (B) shall not include the Lessor's general
overhead costs or any costs for which the Participants have already paid the
Lessor their Commitment Percentages thereof as required by Section 11.6 of the
Participation Agreement.
"Non-Consenting Participant" means any Participant which has denied, or
is deemed to have denied, an Extension Request pursuant to Section 3.6 of the
Participation Agreement.
"Operative Documents" means the following:
(a) the Participation Agreement;
(b) the Lease and Lease Supplement;
(c) the Guarantee;
(d) the Property Purchase Agreement, the Assignment
of Purchase Agreement and the Deed;
(e) the Construction Agency Agreement;
(f) the Assignment of Lease and each Supplement to the
Assignment of Lease;
(g) the Consent to Assignment;
(h) the Equipment Schedules;
(i) the Mortgage;
(j) the Construction Agency Agreement Assignment;
(k) the Consent to Construction Agency Agreement
Assignment;
(l) the Assignment of Construction Documents; and
(m) the Cash Collateral Agreement.
"Original Executed Counterpart" is defined in Section 31.8 of the
Lease.
"Outside Completion Date" means the second anniversary of the Effective
Date.
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"Overdue Rate" means, with respect to the Advances, fees or any other
payment due under the Operative Documents, the interest rate then applicable to
the Advances plus 2% per annum.
"Participant's Letter" is defined in Section 12.1(b) of the
Participation Agreement.
"Participation Agreement" means the Participation Agreement, dated as
of August 22, 1997, among the Lessee, the Lessor, the Participants and the
Agent.
"Participation Interest" means, as to each Participant, a participation
interest in, or in the case of each Tranche C Participant, an equity investment
in, the Lease and the right to receive that percentage of the following payments
actually received by the Lessor from or on behalf of the Lessee as is set forth
on Schedule I to the Participation Agreement, subject to the provisions of
Sections 3.11 - 3.21 and Section 11 of the Participation Agreement: (i) Basic
Rent, (ii) Supplemental Rent, (iii) Asset Termination Value, (iv) Purchase
Option Price, (v) Net Sales Proceeds, (vi) Residual Value Guarantee Amount,
(vii) the Shortfall Amount, and (viii) other payments in respect of indemnities
or pursuant to the Guarantee or the exercise of remedies under the Operative
Documents, excluding, however, (x) any Excepted Payments and (y) as to a
particular Participant, any payments on account of any Advances and any Required
Supplemental Payments (and interest thereon) for which the Lessor has not
received payment from such Participant of such Participant's Commitment
Percentage thereof. For example, if the Lessor elects to pay for insurance
required of the Lessee by the Lease because of the Lessee's failure to obtain
such insurance, the Lessor's receipt of reimbursement for the cost of such
insurance from the Lessee shall be included within "Participation Interest" for
purposes of this Agreement only if such Participant has paid to the Lessor such
Participant's Commitment Percentage of such cost pursuant to Section 11.6 or
Section 11.7 of the Participation Agreement.
"Participants" means ABN AMRO, Lease Plan North America, Inc. and each
Person executing the Participation Agreement or a Participant's Letter as a
Participant and purchasing a Participation Interest in the transactions
contemplated by the Participation Agreement and the other Operative Documents.
"Participant Balance" means for each Participant the sum of its Tranche
A Participation Interest Balance, its Tranche B Participation Interest Balance
and its Tranche C Participation Interest Balance.
"Payment Date" means (a) any Scheduled Payment Date and (b) any date on
which interest or Yield is payable pursuant to Section 3.8(c) of the
Participation Agreement in connection with any prepayment of the Advances.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Exceptions" means (A) the respective rights and interests of
the parties to the Operative Documents as provided in the Operative Documents;
(B) the rights of any sublessee or
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assignee under a sublease or an assignment expressly permitted by the terms of
the Lease; (C) Liens for Taxes that either are not yet due or are being
contested in accordance with the provisions of Section 13.1 of the Lease or
Section 13.5 of the Participation Agreement; (D) Liens arising by operation of
law, materialmen's, mechanics', workers', repairmen's, employees', carriers',
warehousemen's and other like Liens in connection with any Modifications or
arising in the ordinary course of business for amounts that either are not more
than 60 days past due or are being diligently contested in good faith by
appropriate proceedings, so long as such proceedings satisfy the conditions for
the continuation of proceedings to contest Taxes set forth in Section 13.1 of
the Lease, and that have been bonded for not less than the full amount in
dispute (or as to which other security arrangements satisfactory to the Lessor
have been made), which bonding (or arrangements) shall comply with applicable
Requirements of Law, and has effectively stayed any execution or enforcement of
such Liens; (E) Liens arising out of judgments or awards with respect to which
appeals or other proceedings for review are being prosecuted in good faith and
for the payment of which adequate reserves have been provided as required by
GAAP or other appropriate provisions have been made, so long as such proceedings
have the effect of staying the execution of such judgments or awards and satisfy
the conditions for the continuation of proceedings to contest set forth in
Section 13.1 of the Lease; (F) all encumbrances, exceptions, restrictions,
easements, rights of way, servitudes, encroachments and irregularities in title,
other than Liens which, in the reasonable assessment of the Agent, do not
materially impair the value of the Property or the use of the Property for its
intended purpose; (G) easements, rights of way and other encumbrances on title
to the Property pursuant to Section 12.2 of the Lease; (H) a Lien consisting of
a deposit or pledge made, in the ordinary course of business, in connection
with, or to secure payment of, obligations under worker's compensation,
unemployment insurance or similar legislation and (I) Liens of the types
described in clauses (i)(x), (ii), (iii), (v), (vii) and (viii) of the
definition of Permitted Liens; provided, however, that Permitted Exceptions
shall in no event include Lessor's Liens.
"Permitted Indebtedness" is defined in Section 10.1(g) of the
Participation Agreement.
"Permitted Investments" is defined in Section 10.1(k) of the
Participation Agreement.
"Permitted Liens" is defined in Section 10.1(h) of the Participation
Agreement.
"Permitted Receivables Facility" means one or more accounts receivable
financing arrangements including (a) the sale of accounts receivables and any
related property by the Lessee and/or any of its Subsidiaries to a financing
party or a special purpose vehicle, and/or (b) the granting of a security
interest in accounts receivable and any related property by the Lessee and/or
any of its Subsidiaries; provided, however, that the aggregate outstanding
advances under such accounts receivables financing arrangements shall not exceed
$200,000,000 at any one time.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Authority or any other entity.
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"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Plans and Specifications" means, with respect to the Property, the
plans and specifications for the Improvements to be constructed on the Property.
"Pricing Grid" means Schedule II to the Participation Agreement.
"Pricing Period" means (a) the period commencing on the date of the
Participation Agreement and ending on September 30, 1997, (b) the period
commencing on October 1, 1997 and ending on November 30, 1997, and (c) each
consecutive three-calendar month period, four-calendar month period,
two-calendar month period or three-calendar month period (as applicable)
thereafter which commences on the day following the last day of the immediately,
preceding three-calendar month period, four-calendar month period, two-calendar
month period or three-calendar month period (as applicable) and ends on the last
day of that time period as follows:
(i) December 1st through February 28th or February
29th (as applicable);
(ii) March 1st through June 30th;
(iii) July 1st through August 31st; and
(iv) September 1st through November 30th.
"Prior Credit Agreement" means that certain Credit Agreement, dated as
of October 4, 1994, as amended, among the Lessee, the banks named therein, ABN,
AMRO, Barclays Bank PLC and Canadian Imperial Bank of Commerce, as managing
agents for the banks, and Canadian Imperial Bank of Commerce, as administrative
agent for the banks.
"Prime Rate" means the per annum rate publicly announced by the Agent
from time to time at its New York Branch. The Prime Rate is determined by the
Agent from time to time as a means of pricing credit extensions to some
customers and is neither directly tied to any external rate of interest or index
nor necessarily the lowest rate of interest charged by the Agent at any given
time for any particular class of customers or credit extensions. Any change in
the Alternative Base Rate resulting form a change in the Prime Rate shall become
effective on the Business Day on which each change in the Prime Rate occurs.
"Property" means (i) the Land Interest and (ii) all of the
Improvements, Equipment and Fixtures at any time located on or under such Land
Interest other than Lessee's Property.
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<PAGE>
"Property Balance" means, with respect to the Property, as of any date
of determination, an amount equal to (i) the sum of the outstanding amount of
the Advances, all accrued and unpaid interest and Yield on the Advances, and all
other amounts owing by the Lessee under the Operative Documents, less (ii) the
sum of all payments received by the Lessor, the Agent or the Participant on
account of payments to reduce the Property Balance, including reductions
resulting from payments by the Lessor, the Lessee and the Guarantor and/or
proceeds from the sale of the Property and/or amounts realized from the
Collateral pursuant to the Cash Collateral Agreement.
"Property Cost" means, with respect to the Property, the aggregate
amount of the related Land Interest Acquisition Cost and the related Property
Improvements Cost.
"Property Improvements Cost" means, with respect to the Property, the
amount funded to or on behalf of the Construction Agent by the Lessor under the
Participation Agreement and the Construction Agency Agreement to construct any
Improvements, Fixtures or Modifications and to purchase Equipment to be used on
the Property in accordance with the Plans and Specifications therefor and the
Operative Documents, as set forth in the Acquisition Request and Funding
Requests therefor (including interest and Yield on the Advances during the
Construction Period applied to such cost and funded by an Interest Payment
Advance).
"Property Purchase Agreement" means the Purchase and Sale Agreement,
dated as of July, 1997, between the Existing Owner and the Lessee, and assigned
to the Lessor pursuant to the Assignment of Purchase Agreement, providing for
the purchase of the Property by the Lessor on the Land Interest Acquisition
Date.
"Purchase Notice" is defined in Section 20.1 of the Lease.
"Purchase Option" is defined in Section 20.1 of the Lease.
"Purchase Option Price" is defined in Section 20.1 of the Lease.
"Quick Ratio" means, with respect to the Lessee at any time, the ratio,
determined on a consolidated basis in accordance with GAAP, of:
(a) The sum at such time of all (i) cash and Cash
Equivalents of the Lessee and its Subsidiaries (excluding
restricted cash) and (ii) accounts receivable of the Lessee
and its Subsidiaries, less all reserves therefor;
to
(b) The sum at such time of (i) the current
liabilities of the Lessee and its Subsidiaries plus (ii)
long-term Indebtedness secured by account receivables of the
Lessee or its Subsidiaries measured at the lesser of the
amount of such long-term Indebtedness and the book value of
the accounts receivable so encumbered.
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<PAGE>
"Release" means any release, pumping, pouring, emptying, injecting,
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Substance.
"Remarketing Option" is defined in Section 22.1 of the Lease.
"Remarketing Period" is defined in the definition "Marketing Period".
"Renewal Option" is defined in Section 21.1(a) of the Lease.
"Renewal Request" is defined in Section 21.1(a) of the Lease.
"Renewal Response Date" is defined in Section 21.1(a) of the Lease.
"Renewal Term" means, individually, either of the two one-year periods
which immediately follow the fifth anniversary of the Effective Date with
respect to which Lessee has exercised its Renewal Option pursuant to Section
21.1 of the Lease.
"Rent" means, collectively, the Basic Rent and the Supplemental Rent,
in each case payable under the Lease.
"Reportable Event" shall have the meaning given to that term in ERISA
and applicable regulations thereunder.
"Requesting Party" is defined in Section 26.1 of the Lease.
"Required Modification" is defined in Section 11.1(a) of the Lease.
"Required Participants" means, at any time, Participants the Commitment
Percentages of which aggregate at least 66 2/3%.
"Required Supplemental Payments" means all payments of Supplemental
Rent that the Lessee has agreed to pay the Lessor under the Lease and the other
Operative Agreements, other than (i) Commitment Fees, (ii) the Administrative
Fee, (iii) the Lease Arrangement Fee, (iv) Excepted Payments, (v) Residual Value
Guarantee Amount, (vi) Asset Termination Value, (vii) Purchase Option Price and
(viii) interest or Yield accruing on any amount due from the Lessee, which
amount is itself not a Required Supplemental Payment under this definition. For
example, if the Lessor incurs attorneys' fees because of a breach by the Lessee
of the Lease, the payments required of the Lessee by the Lease as reimbursement
for such fees shall constitute a Required Supplemental Payment.
"Requirement of Law" means all Federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Property, the Improvements or
the demolition, construction, use or alteration thereof, whether now or
hereafter enacted and in force, including any that require repairs,
modifications or alterations
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<PAGE>
in or to the Property or in any way limit the use and enjoyment thereof
(including all building, zoning and fire codes and the Americans with
Disabilities Act of 1990, 42 U.S.C. ss. 1201 et. seq. and any other similar
Federal, state or local laws or ordinances and the regulations promulgated
thereunder) and any that may relate to environmental requirements (including all
Environmental Laws), and all permits, certificates of occupancy, licenses,
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments which are either of
record or known to the Lessee affecting the Property, other than Lessor Liens,
the Appurtenant Rights and any easements, licenses or other agreements entered
into pursuant to Section 12.2 of the Lease.
"Residual Value Guarantee Amount" means (i) during the Construction
Period, an amount equal to 89.9 percent of the Lease Balance, and (ii) at all
other times, an amount equal to the aggregate Tranche A Participation Interest
Balances of the Participants holding Tranche A Participation Interests.
"Response Actions" means remove, removal, remedy, and remedial action
as those terms are defined in CERCLA, 42 U.S.C. ss. 9601.
"Responsible Officer" means the President, any Vice President, the
Treasurer or Controller of the Lessee.
"Responsible Officer's Certificate" means a certificate signed by any
Responsible Officer, which certificate shall certify as true and correct the
subject matter being certified to in such certificate.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and any successor thereto that is a
nationally.-recognized rating agency.
"Scheduled Payment Date" means (a) as to interest or Yield on any
Advances having an Interest Period of three months or less, the last day of each
Interest Period, (b) as to interest or Yield on any Advances having an Interest
Period longer than three months, each day which is three months, or a whole
multiple thereof, after the first day of such Interest Period and the last day
of such Interest Period, (c) as to interest or Yield on any Advances bearing
interest at the Alternate Base Rate, the last day of each March, June, September
and December, and (d) as to the principal amount or equity contribution amount
of the Advances, each date indicated on Schedule 1 to the Lease as being a
payment date with respect to such portion of the Property Cost, if any.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Security Documents" means the collective reference to the Mortgage,
the Assignment of Lease, the Construction Agency Agreement Assignment, the
Assignment of Construction Documents, the Cash Collateral Agreement and all
other security documents hereafter delivered to the Agent granting a Lien on any
asset or assets of any Person to secure the obligations and
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<PAGE>
liabilities of the Lessor to the Agent and the Participants under the
Participation Agreement or of the Lessee to the Lessor under the Lease.
"Senior Funded Debt" of any Person means any Funded Debt which is not
Subordinated Debt.
"Senior Funded Debt Ratio" means, with respect to any Person at any
time, the ratio, determined on a consolidated basis in accordance with GAAP, of:
(a) The total Senior Funded Debt of such Person and its
Subsidiaries at such time;
to
(b) The sum at such time of (i) the total Senior Funded Debt
and Subordinated Debt of such Person and its Subsidiaries at such title
plus (ii) the total Tangible Net Worth of such Person and its
Subsidiaries at such time.
"Senior Indebtedness" means, with respect to any Person at any time,
all Indebtedness of such Person other than Subordinated Debt.
"Shortfall Amount" means, as of the Expiration Date, the amount that
the Asset Termination Value will exceed the aggregate of the Gross Proceeds and
the Residual Value Guarantee Amount upon the completion of a sale of the
Property pursuant to Article XXII of the Lease.
"Significant Casualty" means (i) a Casualty that results in an
insurance settlement on the basis of a total loss, or a constructive or
compromised total loss, or (ii) a Casualty that in the reasonable, good faith
judgment of the Lessee (as evidenced by a Responsible Officer's Certificate
delivered to the Lessor pursuant to Section 16.1 of the Lease) either (a)
renders the Property unsuitable for continued use as a commercial property of
the type of such property immediately prior to such Casualty or (b) is so
substantial in nature that restoration of the Property to substantially its
condition as existed immediately prior to such Casualty would be impracticable
or impossible.
"Significant Condemnation" means (i) a Condemnation that involves a
taking of Lessor's entire title to the related Land Interest, (ii) a
Condemnation that results in loss of possession of the Property by the Lessee
for a period in excess of one hundred eighty (180) consecutive days, or (iii) a
Condemnation that in the reasonable, good faith judgment of the Lessee (as
evidenced by a Responsible Officer's Certificate delivered to the Lessor
pursuant to Section 16.1 of the Lease) either (a) renders the Property
unsuitable for continued use as commercial of the type of such property
immediately prior to such Condemnation or (b) is such that restoration of the
Property to substantially its condition as existed immediately prior to such
Condemnation would be impracticable or impossible.
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"Significant Event" means (i) a Significant Casualty, (ii) a
Significant Condemnation, (iii) an event where the restoration of the Property
subject to a Casualty or Condemnation shall not be completed prior to the
earlier of (A) the 180th day prior to the Expiration Date or (B) twelve (12)
months following the occurrence of such Casualty or Condemnation or (iv) the
occurrence of an Environmental Violation where the costs to clean up or
remediate the same are reasonably estimated by the Lessee to exceed $5,000,000.
"Six Month Extension Termination Date" means, if the 364 Day Commitment
is extended pursuant to Section 3.6 of the Participation Agreement, the date
which is six months after the expiration of the 364 Day Commitment.
"Solvent" means, with respect to any Person on any date, that on such
date (a) the fair value of the assets of such Person is greater than the fair
value of the liabilities (including, without limitation, contingent liabilities)
of such Person, as such value is established and liabilities evaluated for
purposes of Section 101 (31) of the Federal Bankruptcy Reform Act of 1978 (12
U.S.C. ss.101, et seq.) and, in the alternative, the California Uniform
Fraudulent Transfer Act, (b) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature and (c) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital.
"Specified Event of Default" is defined in Section 17.1(q) of the
Lease.
"Subordinated Debt" means the Convertible Subordinated Debentures and
any other subordinated debt permitted by Section 10.1(g).
"Subsidiary" of any Person means (a) any corporation of which 50% or
more of the issued and outstanding Equity Securities having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries or (b) any partnership, joint venture,
or other association of which 50% or more of the equity interest having the
power to vote, direct or control the management of such partnership, joint
venture or other association is at the time owned and controlled by such Person,
by such Person and one or more of the other Subsidiaries or by one or more of
such Person's other Subsidiaries and in each case, only if such Person is
included in the Financial Statements of such Person on a consolidated basis.
"Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any
other Person under the Lease, or under any of the other Operative Documents,
including, without limitation, payments of the Residual Value Guarantee Amount,
the Shortfall Amount and payments pursuant to Sections 16.2, 16.3. 16.4 or 17.6
of the Lease and Articles XX and XXII of the Lease.
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"Supplement to Assignment of Lease" means the Supplement substantially
in the form of Exhibit A to the Assignment of Lease together with all
attachments and schedules thereto, as such Supplement to Assignment of Lease may
be supplemented, amended or modified from time to time.
"Syndication Period" means the period commencing on the Effective Date
and concluding on the earlier of (i) the date which is ninety days after the
Effective Date or (ii) the date on which the Agent has syndicated Participation
Interests to other Participants representing not less than seventy percent (70%)
of the total Commitment set forth on Schedule I to the Participation Agreement.
"Synthetic Lease" means an off-balance sheet financing arrangement for
equipment or real estate which is treated as an operating lease under GAAP but
pursuant to which the lessee of such equipment or real estate has the benefits
and burdens of ownership of the leased equipment or real estate for U.S. tax
purposes.
"Tangible Net Worth" means, with respect to the Lessee and its
Subsidiaries at any time, the remainder at such time, determined on a
consolidated basis in accordance with GAAP, of (a) the total assets of the
Lessee and its Subsidiaries minus (b) the sum (without limitation and without
duplication of deductions) of (i) the total liabilities of the Lessee and its
Subsidiaries, (ii) all reserves established by the Lessee and its Subsidiaries
for anticipated losses and expenses (to the extent not deducted in calculating
total assets in clause (a) above), and (iii) all intangible assets of the Lessee
and its Subsidiaries (to the extent included in calculating total assets in
clause (a) above), including, without limitation, goodwill (including any
amounts, however designated on the balance sheet, representing the cost of
acquisition of businesses and investments in excess of underlying tangible
assets), trademarks, trademark rights, trade name rights, copyrights, patents,
patent rights, licenses, unamortized debt discount, marketing expenses,
organizational expenses, non-compete agreements and deferred research and
development.
"Taxes" is defined in the definition of Impositions.
"Term" is defined in Section 2.3 of the Lease.
"Termination Date" is defined in Section 15.1(d), 16.2(a) and 17.2(e)
of the Lease.
"Termination Notice" is defined in Section 16.1 of the Lease.
"364 Day Commitment" means $53,600,000.
"Total Funded Debt Ratio" means, with respect to the Lessee, as of the
last day of any quarter, the ratio, determined on a consolidated basis in
accordance with GAAP, of (a) the aggregate amount of all Funded Debt of the
Lessee then outstanding on such day to (b) EBITDA of the Lessee for the
consecutive four quarter period ending on such day.
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"Transfer" means, with respect to any assets or property, any sale,
lease, transfer or other disposition thereof.
"Two Year Commitment" means $12,400,000. The Two Year Commitment
expires on the earlier of the Completion Date or the Outside Completion Date.
"Tranche A Participants" means those Participants purchasing a Tranche
A Participation Interest in the Advances and maintaining a Tranche A
Participation Interest Commitment.
"Tranche A Participation Interest" means, (i) as to each Tranche A
Participant, such Participant's Tranche A Participation Interest Commitment
Percentage, multiplied by the outstanding amount of all Advances as to which
such Participant has funded its Tranche A Participation Interest Commitment
Percentage under Section 3.4 of the Participation Agreement and (ii) as to all
Tranche A Participants, 85% of all outstanding Advances.
"Tranche A Participation Interest Balance" means for each Tranche A
Participant as of any date of determination an amount equal to (i) the sum of
such Tranche A Participant's Tranche A Participation Interest in all outstanding
Advances, together with all accrued and unpaid interest thereon, and all other
amounts owing by the Lessee to such Tranche A Participant under the Operative
Documents, less (ii) the sum of all payments received by the Tranche A
Participant on account of payments to reduce such Tranche A Participant's
Tranche A Participation Interest, including reductions resulting from payments
by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the
Property and/or amounts realized from the Collateral pursuant to the Cash
Collateral Agreement.
"Tranche A Participation Interest Commitment" is defined in Section 3.5
of the Participation Agreement.
"Tranche A Participation Interest Commitment Percentage" means (i) with
respect to all Participants in the aggregate, 85% of the aggregate Commitments,
and (ii) with respect to each Tranche A Participant, the percentage of the
aggregate Commitments set forth after such Participant's Tranche A Participation
Interest Commitment in Schedule I to the Participation Agreement.
"Tranche B Participants" means those Participants purchasing a Tranche
B Participation Interest in the Advances and maintaining a Tranche B
Participation Interest Commitment.
"Tranche B Participation Interest" means, (i) as to each Tranche B
Participant, such Tranche B Participant's Tranche B Participation Interest
Commitment multiplied by the outstanding amount of all Advances as to which such
Participant has funded its Tranche B Participation Interest Commitment
Percentage under Section 3.4 of the Participation Agreement and (ii) as to all
Tranche B Participants, 11.50% of all outstanding Advances.
- 36 -
<PAGE>
"Tranche B Participation Interest Balance" means for each Tranche B
Participant as of any date of determination an amount equal to (i) the sum of
such Tranche B Participant's Tranche B Participation Interest in all outstanding
Advances, together with all accrued and unpaid interest thereon, and all other
amounts owing by the Lessee to such Tranche B Participant under the Operative
Documents, less (ii) the sum of all payments received by the Tranche B
Participant on account of payments to reduce such Tranche B Participant's
Tranche B Participation Interest, including reductions resulting from payments
by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the
Property and/or amounts realized from the Collateral pursuant to the Cash
Collateral Agreement.
"Tranche B Participation Interest Commitment" is defined in Section 3.5
of the Participation Agreement.
"Tranche B Participation Interest Commitment Percentage" means (i) with
respect to all Participants in the aggregate, 11.50% of the aggregate
Commitments, and (ii) with respect to each Tranche B Participant, the percentage
of the aggregate Commitments set forth after such Participant's Tranche B
Participation Interest Commitment in Schedule I to the Participation Agreement.
"Tranche C Participants" means those Participants purchasing a Tranche
C Participation Interest in the Advances and maintaining a Tranche C
Participation Interest Commitment.
"Tranche C Participation Interest" means, (i) as to each Tranche C
Participant, such Tranche C Participant's Tranche C Participation Interest
Commitment multiplied by the outstanding amount of all Advances as to which such
Participant has funded its Tranche C Participation Interest Commitment
Percentage under Section 3.4 of the Participation Agreement and (ii) as to all
Tranche C Participants 3.50% of all outstanding Advances.
"Tranche C Participation Interest Balance" means for each Tranche C
Participant as of any date of determination an amount equal to (i) the sum of
such Tranche C Participant's Tranche C Participation Interest in all outstanding
Advances, together with all accrued and unpaid Yield thereon, and all other
amounts owing by the Lessee to such Tranche C Participant under the Operative
Documents, less (ii) the sum of all payments received by the Tranche C
Participant on account of payments to reduce such Tranche C Participant's
Tranche C Participation Interest, including reductions resulting from payments
by the Lessor, the Lessee and the Guarantor, proceeds from the sale of the
Property and/or amounts realized from the Collateral pursuant to the Cash
Collateral Agreement.
"Tranche C Participation Interest Commitment" is defined in Section 3.5
of the Participation Agreement.
"Tranche C Participation Interest Commitment Percentage" means (i) with
respect to all Participants in the aggregate, 3.50% of the Aggregate
Commitments, and (ii) with respect to each Tranche C Participant, the percentage
of the Aggregate Commitments set forth after such
- 37 -
<PAGE>
Participant's Tranche C Participation Interest Commitment in Schedule I to the
Participation Agreement.
"Transaction Expenses" means the following costs and expenses incurred
by the Lessor, the Agent and, to the extent referred to below, the Participants
in connection with the preparation, execution and delivery of the Operative
Documents and the transactions contemplated by the Operative Documents:
(a) the reasonable fees, out-of-pocket expenses and
disbursements of counsel for each of the Lessor, ABN AMRO and the
Agent, in negotiating the terms of the Operative Documents and the
other transaction documents, preparing for the closing under, and
rendering opinions in connection with, such transactions and in
rendering other services customary for counsel representing parties to
transactions of the types involved in the transactions contemplated by
the Operative Documents;
(b) the reasonable fees, out-of-pocket expenses and
disbursements of counsel of each of the Lessor, ABN AMRO and the Agent
in connection with (1) any amendment, supplement, waiver or consent
with respect to any Operative Documents requested or approved by the
Lessee and (2) any enforcement of any rights or remedies against the
Lessee in respect of the Operative Documents;
(c) any and all Taxes and fees incurred in recording,
registering or filing any Operative Document or any other transaction
document, any deed, declaration, mortgage, security agreement, notice
or financing statement with any public office, registry or governmental
agency in connection with the transactions contemplated by the
Operative Documents;
(d) any title fees, premiums and escrow costs and other
expenses relating to title insurance and the closing contemplated by
the Transaction Documents; and
(e) all expenses relating to all Environmental Audits and
Appraisals.
"Type" means, with respect to any Advance, its nature as an Alternate
Base Rate Advance or a Eurodollar Rate Advance.
"UCC Financing Statements" means collectively the Agent Financing
Statements and the Lessor Financing Statements.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
- 38 -
<PAGE>
"Uniform Commercial Code" and "UCC" means the Uniform Commercial Code
as in effect in any applicable jurisdiction.
"Voting Power" means, with respect to securities issued by any Person,
the combined voting power of all securities of such person which are issued and
outstanding at the time of determination and which are entitled to vote in the
election of directors of such Person, other than securities having such power
only by reason of the happening of a contingency.
"Wholly-Owned Subsidiary" means any Subsidiary in which (other than
directors' qualifying or local ownership shares required by law) 100% of the
issued and outstanding Equity Securities or equity interest (as applicable)
having ordinary voting power to elect a majority of the Board of Directors of
such Subsidiary or direct or control the management of such Subsidiary (as
applicable) is at the time owned and controlled by a Person, by such Person and
one or more of the other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Yield" is defined in Section 3.8(b) of the Participation Agreement.
- 39 -
SECOND EXTENSION AND MODIFICATION OF CREDIT AGREEMENT
This SECOND EXTENSION AND MODIFICATION OF CREDIT AGREEMENT,
dated as of September 18, 1997 (this "Second Extension and Modification"), is
entered into by and among QUANTUM CORPORATION, a Delaware corporation (the
"Company"), the several financial institutions party to this Second Extension
and Modification (collectively, the "Banks," and, each individually, a "Bank"),
and THE SUMITOMO BANK, LIMITED, acting through its San Francisco Branch, as
agent for the Banks (in such capacity, the "Agent") and as Issuer. Capitalized
terms used herein and not otherwise defined herein have the meanings given such
terms in the Credit Agreement (as defined below).
WHEREAS the Company, The Sumitomo Bank, Limited, acting
through its San Francisco Branch, The Fuji Bank, Limited, acting through its San
Francisco Agency, The Industrial Bank of Japan, Limited, acting through its San
Francisco Agency, the Agent and the Issuer entered into that certain Credit
Agreement, dated as of September 22, 1995 (as amended, supplemented or otherwise
modified prior to the date hereof, the "Credit Agreement"), providing, among
other things, a letter of credit facility to the Company upon, and subject to,
the terms and conditions set forth in the Credit Agreement; and
WHEREAS, prior to the date hereof, each of Banque Nationale de
Paris, acting through its San Francisco Branch, and the Mitsubishi Trust and
Banking Corporation, acting through its Los Angeles Agency, became a "Bank" for
all purposes of the Credit Agreement, including executing in its respective
capacity as a Bank that certain Extension and Modification of Credit Agreement
dated as of September 19, 1996; and
WHEREAS the Company has requested, and the Banks, the Agent
and the Issuer have agreed to, the extension of the letter of credit facility
under the Credit Agreement upon the terms and conditions set forth in the Credit
Agreement, as extended and modified by this Second Extension and Modification;
and
WHEREAS The Fuji Bank, Limited, acting through its San
Francisco Agency, wishes to assign and delegate its rights and obligations as a
Bank for all purposes under the Credit Agreement and The Sumitomo Bank, Limited,
acting through its San Francisco Branch, is willing to assume 100.0% of The Fuji
Bank, Limited Commitment as a Bank under the Credit Agreement; and
WHEREAS The Industrial Bank of Japan, Limited, acting through
its San Francisco Agency, wishes to assign and delegate its rights and
obligations with respect to 27.272727273% of The Industrial Bank of Japan,
Limited Commitment as a Bank for all purposes under the Credit Agreement (such
portion of The Industrial Bank of Japan, Limited Commitment, the "IBJ
Commitment") and The Sumitomo Bank, Limited, acting through its San Francisco
Branch, is willing to assume the IBJ Commitment as a Bank under the Credit
Agreement;
<PAGE>
NOW, THEREFORE, in consideration of these premises, the mutual
agreements, provisions and covenants contained herein, and in order to induce
the Banks to extend the term of the letter of credit facility, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1. AMENDMENTS.
Effective as of the Effective Date (as defined in Section
1.1.2 below), the Company, the Banks, the Agent and the Issuer hereby agree that
the Credit Agreement is hereby amended, prospectively and not retroactively, as
follows:
1.1 Section 1.1. Section 1.1 of the Credit Agreement is hereby
amended as follows:
1.1.1 Additional Definitions. The following
definition is hereby added, alphabetically:
""Second Extension and Modification" means that certain Second
Extension and Modification of Credit Agreement, dated as of September
18, 1997, by and among the Company, the Agent, the Issuer and the banks
and financial institutions signatory thereto, as such may be amended,
restated, modified or supplemented from time to time."
1.1.2 "Effective Date." The definition of "Effective
Date" set forth in the Credit Agreement is hereby deleted in its
entirety and the following substituted therefor:
""Effective Date" means the date on which all conditions
precedent to the effectiveness of the Second Extension and Modification
set forth in Section 3.1 thereof have been satisfied."
1.1.3 "Existing Credit Facility." The definition of
"Existing Credit Facility" set forth in the Credit Agreement is hereby
deleted in its entirety and the following substituted therefor:
""Existing Credit Facility" means that certain Credit
Agreement dated as of June 6, 1997, by and among the Company, as
borrower; the financial institutions from time to time listed on
Schedule I thereto (the "Banks"); ABN AMRO Bank N.V., San Francisco
International Branch ("ABN") and CIBC Inc. ("CIBC") as co-arrangers for
the Banks; Canadian Imperial Bank of Commerce, as administrative agent
for the Banks; Bank of America National Trust and Savings Association,
as documentation agent for the banks; ABN as syndication agent for the
Banks; and BankBoston, N.A., The Bank of Nova Scotia, Fleet National
Bank, and The Industrial Bank of Japan, Limited, as co-
2
<PAGE>
agents for the Banks (as the same may be amended, supplemented,
restated or otherwise modified from time to time)."
1.1.4 "Material Subsidiary." Clause (d) of the
definition of "Material Subsidiary" set forth in the Credit Agreement
is hereby deleted and the following substituted therefor:
"(d) each other Subsidiary of the Company which has assets with a total
book value greater than ten percent (10%) of the consolidated total
assets of the Company and its Subsidiaries, each determined as of the
end of the fiscal quarter immediately preceding the date of
determination."
1.1.5 "Outstanding Letters of Credit." The definition
of "Outstanding Letters of Credit" set forth in the Credit Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Outstanding Letters of Credit" means all letters of credit
issued pursuant to the Credit Agreement prior to the Effective Date of
the Second Extension and Modification and which are still outstanding
as of the Effective Date, as set forth on Schedule 1.1(a) hereto."
1.2 Section 2.4. (a) Subparagraph (b) of Section 2.4 of the
Credit Agreement is hereby amended by deleting the term "1.00%" and substituting
therefore the term "0.36%"; and by deleting the words "September 30, 1996" and
substituting therefore the words "September 30, 1997".
(b) Section 2.4(c) is hereby deleted in its entirety
and the following substituted therefor:
"(c) Extension Fees. The Company shall pay to the Agent (i)
for the ratable benefit of the Banks, a one-time facility extension fee
in the amount of $42,500, and (ii) for the account of the Agent and the
Issuer, an administrative extension fee in such amount as separately
agreed to by a letter between the Agent and the Company, dated as of
the date of the Second Extension and Modification."
1.3 Section 2.14. Subparagraph (b) of Section 2.14 of the
Credit Agreement is hereby amended by deleting the words "September 22, 1998"
and substituting therefore the words "September 22, 1999".
1.4 Section 6.1(a). Section 6.1(a) is hereby amended by
deleting from "in each case together with:" in the sixth line of Section 6.1
through "(ii)" in the twelfth line of Section 6.1 and substituting therefor
"together with".
1.5 Section 6.8. Section 6.8 is hereby deleted in its entirety
and the following substituted therefor:
3
<PAGE>
"6.8 Net Worth. The Company shall maintain a Net
Worth determined as of the end of any fiscal quarter which occurs after
June 29, 1997 of no less than the sum of (a) $820,000,000, plus (b)
seventy-five percent (75%) of Net Income, accrued quarterly, plus (c)
seventy-five percent (75%) of the net proceeds of all equity from the
conversion of existing subordinated indebtedness or a secondary
offering of stock having net proceeds to the Company in excess of $10
million, minus (d) the lesser of (i) the aggregate amount paid by the
Company to repurchase its capital stock and (ii) $50,000,000."
1.6 Section 6.9. Section 6.9 is hereby deleted in its entirety
and the following substituted therefor:
"6.9 Quick Ratio. The Company shall not permit its
Quick Ratio to be less than 0.75 to 1.0 as of the end of any fiscal
quarter."
1.7 Schedule 1.1(a). Schedule 1.1(a) of the Credit Agreement
is hereby amended and revised in its entirety as set forth on Schedule 1.1(a)
attached to this Second Extension and Modification.
1.8 Schedule 2.1. Schedule 2.1 of the Credit Agreement is
hereby amended and revised in its entirety as set forth on Schedule 2.1 attached
to this Second Extension and Modification.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
2.1 Representations and Warranties. The Company hereby
represents and warrants to the Agent, the Issuer and each Bank, as of the date
hereof, on the Effective Date and on the date of each Credit Extension
concurrent with or subsequent to the date hereof, as follows:
(a) Credit Agreement Representations and Warranties.
All representations and warranties of the Company contained in Article
V of the Credit Agreement are true and correct in all material respects
on and as of the date hereof and as of the Effective Date as though
made on and as of said dates.
(b) Litigation. As of the date hereof and as of the
Effective Date, except as specifically disclosed in the Company's Form
10K for the year ended March 31, 1997, or its Form 10Q for the quarter
ended June 29, 1997, on file with the Securities and Exchange
Commission and previously provided to the Agent, the Issuer and the
Banks, there are no actions, suits, proceedings, claims or disputes
pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any
Governmental Authority, against the Company or any of its properties
which, if determined adversely to the Company, would reasonably be
expected to have a Material Adverse Effect.
4
<PAGE>
(c) Material Adverse Effect. Since March 31, 1997,
the date of the most recent audited financial statements provided by
the Company to the Agent and the Banks, there has been no Material
Adverse Effect.
(d) Financial Statements. The Company has delivered
to the Agent and each of the Banks copies of the unaudited consolidated
balance sheet of the Company as at the end of, and its related
unaudited consolidated statements of income, changes in shareholder's
equity and cash flow of the Company for, the quarterly period ended
June 29, 1997, certified by the Chief Financial Officer or Controller
of the Company. Such financial statements have been accurately prepared
from the books and records of the Company. There are no material
liabilities, contingent or otherwise, of the Company as of such date,
not reflected in such balance sheet of the Company as of such date.
Since such date, there have not been any changes (whether or not
covered by insurance) in assets, liabilities or financial position of
the Company from those set forth in such balance sheet of the Company
as of such date, other than changes in the ordinary course of business
which have not, either individually or in the aggregate, been
materially adverse. The Company does not know of any fact (other than
matters of a general economic nature) that materially affects adversely
the business, operations or properties of the Company, or the ability
of the Company to perform its obligations under this Extension and
Modification or the Credit Agreement (as extended and modified hereby).
(e) No Event of Default. No event has occurred and is
continuing, or would result from the extension or issuance of any
Letter of Credit or any other transaction contemplated hereby or under
the Credit Agreement (as extended and modified hereby), which
constitutes a Default or an Event of Default.
(f) Due Organization. The Company is a duly organized
corporation created under the laws of Delaware, has the requisite power
to carry on its present and proposed activities, and has full power,
right and authority (i) to enter into, execute and deliver this Second
Extension and Modification and (ii) to perform and observe the terms
and provisions of this Second Extension and Modification and the Credit
Agreement (as extended and modified hereby).
(g) Compliance with Documents. The Company is in full
compliance with all of the material terms and conditions of the Credit
Agreement as amended to the date hereof.
(h) Due Authorization. The Company has taken or
caused to be taken all requisite corporate action to authorize (i) the
extension, issuance, execution and delivery of, and the performance of
its obligations under, this Second Extension and Modification, the
Credit Agreement (as extended and modified hereby), and any and all
instruments, certificates and documents required to be executed or
delivered pursuant to or in connection herewith or therewith, and (ii)
the consummation by the Company of the transactions contemplated under
each of the foregoing documents.
5
<PAGE>
(i) Corporate Power; No Violation. The execution and
delivery of, and performance by the Company of its obligations under,
this Second Extension and Modification, the Credit Agreement (as
extended and modified hereby), and any and all instruments or documents
required to be executed in connection herewith or therewith, were and
are within the powers of the Company and will not violate any provision
of any applicable law, regulation, decree or governmental
authorization, or its bylaws, and will not violate or cause a default
under any provision of any contract, agreement, mortgage, indenture or
other undertaking to which it is a party or which is binding upon it or
any of its property or assets, and will not result in the imposition or
creation of any lien, charge or encumbrance upon any of its properties
or assets pursuant to the provisions of any such contract, agreement,
mortgage, indenture or undertaking.
(j) Licenses, Approvals. All authorizations,
licenses, consents, approvals and undertakings which are required to be
obtained by the Company under any applicable law in connection with the
execution, delivery and performance of, and the legality, validity,
binding effect and enforceability of the Company's obligations under,
or in connection with, this Second Extension and Modification and the
Credit Agreement (as extended and modified hereby) have been duly
obtained or made and all such authorizations, licenses, consents,
approvals and undertakings are in full force and effect.
(k) Binding Obligations. This Second Extension and
Modification and the Credit Agreement (as extended and modified hereby)
constitute the valid and legally binding obligations of the Company,
which obligations are enforceable in accordance with their respective
terms.
ARTICLE 3. CONDITIONS TO EFFECTIVENESS
3.1 Conditions of Extension/Initial Credit Extension. The
obligation of the Issuer to make an initial Credit Extension under this Second
Extension and Modification, the effectiveness of the amendments set forth in
Article I hereof, and the obligations of the Banks to extend the original term
of the Credit Agreement and to make available a letter of credit facility to the
Company according to the terms of the Credit Agreement, as extended and modified
by this Second Extension and Modification, are subject to the condition that the
Agent shall have confirmed satisfaction of each of the conditions precedent set
forth in this Section 3.1 on or before September 18, 1997:
(a) the Agent shall have received each of the
certificates, opinions and other documents set forth at Section 4.1,
subsections (a), (b) and (d) of the Credit Agreement as though such
subsections were set forth herein in full and made applicable as of the
Effective Date to this Second Extension and Modification and the Credit
Agreement (as extended and modified hereby), each such certificate,
opinion or other document in form and substance satisfactory to the
Agent and in sufficient number for the Issuer and each Bank.
6
<PAGE>
(b) as of the Effective Date, no Default or Event of
Default shall have occurred or be continuing;
(c) the Company shall have paid all costs, accrued
and unpaid fees and expenses (including legal fees and expenses) to the
extent then due and payable on the Effective Date, including any
arising under subsections 2.4(b) and (c) of the Credit Agreement as
applied to this Second Extension and Modification and as extended and
modified hereby, provided that, any legal fees and expenses arising
under Section 4.5 hereof shall be paid in accordance with such Section
4.5;
(d) the Agent shall have received evidence
satisfactory to the Agent that all interest fees, costs and any and all
other amounts due and owing by the Company under the Outstanding
Letters of Credit or the Credit Agreement through the Effective Date
have been paid in full; and
(e) such other documents as the Agent may reasonably
request.
3.2 Extension of Outstanding Letters of Credit. The parties
hereto agree that, upon satisfaction of the conditions precedent set forth in
Section 3.1 hereof, each Outstanding Letter of Credit shall be amended and
extended for a period ending no later than six (6) months after the expiry date
of such Outstanding Letter of Credit immediately prior to such amendment and
extension.
ARTICLE 4. MISCELLANEOUS PROVISIONS
4.1 No Waiver. Nothing contained herein or in any other
instrument or document executed in connection herewith, nor any action taken by
the Agent, the Issuer or any Bank in connection with this Second Extension and
Modification or any other action contemplated hereby or thereby shall in any
event be construed or deemed to constitute a waiver of any past, present or
future Default or Event of Default (including any Default or Event of Default
relating in any way to matters previously advised to the Agent in writing or of
which the Agent has notice) or a waiver or an estoppel of any cause of action
the Agent, the Issuer or any Bank may have against the Company or any other
party for any reason whatsoever.
4.2 Full Force and Effect. Except as specifically modified by
this Second Extension and Modification, all of the terms and provisions of the
Credit Agreement shall remain in full force and effect. The term "Agreement" as
used in the Credit Agreement and all related documents shall mean the Credit
Agreement as extended and modified hereby.
4.3 Obligations Binding/Parties to the Credit Agreement. The
terms and conditions of this Second Extension and Modification and the Credit
Agreement (as extended and modified hereby) and the obligations created
hereunder and thereunder shall be binding upon and enforceable against the
parties hereto. Pursuant to a separate assignment, The Sumitomo Bank, Limited,
shall assume all rights and obligations arising on and after the date hereof of,
respectively, (a) The Fuji Bank, Limited, as a Bank under the Credit Agreement,
7
<PAGE>
and (b) The Industrial Bank of Japan, Limited, as a Bank under the Credit
Agreement to the extent of the IBJ Commitment. Without limiting the generality
of the foregoing, The Sumitomo Bank, Limited, shall be entitled to receive from
the Agent its ratable share of the facility extension fee (including that
portion applicable to The Fuji Bank, Limited Commitment and the IBJ Commitment)
as described in Section 2.4(c)(i) of the Credit Agreement (as extended and
modified hereby as of the Effective Date). The term "Bank" as set forth and
defined in the Credit Agreement (as extended and modified hereby, and
specifically as modified by this Section 4.3) shall mean each Bank that is a
party hereto.
4.4 No Third Parties Benefitted. This Second Extension and
Modification and any instruments or other documents connected therewith are made
and entered into for the sole protection and legal benefit of the Company, the
Banks, the Issuer and the Agent, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this Second
Extension and Modification.
4.5 Expenses. Without limiting any provision of the Credit
Agreement, the Company agrees to pay promptly, and in all events within ten (10)
days of invoice, all reasonable costs and expenses of the Agent and the
reasonable costs and expenses of the Agent's legal counsel in connection with
the preparation, negotiation, execution, delivery and administration of this
Second Extension and Modification and the transactions contemplated hereby.
4.6 Bank Authority and Obligations. Each Bank represents and
warrants to the Issuer that (i) it has full power, authority and legal right to
execute and deliver this Second Extension and Modification and participate in
the Letters of Credit as provided herein and under the Credit Agreement (as
extended and modified hereby), and to perform and observe the terms and
conditions hereof and thereof; (ii) it has taken all necessary legal and
corporate action to authorize the execution and delivery of this Second
Extension and Modification and the performance and observance of the terms and
conditions hereof and of the Credit Agreement (as extended and modified hereby);
and (iii) this Second Extension and Modification and the Credit Agreement (as
extended and modified hereby) constitute the legal, valid and binding obligation
of such Bank, enforceable in accordance with the terms hereof and thereof,
except as such enforceability may be limited by application of any bankruptcy,
receivership, conservatorship, reorganization or other similar laws for the
relief of debtors, or by application of general principles of equity.
4.7 Governing Law. This Second Extension and Modification
shall be governed by and construed in accordance with the laws of the State of
California.
4.8 Successors and Assigns. The provisions of this Second
Extension and Modification, the Credit Agreement (as extended and modified
hereby), and any other document, instrument or agreement required hereunder or
thereunder, shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Company may not
assign or transfer any of its rights or obligations under or in connection with
this Second Extension and Modification, the Credit Agreement (as extended and
modified hereby), or any other document, instrument or agreement required
8
<PAGE>
hereunder or thereunder, without the prior written consent of the Agent, the
Issuer and each Bank.
4.9 Severability. The illegality or unenforceability of any
provision of this Second Extension and Modification, the Credit Agreement or any
other document or any other instrument or agreement required hereunder or
thereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of this Second Extension and Modification, the
Credit Agreement or such other document or any other instrument or agreement
required hereunder or thereunder.
4.10 Counterparts. This Second Extension and Modification may
be executed by one or more of the parties hereto in any number of separate
counterparts, each of which, when so executed shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument. A set of the copies of this Second Extension and
Modification signed by all the parties shall be lodged with the Company and the
Agent.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Extension and Modification to be duly executed and delivered in San Francisco,
California by their proper and duly authorized officers as of the day and year
first above written.
QUANTUM CORPORATION Address for notices:
500 McCarthy Boulevard
Milpitas, CA 95035
Attn: G. Edward McClammy, Vice
President of Finance and
Treasurer
By: /s/ G. E. McClammy Telephone: (408) 894-4000
------------------------ Fax: (408) 894-4562
Title: Vice President Finance & Treasurer
----------------------------------
THE SUMITOMO BANK, LIMITED, Address for notices:
ACTING THROUGH ITS SAN FRANCISCO BRANCH
as Agent San Francisco Branch
555 California Street, Suite 3350
San Francisco, CA 94104
Attn: Gavin S. Holles
By: /s/ Kozo Masaki Telephone: (415) 616-3025
------------------------ Fax: (415) 398-3580
Title: General Manager
----------------------------- Address for payments to Agent:
By: /s/ G. S. Holles Sumitomo Bank of California
------------------------ San Francisco, California
Title: A. V. P. ABA No. 121-002-042
----------------------------- To the account of The Sumitomo Bank,
Limited, San Francisco Branch
Reference: Quantum LC
Attn: Gavin S. Holles
S-1
<PAGE>
THE SUMITOMO BANK, LIMITED, Address for notices:
ACTING THROUGH ITS SAN FRANCISCO BRANCH
as Issuer San Francisco Branch
555 California Street, Suite 3350
San Francisco, CA 94104
Attn: Gavin S. Holles
By: /s/ Kozo Masaki Telephone: (415) 616-3025
------------------------ Fax: (415) 398-3580
Title: General Manager
----------------------------- Address for payments to Issuer:
By: /s/ G. S. Holles Sumitomo Bank of California
------------------------ San Francisco, California
Title: A. V. P. ABA No. 121-002-042
----------------------------- To the account of The Sumitomo Bank,
Limited, San Francisco Branch
Reference: Quantum LC
Attn: Gavin S. Holles
BANKS
THE SUMITOMO BANK, LIMITED, Address for notices:
ACTING THROUGH ITS SAN FRANCISCO BRANCH
San Francisco Branch
555 California Street, Suite 3350
San Francisco, CA 94104
By: /s/ Kozo Masaki Attn: Gavin S. Holles
------------------------ Telephone: (415) 616-3009
Title: General Manager Fax: (415) 397-1475
-----------------------------
By: /s/ G. S. Holles
------------------------
Title: A. V. P.
-----------------------------
S-2
<PAGE>
BANQUE NATIONALE DE PARIS, Address for notices:
ACTING THROUGH ITS
SAN FRANCISCO BRANCH
180 Montgomery Street
San Francisco, CA 94104
Attn: Rafael C. Lumanlan
By: /s/ Rafael C. Lumanlan Telephone: (415) 956-0707
------------------------ Fax: (415) 296-8954
Title: Rafael C. Lumanlan
-----------------------------
Vice President
By: /s Charles H. Day
------------------------
Title: Charles H. Day
-----------------------------
Assistant Vice President
THE MITSUBISHI TRUST AND BANKING Address for notices:
CORPORATION, ACTING THROUGH
ITS LOS ANGELES AGENCY
801 South Figueroa Street, Suite 500
Los Angeles, CA 90017
Attn: Jill A. Kato
By: /s/ Yasushi Satomi Telephone: (213) 896-4655
------------------------ Fax: (213) 687-4631
Title: Yasushi Satomi
-----------------------------
Senior Vice President
S-3
<PAGE>
Schedule 1.1(a)
to Credit Agreement,
dated as of September 22, 1995
(as extended and modified by that certain
Extension and Modification of Credit Agreement,
dated as of September 19, 1996,
as further extended and modified by that certain
Second Extension and Modification of Credit Agreement,
dated as of September 18, 1997)
concerning
Quantum Corporation
OUTSTANDING LETTERS OF CREDIT
1. Irrevocable Letter of Credit No. G/SFB-400290, dated
September 22, 1995, in the amount of U.S. $77,000,000 for
the account of Quantum Corporation, in favor of
Matsushita-Kotobuki Electronics Industries, Ltd., as
amended by certain Amendment No. 1 to Irrevocable Letter of
Credit No. G/SFB-400290, dated as of March 18, 1996, and
that certain Amendment No. 2 to Irrevocable Letter of
Credit No. G/SFB-400290, as Amended, dated as of September
20, 1996, and that certain Amendment No. 3 to Irrevocable
Letter of Credit No. G/SFB-400290, as Amended, dated as of
March 20, 1997.
2. Irrevocable Letter of Credit No. G/SFB-400291, dated
September 22, 1995, in the amount of U.S. $8,000,000 for
the account of Quantum Corporation, in favor of
Ireland-Kotobuki Electronics Industries, Ltd., as amended
by that certain Amendment No. 1 to Irrevocable Letter of
Credit No. G/SFB-400291, dated as of March 18, 1996, and
that certain Amendment No. 2 to Irrovocable Letter of
Credit No. G/SFB-400291, as Amended, dated as of September
20, 1996, and that certain Amendment No. 3 to Irrevocable
Letter of Credit No. G/SFB-400291, as Amended, dated as of
March 20, 1997.
<PAGE>
Schedule 2.1
to Credit Agreement
dated as of September 22, 1995
(as extended and modified by that certain
Extension and Modification of Credit Agreement,
dated as of September 19, 1996,
as futher extended and modified by that certain
Second Extension and Modification of Credit Agreement,
dated as of September 18, 1997)
concerning
Quantum Corporation
and
The Sumitomo Bank, Limited,
acting through its San Francisco Branch
as Agent and Issuer of letters of credit
in an aggregate amount not to exceed $85,000,000
(as such aggregate amount may be reduced pursuant
to Section 2.6 hereof)
<TABLE>
COMMITMENTS
<CAPTION>
Participating Percentage
Banks Commitment Share
<S> <C> <C>
Banque Nationale de Paris, $ 15,000,000 17.647058824%
San Francisco Branch
The Industrial Bank of Japan, Limited . $ 20,000,000 23.529411765%
San Francisco Agency
The Mitsubishi Trust and Banking $ 20,000,000 23.529411765%
Corporation, Los Angeles Agency
The Sumitomo Bank, Limited $ 30,000,000 35.294117646%
San Francisco Branch
------------ --------------
$ 85,000,000 100.000000000%
</TABLE>
<TABLE>
EXHIBIT 11.1
QUANTUM CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(In thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
Sept 28, Sept 29, Sept 28, Sept 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary
Weighted average number of common
shares outstanding 135,062 115,434 133,434 113,178
Incremental common shares attributable
to outstanding options 10,729 1,830 9,903 3,300
-------- -------- -------- --------
Total shares 145,791 117,264 143,337 116,478
======== ======== ======== ========
Net income $103,778 $ 4,573 $200,292 $ 8,416
======== ======== ======== ========
Net income per share $ 0.71 $ 0.04 $ 1.40 $ 0.07
======== ======== ======== ========
Fully Diluted
Weighted average number of common
shares outstanding 135,062 115,434 133,434 113,178
Incremental common shares attributable to:
Outstanding options 11,789 3,638 10,434 4,220
6 3/8% convertible subordinated
debentures -- 10,728 -- 11,882
5% convertible subordinated notes 21,626 21,626 21,626 21,626
7% convertible subordinated notes 4,024 -- 2,012 --
-------- -------- -------- --------
Total shares 172,501 151,426 167,506 150,906
======== ======== ======== ========
Net income:
Net income $103,778 $ 4,573 $200,292 $ 8,416
Add interest on convertible debt,
net of tax 3,767 2,741 5,577 5,682
-------- -------- -------- --------
Adjusted net income $107,545 $ 7,314 $205,869 $ 14,098
======== ======== ======== ========
Net income per share $ 0.62 $ 0.05 $ 1.23 $ 0.09 *
======== ======== ======== ========
<FN>
* The primary net income per share is shown in the statements of income as both
primary and fully diluted as the effect of the assumed conversion of the
subordinated debt is anti-dilutive.
</FN>
29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUANTUM CORPORATION FOR THE QUARTER ENDED SEPTEMBER 28,
1997
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-28-1997
<CASH> 637,744
<SECURITIES> 0
<RECEIVABLES> 1,040,023
<ALLOWANCES> 10,194
<INVENTORY> 386,525
<CURRENT-ASSETS> 2,219,710
<PP&E> 447,090
<DEPRECIATION> 188,231
<TOTAL-ASSETS> 2,651,698
<CURRENT-LIABILITIES> 905,405
<BONDS> 569,313
3,888
0
<COMMON> 512,700
<OTHER-SE> 626,683
<TOTAL-LIABILITY-AND-EQUITY> 2,651,698
<SALES> 2,999,635
<TOTAL-REVENUES> 2,999,635
<CGS> 2,425,618
<TOTAL-COSTS> 2,425,618
<OTHER-EXPENSES> 289,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,328
<INCOME-PRETAX> 270,664
<INCOME-TAX> 70,373
<INCOME-CONTINUING> 200,292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,292
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.23
</TABLE>
