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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT Of 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-15086
SUN MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 94-2805249
(State of incorporation) (I.R.S. Employer Identification No.)
2550 Garcia Avenue (415)-960-1300
Mountain View, CA 94043-1100
(Address of principal executive (Registrant's telephone number,
offices, including zip code) including area code)
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Securities pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Common Share Purchase Rights
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference on Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of September 17, 1996, was approximately $10,663,000,000
based upon the last sale price reported for such date on the Nasdaq National
Market System. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination is not
necessarily conclusive.
The number of shares of the Registrant's Common Stock outstanding as of
September 17, 1996 was 182,274,388.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Annual Report to Stockholders for the fiscal year ended June
30, 1996 are incorporated by reference into Items 1,5,6,7,8 and 14 hereof.
Parts of the Proxy Statement for the 1996 Annual Meeting of Stockholders
are incorporated by reference into Items 10, 11, 12 and 13 hereof.
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PART I
ITEM 1. BUSINESS
General
Sun Microsystems(TM), Inc. ("Sun(TM) " or the "Company") is a leading
supplier of enterprise network computing products including workstations,
servers, software, microprocessors, and a full range of services and support.
Sun's products command a significant share of a rapidly growing segment of the
computer industry: networked computing environments. The Company's products are
used for many demanding commercial and technical applications in various
industries. Sun has differentiated itself from its competitors by its commitment
to the network computing model and the UNIX(TM) operating system, its rapid
innovation and its open systems architecture.
Sun conducts its business through various operating entities and divisions
organized around the Company's principal areas of added value. The individual
businesses generally operate independently within their charters, but with the
common corporate strategic vision of being a leading force in network computing.
Sun believes this organizational structure allows it to more efficiently focus
on its customers and the products, channels and markets necessary to serve them.
Sun's primary operating businesses are as follows:
Sun Microsystems Computer Company(TM) ("SMCC") - SMCC is responsible for
designing, manufacturing, and selling workstations and servers incorporating the
Scaleable Processor Architecture ("SPARC") for open network computing
environments. These workstations and servers are offered with the Solaris
software environment, licensed by SunSoft, Inc. to SMCC.
SunService(TM) Division ("SunService") - A leading UNIX service
organization, SunService provides a wide range of global services for
heterogeneous network computing environments, including system support,
education, information technology (IT) consulting, systems integration, and
system/network management.
SunSoft(TM), Inc. ("SunSoft") - SunSoft develops, markets, supplies and
supports Solaris(TM), a leading UNIX operating system software environment for
enterprise-wide distributed computing environments on SPARC and other volume
platforms, Solstice(TM), a complete enterprise-wide network management solution,
and WorkShop(TM), visual development tools to quickly and easily create
multiplatform applications for the Internet. SunSoft also offers software
products for network management and PC desktop integration.
Sun Microelectronics(TM) (SME)- SME designs and develops high performance
SPARC microprocessors, as well as enabling technologies, for SMCC and third
party customers.
SunExpress(TM), Inc. ("SunExpress") - SunExpress, Sun's aftermarketing
company, offers easy ordering and quick delivery of accessories, spare parts,
options, software and third party products to Sun's installed base and other
customers. SunExpress offers competitive prices and high quality services to
customers in the after-market using innovative direct marketing techniques.
JavaSoft(TM) - Sun's newest business, JavaSoft develops, markets and
supports the Java(TM) software technology and products based on it. JavaSoft
develops applications, tools, and systems platforms to further enhance Java as a
programming standard for complex networks such as the Internet and corporate
intranets.
Sun's network computing model and its hardware and software
implementations have attracted a large number of software vendors to port their
applications to Sun platforms, including an increasing number of vendors of
commercial applications. The availability of such third-party software provides
Sun and its customers with competitive advantage and strengthens the Company's
presence in network computing.
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Sun, the Sun Logo, Sun Microsystems, SunExpress, SunSoft, SunService, Sun
Microelectronics, JavaSoft, Ultra, Enterprise, NEO ,NFS, Joe, Solaris, Solstice,
Netra, SolarNet, SunNet Manager, SunSoft Workshop, Sun FORTRAN, Sun Ada,
Sunergy, and SunSpectrum are trademarks, registered trademarks or servicemarks
of Sun Microsystems, Inc. in the United States and other countries. All SPARC
trademarks, including the SCD Compliant logo, are used under license and are
trademarks or registered trademarks of SPARC International, Inc. in the United
States and other countries. Products bearing SPARC trademarks are based upon an
architecture developed by Sun Microsystems, Inc. UNIX is a registered trademark
in the United States and other countries, exclusively licensed through
X/OpenCompany Ltd.
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Products
Sun believes that customers increasingly demand computer systems that do
not limit them to any one vendor's proprietary technology. To respond to
customer needs, Sun has been a proponent of the open systems strategy, based on
industry standards such as POSIX, X/OPEN and the SPARC Compliance Definition
("SCD"). This open systems strategy offers users and software developers the
benefits of compatibility, interoperability, portability, upgradeability and
scalability in products. Sun's open systems architecture protects existing
customer investments while providing customers with new, innovative technology
to allow them to be competitive in their own markets.
Systems
Sun offers a full line of workstations from low-cost SPARCstations to
high-performance color graphics systems. Its line of multiprocessing servers can
provide various resources, including filesharing, system administration, and
database and network management.
The current desktop workstation line includes the low-end color
SPARCstation(TM) 4, the SPARCstation 5, the SPARCstation 20 series of
uniprocessor and multiprocessor systems, and the new high performance Ultra(TM)
series of uniprocessor and multiprocessor systems.
The SPARCstation 4 is a low priced, fully configured color workstation.
Based on the 110 MHz microSPARC II processor, this compact desktop system is
designed to satisfy users who demand a low-cost color system that still offers
high performance, networking and flexibility.
The SPARCstation 5 is an accelerated graphics workstation and is one of
the industry's lowest priced 24-bit color systems. Based on the 110 MHz
microSPARC II processor, this workstation is designed for customers seeking
expandability and fast application performance.
The SPARCstation 20 offers a combination of high-end workstation
performance and functionality at a competitive price.
The Ultra series of desktop workstations offer a combination of high-end
workstation performance and functionality at a competitive price. Available in
both uniprocessor and multiprocessor versions, the Ultra series achieves higher
performance from the use of UltraSPARC(TM) processors running at speeds of
143mhz to 200mhz, as well as high performance motherboards and ASICs. Designed
for users needing more specialized graphics power, the Ultra series features
leading edge graphics and networking integrated at the central processing unit
(CPU) level in addition to advanced Creator 3D graphics and networking
capabilities as add-on functionality.
The Company offers a wide range of servers from the low-end uniprocessors
SPARCserver 5 and Ultra Enterprise(TM) 1 Server to the Ultra Enterprise 6000
Server, a highly scalable, reliable, enterprise-wide symmetric multiprocessor
server.
The low-end servers also include the multiprocessing Ultra Enterprise 2
Server and the Enterprise 150 workgroup tower server with an integrated storage
subsystem. The Company's low-end servers are designed for high performance,
exceptional throughput, reliability and affordability. Ideal applications
include database, groupware, email, and internet/intranet capabilities. They can
also function as computational servers for electrical or mechanical design
automation. These systems are highly expandable, offering a range of main memory
and hard disk storage configurations.
For enterprises, Sun offers its new Ultra Enterprise Server family.
Additionally Sun has recently expanded the breadth of it's server line by
acquiring the 6400 SPARC (TM) product line of Cray Business Systems Division
along with the SPARC/Solaris fault tolerant product line of Integrated Micro
Products plc.
Sun's Ultra Enterprise Server family offers upgradeability and
expandability across this product line. The entry level Enterprise 3000 is a
powerful, scalable, versatile, upgradeable and affordable departmental UNIX
server in a compact package. The Enterprise 3000 is expandable up to 6 CPU's and
shares common CPU boards and peripherals that can be used across the Ultra
Enterprise product line to provide flexibility and protect the customers
investment. The Enterprise 4000 is expandable up to 14 processors and is one of
the most modular and powerful departmental servers offering outstanding
performance and the ability to scale system performance and capacity as needs
grow. The Enterprise 5000, Sun's entry level datacenter system is expandable up
to 14 processors and is packaged in a rack configuration to enable bundling of
additional storage in a single enclosure.
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The enterprise 6000 is expandable up to 30 processors and gives customers
the ability to deploy large scale, mission critical, applications in a
network-based environment. It is the most scalable and expandable Sun server
offering the performance and availability required for mainframe-class, mission
critical applications.
The Company's Netra(TM) servers provide preconfigured solutions for
Internet and intranet publishing. Sun also offers the SPARCstorage(TM) Array
Model 200 Series, a storage subsystem utilizing RAID technology, Sun's
affordable, high availability disk storage subsystem.
System Software
The system software environment is a key component for fulfilling customer
needs around the network. The Company continues to focus on providing
customer-centric solutions, including the Solaris operating environment with
built-in networking, WorkShop tools for building network applications, and
Solstice software that connects it all together and manages the entire computing
enterprise. The Company believes it derives competitive advantage from the
stability resulting from its many years of experience with operating system
software. The Company's principal software products are as follows:
Solaris - Solaris products include all desktop, workgroup and enterprise
operating system software products for SPARC and Intel platforms. The Solaris
advanced operating system provides a scalable, secure, and reliable platform for
corporate computing, intranet/internet business requirements, powerful
enterprise databases and high performance technical computing environments.
Solstice Enterprise Management Products - The Company's principal
enterprise computing management environment, Solstice enables customers to
manage every part of a network regardless of servers and desktops. Solstice
utilizes distributed computing technologies to scale and manage global
heterogeneous networks, such as those in telecommunications and financial
services companies. Solstice products decrease the complexity of managing
enterprise-wide networks while significantly lowering the total cost of
operation, giving companies the flexibility of distributed computing with the
control of centralized management. Solstice is one of the industry's leading
network management platforms and includes a next-generation enterprise
management platform, SunNet Manager and a complete line of system administration
and management tools.
Networking Products - Networking products are central to Sun's open
systems architecture. These products provide networking capabilities that make
distributed resources easily accessible by PC's, workstations, servers and other
computing devices on a single network. These products also integrate
heterogeneous global, department, local and remote network resources into
company-wide information systems. The Company is committed to developing
networking products that adhere to and promote open industry networking
standards and technologies in emerging areas such as the Internet and intranet.
The Company's networking products include the SolarNet(TM) family of
PC-to-enterprise networking solutions. The Company's fast growing line of
software products for the Internet includes a broad set of solutions spanning
internet access, security, and publishing for the World Wide Web. Web NFS(TM),
Sun's newest NFS technology, provides a rapid file access standard for the
Internet.
Developer Products - Developer products include programming tools for
professional software developers for UNIX, including Solaris, HP-UX, UnixWare,
and Java. These products provide a powerful, comprehensive software development
environment to enable the development of next-generation, network-based,
client/server, and intranet/internet applications. Specific products include
SunSoft WorkShop(TM) for C, Sun FORTRAN(TM), Sun Ada(TM), and software developer
kits for developers of Solaris applications. The Java Developers Kit enables
developers to create Java applets, which are miniature applications that run
inside a World Wide Web page, as well as Java applications.
NEO/Joe(TM) - The NEO(TM) product family provides object-oriented
development tools, system administration tools, and transparent networking to
lower the costs of creating, customizing, and maintaining applications. Joe, a
part of the NEO family, delivers business applications from the corporate
enterprise to the public internet by directly connecting Java-based web browsers
to existing business applications.
JavaSoft Products - In fiscal 1996, the Company established a new
operating division that is chartered to develop, market and support Java, a
robust, object-oriented, secure programming language. The Java Application
Environment (JAE) is one of the first widely accepted application environments
to enable the platform - independent development of application software. In
fiscal 1996, Sun licensed JAE to over thirty computer and software companies,
including several high volume operating system vendors. These vendors plan to
integrate JAE into their operating systems so that applications written in Java
will run on their systems.
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Sales, Distribution and Marketing
Sun maintains a presence in most major markets and sells computer systems,
software and services to its customers worldwide through a combination of direct
and indirect channels. The Company also offers off-the-shelf software and
component products such as CPU chips, ASIC's and embedded boards on an OEM basis
to other hardware manufacturers, as well as supplies after-market and peripheral
products to its end user installed base, both directly and through independent
distributors and resellers.
In general, the Company's direct sales force is compensated on a
channel-neutral basis to reduce potential channel conflict with the Company's
distribution partners. Distribution channels include:
- a direct sales force selling to selected end-user named accounts
and numerous indirect channels.
- systems integrators, both government and commercial who serve the
market for large commercial projects requiring substantial
analysis, design, development, implementation and support of custom
solutions;
- master resellers who supply product and provide product marketing
and technical support services to the Company's smaller Value Added
Resellers ("VARs");
- VARs who provide added value in the form of software packages,
proprietary software development, high-end networking integration,
vertical integration, vertical industry expertise, training,
installation and support;
- OEMs who integrate the Company's products with other hardware and
software; and
- independent distributors who primarily cover markets in which Sun
does not have a direct presence.
The growth and management of the reseller channels is very important to the
future revenues and profitability of the Company. Channel partners account for
greater than 50% of Sun's revenue today and will continue to play a key role in
providing value and service and support that are critical to Sun's long term
success.
The Company's direct systems sales force serves educational institutions,
software vendors, governments, businesses and other strategic accounts. The
Company has approximately 80 sales and service offices in the United States and
approximately 100 sales and service offices in 41 other countries. In addition,
it uses independent distributors in approximately 150 countries, sometimes in
concert with other resellers and direct sales operations.
Revenues from outside the United States, including those from end users,
resellers and distributors, constituted approximately 51% of net revenues in
fiscal 1996, 1995 and 1994. Direct sales made in countries outside of the United
States are generally priced in local currencies and are, therefore, subject to
currency exchange fluctuations. The net impact of currency fluctuations on net
revenues and operating results cannot be precisely measured as the company's
product mix and pricing change over time in various markets, partially in
response to currency movements. To minimize currency exposure gains and losses,
the company borrows funds in local currencies, enters into forward exchange
contracts, purchases foreign currency options and promotes natural hedges by
purchasing components and incurring expenses in local currencies whenever
feasible. Sun's sales to overseas customers are made under export licenses that
must be obtained from the United States Department of Commerce. Protectionist
trade legislation in either the United States or other countries, such as a
change in the current tariff structures, export compliance laws or other trade
policies, could adversely affect Sun's ability to sell or to manufacture in
international markets. Sales to or through C. Itoh Technoscience Co. Ltd.,
Fujitsu, Ltd. and Toshiba Corporation together represent a significant portion
of Sun's revenues in Japan. See Note 9 of Notes to Consolidated Financial
Statements incorporated by reference for additional information concerning sales
to foreign customers and industry segments.
Seasonality affects the Company's revenues and operating results,
particularly in the first quarter of each fiscal year. In addition, the
Company's operating expenses are increasing as the Company continues to expand
its operations, and future operating results will be adversely affected if
revenues do not increase in proportion with such increased expense levels.
The Company's marketing activities include advertising in computer
publications and the business press, direct mailings to customers and prospects
and attendance at trade shows. Sun maintains a customer resource program,
Sunergy(TM), which includes live interactive satellite broadcasts and provides
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electronic access to newsletter and technical information. Sun also sponsors a
series of seminars to specific resellers, university customers, end users and
government customers and prospects designed to familiarize attendees with the
capabilities of the Sun product line.
Sun's order backlog at June 30, 1996 was approximately $522 million,
compared with approximately $323 million at June 30, 1995. Backlog includes only
orders for which a delivery schedule within six months has been specified by the
customer. Backlog levels vary with demand, product availability and the
Company's delivery lead times and are subject to significant decreases as a
result of customer order delays, changes or cancellations. As such, backlog
levels are not a reliable indicator of future operating results.
Customer Service and Support
The Company provides expertise in heterogeneous network computing through
a full range of global services, including support services (hardware and
software systems support), educational services and professional services (IT
consulting, systems integration and system/network management). Sun assists both
technical and commercial customers, supporting more than a half million systems
in 170 countries, training more than 50,000 people annually, and providing
consulting, integration and operations assistance to IT organizations worldwide.
In support services, the field support team of 2,200 includes mostly
software support engineers in the solution centers and in field offices. This
field force is complemented by third-party service providers, delivering a full
range of system support. Investments in field personnel and spare parts to meet
the service requirements of the growing installed base are being supplemented by
partnerships with third-party service providers. These partners invest in
complementary support infrastructure thereby facilitating an expansion of
geographical coverage while reducing the Company's investment in fixed
resources.
The Company offers a warranty for parts and labor on its systems,
generally for one year from date of sale. The Company maintains and services the
products during the warranty period and on a contractual basis after the initial
product warranty has expired. Post-warranty support services are primarily
offered through a tiered support offering called SunSpectrum(TM). SunSpectrum
offers four levels of differentiated support that are packaged as a single price
for the system: all hardware, peripherals and software. Warranty and
post-warranty services are provided from its over 290 field offices and 25
solutions centers in the United States and overseas handling over 550,000 calls
a year.
In educational services, Sun offers comprehensive skills migration,
consulting and courseware. Consultants can perform needs analysis, skills
assessment and migration, curriculum design and course customization.
Instructor-led courseware addresses the educational needs of many customers
including managers, operators, developers, system administrators, and end-users.
As an alternative to the classroom, customers may select self-study training,
including more than 50 interactive training products geared for all levels of
knowledge.
In the professional services, Sun provides the people, processes, and
technology to deliver single point-of-contact solutions tailored to meet
customer needs. Sun technical and project management experts help customers
plan, implement, and manage heterogeneous computing environments. To plan
technical solutions to meet changing business needs, Sun consultants help design
IT architectures and plan migrations from legacy systems to network computing.
To implement solutions, integration experts help customers develop and deploy
distributed computing environments for new applications. To keep the environment
operating at peak performance, operations experts help customers manage the
complexity of the heterogeneous systems and networks. In addition, Sun helps
with all phases of creating and implementing internet solutions.
The Company is investing in resources in the areas of mission critical
support, multivendor support, IT consulting, educational needs consulting and
geographic coverage with direct support capability in new emerging markets.
Certain complex computer systems sold by Sun require that a high level of
implementation support be provided to the customer, and consequently, the
customer's acceptance of such systems may be delayed in the event Sun does not
provide a sufficient level of such service. Delays in customer acceptance could
adversely affect the future operating results of the Company.
Product Development
The Company's research and product development programs are intended to
sustain and enhance its competitive position by incorporating the latest
worldwide advances in hardware, software, graphics, networking, data
communications and storage technologies. Sun's product development efforts,
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conducted within each of its businesses, are currently focused on enhancing its
products' performance and price/performance, as well as reliability,
availability, and serviceability, of both the Company's hardware and systems
software for the Company's expanding enterprise client-server computing customer
base. Additionally, Sun remains focused on system software platforms for
Internet and intranet applications, developing advanced workstation and server
architectures, designing application-specific integrated circuits and software
for networking and distributed computing. Sun product development continues to
be committed to including the high-performance implementation of existing
standards and the development of new technology standards.
Sun conducts research and development worldwide principally through
facilities in the United States, France, and Japan. Research and development
expenses were approximately $657 million, $563 million and $500 million in
fiscal 1996, 1995 and 1994, respectively. In recent years, Sun's research and
development efforts have focused increasingly on Solaris software and SPARC
microprocessors. Sun believes that software development provides and continues
to provide significant competitive differentiation. Therefore, Sun currently
devotes substantial resources to the development of workgroup software,
networking and data communications, video, graphics, object technology and the
software development environment.
The development of high performance computer products, such as the
Company's recent development of UltraSPARC, is a complex and uncertain process
requiring high levels of innovation from the Company's designers and suppliers,
as well as accurate anticipation of customer requirements and technological
trends.
Sun introduced and began shipments of its new enhanced desktop systems
based upon the UltraSPARC processors in the second quarter of fiscal 1996. In
addition, enhanced server systems based on UltraSPARC were introduced in the
fourth quarter of fiscal 1996. Future operating results will depend to a
considerable extent on the Company's ability to rapidly and successfully
complete the integration of UltraSPARC into the Company's workstation and server
product lines.
Manufacturing and Supply
The Company's manufacturing operations consist primarily of printed
circuit board assembly and final assembly, test and quality control of systems,
materials and components. Sun has manufacturing facilities in California and
Scotland, and distribution facilities in California, the Netherlands and Japan.
The Company has continued its efforts to simplify its manufacturing process by
reducing the diversity of system configurations offered to customers, increasing
the standardization of components across product types and establishing local
sources of supply in major geographies.
Sun uses many standard parts and components in its products and believes
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, those components are available only from single sources. In particular,
Sun is dependent on Sony Corporation for various monitors and on Fujitsu Limited
(Fujitsu) and Texas Instruments, Incorporated for different implementations of
SPARC microprocessors. Certain custom silicon parts are designed by and produced
on a contractual basis for Sun. The process of substituting a new producer of
such parts could adversely affect Sun's operating results. Some suppliers of
certain components, including color monitors and custom silicon parts, require
long lead times such that it can be difficult for the Company to plan inventory
levels of components to consistently meet demand for Sun's products. Certain
other components, especially memory integrated circuits such as DRAMs, SRAMs,
and VRAMs, have from time to time been subject to industry-wide shortages.
Future shortages of components could negatively affect the Company's ability to
match supply and demand, and therefore could adversely impact the Company's
future operating results.
The Company is increasingly dependent on the ability of its suppliers to
design, manufacture and deliver advanced components required for the timely
introduction of new products. The failure of any of these suppliers to deliver
components on time or in sufficient quantities, or the failure of any of the
Company's own designers to develop advanced innovative products on a timely
basis, could result in a significant adverse impact on the Company's operating
results. The inability to secure enough components to build products, including
new products, in the quantities and configurations required, or to produce, test
and deliver sufficient products to meet demand in a timely manner, would
adversely affect the Company's net revenues and operating results.
To secure components for development, production and introduction of new
products, the Company frequently makes advanced payments to certain suppliers
and often enters into noncancelable purchase commitments with vendors early in
the design process. Due to the variability of material requirement
specifications during the design process, the Company must closely manage
material purchase commitments and respective delivery schedules. In the event of
a delay or flaw in the design process, the
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Company's operating results could be adversely affected due to the company's
obligations to fulfill such noncancelable purchase commitments. Once a hardware
product is developed the Company must rapidly bring it to volume manufacturing,
a process that requires accurate forecasting of both volumes and configurations,
among other things, in order to achieve acceptable yields and costs. Upon
introduction of new products, the Company must also manage the transition from
older, displaced products to minimize disruptions in customer ordering patterns,
reduce levels of older product inventory, and ensure that adequate supplies of
new products can be delivered to meet customer demand. The ability of the
Company to match supply and demand is further complicated by the need to take
pricing actions and the variability of timing of customer orders. As a result,
the Company's operating results could be adversely affected if the Company is
not able to correctly anticipate the level of demand for the mix of products.
Because the Company is continuously engaged in this product development,
introduction, and transition process, its operating results may be subject to
considerable fluctuation, particularly when measured on a quarterly basis.
The computer systems offered by Sun generally are the result of both
hardware and software development, so that delays in software development can
delay the Company's ability to ship new hardware products. Adoption of a new
release of an operating system may require effort on the part of the customer as
well as software porting by software vendors providing applications. As a
result, the timing of conversion to a new release is inherently unpredictable.
Moreover, delays in adoption of a new release of an operating system by
customers can limit the acceptability of hardware products tied to that release.
In either situation, the future operating results of the Company could be
adversely affected.
Competition
The market for the company's products and services is intensely
competitive and subject to continuous, rapid technological change, short product
life cycles and frequent product performance improvements and price reductions.
Due to the breadth of Sun's product line and the scalability of its products and
network computing model, the Company competes in many segments of the computer
market across a broad spectrum of customers. The requirements of those customers
and the basis of competition varies widely depending on the market segment and
types of users.
Sun's traditional customer base has been in the technical and scientific
markets. Competition in this segment is based primarily on system performance,
price/performance, availability and performance of application software,
robustness of the software development environment, system expandability and
upgradeability, adherence to standards, graphics features and performance and
product quality and reliability. Increasingly, Sun is finding that its strengths
in technical markets, particularly software development, design automation and
decision support, along with its network computing focus are enabling expansion
into mission critical enterprise applications. Sun's competitors in the
technical and scientific markets are primarily Hewlett-Packard Company (HP),
International Business Machines Corporation (IBM), Digital Equipment Corporation
(DEC) and Silicon Graphics, Inc. (SGI).
Sun has been making inroads into commercial markets both with Global 1000
companies which are downsizing and distributing their computer resources, as
well as with smaller companies which are upsizing and increasing the
capabilities of their network computing systems. Traditionally, competition in
these markets has been based on price/performance, capabilities and stability of
the systems software, product quality and reliability, ease of system operation
and administration, service and support, availability and performance of
applications and middleware, database performance, global marketing and
distribution capabilities, corporate reputation and name recognition.
Increasingly, companies which are downsizing their operations are focusing on
distributing their computing capabilities and adopting a model of network
computing. Companies which are upsizing typically are increasing their
experience in managing larger heterogeneous environments. In addition, Sun is
continuing to expand into the Internet and intranet markets. As a result, in
both the upsizing and downsizing competitive scenarios, networking capabilities,
internet and intranet capabilities and the ability to obtain all of the
traditional security, stability and administrative features of a central
computing model in a networked environment are significant factors that
influence the buying decision and the relative strength of the competition. In
both upsizing and downsizing opportunities, Sun's competition tends to come
principally from IBM, HP, and DEC, as well as other mini and mainframe computer
suppliers. In addition, the Company is facing increasing competition from these
competitors as well as from personal computer manufacturers such as Compaq
Computer Corporation and Dell Computer Corporation, with respect to products
based on microprocessors from Intel Corporation coupled with Windows NT
operating system software from Microsoft Corporation. These products demonstrate
the viability of certain networked personal computer solutions and have
increased the competitive pressure, particularly in the Company's workstation
and lower-end server product lines.
Sun has also encouraged the proliferation of its SPARC technology as a
standard in the computer marketplace by licensing much of the technology and
promoting open interfaces to the Solaris operating environment, as well as by
offering microprocessors and enabling technologies to third party customers.
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As a result, several licensees also offer SPARC/Solaris based products that
compete directly with Sun's products primarily in the desktop markets.
The Company expects that the markets for its products, technology and
services as well as its competitors within such markets, will continue to change
as the combination of these downsizing and upsizing trends shift customer buying
patterns to distributed systems employing multiple platform networks.
Competition in these markets will also continue to intensify as Sun and its
competitors aggressively position themselves to benefit from this shifting of
customer buying patterns and demand. The ability to continue to develop leading
edge products and rapidly bring them to market will continue to have a
significant impact on Sun's competitiveness and it's operating results. In
addition, Sun expects to see continued performance improvements in
microprocessor technology and products introduced by Intel and Motorola, Inc.
Such products, coupled with enhanced operating systems software from Microsoft
and other competitors, are expected to continue to provide competitive pressure
throughout the company's product range. The Company expects this pressure to
intensify in fiscal 1997 with the availability of Pentium Pro systems running
Windows' NT server software. While many other technical, service and support
capabilities affect a customer's buying decision, Sun's future operating results
will depend, in part, on its ability to compete with these technologies.
Patents and Licenses
Sun currently holds a number of U.S. and foreign patents relating to
various aspects of its products and technology. While the Company believes that
such patent protection is important, it also believes that patents are of less
competitive significance than such factors as innovative skills and
technological expertise.
As is common in the computer industry, the Company has from time to time
been notified that it may be infringing certain patents and other intellectual
property rights of others, although no material litigation has arisen out of any
of these claims. Several pending claims are in various stages of evaluation. The
Company is evaluating the desirability of entering into licensing agreements in
certain of these cases. Based on industry practice, the Company believes that in
most cases any necessary licenses or other rights could be obtained on
commercially reasonable terms. However, no assurance can be given that licenses
can be obtained on acceptable terms or that litigation will not occur. The
failure to obtain necessary licenses or other rights, or litigation arising out
of such claims, could have a material adverse effect on the Company's
operations.
Sun has entered into separate patent exchange agreements with IBM, Cray
Research, Inc. (Cray) and Fujitsu. Under each agreement, the parties grant to
each other non-exclusive, worldwide rights to patents in their respective patent
portfolios. These agreements cover patents issued or applied for during certain
limited periods as specified in the agreements. The agreements with Cray and
Fujitsu are royalty free. Sun's payment obligations with IBM terminated at the
end of fiscal 1995.
In March 1990, Texas Instruments Incorporated (TI) alleged that a
substantial number of the Company's products infringe certain of TI's patents.
Based on its discussions with TI, the Company believes that it will be able to
negotiate a license agreement with TI, if necessary, and that the outcome of
this matter will not have a material adverse effect on Sun's financial position
or its results of operations or cash flows in any given fiscal year. Such a
negotiated license may or may not have a material adverse impact on Sun's
results of operations or cash flows in a given fiscal quarter depending upon
various factors including, but not limited, to the structure and amount of
royalty payments, offsetting consideration from TI, if any, and the allocation
of royalties between past and future product shipments, none of which can be
forecast with reasonable certainty at this time.
On September 12, 1996, Sun received a Complaint filed in the United States
District Court, Northern District of Illinois, filed by GEN 17, Inc., alleging
patent infringement. See Item 3 "Legal Proceedings" for information regarding
the Complaint.
Employees
As of June 30, 1996, Sun employed approximately 17,400 people. The
Company's future operating results will depend on its ability to continue to
broaden and develop senior management to attract and retain skilled employees,
and on the ability of its management and key employees to manage growth
successfully through the enhancement of management information systems and
financial controls. The Company expects to continue to increase its number of
employees to support demand creation programs, service and support operations,
and overall projected growth. None of Sun's employees in the United States is
represented by a labor union.
9
<PAGE>
ITEM 2. PROPERTIES
Sun conducts its worldwide operations using a combination of leased and
owned facilities. The Company believes that, while it currently has sufficient
facilities to conduct its operations during fiscal 1997, it will continue to
lease and acquire owned facilities throughout the world as its business
requires. Properties owned by the Company consist of an approximately 260,000
square foot facility on approximately 20 acres in Palo Alto, California; an
approximately 227,000 square foot facility on approximately 30 acres in
Linlithgow, Scotland; an approximately 30,000 square foot facility on
approximately 2.5 acres in Bagshot, England; approximately 90 acres in Newark,
California; and approximately 439,000 square feet on approximately 27 acres in
Menlo Park, California. Sun also leases approximately 28 acres in Menlo Park
with approximately 596,000 square feet ("Phase II and III") under construction
with an estimated completion date of the first quarter of fiscal 1997. Sun
leases approximately 270 sales and service offices throughout the world
aggregating about 2 million square feet. Sun also leases approximately 3 million
square feet for its research and development and manufacturing facilities,
primarily in Milpitas, Sunnyvale and Mountain View, California and Chelmsford,
Massachusetts. Sun plans to purchase Phases II and III of its Menlo Park campus
for approximately $116 million during the second quarter of fiscal 1997. Sun's
California manufacturing plant, the majority of its research and development
facilities, its Corporate headquarters and other critical business operations
are located near major earthquake faults. Operating results could be materially
adversely impacted in the event of a major earthquake.
ITEM 3. LEGAL PROCEEDINGS
On September 12, 1996, Sun received a Complaint filed in the United
States District Court, Northern District of Illinois, filed by GEN 17, Inc., an
Illinois corporation ("GEN 17"), alleging infringement of United States Patent
Number 4,956,809 (the '809 patent), issued September 11, 1990. The '809 patent
was originally assigned to The Mark Williams Company, an Illinois corporation
("MWC"). The '809 patent was recently acquired by GEN 17 from MWC and is titled
"Method for Canonical Ordering of Binary Data for Portable Operating Systems."
The lawsuit alleges that the patent covers processes used by Sun in the XDR
module of Sun's Network File System (NFS). Sun became aware of the '809 patent
in late 1990 and received a written opinion from outside patent counsel that Sun
does not infringe the claims and that the patent would likely be held invalid.
Sun communicated these findings with MWC counsel in 1990 and has had no further
communications from MWC or its counsel. Sun intends to vigorously defend itself
in this lawsuit and will evaluate the desirability of resolving the matter
through a reasonable license or other settlement of the issues. Counsel of GEN
17 has indicated a willingness to discuss a license or settlement. Sun does not
believe at this time that the outcome of this matter will have a material
adverse impact on Sun's financial position or its results of operations or cash
flows in any given fiscal year. Any negotiated license or settlement may or may
not have a material adverse impact on Sun's results of operations or cash flows
in a given fiscal quarter depending on various factors, including the structure
and amount of any settlement, and the allocation of settlement costs between
past and future product shipments, none of which can be forecast with reasonable
certainty at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of September 17, 1996:
Name Age Position
---- --- --------
Scott G. McNealy 41 Chairman of the Board of Directors,
President and Chief Executive Officer, Sun
Microsystems, Inc
Kenneth M. Alvares 52 Vice President, Human Resources, Sun
Microsystems, Inc
Alan E. Baratz 41 President, JavaSoft
Mel Friedman 58 Vice President, Worldwide Operations, Sun
Microsystems Computer Company
Lawrence W. Hambly 50 President, SunService Division
Masood A. Jabbar 46 Vice President, Chief Financial Officer,
Sun Microsystems Computer Company
William N. Joy 41 Vice President, Research and Development,
Sun Microsystems, Inc.
Michael E. Lehman 46 Vice President, Chief Financial Officer,
Sun Microsystems, Inc.
Michael H. Morris 48 Vice President, General Counsel and
Secretary, Sun Microsystems, Inc.
Alton D. Page 40 Vice President, Treasurer, Sun Microsystems
Inc.
Frank Pinto 51 Vice President, North American Field
Operations, Sun Microsystems Computer
Company
William J. Raduchel 50 Vice President, Corporate Planning and
Development and Chief Information Officer,
Sun Microsystems Inc.
George Reyes 42 Vice President, Corporate Controller, Sun
Microsystems, Inc.
Joseph P. Roebuck 60 Vice President, Worldwide Field Operations,
Sun Microsystems Computer Company
Edward Saliba 47 Vice President, Finance and Operations,
SunSoft, Inc.
Janpieter T. Scheerder 47 President, SunSoft, Inc.
Eric E. Schmidt 41 Vice President, Chief Technology Officer,
Sun Microsystems, Inc.
John C. Shoemaker 53 Vice President, General Manager, Enterprise
Servers and Storage Group, Sun Microsystems
Computer Company
Chester J. Silvestri 48 President, Sun Microelectronics
Dorothy A. Terrell 51 President, SunExpress, Inc.
Edward T. Zander 49 President, Sun Microsystems Computer Company
Mr. McNealy is a founder of the Company and has served as Chairman of the
Board of Directors, President and Chief Executive Officer since December 1984,
as President and Chief Operating Officer from February 1984 to December 1984 and
as Vice President of Operations from February 1982 to February 1984. Mr. McNealy
has served as a director of the Company since the incorporation of Sun in
February 1982.
Mr. Alvares has served as Vice President, Human Resources of the Company
since June 1992. From 1990 to June 1992, he served as Vice President, Human
Resources, Nichols Institute. He held various positions at Frito-Lay, Inc. from
1984 to 1990, including Vice President of Personnel from 1987 to 1990.
11
<PAGE>
Mr. Alan Baratz has served as President, JavaSoft, since February 1996.
From August 1994 to November 1995, Mr. Baratz served as President and Chief
Executive Officer of Delphi Internet Services Corp., an Internet services
provider. From July 1993 to July 1994, Mr. Baratz served as Director of
Strategic Development for IBM Corporation. From January 1991 to June 1993, he
served as a Director of High Performance Computing and Communication of IBM
Corporation.
Mr. Freidman has served as Vice President, Worldwide Operations of Sun
Microsystems Computer Company since April 1996. From 1989 to April 1996 Mr.
Freidman served the Company in various positions including Vice President Supply
Management, Vice President California Operations and Vice President
Workstations, Servers and Graphics.
Mr. Hambly has served as President, SunService, a division of the Company,
since July 1993. From July 1991 to July 1993, he served as Vice President,
Marketing of Sun Microsystems Computer Company (formerly Sun Microsystems
Computer Corporation). From July 1988 to July 1991, he served as President of
Sun Microsystems Federal, Inc. From April 1983 to July 1988, he served in
various sales management capacities at the Company, most recently as Vice
President, Western Area Sales.
Mr. Jabbar has served as Vice President, Finance and Chief Financial
Officer of Sun Microsystems Computer Company since June 1994. From July 1992
until June 1994, Mr. Jabbar served as Vice President, Finance and Planning,
Worldwide Field Operations of Sun Microsystems Computer Company. From July 1991
to June 1992, he served as Vice President, Finance and Administration, United
Sates Field Operations for Sun Microsystems Computer Company and from October
1990 to June 1991, he served as Director, Finance and Administration, United
States Field Operations for the Company. From October 1989 to October 1990, he
served as Director of United States Field Market for the Company. From April
1988 to October 1989, he served as United States Sales and Service Controller
for the company. From December 1986 to April 1988 he served as United States and
Intercontinental Sales Controller for the Company.
Mr. Joy has served as Vice President, Research and Development of the
Company since August 1983.
Mr. Lehman has served as Vice President and Chief Financial Officer of the
Company since February 1994. From June 1990 until February 1994, Mr. Lehman
served as Vice President and Corporate Controller of the Company. From September
1989 to June 1990 he served as Director of Finance and Administration of Sun
Microsystems of California Ltd., one of the Company's Hong Kong subsidiaries. He
served as Assistant Corporate Controller of the company from September 1988 to
August 1989 and as External Reporting Manager from August 1987 to August 1988.
Mr. Morris has served as Vice President, General Counsel and Secretary of
the Company since October 1987.
Mr. Page has served as Vice President, Corporate Treasurer of the Company
since February 1996. Prior to that time, Mr. Page was a Partner of Ernst &
Young, LLP.
Mr. Pinto has served as Vice President, North American Field Operations of
Sun Microsystems Computer Company since July 1995. From January 1993 to June
1995, Mr. Pinto served as Vice President, Northeast Area for Sun Microsystems
Computer Company. From June 1989 to December 1992, he served as Metro Regional
Director of the Company and from November 1988 to June 1989, he served as the
Company's District Manager, Northeast Major OEM District.
Mr. Raduchel has served as Vice President, Corporate Planning and
Development and as Chief Information Officer of the Company since July 1991. In
addition, from July 1991 to June 1992, he served as Vice President, Human
Resources (acting). From June 1989 to July 1991, he served as Vice President and
Chief Financial Officer of the Company; he was also acting Chief Information
Officer of the Company from November 1990 to July 1991. From October 1988 to
June 1989, he served as Vice President, Corporate Planning and Development. From
1985 to 1988, he served as Vice President of Document Systems in the Strategic
Business Office of Xerox Corporation.
Mr. Reyes has served as Vice President and Corporate Controller of the
Company since April 1994. From April 1992 to March 1994, Mr. Reyes served as
Audit Director for the Company. From April 1991 to April 1992, he was Director
of Finance for the Company's ICON operations. From June 1989 to April 1991, he
served as Assistant Corporate Controller. From July 1988 to June 1989, Mr. Reyes
was the Controller of the Company's General Systems Group. From March 1988 to
June 1988, Mr. Reyes served as the Company's Marketing Controller.
Mr. Roebuck has served as Vice President, Worldwide Field Operations of
Sun Microsystems Computer Company since April 1992. From November 1988 to April
1992, he served as Vice President,
12
<PAGE>
United States Field Operations, Sun Microsystems Computer Company and from
January 1986 to November 1988, he served as Vice President of Sales for the
Company.
Mr. Saliba has served as Vice President, Finance and Operations of
SunSoft, Inc. since February 1996. From May 1994 to February 1996, he served as
Finance Director for Sun Microelectronics. From May 1993 to May 1994 he served
as Finance Director of Worldwide Field Operations for Sun Microsystems Computer
Company. From June 1991 to May 1993 he served as Finance Director for Sun
Microsystems Computer Company Engineering. From April 1989 to June 1991 he
served as Finance Manager and Director East Coast Operations.
Mr. Scheerder has served as President of SunSoft, Inc., since August 1995.
From April 1995 to August 1995, he served as Vice President, Server Products of
Sun Microsystems Computer Company. From March 1992 to April 1995, Mr. Scheerder
served as Vice President, Solaris Products of SunSoft, Inc. From August 1991 to
March 1992, he was Director of Marketing and Programming of SunSoft, Inc. and
from February 1990 to August 1991, he was Vice President, Industry Standard
System Development at Data General.
Mr. Schmidt has served as Chief Technology Officer of the Company since
February 1994. From July 1991 to February 1994, Mr. Schmidt served as President
of Sun Technology Enterprises, Inc., formerly a subsidiary of the Company. From
July 1988 to July 1991, he served as Vice President of the Company's General
Systems Group. From May 1985 to July 1988, he served as Vice President and
General Manager, Software Products Division for the Company.
Mr. Shoemaker has served as Vice President, General Manager, Enterprise
Server and Storage Group of Sun Microsystems Computer Company since April 1996.
From July 1993 to April 1996 he served as Vice President, Worldwide Operations
of Sun Microsystems Computer Company. From June 1992 to July 1993 he served as
Vice President, U.S. Operations of Sun Microsystems Computer Company. From May
1990 to July 1993, he also served as Vice President, Finance and Planning,
Worldwide Operations (on an acting basis since July 1992). He served as Vice
President (Acting), Materials, Worldwide Operations from October 1991 to June
1992. From March 1989 to March 1990, he served as Senior Vice President,
Electronic Printing Worldwide Marketing, Xerox Corporation. From December 1986
to March 1989, he served as Vice President and General Manager, Document Systems
Business, Xerox Corporation.
Mr. Silvestri has served as President, Sun Microelectronics, a division of
the Company, since February 1994. From August 1992 to February 1994, Mr.
Silvestri served as Vice President, SPARC Sales. Prior to joining Sun, from
December 1986 to August 1992, he served as Vice President and General Manager,
Technology Products for MIPS Computer Systems, Inc., later acquired by Silicon
Graphics Incorporated.
Ms. Terrell has served as President of SunExpress, Inc. since August 1991.
She held various positions at Digital Equipment Corporation from 1976 to 1991,
including Group Manager, Application Specific Interconnect and Packaging in
1991, Manufacturing Manager from 1988 to 1991 and Resource Development Manager,
Corporate Manufacturing from 1987 to 1988.
Mr. Zander has served as President of Sun Microsystems Computer Company
since February 1995. From July 1991 to February 1995, Mr. Zander served as
President of SunSoft, Inc. From October 1987 to July 1991, he served as Vice
President of Corporate Marketing of the Company.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
inside back cover of Sun's 1996 Annual Report to Stockholders. At September 17,
1996 there were approximately 5,900 stockholders of record.
The following is a summary of all sales of the Company's Common Stock by
the Company's directors and executive officers who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended, during the fiscal quarter ended
June 30, 1996:
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Alvares, Kenneth 5/15/96 $59.875 500
5/28/96 $62.875 500
5/29/96 $62.00 12,000
Friedman, Mel 5/21/96 $60.00 2,490
5/28/96 $61.50 1,408
5/28/96 $61.50 6,000
Hambly, Lawrence 5/28/96 $62.50 5,000
5/28/96 $63.00 5,000
5/28/96 $63.50 5,000
Lehman, Michael 4/23/96 $52.1875 1,450
McNealy, Scott 5/3/96 $57.375 75,000
5/3/96 $57.50 25,000
Reyes, George 4/23/96 $50.00 460
4/23/96 $50.00 6,000
4/23/96 $50.00 520
Roebuck, Joseph 5/28/96 $63.00 25,000
Scheerder, Jan Pieter 4/19/96 $50.19 6,000
5/29/96 $61.875 856
Schmidt, Eric 5/2/96 $57.625 5,000
5/20/96 $58.625 5,000
5/21/96 $60.625 5,000
5/28/96 $61.125 5,000
5/30/96 $62.00 5,000
5/31/96 $61.75 5,000
14
<PAGE>
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Shoemaker, John 5/2/96 $56.75 4,000
5/3/96 $57.125 4,000
5/14/96 $57.875 6,000
5/31/96 $63.125 5,000
Silvestri, Chester 5/13/96 $57.6671 6,000
5/13/96 $57.6671 2,000
Terrell, Dorothy 5/15/96 $59.875 500
5/28/96 $62.875 500
Walsh, Kevin 5/31/96 $63.00 8,000
Zander, Edward 4/24/96 $55.00 20,000
5/22/96 $59.6875 10,000
5/31/96 $61.125 7,000
5/31/96 $60.875 3,000
In July 1995, the Board of Directors approved a plan to repurchase
approximately 24 million shares of the Company's common stock. Repurchases under
this plan were completed in August 1996 at the cost of approximately $696
million.
- -------------------
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information included under the caption "Historical Financial Review" on pages 13
and 14 of Sun's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to the
information included under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 through 21 of Sun's
1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
information included under the captions "Consolidated Statements of Income",
"Consolidated Balance Sheets", "Consolidated Statements of Cash Flows",
"Consolidated Statements of Equity", "Notes to Consolidated Financial
Statements" and "Report of Ernst & Young LLP, Independent Auditors" on pages 22
through 37 of Sun's 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is incorporated by
reference from the information contained under the caption "Election of
Directors" in Sun's 1996 Proxy Statement for the Company's 1996 Annual Meeting
of Stockholders. Current executive officers of the Registrant found under the
caption "Executive Officers of the Registrant" in Part 1 hereof is also
incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information contained under the caption "Executive Compensation" in Sun's
1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from
the information contained under the caption "Information Concerning Solicitation
and Voting - Record Date and Outstanding Shares" and "Security Ownership of
Management" in Sun's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the information contained under the caption "Executive Compensation - Summary
Compensation Table", "Certain Transactions With Management" and "Employment
Contracts and Change-In-Control Arrangements" in Sun's 1996 Proxy Statement.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements that are incorporated herein by reference
to the following in Sun's 1996 Annual Report to Stockholders.
Consolidated Statements of Income for each of the three years
in the period ended June 30, 1996 (page 22).
Consolidated Balance Sheets at June 30, 1996 and 1995 (page
23).
Consolidated Statements of Cash Flows for each of the three
years in the period ended June 30, 1996 (page 24).
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended June 30, 1996 (page 25).
Notes to Consolidated Financial statements (pages 26 through
36).
Report of Ernst & Young LLP, Independent Auditors (page 37).
The Company's 1996 Annual Report to Stockholders is not deemed
filed as part of this report except for those parts specifically
incorporated herein by reference.
2. Financial Statement schedule:
Page Schedule Title
---- -------- -----
S-1 II Valuation and Qualifying Accounts
All other schedules have been omitted since the required
information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements,
including the notes thereto.
17
<PAGE>
3. Exhibits
Exhibit
Number Description
- -------- -----------
3.1(2) Amended and Restated Certificate of Incorporation of Registrant.
3.2(9) Bylaws of Registrant, as amended. 3.3(8) Certificate of Amendment
of the Restated Certificate of Incorporation of Registrant.
4.3(9) First Amended and Restated Common Shares Rights Agreement dated
December 14, 1990, between Registrant and The First National Bank
of Boston.
4.4(11) Amendment dated as of October 28, 1991 to the First Amended and
Restated Common Shares Rights Agreement dated December 14, 1990.
4.5(12) Second Amendment dated as of August 5, 1992 to the First Amended
and Restated Common Shares Rights Agreement dated December 14,
1990.
4.6(17) Third Amendment dated as of November 2, 1994 to First Amended and
Restated Commmon Shares Rights Agreement dated December 14, 1990.
4.7(17) Fourth Amendment dated as of November 1, 1995 to First Amended
and Restated Common Shares Rights Agreement dated December 14,
1990
10.1(1) Technology Transfer Agreement dated February 27, 1982, for the
purchase by the Registrant of certain technology for cash, and
related Assumption Agreement dated February 27, 1982
10.3(1) Form of Founders' Restricted Stock Purchase Agreement.
10.8(1) Registration Rights Agreement dated as of November 26, 1984.
10.8A(1) Amendment to Registration Rights Agreement.
10.9(3) Registrant's 1982 Stock Option Plan, as amended, and
representative forms of Stock Option Agreement
10.10(3) Registrant's Restricted Stock Plan, as amended, and
representative form of Stock Purchase Agreement.
10.11(10) Registrant's 1984 Employee Stock Purchase Plan, as amended.
10.21(1) License Agreement dated July 26, 1983, by and between Registrant
and The Regents of the University of California.
10.22(1) Software Agreement effective as of April 1, 1982 by and between
Registrant and American Telephone and Telegraph Company, and
Supplemental Agreement dated effective as of May 28, 1983.
10.48(3) Registrant's 1987 Stock Option Plan and representative form of
Stock Option Agreement.
10.51(4) First Amendment to Amended and Restated Term Loan Agreement dated
September 22, 1989.
10.56(4) Building Loan Agreement dated May 11, 1989, between Sun
Microsystems Properties, Inc. and the Toyo Trust and Banking
Company Limited, New York Branch and the related Promissory Note;
First Deed of Trust, Assignment of Leases, Rents and Other Income
and Security Agreement; Guaranty of Payment; Guaranty of
Completion (Sun Microsystems Properties, Inc.); Guaranty of
Completion (Sun Microsystems, Inc.); Shortfall Agreement and
Indemnity.
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<PAGE>
Exhibit
Number Description
------- -----------
10.57(4) Note and Warrant Purchase Agreement dated September 26, 1989,
between the Registrant, The Ohio National Life Insurance Company,
Principal Mutual Life Insurance Company, Pruco Life Insurance
Company, The Prudential Life Insurance Company of America,
Prudential Property and Casualty Insurance Company and Teachers
Insurance and Annuity Association of America and related Common
Stock Purchase Annuity Association of America and related Common
Stock Purchase Warrant.
10.59(5) Second Amendment to Amended and Restated Term Loan Agreement
dated as of October 26, 1989.
10.60(6) Note and Warrant Purchase Agreement dated December 15, 1989,
between the Registrant and Metropolitan Life Insurance Company
and related Common Stock Purchase Warrant.
10.61(6) Note and Warrant Purchase Agreement dated December 15, 1989,
between the Registrant and Allstate Life Insurance Company,
Modern Woodmen of America, The Ohio National Life Insurance
Company, The Western and Southern Life Insurance Company,
Western-Southern Life Insurance Company and Keystone Provident
Life Insurance Company and related Common Stock Purchase Warrant.
10.63(7) Third Amendment to Amended and Restated Term Loan Agreement dated
as of April 3, 1990.
10.64(8) Registrant's 1988 Directors' Stock Option Plan and representative
form of Stock Option Agreement.
10.65(16) Registrant's 1990 Employee Stock Purchase Plan, as amended on
August 9, 1995.
10.66 Registrant's 1990 Long-Term Equity Incentive Plan, as amended on
August 15, 1996.
10.66A(10) Representative form of agreement to Registrant's 1990 Long-Term
Equity Incentive Plan.
10.69(10) Fourth Amendment to Amended and Restated Term Loan Agreement
dated June 27, 1991.
10.73(10) Representative form of letter dated June 25, 1991 between the
Registrant and the insurance companies who are parties to the
Note and Warrant Purchase Agreements dated September 16, 1986 and
December 15, 1989.
10.74(10) Software Distribution Agreement dated January 28, 1991 by and
between the Registrant and UNIX Systems Laboratories, Inc.
10.75(13) Promissory Notes from Kenneth Alvares to the Registrant dated
June 10, 1992 and July 13, 1992
10.77(14) Lease Agreement between BNP Leasing Corporation and Registrant,
effective as of September 25, 1992.
10.79(14) Amendments to Note and Warrant Purchase Agreement dated May 26,
1993.
19
<PAGE>
Exhibit
Number Description
------- ------------
10.82 Revolving Credit Agreement dated June 28, 1996, between the
Registrant; Citicorp USA, Inc.; Bank of America National Trust
and Savings Association; ABN AMRO Bank N.V.; The First National
Bank of Boston; Barclays Bank PLC; Morgan Guaranty Trust Company
of New York; The Fuji Bank Limited, San Francisco Agency; The
Toronto-Dominion Bank; The Toyo Trust and Banking Co. Ltd.; The
Sumitomo Bank, Limited; The Sakura Bank Limited, San Francisco
Agency; Banque Nationale de Paris; Bayerische Vereinsbank AG, Los
Angeles Agency; The Industrial Bank of Japan, Limited, San
Francisco Agency; Swiss Bank Corporation.
10.83(15) Receivables Purchase Agreement dated as of August 5, 1994 among
the Registrant, SunExpress, Inc., Sun Microsystems Federal, Inc.,
SunSoft Inc., J.P. Morgan Delaware and Morgan Guaranty Trust
Company of New York.
10.84(16) Registrant's Non-Qualified Deferred Compensation Plan dated July
1, 1995.
10.85(16) Registrant's Section 162 (m) Executive Officer Performance-Based
Bonus Plan dated August 9, 1995.
10.86 First Amendment to Lease Agreement between BNP Leasing
Corporation and Registrant, effective as of September 23, 1994
11.0 Statement of computation of earnings per share.
13.0 1996 Annual Report to Stockholders (to be deemed filed only to
the extent required by the instructions to exhibits for reports
on Form 10-K).
22.0 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.0 Power of Attorney (See page 23).
27.0 Financial Data Schedule
- ------------------
20
<PAGE>
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-2897), which became effective March 4, 1986.
(2) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1987.
(3) Incorporated by reference to Exhibits 19.1, 19.3 or 19.4, filed as Exhibits
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 25, 1987.
(4) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989.
(5) Incorporated by reference to Exhibits 19.0 and 19.3 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 29, 1989.
(6) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 29, 1989.
(7) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March
30, 1990.
(8) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990.
(9) Incorporated by reference to Exhibits 3.1 and 4.1 filed as exhibits to the
Registrant's Report on Form 8-K filed on December 28, 1990.
(10) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991.
(11) Incorporated by reference to Exhibit 4.0 filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
27, 1991.
(12) Incorporated by reference to Exhibit 3 filed as an exhibit to the
Registrant's Form 8 Amendment No. 3 to Registration Statement on Form 8-A
filed on September 16, 1992.
(13) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992.
(14) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993.
(15) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994.
(16) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.
(17) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 1, 1995.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUN MICROSYSTEMS, INC.
Registrant
September 26, 1996
By: /s/ MICHAEL E. LEHMAN
------------------------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
22
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott G. McNealy and Michael E. Lehman jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the Chief
Executive Officer, the Chief Financial Officer and Corporate controller and a
majority of the Board of Directors, on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ SCOTT G. McNEALY Chairman of the Board of Directors, September 26, 1996
- ------------------------------- President and Chief Executive Officer
(Scott G. McNealy) (Principal Executive Officer)
/s/ MICHAEL E. LEHMAN Vice President and Chief Financial September 26, 1996
- ------------------------------- Officer (Principal Financial Officer)
(Michael E. Lehman)
/s/ GEORGE REYES Vice President and Corporate Controller September 26, 1996
- ------------------------------- (Principal Accounting Officer)
(George Reyes)
/s/ L. JOHN DOERR Director September 26, 1996
- -------------------------------
(L. John Doerr)
/s/ JUDITH L. ESTRIN Director September 26, 1996
- -------------------------------
(Judith L. Estrin)
/s/ ROBERT J. FISHER Director September 26, 1996
- -------------------------------
(Robert J. Fisher)
/s/ ROBERT L. LONG Director September 26, 1996
- -------------------------------
(Robert L. Long)
/s/ M. KENNETH OSHMAN Director September 26, 1996
- -------------------------------
(M. Kenneth Oshman)
/s/ A. MICHAEL SPENCE Director September 26, 1996
- -------------------------------
(A. Michael Spence)
</TABLE>
23
<PAGE>
SCHEDULE II
SUN MICROSYSTEMS, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deduction/ End of
Description of Period Expenses Write-off Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1994:
Accounts receivable allowances......................... $51,462 $167,281 $138,898 $79,845
======= ======== ======== =======
Year ended June 30, 1995:
Accounts receivable allowances......................... $79,845 $186,993 $167,231 $99,607
======= ======== ======== =======
Year ended June 30, 1996:
Accounts receivable allowances......................... $99,607 $189,782 $188,659 $100,730
======= ======== ======== ========
</TABLE>
S-1
EXHIBIT 10.66
SUN MICROSYSTEMS, INC.
1990 LONG-TERM EQUITY INCENTIVE PLAN
(Last amended effective as of August 15, 1996)
1. Purpose of the Plan. The purpose of the Sun Microsystems, Inc. 1990
Long-Term Equity Incentive Plan is to enable Sun Microsystems, Inc. to provide
an incentive to eligible employees, consultants and Officers whose present and
potential contributions are important to the continued success of the Company,
to afford them an opportunity to acquire a proprietary interest in the Company,
and to enable the Company to enlist and retain in its employ the best available
talent for the successful conduct of its business. It is intended that this
purpose will be effected through the granting of (a) stock options, (b) stock
purchase rights, (c) stock appreciation rights, and (d) long-term performance
awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Committee or Committees referred to in
Section 5 of the Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be exercised by the
Board.
(d) "Common Stock" means the Common Stock, $0.00067 par value (as
adjusted from time to time), of the Company.
(e) "Company" means Sun Microsystems, Inc., a corporation organized
under the laws of the state of Delaware, or any successor corporation.
(f) "Director" means a member of the Board.
(g) "Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) the last reported sale price of the Common Stock of the
Company on the NASDAQ National Market System or, if no such reported sale takes
place on any such day, the average of the closing bid and asked prices, or
(ii) if such Common Stock shall then be listed on a national
securities exchange, the last reported sale price or, if no such reported sale
takes place on any such day, the average of the closing bid and asked prices on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or
(iii) if such Common Stock shall not be quoted on such National
Market System nor listed or admitted to trading on a national securities
exchange, then the average of the closing bid and asked prices, as reported by
The Wall Street Journal for the over-the-counter market, or
(iv) if none of the foregoing is applicable, then the Fair Market
Value of a share of Common Stock shall be determined by the Board in its
discretion.
<PAGE>
(j) "Incentive Stock Option" means an Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(k) "Long-Term Performance Award" means an award under Section 10
below. A Long-Term Performance Award shall permit the recipient to receive a
cash or stock bonus (as determined by the Committee) upon satisfaction of such
performance factors as are set out in the recipient's individual grant.
Long-Term Performance Awards will be based upon the achievement of Company,
Subsidiary and/or individual performance factors or upon such other criteria as
the Committee may deem appropriate.
(l) "Nonstatutory Stock Option" means any Option that is not an
Incentive Stock Option.
(m) "Officer" means an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(n) "Option" means any option to purchase shares of Common Stock
granted pursuant to Section 7 below.
(o) "Plan" means this 1990 Long-Term Equity Incentive Plan, as
hereinafter amended from time to time.
(p) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 9 below.
(q) "Right" means and includes Stock Appreciation Rights and Stock
Purchase Rights granted pursuant to the Plan.
(r) "Stock Appreciation Right" means an award made pursuant to Section
8 below, which right permits the recipient to receive an amount of Common Stock
or cash equal in value to the difference between the Fair Market Value of Common
Stock on the date of grant of the Option and the Fair Market Value of Common
Stock on the date of exercise of the Stock Appreciation Right.
(s) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to a restricted stock purchase agreement entered into between the
Company and the purchaser under Section 9 below.
(t) "Subsidiary" means a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or by a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or by a Subsidiary.
In addition, the term "Rule 16b-3", the term "Performance Period" shall
have the meanings set forth in Section 5(a) and Section 10 respectively.
3. Eligible Participants. Any Officer, consultant, or other employee of the
Company or of a Subsidiary whom the Committee deems to have the potential to
contribute to the future success of the Company shall be eligible to receive
awards under the Plan; provided, however, that any Options intended to qualify
as Incentive Stock Options shall be granted only to employees of the Company or
its Subsidiaries.
4. Stock Subject to the Plan. Subject to Sections 11 and 12, the total
number of shares of Common Stock reserved and available for distribution
pursuant to the Plan shall be 13,250,000 shares. The shares may be authorized,
but unissued, or reacquired Common Stock. Subject to Sections 11 and 12 below,
if any shares of Common Stock that have been optioned under an Option cease to
be subject to such Option (other than through exercise of the Option), or if any
Right, Option or
2
<PAGE>
Long-Term Performance Award granted hereunder is forfeited or any such award
otherwise terminates prior to the issuance to the participant of Common Stock,
the shares (if any) that were reserved for issuance pursuant to such Right,
Option or Long-Term Performance Award shall again be available for distribution
in connection with future awards or Option grants under the Plan; provided,
however, that shares of Common Stock that have actually been issued under the
Plan, whether upon exercise of an Option or Right or in satisfaction of a
Long-Term Performance Award, shall not in any event be returned to the Plan and
shall not become available for future distribution under the Plan.
5. Administration.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered
by different Committees with respect to different groups of service providers.
(ii) Section 162(m). To the extent that a Committee determines it
to be desirable to qualify awards granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a committee consisting solely of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act ("Rule
16b-3"), the transactions contemplated hereunder shall be structured to satisfy
the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Authority. A Committee, if there be one, shall have full power to
implement and carry out the Plan, subject to the general purposes, terms, and
conditions of the Plan and to the direction of the Board (including the specific
duties delegated by the Board to such Committee), which power shall include, but
not be limited to, the following:
(i) to select the Officers, consultants and other employees of
the Company and/or its Subsidiaries to whom Options, Rights and/or Long-Term
Performance Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Options, Rights
and/or Long-Term Performance Awards, or any combination thereof, are granted
hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option or other
award and/or the shares of Common Stock relating thereto, based in each case on
such factors as the Committee shall determine, in its sole discretion);
(vi) to determine whether and under what circumstances an Option
may be settled in cash or Restricted Stock under Section 7(j) instead of Common
Stock;
3
<PAGE>
(vii) to determine the form of payment that will be acceptable
consideration for exercise of an Option or Right granted under the Plan;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of any
deemed earnings on any deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option or Right;
(x) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Rights;
and
(xi) to allow participants to satisfy withholding tax obligations
by electing to have the Company withhold from the shares of Common Stock to be
issued upon exercise of an award that number of shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by a participant to have shares
withheld for this purpose shall be made in such form and under such conditions
as the Committee may deem necessary of advisable and shall be subject to the
consent or disapproval of the Committee.
The Committee shall have the authority to construe and interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan.
6. Duration of the Plan. The Plan shall remain in effect until terminated
by the Board under the terms of the Plan, provided that in no event may
Incentive Stock Options be granted under the Plan later than October 15, 2000,
10 years from the date the Plan was adopted by the Board.
7. Stock Options. The Committee, in its discretion, may grant Options to
eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a written Option agreement which shall expressly identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option, and be in
such form and contain such provisions as the Committee shall from time to time
deem appropriate. Without limiting the foregoing, the Committee may, at any
time, or from time to time, authorize the Company, with the consent of the
respective recipients, to issue new Options including Options in exchange for
the surrender and cancellation of any or all outstanding Options or Rights.
Option agreements shall contain the following terms and conditions:
(a) Exercise Price; Number of Shares. The exercise price of the Option,
which shall be approved by the Committee, may be less than the Fair Market Value
of the Common Stock at the time the Option is granted; provided, however, that
in the case of an Incentive Stock Option, the price shall be no less than 100%
of the Fair Market Value of the Common Stock on the date the Option is granted,
subject to any additional conditions set out in Section 7(g) below, and further
provided that, in the case of an individual subject to Section 16 of the
Exchange Act, the price shall be no less than 50% of the Fair Market Value of
the Common Stock on the date the Option is granted.
The Option agreement shall specify the exercise price and the number of
shares of Common Stock to which it pertains.
(b) Waiting Period; Exercise Dates; Term. At the time an Option is
granted, the Committee will determine the terms and conditions to be satisfied
before shares may be purchased, including the dates on which shares subject to
the Option may first be purchased. The Committee may
4
<PAGE>
specify that an Option may not be exercised until the completion of the waiting
period specified at the time of grant. (Any such period is referred to herein as
the "waiting period.") At the time an Option is granted, the Committee shall fix
the period within which such Option may be exercised, which shall not be less
than the waiting period, if any, nor, in the case of an Incentive Stock Option,
more than 10 years from the date of grant.
(c) Form of Payment. The consideration to be paid for the shares of
Common Stock to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee (and, in the case of an Incentive
Stock Option, shall be determined at the time of grant) and may consist entirely
of (i) cash, (ii) certified or cashier's check, (iii) promissory note, (iv)
other shares of Common Stock (including, in the discretion of the Committee,
Restricted Stock) which (x) either have been owned by the optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the shares as to which said
Option shall be exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) delivery of an irrevocable subscription agreement for the shares which
obligates the option holder to take and pay for the shares not more than 12
months after the date of delivery of the subscription agreement or (vii) any
combination of the foregoing methods of payment.
(d) Effect of Termination of Employment or Death of Employee
Participants. In the event that an optionee during his or her lifetime ceases to
be an employee of the Company or of any Subsidiary for any reason, including
retirement, any Option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination of employment, shall expire
within such time period as is determined by the Committee; provided, however,
that in the case of an Incentive Stock Option the Option shall expire unless
exercised within a period of 90 days from the date on which the optionee ceased
to be an employee, but in no event after the expiration of the term of such
Option as set forth in the Option agreement. If in any case the Committee shall
determine that an employee shall have been discharged for Just Cause (as defined
below) such employee shall not thereafter have any rights under the Plan or any
Option that shall have been granted to him or her under the Plan. For purposes
of this Section, "Just Cause" means the termination of employment of an employee
shall have taken place as a result of (i) willful breach or neglect of duty;
(ii) failure or refusal to work or to comply with the Company's rules, policies,
and practices; (iii) dishonesty; (iv) insubordination; (v) being under the
influence of drugs (except to the extent medically prescribed) or alcohol while
on duty or on Company premises; (vi) conduct endangering, or likely to endanger,
the health or safety of another employee; or (vii) conviction of a felony. In
the event of the death of an employee optionee, that portion of the Option which
had become exercisable on the date of death shall be exercisable by his or her
personal representatives, heirs, or legatees within six months or such time
period as is determined by the Committee (but in the case of an Incentive Stock
Option, in no event after the expiration of the term of such Option as set forth
in the Option agreement.) In the event of the death of an optionee within one
month after termination of employment or service, that portion of the Option
which had become exercisable on the date of termination shall be exercisable by
his or her personal representatives, heirs, or legatees within six months or
such time period as is determined by the Committee (but in the case of an
Incentive Stock Option, in no event after the expiration of the term of such
Option as set forth in the Option agreement.) In the event that an optionee
ceases to be an employee of the Company or of any Subsidiary for any reason,
5
<PAGE>
including death or retirement, prior to the lapse of the waiting period, if any,
his or her Option shall terminate and be null and void to the extent unvested.
(e) Leave of Absence. The employment relationship shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days (or not more than 30 days for
unpaid leave), unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing; or (iv) in the case of transfer between
locations of the Company or between the Company, its Subsidiaries or its
successor. In the case of any employee on an approved leave of absence, the
Committee may make such provisions respecting suspension of vesting of the
Option while on leave from the employ of the Company or a Subsidiary as it may
deem appropriate, except that in no event shall an Option be exercised after the
expiration of the term set forth in the Option agreement.
(f) Acceleration of Exercisability or Waiting Period. The Committee may
accelerate the earliest date on which outstanding Options (or any installments
thereof) are exercisable.
(g) Special Incentive Stock Option Provisions. In addition to the
foregoing, Options granted under the Plan which are intended to be Incentive
Stock Options under Section 422 of the Code shall be subject to the following
terms and conditions:
(i) Dollar Limitation. To the extent that the aggregate Fair
Market Value of the shares of Common Stock with respect to which Options
designated as Incentive Stock Options become exercisable for the first time by
any individual during any calendar year (under all plans of the Company) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of the preceding sentence, (i) Options shall be taken into account in
the order in which they were granted and (ii) the Fair Market Value of the
shares shall be determined as of the time the Option with respect to such shares
is granted.
(ii) Stockholder. If any person to whom an Incentive Stock Option
is to be granted pursuant to the provisions of the Plan is, on the date of
grant, the owner of Common Stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of any Subsidiary, then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(A) The exercise price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of the Common Stock on the date of grant; and
(B) The Option shall not have a term in excess of five years
from the date of grant.
Except as modified by the preceding provisions of this Subsection 7(g) and
except as otherwise required by Section 422 of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(h) Other Provisions. Each Option granted under the Plan may contain
such other terms, provisions, and conditions not inconsistent with the Plan as
may be determined by the Committee.
(i) Options to Consultants. Options granted to consultants shall not be
subject to Sections 7(b) and 7(d) of the Plan, but shall have such terms and
conditions pertaining to waiting period
6
<PAGE>
(if any), exercise date, and effect of termination of the consulting
relationship as the Committee shall determine in each case.
(j) Buyout Provisions. The Committee may at any time offer to buy out,
for a payment in cash or Common Stock (including Restricted Stock), an Option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the optionee at the time that such offer is made.
Any such offer made to an Officer or Director shall comply with the applicable
provisions of Rule 16b-3. This provision is intended only to clarify the powers
of the Committee and shall not in any way be deemed to create any rights on the
part of optionees to receive buyout offers or payments.
Limitations on Grants to Employees. Notwithstanding anything to the
contrary herein, the following limitations shall apply to grants of Options:
(i) No eligible participant shall be granted, in any fiscal year
of the Company, Options to purchase more than 150,000 shares.
(ii) In connection with his or her initial employment, an
eligible participant may be granted Options to purchase up to an additional
200,000 shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is cancelled (other than in connection with a
transaction described in Section 12), the cancelled Option will be counted
against the limit set forth in this paragraph (k). For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
8. Stock Appreciation Rights. Stock Appreciation Rights may be granted only
in connection with an Option, either concurrently with the grant of the Option
or at any time thereafter during the term of the Option. The following
provisions apply to such Stock Appreciation Rights.
(a) Exercise of Right. The Stock Appreciation Right shall entitle the
optionee to exercise the Right by surrendering to the Company unexercised a
portion of the underlying Option as to which Optionee has a right to exercise.
The Optionee shall receive in exchange from the Company an amount in cash or
Common Stock equal in value to the excess of (x) the Fair Market Value on the
date of exercise of the Right of the Common Stock covered by the surrendered
portion of the underlying Option over (y) the exercise price of the Common Stock
covered by the surrendered portion of the underlying Option, as determined in
accordance with Section 7(a) above. Notwithstanding the foregoing, the Committee
may place limits on the amount that may be paid upon exercise of a Stock
Appreciation Right; provided, however, that such limit shall not restrict the
exercisability of the underlying Option.
(b) Option Cancelled. When a Stock Appreciation Right is exercised, the
underlying Option, to the extent surrendered, shall no longer be exercisable.
(c) Exercisability Requirement. A Stock Appreciation Right shall be
exercisable only when and to the extent that the underlying Option is
exercisable and shall expire no later than the date on which the underlying
Option expires.
(d) In-the-Money Requirement. A Stock Appreciation Right may only be
exercised at a time when the Fair Market Value of the Common Stock covered by
the underlying Option exceeds the exercise price of the Common Stock covered by
the underlying Option.
7
<PAGE>
(e) Incentive Stock Option Requirements. In the event that a Stock
Appreciation Right is granted that relates to an Incentive Stock Option, such
Right shall contain such additional or different terms as may be necessary under
applicable regulations to preserve treatment of the Incentive Stock Option as
such under Section 422 of the Code.
(f) Form of Payment. The Company's obligation arising upon the exercise
of a Stock Appreciation Right may be paid currently or on a deferred basis (with
such interest or earnings equivalent as may be determined by the Committee), and
may be paid in Common Stock or in cash, or in any combination of Common Stock
and cash, as the Committee in its sole discretion may determine. Shares of
Common Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at the Fair Market Value of the Common Stock as of the date of exercise.
9. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Committee determines that
it will offer Stock Purchase Rights under the Plan, it shall advise the offeree
in writing of the terms, conditions and restrictions related to the offer,
including the number of shares of Common Stock that such person shall be
entitled to purchase, the price to be paid, which price in the case of
individuals subject to Section 16 of the Exchange Act shall not be more than
$0.00067 per share (the par value of the Company's Common Stock, as adjusted
from time to time, and the minimum price permitted by the Delaware General
Corporation Law), and the time within which such person must accept such offer,
which shall in no event exceed 60 days from the date the Stock Purchase Right
was granted. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Committee. Shares purchased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
(b) Repurchase Option. Unless the Committee determines otherwise, the
Restricted Stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or Disability). The
purchase price for shares repurchased pursuant to the Restricted Stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Committee may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Committee in its sole discretion. In addition,
the provisions of Restricted Stock purchase agreements need not be the same with
respect to each purchaser.
10. Long-Term Performance Awards.
(a) Awards. Long-Term Performance Awards are cash or stock bonus awards
that may be granted either alone, in addition to or in tandem with other awards
granted under the Plan and/or awards made outside of the Plan. Long-Term
Performance Awards shall not require payment by the recipient of any
consideration for the Long-Term Performance Award or for the shares of Common
Stock covered by such award. The Committee shall determine the nature, length
and starting date of any performance period (the "Performance Period") for each
Long-Term Performance Award and shall determine the performance and/or
employment factors to be used in the determination of the value of Long-Term
Performance Awards and the extent to which such Long-Term Performance Awards
have been earned. Shares issued pursuant to a Long-Term Performance Award
8
<PAGE>
may be made subject to various conditions, including vesting or forfeiture
provisions. Long-Term Performance Awards may vary from participant to
participant and between groups of participants and shall be based upon the
achievement of Company, Subsidiary and/or individual performance factors or upon
such other criteria as the Committee may deem appropriate. Performance Periods
may overlap and participants may participate simultaneously with respect to
Long-Term Perforance Awards that are subject to different Performance Periods
and different performance factors and criteria. Long-Term Performance Awards
shall be confirmed by, and be subject to the terms of, a written Long-Term
Performance Award agreement.
(b) Value of Awards. At the beginning of each Performance Period, the
Committee may determine for each Long-Term Performance Award subject to such
Performance Period the range of dollar values and/or numbers of shares of Common
Stock to be issued to the participant at the end of the Performance Period if
and to the extent that the relevant measures of performance for such Long-Term
Performance Award are met. Such dollar value or numbers of shares of Common
Stock may be fixed or may vary in accordance with such performance or other
criteria as may be determined by the Committee.
(c) Adjustment of Awards. Notwithstanding the provisions of Section 19
hereof, the Committee may, after the grant of Long-Term Performance Awards,
adjust the performance factors applicable to such Long-Term Performance Awards
to take into account changes in the law or in accounting or tax rules and to
make such adjustments as the Committee deems necessary or appropriate to reflect
the inclusion or exclusion of the impact of extraordinary or unusual items,
events or circumstances in order to avoid windfalls or hardships.
(d) Termination. Unless otherwise provided in the applicable Long-Term
Performance Award agreement, if a participant terminates his or her employment
or his or her consultancy during a Performance Period because of death or
Disability, the Committee may in its discretion provide for an earlier payment
in settlement of such award, which payment may be in such amount and under such
terms and conditions as the Committee deems appropriate.
Unless otherwise provided in the applicable Long-Term Performance
Award agreement, if a participant terminates employment or his or her
consultancy during a Performance Period for any reason other than death or
Disability, then such a participant shall not be entitled to any payment with
respect to the Long-Term Performance Award subject to such Performance Period,
unless the Committee shall otherwise determine in its discretion.
(e) Form of Payment. The earned portion of a Long-Term Performance
Award may be paid currently or on a deferred basis (with such interest or
earnings equivalent as may be determined by the Committee). Payment shall be
made in the form of cash or whole shares of Common Stock, including Restricted
Stock, or a combination thereof, either in a lump sum payment or in
installments, all as the Committee shall determine.
(f) Reservation of Shares. In the event that the Committee grants a
Long-Term Performance Award that is payable in cash or Common Stock, the
Committee may (but need not) reserve an appropriate number of shares of Common
Stock under the Plan at the time of grant of the Long-Term Performance Award. If
and to the extent that the full amount reserved is not actually paid in Common
Stock, the shares of Common Stock representing the portion of the reserve for
that Long-Term Performance Award that is not actually issued in satisfaction of
such Long-Term Performance Award shall again become available for award under
the Plan. If shares of Common Stock are not reserved by the Committee at the
time of grant, then (i) no shares shall be deducted from the number of shares
available for grant under the Plan at that time and (ii) at the time of payment
of
9
<PAGE>
the Long-Term Performance Award, only the number of shares actually issued to
the participant shall be so deducted. If there are not a sufficient number of
shares available under the Plan for issuance to a participant at the time of
payment of a Long-Term Performance Award, any shortfall shall be paid by the
Company in cash.
11. Recapitalization. In the event that dividends are payable in Common
Stock or in the event there are splits, subdivisions, or combinations of shares
of Common Stock, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares of Common Stock deliverable in connection with any Option, Right or
Long-Term Performance Award theretofore granted shall be increased or decreased
proportionately, as the case may be, without change in the aggregate purchase
price (where applicable).
12. Reorganization. In case the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, or in case
the property or stock of the Company is acquired by another corporation, or in
case of separation, reorganization, or liquidation of the Company, the
Committee, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall, as to outstanding Options, Rights or Long-Term
Performance Awards either (a) make appropriate provision for the protection of
any such outstanding Options, Rights or Long-Term Performance Awards by the
assumption or substitution on an equitable basis of appropriate stock of the
Company or of the merged, consolidated, or otherwise reorganized corporation
which will be issuable in respect to the shares of Common Stock, provided that
in the case of Incentive Stock Options, such assumption or substitution comply
with Section 424(a) of the Code, or (b) upon written notice to the participant,
provide that the Option or Right must be exercised within 30 days of the date of
such notice or it will be terminated. In any such case, the Committee may, in
its discretion, advance the lapse of vesting periods, waiting periods, and
exercise dates.
13. Employment or Consulting Relationship. Nothing in the Plan or any award
made hereunder shall interfere with or limit in any way the right of the Company
or of any Subsidiary to terminate any recipient's employment or consulting
relationship at any time, with or without cause, nor confer upon any recipient
any right to continue in the employ or service of the Company or any Subsidiary.
14. General Restriction. Each award shall be subject to the requirement
that, if, at any time, the Committee shall determine, in its discretion, that
the listing, quotation, registration, or qualification of the shares subject to
such award upon any securities exchange or quotation system or under any state
or federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, such award or
the issue or purchase of shares thereunder, such award may not be exercised in
whole or in part unless such listing, quotation, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Committee.
15. Rights as a Stockholder. The holder of an Option, Right or Long-Term
Performance Award shall have no rights as a stockholder with respect to any
shares covered by such Option, Right or Long-Term Performance Award until the
date of exercise. Once an Option, Right or Long-Term Performance Award is
exercised by the holder thereof, the participant shall have the rights
equivalent to those of a stockholder, and shall be a stockholder when his or her
holding is entered upon the records of the duly authorized transfer agent of the
Company. Except as otherwise expressly provided in the Plan, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
10
<PAGE>
16. Nonassignability of Awards. No awards made hereunder, including
Options, Rights and Long-Term Performance Awards, shall be assignable or
transferable by the recipient other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder, and in no event shall such awards be assigned or transferred in a
manner that is inconsistent with the specific Plan provisions relating thereto.
The designation of a beneficiary by a participant does not constitute a
transfer. During the life of the recipient, an Option, Right or Long-Term
Performance Award shall be exercisable only by him or her or by a transferee
permitted by this Section 16.
17. Withholding Taxes. Whenever, under the Plan, shares are to be issued in
satisfaction of Options, Rights or Long-Term Performance Awards granted
hereunder, the Company shall have the right to require the recipient to remit to
the Company an amount sufficient to satisfy federal, state, and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever, under the Plan, payments are to be made
to participants in cash, such payments shall be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.
18. Nonexclusivity of the Plan. Neither the adoption or amendment of the
Plan by the Board, the submission of the Plan or any amendments thereto to the
stockholders of the Company for approval, nor any provision of the Plan shall be
construed as creating any limitations on the power of the Board or the Committee
to adopt and implement such additional compensation arrangements as it may deem
desirable, including, without limitation, the awarding of cash or the granting
of stock options, stock appreciation rights, stock purchase rights or Long-Term
performance awards outside of the Plan, and such arrangements may be either
generally applicable to a class of employees or consultants or applicable only
in specified cases.
19. Amendment, Suspension, or Termination of the Plan. The Board may at any
time amend, alter, suspend, or terminate the Plan, but no amendment, alteration,
suspension, or termination shall be made which would impair the rights of any
grantee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or under Section 422 of the Code (or any other Applicable Law),
the Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as is required by such Applicable Law.
20. Effective Date of the Plan. The Plan shall become effective upon
approval of the Board and shall be subject to stockholder approval within 12
months of adoption by the Board. Options, Rights and Long-Term Performance
Awards may be granted and exercised under the Plan only after there has been
compliance with all applicable federal and state securities laws.
EXHIBIT 10.82
EXECUTION COPY
U.S. $300,000,000
CREDIT AGREEMENT
Dated as of June 28, 1996, among
SUN MICROSYSTEMS, INC.
as Borrower
and
THE LENDERS NAMED HEREIN
as Lenders
and
CITICORP USA, INC.
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms ....................................... 1
SECTION 1.02. Computation of Time Periods ................................. 11
SECTION 1.03. Accounting Terms ............................................ 11
SECTION 1.04. Application of Level Pricing ................................ 11
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances .............................................. 12
SECTION 2.02. Making the A Advances ....................................... 12
SECTION 2.03. The B Advances .............................................. 14
SECTION 2.04. Fees ........................................................ 17
SECTION 2.05. Termination, Reduction or Increase of the Commitments ....... 17
SECTION 2.06. Repayment of A Advances ..................................... 20
SECTION 2.07. Interest on A Advances ...................................... 20
SECTION 2.08. Notes ....................................................... 21
SECTION 2.09. Interest Rate Determination ................................. 21
SECTION 2.10. Sharing of Payments, Etc .................................... 21
SECTION 2.11. Prepayments of A Advances ................................... 22
SECTION 2.12. Increased Costs ............................................. 22
SECTION 2.13. Illegality .................................................. 23
SECTION 2.14. Payments and Computations ................................... 24
SECTION 2.15. Taxes ....................................................... 25
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Condition Precedent to Initial Advances ..................... 27
SECTION 3.02. Conditions Precedent to Each A Borrowing .................... 28
SECTION 3.03. Conditions Precedent to Each B Borrowing .................... 28
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower .............. 29
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants ....................................... 33
SECTION 5.02. Negative Covenants .......................................... 38
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default ........................................... 44
SECTION 6.02. Mandatory Prepayment; Event of Early Termination ............ 46
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action .................................... 47
SECTION 7.02. Agent's Reliance, Etc ....................................... 47
SECTION 7.03. CUSA and Affiliates ......................................... 47
SECTION 7.04. Lender Credit Decision ...................................... 48
SECTION 7.05. Indemnification ............................................. 48
SECTION 7.06. Successor Agent ............................................. 48
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments Etc .............................................. 49
SECTION 8.02. Notices Payments, Etc ....................................... 49
SECTION 8.03. No Waiver; Remedies ......................................... 50
SECTION 8.04. Costs and Expenses .......................................... 50
SECTION 8.05. Right of Set-off ............................................ 52
ii
<PAGE>
SECTION 8.06. Binding Effect .............................................. 53
SECTION 8.07. Assignments and Participations .............................. 53
SECTION 8.08. Governing Law ............................................... 55
SECTION 8.09. Headings .................................................... 56
SECTION 8.10. Commitment Extension ........................................ 56
SECTION 8.11. Execution in Counterparts ................................... 56
SECTION 8.12. Confidentiality ............................................. 56
SECTION 8.13. Termination ................................................. 57
SECTION 8.14. Jurisdiction, Etc ........................................... 57
SECTION 8.15. WAIVER OF JURY TRIAL ........................................ 58
iii
<PAGE>
SCHEDULES
SCHEDULE I
EXHIBITS
EXHIBIT A-1 FORM OF A NOTE
EXHIBIT A-2 FORM OF B NOTE
EXHIBIT B-1 NOTICE OF A BORROWING
EXHIBIT B-2 NOTICE OF B BORROWING
EXHIBIT C ASSIGNMENT AND ACCEPTANCE
EXHIBIT D ASSUMPTION AGREEMENT
EXHIBIT E OPINION OF WILSON, SONSINI, GOODRICH & ROSATI
EXHIBIT F COVENANT COMPLIANCE CERTIFICATE
EXHIBIT G LIENS
EXHIBIT H SUBSIDIARIES
EXHIBIT I RESPONSIBLE OFFICERS
iv
<PAGE>
CREDIT AGREEMENT
Dated as of June 28, 1996
SUN MICROSYSTEMS, INC., a Delaware corporation (the
"Borrower"), the Lenders listed on the signature pages hereof, and CITICORP USA,
INC., a Delaware corporation ("CUSA"), as administrative agent (the "Agent") for
the Lenders hereunder, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Lender to the Borrower as
part of an A Borrowing and refers to an Alternate Base Rate Advance or a
Eurodollar Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type made by each of the Lenders pursuant to Section 2.01.
"A Note" means a promissory note of the Borrower payable to
the order of any Lender, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender resulting
from the A Advances made by such Lender.
"Adjusted EBIT" means, for any accounting period, net income
(or net loss) plus the amounts (if any) which, in the determination of net
income (or net loss) for such period, have been deducted for (a) gross interest
expense, (b) income tax expense and (c) rent expense under leases of real and
personal property (excluding, however, from the determination of such rent
expense, taxes and normal and customary operating expenses passed on to the
Borrower for reimbursement pursuant to the terms of such real property leases
whether denominated under such leases as "rent", "additional rent" or otherwise,
but only to the extent that such operating expenses are actually incurred and
passed through to the Borrower), in each case determined in accordance with
generally accepted accounting principles, consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(e).
"Advance" means an A Advance or a B Advance.
<PAGE>
2
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person or is a director or officer of such Person.
"Alternate Base Rate" means, for any period (including a
period consisting of a single day), a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's base
rate; or
(b) 1/2 of one percent per annum above the latest
three-week moving average of secondary market morning offering rates in
the United States for three-month certificates of deposit of major
United States money market banks, such three-week moving average being
determined weekly on each Monday (or, if any such date is not a
Business Day, on the next succeeding Business Day) for the three-week
period ending on the previous Friday by the Agent on the basis of such
rates reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by the Agent from three New York certificate of deposit
dealers of recognized standing selected by the Agent, in either case
adjusted to the nearest 1/16 of one percent or, if there is no nearest
1/16 of one percent, to the next higher 1/16 of one percent; or
(c) for any day, 1/2 of one percent per annum above
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by it.
"Alternate Base Rate Advance" means an A Advance which bears
interest as provided in Section 2.07(a).
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of an Alternate Base
Rate Advance, and such Lender's Eurodollar Lending Office in the case of a
Eurodollar Rate Advance and, in the case of a B Advance, the office of such
Lender notified by such Lender to the Agent as its Applicable Lending Office
with respect to such B Advance.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee reasonably acceptable to the Agent and
reasonably consented to by the Borrower, in substantially the form of Exhibit C
hereto.
<PAGE>
3
"Assuming Lender" means an assignee reasonably acceptable to
the Agent not previously a Lender that becomes a Lender hereunder pursuant to
Section 2.05(b).
"B Advance" means an advance by a Lender to the Borrower as
part of a B Borrowing resulting from the auction bidding procedure described in
Section 2.03.
"B Borrowing" means a borrowing consisting of B Advances made
at or about the same time by each of the Lenders whose offer to make one or more
B Advances as part of such borrowing has been accepted by the Borrower under the
auction bidding procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower payable to
the order of any Lender, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from a B
Advance made by such Lender.
"B Reduction" has the meaning specified in Section 2.01.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year other than a Saturday,
Sunday or other day on which banks are not required or authorized to close in
New York City or San Francisco, California and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on in the
London, England interbank market.
"Change of Control Event" means the occurrence of the
following: (i) any corporation or Person, or a group of related corporations or
Persons, shall acquire (a) beneficial ownership in excess of 50% of the
outstanding Voting Stock of the Borrower or (b) all or substantially all of the
assets of the Borrower, or (ii) a majority of the Board of Directors of the
Borrower is, at any time, composed of persons other than (a) persons who were
members of such Board on the date of this Agreement, (b) successors to such
persons elected or nominated in the ordinary course of business, and (c) any
person who has served as a member of such Board for at least the prior 12
months.
"Citibank" means Citibank, N.A., a national banking
association.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
<PAGE>
4
"Commitment" has the meaning specified in Section 2.01.
"consolidated" refers to the consolidation of the accounts of
the Borrower and its Subsidiaries in accordance with generally accepted
accounting principles, including principles of consolidation, consistent with
those applied in the preparation of the consolidated financial statements
referred to in Section 4.01(e).
"Consolidated Tangible Net Worth" means the excess of
consolidated total assets over consolidated total liabilities, consolidated
total assets and consolidated total liabilities each to be determined on a
consolidated basis for the Borrower in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(e), excluding, however, from
the determination of consolidated total assets (i) goodwill, organizational
expenses, research and development expenses, trademarks, trade names,
copyrights, patents, patent applications, licenses and rights in any thereof,
and other similar intangibles, (ii) all unamortized debt discount and expense,
(iii) asset, liability, contingency and other appropriate reserves, including
reserves for depreciation and for deferred income taxes, (iv) treasury stock,
(v) any write-up in the book value of any asset resulting from a revaluation
thereof subsequent to June 30, 1995, (vi) the book value of investments in
Persons that are not Subsidiaries (unless the same are readily marketable), and
(vii) any items not included in clauses (i) through (vi) above which are treated
as intangibles in conformity with generally accepted accounting principles.
"Debt" of any Person means (i) indebtedness for borrowed
money, (ii) obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of property or
services (excluding ordinary trade payables incurred in the ordinary course of
business), (iv) obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases, (v) all obligations of such Person to purchase securities (or
other property) which arise out of or in connection with the sale of the same or
substantially similar securities or property, (vi) any reimbursement obligations
of such Person to the issuer of a letter of credit or similar instrument, (vii)
all indebtedness or obligations of others secured by a lien on any asset of such
Person, whether or not such indebtedness or obligations are assumed by such
Person (to the extent of the value of the asset), (viii) any reimbursement
obligation of such Person or other arrangement of whatever nature having the
effect of assuring or holding harmless any other Person against loss with
respect to any real property owned by such other Person, including, without
limitation, assuring or guaranteeing that such other Person shall receive a
specified amount in connection with the conveyance of such real property, (ix)
obligations under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kinds referred to in clauses (i) through (viii) above, and (x)
liabilities in respect of unfunded vested
<PAGE>
5
benefits under plans covered by Title IV of ERISA. Notwithstanding any provision
herein to the contrary, no obligations of any Person (whether such obligations
be direct or indirect, contingent or otherwise) under the Receivables Purchase
Agreement or any similar agreement or arrangement shall be "Debt" for purposes
of this Agreement; provided that the foregoing exclusion shall not apply to
obligations of any such Person pursuant to the indemnity or reimbursement
provisions contained in the Receivables Purchase Agreement (including, without
limitation, indemnities for breaches of representations and warranties, and
those set forth in Article VIII, Section 9.03(b) and Section 10.06 thereof) or
any similar agreement or arrangement and to fees and expenses payable pursuant
to the Receivables Purchase Agreement or any similar agreement or arrangement to
the extent that any such obligations are required to be recorded as liabilities
on such Person's balance sheet under generally accepted accounting principles.
"Default" means any event which, with the passage of time or
the giving of notice or both, would (if not cured within any applicable cure
period) constitute an Event of Default.
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender, or such other office of such Lender as such Lender may
from time to time specify to the Borrower and the Agent.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment, or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person who for purposes of Title
IV of ERISA is a member of the Borrower's controlled group, or under common
control with the Borrower, within the meaning of Section 414 of the Code, and
the regulations promulgated and rulings issued thereunder.
<PAGE>
6
"ERISA Termination Event" means (i) a Reportable Event
described in Section 4043 of ERISA and the regulations promulgated thereunder
(other than a Reportable Event not subject to the provision for 30 day notice to
the Pension Benefit Guaranty Corporation under such regulations), or (ii) the
withdrawal of the Borrower or any Subsidiary from a Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a) (2) of
ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of ERISA or
(iv) the institution of proceedings to terminate a Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (v) any other event or
condition which would constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Lender as such Lender may from
time to time specify to the Borrower and the Agent.
"Eurodollar Margin" means, on any day, with respect to any
Eurodollar Rate Advance made or outstanding on such day, an interest rate per
annum equal at all times to (i) .170% for each day during a Level I Period; (ii)
.205% for each day during a Level II Period; (iii) .240% for each day during a
Level III Period; (iv) .300% for each day during a Level IV Period; and (v)
.375% for each day during a Level V Period.
"Eurodollar Rate" means, for the Interest Period for each
Eurodollar Rate Advance comprising part of the same A Borrowing, an interest
rate per annum determined by the Agent to be (a) the arithmetic mean (rounded
upward to the nearest whole multiple of 1/16 of 1% per annum, if such arithmetic
mean is not such a multiple) of the rates notified to the Agent at which
deposits in U.S. dollars are offered by the principal office of each of the
Eurodollar Reference Banks in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before the first
day of such Interest Period in an amount substantially equal to the respective
Eurodollar Reference Bank's (or its Affiliate's) Eurodollar Rate Advance
comprising part of such A Borrowing and for a period equal to such Interest
Period, divided by (b) a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage (as defined below) for such Interest Period. The "Eurodollar
Rate Reserve Percentage" for the Interest Period for each Eurodollar Rate
Advance comprising part of the same A Borrowing means the reserve percentage
applicable two Business Days before the first day of such Interest Period under
regulations issued from
<PAGE>
7
time to time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, but not
limited to, any emergency, supplemental or other marginal reserve requirement)
for a member bank of the Federal Reserve System in New York City with deposits
exceeding One Billion Dollars with respect to liabilities or assets consisting
of or including Eurocurrency Liabilities (or with respect to any other category
of liabilities which includes deposits by reference to which the interest rate
on Eurodollar Rate Advances is determined) having a term equal to such Interest
Period.
"Eurodollar Rate Advance" means an A Advance which bears
interest as provided in Section 2.07(b).
"Eurodollar Reference Banks" means the principal London
offices of Citibank, Bank of America National Trust and Savings Association and
ABN AMRO Bank N.V. and each such other bank as may be approved pursuant to
Section 8.07(i).
"Events of Default" has the meaning specified in Section 6.01.
"Excess Interest in Receivables" means the extent to which (i)
any ownership interest, security interest or other interest of any third party
in the accounts receivable of the Borrower and its Subsidiaries, exceeds (ii)
the aggregate amount advanced by such third party in respect of the purchase of
such interest (net of amounts received by such third party from the collection
of such accounts receivable).
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fixed Charges" means, for any accounting period, the sum,
without duplication, of (i) gross interest expense during such period, plus (ii)
scheduled amortization of principal in respect of all Debt during such period
(but excluding any required principal payment in respect of any obligation that
is a "bullet" payment, i.e., the entire amount thereof is due in full at
maturity without any amortizing payments prior to said maturity), plus (iii)
amortization of debt discount (but excluding from this clause (iii) and clause
(i) above noncash amortization of debt discount if the maturity of the
obligation so discounted is no earlier than December 31, 1998 pursuant to the
terms and conditions of the instruments and agreements creating such debt
discount), plus (iv) rent expense under leases of real and personal property
during such period (excluding, however, from the determination of such
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8
rent expense, taxes and normal and customary operating expenses passed on to the
Borrower for reimbursement pursuant to the terms of such real property leases
whether denominated under such leases as "rent", "additional rent" or otherwise,
but only to the extent that such operating expenses are actually incurred and
passed through to the Borrower).
"Interest Period" means, for each A Advance comprising part of
the same A Borrowing, the period commencing on the date of such A Advance and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be (a) 30, 60,
90 or 180 days in the case of an Alternate Base Rate Advance, and (b) 1, 2, 3 or
6 months in the case of a Eurodollar Rate Advance, in each case as the Borrower
may, upon notice received by the Agent ln accordance with Section 2.02, select;
provided, however, that:
(i) the Borrower may not select any Interest Period which ends
after the then existing Termination Date;
(ii) Interest Periods commencing on the same date for A
Advances comprising part of the same A Borrowing shall be of the same duration;
and
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day;
provided, in the case of any Interest Period for a Eurodollar Rate Advance, that
if such extension would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day.
"Lenders" means the lenders listed on the signature pages
hereof and each assignee that shall become a party hereto pursuant to Sections
8.07(a) or (b).
"Level I Period" means a period of time, which may consist of
a single day, during which the Public Debt Rating is (i) A- or better by S&P or
(ii) A3 or better by Moody's.
"Level II Period" means a period of time other than a Level I
Period, which may consist of a single day, during which the Public Debt Rating
is (i) BBB+ or better by S&P or (ii) Baa1 or better by Moody's.
"Level III Period" means a period of time other than a Level I
Period or a Level II Period, which may consist of a single day, during which the
Public Debt Rating is (i) BBB or better by S&P or (ii) Baa2 or better by
Moody's.
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9
"Level IV Period" means a period of time other than a Level I
Period, a Level II Period or a Level III Period, which may consist of a single
day, during which the Public Debt Rating is (i) BBB- or better by S&P, or (ii)
Baa3 or better by Moody's.
"Level V Period" means a period of time, which may consist of
a single day, during which the Public Debt Rating is (i) lower than BBB- by S&P
and lower than Baa3 by Moody's (or lower than the level indicated for either S&P
or Moody's if unrated by the other), or (ii) no Public Debt Rating is available
for whatever reason.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction).
Customary bankers' rights of set-off arising by operation of law or by contract
in connection with working capital facilities, lines of credit, term loans and
letter of credit facilities and other contractual arrangements entered into with
banks in the ordinary course of business are not "Liens" for the purposes of
this Agreement.
"Majority Lenders" means at any time Lenders holding at least
51% of the then aggregate unpaid principal amount of the A Advances then
outstanding or, if no such principal amount is then outstanding, then either (i)
if the Commitments have not been terminated or there are no B Advances
outstanding, Lenders having at least 51% of the Commitments, or (ii) if the
Commitments have been terminated and there are B Advances outstanding, Lenders
holding at least 51% of the then aggregate unpaid principal amount of the B
Advances then outstanding.
"Moody's" means Moody's Investors Service, Inc., or its
successors.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.03(a).
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Plan" means at any time an employee pension benefit plan
which is covered under Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by the
Borrower or any Subsidiary for employees of the Borrower or any Subsidiary or
(ii) maintained pursuant to a collective bargaining agreement
<PAGE>
10
or any other arrangement under which more than one employer makes contributions
and to which the Borrower or any Subsidiary is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
"Public Debt Rating" means, as of any date, the lowest rating
that has been most recently announced (and is then in effect) by S&P and Moody's
for any class of non-credit enhanced long-term senior unsecured debt issued by
the Borrower or, if the Borrower has no such debt issued, the lowest "implied
rating" (or similar rating in effect from time to time) that has been most
recently stated in writing (and is then in effect) by S&P and Moody's for
non-credit enhanced long-term senior unsecured debt of the Borrower. For
purposes of the foregoing, (a) if any rating established by S&P or Moody's shall
be changed, such change shall be effective as of the date on which such change
is first announced publicly by the rating agency making such change; and (b) if
S&P or Moody's shall change the basis on which ratings are established, each
reference to the Public Debt Rating announced by S&P or Moody's, as the case may
be, shall refer to the then equivalent rating by S&P or Moody's, as the case may
be.
"Receivables Purchase Agreement" means that certain
Receivables Purchase Agreement dated as of August 5, 1994, among the Borrower,
the Subsidiary Sellers as identified and defined therein, the Purchasers as
identified and defined therein and J.P. Morgan Delaware, as agent, as in effect
on the date hereof (a copy of which has been furnished to each Lender listed on
the signature pages hereof pursuant to Section 3.01), without giving effect to
any subsequent amendments or waivers (other than any such amendments or waivers
which add new Subsidiary Sellers as parties to such agreement or which remove
any Subsidiary Seller as a party), unless such amendment or waiver has been
consented to by the Majority Lenders.
"Register" has the meaning specified in Section 8.07(c).
"Responsible Financial Officer" means the chief financial
officer, the controller, the treasurer or any assistant treasurer of the
Borrower.
"Responsible Officer" means the individuals occupying the
executive offices of the Borrower described in Exhibit I hereto and any
successors to the offices held by the individuals identified therein, and the
individuals occupying any other executive offices of the Borrower which at any
time have the authority, functions and responsibilities as the offices described
in Exhibit I.
"Restricted Subsidiary" means, at any point in time, any
Subsidiary having total assets of $100,000 or more as of the end of its most
recent fiscal year or annual gross revenues of $1,000,000 or more during its
most recent fiscal year.
<PAGE>
11
"S&P" means Standard and Poor's Ratings Group, or its
successors.
"Subsidiary" means any corporation of which the Borrower
and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors.
"Termination Date" means June 27, 1999 or such later date as
determined pursuant to Section 8.10, or the earlier date of termination in whole
of the Commitments pursuant to Section 2.05 or 6.01.
"Transfer" means, with respect to any asset, to sell, lease,
transfer or otherwise dispose of such asset.
"Voting Stock" of any Person means any shares of stock of such
Person whose holders are entitled under ordinary circumstances to vote for the
election of directors of such Person (irrespective of whether at the time stock
of any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"wholly owned Subsidiary" means any Subsidiary all of the
outstanding capital stock (other than directors' qualifying shares and shares
issued to satisfy local ownership requirements) of which is owned, directly or
indirectly, by the Borrower.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(e).
SECTION 1.04. Application of Level Pricing. For purposes of
applying the Level pricing formula in the definition of "Eurodollar Margin" and
in Section 2.04(a), (a) if only one of S&P and Moody's shall have in effect a
Public Debt Rating, the applicable Level shall be determined by reference to the
available rating and (b) if the Public Debt Ratings established by S&P and
Moody's shall fall within different Levels, the applicable Level shall be based
upon the higher rating; provided that, if the lower of such ratings is more than
one level below the higher of such ratings, the applicable Level shall be based
on the level immediately above such lower rating.
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12
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to the
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount not to exceed at any
time the amount set forth opposite such Lender's name on the signature pages
hereof or, if such Lender has entered into any Assignment and Acceptance, set
forth for such Lender in the Register maintained by the Agent pursuant to
Section 8.07(c), as such amount may be reduced pursuant to Section 2.05 (such
Lender's "Commitment"); provided that the aggregate amount of the Commitments of
the Lenders shall be deemed used from time to time to the extent of the
aggregate amount of the B Advances then outstanding and such deemed use of the
aggregate amount of the Commitments shall be applied to the Lenders ratably
according to their respective Commitments (such deemed use of the aggregate
amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in
an aggregate amount not less than $10,000,000 or an integral multiple of
$1,000,000 in excess thereof (or, with respect to an A Borrowing comprised of
Alternate Base Rate Advances, such lesser amount as shall equal the then
unborrowed amount of the aggregate Commitments), and shall consist of A Advances
of the same Type made on the same day by the Lenders ratably according to their
respective Commitments. Within the limits of each Lender's Commitment, the
Borrower may from time to time borrow, prepay pursuant to Section 2.11(b) and
reborrow under this Section 2.01.
SECTION 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than 11:00 A.M. (New York City time) on
(x) the date of a proposed A Borrowing comprised of Alternate Base Rate
Advances, and (y) the third Business Day prior to the date of a proposed A
Borrowing comprised of Eurodollar Rate Advances, by the Borrower to the Agent,
which shall give to each Lender prompt notice thereof (and in any event not
later than the same day) by telecopier or telex. Each such notice of an A
Borrowing (a "Notice of A Borrowing") shall be by telecopier or telex, confirmed
immediately in writing, in substantially the form of Exhibit B-1 hereto,
specifying therein the requested (i) date of such A Borrowing, (ii) Type of A
Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) Interest Period for each such A Advance. Each Lender shall,
before 12:00 Noon (New York City time) on the date of such A Borrowing, make
available for the account of its Applicable Lending Office to the Agent at its
address referred to in Section 8.02(b), in same day funds, such Lender's ratable
portion of such A Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the Agent
will make such funds available to the Borrower at the Agent's aforesaid address.
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13
(b) Each Notice of A Borrowing shall be irrevocable and
binding on the Borrower. In the case of any A Borrowing which the related Notice
of A Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrower shall indemnify each Lender against any loss, cost or expense incurred
by such Lender as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the A Advance to be made by such Lender as part of such A
Borrowing when such A Advance, as a result of such failure, is not made on such
date.
(c) Unless the Agent shall have received notice from a Lender
prior to the date of any A Borrowing that such Lender will not make available to
the Agent such Lender's ratable portion of such A Borrowing, the Agent may
assume that such Lender has made such portion available to the Agent on the date
of such A Borrowing in accordance with subsection (a) of this Section 2.02 and
the Agent may, in reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Agent, such Lender and
the Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to A Advances comprising such A Borrowing and (ii) in the
case of such Lender, the Federal Funds Rate. If such Lender shall repay to the
Agent such corresponding amount, such amount so repaid shall constitute such
Lender's A Advance as part of such A Borrowing for purposes of this Agreement,
and the interest payable thereon shall be allocated such that the Agent shall
receive (from a combination of the sum, if any, paid to the Agent by such Lender
pursuant to clause (ii) of the preceding sentence and any interest payment made
by the Borrower) an amount equal to interest on such A Advance at the interest
rate applicable thereto from the date the corresponding amount was made
available by the Agent to the Borrower as contemplated by this Section 2.02(c)
to and including the date such amount is repaid to the Agent by such Lender, and
such Lender shall receive the balance of the interest payments made by the
Borrower with respect to such Advance in accordance with the provisions of this
Agreement.
(d) The failure of any Lender to make the A Advance to be made
by it as part of any A Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make the A Advance to be made by such other Lender on the date of any
A Borrowing.
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14
SECTION 2.03. The B Advances. (a) Each Lender severally agrees
that the Borrower may make B Borrowings under this Section 2.03 from time to
time on any Business Day during the period from the date hereof until the date
occurring 30 days prior to the Termination Date in the manner set forth below;
provided that, following the making of each B Borrowing, the aggregate amount of
the Advances then outstanding shall not exceed the aggregate amount of the
Commitments of the Lenders (computed without regard to any B Reduction).
(i) The Borrower may request a B Borrowing under this Section
2.03 by delivering to the Agent, by telecopier or telex, confirmed immediately
in writing, a notice of a B Borrowing (a "Notice of B Borrowing"), in
substantially the form of Exhibit B-2 hereto, specifying the date and aggregate
amount of the proposed B Borrowing, the maturity date for repayment of each B
Advance to be made as part of such B Borrowing (which maturity date (x) may not
be earlier than the date occurring seven days after the date of such B Borrowing
or later than 180 days after the date of such B Borrowing or the Termination
Date, whichever occurs first, if the Borrower shall specify in the Notice of B
Borrowing that the rates of interest to be offered by the Lenders shall be fixed
rates per annum, or (y) shall be 1, 2, 3, 4, 5 or 6 months after the date of
such B Borrowing (but in no event later than the Termination Date) if the
Borrower shall instead specify in the Notice of B Borrowing the basis to be used
by the Lenders in determining the rates of interest to be offered by them), the
interest payment date or dates relating thereto, whether the proposed B
Borrowing shall bear interest at a fixed or fluctuating rate per annum and, if a
fluctuating rate is so specified, the basis to be used by the Lenders in
determining the rate of interest to be offered by them, and any other terms to
be applicable to such B Borrowing, not later than 11:00 A.M. (New York City
time) (A) at least one Business Day prior to the date of the proposed B
Borrowing, if the Borrower shall specify in the Notice of B Borrowing that the
rates of interest to be offered by the Lenders shall be fixed rates per annum
and (B) at least four Business Days prior to the date of the proposed B
Borrowing, if the Borrower shall instead specify in the Notice of B Borrowing
the basis to be used by the Lenders in determining the rates of interest to be
offered by them. The Agent shall in turn promptly notify each Lender of each
request for a B Borrowing received by it from the Borrower by sending such
Lender a copy of the related Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to
do so, irrevocably offer to make one or more B Advances to the Borrower as part
of such proposed B Borrowing at a rate or rates of interest specified by such
Lender in its sole discretion, by notifying the Agent (which shall give prompt
notice thereof to the Borrower) before 10:00 A.M. (New York City time) (A) on
the date of such proposed B Borrowing, in the case of a Notice of B Borrowing
delivered pursuant to clause (A) of paragraph (i) above and (B) three Business
Days before the date of such proposed B Borrowing, in the case of a Notice of B
Borrowing delivered pursuant to clause (B) of paragraph (i) above, of the
minimum amount and maximum amount of each B Advance which such Lender would be
willing to make as
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15
part of such proposed B Borrowing (which amounts may, subject to the proviso to
the first sentence of this Section 2.03(a), exceed such Lender's Commitment),
the rate or rates of interest therefor and such Lender's Applicable Lending
Office with respect to such B Advance; provided that if the Agent in its
capacity as a Lender shall, in its sole discretion, elect to make any such
offer, it shall notify the Borrower of such offer before 9:00 A.M. (New York
City time) on the date on which notice of such election is to be given to the
Agent by the other Lenders. If any Lender shall elect not to make such an offer,
such Lender shall so notify the Agent, before 10:00 A.M. (New York City time) on
the date on which notice of such election is to be given to the Agent by the
other Lenders, and such Lender shall not be obligated to, and shall not, make
any B Advance as part of such B Borrowing; provided that the failure by any
Lender to give such notice shall not cause such Lender to be obligated to make
any B Advance as part of such proposed B Borrowing.
(iii) The Borrower shall, in turn, (A) before 11:00 A.M. (New
York City time) on the date of such proposed B Borrowing, in the case of a
Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i) above
and (B) before 12:00 Noon (New York City time) three Business Days before the
date of such proposed B Borrowing, in the case of a Notice of B Borrowing
delivered pursuant to clause (B) of paragraph (i) above, either
(x) cancel such B Borrowing by giving the Agent
notice to that effect, or
(y) accept one or more of the offers made by any
Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by
giving notice to the Agent of the amount of each B Advance (which amount shall
be equal to or greater than the minimum amount, and equal to or less than the
maximum amount, notified to the Borrower by the Agent on behalf of such Lender
for such B Advance pursuant to paragraph (ii) above) to be made by each Lender
as part of such B Borrowing, and reject any remaining offers made by Lenders
pursuant to paragraph (ii) above by giving the Agent notice to that effect;
provided that acceptance of offers may only be made on the basis of ascending
interest rates specified by the Lenders pursuant to paragraph (ii) above.
(iv) If the Borrower notifies the Agent that such B Borrowing
is cancelled pursuant to paragraph (iii)(x) above, the Agent shall give prompt
notice thereof to the Lenders and such B Borrowing shall not be made.
(v) If offers are made by two or more Lenders with the same
specified rate of interest for a greater aggregate principal amount than the
amount in respect of which offers are accepted for any B Borrowing, the
principal amount of B Advances in respect of which such offers are accepted
shall be allocated by the Agent among such Lenders as nearly as possible (in
such multiples of $1,000,000 as the Agent may deem appropriate) in
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16
proportion to the aggregate principal amount of such offers. Determinations by
the Agent of the amounts of B Advances shall be conclusive in the absence of
manifest error.
(vi) If the Borrower accepts one or more of the offers made by
any Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent shall in
turn promptly notify (A) each Lender that has made an offer as described in
paragraph (ii) above, of the date and aggregate amount of such B Borrowing and
whether or not any offer or offers made by such Lender pursuant to paragraph
(ii) above have been accepted by the Borrower, and (B) each Lender that is to
make a B Advance as part of such B Borrowing, of the amount of each B Advance to
be made by such Lender as part of such B Borrowing. Each Lender that is to make
a B Advance as part of such B Borrowing shall, before 12:00 noon (New York City
time) on the date of such B Borrowing specified in the notice received from the
Agent pursuant to clause (A) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Agent at its address referred to
in Section 8.02(b) such Lenders portion of such B Borrowing, in same day funds.
Upon satisfaction of the applicable conditions set forth in Article III and
after receipt by the Agent of such funds, the Agent will make such funds
available to the Borrower at the Agent's aforesaid address. Promptly after each
B Borrowing the Agent will notify each Lender of the amount of the B Borrowing,
the consequent B Reduction and the dates upon which such B Reduction commenced
and will terminate.
(b) Each B Borrowing shall be in an aggregate amount not less
than $10,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each B Borrowing, the Borrower shall be in compliance
with the limitation set forth in the proviso to the first sentence of subsection
(a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.03, the Borrower may from time to time borrow under this Section 2.03,
repay or prepay pursuant to subsection (d) below, and reborrow under this
Section 2.03; provided that a B Borrowing shall not be made within two Business
Days of the date of any other B Borrowing.
(d) The Borrower shall repay to the Agent for the account of
each Lender which has made a B Advance, or each other holder of a B Note, on the
maturity date of each B Advance (such maturity date being that specified by the
Borrower for repayment of such B Advance in the related Notice of B Borrowing
delivered pursuant to subsection (a)(i) above), the then unpaid principal amount
of such B Advance. The Borrower shall have no right to prepay any principal
amount of any B Advance unless, and then only on the terms, specified by the
Borrower for such B Advance in the related Notice of B Borrowing delivered
pursuant to subsection (a)(i) above; provided that the Borrower shall be
obligated to reimburse each Lender whose B Advance has been prepaid by the
Borrower in respect thereof pursuant to Section 8.04(b).
<PAGE>
17
(e) The Borrower shall pay interest on the unpaid principal
amount of each B Advance from the date of such B Advance to the date the
principal amount of such B Advance is repaid in full, at the rate of interest
for such B Advance specified by the Lender making such B Advance in its notice
with respect thereto delivered pursuant to subsection (a)(ii) above, payable on
the maturity date specified by the Borrower for such B Advance and on each other
interest payment date or dates specified by the Borrower for such B Advance in
the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above;
provided, however, that if the maturity date of the B Advances comprising a B
Borrowing is more than 90 days after the date of such B Borrowing, then interest
shall be payable on each day which occurs at intervals of 90 days after the date
of such B Borrowing; provided, further, that any amount of principal which is
not paid when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due until such amount
is paid in full, payable on demand, at a rate per annum equal at all times (i)
from such due date to the applicable maturity date, to 2% per annum above the
interest rate otherwise payable with respect to such B Advance hereunder, and
(ii) from and after the applicable maturity date, to 2% per annum above the
Alternate Base Rate in effect from time to time.
SECTION 2.04. Fees. (a) Facility Fee. The Borrower agrees to
pay to the Agent, for the account of each Lender, a facility fee on the daily
average amount of such Lender's Commitment (including both the portion thereof
that is used and the portion thereof that is unused) from the date hereof in the
case of each Lender listed on the signature pages hereof and from the effective
date specified in the Assignment and Acceptance pursuant to which it became a
Lender in the case of each other Lender until the Termination Date, payable in
arrears on the last day of each March, June, September and December during the
term of such Lender's Commitment, commencing June 30, 1996, and on the
Termination Date, at the rate of (i) .080% per annum during each Level I Period,
(ii) .095% per annum during each Level II Period, (iii) .110% per annum during
each Level III Period, (iv) .150% per annum during each Level IV Period and (v)
.250% per annum during each Level V Period.
(b) Agent's Fees. The Borrower agrees to pay to the Agent
certain fees for its role hereunder and in connection with the execution and
delivery hereof in the amounts and at the times described in one or more letter
agreements between the Borrower and the Agent dated on or about the date hereof,
as the same may be amended, modified, supplemented or replaced from time to time
by the mutual agreement of the Borrower and the Agent. All such fees shall be
for the sole account and benefit of the Agent.
SECTION 2.05. Termination, Reduction or Increase of the
Commitments. (a) Termination or Reduction of the Commitments. The Borrower shall
have the right, upon at least three Business Days' notice to the Agent, to
terminate in whole or reduce ratably in
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18
part the unused portions of the respective Commitments of the Lenders; provided
that the aggregate amount of the Commitments of the Lenders shall not be reduced
to an amount which is less than the aggregate principal amount of the B Advances
then outstanding; provided further that each partial reduction shall be in the
aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess
thereof.
(b) Increase in Aggregate of the Commitments. (i) The Borrower
may at any time, by notice to the Agent, propose that the aggregate amount of
the Commitments be increased (such incremental increased amount being, a
"Commitment Increase"), effective as at a date prior to the Termination Date (an
"Increase Date") as to which agreement is to be reached by an earlier date
specified in such notice (a "Commitment Date"); provided, however, that (A) the
Borrower may not propose more than two Commitment Increases in any 12-month
period, (B) the minimum proposed Commitment Increase per notice shall be
$25,000,000, (C) in no event shall the aggregate amount of the Commitments at
any time exceed $450,000,000, (D) the Borrower has a Public Debt Rating from S&P
or Moody's of better than or equal to BBB- or Baa3, respectively, but if the
Borrower has a Public Debt Rating from both S&P and Moody's, the Public Debt
Rating of the Borrower is better than or equal to BBB- and Baa3, respectively,
(E) no Default shall have occurred and be continuing on such Increase Date and
(F) a certificate as to corporate authorization and other documentation similar
to that delivered pursuant to Section 3.01 is received by the Agent. The Agent
shall notify the Lenders thereof promptly upon its receipt of any such notice.
The Agent agrees that it will cooperate with the Borrower in discussions with
the Lenders and other assignees with a view to arranging the proposed Commitment
Increase through the increase of the Commitments of one or more of the Lenders
(each such Lender that is willing to increase its Commitment hereunder being an
"Increasing Lender") and the addition of one or more other assignees as Assuming
Lenders and as parties to this Agreement; provided, however, that it shall be in
each Lender's sole discretion whether to increase its Commitment hereunder in
connection with the proposed Commitment Increase; and provided further that the
minimum Commitment of each such Assuming Lender that becomes a party to this
Agreement pursuant to this Section 2.05(b), shall be at least equal to
$15,000,000. If any of the Lenders agree to increase their respective
Commitments by an aggregate amount in excess of the proposed Commitment
Increase, the proposed Commitment Increase shall be allocated among such Lenders
as determined at such time by the Borrower. If agreement is reached on or prior
to the applicable Commitment Date with any Increasing Lenders and Assuming
Lenders as to a Commitment Increase (which may be less than but not greater than
specified in the applicable notice from the Borrower), such agreement to be
evidenced by a notice in reasonable detail from the Borrower to the Agent on or
prior to the applicable Commitment Date, such Assuming Lenders, if any, shall
become Lenders hereunder as of the applicable Increase Date and the Commitments
of such Increasing Lenders and such Assuming Lenders shall become or be, as the
case may be, as of the Increase Date, the amounts specified in such notice;
provided that:
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19
(x) the Agent shall have received (with copies for
each Lender, including each such Assuming Lender) by no later than
10:00 A.M. (New York City time) on the applicable Increase Date a copy
certified by the Secretary, an Assistant Secretary or a comparable
officer of the Borrower, of the resolutions adopted by the Board of
Directors of the Borrower authorizing such Commitment Increase, which
resolutions shall be satisfactory to the Agent;
(y) each such Assuming Lender shall have delivered to
the Agent by no later than 10:00 A.M. (New York City time) on such
Increase Date, an appropriate Assumption Agreement in substantially the
form of Exhibit D hereto, duly executed by such Assuming Lender and the
Borrower; and
(z) each such Increasing Lender shall have delivered
to the Agent by no later than 10:00 A.M. (New York City time) on such
Increase Date (A) its existing A Note and (B) confirmation in writing
satisfactory to the Agent as to its increased Commitment.
(ii) In the event that the Agent shall have received notice
from the Borrower as to its agreement to a Commitment Increase on or prior to
the applicable Commitment Date and each of the actions provided for in clauses
(x) through (z) above shall have occurred prior to 10:00 A.M. (New York City
time) on the applicable Increase Date, the Agent shall notify the Lenders
(including any Assuming Lenders) and the Borrower of the occurrence of such
Commitment Increase by telephone, confirmed immediately in writing, telecopier
or telex and in any event no later than 1:00 P.M. (New York City time) on such
Increase Date and shall record in the Register the relevant information with
respect to each Increasing Lender and Assuming Lender. Each Increasing Lender
and each Assuming Lender shall, before 2:00 P.M. (New York City time) on the
applicable Increase Date, make available for the account of its Applicable
Lending Office to the Agent at the Agent's Account, in same day funds, in the
case of such Assuming Lender, an amount equal to such Assuming Lender's ratable
portion of the A Borrowings then outstanding (calculated based on its Commitment
as a percentage of the aggregate Commitments outstanding after giving effect to
the relevant Commitment Increase) and, in the case of such Increasing Lender, an
amount equal to the excess of (i) such Increasing Lender's ratable portion of
the A Borrowings then outstanding (calculated based on its Commitment as a
percentage of the aggregate Commitments outstanding after giving effect to the
relevant Commitment Increase) over (ii) such Increasing Lender's ratable portion
of the A Borrowings then outstanding (calculated based on its Commitment
(without giving effect to the relevant Commitment Increase) as a percentage of
the aggregate Commitments (without giving effect to the relevant Commitment
Increase). After the Agent's receipt of such funds from each such Increasing
Lender and each such Assuming Lender, the Agent will promptly thereafter cause
to be distributed like funds to the other Lenders for the account of their
respective Applicable Lending Offices in an amount to each other Lender such
that the aggregate amount of the
<PAGE>
20
outstanding A Advances owing to each Lender after giving effect to such
distribution equals such Lender's ratable portion of the A Borrowings then
outstanding (calculated based on its Commitment as a percentage of the aggregate
Commitments outstanding after giving effect to the relevant Commitment
Increase). Within five Business Days after the Borrower receives notice from the
Agent, the Borrower, at its own expense, shall execute and deliver to the Agent,
A Notes payable to the order of each Assuming Lender, if any, and, each
Increasing Lender, dated as of the applicable Increase Date, in a principal
amount equal to such Lender's Commitment after giving effect to the relevant
Commitment Increase, and substantially in the form of Exhibit A-1 hereto. The
Agent, upon receipt of such A Notes, shall promptly deliver such A Notes to the
respective Assuming Lenders and Increasing Lenders.
(iii) In the event that the Agent shall not have received
notice from the Borrower as to such agreement on or prior to the applicable
Commitment Date or that Borrower shall, by notice to the Agent prior to the
applicable Increase Date, withdraw its proposal for a Commitment Increase or any
of the actions provided for above in clauses (i)(x) through (i)(z) shall not
have occurred by 10:00 A.M. (New York City time) on the such Increase Date, such
proposal by the Borrower shall be deemed not to have been made. In such event,
any actions theretofore taken under clauses (i)(x) through (i)(z) above shall be
deemed to be of no effect and all the rights and obligations of the parties
shall continue as if no such proposal had been made.
SECTION 2.06. Repayment of A Advances. The Borrower shall
repay the principal amount of each A Advance made by each Lender on the last day
of the Interest Period for such A Advance.
SECTION 2.07. Interest on A Advances. The Borrower shall pay
interest on the unpaid principal amount of each A Advance made by each Lender
from the date of such A Advance until such principal amount shall be paid in
full, at the following rates per annum and at the following times:
(a) Alternate Base Rate Advances. If such A Advance is an
Alternate Base Rate Advance, a rate per annum equal at all times to the
Alternate Base Rate in effect from time to time, payable quarterly on the last
day of each March, June, September, and December and on the date such Alternate
Base Rate Advance shall be paid in full; provided that any amount of principal
or interest which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to 2% per annum above the Alternate Base Rate in
effect from time to time.
<PAGE>
21
(b) Eurodollar Rate Advances. If such A Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during the Interest
Period for such A Advance to the sum of the Eurodollar Rate for such Interest
Period plus the applicable Eurodollar Margin, payable on the last day of such
Interest Period and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof; provided that any amount
of principal or interest which is not paid when due (whether at stated maturity,
by acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times (i) from such due date to the last day of the
applicable Interest Period, to 2% per annum above the interest rate otherwise
payable with respect to such A Advance hereunder, and (ii) from and after the
last day of the applicable Interest Period, to 2% per annum above the Alternate
Base Rate in effect from time to time.
SECTION 2.08. Notes. The obligation of the Borrower to repay
the A Advances made to the Borrower by each Lender hereunder shall be further
evidenced by an A Note in favor of such Lender in the form and substance of
Exhibit A-1 attached hereto. The obligation of the Borrower to repay the B
Advances made to the Borrower by any Lender shall be evidenced by a B Note in
favor of such Lender in the form and substance of Exhibit A-2 attached hereto.
SECTION 2.09. Interest Rate Determination. (a) The Agent shall
give prompt notice to the Borrower and the Lenders of the applicable interest
rate determined by the Agent for purposes of Section 2.07(a) or (b).
(b) If the Majority Lenders shall, at least one Business Day
before the date of any requested A Borrowing comprised of Eurodollar Rate
Advances, notify the Agent that the Eurodollar Rate for Eurodollar Rate Advances
comprising such A Borrowing will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such A Borrowing, the Agent shall forthwith so notify the
Borrower and the Lenders, whereupon the right of the Borrower to select
Eurodollar Rate Advances for such A Borrowing or any subsequent A Borrowing
shall be suspended until the Agent shall notify the Borrower and the Lenders
that the circumstances causing such suspension no longer exist, and each A
Advance comprising such A Borrowing shall be an Alternate Base Rate Advance.
SECTION 2.10. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the A Advances made by it (other
than pursuant to Section 2.12 or 2.15) in excess of its ratable share of
payments on account of the A Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the A
Advances made by them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided, however, that if
all or any
<PAGE>
22
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.10 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
SECTION 2.11. Prepayments of A Advances. (a) The Borrower
shall have no right to prepay any principal amount of any A Advances other than
as provided in subsection (b) below.
(b) The Borrower may, upon at least two Business Days' notice,
or in the case of A Borrowings comprised of Alternate Base Rate Advances notice
given not later than 11:00 A.M. (New York City time) one Business Day prior to
the proposed date of prepayment, to the Agent stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amounts of the A Advances
comprising part of the same A Borrowing in whole or ratably in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid; provided, however, that (x) each partial prepayment shall be in an
aggregate principal amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (y) in the case of any such prepayment of a
Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the
Lenders in respect thereof pursuant to Section 8.04(b).
(c) Except as provided in Section 2.03(d), the Borrower shall
have no right to prepay any principal amount of any B Advance.
SECTION 2.12. Increased Costs. (a) If, after the date hereof,
due to either (i) the introduction of or any change (other than any change by
way of imposition or increase of reserve requirements, in the case of Eurodollar
Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon
written demand by such Lender (with a copy of such demand to the Agent), which
demand must be made no later than the date that is one year after the date on
which the Commitments have been terminated and all
<PAGE>
23
sums owing hereunder have been paid in full, pay to the Agent for the account of
such Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost, submitted
to the Borrower and the Agent by such Lender, shall be conclusive and binding
for all purposes, absent manifest error. It shall be assumed, for the purpose of
computing amounts to be paid by the Borrower to CUSA pursuant to this Section
2.12(a), that the making, funding or maintaining by CUSA of any Advance
hereunder has been by Citibank.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects the
amount of capital to be maintained by such Lender or any corporation controlling
such Lender and that the amount of such capital is increased by or based upon
the existence of such Lender's commitment to lend hereunder and other
commitments of this type, then, upon written demand by such Lender (with a copy
of such demand to the Agent), which demand must be made no later than the date
that is one year after the date on which the Commitments have been terminated
and all sums owing hereunder have been paid in full, the Borrower shall
immediately pay to the Agent for the account of such Lender, from time to time
as specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in capital is allocable to
the existence of such Lender's commitment to lend hereunder. A certificate as to
such amounts submitted to the Borrower and the Agent by such Lender shall be
conclusive and binding for all purposes, absent manifest error. It shall be
assumed, for the purpose of computing amounts to be paid by the Borrower to CUSA
pursuant to this Section 2.12(b), that the making, funding or maintaining by
CUSA of any Advance hereunder has been by Citibank.
(c) Each Lender agrees that if the Borrower is required to
make any payments to such Lender upon demand therefor pursuant to Sections
2.12(a) or (b) such Lender shall use reasonable efforts to select an alternative
Applicable Lending Office which would avoid the need thereafter for making such
demand; provided, however, that no Lender shall be obligated to select an
alternative Applicable Lending Office if such Lender determines in its
reasonable discretion that (i) as a result of such selection such Lender would
be in violation of any applicable law, regulation, treaty or directive of any
central bank or other governmental authority, or (ii) such selection would be
otherwise disadvantageous to such Lender.
SECTION 2.13. Illegality. (a) Notwithstanding any other
provision of this Agreement, if any Lender shall notify the Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
to fund or
<PAGE>
24
maintain Eurodollar Rate Advances hereunder, (i) the obligation of the Lenders
to make Eurodollar Rate Advances shall be suspended until the Agent shall notify
the Borrower and the Lenders that the circumstances causing such suspension no
longer exist and (ii) the Borrower shall forthwith prepay in full all Eurodollar
Rate Advances of all Lenders then outstanding, together with interest accrued
thereon.
(b) Each Lender agrees that if it determines, or if a central
bank or other governmental authority asserts, that it is unlawful for such
Lender to make, fund or maintain Eurodollar Rate Advances hereunder, such Lender
shall use reasonable efforts to select an alternative Eurodollar Lending Office
to perform its obligations hereunder to make, fund or maintain Eurodollar Rate
Advances; provided, however, that no Lender shall be obligated to select an
alternative Eurodollar Lending Office if such Lender determines in its
reasonable discretion that (i) as a result of such selection such Lender would
be in violation of any applicable law, regulation, treaty or directive of any
central bank or other governmental authority, or (ii) such selection would be
otherwise disadvantageous to such Lender.
SECTION 2.14. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Agent at its
address referred to in Section 8.02(b) in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or facility fees ratably (other than amounts payable
pursuant to Section 2.03, 2.12 or 2.15) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the
extent payment owed to such Lender is not made when due hereunder or under any
Note held by such Lender, to charge from time to time against (i) any or all of
the Borrower's accounts with such Lender or (ii) in the event any such payment
is not made to CUSA when due, any or all of the Borrower's accounts with
Citibank or any other Affiliate of CUSA (and the Borrower hereby authorizes
Citibank and each such Affiliate to permit such charge), any amount so due.
(c) All computations of interest based on the Alternate Base
Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as
the case may be, and all
<PAGE>
25
computations of interest based on the Eurodollar Rate or the Federal Funds Rate
and of interest on B Advances prior to the maturity date applicable thereto and
of facility fees shall be made by the Agent on the basis of a year of 360 days,
in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or fees
are payable. Each determination by the Agent of an interest rate hereunder shall
be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder and under the Notes shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or facility fee,
as the case may be; provided, however, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent that the Borrower shall not have so made such payment in full
to the Agent, each Lender shall repay to the Agent forthwith on demand such
amount distributed to such Lender together with interest thereon, for each day
from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Agent, at the Federal Funds Rate.
SECTION 2.15. Taxes. (a) All payments by the Borrower
hereunder shall be made without set-off or counterclaim and free and clear of
and without deduction on account of restrictions or conditions of any nature now
or hereafter imposed or levied by the United States or any political subdivision
thereof, except as specifically provided to the contrary in Section 2.15(b),
unless the Borrower is required by law to make such deductions. If any such
obligation is imposed upon the Borrower with respect to any amount payable by it
hereunder, it will pay to each affected Lender, on the date on which such amount
becomes due and payable hereunder, such additional amount as shall be necessary
to enable such Lender to receive the same net amount which it would have
received on such due date had no such obligation been imposed upon the Borrower.
(b) Each payment to be made by the Borrower hereunder to any
Lender shall be made free and clear of and without deduction or withholding for
or on account of any tax imposed by any governmental or taxing authority of or
in the United States unless the Borrower is required to make such a payment
subject to the deduction or withholding of such tax, in which case the Borrower
will pay to each affected Lender, on the date on which
<PAGE>
26
such amount becomes due and payable hereunder, such additional amount as shall
be necessary to enable such Lender to receive the same net amount which it would
have received on such due date had no such obligation been imposed upon the
Borrower; provided, however, that the Borrower shall not be required to pay any
additional amount on account of any tax of, or imposed by, the United States,
pursuant to this Section 2.15(b), to any Lender and shall be entitled to deduct
and withhold such tax if such Lender (i) shall have failed to submit a valid
United States Internal Revenue Service Form 1001 or any successor form thereto
("Form 1001") relating to such Lender and entitling it to a complete exemption
from deduction or withholding on all amounts to be received by such Lender,
including fees, pursuant to this Agreement, or a valid United States Internal
Revenue Service Form 4224 or any successor form thereto ("Form 4224") relating
to such Lender and entitling it to receive all amounts, including fees, pursuant
to this Agreement, without deduction or withholding, or a statement conforming
to the requirements of United States Treasury Regulation 1.1441-5(b), or (ii)
shall have failed to submit such form or other statement which it is required to
deliver pursuant to Section 2.15(c) hereof.
(c) Prior to the date of the initial Borrowing in the case of
each Lender listed on the signature pages hereof, and on the date of the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender, each Lender agrees that it will deliver to the Borrower
either (i) a statement, in duplicate, conforming to the requirements of United
States Treasury Regulation Section 1.1441-5(b), or (ii) if it is not
incorporated under the laws of the United States or a state thereof, two duly
completed copies of Form 1001 or 4224, or successor applicable forms, as the
case may be, certifying that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes. Subject to any change in applicable laws or regulations, each
Lender which delivers to the Borrower a Form 1001 or 4224, or successor
applicable forms, pursuant to the provisions of this Section 2.15(c), further
undertakes to deliver to the Borrower, upon request by the Borrower, two further
copies of said Form 1001 or 4224, or successor applicable forms, on or before
the date that any such form expires or becomes obsolete certifying that such
Lender is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes.
(d) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.15 shall survive the termination of this Agreement,
the termination of the Commitments and the payment in full of the Notes.
(e) Each Lender agrees that if the Borrower is required to
increase any amounts payable to such Lender under Sections 2.15(a) or 2.15(b),
such Lender shall use reasonable efforts to select an alternative Applicable
Lending Office which would not result in such increased payment by the Borrower
to such Lender; provided, however, that no
<PAGE>
27
Lender shall be obligated to select an alternative Applicable Lending Office if
such Lender determines in its reasonable discretion that (i) as a result of such
selection such Lender would be in violation of any applicable law, regulation,
treaty or directive of any central bank or other governmental authority, or (ii)
such selection would be otherwise disadvantageous to such Lender.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Condition Precedent to Initial Advances. The
effectiveness of the Commitment of each Lender is subject to the condition
precedent that the Agent shall have received the following, in form and
substance satisfactory to the Agent and (except for the Notes) in sufficient
copies for each Lender:
(a) The Notes payable to the order of the Lenders,
respectively.
(b) This Agreement executed by the Borrower, the Agent and
each of the Lenders.
(c) Certified copies of the resolutions of the Board of
Directors of the Borrower approving this Agreement and the Notes and of all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement and the Notes.
(d) A certificate of the Secretary or an Assistant Secretary
of the Borrower certifying the names and true signatures of the officers of the
Borrower authorized to sign this Agreement and the Notes and the other documents
to be delivered hereunder.
(e) A favorable opinion of Wilson, Sonsini, Goodrich & Rosati,
special counsel for the Borrower, substantially in the form attached hereto as
Exhibit E, and covering such other matters as any Lender through the Agent may
reasonably request.
(f) Evidence that the obligations of the lenders and agent
(including commitments to make advances thereunder) under that certain Credit
Agreement dated as of June 1, 1994 among the Borrower, the lenders thereunder
and CUSA, as agent for the lenders thereunder, as amended, have been terminated
and all unpaid principal and interest thereunder and all other amounts then
payable by the Borrower thereunder have been paid in full (or will be paid in
full by application of the proceeds of the initial Borrowing hereunder).
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28
(g) A copy of the Receivables Purchase Agreement as in effect
on August 5, 1994, together with a certificate of the Secretary or an Assistant
Secretary of the Borrower which shall include a statement that the Receivables
Purchase Agreement has not been amended, modified or supplemented in any
respect.
(h) A favorable opinion of Shearman & Sterling, counsel for
the Agent.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The
obligation of each Lender to make an A Advance on the occasion of each A
Borrowing (including the initial A Borrowing) shall be subject to the further
conditions precedent that (i) the Agent shall have received the written
confirmatory Notice of A Borrowing with respect thereto and (ii) on the date of
such A Borrowing (a) the following statements shall be true (and each of the
giving of the applicable Notice of A Borrowing and the acceptance by the
Borrower of the proceeds of such A Borrowing shall constitute a representation
and warranty by the Borrower that on the date of such A Borrowing such
statements are true):
(1) The representations and warranties contained in Section
4.01 are correct on and as of the date of such A Borrowing, before and
after giving effect to such A Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date (except to
the extent such representations or warranties specifically relate to an
earlier date, in which case they shall be true and correct as of such
date),
(2) No Default or Event of Default has occurred and is
continuing, or would result from such A Borrowing or from the
application of the proceeds therefrom, and
(3) The aggregate amount of such A Borrowing and all other
Borrowings to be made on the same day hereunder is within the aggregate
amount of the unused Commitments of the Lenders, and
(b) if the Agent or any Lender has any reason to believe that
any of the conditions set forth in this Section 3.02 shall not be satisfied on
the date of such A Borrowing, then the Agent shall have received such other
approvals, opinions or documents as the Agent or such Lender through the Agent
may reasonably request.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Lender which is to make a B Advance on the occasion of a B
Borrowing (including the initial B Borrowing) to make such B Advance as part of
such B Borrowing shall be subject to the further conditions precedent that (i)
the Agent shall have received the written confirmatory Notice of B Borrowing
with respect thereto, and (ii) on the date of such B Borrowing the following
statements shall be true (and each of the giving of the applicable
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29
Notice of B Borrowing and the acceptance by the Borrower of the proceeds of such
B Borrowing shall constitute a representation and warranty by the Borrower that
on the date of such B Borrowing such statements are true):
(a) The representations and warranties contained in Section
4.01 are correct on and as of the date of such B Borrowing, before and after
giving effect to such B Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date (except to the extent such
representations or warranties specifically relate to an earlier date, in which
case they shall be true and correct as of such date),
(b) No Default or Event of Default has occurred and is
continuing, or would result from such B Borrowing or from the application of the
proceeds therefrom, and
(c) The aggregate amount of such B Borrowing and all other
Borrowings to be made on the same day hereunder is within the aggregate amount
of the unused Commitments of the Lenders.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Agreement. Each Subsidiary is duly organized and validly
existing under the laws of the jurisdiction in which it is incorporated and is
in good standing under the laws of such jurisdiction except where the failure to
so be in good standing (i) in the case of Restricted Subsidiaries, is remedied
within a reasonable time period after a Responsible Officer has knowledge of any
such failure, and (ii) such failure will not have a material adverse effect on
the business, financial condition, assets, properties or operations of the
Borrower or the Borrower and its Subsidiaries taken as a whole. The Borrower and
each Restricted Subsidiary has the corporate power to own its respective
property and to carry on its respective business as now being conducted.
(b) The execution, delivery and performance by the Borrower of
this Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, and do not contravene
(i) the Borrower's charter or by-laws or (ii) any law or contractual restriction
binding on or affecting the Borrower.
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30
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Borrower of this
Agreement or the Notes.
(d) This Agreement is, and the Notes when delivered hereunder
will be, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(e) The audited consolidated balance sheet of the Borrower as
at June 30, 1995, and the related consolidated audited statements of income and
stockholders' equity of the Borrower for the fiscal year then ended, copies of
which have been furnished to each Lender, fairly present in all material
respects the consolidated financial condition of the Borrower as at such date
and the consolidated results of the operations of the Borrower for the period
ended on such date, all in accordance with generally accepted accounting
principles consistently applied except as noted therein, and since June 30,
1995, there has been no material adverse change in the business, financial
condition, assets, properties or operations of the Borrower or the Borrower and
its Subsidiaries taken as a whole.
(f) There is no pending or, to the knowledge of any
Responsible Officer of the Borrower, threatened action or proceeding affecting
the Borrower or any of its Subsidiaries before any court, governmental agency or
arbitrator, which (i) is reasonably likely to be adversely determined and such
adverse determination would likely have a material adverse effect on the
business, financial condition, assets, properties or operations of the Borrower
or the Borrower and its Subsidiaries taken as a whole, or (ii) purports to
affect the legality, validity or enforceability of this Agreement or any Note.
(g) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
(h) The Borrower and each of its Restricted Subsidiaries has
met its minimum funding requirements under ERISA with respect to all of its
Plans and has not incurred any material liability to the Pension Benefit
Guaranty Corporation under ERISA in connection with any such Plan. No ERISA
Termination Event has occurred and is continuing with respect to any Plan.
<PAGE>
31
(i) The Borrower is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
(j) Except as disclosed to the Agent and the Lenders in that
certain letter dated June 28, 1996 from the Borrower to the Agent, the Borrower
and its Restricted Subsidiaries, to the best knowledge of the Responsible
Officers, have obtained the right to use all patents, trademarks, service-marks,
trade names, copyrights, licenses and other rights, free from burdensome
restrictions, or could obtain the same on terms and conditions not materially
adverse to the Borrower and its Restricted Subsidiaries and their operations
taken as a whole, that are necessary for the operation of their respective
businesses as presently conducted and for the operation of businesses described
to the Lenders in writing as proposed to be conducted.
(k) The Borrower has and each of its Subsidiaries has good and
indefeasible title to all material properties, assets and rights of every type
and nature now purported to be owned by it (other than properties and assets
disposed of in the ordinary course of business), subject to no Lien of any kind
except Liens permitted by Section 5.02(a). All leases material to the conduct of
the respective businesses of the Borrower and its Subsidiaries as currently
conducted are valid and subsisting and are in full force and effect.
(l) The Borrower has and each of its Restricted Subsidiaries
has filed all Federal, State and other tax returns which, to the best knowledge
of the Borrower, are required to be filed, and each has paid all taxes as shown
on such returns and on all assessments received by it to the extent that such
taxes have become due, except such taxes as are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with generally accepted accounting principles and except where (i)
nonpayment thereof will not have a material adverse effect on the business,
financial condition, assets, properties or operations of the Borrower or of the
Borrower and its Subsidiaries taken as a whole, and (ii) either (A) the
aggregate unpaid amount thereof is less than $1,000,000, or (B) the unpaid
amount thereof shall be paid in full promptly upon the Borrower or the
Restricted Subsidiary owing the same obtaining knowledge of the delinquency
thereof, together with any penalties payable as a result of such delinquency.
(m) Neither the Borrower nor any of its Subsidiaries is a
party to any contract or agreement or subject to any charter or other corporate
restriction which materially and adversely affects the business, financial
condition, assets, properties or operations of the Borrower or the Borrower and
its Subsidiaries taken as a whole. Neither the execution nor delivery of this
Agreement or the Notes, nor fulfillment of nor compliance with the terms and
provisions hereof or thereof will conflict with, or result in a breach of the
terms,
<PAGE>
32
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the properties
or assets of the Borrower or any of its Restricted Subsidiaries pursuant to, the
charter or by-laws of the Borrower or any of its Restricted Subsidiaries, any
award of any arbitrator or any agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Borrower or any of its Restricted Subsidiaries is
subject.
(n) The documents, certificates and written statements
furnished by any Responsible Officer to the Agent or any Lender pursuant to any
provision of this Agreement or any other agreement, document or instrument
delivered to the Agent or any Lender pursuant hereto or in connection herewith,
taken together with all such other documents, certificates and written
statements, do not contain any untrue statement of a material fact or omit any
material fact necessary to make the statements made therein, taken together, in
light of the circumstances under which they were made, not misleading. It is
recognized by the Agent and the Lenders that projections and forecasts provided
by or on behalf of the Borrower, although reflecting the Borrower's good faith
projections or forecasts based on methods and data which the Borrower believes
to be reasonable and accurate, are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may (and are likely to) differ from the projected or forecasted
results.
(o) Listed on Exhibit H attached hereto are all of the
Subsidiaries of the Borrower as of the date of this Agreement, identifying which
of the Subsidiaries constitute Restricted Subsidiaries as of the date of this
Agreement. All of the issued and outstanding shares (other than shares of any
foreign Subsidiary required by applicable local law to be issued to directors of
such foreign Subsidiary or shares of foreign Subsidiaries issued to Persons to
satisfy local ownership requirements imposed by applicable local law) of the
capital stock of each Subsidiary owned by the Borrower or any Subsidiary are
duly issued and outstanding, fully paid and non-assessable and are free and
clear of any Lien.
(p) In the ordinary course of its business, the Borrower
conducts an ongoing review of the effect of Environmental Laws on the business,
operations and properties of the Borrower and its Subsidiaries, in the course of
which it identifies and evaluates associated liabilities and costs (including,
without limitation, any capital or operating expenditures required for clean-up
or closure of its properties, any capital or operating expenditures required to
achieve or maintain compliance with environmental protection standards imposed
by law or as a condition of any license, permit or contract, any related
constraints on operating activities, including any periodic or permanent
shutdown of any facility or reduction in the level of or change in the nature of
operations conducted thereat and any actual or potential liabilities to third
parties, including employees, and any related costs and expenses). On the basis
of this review, the Borrower has reasonably concluded that Environmental Laws
are not likely to have a material adverse effect on the
<PAGE>
33
business, financial condition, assets, properties or operations of the Borrower
or the Borrower and its Subsidiaries taken as a whole.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any amount
payable hereunder or under any Note shall remain unpaid or any Lender shall have
any Commitment hereunder, the Borrower will, unless the Majority Lenders shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders of any governmental authority, the noncompliance
with which would materially adversely affect the business, financial condition,
assets, properties or operations of the Borrower or the Borrower and its
Subsidiaries taken as a whole.
(b) Payment of Taxes and Claims. Pay, and cause each of its
Restricted Subsidiaries to pay, all taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or in respect of any
of its franchises, business, income or profits before any penalty accrues
thereon or immediately upon any determination that any interest is due thereon,
and all claims (including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and payable and which by
law have or may become a Lien upon any of its properties or assets; provided
that no such tax, assessment, charge or claim need be paid if it is being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and if such accrual or other appropriate provision, if any,
as shall be required by generally accepted accounting principles shall have been
made therefor; provided, further, that the Borrower shall not be deemed to have
breached this Section 5.01(b) on account of the failure to pay any such tax,
assessment, charge or claim if (i) nonpayment thereof will not have a material
adverse effect on the business, financial condition, assets, properties or
operations of the Borrower or the Borrower and its Restricted Subsidiaries taken
as a whole, and (ii) either (A) the aggregate unpaid amount thereof is less than
$1,000,000, or (B) the unpaid amount thereof shall be paid in full promptly upon
the Borrower or the Restricted Subsidiary owing the same obtaining knowledge of
the delinquency thereof, together with any penalties payable as.a result of such
delinquency.
(c) Maintenance of Properties; Insurance; Books and Records.
Maintain or cause to be maintained, and cause each of its Restricted
Subsidiaries to maintain or cause to be maintained (i) to the extent consistent
with good business practices, in good repair, working order and condition all
properties material to the continued conduct of the business
<PAGE>
34
of the Borrower and its Subsidiaries taken as a whole, and from time to time
will make or cause to be made all necessary repairs, renewals and replacements
thereof; (ii) with financially sound and reputable insurers, insurance with
respect to its properties and business and the properties and business of its
Restricted Subsidiaries against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or similar
business and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other corporations
("Industry Standards"); provided that the Borrower and its Restricted
Subsidiaries may self insure to the extent, and only to the extent, consistent
with Industry Standards; and (iii) proper books of record and account in
accordance with generally accepted accounting principles consistently applied.
(d) Corporate Existence, etc. At all times preserve and keep
in full force and effect its corporate existence, and corporate rights and
franchises material to its business, and those of each of its Restricted
Subsidiaries, except as otherwise specifically permitted by Sections 5.02(b).
5.02(d)or 5.02(e), and will qualify, and cause each of its Restricted
Subsidiaries to qualify, to do business in any jurisdiction where the failure to
do so (i) is remedied within a reasonable time period after a Responsible
Officer has knowledge of any such failure, and (ii) will not have a material
adverse effect on the business, financial condition, assets, properties or
operations of the Borrower or the Borrower and its Subsidiaries taken as a
whole; provided that the corporate existence of any Subsidiary may be terminated
if, in the good faith judgment of the Board of Directors of the Borrower, such
termination is in the best interests of the Borrower and is not disadvantageous
to the Lenders.
(e) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 45
days after the end of each of the first three fiscal quarters of each
fiscal year of the Borrower, the unaudited consolidated balance sheet
of the Borrower as of the end of such quarter and consolidated
unaudited statements of income, stockholders' equity and cash flow of
the Borrower for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, setting forth in
comparative form figures for the corresponding period in the preceding
fiscal year, in the case of such statements of income, stockholders'
equity and.cash flow, and figures at the end of the preceding fiscal
year in the case of such balance sheet, all in reasonable detail, in
accordance with generally accepted accounting principles consistently
applied (except as noted therein and subject to normal year-end
adjustments), and certified in a manner reasonably acceptable to the
Majority Lenders by a Responsible Financial Officer of the Borrower;
(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the
<PAGE>
35
Borrower as of the end of such fiscal year and consolidated statements
of income, stockholders' equity and cash flow of the Borrower for the
period commencing at the end of the previous fiscal year and ending
with the end of such fiscal year, setting forth in comparative form
figures for the preceding fiscal year, all in reasonable detail, in
accordance with generally accepted accounting principles consistently
applied (except as noted therein), and certified in a manner
reasonably acceptable to the Majority Lenders by independent public
accountants of recognized national standing reasonably acceptable to
the Majority Lenders;
(iii) together with the financial statements
furnished in accordance with subdivisions (i) and (ii) of this Section
5.01(e) except as noted with respect to clause (d) hereof, a
certificate of a Responsible Financial Officer of the Borrower in the
form of Exhibit F attached hereto (a) representing and warranting that
no Event of Default or Default has occurred and is continuing (or, if
such an Event of Default or Default has occurred, stating the nature
thereof and the action which the Borrower proposes to take with respect
thereto), (b) setting forth a schedule containing the information and
calculations with respect to the Borrower's compliance with Sections
5.01(h)- 5.01(i) and 5.02(h), (c) stating that the representations and
warranties contained in Section 4.01 are true and correct on and as of
the date of such certificate as though made on and as of such date
(except to the extent such representations or warranties specifically
relate to an earlier date, in which case they shall be true and correct
as of such date), and (d) only as to the financial statements furnished
in accordance with subdivision (ii) of this Section 5.01(e), setting
forth all changes, if any, to Exhibit H since the date of the previous
certificate furnished to the Lenders hereunder; provided that the
Borrower may, if no Advance is outstanding and no other amount payable
hereunder or under the Notes is then unpaid, elect not to submit the
statement otherwise required pursuant to the foregoing clause (c) so
long as such statement is made at least once each calendar year;
(iv) as soon as possible and in any event within five
days after a Responsible Officer or a Responsible Financial Officer
knows or has reason to know of the occurrence of any Default that is
not an Event of Default (provided, with respect to any such Default, at
the time of such Default any Advance is outstanding or any other amount
payable hereunder or under the Notes shall remain unpaid) and any Event
of Default, a statement of a Responsible Financial Officer of the
Borrower setting forth details of such Event of Default or Default and
the action which the Borrower has taken and proposes to take with
respect thereto;
(v) promptly after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
shareholders generally; and promptly after the same are filed, copies
of all final registration statements on Form S-1, S-2, S-3 or S-4
(without exhibits unless specifically requested) or their successor
forms relating to
<PAGE>
36
offerings of debt or equity by the Borrower and copies of all reports
on Form 10-K, Form 10-Q and Form 8-K or their successor forms (without
exhibits unless specifically requested) which the Borrower may make to,
or file with, the Securities and Exchange Commission or any successor
or similar governmental entity;
(vi) as soon as practicable and in any event (a)
within 30 days after any Responsible Officer or any Responsible
Financial Officer knows or has reason to know that any ERISA
Termination Event described in clause (i) of the definition of ERISA
Termination Event with respect to Any Plan has occurred and (b) within
10 days after any Responsible Officer or any Responsible Financial
Officer knows or has reason to know that any other ERISA Termination
Event with respect to any Plan has occurred, a statement of a
Responsible Financial Officer of the Borrower describing such ERISA
Termination Event and the action, if any, which the Borrower or such
ERISA Affiliate proposes to take with respect thereto;
(vii) promptly upon receipt thereof, a copy of each
other summary report in its final form submitted to the Borrower or any
Restricted Subsidiary for delivery to, or which is actually delivered
to, the Board of Directors of the Borrower by independent accountants
in connection with any annual, interim or special audit made by them of
the books of the Borrower or any Restricted Subsidiary;
(viii) promptly after a Responsible Officer or a
Responsible Financial Officer knows or has reason to know thereof,
notice of all actions, suits and proceedings before any court or
governmental authority or instrumentality affecting the Borrower or any
of its Subsidiaries of the type described in Section 4.01(f), and
promptly after any material adverse development or change in the status
of any such continuing action, suit or proceeding, notice of such
development or change;
(ix) promptly after a Responsible Officer or a
Responsible Financial Officer knows or has reason to know thereof,
notice of any violation of any Environmental Law that is reported or
reportable by the Borrower or any of its Subsidiaries to any federal,
state or local environmental agency that could be reasonably expected
to have a material adverse effect on the business, financial condition,
assets, properties or operations of the Borrower or the Borrower and
its Subsidiaries taken as a whole;
(x) (a) promptly after any termination of the
Commitment (as such term is defined in the Receivables Purchase
Agreement) pursuant to Section 6.01 of the Receivables Purchase
Agreement as a result of a Termination Event (as such term is defined
in the Receivables Purchase Agreement), notice of such termination; (b)
promptly after any change in the Collection Agent pursuant to Sections
9.01 and 9.04 of the Receivables Purchase Agreement (other than
designation of a Collection Agent affiliated with the Borrower), notice
of such change; (c) at least three Business Days
<PAGE>
37
prior to the effectiveness of any consent by the Borrower to any sale
by a Purchaser (as such term is defined in the Receivables Purchase
Agreement) of any of the Purchaser's rights or obligations under the
Receivables Purchase Agreement pursuant to Section 10.08(c) of the
Receivables Purchase Agreement, notice of such proposed sale or
assignment; (d) promptly after the execution and delivery thereof,
copies of all amendments to the Receivables Purchase Agreement,
whether or not the consent thereto of the Lenders is required
hereunder; and (e) notice of events comparable to those described in
the immediately preceding clauses (a), (b), (c) and (d) under any
other agreement or arrangement similar to the Receivables Purchase
Agreement or the transactions provided for therein; and
(xi) such other information respecting the condition
or operations, financial or otherwise (including, without limitation,
information pertaining to any change in accounting principles adopted
by the Borrower or any of its domestic Subsidiaries (or any of its
foreign Subsidiaries if such change in accounting principles would have
a material effect on the financial condition, operating performance or
cash flow of the Borrower and its Subsidiaries taken as a whole) during
any fiscal year of the Borrower and the effect thereof on the financial
condition, operating performance or cash flow of the Borrower and its
Subsidiaries taken as a whole), of the Borrower or any of its
Subsidiaries as any Lender through the Agent may from time to time
reasonably request.
(f) Inspection of Property. Permit any employee of, or
independent financial, legal, environmental or other professional consultant or
advisor (other than a Person that is or is affiliated with a direct competitor
of the Borrower) retained by, the Agent or any of the Lenders or any agents or
representatives thereof, at the Agent's or such Lender's expense, to visit and
inspect any of the properties of the Borrower and its Subsidiaries, to examine
the corporate books and financial records of the Borrower and its Subsidiaries
and make copies thereof or extracts therefrom (except that the Borrower, as to
any information certified by the Borrower as constituting trade secrets or other
proprietary information of a non-financial nature, in a certificate delivered to
the Agent or Lender who has requested copies or extracts of such information,
may in its discretion refuse to allow such copies or extracts to be made) and to
discuss the affairs, finances and accounts of any of such corporations with the
principal officers of the Borrower or its independent public accountants (and by
this provision the Borrower authorizes such accountants to discuss with any
Person so designated the affairs, finances and accounts of the Borrower and its
Subsidiaries, whether or not the Borrower is present), all at such reasonable
times and as often as the Agent or any Lender may reasonably request, in each
case as to matters reasonably related to this Agreement or the transactions
contemplated hereby or the interests of the Agent or the Lenders hereunder.
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38
(g) Use of Proceeds. The proceeds of all Advances shall be
used for general corporate purposes, including, without limitation, the
retirement of Debt. Notwithstanding any other term or provision set forth in
this Agreement, no portion of any Advance may be used to initiate or participate
in the acquisition of a controlling interest in the Voting Stock or assets of
any corporation unless such acquisition is made with the consent of such
corporation and does not otherwise violate the terms and provisions of this
Agreement.
(h) Debt to Consolidated Tangible Net Worth Ratio. Maintain a
ratio of (A) consolidated Debt of the Borrower, to (B) Consolidated Tangible Net
Worth of not more than 0.45 to 1.00.
(i) Fixed Charge Ratio. Maintain (i) as of the last day of the
first fiscal quarter of each fiscal year of the Borrower a ratio of (A) Adjusted
EBIT of the Borrower determined on a consolidated basis for the 12-month period
ending on such date, to (B) consolidated Fixed Charges of the Borrower for the
12-month period ending on such date, of not less than 1.25 to 1.00; and (ii) as
of the last day of the second, third and fourth fiscal quarters of each fiscal
year of the Borrower a ratio of (A) Adjusted EBIT of the Borrower for the
12-month period ending on such date, to (B) consolidated Fixed Charges of the
Borrower for the 12-month period ending on such date, of not less than 1.50 to
1.00, in each case determined on a consolidated basis.
SECTION 5.02. Negative Covenants. So long as any amount
payable hereunder or under any Note shall remain unpaid or any Lender shall have
any Commitment hereunder, the Borrower will not, without the written consent of
the Majority Lenders:
(a) Liens, Excess Interest in Receivables, Etc. (i) Create,
assume or suffer to exist, or permit any Subsidiary to create, assume or suffer
to exist, any Lien upon any of its property or assets, whether now owned or
hereafter acquired , or any Excess Interest in Receivables, except
(A) Liens for taxes not yet due or which are being
actively contested in good faith by appropriate proceedings,
(B) other Liens incidental to the conduct of its
business or the ownership of its property and assets which
were not incurred in connection with the borrowing of money or
the obtaining of advances of credit, and which do not in the
aggregate materially detract from the value of its property or
assets or materially impair the use of such property or assets
in the operation of its business,
<PAGE>
39
(C) Liens existing on the property or assets of the
Borrower or any Subsidiary on the date of this Agreement and
set forth on Exhibit G,
(D) Liens on property or assets of a Subsidiary to
secure obligations of such Subsidiary to the Borrower or a
wholly owned Subsidiary,
(E) any Lien created to secure the purchase price or
cost of construction, or to secure Debt incurred to pay the
purchase price or cost of construction, of any property
acquired by the Borrower or any Subsidiary after the date
hereof or any improvements to real property constructed by or
for the account of the Borrower or any Subsidiary after the
date hereof; provided that (x) any such Lien shall be confined
solely to the item or items of property so acquired or
constructed (and any theretofore unimproved real property on
which such improvements are located), and (y) any such Lien
shall be created concurrently with or within 12 months
following the acquisition of such property or the completion
of construction of improvements thereon,
(F) Liens (other than Liens on any Excess Interest in
Receivables) created in Pool Accounts (as defined in the
Receivables Purchase Agreement) pursuant to and in accordance
with the terms of the Receivables Purchase Agreement or in
other accounts receivable of the Borrower under any similar
agreement or arrangement permitted hereunder,
(G) Liens existing on property including the proceeds
thereof and accessions thereto acquired by the Borrower or any
Subsidiary (including Liens on assets of any corporation at
the time it becomes a Subsidiary, unless such Lien was created
in contemplation of such corporation becoming a Subsidiary),
(H) Liens which constitute rights of set-off of a
customary nature or bankers' Liens with respect to amounts on
deposit, whether arising by operation of law or by contract,
in connection with arrangements entered into with banks in the
ordinary course of business, including rights of set-off
created pursuant to or by virtue of this Agreement and the
Notes,
(I) leases or subleases and license and sublicenses
granted to others in the ordinary course of the Borrower's or
any Subsidiary's business not interfering in any material
respect with the business of the Borrower and its Subsidiaries
taken as a whole, and any interest or title of a lessor or
licensor under any lease or license,
(J) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of
Default under Section 6.01(i), and
<PAGE>
40
Liens to secure appeal bonds, supersedeas bonds and other
similar Liens arising in connection with court proceedings
(including, without limitation, surety bonds and letters of
credit) or any other instrument serving a similar purpose;
provided, however, that the total amount secured by Liens
described in this subsection (J) may not exceed at any time 5%
of Consolidated Tangible Net Worth (plus Liens so described
that are permitted in accordance with Section 5.02(a)(ii)
below),
(K) easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and
other similar charges or encumbrances affecting real property
not interfering in any material respect with the ordinary
conduct of the business of the Borrower and its Subsidiaries
taken as a whole,
(L) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
in connection with the importation of goods, and
(M) any Lien renewing, extending, or refunding any
Lien permitted under clauses (A) through (L), inclusive, of
this Section 5.02(a); provided that the principal amount
secured is not increased and that such Lien is not extended to
other property (other than pursuant to its original terms).
(ii) Notwithstanding the provisions contained in subdivision
(i) of this Section 5.02(a), in addition to the permitted Liens
described above, the Borrower and its Subsidiaries, or any of them, may
create, assume or suffer to exist other Liens and Excess Interest in
Receivables if, after giving effect thereto and to the retirement of
any Debt which is concurrently being retired, the aggregate of (A) the
total amount of Debt then secured by such Liens, and (B) the total
amount of Excess Interest in Receivables then existing, does not exceed
10% of Consolidated Tangible Net Worth; provided, however, if the
aggregate of (A) the total amount of Debt then secured by such Liens,
and (B) the total amount of Excess Interest in Receivables then
existing, exceeds 10% of Consolidated Tangible Net Worth, no Event of
Default shall occur hereunder provided the Borrower simultaneously
therewith makes or causes to be made effective provision whereby the
indebtedness evidenced by this Agreement and the Notes will be secured
by such Liens (pursuant to documentation in form and substance
reasonably satisfactory to the Agent and the Majority Lenders) equally
and ratably with any and all other Debt thereby secured so long as such
other Debt shall be so secured.
(b) Merger and Consolidation. Merge into or consolidate with
or into a corporation, or permit any Subsidiary to do so, except that (i) any
Subsidiary may merge or consolidate with any other Subsidiary and any Subsidiary
may merge into the Borrower,
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41
(ii) the Borrower may merge or consolidate with any other corporation; provided
that (A) either (1) the Borrower shall be the continuing or surviving
corporation, or (2) the successor corporation shall be a solvent corporation
organized under the laws of any State of the United States of America with a
financial condition at least equal to that of the Borrower at the time of such
merger or consolidation, and such corporation shall expressly assume in writing
all of the obligations of the Borrower under this Agreement and under the Notes,
including all covenants herein and therein contained which assumption shall not
otherwise violate any term, condition or provision of this Agreement or the
Notes, and such successor shall be substituted for the Borrower with the same
effect as if it had been named herein as a party hereto, and (B) immediately
after giving effect to such merger or consolidation, no Default or Event of
Default shall have occurred, (iii) a Subsidiary may merge into or consolidate
with a corporation in connection with such corporation becoming a Subsidiary or
being combined with any existing Subsidiary, and (iv) provided that the
disposition of such Subsidiary is not otherwise prohibited under the terms of
this Agreement (including pursuant to Section 5.02(d)(ii) below), any Subsidiary
may merge into or consolidate with a corporation, if after giving effect to such
merger or consolidation, neither such Subsidiary nor such corporation is a
Subsidiary.
(c) Change in Nature of Business. Make, or permit any
Subsidiary to make, any material change in the nature of its business as carried
on at the date hereof; provided, however, that the Borrower and its
Subsidiaries-may enter into businesses which are appropriate extensions of or
are reasonably related or incidental to the current businesses of the Borrower
and its Subsidiaries.
(d) Maintenance of Ownership of Subsidiaries. Sell or
otherwise dispose of any shares of capital stock of any Subsidiary or permit any
Subsidiary to issue, sell or otherwise dispose of any shares of its capital
stock or the capital stock of any other Subsidiary, except
(i) to the Borrower or another Subsidiary;
(ii) that all shares of stock of any Subsidiary at
the time owned by the Borrower or any Subsidiary may be sold as an
entirety for a consideration which represents the fair value (as
determined in good faith by the Board of Directors of the Borrower) at
the time of sale of the shares of stock so sold; provided that after
giving effect to the sale thereof the sum of (A) the total assets of
all Subsidiaries whose stock is so sold pursuant to this clause (ii)
after the date of this Agreement, plus (B) the total assets of all
Subsidiaries that have been merged into or consolidated with a
corporation pursuant to clause (iv) of Section 5.02(b) after the date
of this Agreement, does not exceed 15% of the consolidated total assets
of the Borrower;
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42
(iii) shares of stock of any Subsidiary may be sold
if, after giving effect to such sale, such Subsidiary shall continue to
be a Subsidiary; and
(iv) shares of stock of any foreign Subsidiary may be
issued to directors of such foreign Subsidiary to satisfy director
ownership requirements imposed by applicable local law and shares of
stock of foreign Subsidiaries may be issued to Persons to the extent
necessary to satisfy local ownership requirements imposed by applicable
local law.
(e) Sales, Etc. of Assets. Transfer, or permit any Subsidiary
to Transfer any assets, if after giving effect to such Transfer the sum of (1)
the total assets as to which there has been a Transfer not permitted by clauses
(i) or (ii) of this Section 5.02(e) after the date of this Agreement, plus (2)
the total assets of all Subsidiaries whose stock is sold pursuant to clause (ii)
of Section 5.02(d) after the date of this Agreement, plus (3) the total assets
of all Subsidiaries that have been merged into or consolidated with a
corporation pursuant to clause (iv) of Section 5.02(b) after the date of this
Agreement, would exceed 20% of the consolidated total assets of the Borrower,
except that:
(i) any Subsidiary may Transfer any of its assets to the
Borrower or to another Subsidiary and the Borrower may Transfer assets
to a wholly-owned Subsidiary that had been transferred to the Borrower
from a Subsidiary after the date of this Agreement; and
(ii) the provisions of this Section 5.02(e) shall not apply to
(A) any Transfer made in the ordinary course of business, (B) any
Transfer of obsolete assets, (C) any Transfer by the Borrower or any
Subsidiary of assets (but not of all or substantially all of its
assets) if such Transfer is made pursuant to a plan to replace the
assets subject to such Transfer and such replacement occurs no later
than six months after the Transfer (or, if replacement is not
reasonable by such date, binding commitments to construct and/or
acquire replacement assets shall have been entered into no later than
six months after the Transfer and such replacement shall occur within a
reasonable period of time, which shall in no event exceed 18 months),
or (D) the sale of notes, leases and accounts receivable pursuant to
and in accordance with the terms of the Receivables Purchase Agreement
or any similar agreement or arrangement permitted under Section 5.02(f)
by Sun Microsystems Federal, Inc., SunSoft, Inc., SunExpress, Inc. or
any other Subsidiary which is or becomes a party to the Receivables
Purchase Agreement or any such other agreement or arrangement.
(f) Sale of Receivables. Sell with recourse, or discount or
otherwise sell for less than the face value thereof, or sell with or without
recourse for consideration other than cash, or permit any Subsidiary to sell
with recourse, or discount or otherwise sell for less than the face value
thereof, or sell with or without recourse for consideration other than
<PAGE>
43
cash, any of its notes or accounts receivable; provided that the foregoing
restrictions shall not apply to (i) any license or sale of products or services
in the ordinary course of business where payment For such transactions is made
by credit card; provided that the fees and discounts incurred by the Borrower or
the Subsidiary in connection therewith shall not exceed the normal and customary
fees and discounts incurred for general credit card transactions through major
credit card issuers; (ii) the delivery and endorsement to banks in the ordinary
course of business by the Borrower or any of its Subsidiaries of promissory
notes received in payment of trade receivables, where delivery and endorsement
are made prior to the date of maturity of such promissory notes, and the
retention by said banks of normal and customary fees and discounts therefor;
provided that such practice is usual and customary in the country where such
activity occurs; and (iii) any sale of notes or accounts receivable (or
interests therein) so long as (A) the Borrower or the Subsidiary selling such
notes or accounts receives, at the time of the sale, cash consideration or at
least (x) with respect to sales under the Receivables Purchase Agreement, the
amount determined in accordance with the provisions thereof, and (y) with
respect to all other sales, 90% of the aggregate face amount of the notes or
accounts receivable (or portions thereof) so sold, and (B) after giving effect
to such sale, the outstanding face amount which remains owing from the
respective trade debtors under all such notes or accounts receivable sold does
not exceed at any time an amount equal to the greater of (1) $250,000,000 or (2)
15% of Consolidated Tangible Net Worth.
(g) Amendment of Receivables Purchase Agreement. Agree to (i)
any amendment to the Receivables Purchase Agreement that amends Section 5.09 of
the Receivables Purchase Agreement or the definition of "Permitted Subordinated
Interest" (as such term is defined in the Receivables Purchase Agreement) in a
manner which would impair the ability of the Borrower and its Subsidiaries
pursuant to such Section (as written without giving effect to such amendment) to
sell, assign or otherwise dispose of, or create or suffer to exist, any
Permitted Subordinated Interest with respect to their interests in any Pool
Assets (as such term is defined in the Receivables Purchase Agreement) and the
proceeds thereof; provided, however, that the foregoing shall in no way limit
the application of the definition of "Receivables Purchase Agreement" as set
forth in Section 1.01, or (ii) enter into any other agreement pertaining to the
sale of accounts receivable of the Borrower unless such other agreement permits
the Borrower to grant to the Lenders a security interest in the Borrowers
accounts receivable on terms no less favorable to the Lenders than those
contained in the Receivables Purchase Agreement.
(h) Subsidiary Debt. Permit any Subsidiary organized under the
laws of any State of the United States of America to create, incur, assume or
suffer to exist any Debt if, after giving effect thereto and to the concurrent
repayment of any other Debt, the aggregate Debt of all such Subsidiaries will
exceed $120,000,000.
<PAGE>
44
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay (i) any principal of any
Advance when the same becomes due and payable; or (ii) any interest on any
Advance or any fees payable hereunder within five Business Days after the same
becomes due; or (iii) any other amounts payable hereunder within 30 days of the
date of invoice or written demand therefor; or
(b) any representation or warranty made by the Borrower herein
or by the Borrower (or any of its officers) in connection with this Agreement
shall prove to have been incorrect in any material respect when made; or
(c) the Borrower shall fail. to perform or observe any term,
covenant or agreement contained in Sections 5.01(h), 5.01(i), 5.02(b), 5.02(c),
5.02(d), 5.02(e), 5.02(g) or 5.02(h); or
(d) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in this Agreement (other than those covered by
the other clauses of this Section 6.01) on its part to be performed or observed
if the failure to perform or observe such other term, covenant or agreement
shall remain unremedied for 30 days after written notice thereof shall have been
given to the Borrower by the Agent at the request of any Lender; or
(e) (i) the Borrower or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any Debt which is outstanding in
a principal amount of at least $10,000,000 in the aggregate (but excluding Debt
outstanding hereunder) of the Borrower or such Subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument; but only if the effect of such failure to pay, event or
condition is to accelerate the maturity of such Debt; or any such Debt shall be
declared by the creditor to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment), redeemed, purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be
required to be made, in each case prior to the stated maturity thereof; or (ii)
any event shall occur or condition shall exist under any agreement or instrument
relating to any Debt of the
<PAGE>
45
Borrower or any of its Subsidiaries outstanding in a principal amount in excess
of $50,000,000 in the aggregate and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of such
event or condition is to permit the acceleration by the creditor of, the
maturity of such Debt; or
(f) the Borrower or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 30 consecutive days, or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur; or
the Borrower or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (f); or
(g) any order, judgment or decree is entered in any
proceedings against the Borrower or any Restricted Subsidiary decreeing the
dissolution of the Borrower or such Restricted Subsidiary and such order,
judgment or decree remains unstayed and in effect for more than 60 consecutive
days; or
(h) any order, judgment or decree is entered in any
proceedings against the Borrower or any Restricted Subsidiary decreeing a
split-up of the Borrower or such Restricted Subsidiary which requires the
divestiture of assets representing a substantial part, or the divestiture of the
stock of a Restricted Subsidiary whose assets represent a substantial part, of
the consolidated assets of the Borrower (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of assets, or
stock of a Restricted Subsidiary, which shall have contributed a substantial
part of the consolidated net income of the Borrower (determined in accordance
with generally accepted accounting principles) for any of the three fiscal years
then most recently ended, and such order, judgment or decree remains unstayed
and in effect for more than 60 consecutive days; or
(i) a final judgment or order for the payment of money in an
amount (not covered by insurance) which exceeds $10,000,000 shall be rendered
against the Borrower or any of its Subsidiaries and; prior to the payment in
full of the amount thereof, either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or
<PAGE>
46
order, or (ii) there shall be any period of 30 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(j) any ERISA Termination Event that the Lenders determine in
good faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States district court of a trustee to
administer any Plan shall have occurred and be continuing for 30 days after
written notice shall have been given to the Borrower by the Agent, or any Plan
shall be terminated, or a trustee shall be appointed by an appropriate United
States district court to administer any Plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any Plan or to appoint a
trustee to administer any Plan;
then, and in any such event, the Agent (i) shall at the
request, or may with the consent, of the Majority Lenders, by notice to the
Borrower, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Majority Lenders, by notice to the
Borrower, declare the Advances, all interest thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Advances, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower; provided,
however, that if an Event of Default specified in Section 6.01(f) shall occur or
in the event of an actual or deemed entry of an order for relief with respect to
the Borrower or any of its subsidiaries under the Federal Bankruptcy Code, (A)
the obligation of each Lender to make Advances shall automatically be terminated
and (B) the Advances, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
SECTION 6.02. Mandatory Prepayment; Event of Early
Termination. Notwithstanding anything to the contrary contained herein, in the
event that a Change of Control Event shall occur with respect to the Borrower,
the Agent (i) shall at the request, or may with the consent, of the Majority
Lenders, by notice to the Borrower, declare the obligation of each Lender to
make Advances to be terminated, whereupon the same shall forthwith terminate,
and (ii) shall at the request, or may with the consent, of the Majority Lenders,
by notice to the Borrower, declare the Advances, all interest thereon and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon the Advances, all such interest and all such amounts shall become and
be forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower.
<PAGE>
47
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the amounts payable
hereunder and under the Notes), the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Lenders, and such instructions shall be
binding upon all Lenders and all holders of Notes; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or applicable law. The
Agent agrees to give to each Lender prompt notice of each notice given to it by
the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender which is the payee of
such Note, as assignor, and an assignee, as provided in Section 8.07; (ii) may
consult with legal counsel (including counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (iv) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; and (vi) shall incur no
liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. CUSA and Affiliates. With respect to its
Commitment and the Advances made by lt and the Notes issued to lt, CUSA shall
have the same rights and
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48
powers under this Agreement as any other Lender and may exercise the same as
though it were not the Agent; and the term " Lender" or "Lenders" shall, unless
otherwise expressly indicated, include CUSA in its individual capacity. CUSA and
its Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, the Borrower,
any of its Subsidiaries and any Person who may do business with or own
securities of the Borrower or any such Subsidiary, all as if CUSA were not the
Agent and without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Agent or any other
Lender and based on the financial statements referred to in Section 4.01 and
such other documents and information as lt has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
the Agent (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts outstanding under the A Notes then held by each
of them (or if no A Advances are at the time outstanding or if any A Notes are
held by Persons which are not Lenders, ratably according to the respective
amounts of their Commitments), from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Agent under this
Agreement; provided that no Lender shall be liable for any portion of such
claims, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender agrees to reimburse the Agent promptly upon demand for its ratable
share of any out-of-pocket expenses (including counsel fees, court costs and all
other reasonable litigation expenses, including, but not limited to, expert
witness fees, document copying expenses, exhibit preparation, courier expenses,
postage, and communication expenses) incurred by the Agent in connection with
the preparation, execution, delivery. administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Agent is not reimbursed for such expenses by the
Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower. Upon any
such resignation, the Majority Lenders shall have the right to appoint a
successor Agent, which successor
<PAGE>
49
Agent shall (if no Event of Default then exists) be subject to the approval of
the Borrower not to be unreasonably withheld. If no successor Agent shall have
been so appointed by the Majority Lenders, and shall have accepted such
appointment, within 20 days after the retiring Agent's giving of notice of
resignation, then the Borrower may appoint a successor Agent, which successor
Agent shall be subject to the approval of the Majority Lenders not to be
unreasonably withheld. If no successor Agent shall have been so appointed by the
Borrower, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a commercial
bank organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $300,000,000 or an
Affiliate thereof. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by lt while lt was Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders and the Borrower, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) waive any of the conditions specified in Section 3.01. 3.02 or
3.03, (b) increase the Commitments of the Lenders or subject the Lenders to any
additional obligations, (c) reduce the principal of, or interest on, the
Advances or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Advances or any fees
or other amounts payable hereunder, (e) change the percentage of the Commitments
or the number of Lenders which shall be required for the Lenders or any of them
to take any action hereunder, or (f) amend this Section 8.01; and provided
further that no amendment, waiver or consent shall, unless in writing and signed
by the Agent in addition to the Lenders required above to take such action,
affect the rights or duties of the Agent under this Agreement.
SECTION 8.02. Notices Payments, Etc. (a) All notices and other
communications provided for hereunder shall be in writing (including telecopier
or telex
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50
communication) and mailed, telecopied or telexed or delivered, if to the
Borrower, at its address at 2550 Garcia Avenue PAL 1-211, Mountain View,
California 94043, Attention: Treasurer, with a copy to the attention of General
Counsel at the same address (but with the following mail stop substituted: PAL
1-521); if to any Lender specified on Schedule I, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; if to any other Lender, at its
Domestic Lending Office specified in the Assignment and-Acceptance pursuant to
which it became a Lender; and if to the Agent, at its address c/o Citicorp North
America, Inc. at Citicorp Center, One Sansome Street, Suite 2710, San Francisco,
California 94104, Attention: J. Kevin Nater with copies to Citicorp Securities,
Inc., One Court Square, Seventh Floor, New York, New York 11120, Attention: Loan
Investor Services; provided that all notices to the Agent pursuant to Article II
shall be at Citicorp Securities, Inc., One Court Square, Seventh Floor, New
York, New York 11120, Attention: Loan Investor Services; or, as to the Borrower
or the Agent, at such other address as shall be designated by such party in a
written notice to the other parties and, as to each other party, at such other
address as shall be designated by such party in a written notice to the Borrower
and the Agent. All such notices and communications shall, (i) when telecopied or
telexed, be effective when telecopied or confirmed by telex answerback,
respectively, (ii) when sent by an overnight (next day) courier service, be
effective on the Business Day after the date when delivered to such service, and
(iii) when mailed, be effective on the fifth Business Day after the date
deposited in the mails, except that notices and communications to the Agent
pursuant to Article II or VII shall not be effective until received by the
Agent, and any notice of default which is given to the Borrower only by means of
telecopier shall not be effective until such telecopy is received by the
Borrower.
(b) All payments made or funds delivered to the Agent
hereunder shall be made or delivered to the Agent at its Domestic Lending Office
or at such other address as the Agent may designate from time to time in a
written notice to the other parties.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender or the Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on written demand all reasonable costs and expenses incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment and syndication of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent with respect
thereto and with respect to advising the Agent as to its rights and
responsibilities under this Agreement. The Borrower further agrees to pay on
written
<PAGE>
51
demand all reasonable costs and expenses, if any (including, without limitation,
reasonable counsel fees, court costs, and all other reasonable litigation
expenses, including, but not limited to, expert witness fees, document copying
expenses, exhibit preparation, courier expenses, postage, communication expenses
and other expenses, specifically including reasonable allocated costs of
in-house counsel), incurred by the Agent and the Lenders in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 8.04(a). In
addition, the Borrower shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of this
Agreement, the Notes and the other documents to be delivered hereunder, and
agrees to save the Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
(b) If any payment of principal of any Eurodollar Rate
Advance or B Advance is made other than on the last day of the Interest Period
for such A Advance or the applicable maturity date for such B Advance, as the
case may be, as a result of a payment pursuant to Section 2.13 or acceleration
of the maturity of the Advances pursuant to Section 6.01 or for any other
reason, the Borrower shall, upon written demand by any Lender (with a copy of
such demand to the Agent), pay to the Agent for the account of such Lender any
amounts required to compensate such Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such payment, including,
without limitation, any loss (including loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by any Lender to fund or maintain such Advance. Upon the
Borrower's written request, any Lender demanding compensation under this Section
8.04(b) shall furnish to the Borrower a summary statement as to the method of
calculation of any such losses, costs or expenses.
(c) The Borrower agrees to indemnify, protect, defend and
hold harmless the Agent and each Lender and each of their Affiliates and their
respective officers, directors, employees, agents, advisors and representatives
(each, an "Indemnified Party") from and against any and all claims, damages,
losses, liabilities, obligations, penalties, actions, judgments, suits, costs,
disbursements and expenses (including, without limitation, reasonable fees and
expenses of counsel, including but not limited to court costs and all other
reasonable litigation expenses including, but not limited to, expert witness
fees, document copying expenses, exhibit preparation, courier expenses, postage,
and communication expenses) that may be incurred by or asserted against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation, proceeding or settlement arising out of, related to
or in connection with (i) this Agreement or the transactions contemplated by
this Agreement or the use of any proceeds of the Advances, (ii) the Advances,
the Borrowings or the
<PAGE>
52
Commitments, (iii) the failure of the Borrower or any of its Subsidiaries to
comply fully with any and all Environmental Laws applicable to it, or (iv) any
acquisition or proposed acquisition by the Borrower or any of its Subsidiaries
of all or any portion of the stock or substantially all of the assets of any
Person (including, without limitation, the Borrower), whether or not an
Indemnified Party is a party thereto and whether or not the transactions
contemplated hereby are consummated and whether or not such investigation,
litigation or proceeding is brought by the Borrower, any of its shareholders or
creditors, an Indemnified Party or any other Person, except to the extent such
claims, damages, losses, liabilities, obligations, penalties, actions,
judgments, suits, costs, disbursements and expenses are found in a final,
nonappealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnified Party;
provided, however, that the Borrower's indemnification obligations set forth
herein shall not extend to expenses or fees paid by an Indemnified Party for
reasons other than in connection with this Agreement or the transactions
contemplated hereby. The Borrower agrees that no Indemnified Party shall have
any liability (whether direct or indirect, in contract, tort or otherwise) to
the Borrower or any of its creditors or shareholders in connection with this
Agreement or the transactions contemplated hereby except to the extent such
liability is found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct.
(d) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 8.04 shall survive the termination of this Agreement,
the termination of the Commitments and the payment in full of the Notes.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Advances and all other amounts payable under this
Agreement to be forthwith due and payable pursuant to the provisions of Section
6.01, each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any and all of the obligations of the Borrower
now or hereafter existing under this Agreement and any Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application made by
such Lender; provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this
Section 8.05 are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which such Lender may have. The Borrower
hereby authorizes CUSA, in accordance with the provisions of this Section 8.05,
to so set off and apply any and all such
<PAGE>
53
deposits held and other indebtedness owing by Citibank or any other Affiliate of
CUSA to or for the credit or the account of the Borrower and hereby authorizes
Citibank and each such Affiliate to permit such setoff and application by CUSA.
SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have been notified by each Lender that such Lender has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent and each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more banks or other financial institutions all or a portion
of its rights and Obligations under this Agreement (including, without
limitation, all or a portion of its Commitment and the A Advances owing to it
and the A Note or Notes held by it); provided, however, that (i) each such
assignment shall be of a constant, and not a varying, percentage of all rights
and obligations under this Agreement (other than any B Advances or B Notes),
(ii) the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$5,000,000 and shall be an integral multiple of $1,000,000, (iii) each such
assignment shall be to an assignee reasonably acceptable to the Agent and
consented to by the Borrower, which consent shall not be unreasonably withheld;
provided, however, that the consent of the Borrower shall not be required with
respect to any such assignment by CUSA to Citibank or any other Affiliate of
CUSA of any Advance made by CUSA or any such assignment by any other Lender to
an Affiliate of such Lender of any Advance made by such Lender, and (iv) the
parties to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any A Note or Notes subject to such assignment and a processing and
recordation fee of $3,000. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and
<PAGE>
54
Acceptance, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; (ii)
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) such assignee
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto; and (vi) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(c) The Agent shall maintain at its address referred to in
Section 8.02(a) a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitment of, and principal amount of the A Advances owing
to, each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an assignee acceptable to the Agent and reasonably
consented to by the Borrower together with any A Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit C hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrower.
(e) Each Lender may assign to one or more banks or other
entities any B Note or Notes held by it.
<PAGE>
55
(f) A Lender may at any time grant participations to one or
more banks or other entities in or to all or any part of its rights and
obligations under this Agreement or any Borrowings hereunder without the consent
of the Borrower or the Agent; provided, however, that (i) the Borrower and the
Agent shall be entitled to continue to deal solely with the granting Lender
regarding notices, payments, payment instructions and any other matters arising
pursuant to this Agreement; (ii) the granting Lender's obligations under this
Agreement shall remain unchanged and the granting Lender shall remain solely
responsible for the performance thereof, and (iii) the granting Lender shall
remain the holder of its Note(s) for all purposes under this Agreement. Any
agreement pursuant to which any Lender may grant such a participating interest
shall provide that such Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Lender will not agree, without the consent of the participant,
to any modification, amendment or waiver of any provision of this Agreement
described in clauses (b), (c) or (d) of Section 8.01, or to the release of any
Lien that may at any time be created to secure any obligations owing to the
Agent and/or the Lenders hereunder or under the Note.
(g) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree,
pursuant to Section 8.11, to preserve the confidentiality of any confidential
information relating to the Borrower received by it from such Lender.
(h) Notwithstanding anything else contained herein, each
Lender may assign, as collateral or otherwise, any of its rights (including,
without limitation, rights to payments of principal or interest) under this
Agreement to any Federal Reserve Bank without notice to or the consent of the
Borrower or the Agent and without any requirement that the assignee assume any
obligations of such Lender hereunder.
(i) If any Eurodollar Reference Bank or its Lender Affiliate
assigns its Notes to an unaffiliated institution, the Agent shall, in
consultation with the Borrower and with the consent of the Majority Lenders,
appoint another bank to act as a Eurodollar Reference Bank hereunder, and
pending such appointment, the Eurodollar Rate shall be determined on the basis
of the remaining Eurodollar Reference Bank(s).
SECTION 8.08. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of California.
<PAGE>
56
SECTION 8.09. Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
SECTION 8.10. Commitment Extension. The Borrower shall have
the right in each year to request a one-year extension of the Termination Date
then in effect; such request shall be received by the Agent at least 60 days
(but not more than 75 days) prior to each anniversary of the Effective Date.
Such request shall be irrevocable and binding upon the Borrower. The Agent shall
promptly notify each Lender of such request. If a Lender agrees, in its
individual and sole discretion, to so extend its Commitment (an "Extending
Lender"), it will notify the Agent, in writing, of its decision to do so within
30 days after receipt of such notice from the Agent but in any event, no later
than 15 days prior to the next anniversary of the Effective Date. The Commitment
of any Lender that fails to accept the Borrower's request for extension of the
Termination Date (a "Declining Lender") shall be terminated on the Termination
Date originally in effect (without regard to extension by other Lenders). The
Borrower shall have the right to first, accept from the Extending Lenders
increases in their respective Commitments by an aggregate amount up to the
amount of all Declining Lenders' Commitments and second, to identify assignees
(reasonably acceptable to the Agent) that agree to accept assignments of
Commitments ("Replacement Lenders") in an amount equal to the amount of all
Declining Lenders' Commitments not otherwise assumed by Extending Lenders, in
each case by requiring each Declining Lender to assign in full its rights and
obligations under this Agreement to one or more extending Lenders or Replacement
Lenders; provided that (i) such assignment is otherwise in compliance with
Section 8.07, (ii) such Declining Lender receives payment in full of the
principal amount of all Advances owing to such Declining Lender, together with
accrued interest thereon to the date of such payment of principal and all other
amounts payable to such Declining Lender under this Agreement and (iii) any such
assignment shall be effective on the date specified by the Borrower and agreed
to by the applicable Extending Lenders or Replacement Lenders and the Agent. If
Extending Lenders and/or Replacement Lenders provide Commitments in an aggregate
amount equal to 100% of the aggregate amount of the Commitments outstanding
immediately prior to the Termination Date in effect at the time the Borrower
requests such extension, the Termination Date shall be extended by one year.
SECTION 8.11. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 8.12. Confidentiality. In accordance with normal
procedures regarding proprietary information supplied by customers, each of the
Lenders agrees to keep confidential and to cause its employees, agents and
representatives to keep confidential information relating to the Borrower or any
Subsidiary received pursuant to or in connection
<PAGE>
57
with this Credit Agreement and the transactions contemplated hereby; provided
that nothing herein shall be construed to prevent the Agent or any Lender from
disclosing such information (i) upon the order of any court or administrative
agency, (ii) upon the request or demand of any regulatory agency or authority
having jurisdiction over the Agent or such Lender, (iii) which has been publicly
disclosed, (iv) which has been lawfully obtained by any of the Lenders from a
Person other than the Borrower or any Subsidiary, the Agent or any other Lender,
or (v) to any participant in or assignee of, or prospective participant in or
assignee of, all or any part of the rights and obligations of such Agent or such
Lender under this Agreement or any Advances hereunder (provided that such
participant or assignee, or prospective participant or assignee, agrees to
comply with the confidentiality requirements set forth in this Section 8.12).
SECTION 8.13. Termination. Except as otherwise provided in
this Agreement and the Notes and the other agreements and instruments executed
pursuant hereto, all rights and obligations hereunder and thereunder shall
terminate when all amounts payable under this Agreement, the Notes and such
other agreements shall have been paid in full and no Lender shall have any
Commitment hereunder; provided, however, that notwithstanding the foregoing the
Borrower shall remain liable for all of its obligations hereunder and thereunder
to indemnify or reimburse the Agent and the Lenders, including, without
limitation, pursuant to the provisions of Sections 2.12. 2.15 and 8.04 hereof.
SECTION 8.14. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any California State court or
federal court of the United States of America sitting in San Francisco, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the Notes, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such California State or, to the
extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final nonappealable judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or the Notes in the courts of any
jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Notes
in any California State or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
<PAGE>
58
SECTION 8.15. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES OR THE
ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
59
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
SUN MICROSYSTEMS, INC.
By: /s/ ALTON D. PAGE
--------------------------
Name: Alton D. Page
Title: Vice President
CITICORP USA, INC.,
as Administrative Agent
By: /s/ STEVEN R. VICTORIN
--------------------------
Name: Steven R. Victorin
Title: Attorney-in-Fact
Commitment LENDER
- ---------- ------
$30,000,000 CITICORP USA, INC.
By: /s/ STEVEN R. VICTORIN
--------------------------
Name: Steven R. Victorin
Title: Attorney-in-Fact
$25,000,000 BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ JAMIE DILLON
--------------------------
Name: Jamie Dillon
Title: Vice President
<PAGE>
60
Commitment LENDER
- ---------- ------
$17,500,000 ABN AMRO BANK N.V.,
SAN FRANCISCO INTERNATIONAL
BRANCH
By: /s/ R. FUKATSU
--------------------------
Name: R. Fukatsu
Title: Vice President
By: /s/ A. P. GALANG
--------------------------
Name: A. P. Galang
Title: Asst. Vice
President
$17,500,000 THE FIRST NATIONAL BANK OF
BOSTON
By: /s/ DEBRA E. DELVECCHIO
--------------------------
Name: Debra E. DelVecchio
Title: Vice President
<PAGE>
61
Commitment LENDER
- ---------- ------
$17,500,000 BANQUE NATIONALE DE PARIS
By: /s/ RAFAEL C. LUMANLAN
--------------------------
Name: Rafael C. Lumanlan
Title: Vice President
By: /s/ CHARLES DAY
--------------------------
Name: Charles Day
Title: Assistant
Vice President
$17,500,000 BARCLAYS BANK PLC
By: /s/ JAMES C. TAN
--------------------------
Name: James C. Tan
Title: Associate Director
$17,500,000 BAYERISCHE VEREINSBANK AG,
LOS ANGELES AGENCY
By: /s/ JOHN CARLSON
--------------------------
Name: John Carlson
Title: Vice President
By: /s/ WALTER H. ECKMEIER
-------------------------
Name: Walter H. Eckmeier
Title: Vice President
$17,500,000 THE FUJI BANK, LIMITED,
SAN FRANCISCO AGENCY
By: /s/ KEIICHI OZAWA
--------------------------
Name: Keiichi Ozawa
Title: Joint General
Manager
<PAGE>
62
Commitment LENDER
- ---------- ------
$17,500,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED, SAN FRANCISCO AGENCY
By: /s/ YOH NAKAHARA
--------------------------
Name: Yoh Nakahara
Title: General Manager
$17,500,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ CARL J. MEHLDAU, JR.
-----------------------------
Name: Carl J. Mehldau, Jr.
Title: Associate
$17,500,000 THE SAKURA BANK, LIMITED,
SAN FRANCISCO AGENCY
By: /s/ TADASHI IMAZU
--------------------------
Name: Tadashi Imazu
Title: Joint General
Manager
$17,500,000 THE SUMITOMO BANK, LIMITED,
SAN FRANCISCO BRANCH
By: /s/ YUJI HARADA
--------------------------
Name: Yuji Harada
Title: General Manager
By: /s/ HERMAN WHITE JR.
--------------------------
Name: Herman White Jr.
Title: Vice President
<PAGE>
63
Commitment LENDER
- ---------- ------
$17,500,000 SWISS BANK CORPORATION
By: /s/ THOMAS EGGENSCHWILER
--------------------------
Name: Thomas Eggenschwiler
Title: Executive Director
Credit Risk Management
By: /s/ HANS-UALI SURBER
--------------------------
Name: Hans-Uali Surber
Title: Executive Director
Merchant Banking
$17,500,000 TORONTO DOMINION (TEXAS), INC.
By: /s/ DAVID G. PARKER
--------------------------
Name: David G. Parker
Title: Vice President
$17,500,000 THE TOYO TRUST AND BANKING
CO., LTD., NEW YORK BRANCH
By: /s/ HIROYUKI FUHYAO
--------------------------
Name: Hiroyuki Fuhyao
Title: Vice President
By: /s/ HOWARD MOTT
--------------------------
Name: Howard Mott
Title: Vice President
<PAGE>
64
Commitment LENDER
- ---------- ------
$17,500,000 UNION BANK OF CALIFORNIA, N.A.
By: /s/ WANDA HEADRICK
--------------------------
Name: Wanda Headrick
Title: Vice President
$300,000,000 Total Commitments
EXIHIBIT 10.86
AMENDED AND RESTATED LEASE AGREEMENT
(PHASES II AND III)
BETWEEN
BNP LEASING CORPORATION,
AS LANDLORD
AND
SUN MICROSYSTEMS, INC., AS TENANT
EFFECTIVE AS OF September 23, 1994
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions .......................................................... 3
(a) Active Negligence ............................................... 3
(b) Additional Rent ................................................. 3
(c) Advance Date .................................................... 3
(d) Affiliate ....................................................... 4
(e) Applicable Laws ................................................. 4
(f) Applicable Purchaser ............................................ 4
(g) Attorneys' Fees ................................................. 4
(h) Base Rent ....................................................... 4
(i) Base Rent Commencement Date ..................................... 4
(j) Base Rental Date ................................................ 4
(k) Base Rental Period .............................................. 4
(l) Business Day .................................................... 4
(m) Capital Adequacy Charges ........................................ 5
(n) Carrying Costs .................................................. 5
(o) Change of Control Event ......................................... 5
(p) Closing Costs ................................................... 5
(q) Commitment Fee .................................................. 5
(r) Completion Notice ............................................... 5
(s) Construction Advances ........................................... 5
(t) Construction Allowance .......................................... 6
(u) Construction Documents .......................................... 6
(v) Construction Periods ............................................ 6
(w) Debt ............................................................ 6
(x) Default ......................................................... 7
(y) Default Rate .................................................... 7
(z) Effective Rate .................................................. 7
(aa) Environmental Indemnity ......................................... 8
(ab) Environmental Laws .............................................. 8
(ac) Environmental Losses ............................................ 8
(ad) Environmental Report ............................................ 9
(ae) ERISA ........................................................... 9
(af) Escrowed Proceeds ............................................... 9
(ag) Eurocurrency Liabilities ........................................ 10
(ah) Eurodollar Rate Reserve Percentage .............................. 10
(ai) Event of Default ................................................ 10
(aj) Excluded Taxes .................................................. 10
(ak) Fed Funds Rate .................................................. 11
(al) Final Payment Date .............................................. 11
(am) Final Period .................................................... 11
(an) Funding Advances ................................................ 11
(ao) Hazardous Substance ............................................. 11
(ap) Hazardous Substance Activity .................................... 12
(aq) Hazardous Substance Claims ...................................... 12
(ar) Impositions ..................................................... 12
(as) Indemnified Party ............................................... 12
(at) Initial Improvements ............................................ 12
(au) Initial Period .................................................. 12
(av) Landlord's Lender ............................................... 12
(i)
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(aw) LIBOR ........................................................... 13
(ax) Losses .......................................................... 13
(ay) Outstanding Construction Allowance .............................. 14
(az) Participant ..................................................... 14
(ba) Participation Agreements ........................................ 14
(bb) Permitted Encumbrances .......................................... 14
(bc) Permitted Hazardous Substance Use ............................... 14
(bd) Permitted Hazardous Substances .................................. 14
(be) Permitted Transfer .............................................. 15
(bf) Person .......................................................... 15
(bg) Plan ............................................................ 15
(bh) Prime Rate ...................................................... 15
(bi) Prior Funding Advances .......................................... 16
(bj) Purchase Agreement .............................................. 16
(bk) Qualified Payments .............................................. 16
(bl) Remaining Proceeds .............................................. 16
(bm) Release Date .................................................... 17
(bn) Rent ............................................................ 17
(bo) Responsible Financial Officer ................................... 17
(bp) Revolving Credit Agreement ...................................... 17
(bq) Scope Change .................................................... 17
(br) Stipulated Loss Value ........................................... 17
(bs) Subsidiary ...................................................... 18
(bt) Term ............................................................ 18
(bu) Voting Stock .................................................... 18
(bv) Other Terms and References ...................................... 18
2. Term ................................................................. 18
3. Rental ............................................................... 19
(a) Base Rent ........................................................ 19
Commitment Fees ...................................................... 19
(c) Additional Rent .................................................. 20
(d) Interest ......................................................... 20
(e) Net Lease ........................................................ 20
4. Insurance and Condemnation Proceeds .................................. 20
5. No Lease Termination ................................................. 22
(a) Status of Lease .................................................. 23
(b) Waiver ........................................................... 23
6. Construction Allowance ............................................... 23
(a) Advances; Outstanding Construction Allowance ..................... 23
(b) Initial Improvements ............................................. 25
(c) Conditions to Construction Advances .............................. 26
(i) Prior Notice .............................................. 26
(ii) Amount of the Advances .................................... 27
(iii) Insurance ................................................. 27
a) Title Insurance ........................................ 27
b) Builder's Risk Insurance ............................... 27
(iv) Progress of Construction .................................. 28
(v) Evidence of Costs to be Reimbursed ........................ 28
(ii)
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(vi) No Event of Default or Change of Control Event ............ 28
(vii) No Sale of Landlord's Interest ............................ 28
(viii) Certificate of No Default ................................. 28
(ix) Payments by Participants .................................. 29
7. Purchase Agreement and Environmental Indemnity ....................... 29
8. Use and Condition of Leased Property ................................. 29
(a) Use ............................................................. 29
(b) Condition ....................................................... 29
(c) Waiver .......................................................... 30
9. Other Representations, Warranties and Covenants of Tenant ............ 30
(a) Financial Matters ............................................... 30
(b) Raychem Contract ................................................ 30
(c) No Default or Violation ......................................... 31
(d) Compliance with Covenants and Laws .............................. 31
(e) Environmental Representations ................................... 31
(f) No Suits ........................................................ 32
(g) Condition of Property ........................................... 32
(h) Organization .................................................... 32
(i) Enforceability .................................................. 33
(j) Not a Foreign Person ............................................ 33
(k) Omissions ....................................................... 33
(l) Existence ....................................................... 33
(m) Tenant Taxes .................................................... 33
(n) Operation of Property............................................ 34
(o) Debts for Construction........................................... 35
(p) Impositions ..................................................... 35
(q) Repair, Maintenance, Alterations and Additions .................. 36
(r) Insurance and Casualty .......................................... 36
(s) Condemnation .................................................... 37
(t) Protection and Defense of Title ................................. 38
(u) No Other Liens .................................................. 38
(v) Books and Records ............................................... 39
(w) Financial Statements; Certificates as to Default ................ 39
(x) Further Assurances 41
(y) Fees and Expenses; General Indemnification; Increased Costs; and
Capital Adequacy Charges ........................................ 41
(z) Liability Insurance ............................................. 43
(aa) Permitted Encumbrances .......................................... 44
(ab) Environmental Covenants ......................................... 44
(ac) Right of Landlord to Perform .................................... 46
(ad) Funds Held As Security .......................................... 47
(ae) Compliance with Financial Covenants and Certain Other Requirements
Established by the Revolving Credit Agreement ................... 47
10. Other Representations, Warranties and Covenants of Landlord .......... 48
(a) Title Claims By, Through or Under Landlord ...................... 49
(b) Actions Required of the Title Holder ............................ 49
(iii)
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(c) No Default or Violation ......................................... 50
(d) No Suits ........................................................ 50
(e) Organization .................................................... 50
(f) Enforceability .................................................. 50
(g) Existence 50
(h) Not a Foreign Person ............................................ 50
11. Assignment and Subletting ............................................ 50
(a) Consent Required ................................................ 51
(b) Standard for Landlord's Consent to Assignments and Certain
Other Matters ................................................... 51
(c) No Waiver ....................................................... 51
(d) Landlord's Assignment ........................................... 51
(d) Participations .................................................. 52
12. Environmental Indemnification ........................................ 52
(a) Indemnity ....................................................... 52
(b) Assumption of Defense ........................................... 52
(c) Notice of Environmental Losses .................................. 53
(d) Rights Cumulative ............................................... 53
(e) Survival of the Indemnity ....................................... 54
13. Landlord's Right of Access ........................................... 54
14. Events of Default .................................................... 54
(a) Defaults ......................................................... 54
(b) Remedies ......................................................... 57
(c) Remedies Cumulative .............................................. 58
(d) Limitation on Recovery Against Tenant for Title Defects .......... 59
(e) Waiver by Tenant ................................................. 60
(f) Personal Liability ............................................... 60
(g) No Implied Waiver ................................................ 60
(h) Attorneys' Fees and Legal Expenses ............................... 60
15. Quiet Enjoyment ...................................................... 61
16. Surrender Upon Termination ........................................... 61
17. Holding Over by Tenant ............................................... 61
18. Estoppel Certificate ................................................. 62
19. Notices .............................................................. 62
20. Severability ......................................................... 63
21. No Merger ............................................................ 63
22. NO REPRESENTATIONS ................................................... 63
23. Entire Agreement ..................................................... 63
24. Binding Effect ....................................................... 63
(iv)
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25. Time is of the Essence ............................................... 63
26. Termination of Prior Rights .......................................... 63
27. Governing Law ........................................................ 64
28. Waiver ............................................................... 64
29. Default by Landlord .................................................. 64
30. BCDC Permit Notice ................................................... 65
31. Development Plan Notice .............................................. 65
32. Tax Reporting ........................................................ 65
Exhibits and Schedules
Exhibit A .................................................... Legal Description
Exhibit B ..................................................... Encumbrance List
Exhibit C .................................................. Construction Budget
Exhibit D ......................................... Contractor's Estoppel Letter
Exhibit E .......................................... Architect's Estoppel Letter
Exhibit F ...................................... Covenant Compliance Certificate
Schedule 1 ................................................ List of Participants
(v)
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT
(PHASES II AND III)
This AMENDED AND RESTATED LEASE AGREEMENT (PHASES II AND III)
(hereinafter called this "Lease"), made to be effective as of September 23, 1994
(all references herein to the "date hereof" or words of like effect shall mean
such effective date), by and between BNP LEASING CORPORATION, a Delaware
corporation (hereinafter called "Landlord"), and SUN MICROSYSTEMS, INC., a
Delaware corporation (hereinafter called "Tenant");
WITNESSETH THAT:
WHEREAS, pursuant to an Agreement and Contract of Sale and Escrow
Instructions dated April 24, 1990 (as subsequently amended and supplemented,
hereinafter called the "Raychem Contract") covering the land described in
Exhibit A attached hereto (hereinafter called the "Land") and any improvements
thereon, Landlord has acquired such land and improvements from Raychem
Corporation (hereinafter called "Seller");
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
(Phases II and III) dated to be effective as of September 25, 1992 (hereinafter
called the "Prior Lease") covering the Land and any improvements thereon;
WHEREAS, concurrently with the execution of the Prior Lease Landlord
leased to Tenant, pursuant to that certain Lease Agreement (Phase I) dated to be
effective as of September 25, 1992, certain property described therein
(hereinafter called the "Phase I Property");
WHEREAS, also concurrently with the execution of the Prior Lease,
Tenant agreed to purchase or procure a third party to purchase the Phase I
Property from Landlord pursuant to that certain Purchase Agreement (Phase I)
dated to be effective as of September 25, 1992 (hereinafter called the " Phase I
Purchase Agreement");
WHEREAS, Tenant desires to construct improvements on the Land and in
that regard has requested that Landlord amend and restate the Prior Lease in its
entirety to include, among other things, provisions related to the construction
of additional Improvements, hereinafter defined;
WHEREAS, Landlord and Tenant have reached agreement as to the terms and
conditions upon which Landlord is willing to amend and restate the Prior Lease
with respect to the Land and other property hereinafter described to Tenant, and
by this Lease Landlord and Tenant desire to evidence such agreement;
<PAGE>
NOW, THEREFORE, in consideration of the rent to be paid and the
covenants and agreements to be performed by Tenant, as hereinafter set forth,
Landlord does hereby LEASE, DEMISE and LET unto Tenant for the term hereinafter
set forth the Land, together with:
1. Landlord's interest in any and all buildings and improvements
now or hereafter erected on the Land, including, but not limited to,
the fixtures, attachments, appliances, equipment, machinery and other
articles attached to said buildings and improvements (hereinafter
called the "Improvements");
2. all easements and rights-of-way now owned or hereafter
acquired by Landlord for use in connection with the Land or
Improvements or as a means of access thereto, including, without
limiting the generality of the foregoing, the easements described in
Exhibit A, all rights pursuant to any trackage agreement and all
rights to the non-exclusive use of common drive entries, and all
tenements, hereditaments and appurtenances thereof and thereto, and
all water and water rights and shares of stock evidencing the same;
3. all right, title and interest of Landlord, now owned or
hereafter acquired, in and to (A) any land lying within the
right-of-way of any street, open or proposed, adjoining the Land, (B)
any and all sidewalks and alleys adjacent to the Land and (C) any
strips and gores between the Land and abutting land (except strips and
gores, if any, between the Land and abutting land owned by Landlord,
with respect to which this Lease shall cover only the portion thereof
to the center line between the Land and the abutting land owned by
Landlord).
The Land and all of the property described in items 1. through 3. above are
hereinafter referred to collectively as the "Real Property".
In addition to the leasehold in the Real Property described above,
Landlord hereby grants and assigns to Tenant for the term of this Lease the
right to use and enjoy (and, to the extent the following consist of contract
rights, to enforce) any interests or rights in, to or under the following that
have been transferred to Landlord by Seller under the Raychem Contract, to the
extent any such rights and interests are assignable and related to the Real
Property: (a) any goods, equipment, furnishings, furniture, chattels and
personal property of whatever nature that are located on the Real Property and
all renewals or replacements of or substitutions for any of the foregoing; and
(b) any general intangibles, permits, licenses, franchises, certificates, and
other rights and privileges, including without limitation, to the extent they
are related to the Real Property, the "BCDC Permit" referred to in the Raychem
Contract and all rights and privileges assigned by the Assignment of Contract
Rights and Intangible Assets
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<PAGE>
described in the Raychem Contract. All of the property, rights and privileges
described in this paragraph, together with all furniture, furnishings and other
personalty included in the Initial Improvements (as hereinafter defined) because
of Tenant's purchase thereof with the Construction Allowance (as hereinafter
defined), are hereinafter collectively called the "Personal Property". The Real
Property and the Personal Property are hereinafter sometimes collectively called
the "Leased Property."
Provided, however, the leasehold estate conveyed hereby and Tenant's
rights hereunder are expressly made subject and subordinate to the Permitted
Encumbrances (as hereinafter defined) and to any other claims or encumbrances
not lawfully made by or arising through or under Landlord, but only to the
extent such other claims or encumbrances are valid and subsisting.
The Leased Property is leased by Landlord to Tenant and is accepted and
is to be used and possessed by Tenant upon and subject to the following terms,
provisions, covenants, agreements and conditions:
1. Definitions. As used herein, the terms "Landlord," "Tenant,"
"Raychem Contract," "Land," "Seller," "Prior Lease," "Phase I Property," "Phase
I Purchase Agreement," "Improvements," "Real Property," "Personal Property,"and
"Leased Property" shall have the meanings indicated above and the terms listed
immediately below shall have the following meanings:
(a) Active Negligence. "Active Negligence" of an Indemnified
Party means, and is limited to, the negligent conduct of physical activities on
or about the Leased Property by the Indemnified Party in a manner that
proximately causes actual damage or loss to be incurred. " Active Negligence"
shall not include (1) any negligent failure of Landlord to act when the duty to
act would not have been imposed but for Landlord's status as owner of the Leased
Property or as a party to the transactions described in this Lease, (2) any
negligent failure of any other Indemnified Party to act when the duty to act
would not have been imposed but for such party's contractual or other
relationship to Landlord or participation or facilitation in any manner,
directly or indirectly, of the transactions described in this Lease, or (3) the
exercise in a lawful manner by Landlord (or any party lawfully claiming through
or under Landlord) of any right or remedy provided herein or in the Purchase
Agreement prior to Landlord's actual reentry and taking possession of the Leased
Property following any Event of Default or expiration of this Lease.
(b) Additional Rent. "Additional Rent" shall have the meaning
assigned to it in subparagraph 3(d) below.
(c) Advance Date. "Advance Date" means, regardless of whether
any Construction Advance shall actually be made thereon, October 3, 1994 and the
first Business Day of every calendar month thereafter to and including the Base
Rent Commencement Date, which
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<PAGE>
is expected to be the last "Advance Date"; provided, that if Landlord sells its
interest in the Leased Property pursuant to the Purchase Agreement before the
Base Rent Commencement Date, the last Advance Date shall be the Final Payment
Date.
(d) Affiliate. "Affiliate" of any Person means any other
Person controlling, controlled by or under common control with such Person. For
purposes of this definition, the term "control" when used with respect to any
Person means the power to direct the management of policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
(e) Applicable Laws. "Applicable Laws" shall have the meaning
assigned to it in subparagraph 9(d) below.
(f) Applicable Purchaser. "Applicable Purchaser" means any
third party designated by Tenant to purchase the Landlord's interest in the
Leased Property and in any Escrowed Proceeds as provided in the Purchase
Agreement.
(g) Attorneys' Fees. "Attorneys' Fees" means the reasonable
fees and expenses of counsel to the parties incurring the same.
(h) Base Rent. "Base Rent" means the rent payable by Tenant
pursuant to subparagraph 3(a) below.
(i) Base Rent Commencement Date. "Base Rent Commencement Date"
means the earlier of (1) April 1, 1997, or (2) the first Business Day of the
first calendar month to follow by ten (10) days or more Landlord's receipt of
the Completion Notice.
(j) Base Rental Date. "Base Rental Date" means the first day
of each calendar month, beginning with the first day of the first calendar month
after the Base Rent Commencement Date and continuing regularly thereafter to and
including the Final Payment Date; provided, that any Base Rental Date that would
not fall on a Business Day under the foregoing shall occur on the next following
Business Day.
(k) Base Rental Period. "Base Rental Period" means each
successive period of approximately one (1) month after the Base Rent
Commencement Date, with the first Base Rental Period beginning on and including
the Base Rent Commencement Date and ending on but not including the first Base
Rental Date. Each successive Base Rental Period after the first Base Rental
Period shall begin on and include the day on which the preceding Base Rental
Period ends and shall end on but not include the next following Base Rental
Date.
(l) Business Day. "Business Day" means any day that is (1) not
a Saturday, Sunday or day on which commercial banks are generally closed or
required to be closed in New York City, New
-4-
<PAGE>
York, and (2) a day on which dealings in deposits of dollars are transacted in
the London interbank market; provided that if such dealings are suspended
indefinitely for any reason, "Business Day" shall mean any day described in
clause (1).
(m) Capital Adequacy Charges. "Capital Adequacy Charges" means
any additional amounts Landlord's Lender or any Participant requires Landlord to
pay as compensation for an increase in required capital as provided in part (4)
of subparagraph 9 (y).
(n) Carrying Costs. "Carrying Costs" means the charges added
to and made a part of the Outstanding Construction Allowance from time to time
on and before the Base Rent Commencement Date pursuant to and as more
particularly described in subparagraph 6(a) below.
(o) Change of Control Event. "Change of Control Event" means
the occurrence of any of the following: (i) any corporation or Person, or a
group of related corporations or Persons, shall acquire (a) beneficial ownership
of in excess of 50% of the outstanding Voting Stock of Tenant, or (b) all or
substantially all of the assets of Tenant, or (ii) a majority of the Board of
Directors of Tenant is, at any time, composed of persons other than (a) persons
who were members of such Board on the date of this Lease, (b) successors to such
persons elected or nominated in the ordinary course of business, and (c) any
person who has served as a member of such Board for at least the prior 12
months.
(p) Closing Costs. "Closing Costs" means the sum of $700,000,
which is being or will be advanced by or on behalf of Landlord to pay costs
incurred in connection with this Lease. To the extent that Landlord does not
expect to itself use such amount to pay Attorneys' Fees and other expenses
incurred in connection with the negotiation of this Lease, the remainder thereof
is being advanced to Tenant on the effective date hereof, with the understanding
that Tenant shall use the same for payment of expenses incurred by Tenant in
connection herewith or for improvements that will be made to the Land in
addition to those to be paid for with the proceeds of the Construction Allowance
or for payment of Rent due hereunder from time to time.
(q) Commitment Fee. "Commitment Fee" shall have the meaning
assigned to it in subparagraph 3(b) below.
(r) Completion Notice. "Completion Notice" means a notice from
Tenant to Landlord stating that construction of the Initial Improvements is
substantially complete.
(s) Construction Advances. "Construction Advances" means
actual advances of funds made by or on behalf of Landlord pursuant to Paragraph
6 below for costs incurred to construct the Initial Improvements.
-5-
<PAGE>
(t) Construction Allowance. "Construction Allowance" means the
allowance, consisting of all Construction Advances and Carrying Costs, which is
to be provided by Landlord for the construction of the Initial Improvements as
more particularly described in Paragraph 6 below.
(u) Construction Documents. "Construction Documents" means all
construction contracts, architectural contracts, engineering contracts,
drawings, plans, specifications, change orders, budgets, surveys, soils reports,
environmental impact studies and other documents executed by or prepared for
Tenant with respect to the construction of the Initial Improvements.
(v) Construction Periods. "Construction Period" means each
successive period of approximately one (1) month, except that the first
Construction Period shall be a shorter period beginning on and including the
effective date hereof and ending on but not including the first Advance Date.
Each successive Construction Period after the first Construction Period shall
begin on and include the day on which the preceding Construction Period ends and
shall end on but not include the next following Advance Date, until the last
Construction Period, which shall end on but not include the Base Rent
Commencement Date. "Construction Periods" shall mean all Construction Periods
collectively; that is, the period from and including the effective date hereof
to but not including the Base Rent Commencement Date.
(w) Debt. "Debt" means (i) indebtedness for borrowed money,
(ii) obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of property or
services (excluding ordinary trade payables incurred in the ordinary course of
business), (iv) obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases, (v) all obligations of such Person to purchase securities (or
other property) which arise out of or in connection with the sale of the same or
substantially similar securities or property, (vi) any reimbursement obligations
of such Person to the issuer of a letter of credit or similar instrument, (vii)
all indebtedness or obligations of others secured by a lien on any asset of such
Person, whether or not such indebtedness or obligations are assumed by such
Person (to the extent of the value of the asset), (viii) any reimbursement
obligation of such Person or other arrangement of whatever nature having the
effect of assuring or holding harmless any other Person against loss with
respect to any real property owned by such other Person including without
limitation, assuring or guaranteeing that other Person shall receive a specified
amount in connection with the conveyance of such real property, (ix) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (viii) above, and (x) liabilities
in respect of unfunded
-6-
<PAGE>
vested benefits under plans covered by Title IV of ERISA. Notwithstanding any
provision herein to the contrary, no obligations of any Person (whether such
obligations be direct or indirect, contingent or otherwise) under the
Receivables Purchase Agreement (as defined in the Revolving Credit Agreement) or
any similar agreement or arrangement shall be "Debt" for purposes of this Lease;
provided that the foregoing exclusion shall not apply to obligations of any such
Person pursuant to the indemnity or reimbursement provisions contained in the
Receivables Purchase Agreement (including, without limitation, indemnities for
breaches of representations and warranties, and those set forth in Article VIII,
Section 9.03(b) and Section 10.06 thereof) or any similar agreement or
arrangement and to fees and expenses payable pursuant to the Receivables
Purchase Agreement or any similar agreement or arrangement to the extent that
any such obligations are required to be recorded as liabilities on such Person's
balance sheet under generally accepted accounting principles.
(x) Default. "Default" means any event which, with the passage
of time or the giving of notice or both, would (if not cured within any
applicable cure period) constitute an Event of Default.
(y) Default Rate. "Default Rate" shall mean, for purposes of
computing interest accruing on past due amounts for any day during the Initial
Period, the Effective Rate plus two hundred ten basis points (2.10%), with the
Effective Rate being determined in the same manner as for the Construction
Period or Base Rental Period during which such day falls. "Default Rate" shall
mean, for purposes of computing interest accruing on past due amounts for any
day after the Initial Period and during the first ninety (90) days after such
amounts first become due, a floating per annum rate equal to the Prime Rate. For
purposes of computing interest accruing on past due amounts for each day after
such ninety (90) day period and after the Initial Period, "Default Rate" shall
mean a floating per annum rate equal to five percent (5%) above the Prime Rate.
However, in no event will the "Default Rate" exceed the maximum interest rate
permitted by law.
(z) Effective Rate. "Effective Rate" means:
(1) for each Construction Period and Base Rental
Period occurring during the Initial Period, the rate which is forty-five basis
points (45/100 of 1%) above the rate per annum determined by dividing (A) LIBOR
for such Construction Period or Base Rental Period, as the case may be, by (B)
100% minus the Eurodollar Rate Reserve Percentage for such Construction Period
or Base Rental Period; and
(2) for each Base Rental Period occurring during the
Final Period, the rate which is seventy-five basis points (75%) above the rate
per annum determined by dividing (A) LIBOR for such Base Rental Period by (B)
100% minus the Eurodollar Rate Reserve Percentage for such Base Rental Period.
-7-
<PAGE>
If LIBOR or the Eurodollar Rate Reserve Percentage changes from Construction
Period to Construction Period or from Base Rental Period to Base Rental Period,
then the Effective Rate shall be automatically increased or decreased as of the
date of such change, as the case may be, without prior notice to Tenant (but
after the Base Rent Commencement Date Landlord will provide notice of any such
change after the same shall take effect and at least three days prior to the
next following Base Rental Date). If for any reason Landlord determines that it
is impossible or impractical to determine the Effective Rate with respect to a
given Construction Period or Base Rental Period in accordance with the preceding
sentences, then the "Effective Rate" for that Construction Period or Base Rental
Period shall equal the Prime Rate at the beginning of the first day of that
period. Any determination by Landlord of the Effective Rate hereunder shall, in
the absence of clear and demonstrable error, be conclusive and binding.
(aa) Environmental Indemnity. "Environmental Indemnity" means
the separate Environmental Indemnity Agreement dated as of September 25, 1992
executed by Tenant in favor of Landlord covering the Land and certain other
property described therein, as such agreement may be extended, supplemented,
amended, restated or otherwise modified from time to time.
(ab) Environmental Laws. "Environmental Laws" means any and
all existing and future Applicable Laws pertaining to safety, health or the
environment, or to Hazardous Substances or Hazardous Substance Activities,
including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended, hereinafter called "CERCLA"), and
the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984 (as amended, hereinafter called
"RCRA").
(ac) Environmental Losses. "Environmental Losses" means Losses
suffered or incurred by any Indemnified Party, directly or indirectly, relating
to or arising out of, based on or as a result of: (i) any Hazardous Substance
Activity that occurs or is alleged to have occurred on or prior to the Release
Date; (ii) any violation on or prior to the Release Date of any applicable
Environmental Laws relating to the Leased Property or to the ownership, use,
occupancy or operation thereof; (iii) any investigation, inquiry, order,
hearing, action, or other proceeding by or before any governmental or
quasi-governmental agency or authority in connection with any Hazardous
Substance Activity that occurs or is alleged to have occurred in whole or in
part on or prior to the Release Date; or (iv) any claim, demand, cause of action
or investigation, or any action or other proceeding, whether meritorious or not,
brought or asserted against any Indemnified Party which directly or indirectly
relates to, arises from, is based on, or results from any of the matters
described in clauses (i), (ii), or (iii) of this subparagraph (z), or any
allegation of
-8-
<PAGE>
any such matters. Environmental Losses incurred by or asserted against a
particular Indemnified Party shall include Losses relating to or arising out of
or as a result of any matters listed above even when such matters are caused by
the negligence (other than the Active Negligence) of that particular or any
other Indemnified Party. Further, even if after the Release Date Losses are
incurred by or asserted against a particular Indemnified Party that would not
have been incurred or asserted, but for any matter described in clauses (i),
(ii), or (iii) of this subparagraph (z), or an allegation of any such matter,
then such Losses will constitute Environmental Losses. However, Losses incurred
by or asserted against a particular Indemnified Party as a result of that
party's own wilful misconduct, gross negligence or Active Negligence will not
constitute Environmental Losses of such Indemnified Party.
(ad) Environmental Report. "Environmental Report" means the
following, collectively: that certain Report, Phase I Property Transaction
Environmental Assessment and Phase II and Phase III Site Characterization at the
Raychem East Campus Site, located north of Highway 84 between University Avenue
and Willow Road in Menlo Park, California, prepared by McLaren Engineering of
Alameda, California, dated April 20, 1990; as reviewed and supplemented by that
certain report, Environmental Review of McLaren Engineering Report and Site
Assessment on Raychem Corporation's East Campus Site, prepared by Wahler
Associates of Palo Alto, California, dated July 20, 1990; as supplemented by
that certain report, Additional Site Investigation, Raychem East Campus Site,
prepared by Wahler Associates, dated October 25, 1990; and as updated by Raychem
East Campus Property, Environmental Update Survey, prepared by Wahler
Associates, dated March 20, 1992; and Phase I and Phase II Environmental Site
Assessment Update for Sun Microsystems East Campus Site, prepared by Tetra Tech,
dated August 31, 1994.
(ae) ERISA. "ERISA", "ERISA Affiliate" and "ERISA Termination
Event" shall have the meanings assigned to them in the Revolving Credit
Agreement.
(af) Escrowed Proceeds. "Escrowed Proceeds" shall mean any
proceeds that are received by Landlord from time to time during the Term (and
any interest earned thereon), which Landlord is holding for the purposes
specified in the next sentence, from any party (1) under any casualty insurance
policy as a result of damage to the Leased Property, (2) as compensation for any
restriction placed upon the use or development of the Leased Property or for the
condemnation of the Leased Property or any portion thereof, (3) because of any
judgment, decree or award for injury or damage to the Leased Property or (4)
under any title insurance policy or otherwise as a result of any title defect or
claimed title defect with respect to the Leased Property; provided, however, in
determining "Escrowed Proceeds" there shall be deducted all expenses and costs
of every type, kind and nature (including Attorneys' Fees) incurred by Landlord
to collect such proceeds; and provided, further, "Escrowed Proceeds" shall not
include any
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payment to Landlord by a Participant or an Affiliate of Landlord that is made to
compensate Landlord for the Participant's or Affiliate's share of any Losses
Landlord may incur as a result of any of the events described in the preceding
clauses (1) through (4). "Escrowed Proceeds" shall include only such proceeds as
are held by Landlord (A) pursuant to Paragraph 4 for the payment to Tenant for
the restoration or repair of the Leased Property or (B) for application
(generally, on the next following Base Rental Date which is at least three (3)
Business Days following Landlord's receipt of such proceeds) as a Qualified
Payment or as reimbursement of costs incurred in connection with a Qualified
Payment. "Escrowed Proceeds" shall not include any proceeds that (i) must be
paid to Seller pursuant to the Raychem Contract or any document executed by
Landlord in connection therewith or (ii) have been applied as a Qualified
Payment or to pay any costs incurred in connection with a Qualified Payment.
Until Escrowed Proceeds are paid to Tenant pursuant to Paragraph 4 below or
applied as a Qualified Payment or as reimbursement for costs incurred in
connection with a Qualified Payment, Landlord shall keep the same deposited in
an interest bearing account, which Landlord shall maintain subject to
subparagraph 9(ad) below, and all interest earned on such account shall be added
to and made a part of Escrowed Proceeds.
(ag) Eurocurrency Liabilities. "Eurocurrency Liabilities" has
the meaning assigned to that term in Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
(ah) Eurodollar Rate Reserve Percentage. "Eurodollar Rate
Reserve Percentage" means, for purposes of determining the Effective Rate for
any Construction Period or Base Rental Period, the reserve percentage applicable
two Business Days before the first day of such Construction Period or Base
Rental Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City with deposits exceeding One Billion
Dollars with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category or liabilities
which includes deposits by reference to which LIBOR is determined) having a term
equal to such Construction Period or Base Rental Period.
(ai) Event of Default. "Event of Default" shall have the
meaning assigned to it in subparagraph 14(a) below.
(aj) Excluded Taxes. "Excluded Taxes" shall mean all federal,
state and local income taxes upon the Base Rent, Commitment Fees and any
interest paid to Landlord pursuant to subparagraph 3(e), including any state
"franchise" taxes to the extent computed on the net income earned by Landlord
from this Lease. Further, if ad valorem taxes assessed against the Leased
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Property during the Initial Period increase because of Landlord's transfer of
any interest in the Leased Property to a third party during the Initial Period
(other than a Permitted Transfer), then "Excluded Taxes" will include such ad
valorem taxes to the extent that such taxes exceed the ad valorem taxes that
would have become due but for such transfer. Further, if transfer taxes are
assessed during the Initial Period because of Landlord's transfer of any
interest in the Leased Property to a third party during the Initial Period
(other than a Permitted Transfer), then "Excluded Taxes" will include such
transfer taxes.
(ak) Fed Funds Rate. "Fed Funds Rate" means, for any period, a
fluctuating interest rate (expressed as a per annum rate) equal for each day
during such period to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rates are not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Landlord's Lender from three Federal funds brokers of recognized
standing selected by it. All determinations of the Fed Funds Rate by Landlord's
Lender shall, in the absence of clear and demonstrable error, be binding and
conclusive upon Landlord and Tenant.
(al) Final Payment Date. "Final Payment Date" means the
earlier of (i) the date upon which the Term expires or is terminated or (ii) any
date upon which Landlord's entire interest in the Leased Property is to be sold
pursuant to the Purchase Agreement.
(am) Final Period. "Final Period" shall have the meaning
assigned to it in Paragraph 2 below.
(an) Funding Advances. "Funding Advances" means (1) the Prior
Funding Advances, (2) the advance to be made by or on behalf of Landlord for
Closing Costs and (3) all advances (which, together with Prior Funding Advances
and the advance to be made for Closing Costs, are expected to total
$115,000,000) made by Landlord's Lender or any Participant to or on behalf of
Landlord to allow Landlord to provide the Construction Allowance hereunder.
(ao) Hazardous Substance. "Hazardous Substance" means (i) any
chemical, compound, material, mixture or substance that is now or hereafter
defined or listed in, regulated under, or otherwise classified pursuant to, any
Environmental Laws as a "hazardous substance," "hazardous material," "hazardous
waste," "extremely hazardous waste," "infectious waste," "toxic substance,"
"toxic pollutant," or any other formulation intended to define, list or classify
substances by reason of deleterious properties, including, without limitation,
ignitability, corrosiveness, reactivity, carcinogenicity, toxicity or
reproductive toxicity; (ii) petroleum, any fraction of petroleum, natural gas,
natural gas
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liquids, liquified natural gas, synthetic gas usable for fuel (or mixtures of
natural gas and such synthetic gas), and ash produced by a resource recovery
facility utilizing a municipal solid waste stream, and drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources; (iii) asbestos and
any asbestos containing material; (iv) "waste" as defined in section 13050(d) of
the California Water Code; and (v) any other material that, because of its
quantity, concentration or physical or chemical characteristics, poses a
significant present or potential hazard to human health or safety or to the
environment if released into the workplace or the environment.
(ap) Hazardous Substance Activity. "Hazardous Substance
Activity" means any actual, proposed or threatened use, storage, holding,
existence, location, release (including, without limitation, any spilling,
leaking, leaching, pumping, pouring, emitting, emptying, dumping, disposing into
the environment, and the continuing migration into or through soil, surface
water, groundwater or any body of water), discharge, deposit, placement,
generation, processing, construction, treatment, abatement, removal, disposal,
disposition, handling or transportation of any Hazardous Substance from, under,
in, into or on the Leased Property, including, without limitation, the movement
or migration of any Hazardous Substance from surrounding property, surface
water, groundwater or any body of water under, in, into or onto the Leased
Property and any residual Hazardous Substance contamination in, on or under the
Leased Property.
(aq) Hazardous Substance Claims. "Hazardous Substance Claims"
shall have the meaning assigned to it in subparagraph 9(ab) below.
(ar) Impositions. "Impositions" shall have the meaning
assigned to it in subparagraph 9(p) below.
(as) Indemnified Party. "Indemnified Party" means each of (1)
Landlord and any of Landlord's successors and assigns as to all or any portion
of the Leased Property or any interest therein, (2) the Participants, and (3)
any Affiliate, officer, agent, director, employee or servant of any of the
parties described in clause (1) or (2) preceding.
(at) Initial Improvements. "Initial Improvements" shall mean
the improvements on the Land and furnishings for such improvements which are to
be constructed and installed by Tenant using the Construction Allowance
furnished by Landlord as described in Paragraph 6 below.
(au) Initial Period. "Initial Period" shall have the meaning
assigned to it in Paragraph 2 below.
(av) Landlord's Lender. "Landlord's Lender" means Landlord's
Affiliate, Banque Nationale de Paris, a bank organized
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and existing under the laws of France, together with any affiliates of such bank
that directly or indirectly provided or hereafter during the Term provide or
maintain any of the Funding Advances, and any successors of such bank and such
affiliates.
(aw) LIBOR. "LIBOR" means, for purposes of determining the
Effective Rate for each Construction Period after October 1, 1994 and prior to
the Base Rental Commencement Date, the rate determined by Landlord's Lender to
be the average rate of interest per annum (rounded upwards, if necessary, to the
next 1/16 of 1%) of the rates at which deposits of dollars are offered or
available to Landlord's Lender in the London interbank market at approximately
11:00 a.m. (London time) on the second Business Day preceding the first day of
such Construction Period. Landlord shall instruct Landlord's Lender to consider
deposits, for purposes of making the determination described in the preceding
sentence, that are offered: (i) for delivery on the first day of such
Construction Period, (ii) in an amount equal or comparable to the total
(projected on the applicable date of determination by Landlord's Lender)
Stipulated Loss Value on the first day of such Construction Period, and (iii)
for a period of time equal or comparable to the length of such Construction
Period. "LIBOR" means, for purposes of determining the Effective Rate for each
Base Rental Period, the rate determined by Landlord's Lender to be the average
rate of interest per annum (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates at which deposits of dollars are offered or available to
Landlord's Lender in the London interbank market at approximately 11:00 a.m.
(London time) on the second Business Day preceding the first day of such Base
Rental Period. Landlord shall instruct Landlord's Lender to consider deposits,
for purposes of making the determination described in the preceding sentence,
that are offered: (i) for delivery on the first day of such Base Rental Period,
(ii) in an amount equal or comparable to the total (projected on the applicable
date of determination by Landlord's Lender) Stipulated Loss Value on the first
day of such Base Rental Period, and (iii) for a period of time equal or
comparable to the length of such Base Rental Period. If Landlord's Lender so
chooses, it may determine LIBOR for any period by reference to the rate reported
by the British Banker's Association on Page 3750 of the Telerate Service at
approximately 11:00 a.m. (London time) on the Second Business day preceding the
first day of such period. If for any reason Landlord's Lender determines that it
is impossible or impractical to determine LIBOR with respect to a given
Construction Period or Base Rental Period in accordance with the preceding
sentences, then "LIBOR" for that Construction Period or Base Rental Period shall
equal the rate which is fifty basis points (50/100 of 1%) above the Fed Funds
Rate for that period. All determinations of LIBOR by Landlord's Lender shall, in
the absence of clear and demonstrable error, be binding and conclusive upon
Landlord and Tenant.
(ax) Losses. "Losses" means any and all losses, liabilities,
damages (whether actual, consequential, punitive or otherwise denominated),
demands, claims, actions, judgments, causes
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of action, assessments, fines, penalties, costs, and out-of-pocket expenses
(including, without limitation, Attorneys' Fees and the fees of outside
accountants and environmental consultants), of any and every kind or character,
foreseeable and unforeseeable, liquidated and contingent, proximate and remote.
(ay) Outstanding Construction Allowance. "Outstanding
Construction Allowance" shall have the meaning indicated in subparagraph 6(a).
(az) Participant. "Participant" means the purchaser of any
participating interest in Landlord's rights to receive payments under this Lease
as permitted in subparagraph 11(d) hereof. As of the effective date hereof, all
Participants are listed in Schedule 1 attached hereto, although such
Participants and Landlord may convey participating interests to others in the
future.
(ba) Participation Agreements. "Participation Agreements"
means the participation agreements dated as of the date hereof between Landlord
and the Participants listed in Schedule 1, as described more particularly in
subparagraph 11(d) hereof, as such Participation Agreements may be extended,
supplemented, amended, restated or otherwise modified from time to time.
(bb) Permitted Encumbrances. "Permitted Encumbrances" means
(i) the encumbrances and other matters affecting the Leased Property that are
set forth in Exhibit B attached hereto and made a part hereof, and (ii) any
provisions of the Raychem Contract that survive closing thereunder with respect
to the Leased Property, and (iii) any easement agreement or other document
affecting title to the Leased Property executed by Landlord pursuant to the
Raychem Contract or pursuant to a document executed in accordance with the
Raychem Contract or otherwise executed by Landlord at the request of or with the
consent of Tenant.
(bc) Permitted Hazardous Substance Use. "Permitted Hazardous
Substance Use" means the use, storage and offsite disposal of Permitted
Hazardous Substances in strict accordance with applicable Environmental Laws and
with due care, given the nature of the Hazardous Substances involved; provided,
the scope and nature of such use, storage and disposal shall not include the use
of underground storage tanks for any purpose other than the storage of water for
fire control, nor shall such scope and nature exceed that reasonably required
for the construction and operation of an office complex. Notwithstanding
anything to the contrary herein contained, Permitted Hazardous Substance Use
shall not include any use of the Leased Property as a treatment, storage or
disposal facility (as defined by federal Environmental Laws), including but not
limited to a landfill, incinerator or other waste disposal facility.
(bd) Permitted Hazardous Substances. "Permitted Hazardous
Substances" means Hazardous Substances used and reasonably required for the
construction of the Initial
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Improvements or for Tenant's operation of an office complex on the Land (or on
any adjoining land owned or leased by Tenant), in either case in strict
compliance with all Environmental Laws and with due care, given the nature of
the Hazardous Substances involved.
(be) Permitted Transfer. "Permitted Transfer" means any one or
more of the following: (1) the assignments to the Participants listed in
Schedule 1 as set forth in the Participation Agreements dated as of the date
hereof and the terms and conditions of such Participation Agreements; (2) any
subsequent assignment or conveyance by Landlord of any lien or security interest
against the Leased Property (in contrast to a conveyance of Landlord's fee
estate in the Leased Property) or of any interest in Rent, payments required by
the Purchase Agreement or payments to be generated from the Leased Property
after the Term, to any present or future Participant or to any Affiliate of
Landlord; (3) any agreement to exercise or refrain from exercising rights or
remedies hereunder or under the Purchase Agreement made by Landlord with any
present or future Participant or Affiliate of Landlord; (4) any assignment or
conveyance by Landlord requested by Tenant or required by the Raychem Contract,
by any Permitted Encumbrance, by the Purchase Agreement or by Applicable Laws;
(5) any assignment or conveyance by Landlord when an Event of Default shall have
occurred and be continuing; or (6) any assignment or conveyance by Landlord
after the Initial Period.
(bf) Person. "Person" means an individual, a corporation, a
partnership, an unincorporated organization, an association, a joint stock
company, a joint venture, a trust, an estate, a government or agency or
political subdivision thereof or other entity, whether acting in an individual,
fiduciary or other capacity.
(bg) Plan. "Plan" shall have the meaning assigned to it in the
Revolving Credit Agreement.
(bh) Prime Rate. "Prime Rate" means the prime interest rate or
equivalent charged by Landlord's Lender as announced or published by Landlord's
Lender from time to time, which need not be the lowest interest rate charged by
Landlord's Lender. If for any reason Landlord's Lender does not announce or
publish a prime rate or equivalent, the prime rate or equivalent announced or
published by either Citibank, N.A. or Credit Commercial de France as selected by
Landlord shall be used to compute the "Prime Rate." The prime rate or equivalent
announced or published by such bank need not be the lowest rate charged by it.
If the prime rate or equivalent of Landlord's Lender (or the applicable bank)
changes from time to time after the date hereof, the Prime Rate shall be
automatically increased or decreased, as the case may be, without notice to
Tenant as of the effective time of each change in such prime rate or equivalent.
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(bi) Prior Funding Advances. "Prior Funding Advances" means
the advances totalling $23,500,000 made to or on behalf of Landlord on or prior
to the date hereof in connection with Landlord's acquisition of the Leased
Property.
(bj) Purchase Agreement. "Purchase Agreement" means the
Amended and Restated Purchase Agreement (Phases II and III) dated as of the date
hereof between Landlord and Tenant pursuant to which Tenant has agreed to
purchase or to arrange for the purchase by a third party of the Leased Property,
as such Amended and Restated Purchase Agreement may be extended, supplemented,
amended, restated or otherwise modified from time to time.
(bk) Qualified Payments. "Qualified Payments" means all
payments received by Landlord from time to time during the Term from any party
(1) under any casualty insurance policy as a result of damage to the Leased
Property, (2) as compensation for any restriction placed upon the use or
development of the Leased Property or for the condemnation of the Leased
Property or any portion thereof, (3) because of any judgment, decree or award
for injury or damage to the Leased Property or (4) under any title insurance
policy or otherwise as a result of any title defect or claimed title defect with
respect to the Leased Property; provided, however, that (x) in determining
"Qualified Payments", there shall be deducted all expenses and costs of every
kind, type and nature (including taxes and Attorneys' Fees) incurred by Landlord
with respect to the collection of such payments, (y) "Qualified Payments" shall
not include any payment to Landlord by a Participant or an Affiliate of Landlord
that is made to compensate Landlord for the Participant's or Affiliate's share
of any Losses Landlord may incur as a result of any of the events described in
the preceding clauses (1) through (4) and (z) "Qualified Payments" shall not
include any payments received by Landlord that Landlord has paid to Tenant for
the restoration or repair of the Leased Property or that Landlord is holding as
Escrowed Proceeds. For purposes of computing the total Qualified Payments (and
other amounts dependent upon Qualified Payments, such as Stipulated Loss Value
and the Outstanding Construction Allowance) paid to or received by Landlord as
of any date, payments described in the preceding clauses (1) through (4) will be
considered as Escrowed Proceeds, not Qualified Payments, until they are actually
applied as Qualified Payments by Landlord, which will generally not occur until
the first Advance Date or Base Rental Date which is at least three (3) Business
Days after Landlord's receipt of the same. Thus, for example, condemnation
proceeds actually received by Landlord in the middle of a Base Rental Period
will not be considered as having been received by Landlord for purposes of
computing the total Qualified Payments unless and until actually applied by
Landlord as a Qualified Payment on a subsequent Base Rental Date in accordance
with Paragraph 4 below.
(bl) Remaining Proceeds. "Remaining Proceeds" shall have the
meaning assigned to it in subparagraph 4(a)(ii).
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(bm) Release Date. "Release Date" means the later of the dates
upon which (i) this Lease terminates, (ii) Tenant surrenders possession of the
Leased Property or (iii) Tenant ceases to have any leasehold or other interest
in the Leased Property under this Lease or otherwise.
(bn) Rent. "Rent" means the Base Rent and all Additional Rent.
(bo) Responsible Financial Officer. "Responsible Financial
Officer" means the chief financial officer, the controller, the treasurer or an
assistant treasurer of Tenant.
(bp) Revolving Credit Agreement. "Revolving Credit Agreement"
shall have the meaning assigned to it in subparagraph below.
(bq) Scope Change. A "Scope Change" means a material addition
to, deletion from or other modification to the quality, function or capacity of
the Initial Improvements as delineated in Exhibit C or in any plans and
specifications therefor previously approved by Landlord, but shall not include
refinement, correction and detailing by Tenant or Tenant's architects or
contractors from time to time. As used in this definition, a "material" change
means a change that (a) could substantially reduce the fair market value of the
Leased Property after the Initial Improvements are complete, (b) is expected to
cause the construction of the Initial Improvements to exceed the constraints of
the Construction Budget attached hereto as Exhibit C (as the same may be revised
by Tenant from time to time with Landlord's prior written approval) or (c) will
change the general character of the Initial Improvements from that described in
Exhibit C.
(br) Stipulated Loss Value. "Stipulated Loss Value" means the
amount computed from time to time in accordance with the formula specified in
this definition. Such amount shall equal the Prior Funding Advances (i.e.,
$23,500,000) plus the advance made for Closing Costs (i.e., $700,000), plus the
Outstanding Construction Allowance as of the date a computation is required
hereunder, minus the amount (if any) of Qualified Payments paid to Landlord on
or prior to such date in excess of the Qualified Payments deducted in
calculating the Outstanding Construction Allowance. Thus, for example, if a
determination of Stipulated Loss Value is required under subparagraph 3(a) on
the first day of the applicable Base Rental Period, and if Tenant has used the
entire $90,800,000 Construction Allowance to make the Initial Improvements to
the Leased Property, but the Leased Property has been damaged by fire or other
casualty with the result that $5,000,000 of net insurance proceeds have been
paid to Landlord and retained by Landlord as Qualified Payments, then the
"Stipulated Loss Value" as of the date of the required determination shall equal
$110,000,000 (i.e., 23,500,000 + $700,000 + [$90,800,000 - $5,000,000] - $0).
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(bs) Subsidiary. "Subsidiary" means any corporation of which
Tenant and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors.
(bt) Term. "Term" shall have the meaning assigned to it in
Paragraph 2 below.
(bu) Voting Stock. "Voting Stock" of any Person means any
shares of stock of such Person whose holders are entitled under ordinary
circumstances to vote for the election of directors of such Person (irrespective
of whether at the time stock of any other class or classes shall have or might
have voting power by reason of the happening of any contingency).
(bv) Other Terms and References. Words of any gender used in
this Lease shall be held and construed to include any other gender, and words in
the singular number shall be held to include the plural, unless the context
otherwise requires. References herein to Paragraphs or subparagraphs shall refer
to the corresponding Paragraphs or subparagraphs of this Lease, unless specific
reference is made to another document or instrument. References herein to any
Schedule or Exhibit shall refer to the corresponding Schedule or Exhibit
attached hereto, which shall be made a part hereof by such reference. All
accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles consistent with those
applied in the preparation of the financial statements referred to in
subparagraph 9(w). Other terms are defined in the provisions that follow.
2. Term. The term of this Lease (herein called the "Term") shall
commence on and include the effective date hereof, and end at midnight on
September 30, 1999 (or the next following Business Day if September 30, 1999 is
not a Business Day), unless extended by subsequent written agreement of Landlord
and Tenant or sooner terminated as herein provided. The Term shall consist of an
Initial Period and a Final Period, both as defined in this paragraph. The
"Initial Period" (herein so called) during which construction of the Initial
Improvements is to be completed, shall commence upon and include the effective
date hereof and end on but not include October 1, 1997 (or the next following
Business Day if October 1, 1997 is not a Business Day). In any event, unless
this Lease is terminated as a result of an Event of Default or for any other
reason permitted hereunder, this Lease shall continue after the Initial Period
until midnight on September 30, 1999 (or the next following Business Day if
September 30, 1999 is not a Business Day) (the "Final Period").
Provided that Tenant is still in possession of the Leased Property and
has not breached its obligation to make any payment required by Paragraph 2 of
the Purchase Agreement on any prior Designated Payment Date (as defined
therein), Tenant may notify Landlord of Tenant's election to terminate this
Lease, effective as
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of midnight of any Advance Date or Base Rental Date, by giving Landlord an
irrevocable notice of such election at least thirty (30) days prior to the
effective date of the termination. If Tenant elects to so terminate this Lease,
then on the Base Rental Date on which this Lease is to be terminated, not only
must Tenant pay all unpaid Rent, Tenant must also satisfy its obligations under
the Purchase Agreement. The payment of all unpaid Rent, including but not
limited to accrued and unpaid Commitment Fees and the satisfaction of Tenant's
obligations under the Purchase Agreement shall be conditions to any early
termination of this Lease by Tenant.
3. Rental.
(a) Base Rent. Tenant shall pay Landlord rent (herein called
"Base Rent") in arrears, in currency that at the time of payment is legal tender
for public and private debts in the United States of America, in monthly
installments on each Base Rental Date through the end of the Term. Each
installment of Base Rent shall represent rent allocable to the Base Rental
Period ending on the date on which the installment is due. If Tenant or any
Applicable Purchaser purchases Landlord's interest in the Leased Property
pursuant to the Purchase Agreement, any Base Rent for the month ending on the
date of purchase and all outstanding Additional Rent shall be due on the Final
Payment Date in addition to the purchase price and other sums due Landlord under
the Purchase Agreement. The Base Rent for each Base Rental Period shall equal
(A) Stipulated Loss Value on the first day of such Base Rental Period, times (B)
the Effective Rate with respect to such Base Rental Period, times (C) the number
of days in such Base Rental Period, divided by (D) three hundred sixty (360).
Assume, only for the purpose of illustration: that a hypothetical Base Rental
Period contains exactly thirty (30) days; that prior to the first day of such
Base Rental Period Tenant has used the entire $90,800,000 Construction Allowance
to construct the Initial Improvements, but only $85,800,000 of the Construction
Allowance remains outstanding on the first day of such Base Rental Period after
deducting a total of $5,000,000 of Qualified Payments received by Landlord,
thereby leaving a Stipulated Loss Value of $110,000,000 (the Prior Funding
Advances of $23,500,000, plus the Closing Costs of $700,000, plus the
$85,800,000 Outstanding Construction Allowance); and that the Effective Rate
computed with respect to the applicable Base Rental Period is 6%. Under such
assumptions, the Base Rent for the hypothetical Base Rental Period will equal:
$110,000,000 x 6% x 30/360, or $550,000.
(b) Commitment Fees. For each Construction Period Tenant shall
pay Landlord a fee (herein called a "Commitment Fee") equal to (1) twenty basis
points (20/100 of 1%), times (2) the difference at the end of the first day of
such Construction Period between (A) $90,800,000 and (B) the sum (computed
without deduction for any Qualified Payments) of all Construction Advances made
by or on behalf of Landlord and all Carrying Costs added to and made a
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part of the Construction Allowance, times (3) the number of days in such
Construction Period, divided by (4) three hundred sixty (360). Tenant shall pay
Commitment Fees in arrears on January 1, April 1, July 1 and October 1 of each
calendar year, beginning with January 1, 1995 and continuing regularly
thereafter to and including the first of such dates to fall on or after the Base
Rent Commencement Date.
(c) Additional Rent. All amounts which Tenant is required to
pay to or on behalf of Landlord pursuant to this Lease (other than Base Rent),
including without limitation all Commitment Fees required to be paid under this
Paragraph 3, together with every fine, penalty, interest and cost set forth
herein which may be added for nonpayment or late payment thereof, shall
constitute rent (herein called "Additional Rent").
(d) Interest. The Base Rent and all other payments to be made
by Tenant hereunder shall bear interest if not paid when first due at the
Default Rate in effect from time to time from the date due until paid; provided,
that nothing herein contained will be construed as permitting the charging or
collection of interest at a rate exceeding the maximum rate permitted under
Applicable Laws.
(e) Net Lease. It is the intention of Landlord and Tenant that
the Base Rent and all other payments herein specified shall be absolutely net to
Landlord. Tenant shall pay all costs, expenses and obligations of every kind
relating to the Leased Property or this Lease which may arise or become due,
including, without limitation: (i) Impositions (other than Excluded Taxes),
including any taxes payable by virtue of Landlord's receipt of amounts, other
than Capital Adequacy Charges, paid to or on behalf of Landlord in accordance
with this subparagraph 3(f); (ii) any Capital Adequacy Charges; (iii) any amount
for which Landlord is or becomes liable with respect to the Permitted
Encumbrances; and (iv) any costs incurred by Landlord (including Attorneys'
Fees) because of Landlord's acquisition or ownership of the Leased Property or
because of this Lease or the transactions contemplated herein (but excluding
home office overhead and portfolio management expenses). The Base Rent and all
other amounts payable by Tenant hereunder shall be paid without notice or demand
and without abatement, counterclaim, deduction, setoff or defense, except as
expressly provided herein.
4. Insurance and Condemnation Proceeds.
(a) Subject to Landlord's rights under this Paragraph 4, and so long as
no Event of Default shall have occurred and be continuing, Tenant shall be
entitled to use all casualty insurance and condemnation proceeds payable with
respect to the Leased Property during the Term for the restoration and repair of
the Leased Property or any remaining portion thereof. All insurance and
condemnation proceeds received with respect to the Leased Property (including
proceeds payable under any insurance policy
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covering the Leased Property which is maintained by Tenant) shall be paid to
Landlord and then applied as follows:
(i) First, such proceeds shall be used to reimburse
Landlord for any costs and expenses, including
Attorneys' Fees, incurred in connection with the
collection of such proceeds.
(ii) Second, the remainder of such proceeds (the "Remaining
Proceeds"), shall be held by Landlord as Escrowed
Proceeds and applied to reimburse Tenant for the actual
cost of the repair, restoration or replacement of the
Leased Property. However, any Remaining Proceeds not
needed for such purpose shall be applied by Landlord as
Qualified Payments after Tenant notifies Landlord that
they are not needed for repairs, restoration or
replacement.
Notwithstanding the foregoing, at any time prior to the Final Period, provided
an Event of Default shall have occurred and be continuing, and (regardless of
the existence of any Event of Default) at any time during the Final Period,
Landlord shall be entitled to receive and collect any insurance and condemnation
proceeds received with respect to the Leased Property, and either, at the
discretion of Landlord, hold such proceeds as Escrowed Proceeds to be applied to
the repair, restoration or replacement of the Leased Property or retain such
proceeds (net of the deductions described in clause (i) above) as Qualified
Payments.
(b) Any Remaining Proceeds held by Landlord as Escrowed Proceeds shall
be deposited by Landlord in an interest bearing account as provided in the
definition of Escrowed Proceeds and shall be paid to Tenant upon completion of
the applicable repair, restoration or replacement and upon compliance by Tenant
with such terms, conditions and requirements as may be reasonably imposed by
Landlord, but in no event shall Landlord be required to pay any Escrowed
Proceeds to Tenant in excess of the actual cost to Tenant of the applicable
repair, restoration or replacement, it being understood that Landlord may retain
any such excess as a Qualified Payment. In any event, Tenant will not be
entitled to any abatement or reduction of the Base Rent or any other amount due
hereunder except to the extent that such excess Remaining Proceeds result in
Qualified Payments which reduce Stipulated Loss Value (and thus payments
computed on the basis of Stipulated Loss Value) as provided in the definitions
set out above. Further, notwithstanding any inadequacy of the Remaining Proceeds
or anything herein to the contrary, Tenant must, after any taking of less than
all or substantially all of the Leased Property by condemnation and after any
damage to the Leased Property by fire or other casualty, restore or improve the
Leased Property or the remainder thereof to a value no less than Stipulated Loss
Value as of the date just prior to the taking or damage and to a safe and
sightly condition. Any taking of so much of the Leased Property as, in
Landlord's reasonable judgment, makes it impracticable to
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restore or improve the remainder thereof as required by the preceding sentence
shall be considered a taking of substantially all the Leased Property for
purposes of this Paragraph 4.
(c) In the event of any taking of all or substantially all of the
Leased Property, Landlord shall be entitled to apply all Remaining Proceeds as a
Qualified Payment notwithstanding the foregoing. In addition, if Stipulated Loss
Value immediately prior to any taking of all or substantially all of the Leased
Property by condemnation exceeds the sum of the Remaining Proceeds resulting
from such condemnation, then Landlord shall be entitled to recover the excess
from Tenant upon demand as an additional Qualified Payment, whereupon this Lease
shall terminate.
(d) Nothing herein contained shall be construed to prevent Tenant from
obtaining a separate award from any condemning authority for a taking of
Tenant's personal property or for moving expenses or business interruption,
provided, such award is not combined with and does not reduce the award for any
taking of the Leased Property, including Tenant's interest therein.
(e) Landlord and Tenant each waive any right of recovery against the
other, and the other's agents, officers or employees, for any damage to the
Leased Property or to the personal property situated from time to time in or on
the Leased Property resulting from fire or other casualty covered by a valid and
collectible insurance policy; provided, however, that the waiver set forth in
this subparagraph (e) shall be effective insofar, but only insofar, as
compensation for such damage or loss is actually recovered by the waiving party
(net of costs of collection) under the policy notwithstanding the waivers set
out in this paragraph. Tenant shall cause the insurance policies required of
Tenant by this Lease to be properly endorsed, if necessary, to prevent any loss
of coverage because of the waivers set forth in this paragraph. If such
endorsements are not available, the waivers set forth in this paragraph shall be
ineffective to the extent that such waivers would cause required insurance with
respect to the Leased Property to be impaired.
(f) Any title insurance proceeds payable under any title insurance
policy or binder covering the Leased Property or any portion thereof shall be
payable to Landlord for application as a Qualified Payment. If Landlord and
Tenant are both named as insureds under any such title insurance policy or
binder, Tenant shall upon request direct the insurer under the policy or binder
to deliver all such proceeds directly to Landlord and shall release the insurer
from any claim that might otherwise result from the payment to Landlord. Tenant
shall also upon request endorse to the order of Landlord any check for such
proceeds that may be payable to Tenant or to both Tenant and Landlord.
5. No Lease Termination.
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(a) Status of Lease. Except as expressly provided herein, this
Lease shall not terminate, nor shall Tenant have any right to terminate this
Lease, nor shall Tenant be entitled to any abatement of the Rent, nor shall the
obligations of Tenant under this Lease be excused, for any reason whatsoever,
including without limitation any of the following: (i) any damage to or the
destruction of all or any part of the Leased Property from whatever cause, (ii)
the taking of the Leased Property or any portion thereof by eminent domain or
otherwise for any reason, (iii) the prohibition, limitation or restriction of
Tenant's use of all or any portion of the Leased Property or any interference
with such use by governmental action or otherwise, (iv) any eviction of Tenant
or anyone claiming through or under Tenant by paramount title or otherwise
(provided, if the eviction is by Landlord or any party lawfully claiming through
or under Landlord, other than Tenant or a third party claiming through or under
Tenant, then Tenant will have the remedies described in Paragraph 29 below), (v)
any default on the part of Landlord under this Lease or under any other
agreement to which Landlord and Tenant are parties, (vi) the inadequacy in any
way whatsoever of the design or construction of the Initial Improvements or the
Construction Documents, it being understood that approval by Landlord of any
Construction Documents does not and will not constitute any representation
express or implied as to the adequacy thereof or (vii) any other cause whether
similar or dissimilar to the foregoing, any existing or future law to the
contrary notwithstanding. It is the intention of the parties hereto that the
obligations of Tenant hereunder shall be separate and independent of the
covenants and agreements of Landlord, that the Base Rent and all other sums
payable by Tenant hereunder shall continue to be payable in all events and that
the obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall have been terminated or limited
pursuant to an express provision of this Lease.
(b) Waiver. Without limiting the foregoing, Tenant waives to
the extent permitted by Applicable Laws, except as otherwise expressly provided
herein, all rights to which Tenant may now or hereafter be entitled by law
(including any such rights arising because of any implied "warranty of
suitability" or other warranty under Applicable Laws) (i) to quit, terminate or
surrender this Lease or the Leased Property or any part thereof or (ii) to any
abatement, suspension, deferment or reduction of the Base Rent or any other sums
payable under this Lease.
6. Construction Allowance.
(a) Advances; Outstanding Construction Allowance.
(1) Tenant acknowledges that on the date hereof
Landlord has provided an initial Construction Advance (herein so called) of
$8,000,000 to reimburse Tenant for costs related to the construction of the
Initial Improvements. Subject to the conditions set forth below, Landlord shall
make further advances
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(herein also called "Construction Advances") on Advance Dates from time to time
as requested by Tenant to pay for the actual cost of making and completing the
Initial Improvements to the Leased Property. In no event will (i) the total of
all Construction Advances which may be required of Landlord, when added to
Carrying Costs accrued or projected by Landlord to accrue prior to the Base Rent
Commencement Date as described below, exceed $90,800,000, unless an additional
Participant shall have been identified and Landlord and Tenant shall have agreed
to amend this Lease as provided in part (2) below or (ii) Landlord be required
to make any additional Construction Advances beyond the initial Construction
Advance of $8,000,000, unless and until Tenant has purchased the Phase I
Property pursuant to the Phase I Purchase Agreement. As used herein, references
to the "Outstanding Construction Allowance" shall mean the difference on the
date in question (but not less than zero) of (A) the total Construction Advances
made by Landlord and all Carrying Costs added thereto under part (3) of this
subparagraph (a) on or prior to the date in question, less (B) any Qualified
Payments received on or prior to the date in question; but Landlord will not be
under any obligation to readvance any portion of the Construction Allowance
repaid by Qualified Payments. Notwithstanding the foregoing, if for any reason
Stipulated Loss Value (and thus the Outstanding Construction Allowance included
as a component thereof) must be determined under this Lease as of any date
between Advance Dates, the Outstanding Construction Allowance determined on such
date shall equal the Outstanding Construction Allowance on the immediately
preceding Advance Date computed in accordance with the preceding sentence, plus
Carrying Costs accruing on and after such preceding Advance Date to but not
including the date in question.
(2) The amount of the Construction Allowance may be
increased by a written agreement amending this Lease if an additional
Participant is identified before the Base Rental Commencement Date; provided,
that any such agreement to amend this Lease, any new participation
agreement with the identified Participant and the Participant itself must all be
satisfactory to Landlord in Landlord's sole and absolute discretion. Any
Participant so identified to provide an increase in the Construction Allowance
will be added to Schedule 1 as if such Participant had been one of the original
Participants listed thereon.
(3) Charges accruing at the Effective Rate (herein
called "Carrying Costs") for each Construction Period prior to or ending on the
Base Rent Commencement Date will be added to (and thereafter be included in) the
Outstanding Construction Allowance on the last day of such Construction Period
(i.e., generally on the Advance Date upon which such Construction Period ends).
The amount of Carrying Costs for each Construction Period shall be equal to (A)
Stipulated Loss Value (including accrued and unpaid Carrying Costs added with
respect to every previous Construction Period, if any) as of the first day of
such Construction Period, times (B) the Effective Rate with respect to such
Construction Period, times (C)
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the number of days in such Construction Period, divided by (D) 360. For purposes
of computing Carrying Costs for the Construction Period ending October 3, 1994,
it is understood that Stipulated Loss Value as of the first of such period will
include not only the Prior Funding Advances of $23,500,000, but also the Closing
Costs of $700,000 and the initial Construction Advance of $8,000,000 made on the
date hereof.
(b) Initial Improvements. Tenant shall construct the Initial
Improvements in a good and workmanlike manner, in accordance with the
Construction Documents and Applicable Laws, and otherwise in compliance with the
provisions of this Lease. All Construction Documents must be consistent with the
description of the Initial Improvements and budget set forth in Exhibit C
attached hereto. Landlord acknowledges its approval of the construction budget
attached hereto as Exhibit C. If for any reason it shall become apparent that
the construction budget must be revised, Tenant shall promptly notify Landlord
thereof and of the reasons therefor. Upon the execution of the general
construction contract for the Initial Improvements, Tenant shall cause the
contractor thereunder to execute and deliver to Landlord an estoppel letter in
the form of Exhibit D attached hereto. Tenant shall also cause the architect and
engineer under any material architectural or engineering contract for the
Initial Improvements to execute and deliver to Landlord an estoppel letter in
the form of Exhibit E attached hereto. Before making any Scope Change, Tenant
shall provide to Landlord a reasonably detailed written description of the Scope
Change, a revised construction budget and a copy of any changes to the drawings,
plans, specifications and general construction contract for the Initial
Improvements required in connection therewith, all of which must be approved in
writing by Landlord (or by any construction representative appointed by Landlord
from time to time) before the Scope Change is implemented. Upon request, Tenant
shall furnish Landlord with a written summary of all Initial Improvements then
completed or contemplated and any construction budgets, cost estimates,
drawings, plans, specifications and other Construction Documents available to
Tenant with respect thereto. Tenant shall have sole responsibility for
satisfying the requirements of the Construction Documents and for administering
the construction of the Initial Improvements, it being understood that
Landlord's obligation with respect to the Initial Improvements shall be limited
to the making of advances under and subject to the conditions set forth in this
Paragraph 6. No contractor performing any construction work on the Initial
Improvements, no architect or engineer performing any design work with respect
thereto, and no other third party shall be entitled to enforce Landlord's
obligations to make advances as a third party beneficiary. In any event, Tenant
shall cause the Initial Improvements to be completed no later than April 1, 1997
regardless of whether (i) the Construction Allowance is sufficient to pay for
such completion or (ii) Landlord stops making Construction Advances pursuant to
Paragraph 6(a)1)(ii), and Tenant shall send the Completion Notice promptly after
the Initial Improvements are substantially complete. No funding of Construction
Advances and no
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failure of Landlord to object to Initial Improvements proposed or constructed by
Tenant shall constitute a waiver by Landlord of the requirements contained in
this subparagraph.
(c) Conditions to Construction Advances. Landlord's obligation
to make Construction Advances from time to time under this Paragraph 6 shall be
subject to the following terms and conditions, all of which are intended for the
sole benefit of Landlord:
(i) Prior Notice. Tenant must request any
Construction Advance at least ten (10) Business Days prior to the Advance Date
upon which the advance is to be paid. Such request must confirm that Landlord
will not be responsible for the application of any funds advanced to Tenant or
to any other party at Tenant's request and otherwise be in form reasonably
satisfactory to Landlord. Without limiting the foregoing, such request must also
describe in such detail as Landlord may request: all costs to be paid or
reimbursed by the advance requested; all subcontractors, suppliers or other
parties to whom such costs have been or will be paid and the address of such
parties; and, to the extent not fully disclosed in any prior request for a
Construction Advance, the names and addresses of any subcontractors that have
filed or, to Tenant's knowledge, have threatened to file a lien against the
Leased Property. However, until such time as Landlord shall notify Tenant
otherwise, Tenant's compliance with the following requirements will be
considered adequate to evidence costs to be paid or reimbursed by Construction
Advances:
(A) With each notice requesting a Construction Advance, Tenant
shall submit copies of the applications for payment from Tenant's
general contractors, to the extent that the advance requested by
Tenant includes payments covered by such applications. Such
applications for payment shall have been signed by Tenant's architect
to indicate the architect's approval of the same.
(B) With each notice requesting a Construction Advance, Tenant
shall also a submit a list of payments to be made to each professional
or vendor (other than a general contractor) claiming a right to
payment in connection with the construction of the Initial
Improvements, to the extent that the advance requested by Tenant
includes such payments.
(C) With each notice requesting a Construction Advance, Tenant
shall also submit unconditional lien releases from the general
contractors, covering any payments to the general contractors for
which Tenant has been provided prior Construction Advances.
(D) Though not required with every notice requesting a
Construction Advance, copies of invoices and lien releases from each
subcontractor and from each professional or vendor described in part
(B) preceding, will be obtained by Tenant in
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accordance with the procedures and practices that Tenant followed for
the construction contemplated by the Phase I Lease. Tenant shall
periodically (and in any event no less often than once every 90 days)
submit to Landlord copies of such invoices and lien releases from each
subcontractor, vendor or professional that has been paid $100,000 or
more since the last preceding submission of invoices and lien release
pursuant to this part (D).
(ii) Amount of the Advances. No Construction Advance
shall exceed $90,800,000 less the sum of (A) the then Outstanding Construction
Allowance, (B) any Qualified Payments previously received, and (C) the Carrying
Costs then projected by Landlord to be added to the Construction Allowance on
and after the date of the advance. Further, no Construction Advance shall exceed
the actual costs previously incurred and paid by Tenant to construct the Initial
Improvements, including "soft costs" specified in Tenant's construction budget,
less the sum of all previous Construction Advances made under this Paragraph 6
to Tenant as reimbursement for such costs. Further, no Construction Advance
shall be required that would cause the cost of completing all Initial
Improvements then contemplated as reasonably estimated by Landlord to exceed the
difference computed by subtracting (1) the Carrying Costs then projected by
Landlord to be added to the Construction Allowance, from (2) the Construction
Allowance remaining to be advanced. No Construction Advance shall be requested
for an amount less than the lesser of (A) the maximum advance that may be
required of Landlord under the preceding sentences, and (B) $500,000.
(iii) Insurance. Tenant shall have obtained and
provided evidence reasonably satisfactory to Landlord of insurance concerning
the Initial Improvements as Landlord may require, including but not limited to
the liability insurance required by subparagraph 9(z) below and the following:
a) Title Insurance. An owner's title
insurance policy in an amount, form and substance and written by a title
insurance company satisfactory to Landlord and insuring Landlord's ownership of
fee title to the Leased Property, including the Initial Improvements, in the
amount no less than Stipulated Loss Value plus any remaining portion of the
Construction Allowance to be advanced under this Lease; and
b) Builder's Risk Insurance. Builder's
Completed Value Risk and such other hazard insurance as Landlord may reasonably
require against all risks of physical loss (including collapse and transit
coverage) with deductibles not to exceed $250,000, such insurance to be in
amounts sufficient to cover the total value of the Initial Improvements and to
be maintained in full force and effect at all times until completion of
construction of the Initial Improvements.
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(iv) Progress of Construction. Construction of the
Initial Improvements shall be progressing without any substantial continuing
interruption in a good and workmanlike manner and in accordance with the
Construction Documents and all Applicable Laws, and Tenant shall have corrected
or caused the correction promptly of any material defect in such construction.
(v) Evidence of Costs to be Reimbursed. To the extent
required by Landlord at the time a Construction Advance is required, and subject
to subparagraph above, Tenant shall have submitted invoices, requests for
payment from contractors, certifications from Tenant's architect and/or
construction manager, lien releases and other evidence reasonably satisfactory
to Landlord that (A) all costs for which Tenant requests reimbursement
constitute actual costs incurred by Tenant for the construction of the Initial
Improvements, (B) such costs are within the constraints of the budget attached
hereto as Exhibit C, as the same may be amended from time to time with
Landlord's prior written consent, and (C) all general contractors and all
parties that have filed a statutory Preliminary Notice which would give them the
right to assert a mechanic's or materialman's lien against the Leased Property
(collectively, "Potential Lien Claimants") have been paid all sums for which
prior Construction Advances have been advanced. Without limiting the foregoing,
Landlord may decline to advance any amount that would result in an excess of
$10,000,000 or more of (1) the total cost of work for which Potential Lien
Claimants could have asserted a lien against the Leased Property and for which
Construction Advances have been advanced by Landlord, over (2) the cost of any
such work for which Tenant has failed to provide to Landlord unconditional
statutory lien releases from all Potential Lien Claimants in form and substance
reasonably satisfactory to Landlord.
(vi) No Event of Default or Change of Control Event.
No Event of Default shall have occurred and be continuing under this Lease and
no Change of Control Event shall have occurred.
(vii) No Sale of Landlord's Interest. No sale of
Landlord's interest in the Leased Property shall have occurred pursuant to the
Purchase Agreement.
(viii) Certificate of No Default. Landlord shall have
received, together with the notice requesting the Construction Advance described
in clause (i) above, a current certificate of a Responsible Financial Officer of
Tenant (a) representing and warranting that no Event of Default has occurred and
is continuing, (b) certifying that the representations and warranties contained
herein are true and correct on and as of the date of such certificate as though
made on and as of such date, (c) certifying that construction of the Initial
Improvements is progressing without any substantial continuing interruption in a
good and workmanlike manner and in accordance with the Construction Documents
and all Applicable Laws and that Tenant has corrected or is correcting any
material defect in such construction, and (d)
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certifying that the Construction Advance then being requested would not result
in an excess of $10,000,000 or more of (1) the total cost of work for which
Potential Lien Claimants could have asserted a lien against the Leased Property
and for which Construction Advances have been advanced by Landlord, over (2) the
cost of any such work for which Tenant has failed to provide to Landlord
unconditional statutory lien releases from all Potential Lien Claimants in form
and substance reasonably satisfactory to Landlord.
(ix) Payments by Participants. None of the
Participants listed in Schedule 1 or their successors or permitted assigns under
their respective Participation Agreements shall have failed to advance to
Landlord their pro rata shares of the Construction Advance being requested.
7. Purchase Agreement and Environmental Indemnity. Tenant acknowledges
and agrees that nothing contained in this Lease shall limit, modify or otherwise
affect any of Tenant's obligations under the Purchase Agreement or Environmental
Indemnity, which obligations, to the maximum extent possible, shall be deemed to
be separate, independent and in addition to, and not in lieu of, the obligations
set forth herein. In the event of any inconsistency between the terms and
provisions of the Purchase Agreement or Environmental Indemnity and the terms
and provisions of this Lease, the terms and provisions of the Purchase Agreement
or Environmental Indemnity shall control.
8. Use and Condition of Leased Property.
(a) Use. Subject to the Permitted Encumbrances and the terms
hereof, Tenant may use and occupy the Leased Property during the Term of this
Lease for any lawful purpose so long as no Event of Default occurs hereunder.
Landlord may withhold its consent (in its sole discretion) to any proposed use
that would violate the express terms of this Lease.
(b) Condition. Tenant accepts the Leased Property (and will
accept the same upon any purchase of the Landlord's interest therein) in its
present state, AS IS, and without any representation or warranty, express or
implied, as to the condition of such property or as to the use which may be made
thereof. Tenant also accepts the Leased Property without any representation or
warranty, express or implied, by Landlord regarding the title thereto or the
rights of any parties in possession of any part thereof, except as set forth in
subparagraph 10(a). Landlord shall not be responsible for any latent or other
defect or change of condition in the Land, Improvements, fixtures and personal
property forming a part of the Leased Property, and the Rent hereunder shall in
no case be withheld or diminished (except as otherwise expressly provided in
this Lease) on account of any defect in such property, any change in the
condition thereof or the existence with respect thereto of any violations of
Applicable Laws. Nor shall Landlord be required to furnish to Tenant any
facilities or service of any
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kind, such as, but not limited to, water, steam, heat, gas, hot water,
electricity, light or power.
(c) Waiver. The provisions of subparagraph 8(b) above have
been negotiated by the Landlord and Tenant after due consideration for the Rent
payable hereunder and are intended to be a complete exclusion and negation of
any representations or warranties of the Landlord, express or implied, with
respect to the Leased Property that may arise pursuant to any law now or
hereafter in effect, or otherwise. However, such exclusion of representations
and warranties by Landlord is not intended to impair any representations or
warranties made by other parties, including Seller, the benefit of which is to
pass to Tenant during the Term because of the definition of Personal Property
and Leased Property above.
9. Other Representations, Warranties and Covenants of Tenant. Tenant
represents, warrants and covenants as follows:
(a) Financial Matters. Tenant is solvent, is not bankrupt and
has no outstanding liens, suits, garnishments, bankruptcies or court actions
which could render Tenant insolvent or bankrupt. There has not been filed by or,
to Tenant's knowledge, against Tenant a petition in bankruptcy or a petition or
answer seeking an assignment for the benefit of creditors, the appointment of a
receiver, trustee, custodian or liquidator with respect to Tenant or any
substantial portion of Tenant's property, reorganization, arrangement,
rearrangement, composition, extension, liquidation or dissolution or similar
relief under the federal Bankruptcy Code or any state law. The financial
statements and all financial data heretofore delivered to Landlord relating to
Tenant are true, correct and complete in all material respects. No material
adverse change has occurred in the financial position of Tenant as reflected in
Tenant's financial statements covering the fiscal period ended June 30, 1994.
(b) Raychem Contract. Except to the extent required of
Landlord under subparagraph 10(b), Tenant shall satisfy all surviving
obligations of the "Buyer" (as the term "Buyer" is used in the Raychem Contract)
relating to the Leased Property under the Raychem Contract and under all other
documents, the execution of which is required by or in connection with the
Raychem Contract. Tenant agrees to indemnify, defend and hold Landlord harmless
from and against any and all Losses of any and every kind or character, known or
unknown, fixed or contingent, imposed on or asserted against or incurred by
Landlord at any time and from time to time by reason of, in connection with or
arising out of any obligations imposed by the Raychem Contract with respect to
the Leased Property. The indemnity set out in this subparagraph shall apply even
if the subject of the indemnification is caused by or arises out of the
negligence (other than Active Negligence) of Landlord, but not if caused by the
Active Negligence, gross negligence or willful misconduct of Landlord. Because
Tenant hereby assumes and agrees to satisfy all surviving obligations of the
Buyer under the
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Raychem Contract with respect to the Leased Property, no failure by Landlord to
take any action required by the Raychem Contract with respect to the Leased
Property (save and except any actions required of Landlord under subparagraph
10(b)) shall, for the purposes of this indemnity, be deemed to be caused by the
Active Negligence, gross negligence or willful misconduct of Landlord. The
foregoing indemnity is in addition to the other indemnities set out herein and
shall not terminate upon the closing of any sale of Landlord's interest in the
Leased Property pursuant to the provisions of the Purchase Agreement or the
termination of this Lease.
(c) No Default or Violation. The execution, delivery and
performance of this Lease, the Purchase Agreement and the Environmental
Indemnity have not and will not constitute a breach or default under any other
material agreement, law or court order under which Tenant is a party or which
affects the Leased Property or Tenant's use, occupancy or operation of the
Leased Property or any part thereof and such execution, delivery and performance
will not result in the creation or imposition of (or the obligation to create or
impose) any lien, charge or encumbrance on, or security interest in, Tenant's
property pursuant to the provisions of any of the foregoing.
(d) Compliance with Covenants and Laws. Tenant is leasing the
Leased Property in conjunction with the construction of commercial or industrial
improvements that will be subject to review under local agency ordinances
regulating the design and improvement thereof. The intended use of the Leased
Property by Tenant complies, or will comply after Tenant obtains readily
available permits, in all material respects with all applicable restrictive
covenants, zoning ordinances and building codes, flood disaster laws, applicable
health, safety and environmental laws and regulations, the Americans with
Disabilities Act and any other laws pertaining to disabled persons to the extent
applicable to Tenant and the Leased Property, and all other applicable laws,
statutes, ordinances, rules, permits, regulations, orders, determinations and
court decisions (all of the foregoing are herein sometimes collectively called
"Applicable Laws"). Tenant has obtained or will promptly obtain all utility,
building, health and operating permits as may be required for Tenant's use of
the Leased Property by any governmental authority or municipality having
jurisdiction over the Leased Property.
(e) Environmental Representations. To the best of Tenant's
knowledge and except as otherwise disclosed in the Environmental Report, as of
the date hereof: (i) no Hazardous Substances are or have been used, generated,
processed, transported, removed, treated, handled, constructed, deposited,
stored, disposed, placed or held on or from the Leased Property in a manner that
could put Landlord at risk of significant liability; (ii) no Hazardous
Substances Activity has occurred prior to the date of this Lease in a manner
that could put Landlord at risk of significant liability; (iii) neither Tenant
nor any prior owner or
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operator of the Leased Property or any surrounding property has reported or been
required to report any release of any Hazardous Substances on or from the Leased
Property or the surrounding property pursuant to any Environmental Law; (iv)
neither Tenant nor any prior owner or operator of the Leased Property or any
surrounding property has received any warning, citation, notice of violation or
other communication regarding a suspected or known violation of Environmental
Laws concerning the Leased Property from any federal, state or local agency; and
(v) none of the following are located on the Leased Property: asbestos; urea
formaldehyde foam insulation; transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million; or any underground storage tank or tanks. Further,
Tenant represents that to the best of its knowledge the Environmental Report is
not misleading or inaccurate in any material respect.
(f) No Suits. There are no judicial or administrative actions,
suits, proceedings or investigations pending or, to Tenant's knowledge,
threatened that might affect Tenant's intended use of the Leased Property or the
validity, enforceability or priority of this Lease, or the use, occupancy and
operation of the Leased Property or any part thereof, and Tenant is not in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority that could materially and
adversely affect the business or assets of Tenant or its use, occupancy or
operation of the Leased Property. No condemnation or other like proceedings are
pending or, to Tenant's knowledge, threatened against the Leased Property.
(g) Condition of Property. When the Initial Improvements have
been completed in accordance with the Construction Documents, adequate provision
will have been made for the Leased Property to be served by electric, gas, storm
and sanitary sewers, sanitary water supply, telephone and other utilities
required for the use thereof. All streets, alleys and easements necessary to
serve the Leased Property have been completed and are serviceable or will be so
when the Initial Improvements are complete. The Leased Property will be, when
the Initial Improvements are complete, in a condition satisfactory for its use
and occupancy. Tenant is not aware of any latent or patent material defects or
deficiencies in the Real Property that, either individually or in the aggregate,
could materially and adversely affect Tenant's use or occupancy or could
reasonably be anticipated to endanger life or limb. Prior to the effective date
hereof, Tenant has caused the Land and the Phase I Property to be segregated
into one or more separate lots on a recorded parcel map approved by all
governmental entities that are entitled by Applicable Law to require their
approval as a condition to any lawful subdivision of the Land from the land
included in the Phase I Property.
(h) Organization. Tenant is duly incorporated and legally
existing under the laws of the State of Delaware and is
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duly qualified to do business in the State of California. Tenant has all
requisite power and has procured or will promptly procure all governmental
certificates of authority, licenses, permits, qualifications and other
documentation required to lease and operate the Leased Property and to carry on
its business.
(i) Enforceability. The execution, delivery and performance of
this Lease, the Purchase Agreement and the Environmental Indemnity are duly
authorized and do not require the consent or approval of any governmental body
or other regulatory authority that has not heretofore been obtained and are not
in contravention of or conflict with any applicable law or regulation or any
term or provision of Tenant's articles of incorporation or bylaws. This Lease,
the Purchase Agreement and the Environmental Indemnity are valid, binding and
legally enforceable obligations of Tenant in accordance with their terms, except
as such enforcement is affected by bankruptcy, insolvency and similar laws
affecting the rights of creditors, generally, and legal and equitable principles
of general application.
(j) Not a Foreign Person. Tenant is not a "foreign person"
within the meaning of the Internal Revenue Code of 1986, as amended (hereinafter
called the "Code"), Sections 1445 and 7701 (i.e. Tenant is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or foreign estate
as those terms are defined in the Code and regulations promulgated thereunder).
(k) Omissions. None of Tenant's representations or warranties
contained in this Lease or any document, certificate or written statement
furnished to Landlord by or on behalf of Tenant contains any untrue statement of
a material fact or omits a material fact necessary in order to make the
statements contained herein or therein (when taken in their entireties) not
misleading.
(l) Existence. Tenant shall continuously maintain its
existence and its qualification to do business in the State of California.
Tenant will not make any significant change in the nature of the business of
Tenant and it subsidiaries, taken as a whole, as presently conducted.
(m) Tenant Taxes. Tenant shall promptly pay all income,
franchise and other taxes owing by Tenant; except that Tenant may in good faith,
by appropriate proceedings, contest the validity, applicability or amount of any
such tax and pending such contest Tenant shall not be deemed in default under
this subparagraph if Tenant diligently prosecutes such contest to completion in
an appropriate manner, and if Tenant promptly causes to be paid any amount
adjudged by a court of competent jurisdiction to be due, with all costs,
penalties, and interest thereon, promptly after such judgment becomes final;
provided, however, that in any event such contest shall be concluded and the
tax, penalties, interest and costs shall be paid prior to the date any liability
may be asserted against Landlord or any action may be taken against the Leased
Property.
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(n) Operation of Property. Tenant shall operate the Leased
Property in a good and workmanlike manner and in accordance with all Applicable
Laws and will pay all fees or charges of any kind in connection therewith.
Tenant shall not use or occupy, or allow the use or occupancy of, the Leased
Property in any manner which violates any Applicable Law or which constitutes a
public or private nuisance or which makes void, voidable or cancelable any
insurance then in force with respect thereto. To the extent that any of the
following would, individually or in the aggregate, materially and adversely
affect the value of the Leased Property or Tenant's use, occupancy or operations
on the Leased Property, Tenant shall not: (i) initiate or permit any zoning
reclassification of the Leased Property; (ii) seek any variance under existing
zoning ordinances applicable to the Leased Property; (iii) use or permit the use
of the Leased Property in a manner that would result in such use becoming a
nonconforming use under applicable zoning ordinances or similar laws, rules or
regulations; (iv) execute or file any subdivision plat affecting the Leased
Property; or (v) consent to the annexation of the Leased Property to any
municipality. If a change in the zoning or other Applicable Laws affecting the
permitted use or development of the Leased Property shall occur that Landlord
determines will materially reduce the then-current market value of the Leased
Property, and if after such reduction the Stipulated Loss Value shall
substantially exceed the then-current market value of the Leased Property in the
reasonable judgment of Landlord, then Tenant shall pay Landlord upon request an
amount equal to such excess for application as a Qualified Payment. Tenant shall
not impose any restrictive covenants or encumbrances upon the Leased Property
without the prior written consent of the Landlord; provided, that such consent
shall not be unreasonably withheld for any encumbrance or restriction that is
made expressly subject to this Lease, as modified from time to time, and
subordinate to Landlord's interest in the Leased Property. Tenant shall not
cause or permit any drilling or exploration for, or extraction, removal or
production of, minerals from the surface or subsurface of the Leased Property.
Tenant shall not do any act whereby the market value of the Leased Property may
be materially lessened. Tenant shall allow Landlord or its authorized
representative to enter the Leased Property at any reasonable time and after
reasonable notice to inspect the Leased Property and, after reasonable notice,
to inspect Tenant's books and records pertaining thereto, and Tenant shall
assist Landlord or Landlord's representative in whatever way reasonably
necessary to make such inspections. If Tenant receives a notice or claim from
any federal, state or other governmental entity that the Leased Property is not
in compliance with any Applicable Law, Tenant shall promptly furnish a copy of
such notice or claim to Landlord. Notwithstanding the foregoing, Tenant may in
good faith, by appropriate proceedings, contest the validity and applicability
of any Applicable Law with respect to the Leased Property, and pending such
contest Tenant shall not be deemed in default hereunder because of violation of
such Applicable Law, if Tenant diligently prosecutes such contest to completion
in a manner reasonably satisfactory to Landlord, and if Tenant promptly causes
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the Leased Property to comply with any such Applicable Law upon a final
determination by a court of competent jurisdiction that the same is valid and
applicable to the Leased Property; provided, that in any event such contest
shall be concluded and the violation of such Applicable Law must be corrected
and any claims asserted against Landlord or the Leased Property because of such
violation must be paid by Tenant, all prior to the date that (i) any criminal
charges may be brought against Landlord or any of its directors, officers or
employees because of such violation or (ii) any action may be taken by any
governmental authority against Landlord or any property owned by Landlord
(including the Leased Property) because of such violation.
(o) Debts for Construction. Tenant shall cause all debts and
liabilities incurred in the construction, maintenance, operation and development
of the Leased Property, including without limitation all debts and liabilities
for labor, material and equipment and all debts and charges for utilities
servicing the Leased Property, to be promptly paid. Notwithstanding the
foregoing, Tenant may in good faith, by appropriate proceedings, contest the
validity, applicability or amount of any asserted mechanic's or materialmen's
lien and pending such contest Tenant shall not be deemed in default hereunder if
Tenant diligently prosecutes such contest to completion in a manner reasonably
satisfactory to Landlord, and if Tenant promptly causes to be paid any amount
adjudged by a court of competent jurisdiction to be due, with all costs and
interest thereon, promptly after such judgment becomes final; provided, however,
that in any event each such contest shall be concluded and the lien, interest
and costs shall be paid, bonded around or otherwise removed in a manner
reasonably acceptable to Landlord prior to the date any writ or order is issued
under which the Leased Property may be sold.
(p) Impositions. Tenant shall reimburse Landlord for (or, if
requested by Landlord, will pay or cause to be paid prior to delinquency) all
sales, excise, ad valorem, gross receipts, business, transfer, stamp, occupancy,
rental and other taxes, levies, fees, charges, surcharges, assessments or
penalties which arise out of or are attributable to this Lease or which are
imposed upon Landlord or the Leased Property because of the ownership, leasing,
occupancy, sale or operation of the Leased Property, or any part thereof, or
relating to or required to be paid by the terms of any of the Permitted
Encumbrances (collectively, herein called the "Impositions"), excluding only
Excluded Taxes. If Landlord requires Tenant to pay any Impositions directly to
the applicable taxing authority or other party entitled to collect the same,
Tenant shall furnish Landlord with receipts showing payment of such Impositions
and other amounts at least ten (10) days prior to the applicable default date
therefor; except that Tenant may in good faith, by appropriate proceedings,
contest the validity, applicability or amount of any asserted Imposition, and
pending such contest Tenant shall not be deemed in default hereunder if Tenant
diligently prosecutes such contest to completion in a manner reasonably
satisfactory to Landlord, and if Tenant promptly causes
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to be paid any amount adjudged by a court of competent jurisdiction to be due,
with all costs, penalties and interest thereon, promptly after such judgment
becomes final; provided, however, that in any event each such contest shall be
concluded and the Impositions, penalties, interest and costs shall be paid prior
to the date (i) any criminal action may be instituted against Landlord or its
directors, officers or employees because of the nonpayment thereof or (ii) any
writ or order is issued under which any property owned by Landlord (including
the Leased Property) may be seized or sold or any other action may be taken
against Landlord or any property owned by Landlord because of the nonpayment
thereof. As used herein, "Impositions" shall include real estate taxes (other
than Excluded Taxes) imposed because of a change of use or ownership of the
Leased Property, including, to the extent attributable to the term of this Lease
or any prior period, any such real estate taxes imposed because of a change in
use or ownership after the term of this Lease expires or is terminated. Tenant's
liability for real estate taxes (other than Excluded Taxes) imposed because of a
change in use or ownership of the Leased Property shall survive the termination
or expiration of this Lease.
(q) Repair, Maintenance, Alterations and Additions. Tenant
shall keep the Improvements on the Leased Property in good order, repair,
operating condition and appearance (ordinary wear and tear excepted), causing
all necessary repairs, renewals, replacements, additions and improvements to be
promptly made, and will not allow any of the Leased Property to be materially
misused, abused or wasted or to deteriorate. Tenant will promptly replace any
worn-out fixtures covered by this Lease with fixtures comparable to the replaced
fixtures when new. Notwithstanding the foregoing, Tenant will not, without the
prior written consent of Landlord, (i) remove from the Leased Property any
fixtures of significant value covered by this Lease except such as are replaced
by Tenant by articles of equal suitability and value, free and clear of any lien
or security interest or (ii) make any structural alteration to any Improvements,
once constructed, or any alterations thereto which reduce the fair market value
or which change the general character of the Leased Property or which impair in
any significant manner the useful life or utility of any Improvements. Upon
request of Landlord made at any time, but not more often than once per calendar
year unless an Event of Default shall have occurred and be continuing, Tenant
shall deliver to Landlord an inventory describing and showing the make, model,
serial number and location of all fixtures and personalty, if any, included in
the Initial Improvements with a certification by Tenant that such inventory is a
true and complete schedule of all such fixtures and personalty and that all
items specified in the inventory are covered hereby free and clear of any lien
or security interest other than the Permitted Encumbrances described in Exhibit
B.
(r) Insurance and Casualty. Tenant shall procure and maintain
insurance against loss or damage to the Leased Property by fire, explosion,
windstorm, hail, tornado and such other hazards as
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may be customarily insured against by owners of comparable properties or
otherwise reasonably required by Landlord by policies of fire, extended coverage
and other insurance in such company or companies, in such amounts, upon such
terms and provisions, and with such endorsements, all as may be reasonably
required by Landlord. Without limiting the foregoing, Landlord may reasonably
require that Tenant keep the Initial Improvements insured against damage by
earthquake at any time after the Initial Period, and Landlord may reasonably
require through the entire Term that Tenant keep any Improvements insured under
an all-risk property insurance policy (not excluding from coverage perils
normally included within the definitions of extended coverage, vandalism and
malicious mischief) in the amount of one hundred percent (100%) of the
replacement value with endorsements for contingent liability from operation of
building laws, increased cost of construction and demolition costs which may be
necessary to comply with building laws. Such coverage will be on an agreed value
basis to eliminate the effects of coinsurance. Tenant shall deliver to Landlord
certificates evidencing such insurance and any additional insurance which shall
be taken out upon any part of the Leased Property and certificates evidencing
renewals of all such policies of insurance at least fifteen (15) days before any
such insurance shall expire. Tenant further agrees that all such policies shall
provide that proceeds thereunder will be payable to Landlord as Landlord's
interest may appear. In the event any of the Leased Property is destroyed or
damaged by fire, explosion, windstorm, hail or by any other casualty against
which insurance shall have been required hereunder, (i) Landlord may, but shall
not be obligated to, make proof of loss if not made promptly by Tenant, (ii)
each insurance company concerned is hereby authorized and directed to make
payment for such loss directly to Landlord as its interests may appear, (iii)
Landlord shall apply the insurance proceeds as provided in Paragraph 4 above;
and (iv) Landlord may settle, adjust or compromise any and all claims for loss,
damage or destruction under any policy or policies of insurance (provided, that
if any such claim is for less than $500,000 and no Event of Default shall have
occurred and be continuing, Tenant shall have the right to settle, adjust or
compromise the claim as Tenant deems appropriate; and, provided further, that so
long as no Event of Default shall have occurred and be continuing, Landlord must
provide Tenant with at least ninety (90) days notice of Landlord's intention to
settle any such claim before settling it unless Tenant shall already have
approved of the settlement by Landlord). If any act or occurrence of any kind or
nature (including any casualty on which insurance was not obtained or
obtainable) shall result in damage to or loss or destruction of the Leased
Property, Tenant shall give immediate notice thereof to Landlord and Paragraph 4
shall apply.
(s) Condemnation. Immediately upon obtaining knowledge of the
institution of any proceedings for the condemnation of the Leased Property or
any portion thereof, or any other similar proceedings arising out of injury or
damage to the Leased Property or any portion thereof, Tenant shall notify
Landlord of the pendency of such proceedings. Tenant shall, at its expense,
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diligently prosecute any such proceedings and shall consult with Landlord, its
attorneys and experts and cooperate with them in the carrying on or defense of
any such proceedings. All proceeds of condemnation awards or proceeds of sale in
lieu of condemnation with respect to the Leased Property and all judgments,
decrees and awards for injury or damage to the Leased Property shall be paid to
Landlord and applied as provided in Paragraph 4 above. Landlord is hereby
authorized, in the name of Tenant, to execute and deliver valid acquittances
for, and to appeal from, any such judgment, decree or award concerning
condemnation of any of the Leased Property. Landlord shall not be, in any event
or circumstances, liable or responsible for failure to collect, or to exercise
diligence in the collection of, any such proceeds, judgments, decrees or awards.
(t) Protection and Defense of Title. If any encumbrance or
title defect whatsoever affecting Landlord's fee interest in the Leased Property
is claimed or discovered (other than Permitted Encumbrances, this Lease and any
other encumbrance which is lawfully claimed by, through or under Landlord and
which is not claimed by, through or under Tenant) or if any legal proceedings
are instituted with respect to title to the Leased Property, Tenant shall give
prompt written notice thereof to Landlord and at Tenant's own cost and expense
will promptly remove any such encumbrance and cure any such defect (or bond over
it to the satisfaction of Landlord) and will take all necessary and proper steps
for the defense of any such legal proceedings, including but not limited to the
employment of counsel, the prosecution or defense of litigation and the release
or discharge of all adverse claims. If Tenant fails to promptly remove any
encumbrance or title defect, Landlord (whether or not named as a party to legal
proceedings with respect thereto) shall be entitled to take such additional
steps as in its judgment may be necessary or proper to remove such encumbrance
or cure such defect or for the defense of any such attack or legal proceedings
or the protection of Landlord's fee interest in the Leased Property, including
but not limited to the employment of counsel, the prosecution or defense of
litigation, the compromise or discharge of any adverse claims made with respect
to the Leased Property, the purchase of any tax lien and the removal of prior
liens or security interests, and all expenses (including Attorneys' Fees) so
incurred of every kind and character shall be a demand obligation owing by
Tenant.
(u) No Other Liens. Tenant shall not, without the prior
written consent of Landlord (which consent will not be unreasonably withheld for
liens that are made expressly subject to this Lease, as modified from time to
time, and subordinate to Landlord's interest in the Leased Property), create,
place or permit to be created or placed, or through any act or failure to act,
acquiesce in the placing of, or allow to remain, any deed of trust, mortgage,
voluntary or involuntary lien, whether statutory, constitutional or contractual
(except for the lien for ad valorem taxes on the Leased Property which are not
delinquent), security interest, encumbrance or charge, or conditional sale or
other title retention document,
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against or covering the Leased Property or any part thereof (other than the
Permitted Encumbrances, this Lease, and any other lien or other encumbrance
which is lawfully claimed by, through or under Landlord and which is not claimed
by, through or under Tenant) regardless of whether the same are expressly or
otherwise subordinate to this Lease or Landlord's interest in the Leased
Property, and should any of the foregoing exist or become attached hereafter in
any manner to any part of the Leased Property without the prior written consent
of Landlord, Tenant shall cause the same to be promptly discharged and released
or bonded over to the satisfaction of Landlord.
(v) Books and Records. Tenant shall keep accurate books and
records in which full, true and correct entries shall be promptly made as to all
operations affecting the Leased Property and will permit all such books and
records (including without limitation all contracts, statements, invoices, bills
and claims for labor, materials and services supplied for the construction and
operation of any Improvements) to be inspected and copied by Landlord and its
duly accredited representatives at all times during reasonable business hours
after five (5) days advance notice.
This subparagraph shall not be construed as requiring Tenant to regularly
maintain separate books and records relating exclusively to the Leased Property;
provided, however, that upon request, Tenant shall construct or abstract from
its regularly maintained books and records information required by this
subparagraph relating to the Leased Property.
(w) Financial Statements; Certificates as to Default. Tenant
shall deliver to Landlord and to each Participant of which Landlord has been
notified:
(i) as soon as available and in any event within 45 days after the end
of each of the first three fiscal quarters of each fiscal year of
Tenant, the unaudited consolidated balance sheet of Tenant and its
Subsidiaries as of the end of such quarter and consolidated unaudited
statements of income, stockholders' equity and cash flow of Tenant and
its Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, setting forth in
comparative form figures for the corresponding period in the preceding
fiscal year, in the case of such statements of income, stockholders'
equity and cash flow, and figures for the preceding fiscal year in the
case of such balance sheet, all in reasonable detail, in accordance
with generally accepted accounting principles consistently applied, and
certified in a manner acceptable to Landlord by a Responsible Financial
Officer of Tenant (subject to normal year-end adjustments);
(ii) as soon as available and in any event within 90 days after the end
of each fiscal year of Tenant, the consolidated balance sheet of Tenant
and its Subsidiaries as of the end of such fiscal year and consolidated
statements of income,
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stockholders' equity and cash flow of Tenant and its Subsidiaries for
the period commencing at the end of the previous fiscal year and ending
with the end of such fiscal year, setting forth in comparative form
figures for the preceding fiscal year, all in reasonable detail, in
accordance with generally accepted accounting principles consistently
applied, and certified in a manner acceptable to Landlord by
independent public accountants of recognized national standing
reasonably acceptable to Landlord;
(iii) together with the financial statements furnished in accordance
with subdivision (i) and (ii) of this subparagraph (w), a certificate
of a Responsible Financial Officer of Tenant (a) representing and
warranting that no Event of Default or Default has occurred and is
continuing (or, if an Event of Default or Default has occurred, stating
the nature thereof and the action which Tenant proposes to take with
respect thereto), (b) setting forth a schedule containing the
information and calculations contained in the form of certificate
attached hereto as Exhibit F, and (c) stating that the representations
and warranties contained herein are true and correct on and as of the
date of such certificate as though made on and as of such date;
(iv) as soon as possible and in any event within five days after the
occurrence of each Default or Event of Default, a statement of a
Responsible Financial Officer of Tenant setting forth details of such
Default or Event of Default and the action which Tenant has taken and
proposes to take with respect thereto;
(v) promptly after the sending or filing thereof, copies of all such
financial statements, proxy statements, notices and reports which
Tenant or any Subsidiary sends to its public stockholders, and copies
of all reports and registration statements (without exhibits) which
Tenant or any Subsidiary files with the Securities and Exchange
Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission) or any national
securities exchange;
(vi) as soon as practicable and in any event (a) within 30 days after
Tenant or any ERISA Affiliate knows or has reason to know that any
ERISA Termination Event described in clause (i) of the definition of
ERISA Termination Event with respect to any Plan has occurred and (b)
within 10 days after Tenant or any ERISA Affiliate knows or has reason
to know that any other ERISA Termination Event with respect to any Plan
has occurred, a statement of a Responsible Financial Officer of Tenant
describing such ERISA Termination Event and the action, if any, which
Tenant or such ERISA Affiliate proposes to take with respect thereto;
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(vii) promptly upon receipt thereof, a copy of each other summary
report in its final form submitted to Tenant or any Subsidiary for
delivery to, or which is actually delivered to, any member of the Board
of Directors of Tenant by independent accountants in connection with
any annual, interim or special audit made by them of the books of
Tenant or any Subsidiary; and
(viii) such other information respecting the condition or operations,
financial or otherwise, of Tenant or any of its Subsidiaries as any
Landlord or any Participant through Landlord may from time to time
reasonably request.
Landlord is hereby authorized to deliver a copy of any information or
certificate delivered to it pursuant to this subparagraph 9(w) to any
Participant and to any regulatory body having jurisdiction over Landlord that
requires or requests it.
(x) Further Assurances. Tenant shall, on request of Landlord,
(i) promptly correct any defect, error or omission which may be discovered in
the contents of this Lease or in any other instrument executed in connection
herewith or in the execution or acknowledgment thereof (provided that such
corrections do not materially alter the terms of this Lease); (ii) execute,
acknowledge, deliver and record or file such further instruments and do such
further acts as may be necessary, desirable or proper to carry out more
effectively the purposes of this Lease and to subject to this Lease any property
intended by the terms hereof to be covered hereby including specifically, but
without limitation, any renewals, additions, substitutions, replacements or
appurtenances to the Leased Property; (iii) execute, acknowledge, deliver,
procure and record or file any document or instrument deemed advisable by
Landlord to protect its rights in and to the Leased Property against the rights
or interests of third persons; and (iv) provide such certificates, documents,
reports, information, affidavits and other instruments and do such further acts
as may be necessary, desirable or proper in the reasonable determination of
Landlord to enable Landlord, Landlord's Lender and the Participants to comply
with the requirements or requests of any agency having jurisdiction over them.
(y) Fees and Expenses; General Indemnification; Increased
Costs; and Capital Adequacy Charges.
(1) Except for any costs paid by Landlord with funds
withheld from the Closing Costs advanced to Tenant, Tenant shall pay all costs
and expenses of every character incurred by Tenant, Landlord, Landlord's Lender
or any Participant in connection with or because of (1) the ownership of any
interest in or operation of the Leased Property, (2) the negotiation or
administration of this Lease, the Purchase Agreement, the Environmental
Indemnity or the Participation Agreements between Landlord and the Participants
listed in Schedule 1, (3) the making of Funding Advances, including Attorneys'
Fees or other costs incurred to evaluate lien releases
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submitted by Tenant with requests for Construction Advances, or (4) the
construction of the Initial Improvements, whether incurred at the time of
execution of this Lease or at any time during the Term. Such costs and expenses
may include, without limitation, all appraisal fees, filing and recording fees,
inspection fees, survey fees, taxes, brokerage fees and commissions, abstract
fees, title policy fees, Uniform Commercial Code search fees, escrow fees,
Attorneys' Fees and environmental consulting fees incurred by Landlord with
respect to the Leased Property. If Landlord pays or reimburses Landlord's Lender
for any such expenses, Tenant shall reimburse Landlord for the same
notwithstanding that Landlord may have already received any payment from any
Participant on account of such expenses. Tenant shall be entitled to pay any of
the foregoing expenses for which Tenant is responsible out of Construction
Advances, subject to all of the conditions to Construction Advances set forth in
Paragraph 6 hereof.
(2) Tenant shall also pay all expenses and reimburse
Landlord and Landlord's Lender for any expenditures, including Attorneys' Fees,
incurred or expended in connection with (i) the breach by Tenant of any covenant
herein or in any other instrument executed in connection herewith or (ii)
Landlord's exercise of any of Landlord's rights and remedies hereunder and
Landlord's protection of the Leased Property and Landlord's interest therein.
Tenant shall indemnify and hold harmless Landlord and all other Indemnified
Parties against, and reimburse them for, all Losses which may be imposed upon,
asserted against or incurred or paid by them by reason of, on account of or in
connection with any bodily injury or death or property damage occurring in or
upon or in the vicinity of the Leased Property through any cause whatsoever;
provided, although such indemnity shall apply even when the applicable injury,
death or property damage results in whole or in part from the negligence (other
than Active Negligence) of the Indemnified Party, such indemnity shall not apply
to any party when the applicable injury, death or property damage results from
such party's Active Negligence, gross negligence or wilful misconduct. The
foregoing indemnities shall not terminate upon termination of this Lease with
respect to any circumstance or event existing or occurring prior to such
termination, but will survive termination of this Lease.
(3) If, after the date hereof, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to Landlord's Lender or any Participant of agreeing to
make or making, funding or maintaining advances to Landlord in connection with
the Leased Property, then Tenant shall from time to time, upon demand by
Landlord pay to Landlord for the account of Landlord's Lender or such
Participant, as the case may be, additional amounts sufficient to compensate
Landlord's Lender
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or the Participant for such increased cost. A certificate as to the amount of
such increased cost, submitted to Landlord and Tenant by Landlord's Lender or
the Participant, shall be conclusive and binding for all purposes, absent
manifest error.
(4) If Landlord's Lender or any Participant determines
that any law or regulation or any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects
the amount of capital to be maintained by it and that the amount of such capital
is increased by or based upon the existence of advances made or to be made to
Landlord to permit Landlord to maintain Landlord's investment in the Leased
Property or to make Construction Advances, then to the extent that Landlord's
Lender or the Participant reasonably determines that the increase in required
capital is allocable to such advances, Landlord may be required to pay
additional amounts (herein called "Capital Adequacy Charges") to Landlord's
Lender or the Participant, as the case may be, as Landlord's Lender or the
Participant may specify as sufficient to compensate it in light of such
circumstances.
(5) Any amount to be paid under this subparagraph by
Tenant shall be a demand obligation owing by Tenant.
(z) Liability Insurance. Tenant shall maintain commercial
general liability insurance against claims for bodily injury or death and
property damage occurring in or upon or resulting from the Leased Property, in
standard form and with an insurance company or companies rated by the A.M. Best
Company of Oldwick, New Jersey as having a policyholder's rating of A or better
and a reported financial information rating of XIII or better, such insurance to
afford immediate protection, to the limit of not less than $10,000,000 combined
single limit for bodily injury and property damage in respect of any one
accident or occurrence, with not more than $500,000 self-insured retention. Such
commercial general liability insurance shall include blanket contractual
liability coverage which insures contractual liability under the
indemnifications set forth in this Lease (other than the indemnifications set
forth in Paragraph 12 concerning environmental matters), but such coverage or
the amount thereof shall in no way limit such indemnifications. The policy
evidencing such insurance shall name as additional insureds Landlord and all
Participants of which Tenant has been notified and which have requested to be
named as additional insureds (including all of the Participants listed in
Schedule 1). Tenant shall maintain with respect to each policy or agreement
evidencing such commercial general liability insurance such endorsements as may
be reasonably required by Landlord and shall at all times deliver and maintain
with Landlord a certificate with respect to such insurance in form reasonably
satisfactory to Landlord. Not less than fifteen (15) days prior to the
expiration date of each policy of insurance required of Tenant pursuant to this
subparagraph, Tenant shall deliver to Landlord a certificate evidencing a paid
renewal policy or policies.
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(aa) Permitted Encumbrances. Except to the extent expressly
required of Landlord by subparagraph 10(b), Tenant shall comply with and will
cause to be performed all of the covenants, agreements and obligations imposed
upon the owner of the Leased Property in the Permitted Encumbrances in
accordance with their respective terms and provisions. Without limiting the
foregoing, Tenant shall, unless Landlord's interest in the Leased Property is
sold pursuant to the Purchase Agreement, prior to the expiration or termination
of this Lease: (1) satisfy all obligations imposed upon Tenant or the owner of
the Leased Property (as "Developer") by the Development Agreement described in
Paragraph xiii of Exhibit B, including without limitation any monetary
obligations set forth therein which can only be satisfied by prepaying sums that
will not be due by the terms of the Development Agreement until after the
expiration or termination of this Lease; and (2) upon satisfaction of such
obligations, Tenant shall cause Tenant's rights under the Development Agreement
to be assigned to Landlord and shall obtain any consents required for such
assignment. Notwithstanding clause (1) of the preceding sentence, even if
Landlord's interest in the Leased Property is not sold pursuant to the Purchase
Agreement, Tenant shall not be required to prepay those obligations of the
Developer which do not become due until after the Term of this Lease and which
are set out in Sections 3.5 (a), (b), (c) and (d) of the Development Agreement
and in Section 1 (Below Market Rate Housing Fees) of Exhibit E of the
Development Agreement. Tenant shall not modify or permit any modification of any
Permitted Encumbrance without the prior written consent of Landlord. Such
consent will not be unreasonably withheld for the modification of any
encumbrance that has been made expressly subject to this Lease, as modified from
time to time, and subordinate to Landlord's interest in the Leased Property.
(ab) Environmental Covenants. Tenant shall not cause or permit
the Leased Property to be in violation of, or do anything or permit anything to
be done which will subject the Leased Property to any remedial obligations
under, any Environmental Laws, including without limitation CERCLA and RCRA,
assuming disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances pertaining to the Leased Property, and
Tenant shall promptly notify Landlord in writing of any existing, pending or, to
the knowledge of Tenant, threatened investigation or inquiry by any governmental
authority in connection with any Environmental Laws. Tenant shall not conduct or
permit Hazardous Substance Activities, except Permitted Hazardous Substance Use.
Tenant shall keep the Leased Property free of all Hazardous Substances (other
than Permitted Hazardous Substances) and will remove the same (or if removal is
prohibited by law, will take whatever action is required by law) promptly upon
discovery at Tenant's sole expense. Other than storm water runoff, Tenant shall
not allow anything (including Permitted Hazardous Substances) to be discharged
from the Leased Property into groundwater or surface water (including, without
limitation, San Francisco Bay) that would require any permit under applicable
Environmental Laws. In the event Tenant fails to comply with or perform any of
the foregoing
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obligations concerning Hazardous Substance Activities and Hazardous Substances,
Landlord may, in addition to any other remedies available to it, following
reasonable consultation with Tenant concerning remediation efforts Landlord
believes to be required in order to comply with Environmental Laws, cause the
Leased Property to be freed from all Hazardous Substances (or if removal is
prohibited by law, may take whatever action is required by law) and take such
other action as is necessary to cause the foregoing obligations to be met, and
the cost of the removal and any such other action shall be a demand obligation
owing by Tenant to Landlord. For such removal and other action, Tenant grants to
Landlord and Landlord's agents and employees access to the Leased Property and
the license to remove Hazardous Substances (or if removal is prohibited by law
or otherwise deemed inadvisable by Landlord, to take whatever action is required
by law or otherwise deemed advisable by Landlord) and take such other action as
is necessary to cause the foregoing obligations to be met and, subject to the
provisions of subparagraph 12(c) below, Tenant agrees to indemnify Landlord
against all Losses incurred by or asserted or proven against Landlord in
connection therewith. Tenant agrees to submit from time to time, if requested by
Landlord, a certificate of an officer of Tenant, certifying that, except for
Permitted Hazardous Substance Use, the Leased Property is not being used for,
nor to Tenant's knowledge (except as may be described in the Environmental
Report) has the Leased Property been used in the past for, any Hazardous
Substances Activities or the discharge of anything into groundwater or surface
water (including, without limitation, San Francisco Bay) that would require any
permits under applicable Environmental Laws. Landlord reserves the right to
retain an independent professional consultant to review any report prepared by
Tenant or to conduct Landlord's own investigation to confirm whether Hazardous
Substances Activities or the discharge of anything into groundwater or surface
water has occurred, but Landlord's right to reimbursement for the fees of such
consultant shall be limited to the following circumstances: (1) an Event of
Default shall have occurred; (2) Landlord shall have retained the consultant to
establish the condition of the Leased Property just prior to any conveyance
thereof pursuant to the Purchase Agreement or just prior to the expiration of
this Lease; (3) Landlord shall have retained the consultant to satisfy any
regulatory requirements applicable to Landlord or Landlord's Lender; or (4)
Landlord shall have retained the consultant because Landlord has been notified
of a violation of Environmental Laws concerning the Leased Property or Landlord
otherwise reasonably believes that Tenant has not complied with this
subparagraph. Tenant grants to Landlord and to Landlord's agents, employees,
consultants and contractors the right during reasonable business hours and after
reasonable notice to enter upon the Leased Property to inspect the Leased
Property and to perform such tests as are reasonably necessary or appropriate to
conduct a review or investigation of Hazardous Substances on, or discharge into
groundwater or surface water from, the Leased Property. Without limiting the
generality of the foregoing, Tenant agrees that Landlord will have the same
right, power and authority to enter and inspect the Leased Property as is
granted to a secured
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lender under Section 2929.5 of the California Civil Code. Tenant shall promptly
reimburse Landlord for the cost of any such inspections and tests, but only when
the inspections and tests are (1) ordered by Landlord after an Event of Default;
(2) ordered by Landlord to establish the condition of the Leased Property just
prior to any conveyance thereof pursuant to the Purchase Agreement or just prior
to the expiration of this Lease; (3) ordered by Landlord to satisfy any
regulatory requirements applicable to Landlord or Landlord's Lender; or (4)
ordered because Landlord has been notified of a violation of Environmental Laws
concerning the Leased Property or Landlord otherwise reasonably believes that
Tenant has not complied with this subparagraph. Tenant shall immediately advise
Landlord of (i) any discovery of any event or circumstance which would render
any of the representations contained in subparagraph 9(e) inaccurate in any
material respect if made at the time of such discovery, (ii) any remedial action
taken by Tenant in response to any (A) discovery of any Hazardous Substances
other than Permitted Hazardous Substances on, under or about the Leased Property
or (B) any claim for damages resulting from Hazardous Substance Activities
(herein called "Hazardous Substance Claims"), and (iii) Tenant's discovery of
any occurrence or condition on any real property adjoining or in the vicinity of
the Leased Property which could cause the Leased Property or any part thereof to
be subject to any ownership, occupancy, transferability or use restrictions
under Environmental Laws or that could give rise to Hazardous Substance Claims.
In such event, Tenant shall deliver to Landlord within thirty (30) days after
Landlord's request, a preliminary written environmental plan setting forth a
general description of the action that Tenant proposes to take with respect
thereto to bring the Leased Property into compliance with Environmental Laws
(herein called a "Clean Up"), including, without limitation, any proposed
corrective work, the estimated cost and time of completion, the name of the
contractor and a copy of the construction contract, if any, and such additional
data, instruments, documents, agreements or other materials or information as
Landlord may reasonably request. Tenant shall thereafter diligently and
continuously pursue the Clean Up of the Leased Property in strict compliance
with all Environmental Laws and shall inform Landlord monthly as to the status
of the Clean Up.
(ac) Right of Landlord to Perform. If Tenant fails to perform
any act or to take any action which hereunder Tenant is required to perform or
take, or to pay any money which hereunder Tenant is required to pay, and if such
failure or action constitutes an Event of Default or renders Landlord or any
director, officer, employee or affiliate of Landlord at risk of criminal
prosecution or renders Landlord's interest in the Leased Property or any part
thereof at risk of forfeiture by forced sale or otherwise, then in addition to
any other remedies specified herein or otherwise available, Landlord may, in
Tenant's name or in Landlord's own name, perform or cause to be performed such
act or take such action or pay such money, but Landlord shall not be obligated
to do so. Any expenses so incurred by Landlord, and any
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money so paid by Landlord, shall be a demand obligation owing by Tenant to
Landlord. Further, Landlord, upon making such payment, shall be subrogated to
all of the rights of the person, corporation or body politic receiving such
payment.
(ad) Funds Held As Security. No later than the commencement of
the Final Period, Tenant shall deposit with Landlord a sum equal to one half
(1/2) of Stipulated Loss Value (the "Security Deposit"). Landlord shall be
entitled to hold the Security Deposit and any funds held by Landlord from time
to time as Escrowed Proceeds as security for the full and faithful performance
by Tenant of Tenant's covenants and obligations under this Lease and under the
Purchase Agreement. Like the Escrowed Proceeds, the Security Deposit shall be
held by Landlord in an interest bearing account and all interest earned on the
Security Deposit shall be added to and made a part of the Security Deposit.
Neither the Security Deposit nor any Escrowed Proceeds shall be considered an
advance payment of Base Rent or Additional Rent or a measure of Landlord's
damages should an Event of Default occur. If an Event of Default does occur
under this Lease, Landlord may, from time to time, without prejudice to any
other remedy and without notice to Tenant, apply the Security Deposit and any
Escrowed Proceeds as a Qualified Payment. Alternatively, Landlord may apply the
Security Deposit to make good any arrearage in Base Rent or Additional Rent as
to which Tenant is in default hereunder. Following any application of the
Security Deposit by Landlord as a Qualified Payment or to make good any
arrearage in Rent, Tenant must pay Landlord on demand the amount so applied in
order to restore the Security Deposit to no less than one half (1/2) of the then
Stipulated Loss Value. Upon termination of this Lease, if no Event of Default
shall then exist, any remaining balance of the Security Deposit shall be applied
to satisfy any payment due Landlord hereunder or under the Purchase Agreement.
Tenant shall have no right to assign or encumber any interest it may have in the
moneys deposited hereunder as security; Landlord and its successors and assigns
shall not be bound by any such actual or attempted assignment or encumbrance. If
Landlord assigns its interest in the Leased Property during the Term, Landlord
may also assign the Security Deposit to the assignee and thereafter Landlord
will have no liability for the return of the Security Deposit, it being agreed
that Tenant shall look solely to the new landlord for the return of the Security
Deposit. Regardless of any assignment of this Lease by Tenant, Landlord may
return the Security Deposit and any Escrowed Proceeds to the original Tenant
unless Landlord receives evidence satisfactory to it of an assignment by the
original Tenant of the right to receive the Security Deposit and the Escrowed
Proceeds.
(ae) Compliance with Financial Covenants and Certain Other
Requirements Established by the Revolving Credit Agreement. So long as Tenant
shall continue to have any obligations under this Lease or the Purchase
Agreement, Tenant shall comply with each and every requirement set forth in the
following provisions of the $150,000,000 Credit Agreement dated as of June 1,
1994, by and
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among Tenant, as Borrower, Citicorp USA, Inc., as Agent, and various lenders,
including Banque Nationale de Paris, as amended by First Amendment to Credit
Agreement dated as of August 5, 1994 (the "Revolving Credit Agreement"):
(i) Section 5.01(h) of the Revolving Credit Agreement, which
concerns the ratio of Tenant's consolidated debt to its consolidated
tangible net worth;
(ii) Section 5.01(i) of the Revolving Credit Agreement, which
concerns fixed charge ratios; and
(iii) Section 5.02 of the Revolving Credit Agreement,
including all subsections thereof, which concerns limitations
applicable to Tenant as to liens, mergers and consolidations, change in
business, maximum permitted debt and other matters.
To the extent that any of the requirements set forth in other provisions of this
Lease, in the Environmental Indemnity or in the Purchase Agreement are more
stringent than the requirements set forth in the Revolving Credit Agreement (for
example, more stringent requirements concerning Tenant's use of the Leased
Property itself in compliance with Environmental Laws), the more stringent
requirements set forth herein or in the Environmental Indemnity or in the
Purchase Agreement shall control. Further, for purposes of determining Tenant's
compliance with requirements established in this Lease by reference to the
Revolving Credit Agreement, and for purposes of establishing the meaning of
capitalized terms defined herein by reference to the Revolving Credit Agreement,
such requirements and definitions shall be construed as if (1) the Revolving
Credit Agreement were continuing after any expiration or termination thereof,
(2) no modifications or waivers of the Revolving Credit Agreement were made or
granted after the date of this Lease, and (3) no consents or approvals were
given for anything requiring a consent or approval by the terms of the Revolving
Credit Agreement, other than such consents or approvals as Landlord shall have
itself approved in writing. Further, though one or more Affiliates of Landlord
may grant or be bound by modifications, waivers, approvals or consents as a
lender under the Revolving Credit Agreement or for other purposes, Landlord will
not itself be so bound as the landlord hereunder or as the seller under the
Purchase Agreement unless, without violating the Participation Agreements,
Landlord shall have approved in writing such modifications, waivers, approvals
or consents and in such writing shall have indicated that it does so as the
landlord hereunder and as the seller under the Purchase Agreement. As used in
the provisions of the Revolving Credit Agreement referenced herein, capitalized
terms shall have the meanings assigned to them in the Revolving Credit Agreement
itself.
10. Other Representations, Warranties and Covenants of Landlord.
Landlord represents, warrants and covenants as follows:
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(a) Title Claims By, Through or Under Landlord. Except by a
Permitted Transfer, Landlord shall not assign, transfer, mortgage, pledge,
encumber or hypothecate this Lease or any interest of Landlord in and to the
Leased Property without the prior written consent of Tenant. Landlord further
agrees that if any encumbrance or title defect affecting the Leased Property is
lawfully claimed by, through or under Landlord (but not otherwise), including
any judgment lien lawfully filed against Landlord, Landlord will at its own cost
and expense remove any such encumbrance and cure any such defect; provided,
however, Landlord shall not be responsible for (i) any Permitted Encumbrances
(regardless of whether claimed by, through or under Landlord), (ii) any
encumbrances or title defects claimed by, through or under Tenant or any
Participant listed in Schedule 1, other than a lien or other encumbrance
asserted by the Participant because of a default by the Landlord under the
applicable Participant's Participation Agreement, or (iii) any encumbrance or
title defect arising because of Landlord's compliance with subparagraph 10(b) or
any request made by Tenant. If any Participant listed in Schedule 1 or any
Person claiming through or under such a Participant shall assert a lien or other
encumbrance against the Leased Property for which Landlord is not responsible
under the preceding sentence, Landlord shall upon request assign to Tenant any
claim for damages or other rights Landlord has against the Participant or other
Person on account of such lien or encumbrance, provided no Event of Default
shall have occurred and be continuing.
(b) Actions Required of the Title Holder. So long as no Event
of Default shall have occurred and be continuing, Landlord shall take any and
all action required under the Construction Documents or the Raychem Contract and
all documents executed by Landlord in connection therewith or by the Permitted
Encumbrances or otherwise required by Applicable Laws or reasonably requested by
Tenant; provided that (i) actions Tenant may require of Landlord under this
subparagraph shall be limited to actions that can only be taken by Landlord as
the owner of the Leased Property, as opposed to any action that can be taken by
either Tenant or Landlord (and the payment of any monetary obligation shall not
be an action required of Landlord under this subparagraph unless Landlord shall
first have received funds from Tenant, in excess of any other amounts due from
Tenant hereunder, sufficient to pay such monetary obligations), (ii) Tenant
requests the action to be taken by Landlord (which request must be in writing,
if required by Landlord at the time the request is made) and (iii) the action to
be taken will not constitute a violation of any Applicable Laws or otherwise be
reasonably objectionable to Landlord. Any claims, demands, liabilities, losses,
damages, judgments, penalties, costs and expenses incurred by Landlord because
of any action taken pursuant to this subparagraph shall be covered by the
indemnification set forth in subparagraph 9(y). Further, for purposes of such
indemnification, any action taken by Landlord will be deemed to have been made
at the request of Tenant if made pursuant to any request of Tenant's counsel or
of any officer of Tenant (or with their knowledge, and without their objection)
in
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connection with the closing under the Raychem Contract or the execution,
administration or enforcement of any Construction Document.
(c) No Default or Violation. The execution, delivery and
performance of this Lease do not contravene, result in a breach of or constitute
a default under any material contract or agreement to which Landlord is a party
or by which Landlord is bound and do not, to the knowledge of Landlord, violate
or contravene any law, order, decree, rule or regulation to which Landlord is
subject.
(d) No Suits. To Landlord's knowledge there are no judicial or
administrative actions, suits or proceedings involving the validity,
enforceability or priority of this Lease, and to Landlord's knowledge no such
suits or proceedings are threatened.
(e) Organization. Landlord is duly incorporated and legally
existing under the laws of Delaware and is or, if necessary, will become duly
qualified to do business in the State of California. Landlord has or will
obtain, at Tenant's expense pursuant to the other provisions of this Lease, all
requisite power and all material governmental certificates of authority,
licenses, permits, qualifications and other documentation necessary to own and
lease the Leased Property and to perform its obligations under this Lease.
(f) Enforceability. This Lease constitutes a legal, valid and
binding obligation of Landlord, enforceable in accordance with its terms,
subject to bankruptcy and other laws affecting creditors' rights generally and
general equitable principles. The execution and delivery of, and performance
under, this Lease are within Landlord's powers and have been duly authorized by
all requisite action and are not in contravention of the powers of the charter,
by-laws or other corporate papers of Landlord; provided, Landlord makes no
representation or warranty that conditions imposed by any state or local
Applicable Laws to the purchase, ownership, lease or operation of the Leased
Property have been satisfied.
(g) Existence. Landlord will continuously maintain its
existence and, after qualifying to do business in the State of California if
Landlord has not already done so, Landlord will continuously maintain its right
to do business in the State of California to the extent necessary for the
performance of Landlord's obligations hereunder.
(h) Not a Foreign Person. Landlord is not a "foreign person"
within the meaning of the Code, Sections 1445 and 7701 (i.e. Landlord is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in the Code and regulations
promulgated thereunder).
11. Assignment and Subletting.
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(a) Consent Required. During the term of this Lease, without
the prior written consent of Landlord first had and received, Tenant shall not
assign, transfer, mortgage, pledge or hypothecate this Lease or any interest of
Tenant hereunder and shall not sublet all or any part of the Leased Property, by
operation of law or otherwise; provided, that : (1) Tenant shall be entitled to
sublet less than all or substantially all of any then existing Improvements if
(i) any sublease by Tenant is made expressly subject and subordinate to the
terms hereof, and (ii) such sublease has a term less than the remainder of the
then effective term of this Lease; (2) Tenant shall be entitled to assign this
Lease to an Affiliate of Tenant if both Tenant and its Affiliate confirm their
joint and several liability hereunder by notice given to Landlord in accordance
with Paragraph 19 hereof; (3) without limiting Landlord's rights under
subparagraph or under the Purchase Agreement upon the occurrence of a Change of
Control Event, Tenant may participate in a merger or consolidation permitted by
the Revolving Credit Agreement; and (4) without limiting Landlord's rights under
subparagraph or under the Purchase Agreement upon the occurrence of a Change of
Control Event, Tenant may sell its interest in the Leased Property and the Other
Property with all or substantially all of Tenant's assets in a transaction
permitted by the Revolving Credit Agreement.
(b) Standard for Landlord's Consent to Assignments and Certain
Other Matters. Consents and approvals of Landlord which are required by the
preceding subparagraph will not be unreasonably withheld, but Tenant
acknowledges, without limiting the reasons why Landlord might reasonably
withhold such consents or approvals, that Landlord's withholding of such consent
or approval shall be reasonable if Landlord determines in good faith that giving
the approval may significantly increase Landlord's risk of liability for any
existing or future environmental problem.
(c) No Waiver. No consent by Landlord to a sale, assignment,
transfer, mortgage, pledge or hypothecation of this Lease or Tenant's interest
hereunder, and no assignment or subletting of the Leased Property or any part
thereof in accordance with this Lease or otherwise with Landlord's consent,
shall release Tenant from liability hereunder; and any such consent shall apply
only to the specific transaction thereby authorized and shall not relieve Tenant
from any requirement of obtaining the prior written consent of Landlord to any
further sale, assignment, transfer, mortgage, pledge or hypothecation of this
Lease or any interest of Tenant hereunder.
(d) Landlord's Assignment. Landlord shall have the right to
transfer, assign and convey, in whole or in part, the Leased Property and any
and all of its rights under this Lease (a) to Landlord's Lender or any Affiliate
of Landlord's Lender or Landlord; (b) to any Participant or any Affiliate of a
Participant; (c) following the Initial Period, to any other party; or (d) with
Tenant's consent (which consent shall not be unreasonably withheld), to any
other party during the Initial Period. Without
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limiting the foregoing, Tenant's consent shall not be required for the sale of
any participating interests by Landlord as provided in subparagraph 11(d) below.
In the event Landlord sells or otherwise transfers the Leased Property and
assigns its rights under this Lease and the Purchase Agreement, and if
Landlord's successor in interest confirms its liability for the obligations
imposed upon Landlord by this Lease and the Purchase Agreement on and subject to
the express terms and conditions set out herein and therein, then the original
Landlord shall thereby be released from any further obligations under this Lease
and under the Purchase Agreement, and Tenant agrees to look solely to each
successor in interest of Landlord for performance of such obligations. However,
notwithstanding anything to the contrary herein contained, if withholding taxes
are imposed on the rents and other amounts payable to Landlord hereunder because
of Landlord's assignment of this Lease to any citizen of, or any corporation or
other entity formed under the laws of, a country other than the United States,
Tenant shall not be required to compensate such assignee for the withholding
tax.
(d) Participations. Landlord is selling participating
interests in Landlord's rights to payments hereunder and under the Purchase
Agreement to the financial institutions listed in Schedule 1 attached hereto and
made a part hereof, as evidenced by Lease Participation Agreements dated as of
the date hereof between Landlord and the Participants listed in Schedule 1.
12. Environmental Indemnification.
(a) Indemnity. Tenant hereby agrees to assume liability for
and to pay, indemnify, defend, and hold harmless each and every Indemnified
Party from and against any and all Environmental Losses, subject only to the
provisions of subparagraph (c) below.
(b) Assumption of Defense.
(i) If an Indemnified Party notifies Tenant of any
claim, demand, action, administrative or legal proceeding,
investigation or allegation as to which the indemnity provided for in
this Paragraph 12 applies, Tenant shall assume on behalf of the
Indemnified Party and conduct with due diligence and in good faith the
investigation and defense thereof and the response thereto with counsel
reasonably satisfactory to the Indemnified Party; provided, that the
Indemnified Party shall have the right to be represented by advisory
counsel of its own selection and at its own expense; and provided
further, that if any such claim, demand, action, proceeding,
investigation or allegation involves both Tenant and the Indemnified
Party and the Indemnified Party shall have reasonably concluded that
there may be legal defenses available to it which are inconsistent with
those available to Tenant, then the Indemnified Party shall have the
right to select separate counsel to participate in the investigation
and defense of and response to such claim, demand, action,
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proceeding, investigation or allegation on its own behalf at Tenant's
expense.
(ii) If any claim, demand, action, proceeding,
investigation or allegation arises as to which the indemnity provided
for in this Paragraph 12 applies, and Tenant fails to assume promptly
(and in any event within ten (10) days after being notified of the
claim, demand, action, proceeding, investigation or allegation) the
defense of the Indemnified Party, then the Indemnified Party may
contest (or, with the prior written consent of Tenant, settle) the
claim, demand, action, proceeding, investigation or allegation at
Tenant's expense using counsel selected by the Indemnified Party;
provided, that after any such failure by Tenant no such contest need be
made by the Indemnified Party and settlement or full payment of any
claim may be made by the Indemnified Party without Tenant's consent and
without releasing Tenant from any obligations to the Indemnified Party
under this Paragraph 12 if, in the written opinion of reputable counsel
to the Indemnified Party, the settlement or payment in full is clearly
advisable.
(c) Notice of Environmental Losses. If any Indemnified Party
receives a written notice of Environmental Losses that such Indemnified Party
believes are covered by this Paragraph 12, then such Indemnified Party shall
promptly furnish a copy of such notice to Tenant. The failure to so provide a
copy of the notice to Tenant shall not excuse Tenant from its obligations under
this Paragraph 12; provided, that if Tenant is unaware of the matters described
in the notice and such failure renders unavailable defenses that Tenant might
otherwise assert, or precludes actions that Tenant might otherwise take, to
minimize its obligations hereunder, then Tenant shall be excused from its
obligation to indemnify the Indemnified Party that received the notice against
assessments, fines, costs and expenses, if any, which would not have been
incurred but for such failure. For example, if any Indemnified Party fails to
provide Tenant with a copy of a notice of an obligation covered by the indemnity
set out in subparagraph (a) and Tenant is not otherwise already aware of such
obligation, and if as a result of such failure the Indemnified Party that
received the notice becomes liable for penalties and interest covered by the
indemnity in excess of the penalties and interest that would have accrued if
Tenant had been promptly provided with a copy of the notice, then Tenant will be
excused from any obligation to such Indemnified Party to pay the excess.
(d) Rights Cumulative. The rights of each Indemnified Party
under this Paragraph 12 shall be in addition to any other rights and remedies of
such Indemnified Party against Tenant under the other provisions of this Lease
or under any other document or instrument now or hereafter executed by Tenant,
or at law or in equity (including, without limitation, any right of
reimbursement or contribution pursuant to CERCLA).
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(e) Survival of the Indemnity. Tenant's obligations under this
Paragraph 12 shall survive the termination or expiration of this Lease. All
obligations of Tenant hereunder shall be payable upon demand, and any amount due
upon demand to any Indemnified Party by Tenant which is not paid shall bear
interest from the date of such demand at a floating interest rate equal to the
Default Rate, but in no event in excess of the maximum rate permitted by law.
13. Landlord's Right of Access.
Landlord and Landlord's representatives may enter the Leased Property
at any reasonable time for the purpose of making inspections or performing any
work which Landlord elects to undertake made necessary by reason of Tenant's
default under the terms of this Lease. Nothing herein shall imply any duty upon
the part of Landlord to do any such work which under any provision of this Lease
Tenant may be required to perform, and the performance thereof by Landlord shall
not constitute a waiver of Tenant's default. Landlord may during the progress of
any work on or in the Leased Property keep and store upon the Leased Property
all necessary materials, tools, and equipment. Landlord shall not in any event
be liable for inconvenience, annoyance, disturbance, loss of business, or other
damage to Tenant or the subtenants of Tenant by reason of making such repairs or
the performance of any such work on or in the Leased Property, or on account of
bringing materials, supplies and equipment into or through the Leased Property
during the course of such work, and the obligations of Tenant under this Lease
shall not thereby be affected in any manner.
14. Events of Default.
(a) Defaults. Each of the following events shall be deemed to
be an "Event of Default" by Tenant under this Lease:
(i) Tenant shall fail to pay when due any installment
of Rent due hereunder and such failure shall continue for five (5)
Business Days after Tenant is notified thereof.
(ii) Tenant shall fail to comply with any term,
provision or covenant of this Lease, other than as described in the
other clauses of this subparagraph 14(a), and shall not cure such
failure prior to the earlier of (A) forty-five (45) days after written
notice thereof is sent to Tenant or (B) the date any writ or order is
issued for the levy or sale of any property owned by Landlord
(including the Leased Property) or any criminal action is instituted
against Landlord or any of its directors, officers or employees because
of such failure; provided, however, that so long as no such writ or
order is issued and no such criminal action is instituted, if such
failure is susceptible of cure but cannot with reasonable diligence be
cured within such forty-five day period, and if Tenant shall promptly
have commenced to cure the same and
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shall thereafter prosecute the curing thereof with reasonable
diligence, the period within which such failure may be cured shall be
extended for such further period (not to exceed an additional ninety
(90) days) as shall be reasonably necessary for the curing thereof with
reasonable diligence.
(iii) Tenant shall fail to comply with any term,
provision or condition of the Purchase Agreement or the Environmental
Indemnity.
(iv) Tenant shall abandon any portion of the Leased
Property.
(v) Tenant or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any Debt which is
outstanding in a principal amount of at least $10,000,000 in the
aggregate of Tenant or the applicable Subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the
applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate,
or to permit the acceleration by the creditor of the maturity of such
Debt; or any such Debt shall be declared by the creditor to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof.
(vi) Tenant or any of its Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against Tenant or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of
thirty (30) consecutive days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver,
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trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or Tenant or any of its
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this clause (vi).
(vii) Any order, judgment or decree is entered in any
proceedings against Tenant or any Subsidiary decreeing the dissolution
of Tenant or such Subsidiary and such order, judgment or decree remains
unstayed and in effect for more than sixty (60) days.
(viii) Any order, judgment or decree is entered in
any proceedings against Tenant or any Subsidiary decreeing a split-up
of Tenant or such Subsidiary which requires the divestiture of assets
representing a substantial part, or the divestiture of the stock of a
Subsidiary whose assets represent a substantial part, of the
consolidated assets of Tenant and its Subsidiaries (determined in
accordance with generally accepted accounting principles) or which
requires the divestiture of assets, or stock of a Subsidiary, which
shall have contributed a substantial part of the consolidated net
income of Tenant and its Subsidiaries (determined in accordance with
generally accepted accounting principles) for any of the three fiscal
years then most recently ended, and such order, judgment or decree
remains unstayed and in effect for more than sixty (60) days.
(ix) A final judgment or order for the payment of
money in an amount (not covered by insurance) which exceeds $10,000,000
shall be rendered against Tenant or any of its Subsidiaries and either
(i) enforcement proceedings shall have been commenced by any creditor
upon such judgment, or (ii) within sixty (60) days after the entry
thereof, such judgment or order is not discharged or execution thereof
stayed pending appeal, or within thirty (30) days after the expiration
of any such stay, such judgment is not discharged.
(x) An "Event of Default" as defined in the Revolving
Credit Agreement (taking into account any applicable notice and cure
period set forth therein) by Tenant shall occur.
Notwithstanding the foregoing, any Default that could become an Event of Default
under clause (ii) of this subparagraph 14(a) may be cured within the earlier of
the periods described in clauses (A) and (B) thereof, and any Default that could
become an Event of Default under any of clauses (iii) through (x) of this
subparagraph 14(a) may be cured within ten (10) days after Tenant is notified or
otherwise becomes aware of such Default, by Tenant's delivery to Landlord of a
written notice irrevocably exercising Tenant's option under the Purchase
Agreement to purchase Landlord's interest in the Leased Property and designating
as the Designated Payment Date (as defined in the Purchase Agreement) the next
following date which is either an Advance Date or a Base Rental Date and which
is at least
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ten (10) days after the date of such notice; provided, however, Tenant must, as
a condition to the effectiveness of its cure, on the date so designated as the
Designated Payment Date tender to Landlord the full purchase price required by
the Purchase Agreement and all Rent and all other amounts then due or accrued
and unpaid hereunder (including reimbursement for any costs incurred by Landlord
in connection with the applicable Default hereunder, regardless of whether
Landlord shall have been reimbursed for such costs in whole or in part by the
Participants) and Tenant must also furnish written confirmation that all
indemnities set forth herein (including specifically, but without limitation,
the general indemnity set forth in Paragraph 9(y) and the environmental
indemnity set forth in Paragraph 12 shall survive the payment of such amounts by
Tenant to Landlord and the conveyance of Landlord's interest in the Leased
Property to Tenant.
(b) Remedies. Upon the occurrence of an Event of Default which
is not cured within any applicable period expressly permitted by subparagraph
(a), at Landlord's option and without limiting Landlord in the exercise of any
other right or remedy Landlord may have on account of such default, and without
any further demand or notice except as expressly described in this subparagraph
14 (b):
(i) By notice to Tenant, Landlord may terminate Tenant's
right to possession of the Leased Property. A notice given in connection with
unlawful detainer proceedings specifying a time within which to cure a default
shall terminate Tenant's right to possession if Tenant fails to cure the default
within the time specified in the notice.
(ii) Upon termination of Tenant's right to possession and
without further demand or notice, Landlord may re-enter the Leased Property and
take possession of all improvements, additions, alterations, equipment and
fixtures thereon and remove any persons in possession thereof. Any property in
the Leased Property may be removed and stored in a warehouse or elsewhere at the
expense and risk of and for the account of Tenant.
(iii) Upon termination of Tenant's right to possession,
this Lease shall terminate and Landlord may recover from Tenant:
a) The worth at the time of award of the unpaid Rent
which had been earned at the time of termination;
b) The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided;
c) The worth at the time of award of the amount by
which the unpaid Rent for the balance of the scheduled Term after the time of
award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; and
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d) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the costs and
expenses (including Attorneys' Fees, advertising costs and brokers' commissions)
of recovering possession of the Leased Property, removing persons or property
therefrom, placing the Leased Property in good order, condition, and repair,
preparing and altering the Leased Property for reletting, all other costs and
expenses of reletting, and any loss incurred by Landlord as a result of Tenant's
failure to perform Tenant's obligations under the Purchase Agreement.
The "worth at the time of award" of the amounts referred to in
subparagraph 14(b)(iii)a) and b) is computed by allowing interest at ten percent
(10%) per annum, or such other rate as may be the maximum interest rate then
permitted to be charged under California law at the time of computation. The
worth at the time of award of the amount referred to in subparagraph
14(b)(iii)c) is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
e) Such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time by applicable California
law.
(iv) Even though Tenant has breached this Lease and
abandoned the Leased Property, this Lease shall continue in effect for so long
as Landlord does not terminate Tenant's right to possession, and Landlord may
enforce all of Landlord's rights and remedies under this Lease, including the
right to recover the Rent as it becomes due under this Lease. Tenant's right to
possession shall not be deemed to have been terminated by Landlord except
pursuant to subparagraph 14(b)(i) hereof. The following shall not constitute a
termination of Tenant's right to possession:
a) Acts of maintenance or preservation or efforts to
relet the Leased Property;
b) The appointment of a receiver upon the initiative
of Landlord to protect Landlord's interest under this Lease; or
c) Reasonable withholding of consent to an assignment
or subletting, or terminating a subletting or assignment by Tenant.
(c) Remedies Cumulative. No right or remedy herein conferred
upon or reserved to Landlord is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute. In addition to other remedies provided in this
Lease,
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Landlord shall be entitled, to the extent permitted by applicable law, to
injunctive relief in case of the violation, or attempted or threatened
violation, of any of the covenants, agreements, conditions or provisions of this
Lease, or to a decree compelling performance of any of the other covenants,
agreements, conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity. Without limiting the generality of the
foregoing, nothing contained herein shall modify, limit or impair any of the
rights and remedies of Landlord under the Purchase Agreement or the
Environmental Indemnity.
(d) Limitation on Recovery Against Tenant for Title Defects.
Notwithstanding any other provisions to the contrary in this Paragraph 14 or
subparagraph 9(t) or 9(u) above, but subject to the provisions of this
subparagraph 14(d), Tenant's liability for any loss or damages to Landlord
resulting from Tenant's failure to cure any title defect affecting the Leased
Property shall be reduced on a dollar for dollar basis to the extent of any
payment (computed net of all costs of collection, including Attorneys' Fees)
paid to Landlord under any title insurance policy covering the Leased Property.
However, Tenant acknowledges and agrees that: (a) this subparagraph shall not be
construed as requiring Landlord to bring any action against any title insurance
company or incur any liability or expense to collect any such title insurance
proceeds unless prior to bringing any such action or incurring any such
liability or expense Landlord shall have received (1) an indemnification from
Tenant in connection therewith pursuant to an indemnification agreement
reasonably satisfactory to Landlord (which indemnification agreement shall in no
way limit any indemnification or other agreement provided herein), and (2) a
written commitment from Tenant in form and substance reasonably satisfactory to
Landlord whereby Tenant agrees to diligently prosecute a claim under the
applicable title insurance policy in the name of Landlord or Tenant, as
appropriate, using counsel and in a manner satisfactory to Landlord; (b)
Landlord shall be entitled to make any settlement it deems appropriate in its
sole and absolute discretion with any title insurance company because of a
defect in the title to the Leased Property without in any way limiting
Landlord's rights to recover from Tenant any loss or damage which is caused by
such defect and which is in excess of the net proceeds from such settlement
(provided, if Tenant has delivered an indemnification agreement and a commitment
to Landlord as described in the preceding clause (a), and so long as no Event of
Default hereunder and no breach by Tenant under such indemnification agreement
or commitment has occurred, Landlord will not enter into any such settlement
without first obtaining the prior written consent of Tenant); (c) under no
circumstances will any such settlement or any payment received and accepted from
a title insurance company be deemed to be a measure of the loss or damage
suffered because of any such title defect; (d) no payment of proceeds of any
title insurance policy shall reduce Tenant's obligation for Base Rent or any
other amount due hereunder, save and except only (1) the dollar for dollar
reduction of Tenant's liability for loss or damages resulting from Tenant's
failure to
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correct any title defect and (2) any reduction in Base Rent that results from
any Qualified Payments which are received from the proceeds of title insurance;
and (e) if for any reason whatsoever, this subparagraph is determined to
invalidate or reduce the coverage of, in whole or in part, any title insurance
policy existing in favor of Landlord, then this subparagraph (d) shall, at
Landlord's option, be void and Tenant's obligations under the other provisions
of this Paragraph 14 and subparagraphs 9(t) and 9(u) above shall be enforceable
with respect to any title defect affecting the Leased Property as though this
subparagraph were not a part of this Lease.
(e) Waiver by Tenant. To the extent permitted by law, Tenant
hereby waives and surrenders for itself and all claiming by, through and under
it, including creditors of all kinds, (i) any right and privilege which it or
any of them may have under any present or future constitution, statute or rule
of law to have a continuance of this Lease for the term hereby demised after
termination of Tenant's right of occupancy by order or judgment of any court or
by any legal process or writ, or under the terms of this Lease, or after the
termination of this Lease as herein provided, and (ii) the benefits of any
present or future constitution, or statute or rule of law which exempts property
from liability for debt or for distress for rent, and (iii) the provisions of
law relating to notice and/or delay in levy of execution in case of eviction of
a lessee for nonpayment of rent.
(f) Personal Liability. The liability of Landlord to Tenant
for any default by Landlord under the terms of this Lease shall be limited to
the interest of Landlord in the Leased Property and Landlord shall not be
personally liable for any deficiency on any judgment obtained by Tenant
hereunder.
(g) No Implied Waiver. The failure of Landlord to insist at
any time upon the strict performance of any covenant or agreement or to
exercise any option, right, power or remedy contained in this Lease shall not
be construed as a waiver or a relinquishment thereof for the future. The waiver
of or redress for any violation by Tenant of any term, covenant, agreement or
condition contained in this Lease shall not prevent a similar subsequent act
from constituting a violation. Any express waiver shall affect only the term or
condition specified in such waiver and only for the
time and in the manner specifically stated therein. A receipt by Landlord of any
Base Rent or other payment hereunder with knowledge of the breach of any
covenant or agreement contained in this Lease shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord.
(h) Attorneys' Fees and Legal Expenses. Tenant shall reimburse
Landlord for all Attorneys' Fees and other costs incurred in connection with the
preparation and negotiation of this Lease and the consummation of the
transactions contemplated herein.
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Tenant shall also pay to Landlord upon demand all Attorneys' Fees and all
expenses of Landlord incurred in enforcing any of the obligations of Tenant
under this Lease, provided Landlord is the prevailing party in cases where
litigation results from a dispute hereunder.
15. Quiet Enjoyment. Provided Tenant pays the Base Rent and all
Additional Rent payable hereunder as and when due and payable and keeps and
fulfills all of the terms, covenants, agreements and conditions to be performed
by Tenant hereunder, Landlord shall not during the Term disturb Tenant's
peaceable and quiet enjoyment of the Leased Property; however, such enjoyment
shall be subject to the terms, provisions, covenants, agreements and conditions
of this Lease and the Permitted Encumbrances and any other claims not lawfully
made by, through or under Landlord, to which this Lease is subject and
subordinate as hereinabove set forth. Any breach by Landlord of the foregoing
covenant of quiet enjoyment shall render Landlord liable to Tenant for any
monetary damages proximately caused thereby, but as more specifically provided
in Paragraph 5 above, no such breach shall entitle Tenant to terminate this
Lease or excuse Tenant from its obligation to pay Base Rent and other amounts
hereunder.
16. Surrender Upon Termination. Unless Tenant purchases the Landlord's
entire interest in the Leased Property pursuant to the terms of the Purchase
Agreement, Tenant shall, upon the termination of Tenant's right to occupancy,
surrender to Landlord the Leased Property, including any buildings, alterations,
improvements, replacements or additions constructed by Tenant, with all fixtures
and furnishings included in the Initial Improvements, but not including movable
furniture and movable personal property not covered by this Lease, free of all
Hazardous Substances and tenancies and, to the extent required by Landlord, with
all Initial Improvements in the same condition as on the date the same were
initially completed, excepting only (i) ordinary wear and tear (provided that
the Leased Property shall have been maintained as required by the other
provisions hereof), and (ii) alterations and additions which are expressly
permitted by the terms of this Lease and which have been completed by Tenant in
a good and workmanlike manner in accordance with all Applicable Laws. Any
movable furniture or movable personal property belonging to Tenant or any party
claiming under Tenant, if not removed at the time of such termination and if
Landlord shall so elect, shall be deemed abandoned and become the property of
Landlord without any payment or offset therefor. If Landlord shall not so elect,
Landlord may remove such property from the Leased Property and store it at
Tenant's risk and expense. Tenant shall bear the expense of repairing any damage
to the Leased Property caused by such removal by Landlord or Tenant.
17. Holding Over by Tenant. Should Tenant not purchase Landlord's
right, title and interest in the Leased Property as provided in the Purchase
Agreement, but nonetheless continue to hold the Leased Property after the
termination of this Lease,
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whether such termination occurs by lapse of time or otherwise, such holding over
shall constitute and be construed as a tenancy from day to day only, at a daily
Base Rent equal to: (i) Stipulated Loss Value on the day in question, times (ii)
(A) the Prime Rate in effect for such day so long as the holdover period does
not extend beyond ninety (90) days and (B) for each such day beginning with the
ninety-first day after the holdover commences, five percent (5%) above the Prime
Rate; divided by (iii) 360; subject, however, to all of the terms, provisions,
covenants and agreements on the part of Tenant hereunder. No payments of money
by Tenant to Landlord after the termination of this Lease shall reinstate,
continue or extend the Term of this Lease and no extension of this Lease after
the termination thereof shall be valid unless and until the same shall be
reduced to writing and signed by both Landlord and Tenant.
18. Estoppel Certificate. Tenant shall, at any time and from time to
time, upon request by Landlord, execute, acknowledge and deliver to Landlord a
statement in writing certifying that this Lease is unmodified and in full effect
(or, if there have been modifications, that this Lease is in full effect as
modified, and setting forth such modifications) and the dates to which the Base
Rent and Commitment Fees have been paid, and either stating that to the
knowledge of Tenant no default exists hereunder or specifying each such default
of which Tenant may have knowledge; it being intended that any such statement by
Tenant may be relied upon by any prospective purchaser or mortgagee of the
Leased Property or any prospective Participant.
19. Notices. Each provision of this Lease, or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or with reference to the
making of any payment by Tenant to Landlord, shall be deemed to be complied with
when and if the following steps are taken:
(i) All Rent required to be paid by Tenant to Landlord
hereunder shall be paid to Landlord in immediately available funds by wire
transfer to:
Banque Nationale de Paris
ABA # 121027234
Reference: Sun Microsystems, Inc.
or at such other place and in such other manner as Landlord may designate in a
notice to Tenant. Time is of the essence as to all payments and other
obligations under this Lease.
(ii) All notices and other communications to be made
hereunder to the parties hereto shall be in writing (at the addresses set forth
on the signature page of this Lease) and shall be given by any of the following
means: (A) personal service; (B) electronic communication, whether by telex,
telegram or telecopying (if confirmed in writing sent by registered or certified
first
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class mail, return receipt requested); or (C) registered or certified first
class mail, return receipt requested. Such addresses may be changed by notice to
the other parties given in the same manner as provided above. Any notice or
other communication sent pursuant to clause (A) or (B) hereof shall be deemed
received upon such personal service or upon dispatch by electronic means, and,
if sent pursuant to clause (C) shall be deemed received five (5) days following
deposit in the mail.
20. Severability. If any term or provision of this Lease or the
application thereof shall to any extent be invalid and unenforceable, the
remainder of this Lease, or the application of such term or provision other than
to the extent to which it is invalid or unenforceable, shall not be affected
thereby.
21. No Merger. There shall be no merger of this Lease or of the
leasehold estate hereby created with the fee estate in the Leased Property or
any part thereof by reason of the fact that the same person may acquire or hold,
directly or indirectly, this Lease or the leasehold estate hereby created or any
interest in this Lease or in such leasehold estate as well as the fee estate in
the Leased Property or any interest in such fee estate.
22. NO REPRESENTATIONS. LANDLORD AND LANDLORD'S AGENTS HAVE MADE NO
REPRESENTATIONS OR PROMISES WITH RESPECT TO THE LEASED PROPERTY EXCEPT AS
EXPRESSLY SET FORTH HEREIN, AND NO RIGHTS, EASEMENTS OR LICENSES ARE ACQUIRED BY
TENANT BY IMPLICATION OR OTHERWISE EXCEPT AS EXPRESSLY SET FORTH IN THE
PROVISIONS OF THIS LEASE.
23. Entire Agreement. This Lease and the instruments referred to herein
supersede any prior negotiations and agreements between the parties concerning
the Leased Property, including the Prior Lease and the Prior Purchase Agreement
(as defined in the Purchase Agreement), but not including the Environmental
Indemnity, and no amendment or modification of this Lease shall be binding or
valid unless expressed in a writing executed by both parties hereto. Tenant
ratifies and confirms the Environmental Indemnity as a separate and independent
continuing agreement.
24. Binding Effect. All of the covenants, agreements, terms and
conditions to be observed and performed by the parties hereto shall be
applicable to and binding upon their respective successors and, to the extent
assignment is permitted hereunder, their respective assigns.
25. Time is of the Essence. Time is of the essence as to all
obligations of Tenant and all notices required of Tenant under this Lease, but
this paragraph shall not limit Tenant's opportunity to prevent an Event of
Default by curing any breach within the cure period (if any) applicable under
Paragraph 14.
26. Termination of Prior Rights. Without limiting the rights and
obligations of Tenant under this Lease, Tenant acknowledges
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that any and all rights or interest of Tenant in and to the Land, the
improvements to the Land and to any other property included in the Leased
Property (except under this Lease and the Purchase Agreement) are hereby
superseded. Tenant quitclaims unto Landlord any interest Tenant has in or to the
Land, the improvements to the Land and to any other property included in Leased
Property (including any rights or interests created by the Prior Lease or the
Prior Purchase Agreement and any memorandum thereof recorded in real property
records applicable to the Leased Property), but Tenant does not by this
provision quitclaim or waive any rights and interests created by this Lease, the
Purchase Agreement or the Environmental Indemnity.
27. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of California.
28. Waiver. LANDLORD AND TENANT EACH HEREBY WAIVES ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS LEASE OR ANY OTHER DOCUMENT OR DEALINGS BETWEEN THEM RELATING TO THIS
LEASE OR THE LEASED PROPERTY. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including, without limitation,
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Tenant and Landlord each acknowledge that this waiver is a
material inducement to enter into a business relationship, that each has already
relied on the waiver in entering into this Lease and the other documents
referred to herein, and that each will continue to rely on the waiver in their
related future dealings. Tenant and Landlord each further warrants and
represents that it has reviewed this waiver with its legal counsel, and that it
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS LEASE OR THE LEASED
PROPERTY. In the event of litigation, this Lease may be filed as a written
consent to a trial by the court.
29. Default by Landlord. If Landlord should default in the performance
of any of its obligations under this Lease, Landlord shall have the time
reasonably required, but in no event less than thirty (30) days, to cure such
default after receipt of written notice from Tenant specifying such default and
specifying what action Tenant believes is necessary to cure the default. If
Tenant prevails in any litigation brought against Landlord because of Landlord's
failure to cure a default within the time required by the preceding sentence,
then Tenant shall be entitled to an award against Landlord for the damages
proximately caused to Tenant by such default, and Landlord shall pay to Tenant
upon demand all reasonable attorneys' fees and all expenses and court costs of
Tenant incurred in connection with such litigation.
-64-
<PAGE>
30. BCDC Permit Notice. As required by the terms of the amended Permit
No. 26-78 (the BCDC Permit) included in the Permitted Encumbrances, reference is
hereby expressly made to the public access and public parking provisions
contained therein.
31. Development Plan Notice. As required by the terms of the Las Pulgas
Community Development Plan, Tenant covenants by and for itself and its assigns
and all persons claiming under or through them that there shall be no
discrimination against, or segregation of, any person or group of persons on
account of race, color, creed, marital status, ancestry, religion, sex, or
national origin, in the sale, lease, sublease, transfer, use, occupancy, tenure,
or enjoyment of the premises herein leased, nor shall Tenant or any Person
claiming under or through Tenant establish or permit any such practice or
practices of discrimination or segregation with reference to the selection,
location, number, use or occupancy of tenants, lessees, subtenants, sublessees,
or vendees in the premises herein leased. The foregoing covenants shall run with
the land.
32. Tax Reporting. Landlord and Tenant shall report this Lease for
federal income tax purposes as a conditional sale, not an operating lease,
unless prohibited from doing so by the Internal Revenue Service. Similarly,
Tenant shall report all interest earned on Escrowed Proceeds or the Security
Deposit as Tenant's income for federal and state income tax purposes. If the
Internal Revenue Service shall challenge Landlord's characterization of this
Lease and the Purchase Agreement as a conditional sale for federal income tax
reporting purposes, Landlord shall notify Tenant in writing of such challenge
and consider in good faith any reasonable suggestions by Tenant about an
appropriate response. In any event, Tenant shall indemnify and hold harmless
Landlord from and against all liabilities, costs, additional taxes and other
expenses that may arise or become due because of such challenge or because of
any resulting recharacterization required by the Internal Revenue Service,
including any additional taxes that may become due upon any sale under the
Purchase Agreement to the extent (if any) that such additional taxes are not
offset by tax savings resulting from additional depreciation deductions or other
tax benefits to Landlord of the recharacterization.
-65-
<PAGE>
IN WITNESS WHEREOF, this Lease is hereby executed in multiple originals
as of the effective date above set forth.
"Landlord"
Address of Landlord: BNP LEASING CORPORATION
- --------------------
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201 By: /s/ Lloyd G. Cox
Attn: Lloyd Cox -------------------------------
Lloyd G. Cox, Vice President
With a copy to:
- ---------------
Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Jennifer Cho
Telecopy: (415) 296-8954
And with a copy to:
- -------------------
Clint Shouse
Thompson & Knight, P.C.
3300 First City Center
1700 Pacific Avenue
Dallas, Texas 75201
"Tenant"
Address of Tenant: SUN MICROSYSTEMS, INC.
- ------------------
Sun Microsystems, Inc.
2550 Garcia Ave.
Mountain View, Ca. 94043
MS PALI-211 By: /s/ Richard Barker
Attention: Robert Prantis ------------------------------
Richard Barker, Vice President
and Treasurer
With a copy to:
- ---------------
Sun Microsystems, Inc.
2550 Garcia Ave.
Mountain View, Ca. 94043
MS PALI-211
Attention: Charles Dolci, Esq.
-66-
<PAGE>
Exhibit A
Property Description
Parcels 2, 3, & 4
The land referred to herein is situated in the State of California, County of
San Mateo, City of Menlo Park and is described as follows:
Parcel A:
Parcels 2, 3, & 4 as shown on Parcel Map, lands of BNP Leasing Corporation,
filed February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive,
San Mateo County Records.
Reserving therefrom the easements set forth in Sections 5-1-1, 5-1-2, 5-1-6,
5-1-7, 5-1-8, 5-1-9 and 5-1-10 of the Declaration of Covenants, Conditions,
Restrictions and Easements recorded February 16, 1994, Series No. 94028453, San
Mateo County Records. Said easements are to be appurtenant to Parcel 1 as shown
on said parcel map.
Parcel B:
Non-exclusive and exclusive easements for the purposes of constructing, laying,
installing, operating, using, maintaining, altering, repairing, replacing,
inspecting and repairing utility service connections, service lines and similar
facilities, as contained in the Easement Agreement dated March 25, 1992 by and
between Raychem Corporation, a Delaware corporation, and BNP Leasing
Corporation, a Delaware corporation, recorded March 26, 1992 under Recorders
Serial No. 92042487, Official Records of San Mateo County, California being more
particularly described as follows:
BEGINNING at a point on the Northerly line of Rancho de las Pulgas, said point
being distant along said Northerly line South 81 22' 50" East 1989.00 feet (an
angle point in said Northerly line called PMC-13) and North 89 11' East 648.34
feet from the most Northeasterly corner of the boundary of the lands shown on a
Record of Survey Map recorded in Volume 3 of Licensed Land Surveyors Maps, at
page 120, San Mateo County Records; thence from said point of beginning along
said Northerly line North 89 11' East 1786.01 feet to a point on the Northerly
prolongation of the Westerly line of Willow Road, as said road is shown upon the
map of Newbridge Park, recorded in Volume 14 of Maps at pages 6 and 7, Records
of San Mateo County, California; thence along said prolongation South 22 02' 45"
West 485.29 feet to the Northerly line of Southern Pacific Company right of way;
thence along the last mentioned line, South 84 57' 30" West 1902.61 feet; thence
North 5 02' 30" West 100.00
<PAGE>
feet; thence North 84 57' 30" East 342.43 feet; thence North 5 02' 30" West
463.64 feet to the point of beginning.
EXCEPTING THEREFROM Parcel 46737-1 as contained in the Final Order of
Condemnation recorded July 27, 1983 under Recorders Serial No. 83078012,
Official Records of San Mateo County, California and being more particularly
described as follows:
COMMENCING at the Northeasterly corner of Parcel 6, as said Parcel 6 is
designated in the map entitled "RECORD OF SURVEY OF A PORTION OF THE LANDS
FORMERLY OWNED BY THE CARNDUFF SITUATED IN SECTION 24; TOWNSHIP 5 SOUTH, RANGE 3
WEST, M.D.B. AND M. AND IN THE RANCHO DE LAS PULGAS" filed in the office of the
Recorder of the San Mateo County, State of California, on October 29, 1965, in
Volume 6 of Licensed Land Survey Maps at page 66; thence along common line of
said Parcel 6 and Parcel 5 of said Record of Survey South 54 33' 08" West, 37.03
feet; thence from a tangent that bears South 82' 18' 07" West, along a curve to
the right with a radius of 2120.00 feet, through an angle of 2 07' 56", an arc
length of 78.90 feet; thence South 35 20' 07" West, 114.78 feet; thence South 18
44' 08" West, 0.42 feet to said common line of Parcel 6 and Parcel 5; thence
along last said line South 54' 33' 08" West 204.46 feet to the Westerly line of
said Parcel 5; thence along last said line South 23 08' 15" West, 106.70 feet to
the Southwesterly corner of said Parcel 5; thence leaving last said corner North
15 03' 57" East, 107.78 feet; thence North 0 11' 25" West, 172.12 feet; thence
along a tangent curve to the left with a radius of 45.00 feet, through an angle
of 81 13' 05", an arc length of 63.79 feet; North 81 24' 30" West 162.32 feet to
the Northerly line of Rancho de las Pulgas between PMC 13 to PMC 12; along last
said line South 89 38' 32" East 554.89 feet to the point of commencement.
Parcel C:
Easements set forth in Sections 5-1-1, 5-1-2, 5-1-6, 5-1-7, 5-1-8, 5-1-9 and
5-1-10 of the Declaration of Covenants, Conditions, Restrictions and Easements
recorded February 16, 1994, Series No. 94028453, San Mateo County Records, over
Parcel 1 as shown on Parcel Map, lands of BNP Leasing Corporation, filed
February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive, San
Mateo County Records. Said easements are to be appurtenant to Parcel A above.
Exhibit A, Page -2-
<PAGE>
Exhibit B
Permitted Encumbrances
Parcels 2, 3, & 4
This conveyance is subject to the following matters, but only to the
extent the same are still valid and in full force and effect:
(i) General and Special Taxes for the fiscal year 1994-95, now a lien,
amount not yet ascertainable.
(ii) General and Special Taxes for the fiscal year 1993-94, in the amount of
$201,146.56, each installment has been paid in full. (Code Area
008-080; A.P. No. 055-411-100; Affects additional property).
(iii) The Lien of Supplemental Taxes assessed pursuant to Chapter 3.5,
commencing with Section 75 of the California Revenue and Taxation Code.
(iv) Amendment to Reservation executed by Fred Carnduff, Chester Carnduff,
Edgar Carnduff, Jeanette Carnduff Thornton, Alfred A. Affinito and Bess
M. Affinito, dated June 6, 1968, recorded on June 14, 1968, as Document
No. 50849-AB in Book/Reel 5487 of the Official Records at page/image
381 of the Records of San Mateo County, California. Said amendment
modified the reservations contained in Grant Deed from Edgar Carnduff,
et al., to Nathaniel Hellman, et al., recorded on September 17, 1964,
in Book/Reel 4799 of the Official Records at page/image 48 of the
Records of San Mateo County, California. Said amendment quitclaims
rights in reserved minerals within the surface 500 feet except for two
one acre sites described as Parcels "E" and "F" together with 20 foot
wide access easements. Said amendment also amends the reservation for
access to property south of the Southern Pacific R.R. to except the
property herein described.
(v) Ordinance No. 670 of the Community Development Agency of the City of
Menlo Park, entitled "An Ordinance Adopting Community Development Plan
for the Las Pulgas Project Area and Making Certain Findings and
Determinations Pursuant to the Community Redevelopment Law of the State
of California," passed and adopted by the Community Development Agency
on November 24, 1981, a certified copy of which was recorded on
December 21, 1981, as Document No. 19388-AT of the Official Records of
San Mateo County, California.
Exhibit B -1-
<PAGE>
Ordinance No. 826 of the City Council of the City of Menlo Park,
entitled "An Ordinance of the City Council of the City of Menlo Park
adopting the First Amended and Restated Las Pulgas Community
Development Plan pursuant to the Community Redevelopment Law of the
State of California," passed and adopted by the City Council on
September 10, 1991, a certified copy of which was recorded on September
11, 1991, as Document No. 91120049 of the Official Records of San Mateo
County, California.
Statement of Institution of Amended Redevelopment Plan of the Las
Pulgas Community Development Plan which was recorded on September 11,
1991, as Document No. 91120050 of the Official Records of San Mateo
County, California.
(vi) Easements condemned in that certain Final Order of Condemnation under
Action No. 245918 entitled "The People of the State of California vs.
Raychem Corporation," recorded on July 27, 1983, as Document No.
83078012 (Parcel 45670-3, an easement for drainage purposes over an
irregular parcel in the Southeast corner of Parcel 4; Parcel 45670-4,
an easement for road purposes over a 20' x 60.29' parcel near the
Southeast corner of Parcel 4).
(vii) Relinquishment of Abutters Rights as contained in that certain Final
Order of Condemnation under Action No. 245918 entitled "The People of
the State of California vs. Raychem Corporation," recorded on July 27,
1983, as Document No. 83078012. Access is restricted to certain
portions of frontage along said condemned lands.
(viii) Resolution No. 785 of the Menlo Park Fire Protection District,
Resolution approving the annexation of certain Baylands to the Menlo
Park Fire Protection District, recorded on August 18, 1989, as Document
No. 89109745 of the Official Records of San Mateo County, California.
(ix) The terms, covenants and conditions as contained in Permit No. 26-78 by
and between the San Francisco Bay Conservation and Development
Commission and Raychem Corporation, recorded on March 18, 1991, under
Recorders Serial No. 91029676 of the Official Records of San Mateo
County, California. An Assignment of BCDC Permit, recorded on March 26,
1992, under Recorders Serial No. 92042489 of the Official Records of
San Mateo County, California. Amendment No. Four thereunder dated
August 13, 1993, recorded on September 9, 1993, Series No. 93152912.
(x) Development Agreement by and between the City of Menlo Park, a
municipal corporation of the State of California, and Sun Microsystems,
Inc., a Delaware corporation, dated November 29, 1991, recorded on
December 9, 1991, as
Exhibit B -2-
<PAGE>
Document No. 91160984 of the Official Records of San Mateo County,
California.
(xi) Easement for water meter over the property, as shown on the Parcel Map,
lands of BNP Leasing Corporation, filed February 16, 1994, Book 67 of
Parcel Maps, pages 36 through 38 inclusive, San Mateo County Records,
such strips to be kept open and free from buildings and structures of
any kind. Affects two 15 foot by 30 foot areas within Parcel 3 and one
15 foot by 30 foot area within Parcel 4. Includes right of ingress and
egress across the premises for construction, maintenance and use of the
water facilities.
(xii) Covenants, conditions, restrictions, limitations, reservations,
easements, exceptions, terms, assessments, liens and charges, but
deleting restrictions, if any, based on race, color, religion or
national origin as contained in the Declaration of Covenants,
Conditions, Restrictions and Easements for Sun Microsystems, Inc. Menlo
Park Campus executed by and between BNP Leasing Corporation, a Delaware
corporation, and Sun Microsystems, Inc., a Delaware corporation, dated
February 9, 1994, recorded on February 16, 1994, as Document No.
94028453 of the Official Records of San Mateo County, California. Said
instrument does not expressly provide for forfeiture of title in case
of violation. Said instrument does provide that a violation shall not
lessen the security of any Deed of Trust or Mortgage made in good faith
and for value. A lien for upkeep assessments was provided for in the
herein described declaration.
Exhibit B -3-
<PAGE>
EXHIBIT C
Construction Budget
Description Cost
Building Cost $ 49,353,000
Site Preparation 6,357,000
General Conditions/Fees 3,322,000
Fees & Permits 3,100,000
Architectural/Consultant Fees 4,000,000
Project Contingency 4,200,000
Telecommunication Equipment 10,728,000
Security & Safety Costs 765,000
Transaction Costs 675,000
Anticipated Capitalized Carrying Costs 9,000,000
Phase II Land 23,500,000
Total $115,000,000
Exhibit C -1-
<PAGE>
Exhibit C (continued)
Description of the Initial Improvements
1. Attached hereto as Exhibit C-1 is a project description taken from the
Owner/Architect Agreement between Tenant and Backen, Arrigoni and Ross,
Inc. The Initial Improvements shall consist only of "Phases II and III"
of the project described in this Exhibit C-1.
2. Attached hereto as Exhibit C-2 are outline specifications prepared for
the Initial Improvements. Such specifications are intended only to
illustrate the nature and quality of the Initial Improvements; the
specifications are not intended to be exhaustive.
3. Attached hereto as Exhibit C-3 are renderings of floor plans intended
only to illustrate the type and general appearance of the Initial
Improvements; the renderings are not intended to be complete or to show
all buildings included in the Initial Improvements.
Exhibit C -2-
<PAGE>
EXHIBIT D
Estoppel From Contractors
_________, 199__
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Re: Assignment of Construction Contract
Ladies and Gentlemen:
The undersigned hereby confirms, warrants and represents to BNP Leasing
Corporation, a Delaware corporation ("BNP"), and covenants with BNP as follows:
1. The undersigned has entered into that certain [****Construction
Contract] (the "Construction Contract") by and between the undersigned and Sun
Microsystems, Inc. ("Sun") dated____________, 199__ for the construction of
Phases II and III of the office complex to be constructed on the Menlo Park
campus leased by Sun (the "Improvements") located on the land described in
Exhibit A attached hereto and made a part hereof for all purposes (the "Land"
and, together with the Improvements and any other improvements now on or
constructed in the future on the Land, the "Project").
2. The undersigned has been advised that BNP owns the Land.
3. The undersigned has also received a copy of the Lease Agreement
(Phases II and III) dated as of September 23, 1994 (the "Lease"), pursuant to
which BNP is leasing the Project to Sun, and has agreed, subject to the terms
and conditions of the Lease, to provide a construction allowance for Sun's
construction of the Improvements. The Lease also requires Sun to fulfill all
obligations of the ["Owner"] under the Construction Contract and related
documents and to indemnify BNP against any liability arising thereunder, all as
more particularly provided in the Lease, reference to which is hereby made for
all purposes.
4. A complete and correct copy of the Construction Contract is attached
to this letter. The Construction Contract is in full force and effect and has
not been modified or amended.
5. The undersigned has not sent or received any notice of default or
any other notice for the purpose of terminating the Construction Contract, nor
is there any existing circumstance or
Exhibit D -1-
<PAGE>
BNP Leasing Corporation
_______________, 199___
Page 2
event which, but for the elapse of time or otherwise, would constitute a default
by the undersigned or the ["Owner"] under the Construction Contract.
The undersigned acknowledges and agrees that:
a). BNP shall not be held liable for, and the undersigned shall not
assert, any claims, demands or liabilities against BNP or, except for any
statutory lien rights, against the Project arising under or in any way relating
to the Construction Contract; provided, this paragraph will not prohibit the
undersigned from asserting any claims or making demands under the Construction
Contract if BNP elects in writing, pursuant to Paragraph b) below, to assume the
Construction Contract in the event Sun's right to possession of the Land is
terminated, in which event BNP shall be liable thereunder for (but only for) any
acts or omissions on the part of BNP occurring after the date on which BNP
notifies the undersigned of BNP's election to assume the Construction Contract.
b) Upon any termination of Sun's right to possession of the Project
under the Lease, including but not limited to any eviction of Sun resulting from
an Event of Default (as defined in the Lease), BNP may, by notice to the
undersigned and without the necessity of the execution of any other document,
assume Sun's rights and obligations under the Construction Contract, cure any
defaults by Sun thereunder and enforce the Construction Contract and all rights
of the ["Owner"] thereunder. Within ten (10) days of receiving notice from BNP
that Sun's right to possession has been terminated, the undersigned shall send
to BNP a written estoppel letter stating: (i) that the undersigned has not
performed any act or executed any other instrument which invalidates or modifies
the Construction Contract in whole or in part (or, if so, the nature of such
modification); (ii) that the Construction Contract is valid and subsisting and
in full force and effect; (iii) that there are no defaults or events of default
then existing under the Construction Contract and no event has occurred which
with the passage of time or the giving of notice, or both, would constitute such
a default or event of default (or, if there is a default, the nature of such
default in detail); (iv) that the construction contemplated by the Construction
Contract is proceeding in a satisfactory manner in all material respects (or if
not, a detailed description of all significant problems with the progress of
construction); (v) a reasonably detailed report of the then critical dates
projected by the undersigned for work and deliveries required to complete the
construction project; (vi) the total amount paid for construction through the
date of the letter; (vii) the estimated total cost of completing such
construction as of the date of the letter, together with a current draw
schedule; and (viii) any other information BNP may request to allow it to decide
whether to assume the Construction Contract. BNP shall have
Exhibit D -2-
<PAGE>
BNP Leasing Corporation
_______________, 199___
Page 3
thirty (30) days from receipt of such written certificate containing all such
requested information to decide whether to assume the Construction Contract. If
BNP fails to assume the Construction Contract within such time, the undersigned
agrees that BNP shall not be liable for (and the undersigned shall not assert or
bring any action against BNP or, except for any statutory lien rights not
waived, against the Land or improvements thereon for) any damages or other
amounts resulting from the breach or termination of the Construction Contract or
under any other theory of liability of any kind or nature, but rather the
undersigned shall look solely to Sun and any statutory lien rights not waived
for the recovery of any such damages or other amounts.
c). If BNP notifies the undersigned that BNP shall not assume the
Construction Contract pursuant to the preceding paragraph following the
termination of Sun's right to possession of the Project under the Lease, the
undersigned shall immediately discontinue the work under the Construction
Contract and remove its personnel from the Project, and BNP shall be entitled to
take exclusive possession of the Project and all or any part of the equipment
and materials delivered or en route to the Project. The undersigned shall also,
upon request by BNP, deliver and assign to BNP all plans and specifications and
other contract documents previously delivered to the undersigned (except that
the undersigned may keep an original set of the Construction Contract and other
contract documents executed by Sun), all other material relating to the work
which belongs to BNP or Sun, and all papers and documents relating to
governmental permits, orders placed, bills and invoices, lien releases and
financial management under the Construction Contract. Notwithstanding the
undersigned's receipt of any notice from BNP that BNP declines to assume the
Construction Contract, the undersigned shall for a period not to exceed fifteen
(15) days after receipt of such notice take such steps, at BNP's expense, as are
reasonably necessary to preserve and protect work completed and in progress and
to protect materials, equipment and supplies at the site or in transit.
d). No action taken by BNP or the undersigned with respect to the
Construction Contract shall prejudice any other rights or remedies of BNP or the
undersigned provided by law, by the Lease , by the Construction Contract or
otherwise against Sun.
e). The undersigned agrees promptly to notify BNP of any material
default or claimed material default by Sun under the Construction Contract,
describing with particularity the default and the action the undersigned
believes is necessary to cure the same. The undersigned will send any such
notice to BNP prominently marked "URGENT - NOTICE OF SUN MICROSYSTEMS's MATERIAL
DEFAULT UNDER CONSTRUCTION AGREEMENT WITH _______________ - MENLO PARK
CALIFORNIA" at the address specified for notice below (or at such
Exhibit D -3-
<PAGE>
BNP Leasing Corporation
_______________, 199___
Page 4
other addresses as BNP shall designate in notice sent to the undersigned), by
certified or registered mail, return receipt requested. Following receipt of
such notice, the undersigned will permit BNP or its designee to cure any such
default within the time period reasonably required for such cure, but in no
event less than thirty (30) days. If it is necessary or helpful to take
possession of all or any portion of the Project to cure a default by Sun under
the Construction Contract, the time permitted by the undersigned for cure by BNP
will include the time necessary to terminate Sun's right to possession of the
Project and evict Sun, provided that BNP commences the steps required to
exercise such right within sixty (60) days after it is entitled to do so under
the terms of the Lease and applicable law. If the undersigned incurs additional
costs due to the extension of the aforementioned cure period, the undersigned
shall be entitled to an equitable adjustment to the price of the Construction
Contract for such additional costs.
f). Any notice or communication required or permitted hereunder shall
be given in writing, sent by (a) personal delivery or (b) expedited delivery
service with proof of delivery or (c) United States mail, postage prepaid,
registered or certified mail or (d) telegram, telex or telecopy, addressed as
follows:
To the undersigned:
__________________________________
__________________________________
__________________________________
To BNP: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
g). The undersigned acknowledges that it has all requisite authority to
execute this letter. The undersigned further acknowledges that BNP has requested
this letter, and is relying on the truth and accuracy of the representations
made herein, in connection with BNP's decision to advance funds for construction
under the Lease with Sun.
Very truly yours,
__________________________________
By: ______________________________
Name: ________________________
Title : ______________________
Exhibit D -4-
<PAGE>
BNP Leasing Corporation
_______________, 199___
Page 5
Sun joins in the execution of this letter solely for the purpose of
evidencing its consent hereto, including its consent to the provisions that
would allow, but not require, BNP to assume the Construction Contract in the
event Sun is evicted from the Project.
Sun Microsystems, Inc.
By: ______________________________
Name: ________________________
Title : ______________________
Exhibit D -5-
<PAGE>
EXHIBIT E
Estoppel From Architects/Engineers
_________, 199__
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Re: Assignment of Construction Contract
Ladies and Gentlemen:
The undersigned hereby confirms, warrants and represents to BNP Leasing
Corporation, a Delaware corporation ("BNP"), and covenants with BNP as follows:
1. The undersigned has entered into that certain
[****Architects/Engineers Agreement] (the "Agreement") by and between the
undersigned and Sun Microsystems, Inc. ("Sun") dated , 199__ for the [***design]
of Phases II and III of the office complex to be constructed on the Menlo Park
campus leased by Sun (the "Improvements") located on the land described in
Exhibit A attached hereto and made a part hereof for all purposes (the "Land"
and, together with the Improvements and any other improvements now on or
constructed in the future on the Land, the "Project").
2. The undersigned has been advised that BNP owns the Land.
3. The undersigned has also received a copy of the Lease Agreement
(Phases II and III) dated as of September 23, 1994 (the "Lease"), pursuant to
which BNP is leasing the Project to Sun, and has agreed, subject to the terms
and conditions of the Lease, to provide a construction allowance for Sun's
construction of the Improvements. The Lease also requires Sun to fulfill all
obligations of the ["Owner"] under the Agreement and related documents and to
indemnify BNP against any liability arising thereunder, all as more particularly
provided in the Lease, reference to which is hereby made for all purposes.
4. A complete and correct copy of the Agreement is attached to this
letter. The Agreement is in full force and effect and has not been modified or
amended.
5. The undersigned has not sent or received any notice of default or
any other notice for the purpose of terminating the Agreement, nor is there any
existing circumstance or event which,
<PAGE>
BNP Leasing Corporation
______________, 199____
Page 2
but for the elapse of time or otherwise, would constitute a default by the
undersigned or the ["Owner"] under the Agreement.
The undersigned acknowledges and agrees that:
a) BNP shall not be held liable for, and the undersigned shall not
assert, any claims, demands or liabilities against BNP or, except for any
statutory lien rights, against the Project arising under or in any way relating
to the Agreement; provided, this paragraph will not prohibit the undersigned
from asserting any claims or making demands under the Agreement if BNP elects in
writing, pursuant to Paragraph b) below, to assume the Agreement in the event
Sun's right to possession of the Land is terminated, in which event BNP shall be
liable thereunder for (but only for) any acts or omissions on the part of BNP
occurring after the date on which BNP notifies the undersigned of BNP's election
to assume the Agreement.
b) Upon any termination of Sun's right to possession of the Project
under the Lease, including but not limited to any eviction of Sun resulting from
an Event of Default (as defined in the Lease), BNP may, by notice to the
undersigned and without the necessity of the execution of any other document,
assume Sun's rights and obligations under the Agreement, cure any defaults by
Sun thereunder and enforce the Agreement and all rights of the ["Owner"]
thereunder. Within ten (10) days of receiving notice from BNP that Sun's right
to possession has been terminated, the undersigned shall send to BNP a written
estoppel letter stating: (i) that the undersigned has not performed any act or
executed any other instrument which invalidates or modifies the Agreement in
whole or in part (or, if so, the nature of such modification); (ii) that the
Agreement is valid and subsisting and in full force and effect; (iii) that there
are no defaults or events of default then existing under the Agreement and no
event has occurred which with the passage of time or the giving of notice, or
both, would constitute such a default or event of default (or, if there is a
default, the nature of such default in detail); (iv) that the construction
contemplated by the Agreement is proceeding in a satisfactory manner in all
material respects (or if not, a detailed description of all significant problems
with the progress of construction); (v) a reasonably detailed report of the then
critical dates projected by the undersigned for work and deliveries required to
complete the construction project; (vi) the total amount paid for construction
through the date of the letter; (vii) the estimated total cost of completing
such construction as of the date of the letter, together with a current draw
schedule; and (viii) any other information BNP may request to allow it to decide
whether to assume the Agreement. BNP shall have thirty (30) days from receipt of
such written certificate containing all such requested information to decide
whether to assume the Agreement.
Exhibit E -2-
<PAGE>
BNP Leasing Corporation
______________, 199____
Page 3
If BNP fails to assume the Agreement within such time, the undersigned agrees
that BNP shall not be liable for (and the undersigned shall not assert or bring
any action against BNP or, except for any statutory lien rights not waived,
against the Land or improvements thereon for) any damages or other amounts
resulting from the breach or termination of the Agreement or under any other
theory of liability of any kind or nature, but rather the undersigned shall look
solely to Sun and any statutory lien rights not waived for the recovery of any
such damages or other amounts.
c) If BNP notifies the undersigned that BNP shall not assume the
Agreement pursuant to the preceding paragraph following the termination of Sun's
right to possession of the Project under the Lease, the undersigned shall
immediately discontinue the work under the Agreement and remove its personnel
from the Project, and BNP shall be entitled to take exclusive possession of the
Project and all or any part of the equipment and materials delivered or en route
to the Project. The undersigned shall also, upon request by BNP, deliver and
assign to BNP all plans and specifications and other contract documents
previously delivered to the undersigned (except that the undersigned may keep an
original set of the Agreement and other contract documents executed by Sun), all
other material relating to the work which belongs to BNP or Sun, and all papers
and documents relating to governmental permits, orders placed, bills and
invoices, lien releases and financial management under the Agreement.
Notwithstanding the undersigned's receipt of any notice from BNP that BNP
declines to assume the Agreement, the undersigned shall for a period not to
exceed fifteen (15) days after receipt of such notice take such steps, at BNP's
expense, as are reasonably necessary to preserve and protect work completed and
in progress and to protect materials, equipment and supplies at the site or in
transit.
d) No action taken by BNP or the undersigned with respect to the
Agreement shall prejudice any other rights or remedies of BNP or the undersigned
provided by law, by the Lease, by the Agreement or otherwise against Sun.
e) The undersigned agrees promptly to notify BNP of any material
default or claimed material default by Sun under the Agreement, describing with
particularity the default and the action the undersigned believes is necessary
to cure the same. The undersigned will send any such notice to BNP prominently
marked "URGENT - NOTICE OF SUN MICROSYSTEMS's MATERIAL DEFAULT UNDER AGREEMENT
WITH _______________ - MENLO PARK CALIFORNIA" at the address specified for
notice below (or at such other addresses as BNP shall designate in notice sent
to the undersigned), by certified or registered mail, return receipt requested.
Following receipt of such notice, the undersigned will permit BNP or its
designee to cure any such default within the time period reasonably
Exhibit E -3-
<PAGE>
BNP Leasing Corporation
______________, 199____
Page 4
required for such cure, but in no event less than thirty (30) days. If it is
necessary or helpful to take possession of all or any portion of the Project to
cure a default by Sun under the Agreement, the time permitted by the undersigned
for cure by BNP will include the time necessary to terminate Sun's right to
possession of the Project and evict Sun, provided that BNP commences the steps
required to exercise such right within sixty (60) days after it is entitled to
do so under the terms of the Lease and applicable law.
f) Any notice or communication required or permitted hereunder shall be
given in writing, sent by (a) personal delivery or (b) expedited delivery
service with proof of delivery or (c) United States mail, postage prepaid,
registered or certified mail or (d) telegram, telex or telecopy, addressed as
follows:
To the undersigned:
__________________________________
__________________________________
__________________________________
To BNP: BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
g) The undersigned acknowledges that it has all requisite authority to
execute this letter. The undersigned further acknowledges that BNP has requested
this letter, and is relying on the truth and accuracy of the representations
made herein, in connection with BNP's decision to advance funds for construction
under the Lease with Sun.
Very truly yours,
___________________________________
By: ______________________________
Name: ________________________
Title : ______________________
Exhibit E -4-
<PAGE>
BNP Leasing Corporation
______________, 199____
Page 4
Sun joins in the execution of this letter solely for the purpose of
evidencing its consent hereto, including its consent to the provisions that
would allow, but not require, BNP to assume the Agreement in the event Sun is
evicted from the Project.
Sun Microsystems, Inc.
By: ______________________________
Name: ________________________
Title : ______________________
Exhibit E -5-
<PAGE>
Exhibit F
COVENANT COMPLIANCE CERTIFICATE
BNP Leasing Corporation
717 North Harwood Street
Suite 2630
Dallas, Texas 75201
Attention: Lloyd Cox
Gentlemen:
I, the undersigned, the _____________________________ of Sun
Microsystems, Inc., do hereby certify, represent and warrant that:
1. This Certificate is furnished pursuant to subparagraph 9(w)(iii) of
that certain Lease Agreement (Phases II and III) dated as of September 23, 1994
(the "Lease Agreement," the terms defined therein being used herein as therein
defined) between Sun Microsystems, Inc. (the "Tenant"), and you.
2. Schedule 1 attached hereto sets forth financial data and
computations evidencing the Tenant's compliance with certain covenants included
in the Lease Agreement by reference to a Revolving Credit Agreement described
therein, all of which data and computations are complete, true and correct.
3. No Default or Event of Default under the Lease Agreement has
occurred and is continuing.
4. The representations and warranties set forth in Paragraph 9 of the
Lease Agreement are true and correct as of the date hereof as though made on and
as of the date hereof.
Executed this _____ day of ______________, 19___.
______________________________
Name:_________________________
Title:________________________
Exhibit F -1-
<PAGE>
Schedule 1
To
Compliance Certificate
For the _________________ Ended ________________, 19___
I. Section 5.01(h) of the Revolving Credit Agreement: Debt to Consolidated
Tangible Net Worth
A. Total Debt: $_____________
B. Consolidated total assets: $_____________
C. Consolidated total liabilities: $_____________
D. Intangibles and other exclusions (if any): $_____________
E. Consolidated Tangible Net Worth (B - C - D): $_____________
F. Ratio of A to E: _____ to 1.00
I. Maximum ratio: .45 to 1.00
II. Section 5.01(i) of the Revolving Credit Agreement: : Fixed Charge Ratio
A. Adjusted EBIT for previous 12 months: $____________
B. Fixed Charges for previous 12 months: $____________
C. Ratio of A to B: _____ to 1.00
D. Minimum ratio: *1.25 to 1.00
* applicable to the twelve month period ending on the last day of the first
fiscal quarter of any fiscal year of Tenant
** applicable to the twelve month periods ending on the last day of the second,
third or fourth fiscal quarters of any fiscal year of Tenant
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<PAGE>
III. Section 5.02(h) of the Revolving Credit Agreement: Subsidiary Debt
A. U.S. Subsidiary Debt: $____________
B. Maximum Subsidiary Debt: $120,000,000
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<PAGE>
Schedule 1
LIST OF PARTICIPANTS
1. Banque Nationale de Paris
c/o Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, CA 94104
Attention: Jennifer Cho
Telephone: (415) 956-0707 (ext. 205)
Facsimile: (415) 296-8954
Telex: RCA 278900
Answerback: BNP UR
2. The Sumitomo Bank, Limited
San Francisco Branch
555 California Street, Suite 3350
San Francisco, CA 94104
Attention: Herman White, Jr.
Telephone: (415) 616-3009
Facsimile: (415) 397-1475
Telex: 46910340
Answerback: SUMIT SF
3. The Toronto-Dominion Bank
909 Fannin #1700
Houston, Texas 77010
Attention: Mark G. Fields
Telephone: (713) 653-8225
Facsimile: (713) 652-2647
4. The Industrial Bank of Japan, Limited
San Francisco Agency
555 California Street, Suite 1610
San Francisco, CA 94104
Attention: Greg Stewart
Telephone: (415) 981-3131
Facsimile: (415) 982-1917
Telex: 49608738
Answerback: IBJ SFO
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<PAGE>
5. Royal Bank of Canada
Grand Cayman (North America No. 1) Branch
c/o New York Operations Center
Pierrepont Plaza
300 Cadman Plaza West
Brooklyn, New York 11201-2701
Attention: Manager, Loans Administration
Telephone: (212) 858-7168
Facsimile: (718) 522-6292
Telex: 420464 (RBOCUI Royal Bank)
62519 (Royal Bank)
With a copy to:
Royal Bank of Canada
600 Wilshire Blvd., Suite 800
Los Angeles, CA 90017
Attention: Stephen S. Hughes
Telephone (213) 955-5316, Facsimile: (213) 955-5350
6. Bayerische Vereinsbank AG, Cayman Islands Branch
c/o Bayerische Vereinsbank AG, Los Angeles Agency
800 Wilshire Blvd., Suite 1600
Los Angeles, CA 91754
Attention: Christine Taylor
Telephone: (213) 629-1821
Facsimile: (213) 622-6341
-2-
<PAGE>
AMENDED AND RESTATED PURCHASE AGREEMENT
(PHASES II and III)
This AMENDED AND RESTATED PURCHASE AGREEMENT (PHASES II and III) (this
"Agreement") is made as of September 23, 1994, by SUN MICROSYSTEMS, INC., a
Delaware corporation ("Sun") and BNP LEASING CORPORATION, a Delaware corporation
("BNPLC").
RECITALS
A. BNPLC has acquired the land and easements described in Exhibit A
attached hereto and any improvements and fixtures located thereon and has been
leasing the same to Sun pursuant to that certain Lease Agreement (Phases II and
III) (as from time to time supplemented, amended or restated, the "Prior Lease")
between Sun and BNPLC dated as of September 25, 1992. (The land and easements
described in EXHIBIT A and any and all other real or personal property from time
to time covered by the Lease and included within the "Leased Property" as
defined therein are hereinafter collectively referred to as the "Property".)
B. BNPLC also concurrently with the execution of the Prior Lease,
received a separate environmental indemnity from Sun pursuant to an
Environmental Indemnity Agreement (as from time to time supplemented, amended or
restated, the "Environmental Indemnity") between Sun and BNPLC dated as of
September 25, 1992.
C. BNPLC also, concurrently with the execution of the Prior Lease,
entered into a Purchase Agreement (Phases II and III) with Sun dated September
25, 1992 (as from time to time supplemented, amended or restated, the "Prior
Purchase Agreement").
D. Sun has among other things, requested permission to construct
improvements on the Property and in connection therewith has entered into that
certain Amended and Restated Lease Agreement (Phases II and III) (as from time
to time supplemented, amended or restated, the "Lease") between Sun and BNPLC
dated as of the date hereof, which Lease amends and restates the Prior Lease in
its entirety.
E. Sun is concurrently herewith ratifying and confirming its separate
Environmental Indemnity (supplemented, amended or restated) executed for the
benefit of BNPLC.
F. In connection with the execution of the Lease, Sun has agreed to
purchase or procure a third party to purchase the Property, on and subject to
the terms and conditions set out in
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<PAGE>
this Agreement, with the understanding that this Agreement shall amend and
restate the Prior Purchase Agreement in its entirety.
NOW, THEREFORE, in consideration of the above recitals and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions. As used herein, the terms "Sun", "BNPLC", "Prior
Lease", "Property", "Environmental Indemnity", "Prior Purchase Agreement" and
"Lease" shall have the meanings indicated above, and the terms listed
immediately below shall have the following meanings:
Applicable Purchaser. "Applicable Purchaser" means any third party
designated by Sun to purchase the interest of BNPLC in the Property as provided
in Paragraph 2(a)(ii) below.
BNPLC's Investment. "BNPLC's Investment" shall mean the sum of
$24,200,000 plus all Construction Advances (as defined in the Lease) and accrued
Carrying Costs (as defined in the Lease), less Qualified Payments (as defined in
the Lease), if any. For purposes of this definition Construction Advances,
Carrying Costs and Qualified Payments will be determined as of the Designated
Payment Date or other date for which BNPLC's Investment is being determined.
Business Day. "Business Day" means any day that is (1) not a Saturday,
Sunday or day on which commercial banks are generally closed or required to be
closed in New York City, New York, and (2) a day on which dealings in deposits
of dollars are transacted in the London interbank market; provided that if such
dealings are suspended indefinitely for any reason, "Business Day" shall mean
any day described in clause (1).
Change of Control Event. "Change of Control Event" means the occurrence
of any of the following: (i) any corporation or Person (as defined in the
Lease), or a group of related corporations or Persons, shall acquire (a)
beneficial ownership of in excess of 50% of the outstanding Voting Stock of Sun,
or (b) all or substantially all of the assets of Sun, or (ii) a majority of the
Board of Directors of Sun is, at any time, composed of persons other than (a)
persons who were members of such Board on the date of this Agreement, (b)
successors to such persons elected or nominated in the ordinary course of
business, and (c) any person who has served as a member of such Board for at
least the prior 12 months.
Designated Payment Date. "Designated Payment Date" means the Payment
Date on which pursuant to Paragraph 2(a) below Sun must purchase or arrange for
the sale of BNPLC's interest in the Property under this Agreement, which date
shall be the earlier of: (1) the Payment Date upon which the last payment of
Base Rent
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<PAGE>
is required under the Lease (whether such date occurs on October 1, 1999, or
earlier because of an early termination of the Lease pursuant to Paragraph 2
thereof or otherwise); (2) any Payment Date after a Change of Control Event or
an Event of Default by Sun has occurred, provided such Payment Date is
designated in a written notice from BNPLC to Sun at least ten (10) days before
such Payment Date; (3) any Payment Date after a default by BNPLC under the Lease
has occurred which BNPLC has failed to cure within the time permitted by
Paragraph 29 of the Lease, provided such Payment Date is designated in a written
notice from Sun to BNPLC at least ten (10) days before such Payment Date; or (4)
any Payment Date specified by Tenant as the Designated Payment Date pursuant to
Paragraph 14(a) of the Lease.
Event of Default. "Event of Default" by Sun means any Event of Default
under the Lease as described in Paragraph 14 thereof.
Fair Market Value. "Fair Market Value" means an amount not less than
the fair market value of the Property (calculated under the assumption that Sun
has maintained the Property in compliance with all applicable laws, including
laws relating to health, safety and the environment, as required by the Lease)
on or about the Designated Payment Date as determined by an independent MAI
appraiser selected by BNPLC, which appraiser must have five (5) years or more
experience appraising properties in northern California.
Payment Date. "Payment Date" means the first Business Day of any
calendar month.
Purchase Price. "Purchase Price" means an amount equal to BNPLC's
Investment outstanding on the Designated Payment Date, plus all costs and
expenses (including appraisal costs, withholding taxes (if any) and reasonable
Attorneys' Fees [as defined in the Lease]) incurred in connection with any sale
of the Property by BNPLC hereunder.
Required Documents. "Required Documents" shall have the meaning
assigned to it in Paragraph 3 below.
Shortage Amount. "Shortage Amount" means any amount payable to BNPLC by
Sun, rather than by the Applicable Purchaser pursuant to clause 2(a)(ii) below.
Voting Stock. "Voting Stock" of Sun means any shares of stock of Sun
whose holders are entitled under ordinary circumstances to vote for the election
of directors of Sun (irrespective of whether at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
2. Sun's Obligations on the Designated Payment Date
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<PAGE>
(a) Choices. On the Designated Payment Date Sun must satisfy the
obligations specified in either of the following clauses, unless excused in
writing by BNPLC:
(i) Sun shall purchase BNPLC's interest in the Property
and in Escrowed Proceeds (as defined in the Lease),
if any, for a net cash price equal to the Purchase
Price.
(ii) Sun shall cause the Applicable Purchaser to purchase
BNPLC's interest in the Property and in Escrowed
Proceeds, if any, for a net cash price not less than
the lesser of (a) the Fair Market Value or (b)
fifteen percent (15%) of BNPLC's Investment
outstanding immediately prior to the purchase.
However, if the Fair Market Value is less than
fifteen percent (15%) of BNPLC's Investment and if
Sun has elected to satisfy its obligations under this
clause (ii), BNPLC may elect to keep the Property and
any Escrowed Proceeds rather than sell it to the
Applicable Purchaser, in which case Sun shall pay
BNPLC an amount equal to eighty-five percent (85%) of
BNPLC's Investment. Unless BNPLC elects to keep the
Property pursuant to the preceding sentence, Sun
must, if Sun elects to satisfy its obligations under
this clause (ii) rather than clause (i) above, also
make a supplemental payment to BNPLC on the
Designated Payment Date equal to the excess (if any)
of the Purchase Price over the net cash price
actually paid on the Designated Payment Date for
BNPLC's interest in the Property and in Escrowed
Proceeds, if any, by the Applicable Purchaser, but in
no event will any such supplemental payment exceed
eighty-five percent (85%) of BNPLC's Investment
outstanding immediately prior to such purchase.
Amounts payable to BNPLC by Sun, rather than by the
Applicable Purchaser, pursuant to this clause (ii)
are hereinafter referred to as the "Shortage Amount."
If the net cash price actually paid by the Applicable
Purchaser to BNPLC exceeds the Purchase Price and all
other sums that are then due from Sun to BNPLC, Sun
shall be entitled to such excess.
(b) Right to Purchase and Election by Sun. Even if BNPLC is willing to
excuse Sun's obligations under Subparagraph (a), Sun shall have the option and
right to purchase BNPLC's interest in the Property and in Escrowed Proceeds, if
any, as contemplated in clause (i) of the preceding Subparagraph (a) by
tendering the Purchase Price to BNPLC, subject only to subparagraph (c). Sun
shall also have the right to elect whether it will satisfy the
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<PAGE>
obligations set out in clause (i) or (ii) of the preceding Subparagraph (a);
provided, however, that Sun must notify BNPLC of its election in writing at
least seven (7) days prior to the Designated Payment Date. If Sun fails to so
notify BNPLC, Sun will be deemed to have elected to satisfy the obligations set
out in clause (i).
(c) Termination of Sun's Option. Without limiting BNPLC's right to
require Sun to satisfy the obligations imposed by subparagraph 2(a), Sun shall
have no further option under subparagraph 2(b) if either:
(1) Sun shall have elected to satisfy its obligations under
clause (ii) of subparagraph 2(a) on a prior Designated Payment Date and BNPLC
shall have elected to keep the Property on such Designated Payment Date in
accordance with clause (ii) of subparagraph 2(a); or
(2) Sun shall have failed on a prior Designated Payment Date
to make or cause to be made all payments to BNPLC required by this Agreement or
by the Lease and such failure shall have continued beyond the thirty (30) day
period for tender specified in the next sentence.
If BNPLC does not receive all payments due under the Lease and all payments
required hereunder on a Designated Payment Date, Sun may nonetheless tender to
BNPLC the full Purchase Price, together with interest on the total Purchase
Price computed at the Default Rate from the Designated Payment Date to the date
of tender, and if presented with such a tender within thirty (30) days after the
applicable Designated Payment Date, BNPLC must accept it and promptly deliver
any Escrowed Proceeds and a deed and all other documents required to convey
BNPLC's interest in the Property to Sun as listed in Paragraph 3.
(d) Payment to BNPLC. All amounts payable under the preceding
subparagraphs (a) or (c) by Sun and, if applicable, by the Applicable Purchaser
shall be paid to BNPLC. In no event will a payment directly to any other party
be effective for the purposes of this Agreement. BNPLC will remit any excess
amounts due Sun pursuant to the last sentence of clause (ii) of Subparagraph (a)
promptly after BNPLC's receipt of the same.
3. Terms of Conveyance Upon Purchase. Promptly following the payment or
payments to BNPLC required pursuant to the preceding Paragraph 2, BNPLC must,
unless it is to keep the Property as permitted by Paragraph 2(a)(ii), deliver
Escrowed Proceeds, if any, and convey all of its right, title and interest in
the Property by grant deed to Sun or the Applicable Purchaser, as the case may
be, subject only to the Permitted Encumbrances (as defined in the Lease) and any
other encumbrances for which BNPLC is not responsible under subparagraph 10(a)
of the Lease. However, such conveyance shall not include the right to receive
-5-
<PAGE>
any payment under the Lease then due BNPLC or that may become due thereafter
because of any expense or liability incurred by BNPLC resulting in whole or in
part from events or circumstances occurring before such conveyance. All costs of
such purchase and conveyance of every kind whatsoever, both foreseen and
unforeseen (excluding only BNPLC's home office overhead costs and expenses),
shall be the responsibility of the purchaser, and the form of grant deed used to
accomplish such conveyance shall be substantially in the form attached as
EXHIBIT B. With such grant deed, BNPLC shall also tender the following, each
fully executed and, where appropriate, acknowledged on BNPLC's behalf by an
officer of BNPLC: (1) a Preliminary Change of Ownership Report in the form
attached as EXHIBIT C, (2) a Bill of Sale and Assignment of Contract Rights and
Intangible Assets in the form attached as EXHIBIT D, (3) an Assignment of BCDC
Permit in the form attached as EXHIBIT E, (4) an Acknowledgment of Disclaimer of
Representations and Warranties, in the form attached as EXHIBIT F, which Sun or
the Applicable Purchaser must execute and return to BNPLC, (5) a Documentary
Transfer Tax Request in the form attached as EXHIBIT G, (6) a Secretary's
Certificate in the form attached as EXHIBIT H, (7) a letter to First American
Title Insurance Company in the form attached as EXHIBIT I, and (8) a certificate
concerning tax withholding in the form attached as EXHIBIT J (which documents,
together with the grant deed, are herein called the "Required Documents").
It is the intent of the parties that BNPLC's delivery of the Required
Documents shall convey all right, title and interest BNPLC then has in and to
the Leased Property and the appurtenances thereto. Accordingly, if after the
Delivery of the Required Documents and BNPLC's receipt of the payments required
to be made to BNPLC by this Agreement, it is discovered that the Required
Documents were insufficient for such intended purpose, then BNPLC shall execute
such additional documents as Tenant may reasonably request to accomplish the
conveyance of all right, title and interest of BNPLC in and to the Leased
Property and the appurtenances thereto; provided, that no such additional
documents shall increase BNPLC's obligations for title defects or other matters
beyond the obligations imposed upon BNPLC by the Required Documents themselves.
If the Property is sold to the Applicable Purchaser pursuant to clause
(ii) of Paragraph 2(a), then, either:
(a) The Applicable Purchaser must assume in writing Sun's obligations
under the Environmental Indemnity and provide a new environmental indemnity to
BNPLC comparable in scope and form to the Environmental Indemnity and otherwise
reasonably acceptable to BNPLC, but providing that the Release Date (as defined
in the Environmental Indemnity) shall not occur before the Applicable Purchaser
conveys all its interest in the Property to an unaffiliated transferee. Further,
to provide BNPLC with assurance that the Applicable Purchaser has the financial
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<PAGE>
capability to satisfy its indemnity obligations, the Applicable Purchaser or a
guarantor of such obligations under an unconditional and absolute guaranty in
form and substance satisfactory to BNPLC must have a net worth as of the
Designated Payment Date, as shown on current financial statements audited by a
recognized accounting firm of national standing, of no less than $50,000,000.00;
or
(b) Sun must confirm and ratify its obligations under the Environmental
Indemnity and agree to modify the Environmental Indemnity to provide that the
Release Date (as defined in the Environmental Indemnity) shall not occur before
the Applicable Purchaser conveys all its interest in the Property to an
unaffiliated transferee. Such modification shall also expressly provide that the
Environmental Indemnity shall cover any and all Environmental Losses (as defined
in the Environmental Indemnity) asserted against an "Indemnified Party"
thereunder by the Applicable Purchaser or any affiliate of the Applicable
Purchaser.
4. Survival of Sun's Obligations.
(a) Status of this Agreement. Except as expressly provided herein, this
Agreement shall not terminate, nor shall Sun or BNPLC have any right to
terminate this Agreement, nor shall Sun be entitled to any reduction of the
Purchase Price hereunder, nor shall the obligations of Sun to BNPLC under
Paragraph 2 or BNPLC to Sun under Paragraph 3 be affected by reason of (i) any
damage to or the destruction of all or any part of the Property from whatever
cause, (ii) the taking of or damage to the Property or any portion thereof under
the power of eminent domain or otherwise for any reason, (iii) the prohibition,
limitation or restriction of Sun's use of all or any portion of the Property or
any interference with such use by governmental action or otherwise, (iv) any
eviction of Sun or any party claiming under Sun by paramount title or otherwise,
(v) Sun's acquisition or ownership of all or any part of the Property, (vi) any
default on the part of BNPLC under this Agreement, the Lease or any other
agreement to which BNPLC is a party, or (vii) any other cause, whether similar
or dissimilar to the foregoing, any existing or future law to the contrary
notwithstanding. It is the intention of the parties hereto that the obligations
of Sun to make payment to and, if applicable, to cause the Applicable Purchaser
to make payment to BNPLC under Paragraph 2 shall be separate and independent
covenants and agreements from BNPLC's obligation under Paragraph 3 to convey the
Property pursuant to this Agreement; provided, however, that BNPLC shall not
refuse to tender a grant deed and the other Required Documents in substantially
the form attached hereto as exhibits as required by Paragraph 3
contemporaneously with the tender by Sun and/or the Applicable Purchaser of such
payments and of the other documents to be executed in favor of BNPLC at the
closing of the sale. Accordingly, the Purchase Price and the Shortage Amount, as
the
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<PAGE>
case may be under Paragraph 2, shall continue to be payable in all events (other
than BNPLC's failure to so tender the Required Documents), and the obligations
of Sun hereunder shall continue unaffected, unless the requirement to pay or
perform the same shall have been terminated or limited pursuant to an express
provision of this Agreement. If BNPLC does refuse to tender the Required
Documents as required by Paragraph 3, BNPLC may cure such refusal at any time
before thirty (30) days after receipt of a written demand for such cure from
Sun.
(b) Remedies Under the Lease and Environmental Indemnity. No
repossession of or re-entering upon the Property or exercise of any other
remedies available under the Lease or the Environmental Indemnity shall relieve
Sun of its liabilities and obligations hereunder, all of which shall survive the
exercise of remedies under the Lease and Environmental Indemnity. Sun
acknowledges that the consideration for this Agreement is separate and
independent of the consideration for the Lease and Environmental Indemnity, and
Sun's obligations hereunder shall not be affected or impaired by any event or
circumstance that would excuse Sun from performance of its obligations under the
Lease or the Environmental Indemnity.
5. Remedies Cumulative. No right or remedy herein conferred upon or
reserved to BNPLC is intended to be exclusive of any other right or remedy BNPLC
has with respect to the Property, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute. In addition to other
remedies available under this Agreement, BNPLC shall be entitled, to the extent
permitted by applicable law, to a decree compelling performance of any of Sun's
agreements hereunder.
6. No Implied Waiver. The failure of either party to this Agreement to
insist at any time upon the strict performance of any covenant or agreement of
the other party or to exercise any remedy contained in this Agreement shall not
be construed as a waiver or a relinquishment thereof for the future. The waiver
by either party of or redress for any violation of any term, covenant, agreement
or condition contained in this Agreement shall not prevent a subsequent act,
which would have originally constituted a violation, from having all the force
and effect of an original violation. No express waiver by either party shall
affect any condition other than the one specified in such waiver and that one
only for the time and in the manner specifically stated. A receipt by BNPLC of
any payment hereunder with knowledge of the breach of this Agreement shall not
be deemed a waiver of such breach, and no waiver by BNPLC of any provision of
this Agreement shall be deemed to have been made unless expressed in writing and
signed by BNPLC.
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<PAGE>
7. Attorneys' Fees and Legal Expenses. If any party hereto commences
any legal action or other proceeding against the other party hereto to enforce
any of the terms of this Agreement or the documents and agreements referred to
herein, or because of any breach or dispute hereunder or thereunder, the
successful or prevailing party shall be entitled to recover from the losing
party Attorneys' Fees, whether or not such controversy, claim or dispute is
prosecuted to a final judgment; provided, however, if the losing party is
entitled to and does appeal any judgment resulting from a lawsuit or other
proceeding filed with respect hereto or thereto, then the prevailing party shall
be determined upon the issuance of a final, non-appealable order with respect to
such lawsuit or other proceeding. As used herein, the term "Attorneys' Fees"
shall have the meaning given such term in the Lease.
8. Estoppel Certificate. Each party hereto will, upon not less than
twenty (20) days' prior request by the other party, execute, acknowledge and
deliver to the requesting party a written statement certifying that this
Agreement is unmodified and in full effect (or, if there have been
modifications, that this Agreement is in full effect as modified, and setting
forth such modification) and either stating that to the knowledge of the signer
of such certificate no default exists hereunder or specifying each such default
of which the signer may have knowledge; it being intended that any such
statement may be relied upon by any prospective purchaser or assignee of the
requesting party with respect to the Property. Neither party shall be required
to provide such a certificate more frequently than once in any six month period;
provided, however, that if a requesting party determines that there is a
significant business reason for requiring a current certificate, including,
without limitation, the need to provide such a certificate to a prospective
purchaser or assignee, then the other party shall provide a certificate whether
or not it had provided a certificate within the prior six month period.
9. Notices. Each provision of this Agreement referring to the sending,
mailing or delivery of any notice or referring to the making of any payment to
BNPLC, shall be deemed to be complied with when and if the following steps are
taken:
(a) All payments required to be made by Sun or the Applicable
Purchaser to BNPLC hereunder shall be paid to BNPLC in immediately
available funds in accordance with the payment instructions set forth
in the Lease or as BNPLC may otherwise direct by written notice sent in
accordance herewith. Time is of the essence as to all payments required
hereunder and other obligations of Sun. All payments required to be
made by BNPLC to Sun pursuant to the last sentence of clause (ii) of
Paragraph 2(a) shall be paid to Sun in immediately available funds at
the address of Sun
-9-
<PAGE>
set forth below or as Sun may otherwise direct by written notice sent
in accordance herewith.
(b) All notices and other communications to be made hereunder
to the parties hereto shall be in writing (at the addresses set forth
below) and shall be given by any of the following means: (1) personal
service; (2) electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by registered or certified
first class mail, return receipt requested); or (3) registered or
certified first class mail, return receipt requested. Such addresses
may be changed by notice to the other parties given in the same manner
as provided above. Any notice or other communication sent pursuant to
clause (1) or (2) shall be deemed received upon such personal service
or upon dispatch by electronic means except for telecopies, and, if
telecopied or sent pursuant to clause (3), shall be deemed received
five (5) days following deposit in the mail.
To BNPLC: BNP Leasing Corporation
717 North Harwood
Suite 2630
Dallas, Texas 75201
Attention: David Schad
With
a copy to: Banque Nationale de Paris, San Francisco
180 Montgomery Street
San Francisco, California 94104
Attention: Jennifer Cho
Telecopy: (415) 296-8954
And with
a copy to: Clint Shouse, Esq.
Thompson & Knight, P.C.
3300 First City Center
1700 Pacific Avenue
Dallas, Texas 75201
To Sun: Sun Microsystems, Inc.
2550 Garcia Ave.
Mountain View, Ca. 94043
MS PALI-211
Attention: Robert Prantis
With
a copy to: Sun Microsystems, Inc.
2550 Garcia Ave.
Mountain View, Ca. 94043
MS PALI-211
Attention: Charles Dolci, Esq.
-10-
<PAGE>
10. Severability. Each and every covenant and agreement of Sun
contained in this Agreement is, and shall be construed to be, a separate and
independent covenant and agreement. If any term or provision of this Agreement
or the application thereof to any person or circumstances shall to any extent be
invalid and unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby. Further,
the obligations of Sun hereunder, to the maximum extent possible, shall be
deemed to be separate, independent and in addition to, not in lieu of, the
obligations of Sun under the Lease. In the event of any inconsistency between
the terms of this Agreement and the terms and provisions of the Lease, the terms
and provisions of this Agreement shall control.
11. Entire Agreement. This Agreement and the documents and agreements
referred to herein set forth the entire agreement between the parties concerning
the subject matter hereof and no amendment or modification of this Agreement
shall be binding or valid unless expressed in a writing executed by both parties
hereto.
12. Paragraph Headings. The paragraph headings contained in this
Agreement are for convenience only and shall in no way enlarge or limit the
scope or meaning of the various and several paragraphs hereof.
13. Gender and Number. Within this Agreement, words of any gender shall
be held and construed to include any other gender and words in the singular
number shall be held and construed to include the plural, unless the context
otherwise requires.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
UNDER AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA IN ALL
RESPECTS.
15. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon Sun and BNPLC and their respective
successors and assigns and shall inure to the benefit of Sun and BNPLC and all
transferees, mortgagees, successors and assignees of Sun and BNPLC with respect
to the Property. As used herein, all references to "BNPLC" shall be deemed to
include all subsequent owners of the Property (excluding, however, Sun and any
Applicable Purchaser and any subsequent owner claiming through them); and if
there shall be more than one owner of the Property, any action, request, notice
or determination required or permitted of BNPLC hereunder shall be effective if
approved by the owner or owners of that portion of a majority of the square
footage of the land included within the Property.
-11-
<PAGE>
16. WAIVER OF JURY TRIAL. BNPLC AND SUN EACH HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THE LEASE, THIS AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to
be all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including without
limitation, contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Sun and BNPLC each acknowledge that this waiver
is a material inducement to enter into a business relationship, that each has
already relied on the waiver in entering into this Agreement and the other
documents referred to herein, and that each will continue to rely on the waiver
in their related future dealings. Sun and BNPLC each further warrant and
represent that it has reviewed this waiver with its legal counsel, and that it
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LEASE, THIS AGREEMENT OR
THE ENVIRONMENTAL INDEMNITY. In the event of litigation, this Agreement may be
filed as a written consent to a trial by the court.
17. BCDC PERMIT NOTICE. As required by the terms of the amended Permit
No. 26-78 (the BCDC Permit) included in the Permitted Encumbrances, reference is
hereby expressly made to the public access and public parking provisions
contained therein.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"BNPLC"
BNP LEASING CORPORATION, a Delaware
corporation
By: /s/ Lloyd G. Cox
------------------------------------
Lloyd G. Cox, Vice President
"Sun"
SUN MICROSYSTEMS, INC., a Delaware
corporation
By: /s/ Richard Barker
------------------------------------
Richard Barker, Vice President
and Treasurer
-13-
<PAGE>
EXHIBIT A
Legal Description
Parcels 2, 3, & 4
The land referred to herein is situated in the State of California, County of
San Mateo, City of Menlo Park and is described as follows:
Parcel A:
Parcels 2, 3, & 4 as shown on Parcel Map, lands of BNP Leasing Corporation,
filed February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive,
San Mateo County Records.
Reserving therefrom the easements set forth in Sections 5-1-1, 5- 1-2, 5-1-6,
5-1-7, 5-1-8, 5-1-9 and 5-1-10 of the Declaration of Covenants, Conditions,
Restrictions and Easements recorded February 16, 1994, Series No. 94028453, San
Mateo County Records. Said easements are to be appurtenant to Parcel 1 as shown
on said
parcel map.
Parcel B:
Non-exclusive and exclusive easements for the purposes of constructing, laying,
installing, operating, using, maintaining, altering, repairing, replacing,
inspecting and repairing utility service connections, service lines and similar
facilities, as contained in the Easement Agreement dated March 25, 1992 by and
between Raychem Corporation, a Delaware corporation, and BNP Leasing
Corporation, a Delaware corporation, recorded March 26, 1992 under Recorders
Serial No. 92042487, Official Records of San Mateo County, California being more
particularly described as follows:
BEGINNING at a point on the Northerly line of Rancho de las Pulgas, said point
being distant along said Northerly line South 81(degree) 22' 50" East 1989.00
feet (an angle point in said Northerly line called PMC-13) and North 89(degree)
11' East 648.34 feet from the most Northeasterly corner of the boundary of the
lands shown on a Record of Survey Map recorded in Volume 3 of Licensed Land
Surveyors Maps, at page 120, San Mateo County Records; thence from said point of
beginning along said Northerly line North 89(degree) 11' East 1786.01 feet to a
point on the Northerly prolongation of the Westerly line of Willow Road, as said
road is shown upon the map of Newbridge Park, recorded in Volume 14 of Maps at
pages 6 and 7, Records of San Mateo County, California; thence along said
prolongation South 22(degree) 02' 45" West 485.29 feet to the Northerly line of
Southern Pacific Company right of way; thence along the last mentioned line,
South 84(degree) 57' 30" West 1902.61 feet; thence North 5(degree) 02' 30" West
100.00 feet; thence North 84(degree) 57' 30" East
A-1
<PAGE>
342.43 feet; thence North 5(degree) 02' 30" West 463.64 feet to the point of
beginning.
EXCEPTING THEREFROM Parcel 46737-1 as contained in the Final Order of
Condemnation recorded July 27, 1983 under Recorders Serial No. 83078012,
Official Records of San Mateo County, California and being more particularly
described as follows:
COMMENCING at the Northeasterly corner of Parcel 6, as said Parcel 6 is
designated in the map entitled "RECORD OF SURVEY OF A PORTION OF THE LANDS
FORMERLY OWNED BY THE CARNDUFF SITUATED IN SECTION 24; TOWNSHIP 5 SOUTH, RANGE 3
WEST, M.D.B. AND M. AND IN THE RANCHO DE LAS PULGAS" filed in the office of the
Recorder of the San Mateo County, State of California, on October 29, 1965, in
Volume 6 of Licensed Land Survey Maps at page 66; thence along common line of
said Parcel 6 and Parcel 5 of said Record of Survey South 54(degree) 33' 08"
West, 37.03 feet; thence from a tangent that bears South 82' 18' 07" West, along
a curve to the right with a radius of 2120.00 feet, through an angle of
2(degree) 07' 56", an arc length of 78.90 feet; thence South 35(degree) 20' 07"
West, 114.78 feet; thence South 18(degree) 44' 08" West, 0.42 feet to said
common line of Parcel 6 and Parcel 5; thence along last said line South 54' 33'
08" West 204.46 feet to the Westerly line of said Parcel 5; thence along last
said line South 23(degree) 08' 15" West, 106.70 feet to the Southwesterly corner
of said Parcel 5; thence leaving last said corner North 15(degree) 03' 57" East,
107.78 feet; thence North 0(degree) 11' 25" West, 172.12 feet; thence along a
tangent curve to the left with a radius of 45.00 feet, through an angle of
81(degree) 13' 05", an arc length of 63.79 feet; North 81(degree) 24' 30" West
162.32 feet to the Northerly line of Rancho de las Pulgas between PMC 13 to PMC
12; along last said line South 89(degree) 38' 32" East 554.89 feet to the point
of commencement.
Parcel C:
Easements set forth in Sections 5-1-1, 5-1-2, 5-1-6, 5-1-7, 5-1- 8, 5-1-9 and
5-1-10 of the Declaration of Covenants, Conditions, Restrictions and Easements
recorded February 16, 1994, Series No. 94028453, San Mateo County Records, over
Parcel 1 as shown on Parcel Map, lands of BNP Leasing Corporation, filed
February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive, San
Mateo County Records. Said easements are to be appurtenant to Parcel A above.
A-2
<PAGE>
EXHIBIT B
[Use printed form deed provided by G. Maloney, but expressly subject to
encumbrances described in Annex B]
Order No. 406096
Escrow No.
Loan No.
WHEN RECORDER MAIL TO:
Greene, Radovsky, Maloney & Share
Spear Street Tower
Suite 4200
One Market
San Francisco, California 94105
Attn: Graham Maloney
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $______________
Computed on the consideration or value of property
SAME AS ABOVE conveyed: OR Computed on the consideration or value less
liens or encumbrances remaining at time of sale.
As declared by the undersigned Grantor
----------------------------------------------------------
Signature of Declarant or Agent determining tax - Firm Name
- --------------------------------------------------------------------------------
CORPORATION GRANT DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
BNP LEASING CORPORATION
a corporation organized under the laws of the State of Delaware, does hereby
GRANT(S) to SUN MICROSYSTEMS, INC., a Delaware corporation (or Applicable
Purchaser), subject to the permitted encumbrances described in Annex B
attached hereto,
the real property in the City of Menlo Park
County of San Mateo, State of California, described as
SEE LEGAL DESCRIPTION ATTACHED HERETO AND MADE A PART HEREOF
Dated___________________________________ BNP Leasing Corporation, a Delaware
) corporation
STATE OF CALIFORNIA )ss.
COUNTY OF_______________________________) By: _______________________________
On______________________________________
before me, __________________, personaly
appeared _______________________________ By: _______________________________
_______________________________________,
personally known to me (or proved to me
on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are
subscribed to the within instrument and
acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the entity
upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
(This area for official seal)
Signature ______________________________
MAIL TAX STATEMENTS AS DIRECTED ABOVE 1144-SM (1/94)
B-1
<PAGE>
Annex A
Legal Description
Parcels 2, 3, & 4
The land referred to herein is situated in the State of California, County of
San Mateo, City of Menlo Park and is described as follows:
Parcel A:
Parcels 2, 3, & 4 as shown on Parcel Map, lands of BNP Leasing Corporation,
filed February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive,
San Mateo County Records.
Reserving therefrom the easements set forth in Sections 5-1-1, 5- 1-2, 5-1-6,
5-1-7, 5-1-8, 5-1-9 and 5-1-10 of the Declaration of Covenants, Conditions,
Restrictions and Easements recorded February 16, 1994, Series No. 94028453, San
Mateo County Records. Said easements are to be appurtenant to Parcel 1 as shown
on said
parcel map.
Parcel B:
Non-exclusive and exclusive easements for the purposes of constructing, laying,
installing, operating, using, maintaining, altering, repairing, replacing,
inspecting and repairing utility service connections, service lines and similar
facilities, as contained in the Easement Agreement dated March 25, 1992 by and
between Raychem Corporation, a Delaware corporation, and BNP Leasing
Corporation, a Delaware corporation, recorded March 26, 1992 under Recorders
Serial No. 92042487, Official Records of San Mateo County, California being more
particularly described as follows:
BEGINNING at a point on the Northerly line of Rancho de las Pulgas, said point
being distant along said Northerly line South 81(degree) 22' 50" East 1989.00
feet (an angle point in said Northerly line called PMC-13) and North 89(degree)
11' East 648.34 feet from the most Northeasterly corner of the boundary of the
lands shown on a Record of Survey Map recorded in Volume 3 of Licensed Land
Surveyors Maps, at page 120, San Mateo County Records; thence from said point of
beginning along said Northerly line North 89(degree) 11' East 1786.01 feet to a
point on the Northerly prolongation of the Westerly line of Willow Road, as said
road is shown upon the map of Newbridge Park, recorded in Volume 14 of Maps at
pages 6 and 7, Records of San Mateo County, California; thence along said
prolongation South 22(degree) 02' 45" West 485.29 feet to the Northerly line of
Southern Pacific Company right of way; thence along the last mentioned line,
South 84(degree) 57' 30" West 1902.61 feet; thence North 5(degree) 02' 30" West
100.00 feet; thence North 84(degree) 57' 30" East
B-2
<PAGE>
342.43 feet; thence North 5(degree) 02' 30" West 463.64 feet to the point of
beginning.
EXCEPTING THEREFROM Parcel 46737-1 as contained in the Final Order of
Condemnation recorded July 27, 1983 under Recorders Serial No. 83078012,
Official Records of San Mateo County, California and being more particularly
described as follows:
COMMENCING at the Northeasterly corner of Parcel 6, as said Parcel 6 is
designated in the map entitled "RECORD OF SURVEY OF A PORTION OF THE LANDS
FORMERLY OWNED BY THE CARNDUFF SITUATED IN SECTION 24; TOWNSHIP 5 SOUTH, RANGE 3
WEST, M.D.B. AND M. AND IN THE RANCHO DE LAS PULGAS" filed in the office of the
Recorder of the San Mateo County, State of California, on October 29, 1965, in
Volume 6 of Licensed Land Survey Maps at page 66; thence along common line of
said Parcel 6 and Parcel 5 of said Record of Survey South 54(degree) 33' 08"
West, 37.03 feet; thence from a tangent that bears South 82' 18' 07" West, along
a curve to the right with a radius of 2120.00 feet, through an angle of
2(degree) 07' 56", an arc length of 78.90 feet; thence South 35(degree) 20' 07"
West, 114.78 feet; thence South 18(degree) 44' 08" West, 0.42 feet to said
common line of Parcel 6 and Parcel 5; thence along last said line South 54' 33'
08" West 204.46 feet to the Westerly line of said Parcel 5; thence along last
said line South 23(degree) 08' 15" West, 106.70 feet to the Southwesterly corner
of said Parcel 5; thence leaving last said corner North 15(degree) 03' 57" East,
107.78 feet; thence North 0(degree) 11' 25" West, 172.12 feet; thence along a
tangent curve to the left with a radius of 45.00 feet, through an angle of
81(degree) 13' 05", an arc length of 63.79 feet; North 81(degree) 24' 30" West
162.32 feet to the Northerly line of Rancho de las Pulgas between PMC 13 to PMC
12; along last said line South 89(degree) 38' 32" East 554.89 feet to the point
of commencement.
Parcel C:
Easements set forth in Sections 5-1-1, 5-1-2, 5-1-6, 5-1-7, 5-1- 8, 5-1-9 and
5-1-10 of the Declaration of Covenants, Conditions, Restrictions and Easements
recorded February 16, 1994, Series No. 94028453, San Mateo County Records, over
Parcel 1 as shown on Parcel Map, lands of BNP Leasing Corporation, filed
February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive, San
Mateo County Records. Said easements are to be appurtenant to Parcel A above.
B-3
<PAGE>
Annex B
Permitted Encumbrances
Parcels 2, 3, & 4
This conveyance is subject to the following matters, but only to the
extent the same are still valid and in full force and effect:
1. General and Special Taxes for the fiscal year 1994-95, now a lien,
amount not yet ascertainable.
2. General and Special Taxes for the fiscal year 1993-94, in the amount of
$201,146.56, each installment has been paid in full. (Code Area
008-080; A.P. No. 055-411-100; Affects additional property).
3. The Lien of Supplemental Taxes assessed pursuant to Chapter 3.5,
commencing with Section 75 of the California Revenue and Taxation Code.
4. Amendment to Reservation executed by Fred Carnduff, Chester Carnduff,
Edgar Carnduff, Jeanette Carnduff Thornton, Alfred A. Affinito and Bess
M. Affinito, dated June 6, 1968, recorded on June 14, 1968, as Document
No. 50849-AB in Book/Reel 5487 of the Official Records at page/image
381 of the Records of San Mateo County, California. Said amendment
modified the reservations contained in Grant Deed from Edgar Carnduff,
et al., to Nathaniel Hellman, et al., recorded on September 17, 1964,
in Book/Reel 4799 of the Official Records at page/image 48 of the
Records of San Mateo County, California. Said amendment quitclaims
rights in reserved minerals within the surface 500 feet except for two
one acre sites described as Parcels "E" and "F" together with 20 foot
wide access easements. Said amendment also amends the reservation for
access to property south of the Southern Pacific R.R. to except the
property herein described.
5. Ordinance No. 670 of the Community Development Agency of the City of
Menlo Park, entitled "An Ordinance Adopting Community Development Plan
for the Las Pulgas Project Area and Making Certain Findings and
Determinations Pursuant to the Community Redevelopment Law of the State
of California," passed and adopted by the Community Development Agency
on November 24, 1981, a certified copy of which was recorded on
December 21, 1981, as Document No. 19388-AT of the Official Records of
San Mateo County, California.
Ordinance No. 826 of the City Council of the City of Menlo Park,
entitled "An Ordinance of the City Council of the City of Menlo Park
adopting the First Amended and Restated Las Pulgas Community
Development Plan pursuant to the Community
B-4
<PAGE>
Redevelopment Law of the State of California," passed and adopted by
the City Council on September 10, 1991, a certified copy of which was
recorded on September 11, 1991, as Document No. 91120049 of the
Official Records of San Mateo County, California.
Statement of Institution of Amended Redevelopment Plan of the Las
Pulgas Community Development Plan which was recorded on September 11,
1991, as Document No. 91120050 of the Official Records of San Mateo
County, California.
6. Easements condemned in that certain Final Order of Condemnation under
Action No. 245918 entitled "The People of the State of California vs.
Raychem Corporation," recorded on July 27, 1983, as Document No.
83078012 (Parcel 45670-3, an easement for drainage purposes over an
irregular parcel in the Southeast corner of Parcel 4; Parcel 45670-4,
an easement for road purposes over a 20' x 60.29' parcel near the
Southeast corner of Parcel 4).
7. Relinquishment of Abutters Rights as contained in that certain Final
Order of Condemnation under Action No. 245918 entitled "The People of
the State of California vs. Raychem Corporation," recorded on July 27,
1983, as Document No. 83078012. Access is restricted to certain
portions of frontage along said condemned lands.
8. Resolution No. 785 of the Menlo Park Fire Protection District,
Resolution approving the annexation of certain Baylands to the Menlo
Park Fire Protection District, recorded on August 18, 1989, as Document
No. 89109745 of the Official Records of San Mateo County, California.
9. The terms, covenants and conditions as contained in Permit No. 26-78 by
and between the San Francisco Bay Conservation and Development
Commission and Raychem Corporation, recorded on March 18, 1991, under
Recorders Serial No. 91029676 of the Official Records of San Mateo
County, California. An Assignment of BCDC Permit, recorded on March 26,
1992, under Recorders Serial No. 92042489 of the Official Records of
San Mateo County, California. Amendment No. Four thereunder dated
August 13, 1993, recorded on September 9, 1993, Series No. 93152912.
10. Development Agreement by and between the City of Menlo Park, a
municipal corporation of the State of California, and Sun Microsystems,
Inc., a Delaware corporation, dated November 29, 1991, recorded on
December 9, 1991, as Document No. 91160984 of the Official Records of
San Mateo County, California.
11. Easement for water meter over the property, as shown on the Parcel Map,
lands of BNP Leasing Corporation, filed February
B-5
<PAGE>
16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive, San
Mateo County Records, such strips to be kept open and free from
buildings and structures of any kind. Affects two 15 foot by 30 foot
areas within Parcel 3 and one 15 foot by 30 foot area within Parcel 4.
Includes right of ingress and egress across the premises for
construction, maintenance and use of the water facilities.
12. Covenants, conditions, restrictions, limitations, reservations,
easements, exceptions, terms, assessments, liens and charges, but
deleting restrictions, if any, based on race, color, religion or
national origin as contained in the Declaration of Covenants,
Conditions, Restrictions and Easements for Sun Microsystems, Inc. Menlo
Park Campus executed by and between BNP Leasing Corporation, a Delaware
corporation, and Sun Microsystems, Inc., a Delaware corporation, dated
February 9, 1994, recorded on February 16, 1994, as Document No.
94028453 of the Official Records of San Mateo County, California. Said
instrument does not expressly provide for forfeiture of title in case
of violation. Said instrument does provide that a violation shall not
lessen the security of any Deed of Trust or Mortgage made in good faith
and for value. A lien for upkeep assessments was provided for in the
herein described declaration.
13. Lease Agreement (Phases II and III) dated as of September 25, 1992 by
and between BNP Leasing Corporation, as lessor, and Sun Microsystems,
Inc., as lessee, which was amended, restated and replaced by that
certain Amended and Restated Lease Agreement (Phases II and III) dated
as of September 23, 1994, by and between BNP Leasing Corporation, as
lessor, and Sun Microsystems, Inc., as lessee.
14. Any encumbrances claimed by, through or under Sun Microsystems, Inc.
15. The grantee herein covenants by and for itself, its successors and
assigns, and all persons claiming under or through it, that there shall
be no discrimination against, or segregation of, any person or group of
persons on account of race, color, creed, marital status, ancestry,
religion, sex or national origin, in the sale, lease, sublease,
transfer, use, occupancy, tenure, or enjoyment of the premises herein
conveyed, nor shall the grantee or any person claiming under or through
it, establish or permit any such practice or practices of
discrimination or segregation with reference to the selection,
location, number, use or occupancy of tenants, lessees, subtenants,
sublessee, or vendees in the premises herein conveyed. The foregoing
covenants shall run with the land.
B-6
<PAGE>
[ADD ONLY IF APPLICABLE A LIST OF ANY OTHER KNOWN ENCUMBRANCES FOR WHICH BNPLC
IS NOT RESPONSIBLE UNDER PARAGRAPH 10(A) OF THE LEASE.]
B-7
<PAGE>
EXHIBIT C
[Printed Form of Change of Ownership Report
Supplied by Graham Maloney to be attached]
PRELIMINARY CHANGE OF OWNERSHIP REPORT FOR RECORDER'S USE ONLY
(To be completed to transferee (buyer) prior to transfer
of subject property in accordance with Section 480.3 of
the Revenue and Taxation Code.)
THIS REPORT IS NOT A PUBLIC DOCUMENT
- ---------------------------------------------------------
SELLER/TRANSFEROR: BNP LEASING CORPORATION
BUYER/TRANSFEREE: [SUN MICROSYSTEMS, INC. OR APPLICABLE
PURCHASER]
ASSESSOR'S PARCEL NUMBER(S):
PROPERTY ADDRESS OR LOCATION: -----------------------
A Preliminary Change
MAIL TAX INFORMATION TO: Name in Ownership Report
Address must be filed with
each conveyance in the
County Recorder's
office for the county
where the property is
located: this
particular form may be
used in all 56
counties of
California.
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The property which you acquired may be subject to a supplemental assessment in
an amount to be determined by the Santa Clara County Assessor. For further
information on your supplemental roll obligation, please call the Santa Clara
County Assessor at 408/299/3941.
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PART I: TRANSFER INFORMATION Please answer all questions.
YES NO
[ ] [ ] A. Is this transfer solely between husband and wife? (Addition of a
spouse, death of a spouse, divorce settlement, etc.).
[ ] [ ] B. Is this transaction only a correction of the name(s) of the
person(s) holding title to the property? (For example, a name
change upon marriage).
[ ] [ ] C. Is this document recorded to create, terminate, or reconvey a
lender's interest in the property?
[ ] [ ] D. Is this transaction recorded only to create, terminate, or
reconvey a security interest (e.g., cosigner)?
[ ] [ ] E. Is this document recorded to substitute a trustee under a deed of
trust, mortgage, or other similar document?
[ ] [ ] F. Did this transfer result in the creation of a joint tenancy in
which the seller (transferor) remains as one of the joint tenants?
[ ] [ ] G. Does this transfer return property to the person who created the
joint tenancy (original transferor)?
H. Is this transfer of property:
[ ] [ ] 1. to a trust for the benefit of the grantor, or grantor's spouse?
[ ] [ ] 2. to a trust revocable by the transferor?
[ ] [ ] 3. to a trust from which the property reverts to the grantor
within 12 years?
[ ] [ ] I. If this property is subject to a lease, is the remaining lease
term 35 years or more including written options?
[ ] [ ] J. Is this a transfer from parents to children or from children to
parents?
[ ] [ ] K. Is this transaction to replace a principal residence located in
Santa Clara County by a person 55 years of age or older?
If you checked yes to J or K, an applicable claim form must be filed with the
County Assessor.
Please provide any other information that would help the Assessor to understand
the nature of the transfer.
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IF YOU HAVE ANSWERED "YES" TO ANY OF THE ABOVE QUESTIONS EXCEPT J OR K,
PLEASE SIGN AND DATE.
OTHERWISE COMPLETE BALANCE OF THE FORM.
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PART II: OTHER TRANSFER INFORMATION
A. Date of transfer if other than recording date ________________________
B. Type of transfer. Please check appropriate box.
[ ] Purchase [ ] Forclosure [ ] Gift [ ] Trade or Exchange
[ ] Contract of Sale -- Date of Contract:_______________________________
[ ] Inheritance -- Date of Death _____________
[ ] Other: Please explain: _________________________________________________
[ ] Creation of a Lease; [ ] Assignment of a Lease;
[ ] Termination of a Lease
Date lease began __________________________
Original term in years (including written options)______________________
Remaining term in years (including written options)_____________________
C. Was only a partial interest in the property transferred? [ ] Yes [ ] No
If yes, indicate the percentage transferred ________________%
SBE-ASD AM 502-A FRONT (10-6-57) ASSESSOR'S FORM AD55
* THIS FORM TO BE COMPLETED BY BNP LEASING CORPORATION.
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Please answer to the best of your knowledge, all applicable questions, sign and
date. If a question does not apply, indicate with "N/A".
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PART III: PURCHASE PRICE & TERMS OF SALE
A. CASH DOWN PAYMENT OR Value of Trade or Exchange
(excluding closing cost) Amount $_______
B. FIRST DEED OF TRUST @_____% interest to: ____ years.
Pymts./Mo. = $_______ (Prin. & Int. only) Amount $_______
[ ] FHA [ ] Fixed Rate [ ] New Loan
[ ] Conventional [ ] Variable Rate [ ] Assumed Existing Loan Balance
[ ] VA [ ] All Inclusive D.T. ($_________________ Wrapped)
[ ] Bank or Savings & Loan [ ] Cal-Vet [ ] Loan Carried by Seller
[ ] Finance Company
Balloon Payment [ ] Yes [ ] No Due Date _______ Amount $_______
C. SECOND DEED OF TRUST @ ____% interest for ____ years.
Pymts./Mo. = $_______ (Prin. & Int. only) Amount $_______
[ ] Bank or Savings & Loan [ ] Fixed Rate [ ] New Loan
[ ] Loan Carried by Seller [ ] Variable Rate
[ ] Assumed Existing Loan Balance
Balloon Payment [ ] Yes [ ] No Due Date _______ Amount $_______
D. OTHER FINANCING: Is other financing involved not covered in (b) or (c)
above? [ ] Yes [ ] No Amount $_______
Type__________ @ ___________ % interest for __________ years.
Pymts./Mo. = $_______ (Prin. & Int. only)
[ ] Bank or Savings & Loan [ ] Fixed Rate [ ] New Loan
[ ] Loan Carried by Seller [ ] Variable Rate
[ ] Assumed Existing Loan Balance
Balloon Payment [ ] Yes [ ] No Due Date _______ Amount $_______
E. IMPROVEMENT BOND [ ] Yes [ ] No Outstanding Balance: Amount $_______
F. TOTAL PURCHASE PRICE (or acquisition price, if traded or exchanged,
----------
include real estate commission if paid.) Total Items A through E $
----------
G. WAS A BROKER INVOLVED IN THIS SALE? [ ] Yes [ ] No
Please explain any special terms or financing and any other information that
would help the Assessor understand the purchase price and terms of sale.
_____________________________________________________________________________
_____________________________________________________________________________
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PART IV: PROPERTY INFORMATION
A. IS PERSONAL PROPERTY INCLUDED IN THE PURCHASE PRICE?
(other than a mobilehome subject to local property tax)? [ ] Yes [ ] No
If yes, enter the value of the personal property included in the purchase
price $_________________________ (Attach itemized list of personal property).
B. IS THIS PROPERTY INTENDED AS YOUR PRINCIPAL RESIDENCE: [ ] Yes [ ] No
If yes, enter date of occupancy _____/_______, 19______ or intended
Month Day Year
occupancy _____/_______, 19______.
Month Day Year
C. TYPE OF PROPERTY TRANSFERRED:
[ ] Single-family residence [ ] Agricultural [ ] Timeshare
[ ] Multiple-family residence (no. of units: __________)
[ ] Co-op/Own-your-own [ ] Mobilehome
[ ] Commercial/Industrial [ ] Condominium [ ] Unimproved lot
[ ] Other (Description: __________________________________________________)
D. DOES THE PROPERTY PRODUCE INCOME? [ ] Yes [ ] No
E. IF THE ANSWER TO QUESTION D IS YES, IS THE INCOME FROM:
[ ] Lease/Rent [ ] Contract [ ] Mineral rights
[ ] Other -- explain: _____________________________________________________
F. WHAT WAS THE CONDITION OF THE PROPERTY AT THE TIME OF SALE?
[ ] Good [ ] Average [ ] Fair [ ] Poor
Enter here, or on an attached sheet, any other information that would assist
the Assessor in determining value of the property such as the physical
condition of the property, restrictions, etc.
_____________________________________________________________________________
_____________________________________________________________________________
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I certify that the foregoing is true, correct and complete to the
best of my knowledge and belief.
Signed __________________________________________________ Date: _______________
(New Owner/Legal Representative/Corporate Officer)
Please Print Name of New Owner/Legal Representative/Corporate Officer:
________________________________________________________________________________
Phone No. where you are available from 8:00 a.m. -- 5:00 p.m. ( ) _____________
(NOTE: The Assessor may contact you for further information)
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If a document evidencing a change of ownership is presented to the recorder for
recordation without the concurrent filing of a preliminary change of ownership
report, the recorder may charge an additional recording fee of twenty dollars
($20). The additional fee shall not be charged if the document is accompanied
by an affidavit that the transferee is not a resident of California
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AFFIDAVIT OF NON-RESIDENT TRANSFEREE
The Transferee (buyer) named above is a resident of ____________________________
State
and not a resident of the State of California.
Signed _________________________________________________ Date: ________________
(New Owner/Legal Representative/Corporate Officer)
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SBE-ASE AM 502-A BACK (10-5-57) ASSESSOR'S FORM 4055
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EXHIBIT D
BILL OF SALE, ASSIGNMENT OF CONTRACT
RIGHTS AND INTANGIBLE ASSETS
Reference is made to that certain Agreement and Contract of Sale and
Escrow Instructions, dated April 23, 1990, as amended, (the "Agreement") between
Raychem Corporation, as seller, and Sun Microsystems, Inc., as buyer. The
interest of buyer under the Agreement was assigned to the Assignor named below
prior to the closing thereunder.
BNP LEASING CORPORATION, a Delaware corporation ("Assignor"), hereby
sells, transfers and assigns unto [SUN MICROSYSTEMS, INC. OR THE APPLICABLE
PURCHASER, AS THE CASE MAY BE], a _____________ corporation ("Assignee"), all of
Assignor's right, title and interest in and to the following property, if any,
to the extent such property is assignable:
(a) any warranties, guaranties, indemnities and claims Assignor may
have under the Agreement or under any document delivered by the seller
thereunder to the extent related to the real property described in Annex A
attached hereto (the "Property), including specifically, without limitation,
warranties, guaranties, indemnities and claims for workmanship, materials and
performance;
(b) all licenses, permits or similar consents (excluding
any prepaid utility reservations) from third parties to the
extent related to the Property;
(c) any pending or future award made because of any condemnation
affecting the Property or because of any conveyance to be made in lieu thereof,
and any unpaid award for damage to the Property and any unpaid proceeds of
insurance or claim or cause of action for damage, loss or injury to the
Property;
(d) any goods, equipment, furnishings, furniture, chattels
and personal property of whatever nature that are located on or
about the Property; and
(e) any general intangibles, permits, licenses, franchises,
certificates, and other rights and privileges owned by Assignor and used solely
in connection with, or relating solely to, the Property, including any such
rights and privileges conveyed to Assignor pursuant to the Agreement; but
excluding any rights or privileges of Assignor under (i) the Environmental
Indemnity, as defined in that certain Amended and Restated Purchase Agreement
(Phases II and III) between Assignor and Sun Microsystems, Inc. dated as of
September 23, 1994 (the "Purchase Agreement") (pursuant to which this document
is being delivered), (ii) the
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Lease, as defined in the Purchase Agreement, to the extent rights under the
Lease relate to the period ending on the date hereof, whether such rights are
presently known or unknown, including rights of the Assignor to be indemnified
against claims of third parties as provided in the Lease which may not presently
be known, and including rights to recover any accrued unpaid rent under the
Lease which may be outstanding as of the date hereof, (iii) the Participation
Agreement, as defined in the Lease, or any modification or extension thereof,
(iv) any supplemental or modified indemnity agreement required by the Purchase
Agreement, and (iv) any other instrument being delivered to Assignor
contemporaneously herewith pursuant to the Purchase Agreement.
Assignor does for itself and its heirs, executors and administrators,
covenant and agree to warrant and defend the title to the property assigned
herein against the just and lawful claims and demands of any person claiming
under or through Assignor, but not otherwise; excluding, however, any claim or
demand arising by, through or under Sun Microsystems, Inc.
Assignee hereby assumes and agrees to keep, perform and fulfill
Assignor's obligations, if any, relating to any permits or contracts, under
which Assignor has rights being assigned herein.
Executed:_____________________________ , 199_______.
ASSIGNOR:
BNP LEASING CORPORATION, a Delaware
corporation
By: _____________________________________
Its:_________________________________
ASSIGNEE:
[SUN MICROSYSTEMS, INC., OR THE
APPLICABLE PURCHASER], a _________
corporation
By: _____________________________________
Its:_________________________________
D-2
<PAGE>
Annex A
Legal Description
Parcels 2, 3, & 4
The land referred to herein is situated in the State of California, County of
San Mateo, City of Menlo Park and is described as follows:
Parcel A:
Parcels 2, 3, & 4 as shown on Parcel Map, lands of BNP Leasing Corporation,
filed February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive,
San Mateo County Records.
Reserving therefrom the easements set forth in Sections 5-1-1, 5- 1-2, 5-1-6,
5-1-7, 5-1-8, 5-1-9 and 5-1-10 of the Declaration of Covenants, Conditions,
Restrictions and Easements recorded February 16, 1994, Series No. 94028453, San
Mateo County Records. Said easements are to be appurtenant to Parcel 1 as shown
on said
parcel map.
Parcel B:
Non-exclusive and exclusive easements for the purposes of constructing, laying,
installing, operating, using, maintaining, altering, repairing, replacing,
inspecting and repairing utility service connections, service lines and similar
facilities, as contained in the Easement Agreement dated March 25, 1992 by and
between Raychem Corporation, a Delaware corporation, and BNP Leasing
Corporation, a Delaware corporation, recorded March 26, 1992 under Recorders
Serial No. 92042487, Official Records of San Mateo County, California being more
particularly described as follows:
BEGINNING at a point on the Northerly line of Rancho de las Pulgas, said point
being distant along said Northerly line South 81(degree) 22' 50" East 1989.00
feet (an angle point in said Northerly line called PMC-13) and North 89(degree)
11' East 648.34 feet from the most Northeasterly corner of the boundary of the
lands shown on a Record of Survey Map recorded in Volume 3 of Licensed Land
Surveyors Maps, at page 120, San Mateo County Records; thence from said point of
beginning along said Northerly line North 89(degree) 11' East 1786.01 feet to a
point on the Northerly prolongation of the Westerly line of Willow Road, as said
road is shown upon the map of Newbridge Park, recorded in Volume 14 of Maps at
pages 6 and 7, Records of San Mateo County, California; thence along said
prolongation South 22(degree) 02' 45" West 485.29 feet to the Northerly line of
Southern Pacific Company right of way; thence along the last mentioned line,
South 84(degree) 57' 30" West 1902.61 feet; thence North 5(degree) 02' 30" West
100.00 feet; thence North 84(degree) 57' 30" East
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342.43 feet; thence North 5(degree) 02' 30" West 463.64 feet to the point of
beginning.
EXCEPTING THEREFROM Parcel 46737-1 as contained in the Final Order of
Condemnation recorded July 27, 1983 under Recorders Serial No. 83078012,
Official Records of San Mateo County, California and being more particularly
described as follows:
COMMENCING at the Northeasterly corner of Parcel 6, as said Parcel 6 is
designated in the map entitled "RECORD OF SURVEY OF A PORTION OF THE LANDS
FORMERLY OWNED BY THE CARNDUFF SITUATED IN SECTION 24; TOWNSHIP 5 SOUTH, RANGE 3
WEST, M.D.B. AND M. AND IN THE RANCHO DE LAS PULGAS" filed in the office of the
Recorder of the San Mateo County, State of California, on October 29, 1965, in
Volume 6 of Licensed Land Survey Maps at page 66; thence along common line of
said Parcel 6 and Parcel 5 of said Record of Survey South 54(degree) 33' 08"
West, 37.03 feet; thence from a tangent that bears South 82' 18' 07" West, along
a curve to the right with a radius of 2120.00 feet, through an angle of
2(degree) 07' 56", an arc length of 78.90 feet; thence South 35(degree) 20' 07"
West, 114.78 feet; thence South 18(degree) 44' 08" West, 0.42 feet to said
common line of Parcel 6 and Parcel 5; thence along last said line South 54' 33'
08" West 204.46 feet to the Westerly line of said Parcel 5; thence along last
said line South 23(degree) 08' 15" West, 106.70 feet to the Southwesterly corner
of said Parcel 5; thence leaving last said corner North 15(degree) 03' 57" East,
107.78 feet; thence North 0(degree) 11' 25" West, 172.12 feet; thence along a
tangent curve to the left with a radius of 45.00 feet, through an angle of
81(degree) 13' 05", an arc length of 63.79 feet; North 81(degree) 24' 30" West
162.32 feet to the Northerly line of Rancho de las Pulgas between PMC 13 to PMC
12; along last said line South 89(degree) 38' 32" East 554.89 feet to the point
of commencement.
Parcel C:
Easements set forth in Sections 5-1-1, 5-1-2, 5-1-6, 5-1-7, 5-1- 8, 5-1-9 and
5-1-10 of the Declaration of Covenants, Conditions, Restrictions and Easements
recorded February 16, 1994, Series No. 94028453, San Mateo County Records, over
Parcel 1 as shown on Parcel Map, lands of BNP Leasing Corporation, filed
February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive, San
Mateo County Records. Said easements are to be appurtenant to Parcel A above.
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EXHIBIT E
ASSIGNMENT OF BCDC PERMIT
Attached to and made a part of this Exhibit E are two forms of
assignment, one of which will apply in the case of a sale to Sun Microsystems,
Inc., and the second of which will apply in the case of a sale to the Applicable
Purchaser. BNPLC will tender whichever of these forms applies, but not both,
contemporaneously with its receipt of the payments to become due it hereunder.
[NOTE: ASSIGNMENTS FORMS ARE INTENDED TO BE LIMITED TO RIGHTS UNDER THE PERMIT
AS IT RELATES TO THE PHASES II and III LAND]
E-1
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Annex A
Legal Description
Parcels 2, 3, & 4
The land referred to herein is situated in the State of California, County of
San Mateo, City of Menlo Park and is described as follows:
Parcel A:
Parcels 2, 3, & 4 as shown on Parcel Map, lands of BNP Leasing Corporation,
filed February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive,
San Mateo County Records.
Reserving therefrom the easements set forth in Sections 5-1-1, 5- 1-2, 5-1-6,
5-1-7, 5-1-8, 5-1-9 and 5-1-10 of the Declaration of Covenants, Conditions,
Restrictions and Easements recorded February 16, 1994, Series No. 94028453, San
Mateo County Records. Said easements are to be appurtenant to Parcel 1 as shown
on said
parcel map.
Parcel B:
Non-exclusive and exclusive easements for the purposes of constructing, laying,
installing, operating, using, maintaining, altering, repairing, replacing,
inspecting and repairing utility service connections, service lines and similar
facilities, as contained in the Easement Agreement dated March 25, 1992 by and
between Raychem Corporation, a Delaware corporation, and BNP Leasing
Corporation, a Delaware corporation, recorded March 26, 1992 under Recorders
Serial No. 92042487, Official Records of San Mateo County, California being more
particularly described as follows:
BEGINNING at a point on the Northerly line of Rancho de las Pulgas, said point
being distant along said Northerly line South 81(degree) 22' 50" East 1989.00
feet (an angle point in said Northerly line called PMC-13) and North 89(degree)
11' East 648.34 feet from the most Northeasterly corner of the boundary of the
lands shown on a Record of Survey Map recorded in Volume 3 of Licensed Land
Surveyors Maps, at page 120, San Mateo County Records; thence from said point of
beginning along said Northerly line North 89(degree) 11' East 1786.01 feet to a
point on the Northerly prolongation of the Westerly line of Willow Road, as said
road is shown upon the map of Newbridge Park, recorded in Volume 14 of Maps at
pages 6 and 7, Records of San Mateo County, California; thence along said
prolongation South 22(degree) 02' 45" West 485.29 feet to the Northerly line of
Southern Pacific Company right of way; thence along the last mentioned line,
South 84(degree) 57' 30" West 1902.61 feet; thence
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North 5(degree) 02' 30" West 100.00 feet; thence North 84(degree) 57' 30" East
342.43 feet; thence North 5(degree) 02' 30" West 463.64 feet to the point of
beginning.
EXCEPTING THEREFROM Parcel 46737-1 as contained in the Final Order of
Condemnation recorded July 27, 1983 under Recorders Serial No. 83078012,
Official Records of San Mateo County, California and being more particularly
described as follows:
COMMENCING at the Northeasterly corner of Parcel 6, as said Parcel 6 is
designated in the map entitled "RECORD OF SURVEY OF A PORTION OF THE LANDS
FORMERLY OWNED BY THE CARNDUFF SITUATED IN SECTION 24; TOWNSHIP 5 SOUTH, RANGE 3
WEST, M.D.B. AND M. AND IN THE RANCHO DE LAS PULGAS" filed in the office of the
Recorder of the San Mateo County, State of California, on October 29, 1965, in
Volume 6 of Licensed Land Survey Maps at page 66; thence along common line of
said Parcel 6 and Parcel 5 of said Record of Survey South 54(degree) 33' 08"
West, 37.03 feet; thence from a tangent that bears South 82' 18' 07" West, along
a curve to the right with a radius of 2120.00 feet, through an angle of
2(degree) 07' 56", an arc length of 78.90 feet; thence South 35(degree) 20' 07"
West, 114.78 feet; thence South 18(degree) 44' 08" West, 0.42 feet to said
common line of Parcel 6 and Parcel 5; thence along last said line South 54' 33'
08" West 204.46 feet to the Westerly line of said Parcel 5; thence along last
said line South 23(degree) 08' 15" West, 106.70 feet to the Southwesterly corner
of said Parcel 5; thence leaving last said corner North 15(degree) 03' 57" East,
107.78 feet; thence North 0(degree) 11' 25" West, 172.12 feet; thence along a
tangent curve to the left with a radius of 45.00 feet, through an angle of
81(degree) 13' 05", an arc length of 63.79 feet; North 81(degree) 24' 30" West
162.32 feet to the Northerly line of Rancho de las Pulgas between PMC 13 to PMC
12; along last said line South 89(degree) 38' 32" East 554.89 feet to the point
of commencement.
Parcel C:
Easements set forth in Sections 5-1-1, 5-1-2, 5-1-6, 5-1-7, 5-1- 8, 5-1-9 and
5-1-10 of the Declaration of Covenants, Conditions, Restrictions and Easements
recorded February 16, 1994, Series No. 94028453, San Mateo County Records, over
Parcel 1 as shown on Parcel Map, lands of BNP Leasing Corporation, filed
February 16, 1994, Book 67 of Parcel Maps, pages 36 through 38 inclusive, San
Mateo County Records. Said easements are to be appurtenant to Parcel A above.
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EXHIBIT F
Acknowledgment of Disclaimer of Representations and Warranties
THIS ACKNOWLEDGMENT OF DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
(this "Certificate") is made as of ___________________, 199___, by [Sun or the
Applicable Purchaser, as the case may be], a ___________________ ("Grantee").
Contemporaneously with the execution of this Certificate, BNP Leasing
Corporation, a Delaware corporation ("BNPLC"), is executing and delivering to
Grantee (1) a Corporation Grant Deed, (2) a Bill of Sale, Assignment of Contract
Rights and Intangible Assets, and (3) an Assignment of BCDC Permit (the
foregoing documents and any other documents to be executed in connection
therewith are herein called the "Conveyancing Documents" and any of the
properties, rights or other matters assigned, transferred or conveyed pursuant
thereto are herein collectively called the "Subject Property").
Notwithstanding any provision contained in the Conveyancing Documents
to the contrary, Grantee acknowledges that BNPLC makes no representations or
warranties of any nature or kind, whether statutory, express or implied, with
respect to environmental matters or the physical condition of the Subject
Property, and Grantee, by acceptance of the Conveyancing Documents, accepts the
Subject Property "AS IS," "WHERE IS," "WITH ALL FAULTS" and without any such
representation or warranty by Grantor as to environmental matters, the physical
condition of the Subject Property, compliance with subdivision or platting
requirements or construction of any improvements. Without limiting the
generality of the foregoing, Grantee hereby further acknowledges and agrees that
warranties of merchantability and fitness for a particular purpose are excluded
from the transaction contemplated by the Conveyancing Documents, as are any
warranties arising from a course of dealing or usage of trade. Grantee hereby
assumes all risk and liability (and agrees that BNPLC shall not be liable for
any special, direct, indirect, consequential, or other damages) resulting or
arising from or relating to the ownership, use, condition, location,
maintenance, repair, or operation of the Subject Property.
The provisions of this Certificate shall be binding on Grantee, its
successors and assigns and any other party claiming through Grantee. Grantee
hereby acknowledges that BNPLC is entitled to rely and is relying on this
Certificate.
F-1
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EXECUTED as of ________________, 199___.
__________________________, a ____________
By: ______________________________________
Name:_________________________________
Title:________________________________
F-2
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EXHIBIT G
Documentary Transfer Tax Request
ACCOUNTABLE FORM #_____________________
DATE:__________________________________
To: San Mateo County Recorder
Subject: REQUEST THAT DOCUMENTARY TRANSFER TAX DECLARATION BE
MADE IN ACCORDANCE WITH SAN MATEO COUNTY ORDINANCE CODE
SECTION 2920 & REVENUE CODE 11932.
Re: Instrument Title: Corporation Grant Deed
Name of Party Conveying Title: BNP Leasing Corporation
The Documentary Transfer Tax is declared to be in the amount of $_______________
for the referenced instrument and is:
[ ] Computed on full value of property conveyed.
[ ] Computed on full value less liens/encumbrances
remaining thereon at time of sale.
This separate declaration is made in accordance with County Ordinance Code
Section 2922. It is requested that the amount paid be indicated on the face of
the document after the permanent copy has been made.
Sincerely,
________________________________________
Individual (or his agent) who made,
signed or issued instrument
PART I
RECORDING REFERENCE DATA:
Serial #___________________ Date Recorded ___________________-
SEPARATE PAPER AFFIXED TO INSTRUMENT:
"Tax paid" indicated on the face of instrument and the separate request
(DRA 3-A) was affixed for Recorder by:
____________________________________ Date _____________
Documentary Transfer Tax Collector
Witnessed by: _____________________ Date _____________
Mail Clerk
(Note: Prepare photo for Recorder file.)
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PART II ACCOUNTABLE FORM #
REFERENCE DATA: Title: ___________________________________________
Serial:________________________ Date: __________
INSTRUCTIONS:
1. This slip must accompany document.
2. Mail Clerk hand carry document to Tax Collector to
indicate the amount of tax paid.
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EXHIBIT H
SECRETARY'S CERTIFICATE
The undersigned, __________________ Secretary of BNP Leasing
Corporation, a Delaware corporation (the "Corporation"), hereby certifies as
follows:
1. That he is the duly, elected, qualified and acting Secretary [or
Assistant Secretary] of the Corporation and has custody of the corporate
records, minutes and corporate seal.
2. That the following named persons have been properly designated,
elected and assigned to the office in the Corporation as indicated below; that
such persons hold such office at this time and that the specimen signature
appearing beside the name of such officer is his true and correct signature.
[The following blanks must be completed with the names and signatures of the
officers who will be signing the deed and other Required Documents on behalf of
the Corporation.]
Name Title Signature
- ---- ----- ---------
_____________________ ______________________________ ____________________
_____________________ ______________________________ ____________________
3. That the resolutions attached hereto and made a part hereof were
duly adopted by the Board of Directors of the Corporation in accordance with the
Corporation's Articles of Incorporation and Bylaws, as evidenced by the
signatures of all directors of the Corporation affixed thereto. Such resolutions
have not been amended, modified or rescinded and remain in full force and
effect.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal
of the Corporation on this __________, day of _________, 199__.
_____________________________
[signature]
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CORPORATE RESOLUTIONS OF
BNP LEASING CORPORATION
WHEREAS, pursuant to that certain Amended and Restated Purchase
Agreement (Phases II and III) (herein called the "Purchase Agreement") dated as
of September 23, 1994, by and between BNP Leasing Corporation (the
"Corporation") and Sun Microsystems, Inc. ("Sun"), the Corporation agreed to
sell and Sun agreed to purchase or cause the Applicable Purchaser (as defined in
the Purchase Agreement) to purchase the Corporation's interest in the property
(the "Property") located in Menlo Park, California more particularly described
therein.
NOW THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation, in its best business judgement, deems it in the best interest of
the Corporation and its shareholders that the Corporation convey the Property to
Sun or the Applicable Purchaser pursuant to and in accordance with the terms of
the Purchase Agreement.
RESOLVED FURTHER, that the proper officers of the Corporation, and each
of them, are hereby authorized and directed in the name and on behalf of the
Corporation to cause the Corporation to fulfill its obligations under the
Purchase Agreement.
RESOLVED FURTHER, that the proper officers of the Corporation, and each
of them, are hereby authorized and directed to take or cause to be taken any and
all actions and to prepare or cause to be prepared and to execute and deliver
any and all deeds and other documents, instruments and agreements that shall be
necessary, advisable or appropriate, in such officer's sole and absolute
discretion, to carry out the intent and to accomplish the purposes of the
foregoing resolutions.
IN WITNESS WHEREOF, we, being all the directors of the Corporation,
have hereunto signed our names as of the dates indicated by our signatures.
_____________________________________
[signature and date]
_____________________________________
[signature and date]
_____________________________________
[signature and date]
H-2
<PAGE>
EXHIBIT I
BNP LEASING CORPORATION
717 N. HARWOOD
SUITE 2630
DALLAS, TEXAS 75201
_____________________, 199________
First American Title
Insurance Company
555 Marshall Street
P.O. Box 549
Redwood City, California 94064
Re: Recording of Grant Deed to Sun Microsystems, Inc.
("Sun")
Ladies and Gentlemen:
BNP Leasing Corporation ("BNPLC") has executed and delivered to [Sun
Microsystems, Inc. or the Applicable Purchaser] a Grant Deed in the form
attached to this letter. You are hereby authorized and directed to record the
Grant Deed at the request of Sun.
Sincerely,
I-1
<PAGE>
EXHIBIT J
FIRPTA STATEMENT
Section 1445 of the Internal Revenue Code of 1986, as amended, provides
that a transferee of a U.S. real property interest must withhold tax if the
transferor is a foreign person. Sections 18805, 18815 and 26131 of the
California Revenue and Taxation Code, as amended, provide that a transferee of a
California real property interest must withhold income tax if the transferor is
a nonresident seller.
To inform [Sun Microsystems, Inc. or the Applicable Purchaser, as the
case may be] (the "Transferee") that withholding of tax is not required upon the
disposition of a California real property interest by transferor, BNPLC Leasing
Corporation (the "Seller"), the undersigned hereby certifies the following on
behalf of the Seller:
1. The Seller is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. The United States employer identification number for the Seller is
_____________________;
3. The office address of the Seller is _________________________.
[Note: BNPLC MUST INCLUDE EITHER ONE, BUT ONLY ONE, OF THE FOLLOWING
REPRESENTATIONS IN THE FIRPTA STATEMENT, BUT IF THE ONE INCLUDED STATES THAT
BNPLC IS DEEMED EXEMPT FROM CALIFORNIA INCOME AND FRANCHISE TAX, THEN BNPLC MUST
ALSO ATTACH A WITHHOLDING CERTIFICATE FROM THE CALIFORNIA FRANCHISE TAX BOARD
EVIDENCING THE SAME:
4. The Seller is qualified to do business in California.
OR
4. The Seller is deemed to be exempt from the withholding requirement
of California Revenue and Taxation Code Section 26131(e), as evidenced by the
withholding certificate from the California Franchise Tax Board which is
attached.]
The Seller understands that this certification may be disclosed to the
Internal Revenue Service and/or to the California Franchise Tax Board by the
Transferee and that any false statement contained herein could be punished by
fine, imprisonment, or both.
J-1
<PAGE>
The Seller understands that the Transferee is relying on this affidavit
in determining whether withholding is required upon said transfer. The Seller
hereby agrees to indemnify and hold the Transferee harmless from and against any
and all obligations, liabilities, claims, losses, actions, causes of action,
demands, rights, damages, costs, and expenses (including but not limited to
court costs and attorneys' fees) incurred by the Transferee as a result of any
false misleading statement contained herein.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of the Seller.
Dated: ___________, 199___.
By:________________________
Name: __________________
Title: _________________
J-2
EXHIBIT 11.0
SUN MICROSYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
PRIMARY
- -------
YEARS ENDED
JUNE 30,
--------
1996 1995 1994
---- ---- ----
Net income $ 476,388 $ 355,842 $ 195,824
Weighted average common shares outstanding 185,567 191,432 190,414
Common equivalent shares attributable to the
following:
Stock options and warrants 11,123 5,418 3,114
Total common and common equivalent shares
outstanding 196,690 196,850 193,528
-------- --------- ---------
Net income per common and common
equivalent share $ 2.42 $ 1.81 $ 1.01
========= ========= =========
<PAGE>
Fully Diluted
- -------------
YEARS ENDED
JUNE 30,
--------
1996 1995 1994
---- ---- ----
Net income $476,388 $355,842 $195,824
Weighted average common shares outstanding 185,567 191,432 190,414
Common equivalent shares attributable to the
following:
Stock options and warrants 11,556 5,850 3,242
Total common and common equivalent shares
outstanding 197,123 197,282 193,656
-------- -------- --------
Net income per common and common
equivalent share $ 2.42 $ 1.81 $ 1.01
======== ======== ========
Historical financial review of Sun Microsystems
<TABLE>
<CAPTION>
Summary Consolidated Statements of Income Years Ended June 30,
1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------
Dollars % Dollars % Dollars % Dollars % Dollars %
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $7,095 100.0 $5,902 100.0 $4,690 100.0 $4,309 100.0 $3,589 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 3,972 56.0 3,399 57.6 2,753 58.7 2,518 58.4 1,963 54.7
Research and development 657 9.3 563 9.5 500 10.7 445 10.3 382 10.6
Selling, general and administrative 1,733 24.4 1,440 24.4 1,160 24.7 1,105 25.7 983 27.4
Nonrecurring charges 58 .8 -- -- -- -- -- -- -- --
Total costs and expenses 6,420 90.5 5,402 91.5 4,413 94.1 4,068 94.4 3,328 92.7
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 675 9.5 500 8.5 277 5.9 241 5.6 261 7.3
Interest income (expense), net 34 .5 23 0.4 6 0.1 (2) -- (6) (0.2)
Litigation settlement -- -- -- -- -- -- (15) (0.4) -- --
Income before income taxes 709 10.0 523 8.9 283 6.0 224 5.2 255 7.1
Provision for income taxes 232 3.3 167 2.9 87 1.8 67 1.6 82 2.3
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 477 6.7 $ 356 6.0 $ 196 4.2 $ 157 3.6 $ 173 4.8
Net income per share $ 2.42 $ 1.81 $ 1.01 $ 0.74 $ 0.86
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common-
equivalent shares outstanding 197 197 194 210 203
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Summary Consolidated Statements of Income Years Ended June 30,
1991 1990 1989 1988 1987 1986
---------------------------------------------------------------------------------------------
Dollars % Dollars % Dollars % Dollars % Dollars % Dollars %
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $3,221 100.0 $2,466 100.0 $1,765 100.0 $1,052 100.0 $ 538 100.0 $ 210 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 1,758 54.6 1,399 56.7 1,010 57.2 551 52.3 273 50.7 102 48.5
Research and development 356 11.1 302 12.2 234 13.3 140 13.3 70 13.0 31 14.8
Selling, general and administrative 812 25.2 588 23.9 433 24.5 250 23.8 127 23.6 57 27.3
Nonrecurring charges -- -- -- -- -- -- -- -- -- -- -- --
Total costs and expenses 2,926 90.9 2,289 92.8 1,677 95.0 941 89.4 470 87.3 190 90.6
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 295 9.1 177 7.2 88 5.0 111 10.6 68 12.7 20 9.4
Interest income (expense), net (11) (0.3) (23) (0.9) (10) (0.6) -- (0.1) 1 0.2 -- 0.2
Litigation settlement -- -- -- -- -- -- -- -- -- -- -- --
Income before income taxes 284 8.8 154 6.3 78 4.4 111 10.5 69 12.9 20 9.6
Provision for income taxes 94 2.9 43 1.8 17 1.0 45 4.2 33 6.1 9 4.3
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 190 5.9 $ 111 4.5 $ 61 3.4 $ 66 6.3 $ 36 6.8 $ 11 5.3
Net income per share $ 0.93 $ 0.61 $ 0.38 $ 0.44 $0.28 $0.20
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common-
equivalent shares outstanding 206 189 170 156 135 106
===================================================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Operating and Capitalization Data Years Ended June 30,
1996 1995 1994 1993 1992 1991
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Total assets (millions) $ 3,801 $ 3,545 $ 2,898 $ 2,768 $ 2,672 $ 2,326
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt and other obligations (millions) $ 60 $ 91 $ 122 $ 178 $ 348 $ 401
- -----------------------------------------------------------------------------------------------------------------------------------
Current ratio 2.0 2.2 2.0 2.4 2.6 2.5
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt-to-equity ratio 0.018 0.039 0.075 0.11 0.23 0.33
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average equity 22% 19% 12% 10% 13% 18%
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average capital 23% 18% 12% 9% 10% 13%
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average assets 13% 11% 7% 6% 7% 9%
- -----------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 33.0% 32.0% 33.0% 30.0% 32.0% 33.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Average shares and equivalents (thousands) 196,690 196,850 193,528 210,250 203,280 206,134
- -----------------------------------------------------------------------------------------------------------------------------------
Book value per outstanding share $ 12.14 $ 10.78 $ 8.68 $ 8.05 $ 7.43 $ 6.29
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Operating and Capitalization Data Years Ended June 30,
1990 1989 1988 1987 1986
================================================================================================================
<S> <C> <C> <C> <C> <C>
Total assets (millions) $ 1,779 $ 1,269 $ 757 $ 524 $ 182
- ----------------------------------------------------------------------------------------------------------------
Long-term debt and other obligations (millions) $ 359 $ 145 $ 127 $ 128 $ 7
- ----------------------------------------------------------------------------------------------------------------
Current ratio 2.6 1.9 2.1 2.6 1.9
- ----------------------------------------------------------------------------------------------------------------
Long-term debt-to-equity ratio 0.39 0.22 0.34 0.53 0.04
- ----------------------------------------------------------------------------------------------------------------
Return on average equity 14% 12% 22% 21% 14%
- ----------------------------------------------------------------------------------------------------------------
Return on average capital 11% 9% 15% 15% 13%
- ----------------------------------------------------------------------------------------------------------------
Return on average assets 7% 6% 10% 10% 8%
- ----------------------------------------------------------------------------------------------------------------
Effective income tax rate 28.0% 22.0% 40.0% 47.5% 44.6%
- ----------------------------------------------------------------------------------------------------------------
Average shares and equivalents (thousands) 188,738 170,332 155,760 134,696 106,480
- ----------------------------------------------------------------------------------------------------------------
Book value per outstanding share $ 5.01 $ 3.94 $ 2.56 $ 1.79 $ 0.98
================================================================================================================
</TABLE>
14
<PAGE>
Management's discussion and analysis of financial
condition and results of operations
The following table sets forth items from Suns Consolidated Statements
of Income as a percentage of net revenues: Years
Ended
June 30,
1996 1995 1994
================================================================================
Net revenues 100.0% 100.0% 100.0%
Cost of sales 56.0 57.6 58.7
- --------------------------------------------------------------------------------
Gross margin 44.0 42.4 41.3
Research and development 9.3 9.5 10.7
Selling, general and administrative 24.4 24.4 24.7
Nonrecurring charges .8 -- --
- --------------------------------------------------------------------------------
Operating income 9.5 8.5 5.9
Interest income, net 0.5 0.4 0.1
- --------------------------------------------------------------------------------
Income before income taxes 10.0 8.9 6.0
Provision for income taxes 3.3 2.9 1.8
- --------------------------------------------------------------------------------
Net income 6.7% 6.0% 4.2%
================================================================================
Results of operations
Net revenues
Sun's net revenues increased $1,193 million, or 20%, to $7,095 million in fiscal
1996, compared with an increase of $1,212 million, or 26%, in fiscal 1995. The
increase in net revenues in fiscal 1996 was due in part to the strong demand
experienced by Sun throughout the fiscal year for its richly configured servers,
specifically the SPARCserver(TM) 1000, SPARCcenter(TM) 2000, and UltraSPARC
servers, and high-end desktop systems. In addition, approximately half of the
increase in net revenues resulted from sales of memory, storage options, and
accessories shipped to new customers purchasing more richly configured systems
and to installed-based customers. Revenues from other Sun businesses, including
service, aftermarketing, microprocessors, and software, in total remained
relatively unchanged as a percentage of net revenues but increased 25% in
dollars during fiscal 1996. The increase in net revenues in fiscal 1995 over
fiscal 1994 was primarily attributable to increases in richly configured desktop
systems and high-performance server shipments, and higher revenues from sales of
memory, storage options, and accessories.
In fiscal 1996 and fiscal 1995, domestic net revenues grew by 19% and 25%,
respectively, while international net revenues (including United States exports)
grew 21% and 26%, respectively. European net revenues increased 19% in fiscal
1996, primarily due to continued market acceptance of Sun's network computing
products and services in central and northern Europe, principally Germany, the
United Kingdom, and Italy. Japan net revenues increased 14% for fiscal 1996,
compared to 18% in fiscal 1995. Net revenues in the Rest of World increased by
34% in fiscal 1996, primarily due to expanding markets in Korea and Taiwan.
Revenues from international operations represented 51% of total net revenues in
fiscal 1996, 1995, and 1994.
The impact of currency fluctuations on net revenues and operating results cannot
be precisely measured because the Company's product mix and pricing change over
time in various markets, partially in response to currency movements. Further,
the Company procures inventory and its international operations incur expenses
in local currencies, providing a degree of natural hedge of local currency
denominated revenues. As such, the financial effects of fluctuations in the
dollar values of foreign currencies frequently mitigate or tend to offset each
other on a consolidated basis. The Company generally manages currency exposure
through the use of simple, short-term forward exchange and
16
<PAGE>
currency option contracts, the objective of which is to minimize the impact of
currency fluctuations on the results of operations. See "Other Financial
Instruments" in Note 1 and Note 3 of the "Notes to Consolidated Financial
Statements" for more details. Compared with fiscal 1995, the dollar in fiscal
1996 has remained relatively unchanged against most major European currencies
and strengthened against the Japanese yen. Management has estimated that the net
impact of currency fluctuations on operating results was not significant in any
of the fiscal years in the three-year period ended June 30, 1996.
Gross margin
Gross margin was 44.0% for fiscal 1996, compared with 42.4% and 41.3% for fiscal
1995 and 1994, respectively. Increased revenues from memory, storage options,
accessories, and more richly configured, higher margin servers and desktop
systems accounted for a majority of the net increase in gross margin for fiscal
1996. The increase also resulted partly from the aggregate effect of revenue
increases in Sun's service, as well as aftermarketing, microprocessor, and
software businesses.
The factors described above resulted in a favorable impact on gross margin.
Because Sun operates in a highly competitive industry characterized by
increasingly aggressive pricing, systems repricing actions may be initiated in
the future, which would result in downward pressure on gross margin. Future
operating results will depend in part on the Company's ability to mitigate this
margin pressure by maintaining a favorable mix of system, software, service, and
other revenues and by achieving component cost reductions and operating
efficiencies.
The increase in gross margin in fiscal 1995 from fiscal 1994 reflected increased
revenues from higher margin servers and desktop systems.
Research and development
Research and development (R&D) expenses increased $94.2 million, or 16.7%, in
fiscal 1996 to $657 million, compared with an increase of $63.1 million, or
12.6%, in fiscal 1995. As a percentage of net revenues, R&D expenses were 9.3%,
9.5%, and 10.7% in fiscal 1996, 1995, and 1994, respectively. R&D spending
continued at a substantial level throughout the three-year period ended June 30,
1996, as the Company invested in specific projects in support of new software
and hardware product introductions and continued development of the SPARC
microprocessor product line, including the UltraSPARC family of processors based
on a 64-bit architecture (referred to hereafter as UltraSPARC). Approximately
half of the dollar increase in R&D expenses in fiscal 1996 reflects increased
compensation expense associated with increased staffing. The remaining increase
in dollar amount of such expenses is due to Sun's development of UltraSPARC
systems and the Company's continuing emphasis on technological advancement for
both hardware and software products, as well as microprocessor technologies. The
decrease as a percentage of net revenues is primarily due to the increase in
revenues in fiscal 1996. Sun continues to believe that the market for its
products is characterized by rapid rates of technological advancement for
systems and software products, as well as microprocessor technologies. To
maintain its competitive position in the industry, the Company expects to
continue to invest significant resources in new systems, software, and
microprocessor development, as well as in enhancements to existing products.
Selling, general and administrative
Selling, general and administrative (SG&A) expenses increased $293 million, or
20.4%, in fiscal 1996 to $1,733 million, compared with an increase of $279.2
million, or 24%, in fiscal 1995. As a percentage of net revenues, these expenses
were 24.4% in fiscal 1996 and 1995, and 24.7% in 1994. Approximately half of the
dollar increase in fiscal 1996 is attributable to increased marketing costs
related to new product introductions and other promotional programs, and an
increase in marketing and sales headcount.
17
<PAGE>
The dollar increase also reflects investments aimed at improving Sun's own
business processes. The dollar increase in fiscal 1995 resulted primarily from
increased incentive compensation and investments in demand-creation programs.
The decrease as a percentage of net revenues in fiscal 1996 reflects, in part,
the increase in revenues and the Company's ongoing efforts to reduce certain
SG&A expenses through improvements in business processes and cycle times. In
fiscal 1997 the Company expects to continue to invest in efforts to achieve
additional operating efficiencies through the continual review and improvements
of business processes. In addition, the Company expects to continue to hire
personnel to drive its demand-creation programs and service and support
operations.
Nonrecurring charges
Nonrecurring charges represent write-offs of purchased in-process research and
development associated with the Company's acquisitions of Integrated Micro
Products plc and its wholly owned subsidiaries, and Lighthouse Design, Ltd. See
"Acquisitions" in Note 2 of the "Notes to Consolidated Financial Statements" for
additional information.
Interest income (expense), net
Net interest income increased to $33.9 million in fiscal 1996, compared with
$22.9 million and $6.1 million in fiscal 1995 and fiscal 1994, respectively. The
growth in net interest income for fiscal 1996 was primarily the result of
interest savings from reduced debt levels and an increase in the effective
interest rate earned on investments. The increase in net interest income in
fiscal 1995 was due primarily to higher earnings on a larger portfolio of cash.
The Company enters into rate swap agreements as part of its overall strategy of
managing its investments and financing arrangements. See "Other Financial
Instruments" in Note 1 of the "Notes to Consolidated Financial Statements" for
additional information.
Income taxes
The effective tax rate for fiscal 1996 was 32% before a $5.7 million tax charge
resulting from a nonrecurring write-off of in-process research and development
associated with the acquisition of Lighthouse Design, Ltd. The effective tax
rate for fiscal 1995 was also 32%. The effective tax rate for fiscal 1994 was
33% before the one-time credit of $5.9 million resulting from the Omnibus
Reconciliation Act of 1993. The decrease in fiscal 1995 compared with fiscal
1994 resulted from the increase in earnings of foreign subsidiaries permanently
invested in foreign operations.
Future Operating Results
This following section of the report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve risks and uncertainties so that actual
results may vary materially.
Management believes the Company has entered fiscal 1997 in strong financial
condition and with a competitive offering of network computing products,
including systems, software, microprocessor technologies, and services. The
market for Sun's products and services is intensely competitive and subject to
continuous, rapid technological change, short product life cycles, and frequent
product performance improvements and price reductions. Due to the breadth of the
Company's product lines and the scalability of its products and network
computing model, Sun competes in many segments of the network computing market
across a broad spectrum of customers. The Company expects the markets for its
products and technologies, as well as its competitors within such markets, will
continue to change as the rightsizing trend shifts customer buying patterns to
network-based systems, which often employ solutions from multiple vendors.
Competition in these markets will also continue to intensify as Sun and its
competitors, principally Hewlett-Packard, International Business Machines,
Digital Equipment Corporation, and Silicon Graphics, aggressively position
themselves to benefit from this shifting of customer buying patterns and demand.
The Company is also facing increasing
18
<PAGE>
competition from these competitors, as well as other systems manufacturers, such
as Compaq Computer Corporation and Dell Computer Corporation, with respect to
products based on microprocessors from Intel Corporation coupled with Windows NT
operating system software from Microsoft Corporation. These products demonstrate
the viability of certain networked personal computer solutions and have
increased the competitive pressure, particularly in the Company's workstation
and lower-end server product lines. Finally, the timing of introductions of new
products and services by Sun's competitors may negatively impact the future
operating results of the Company, particularly when occurring in periods leading
up to the Company's introduction of its own enhanced products. The Company
expects this pressure to continue and intensify in fiscal 1997. While many other
technical, service, and support capabilities affect a customer's buying
decision, the Company's future operating results will depend, in part, on its
ability to compete with these technologies.
The Company's future operating results will depend to a considerable extent on
its ability to rapidly and continuously develop, introduce, and deliver in
quantity new systems, software, and service products, as well as new
microprocessor technologies, that offer its customers enhanced performance at
competitive prices. The development of new high-performance computer products,
such as the Company's recent development of UltraSPARC, is a complex and
uncertain process requiring high levels of innovation from the Company's
designers and suppliers, as well as accurate anticipation of customer
requirements and technological trends.
Sun introduced and began shipments of its new enhanced desktop systems based
upon the UltraSPARC processors in the second quarter of fiscal 1996. In
addition, enhanced server systems based on UltraSPARC were introduced in the
fourth quarter of fiscal 1996. Future operating results will depend to a
considerable extent on the Company's ability to rapidly and successfully
complete the integration of UltraSPARC into the Company's workstation and server
product lines. Once a hardware product is developed, the Company must rapidly
bring such products to volume manufacturing, a process that requires accurate
forecasting of volumes, mix of products and configurations, among other things
in order to achieve acceptable yields and costs.
Accordingly, with the introduction of the Company's enhanced server systems
introduced during fiscal 1996, future operating results will depend to a
considerable extent on the Company's ability to closely manage these product
introductions, as well as future product introductions, in order to minimize
unfavorable patterns of customer orders, to reduce levels of older inventory,
and to ensure that adequate supplies of new products can be delivered to meet
customer demand. The ability of the Company to match supply and demand is
further complicated by the Company's need to adjust prices to reflect changing
competitive market conditions as well as the variability and timing of customer
orders with respect to the Company's older products. As a result, the Company's
operating results could be adversely affected if the Company is not able to
correctly anticipate the level of demand for the mix of products. Because the
Company is continuously engaged in this product development, introduction, and
transition process, its operating results may be subject to considerable
fluctuation, particularly when measured on a quarterly basis.
The Company is increasingly dependent on the ability of its suppliers to design,
manufacture, and deliver advanced components required for the timely
introduction of new products. The failure of any of these suppliers to deliver
components on time or in sufficient quantities, or the failure of any of the
Company's own designers to develop innovative products on a timely basis, could
result in a significant adverse impact on the Company's operating results. The
inability to secure enough components to build products, including new products,
in the quantities and configurations required, or to produce, test, and deliver
sufficient products to meet demand in a timely manner, would adversely affect
the Company's net revenues and operating results.
19
<PAGE>
To secure components for development, production, and introduction of new
products, the Company frequently makes advanced payments to certain suppliers
and often enters into noncancelable purchase commitments with vendors early in
the design process. Due to the variability of material requirement
specifications during the design process, the Company must closely manage
material purchase commitments and respective delivery schedules. In the event of
a delay or flaw in the design process, the Company's operating results could be
adversely affected due to the Company's obligations to fulfill such
noncancelable purchase commitments.
The Company uses many standard parts and components in its products and believes
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology, or other considerations. In some
cases, those components are available only from single sources. In particular,
the Company is dependent on Sony Corporation for various monitors and on Fujitsu
Limited and Texas Instruments Incorporated for different implementations of
SPARC microprocessors. Certain custom silicon parts are designed by and produced
on a contractual basis for the Company. The process of substituting a new
producer of such parts could adversely affect the Company's operating results.
Some suppliers of certain components, including color monitors and custom
silicon parts, require long lead times such that it can be difficult for the
Company to plan inventory levels of components to consistently meet demand for
the Company's products. Certain other components, especially memory integrated
circuits such as DRAMs and VRAMs, have from time to time been subject to
industry-wide shortages. Future shortages of components could negatively affect
the Company's ability to match supply and demand, and therefore could adversely
impact the Company's future operating results.
Generally, the computer systems sold by Sun, such as the UltraSPARC products,
are the result of hardware and software development, such that delays in the
software development can delay the ability of the Company to ship new hardware
products. In addition, adoption of a new release of an operating system may
require effort on the part of the customer and porting by software vendors
providing applications. As a result, the timing of conversion to a new release
is inherently unpredictable. Moreover, delays by customers in adopting a new
release of an operating system can limit the acceptability of hardware products
tied to that release. Such delays could adversely affect the future operating
results of the Company.
Certain computer systems sold by Sun require a high level of service and support
to be provided to the customer, and consequently, the customer's acceptance of
such systems may be delayed in the event Sun does not provide a sufficient level
of service. Such delays in customer acceptance could adversely affect the future
operating results.
The Company's future operating results will continue to be subject to quarterly
variations based upon a wide variety of factors, including the volume, mix, and
timing of orders received during a new period, the ability to develop,
manufacture, and introduce new products, the timing of new product
introductions, the availability of components, price erosion, and conditions in
the computer hardware and software industries generally and in the general
economy, such as recessionary periods, political instability, changes in trade
policies, fluctuations in interest or currency exchange rates, and other
competitive factors. Seasonality also affects the Company's operating results,
particularly in the first quarter of each fiscal year. In addition, the
Company's operating expenses are increasing as the Company continues to expand
its operations, and future operating results will be adversely affected if
revenues do not increase accordingly. Additionally, the Company plans to
continue to evaluate and, when appropriate, make acquisitions of complementary
technologies, products, or businesses. As part of this process, the Company will
continue to evaluate the
20
<PAGE>
changing value of its assets and, when necessary, make adjustments thereto.
While the Company cannot predict what effect these various factors may have on
its financial results, the aggregate effect of these and other factors could
result in significant volatility in the Company's future performance and stock
price.
Liquidity and capital resources
During fiscal 1996, operating activities generated $688 million, compared with
$637 million in fiscal 1995. Accounts receivable increased $160 million, or 15%,
to $1,207 million, due primarily to a 23% increase in net revenues in the fourth
quarter of fiscal 1996 as compared with the corresponding period of 1995, offset
by higher collections. Other current and non-current assets increased $44
million, or 9%, to $524 million, due primarily to recording of the intangibles
associated with the fiscal year 1996 acquisitions and the timing of payments for
income and other taxes. Accrued payroll-related liabilities, accrued
liabilities, and other increased $128 million, or 14%, due in part to increases
in compensation, sales, and marketing costs. Accounts payable increased $17
million, or 6%, due in part to receipt of more inventory in the last few weeks
of fiscal 1996 than received in the comparable period of fiscal 1995.
The Company's investing activities used $125 million of cash in fiscal 1996, a
decrease of $550 million from the $675 million used in fiscal 1995. The decrease
resulted primarily from the Company investing more of the fiscal 1996 net
operating cash flow in cash equivalents and less in short-term investments.
Additions to property, plant and equipment totaled $296 million, up $54 million,
or 22%, from fiscal 1995 additions, primarily due to additions to support
increased marketing and tradeshow programs, capital additions to support
increased headcount, and additions to the Company's Menlo Park campus. The
Company plans to purchase phases II and III of its Menlo Park campus for
approximately $116 million during the second quarter of fiscal 1997.
Approximately $449 million of cash was used by financing activities in fiscal
1996, compared with $18 million provided in fiscal 1995. This change is
primarily due to the repurchase of 17.2 million shares of the Company's common
stock for $460 million in fiscal 1996. This planned repurchase of approximately
24 million shares of stock was approved by the Board of Directors in July 1995.
At June 30, 1996, the Company's primary sources of liquidity consisted of cash,
cash equivalents, and short-term investments totaling $990 million; uncommitted
lines of credit available to the Company's international subsidiaries totaling
$561 million, of which $512 million was available; and a revolving credit
facility with banks aggregating $300 million, all of which was available subject
to compliance with certain covenants. The Company believes that the liquidity
provided by existing cash and short-term investment balances and the borrowing
arrangements described above will be sufficient to meet the Company's capital
requirements for fiscal 1997. However, because the Company believes the level of
financial resources is a significant competitive factor in its industry, it may
choose at any time to raise additional capital through debt or equity financing
to strengthen its financial position, facilitate growth, and provide the Company
with additional flexibility to take advantage of business opportunities that may
arise.
21
<PAGE>
Consolidated statements of income Years Ended June 30,
(In thousands, except per share amounts) 1996 1995 1994
================================================================================
Net revenues $7,094,751 $5,901,885 $4,689,892
Cost and expenses:
Cost of sales 3,972,028 3,399,010 2,752,518
Research and development 657,144 562,895 499,731
Selling, general and administrative 1,732,667 1,439,624 1,160,376
Nonrecurring charges 57,900 -- --
- --------------------------------------------------------------------------------
Total costs and expenses 6,419,739 5,401,529 4,412,625
- --------------------------------------------------------------------------------
Operating income 675,012 500,356 277,267
Interest income 42,976 40,778 27,894
Interest expense (9,114) (17,836) (21,782)
- --------------------------------------------------------------------------------
Income before income taxes 708,874 523,298 283,379
Provision for income taxes 232,486 167,456 87,555
- --------------------------------------------------------------------------------
Net income $ 476,388 $ 355,842 $ 195,824
- --------------------------------------------------------------------------------
Net income per common and
common-equivalent share $ 2.42 $ 1.81 $ 1.01
Common and common-equivalent shares used in
the calculation of net income per share 196,690 196,850 193,528
================================================================================
See accompanying notes.
22
<PAGE>
Consolidated balance sheets
At June 30,
(In thousands, except share and per share amounts) 1996 1995
================================================================================
Assets
Current assets:
Cash and cash equivalents $ 528,854 $ 413,869
Short-term investments 460,743 814,151
Accounts receivable, net of allowances of
$100,730 in 1996 and $99,607 in 1995 1,206,612 1,041,804
Inventories 460,914 319,672
Deferred tax assets 177,554 172,833
Other current assets 199,059 172,035
- --------------------------------------------------------------------------------
Total current assets 3,033,736 2,934,364
Property, plant and equipment:
Machinery and equipment 928,361 715,619
Furniture and fixtures 69,059 61,762
Leasehold improvements 91,052 79,791
Land and buildings 193,912 188,704
- --------------------------------------------------------------------------------
1,282,384 1,045,876
Accumulated depreciation and amortization (748,535) (616,871)
- --------------------------------------------------------------------------------
Net property, plant and equipment 533,849 429,005
Other assets, net 233,324 181,184
- --------------------------------------------------------------------------------
$ 3,800,909 $ 3,544,553
================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 49,161 $ 50,786
Accounts payable 325,067 303,995
Accrued payroll-related liabilities 282,778 255,698
Accrued liabilities and other 518,772 432,627
Deferred service revenues 140,157 106,176
Income taxes payable 134,934 143,100
Current portion of long-term debt 38,400 38,400
- --------------------------------------------------------------------------------
Total current liabilities 1,489,269 1,330,782
Long-term debt and other obligations 60,154 91,176
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value,
10,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.00067 par value,
300,000,000 shares authorized;
issued: 213,160,059 shares in 1996 and
212,754,962 shares in 1995 72 72
Additional paid-in capital 1,164,349 1,089,478
Retained earnings 1,662,355 1,205,483
Treasury stock, at cost: 27,177,938 shares in
1996 and 15,726,158 shares in 1995 (596,910) (206,067)
Currency translation adjustment and other 21,620 33,629
- --------------------------------------------------------------------------------
Total stockholders' equity 2,251,486 2,122,595
- --------------------------------------------------------------------------------
$ 3,800,909 $ 3,544,553
================================================================================
See accompanying notes
23
<PAGE>
<TABLE>
<CAPTION>
Consolidated statements of cash flows
Increase (decrease) in cash and cash equivalents Years Ended June 30,
(In thousands) 1996 1995 1994
============================================================================================================
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 476,388 $ 355,842 $ 195,824
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization 284,083 240,626 248,247
Tax benefit of options exercised 53,000 20,837 9,088
Other non-cash items 68,358 2,482 5,122
Net increase in receivables (160,238) (188,773) (225,857)
Net increase in inventories (135,742) (24,724) (38,673)
Net (decrease) increase in accounts payable 17,275 (59,833) 93,388
Net increase in other current and non-current assets (43,701) (2,006) (35,203)
Net increase in other current and non-current liabilities 128,891 293,043 103,808
- ------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 688,314 637,494 355,744
- ------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property, plant and equipment (295,638) (242,436) (213,229)
Acquisition of other assets (83,889) (68,089) (115,199)
Acquisition of short-term investments (1,301,798) (3,470,614) (2,799,408)
Payment for IMP acquisition (96,100) -- --
Maturities of short-term investments 1,424,324 2,300,824 2,407,666
Sales of short-term investments 228,377 804,862 252,736
- ------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (124,724) (675,453) (467,434)
- ------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Issuance of stock, net of employee repurchases 59,554 79,613 19,243
Acquisition of treasury stock (522,336) (36,107) (294,427)
Proceeds from employee stock purchase plans 54,840 42,750 42,298
Reduction of short-term borrowings, net (1,625) (27,901) (12,203)
Reduction of long-term borrowings and other (39,038) (40,464) (38,123)
- ------------------------------------------------------------------------------------------------------------
Net cash (used by) provided from financing activities (448,605) 17,891 (283,212)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 114,985 (20,068) (394,902)
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 413,869 433,937 828,839
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 528,854 $ 413,869 $ 433,937
- ------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 18,140 $ 14,229 $ 20,788
Income taxes $ 193,461 $ 113,999 $ 63,267
Supplemental schedule of non-cash investing and financing activities:
The Company purchased all of the assets of Integrated
Micro Products plc during fiscal year 1996. In conjunction
with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 101,500 -- --
Cash paid for assets (96,100) -- --
- ----------------------------------------------------------------------------------------------------------
Liabilities assumed 5,400 -- --
==========================================================================================================
Stock issued in connection with acquisitions $ 19,012 -- --
===========================================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
24
<PAGE>
<TABLE>
Consolidated statements of stockholders' equity
<CAPTION>
Common stock Treasury stock
Shares Amount Additional Retained Shares Amount Currency Total
Three years ended June 30, 1996 paid-in earnings translation stockholders'
(In thousands, except share amounts) capital adjustment equity
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1993 212,889,488 $72 $1,053,806 $ 705,965 (8,665,410) $(119,052) $1,992 $1,642,783
Issuance of stock, net of
employee repurchases (101,088) -- 377 (22,654) 6,053,266 84,234 -- 61,957
Treasury stock purchased -- -- -- -- (22,473,606) (294,427) -- (294,427)
Net income -- -- -- 195,824 -- -- -- 195,824
Tax benefit and other -- -- 12,388 -- -- -- 9,798 22,186
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 212,788,400 72 1,066,571 879,135 (25,085,750) (329,245) 11,790 1,628,323
Issuance of stock, net of
employee repurchases (33,438) -- -- (29,494) 11,595,070 159,285 -- 129,791
Treasury stock purchased -- -- -- -- (2,235,478) (36,107) -- (36,107)
Net income -- -- -- 355,842 -- -- -- 355,842
Tax benefit and other -- -- 22,907 -- -- -- 21,839 44,746
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 212,754,962 72 1,089,478 1,205,483 (15,726,158) (206,067) 33,629 2,122,595
Issuance of stock, net of
employee repurchases (20,234) -- -- (19,516) 7,280,964 131,493 -- 111,977
Issuance of restricted stock 425,331 -- 19,012 -- -- -- -- 19,012
Treasury stock purchased -- -- -- -- (18,732,744) (522,336) -- (522,336)
Net income -- -- -- 476,388 -- -- -- 476,388
Tax benefit and other -- -- 55,859 -- -- -- (12,009) 43,850
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 213,160,059 $72 $1,164,349 $1,662,355 (27,177,938) $(596,910) $21,620 $2,251,486
==================================================================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
25
<PAGE>
Notes to consolidated financial statements
1. Summary of significant accounting policies
Description of business
Sun Microsystems, Inc., is a supplier of network computing products including
workstations, servers, software, microprocessors, and a full range of services.
The Company markets its products primarily to business, government, and
education customers. The Company operates in a single industry segment across
geographically diverse markets.
Basis of presentation
The consolidated financial statements include the accounts of Sun Microsystems,
Inc. ("Sun" or the "Company") and its wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated. Certain amounts from prior years
have been reclassified to conform to current year presentation.
The preparation of financial statements in conformity with generally accepted
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash equivalents and short-term investments
Cash equivalents consist primarily of short-term investments with insignificant
interest rate risk and original maturities of three months or less at the date
of acquisition.
Short-term investments consist primarily of time deposits, commercial paper, tax
exempt securities, and foreign debt with original maturities beyond three
months.
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Under SFAS 115, debt securities that the Company does not have the positive
intent and ability to hold to maturity and all marketable equity securities are
classified as either trading or available-for-sale and are carried at fair
market value. All of the Company's cash equivalents and short-term investments
are classified as available-for-sale at June 30, 1996 and 1995. Unrealized
holding gains and losses on available-for-sale securities are carried as a
separate component of stockholders' equity in "tax benefit and other."
Gross unrealized gains and losses are computed on the specific identification
method. The change in net unrealized gains and losses in investments, net of
income taxes, resulted in a decrease to stockholders' equity in fiscal 1996. The
net unrealized loss included in stockholders' equity at June 30, 1996, was not
material.
Accounts receivable
The Company has an agreement to sell, on a revolving basis with limited recourse
and up to a maximum of $125 million, an undivided percentage of ownership in a
designated pool of accounts receivable. The transaction was fully funded at June
30, 1996. The Company maintains an allowance for doubtful accounts based on the
estimated collectibility of all trade accounts receivable, including those sold.
The purchaser has a perfected security interest in the Company's domestic
accounts receivable. The three-year agreement expires in August 1997.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market (net
realizable value). Given the volatility of the market for the Company's
products, the Company makes inventory write downs for potentially excess and
obsolete inventory based on backlog and forecast demand. However, such backlog
demand is subject to revisions, cancellations, and rescheduling. Actual demand
will inevitably differ from such backlog and forecast demand, and such
differences may be material to the financial statements. Excess inventory
increases the risk of obsolescence, is a non-productive use of capital
resources, and increases inventory handling costs. Inventories consist of:
(In thousands) 1996 1995
===========================================================
Raw materials $267,811 $170,337
Work in progress 58,337 32,356
Finished goods 134,766 116,979
- -----------------------------------------------------------
Total $460,914 $319,672
===========================================================
26
<PAGE>
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided principally on the straight-line method over the shorter of the
estimated useful lives of the assets (ranging from one to twenty-five years) or
the applicable lease term.
Other assets
Included in other assets are purchased technology rights and other intangibles,
as well as spare parts that are amortized over their useful lives ranging from
six months to seven years. The Company evaluates the recoverability of the
intangibles on a quarterly basis.
Currency translation
Sun translates the assets and liabilities of international non-U.S. functional
currency subsidiaries into dollars at the rates of exchange in effect at the end
of the period. Revenues and expenses are translated using rates that approximate
those in effect during the period. Gains and losses from currency translation
are included in stockholders' equity in the consolidated balance sheets.
Other financial instruments
The Company enters into forward foreign exchange contracts and foreign currency
option contracts to hedge certain operational and balance sheet exposures from
changes in foreign currency exchange rates. Such exposures result from the
portion of the Company's operations, assets, and liabilities that are
denominated in currencies other than the U.S. dollar, including local currency
denominated assets and liabilities in U.S. dollar functional currency entities.
These transactions are entered into to hedge purchases, sales, and other normal
recurring transactions and accordingly are not speculative in nature. The
Company does not hold or issue financial instruments for trading purposes nor
does it hold or issue leveraged derivative financial instruments.
Forward foreign exchange contracts are generally utilized to hedge currency
fluctuation risk on transactions occurring in a given fiscal quarter. Market
value gains and losses on such contracts that result from fluctuations in
foreign exchange rates are recognized as offsets to the exchange gains or losses
on the hedged transactions. Amounts receivable and payable on certain forward
foreign exchange contracts are recorded as other current assets and accrued
liabilities, respectively.
The Company generally purchases simple foreign currency option contracts to
hedge certain anticipated foreign currency transactions related to the sale or
purchase of product during the ensuing three to five months. Gains on foreign
currency option contracts are recognized as offsets to the revenue or expense
item being hedged. Option contracts that would result in losses if exercised are
allowed to expire. When the dollar strengthens significantly against the foreign
currencies, the decline in value of future foreign currency cash flows is
partially offset by the gains in the value of purchased currency options
designated as hedges. However, when the dollar weakens, the increase in value of
the future foreign currency cash flows is reduced only by the premium paid to
acquire the options. The Company enters into interest rate swap agreements to
partially modify the interest rate characteristics of financing arrangements.
The Company entered into an interest rate swap agreement in fiscal 1996 that
effectively resulted in the Company receiving a fixed rate of return of 6.49%
for payment of a variable rate based on the three-month LIBOR, which was 5.49%
at June 30, 1996. The swap agreement carries a notional amount of $40 million
and expires in May 1999, representing the maturity of a 10.18% mortgage loan
(see Note 3). In fiscal 1995, the Company entered into an interest rate swap
agreement that effectively resulted in the Company receiving fixed rates of
return of 6.66% for payment of a variable rate based on the one-month LIBOR,
which was 5.48% and 6.06% at June 30, 1996 and 1995, respectively. The swap
agreement carries a notional amount of $38.4 million, representing the
respective maturity of the 10.55% senior notes in the next fiscal year (see Note
3). The agreement expires in September 1996. The interest rate differential to
be received or paid is recognized over the life of the agreement as an
adjustment to interest income/expense as appropriate.
Revenue recognition
Sun generally recognizes revenue from hardware and software sales at the time of
shipment. Service revenues are recognized ratably over the contractual period or
as the services are provided.
27
<PAGE>
Advertising costs
Advertising costs are charged to expense when incurred.
Warranty expense
The Company provides currently for the estimated costs that may be incurred
under warranties for product shipped.
Net income per common and common-equivalent share
Net income per common and common-equivalent share is computed using the weighted
average number of common and dilutive common-equivalent shares outstanding.
Dilutive common-equivalent shares consist of the incremental shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method). Fully diluted earnings per share has not been presented because the
additional dilution effect is immaterial.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments, foreign exchange contracts, and
interest rate instruments as well as trade receivables. The counterparties to
the agreements relating to the Company's investments, foreign exchange, and
interest rate instruments consist of various major corporations and financial
institutions of high credit standing. The Company does not believe there is
significant risk of non-performance by these counterparties because the Company
limits the amount of credit exposure to any one financial institution and any
one type of investment. The credit risk on receivables due from counterparties
related to foreign exchange and currency option contracts is immaterial at June
30, 1996 and 1995. The Company's receivables are derived primarily from sales of
hardware and software products and services to customers in diversified
industries as well as to a network of resellers. The Company performs ongoing
credit evaluations of its customers' financial condition and limits the amount
of credit extended when deemed necessary but generally requires no collateral.
In fiscal 1996 the Company provided approximately $11 million for doubtful
accounts ($12 million and $20 million in 1995 and 1994, respectively).
Stock dividend
The Company effected a two-for-one stock split (effected in the form of a stock
dividend) to stockholders of record as of the close of business on November 20,
1995. Share and per share amounts presented have been adjusted to reflect the
stock dividend.
Stock-based compensation
The Company has not elected early adoption of the Financial Accounting Standard
No. 123 (FAS 123), "Accounting for Stock-Based Compensation." FAS 123 becomes
effective beginning with the Company's first quarter of fiscal 1997, and will
not have a material effect on the Company's consolidated financial position or
operating results. Upon adoption of FAS 123, the Company will continue to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and will provide proforma disclosures of net
income and earnings per share as if the fair value-based method prescribed by
FAS 123 had been applied in measuring compensation expense.
Other recent pronouncements
In 1995 Financial Accounting Standard No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
was issued and is effective for fiscal years commencing after December 15, 1995.
The future adoption of FAS 121 is not expected to have a material effect on the
Company's consolidated financial position or operating results.
2. Acquisitions
During April 1996, the Company acquired substantially all of the assets of
Integrated Micro Products plc, and its wholly-owned subsidiaries Integrated
Micro Products (UK), Ltd. and Integrated Micro Products, Inc., (collectively
IMP) for $96,100,000 in cash. In addition, the Company assumed liabilities of
$5,400,000, and incurred acquisition-related expenses of approximately
$4,200,000. The transaction was accounted for as a purchase and, on this basis,
the excess purchase price over the estimated fair value of the net tangible
assets has been allocated to various intangible assets, primarily consisting of
purchased research and development and goodwill. The purchased in-process
research and development resulted in a write-off of $43,000,000. Intangible
assets,
28
<PAGE>
including goodwill, are being amortized over periods ranging from two to five
years. Results of operations of IMP for the last two months of fiscal year
ending June 30, 1996, are included in the Company's statement of income and were
not material to the Company. On June 28, 1996, the Company completed a merger
with Lighthouse Design, Ltd. (Lighthouse). Approximately 425,000 shares of stock
valued at $19,000,000 and $3,200,000 in cash were exchanged for all of the
outstanding common stock of Lighthouse. The transaction was accounted for as a
purchase and, on this basis, the excess purchase price over the estimated fair
value of the net tangible assets has been allocated to various intangible
assets, primarily consisting of purchased research and development and goodwill.
The purchased in-process research and development resulted in a write-off of
$14,900,000. Intangible assets, including goodwill, are being amortized over
periods ranging from two to three years.
3. Fair value of financial instruments
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
<TABLE>
The fair value of the Company's cash equivalents and short-term investments is
as follows:
<CAPTION>
At June 30, 1996
Cost Gross Gross Estimated
unrealized unrealized fair value
(In thousands) gains losses
=====================================================================================
<S> <C> <C> <C> <C>
State and local government debt $343,616 $ 121 $ 173 $343,564
Corporate and other non-government debt 137,342 275 2,340 135,277
U.S. government debt 46,364 1 39 46,326
Foreign debt 22,256 9 13 22,252
- -------------------------------------------------------------------------------------
Total $549,578 $ 406 $2,565 $547,419
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1995
Cost Gross Gross Estimated
unrealized unrealized fair value
(In thousands) gains losses
=====================================================================================
<S> <C> <C> <C> <C>
Auction market preferred stock $575,992 $ 8 $ -- $576,000
Corporate and other non-government debt 182,323 908 78 183,153
State and local government debt 124,632 431 1,084 123,979
U.S. government debt 37,167 475 151 37,491
- -------------------------------------------------------------------------------------
Total $920,114 $1,822 $1,313 $920,623
=====================================================================================
</TABLE>
The cost and estimated fair values of debt securities by contractual maturity
are as follows:
At June 30, 1996
Cost Estimated
(In thousands) fair value
==================================================
Due in one year or less $418,570 $418,590
Due after one year
through three years 131,008 128,829
--------------------------------------------------
Total $549,578 $547,419
==================================================
29
<PAGE>
The fair value of the Company's borrowing arrangements and other financial
instruments is as follows:
At June 30, 1996
Asset
(Liability)
Carrying Fair value
(In thousands) amount
====================================================
10.55% senior notes $(38,400) $(39,855)
10.18% mortgage loan (40,000) (43,230)
Forward foreign
exchange contracts 1,877 1,877
Foreign currency
option contracts -- 3,094
Short-term borrowings (49,161) (49,161)
Other interest rate swap
agreements, net -- 260
====================================================
At June 30, 1995
Asset
(Liability)
Carrying Fair value
(In thousands) amount
====================================================
10.55% senior notes $(76,452) $(78,918)
10.18% mortgage loan (40,000) (44,485)
Forward foreign
exchange contracts (2,227) (2,227)
Foreign currency
option contracts -- 413
Short-term borrowings (50,786) (50,786)
Other interest rate swap
agreements, net -- (802)
====================================================
The fair value of long-term debt is estimated based on current interest rates
available to the Company for debt instruments with similar terms, degree of
risk, and remaining maturities. The estimated fair value of forward foreign
exchange contracts is based on the estimated amount at which they could be
settled based on market exchange rates. The fair value of foreign currency
option contracts and interest rate swap agreements is obtained from dealer
quotes and represents the estimated amount the Company would receive or pay to
terminate the agreements.
4. Derivative financial instruments
Outstanding notional amounts for derivative financial instruments at fiscal
year-ends were as follows:
(In thousands) 1996 1995
====================================================
Swap hedging investments
in debt securities $ -- $100,000
Swap hedging debt 78,400 38,400
Currency forward contracts 549,188 408,223
Purchased currency options $207,568 $ 83,065
====================================================
While the contract or notional amounts provide one measure of the volume of
these transactions, they do not represent the amount of the Company's exposure
to credit risk. The Company controls credit risk through credit approvals,
limits, and monitoring procedures. Credit rating criteria for off balance sheet
transactions are similar to those for investments.
At June 30, 1996 and 1995, the Company had forward foreign exchange contracts of
less than four months duration, to exchange principally yen, pounds sterling,
and French francs for U.S. dollars in the total gross notional amounts of $549
million and $408 million, respectively. Of these notional amounts, forward
contracts to purchase foreign currency represented $464 million and $331 million
and forward contracts to sell foreign currency represented $85 million and $77
million, at June 30, 1996 and 1995, respectively. The Company also has purchased
foreign currency options of less than three months duration, to exchange
principally pounds sterling, German marks, and French francs for U.S. dollars.
5. Borrowing arrangements
Long-term debt consists of the following:
(In thousands) 1996 1995
====================================================
10.55% senior notes $38,400 $ 76,452
10.18% mortgage 40,000 40,000
- ----------------------------------------------------
78,400 116,452
- ----------------------------------------------------
Less portion due
within one year 38,400 38,400
- ----------------------------------------------------
Long-term debt $40,000 $78,052
====================================================
30
<PAGE>
In September and December 1989, the Company signed agreements with a group of
insurance companies and received $192 million from the sale of 10.55% senior
notes due September 1996 and warrants to purchase 2,588,360 shares of Sun's
common stock at an effective exercise price of $12.40 per share, after and
subject to, further antidilution adjustments. The warrants are currently
exercisable and expire in September 1996. The notes are carried net of the fair
value of the warrants, which is being amortized on a straight line basis over
the term of the notes. Principal is payable annually in five equal installments,
the first of which was paid in September 1992, with interest payable
semiannually. Under the agreements Sun is required to maintain various financial
ratios and is restricted in its ability to pay cash dividends. The Company was
in compliance with all covenants at June 30, 1996.
The $40 million mortgage loan is secured by real property and a building.
Principal is due to the bank at maturity on May 18, 1999, with interest payable
semiannually, in arrears. The loan agreement provides for interest at a floating
LIBOR rate. However, the bank has an interest rate swap agreement with a third
party that results in the Company paying a fixed interest rate of 10.18%. The
interest rate swap agreement matures with the loan agreement.
Long-term debt maturities are $38.4 million in the next fiscal year and $40
million in 1999.
In June 1996 the Company negotiated a $300 million unsecured revolving Credit
Agreement with an international group of 16 banks. The agreement expires on June
1, 2000. Any borrowings under this agreement bear interest at a floating rate
based on prime, certificates of deposit, or Eurodollar rates, at the Company's
option. Under the agreement, Sun is required to maintain various financial
ratios. Sun was in compliance with all covenants at June 30, 1996. There were no
borrowings under this facility at June 30, 1996.
At June 30, 1996, Sun's international subsidiaries had uncommitted lines of
credit aggregating approximately $561 million, of which approximately $49
million, denominated principally in yen, had been drawn. The average interest
rate on the borrowings at June 30, 1996, was 2.6%.
6. Income taxes
Income before income taxes and the provision for income taxes consist of the
following:
Years ended June 30,
(In thousands) 1996 1995 1994
================================================================================
Income before income taxes:
United States $ 291,126 $ 249,569 $ 48,736
Foreign 417,748 273,729 234,643
- --------------------------------------------------------------------------------
Total income before income taxes $ 708,874 $ 523,298 $ 283,379
- --------------------------------------------------------------------------------
Provision for income taxes:
Current:
United States federal $ 152,514 $ 122,769 $ 27,835
State 16,192 10,121 4,420
Foreign 61,796 57,395 59,445
- --------------------------------------------------------------------------------
Total current $ 230,502 $ 190,285 $ 91,700
- --------------------------------------------------------------------------------
Deferred:
United States federal (3,332) (17,129) (5,122)
State 1,178 5,319 5,477
Foreign 4,138 (11,019) (4,500)
- --------------------------------------------------------------------------------
Total deferred income taxes 1,984 (22,829) (4,145)
- --------------------------------------------------------------------------------
Provision for income taxes $ 232,486 $ 167,456 $ 87,555
================================================================================
31
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
At June 30,
(In thousands) 1996 1995 1994
================================================================================
Deferred tax assets:
Inventory valuation $ 42,855 $ 48,819 $ 40,745
Reserves and other accrued expenses 56,272 51,480 48,155
Fixed asset basis differences 49,460 46,170 30,309
Compensation not currently deductible 29,015 35,209 24,122
Research and development credit carryover -- -- 16,119
Other 15,194 13,680 14,279
- --------------------------------------------------------------------------------
Deferred tax assets 192,796 195,358 173,729
Deferred tax liabilities:
Net undistributed profits of subsidiaries (20,008) (23,778) (21,690)
Other (5,050) (1,858) (5,146)
- --------------------------------------------------------------------------------
Deferred tax liabilities (25,058) (25,636) (26,836)
- --------------------------------------------------------------------------------
Net deferred tax assets $167,738 $169,722 $146,893
================================================================================
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The sources and
tax effects of the difference are as follows:
Years ended June 30,
(In thousands) 1996 1995 1994
================================================================================
Expected tax rate at 35% $248,106 $183,154 $ 99,183
State income taxes, net of federal tax benefit 11,291 10,036 6,350
Tax advantaged investment (4,999) (7,437) (5,502)
Utilization of foreign losses 0 (861) (5,579)
Foreign earnings permanently reinvested
in foreign operations (36,580) (20,460) (3,500)
Other 14,668 3,024 (3,397)
- --------------------------------------------------------------------------------
Provision for income taxes $232,486 $167,456 $87,555
================================================================================
As of June 30, 1996, the Company has unrecognized deferred tax liabilities of
approximately $60 million related to cumulative net undistributed earnings of
foreign subsidiaries of approximately $194 million. These earnings are
considered to be permanently invested in operations outside the United States.
32
<PAGE>
The current federal and state provisions do not reflect the tax savings
resulting from deductions associated with the Company's various stock option
plans. These savings (in thousands) were $53,079, $20,837, and $6,455 in fiscal
1996, 1995, and 1994, respectively, and were credited to stockholders' equity.
The Company's United States income tax returns for fiscal years ended June 30,
1988 through 1994, are under examination, and the Internal Revenue Service has
proposed certain adjustments. Management believes that adequate amounts have
been provided for any adjustments that may ultimately result from these
examinations.
7. Commitments
The Company leases certain facilities and equipment under noncancelable
operating leases. The future minimum annual lease payments are approximately $97
million, $78 million, $59 million, $34 million, and $14 million for fiscal years
1997, 1998, 1999, 2000, and 2001, respectively, and approximately $43 million in
total for years following fiscal 2001. In connection with certain of its
facilities leases, the Company has residual value guarantees of approximately
$116 million at the end of the respective lease terms in fiscal 1999. Rent
expense under the noncancelable operating leases was $99 million in 1996, $82
million in 1995, and $102 million in 1994.
8. Stockholders' equity
Common stock
In April 1989, the Company's Board of Directors approved a plan, as amended, to
protect stockholders' rights in the event of a proposed takeover of the Company.
Under the plan, the Board of Directors declared a dividend distribution of a
common share purchase right (a "Right") on each share of the Company's common
stock (a "Common Share") outstanding on May 26, 1989, and each Common Share
issued thereafter (subject to certain limitations). Upon becoming exercisable,
each Right will entitle its holder to purchase one Common Share at an exercise
price of $100, subject to adjustment. The Rights are not exercisable or
transferable apart from the Common Shares unless certain events occur, including
a public announcement that a person or group (an "Acquiring Person") has
acquired or obtained the right to acquire 10% or more (20% or more for an
Acquiring Person who has filed a Schedule 13G in accordance with the Securities
Act of 1934 ("13G Filer") of the outstanding Common Shares or until the
commencement or announcement of an intention to make a tender or exchange offer
for 30% or more of the outstanding Common Shares. Unless the Rights are
redeemed, in the event that an Acquiring Person acquires 10% or more (20% or
more if the Acquiring Person is a 13G Filer) of the outstanding Common Shares
(other than pursuant to a tender offer deemed fair by the Company's Board of
Directors), each Right not held by the Acquiring Person will entitle the holder
to purchase for the exercise price that number of Common Shares (or other shares
or assets) having market value equal to two times the exercise price. In the
event that (i) the Company is acquired in a merger or business combination in
which the Company is not the surviving corporation or in which the Common Shares
are exchanged for stock or assets of another entity, or (ii) 50% or more of the
Company's consolidated assets or earning power is sold, each Right not held by
an Acquiring Person will entitle the holder to purchase for the exercise price
that number of shares of common stock of the acquiring company having a market
value equal to two times the exercise price. The Rights are redeemable, in whole
but not in part, at the Company's option, at $0.005 per Right at any time prior
to becoming exercisable and in certain other circumstances. The Rights expire on
May 25, 1999.
Stock option and incentive plans
The Company's 1990 Long-Term Equity Incentive Plan ("1990 Incentive Plan") and
other employee stock option plans provide the Board of Directors broad
discretion in creating employee equity incentives and authorize it to grant
incentive and nonstatutory stock options as well as certain other awards. In
addition, these plans provide for issuance to eligible participants of
nonstatutory stock options to purchase common stock at or below fair market
value at the date of grant subject to certain limitations set forth in the 1990
Incentive Plan. Options expire up to ten years from the date of grant or up to
three months following termination of employment or other service, whichever
occurs earlier,
33
<PAGE>
and are exercisable at specified times prior to such expiration. Under the 1990
Incentive Plan, common stock may also be issued pursuant to stock purchase
agreements that grant Sun certain rights to repurchase the shares at their
original issue price in the event that the employment of the employee is
terminated prior to certain predetermined vesting dates. The above described
plans provide that shares of common stock may be sold at less than fair market
value, which results in compensation expense equal to the difference between the
market value on the date of grant and the purchase price. This expense, which is
immaterial, is recognized over the vesting period of the shares. Sun's 1988
Directors' Stock Option Plan provides for the automatic grant of stock options
to nonemployee directors at each annual meeting of stockholders and on the date
each such person becomes a director. These options are granted at fair market
value on the date of grant and have a term of five years. Finally, in connection
with the acquisition of Lighthouse Design, Ltd., former shareholders who are now
employees of the Company are entitled to receive up to approximately 325,000
shares of stock upon achievement of specific performance criteria over the next
three years.
Information with respect to stock option and stock purchase rights activity is
as follows:
Outstanding
options/rights
Shares Number Price per share
available of shares
(In thousands) for grant
================================================================================
Balances at June 30, 1993 9,350 20,660 $0.00034-$18.50
Additional shares reserved 400 -- --
Grants (10,330) 10,330 $0.00034-$13.813
Exercises -- (2,282) $0.00034-$14.313
Cancellations 1,666 (1,860) $0.005-$17.188
- --------------------------------------------------------------------------------
Balances at June 30, 1994 1,086 26,848 $0.00034-$18.50
Additional shares reserved 6,700 -- --
Grants (7,186) 7,186 $0.00034-$24.563
Exercises -- (7,156) $0.00034-$17.063
Cancellations 1,742 (2,254) $ 8.38-$17.438
- --------------------------------------------------------------------------------
Balances at June 30, 1995 2,342 24,624 $ 0.005-$24.563
Additional shares reserved 24,520 -- --
Grants (6,443) 6,443 $0.00067-$60.25
Exercises -- (4,881) $0.00067-$39.00
Cancellations 2,220 (2,308) $ 0.01-$60.25
- --------------------------------------------------------------------------------
Balances at June 30, 1996 22,639 23,878 $ 0.01-$60.25
================================================================================
At June 30, 1996, options to purchase approximately 4,449,000 shares were
exercisable at prices from $6.125 to $39.00 with an aggregate exercise price of
$57,012,000 (5,728,000 shares at an aggregate price of $70,532,000 at June 30,
1995).
At June 30, 1996, the Company retains purchase rights to 433,000 shares issued
pursuant to stock purchase agreements and other stock plans.
Employee Stock Purchase Plan
To provide employees with an opportunity to purchase common stock of Sun through
payroll deductions, Sun established the 1990 Employee Stock Purchase Plan. Under
this plan, Sun's employees, subject to certain restrictions, may purchase shares
of common stock at the lesser of 85% of the fair market value as defined in the
plan. Pursuant to this plan, and the Company's 1984 Employee Stock Purchase Plan
(which terminated in August 1992), the Company issued approximately 2,357,000,
4,404,000, and 3,750,000 shares of common stock in fiscal 1996, 1995, and 1994,
respectively. At June 30, 1996, approximately 8,082,000 shares remained
available for future issuance.
34
<PAGE>
Common stock repurchase programs
In December 1990, the Board of Directors approved a systematic common stock
repurchase program related to the 1990 Employee Stock Purchase Plan. In fiscal
1996, the Company repurchased 1,538,744 shares at a cost of approximately
$62,782,000 under this program (2,235,478 shares at a cost of approximately
$36,107,000 in 1995).
In June 1993, the Board of Directors approved a plan to repurchase up to 20
million shares of the Company's common stock. Repurchases under this plan were
completed in November 1993 at a cost of approximately $264,786,000. In July
1995, the Board of Directors approved a plan to repurchase approximately 24
million shares of the Company's common stock. During fiscal 1996 repurchases
under this plan were 17,194,000 shares at a cost of approximately $459,554,000.
When the treasury shares are reissued, any excess of the average acquisition
cost of the shares over the proceeds from reissuance is charged to retained
earnings.
9. Industry segment, geographic, and customer information
<TABLE>
Information regarding geographic areas at June 30, 1996, 1995, or 1994, and for
each of the years then ended, is as follows:
<CAPTION>
Geographic area
United Europe Japan Rest of Eliminations Total
(In thousands) States world
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
June 30, 1996, and for the year then ended:
Sales to unaffiliated customers $3,791,154 $1,778,712 $ 991,044 $533,841 -- $7,094,751
Intercompany transfers 944,785 1,586,615 16,847 50,868 (2,599,115) --
- -------------------------------------------------------------------------------------------------------------------------
Net revenues $4,735,939 $3,365,327 $1,007,891 $584,709 $(2,599,115) $7,094,751
=========================================================================================================================
Operating income $ 280,296 $ 370,034 $ 23,690 $ 6,497 $ (5,505) $ 675,012
=========================================================================================================================
Identifiable assets $3,721,745 $1,542,890 $ 325,417 $319,262 $(2,108,405) $3,800,909
=========================================================================================================================
Liabilities $2,023,047 $ 891,360 $ 305,045 $318,834 $(1,988,863) $1,549,423
=========================================================================================================================
June 30, 1995, and for the year then ended:
Sales to unaffiliated customers $3,136,328 $1,490,960 $ 866,440 $408,157 -- $5,901,885
Intercompany transfers 945,264 1,189,536 17,590 36,458 (2,188,848) --
- -------------------------------------------------------------------------------------------------------------------------
Net revenues $4,081,592 $2,680,496 $ 884,030 $444,615 $(2,188,848) $5,901,885
=========================================================================================================================
Operating income $ 242,078 $ 251,248 $ 17,385 $ 9,371 $ (19,726) $ 500,356
=========================================================================================================================
Identifiable assets $3,573,509 $1,301,731 $ 378,052 $215,750 $(1,924,489) $3,544,553
=========================================================================================================================
Liabilities $1,793,964 $ 934,427 $ 337,589 $199,800 $(1,843,822) $1,421,958
=========================================================================================================================
June 30, 1994, and for the year then ended:
Sales to unaffiliated customers $2,483,166 $1,171,177 $ 732,559 $302,990 -- $ 4,689,892
Intercompany transfers 968,675 809,331 14,740 28,652 (1,821,398) --
- -------------------------------------------------------------------------------------------------------------------------
Net revenues $3,451,841 $1,980,508 $ 747,299 $331,642 $(1,821,398) $4,689,892
=========================================================================================================================
Operating income $ 45,788 $ 157,123 $ 39,825 $ 44,548 $ (10,017) $ 277,267
=========================================================================================================================
Identifiable assets $2,831,238 $ 964,373 $ 333,050 $189,305 $(1,419,974) $2,897,992
=========================================================================================================================
Liabilities $1,408,070 $ 736,445 $ 291,719 $140,561 $(1,307,126) $1,269,669
=========================================================================================================================
</TABLE>
35
<PAGE>
Sun, which operates in a single industry segment, designs, manufactures,
markets, and services client-server computing solutions that include networked
workstations and servers. No customer accounted for 10% or more of revenues in
fiscal 1996, 1995, or 1994. Operations of Sun's overseas subsidiaries consist
principally of sales, service, distribution, and manufacturing.
Intercompany transfers between geographic areas are accounted for at prices that
approximate arm's length transactions. In addition, United States export sales
approximated 3.8%, 3.6%, and 3.3% of net revenues during fiscal 1996, 1995, and
1994, respectively.
10. Contingencies
In March 1990, Sun received a letter from Texas Instruments, Incorporated (TI)
alleging that a substantial number of Sun's products infringe certain of TI's
patents. Based on discussions with TI, Sun believes that it will be able to
negotiate a license agreement with TI and that the outcome of this matter will
not have a material adverse impact on Sun's financial position or its results of
operations or cash flows in any given fiscal year. Such a negotiated license may
or may not have a material adverse impact on Sun's results of operations or cash
flows in a given fiscal quarter depending upon various factors, including but
not limited to the structure and amount of royalty payments, offsetting
consideration from TI, if any, and allocation of royalties between past and
future product shipments, none of which can be forecast with reasonable
certainty at this time.
In the normal course of business, the Company receives and makes inquiries with
regard to other possible patent infringements. Where deemed advisable, the
Company may seek or extend licenses or negotiate settlements.
The estimate of the potential impact on the Company's financial position or
overall results of operations for the above legal proceedings could change in
the future.
11. Quarterly financial data (unaudited)
Fiscal 1996 Quarter Ended
(In thousands, except per
share amounts) June 30 March 31 December 31 October 1
================================================================================
Net revenues $2,018,062 $1,840,028 $1,751,383 $1,485,278
Gross margin 888,420 811,340 766,718 656,245
Operating income 182,306 201,791 177,971 112,944
Net income 122,336 143,307 126,049 84,696
Net income per share $ 0.63 $ 0.73 $ 0.65 $ 0.43
================================================================================
Fiscal 1995 Quarter Ended
(In thousands, except per
share amounts) June 30 April 2 January 1 October 2
================================================================================
Net revenues $1,648,067 $1,505,030 $1,475,349 $1,273,439
Gross margin 727,684 649,894 613,236 512,061
Operating income 179,051 150,528 116,959 53,818
Net income 128,244 107,547 81,624 38,427
Net income per share $ 0.63 $ 0.54 $ 0.42 $ 0.20
12. Subsequent event
On August 8, 1996, the Company announced a two-for-one stock split (payable as a
stock dividend), subject to stockholder approval of an increase in the Company's
authorized shares of common stock. Subject to receiving such stockholder
approval, stockholders of record as of the close of business on November 18,
1996, will be issued one additional share of common stock for each share of
common stock held. The amounts presented for June 30, 1996, 1995, and 1994 do
not reflect the stock split.
36
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders, Sun Microsystems, Inc.
We have audited the accompanying consolidated balance sheets of Sun
Microsystems, Inc., as of June 30, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sun Microsystems,
Inc., at June 30, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 16, 1996
37
EXHIBIT 22.0
SUN MICROSYSTEMS, INC.
Subsidiaries
Lighthouse Design Ltd.
Lighthouse Design R&D Corporation
Nihon Sun Microsystems, K.K.
Solaris Corporation
Sun Microsystems (Barbados) Ltd.
Sun Microsystems (Schweiz) A.G.
Sun Microsystems AB
Sun Microsystems Australia Pty Ltd.
Sun Microsystems Belgium
Sun Microsystems Benelux B.V.
Sun Microsystems Distributions International, Inc.
Sun Microsystems Europe Properties, Inc.
Sun Microsystems Federal, Inc.
Sun Microsystems France S.A.
Sun Microsystems GmbH
Sun Microsystems Holding Limited
Sun Microsystems Hungary Computing Ltd.
Sun Microsystems Iberica S.A.
Sun Microsystems Intercontinental Operations
Sun Microsystems International, Inc.
Sun Microsystems International B.V.
Sun Microsystems Ireland Limited
Sun Microsystems Italia S.p.A
Sun Microsystems Korea, Ltd.
Sun Microsystems Limited
Sun Microsystems Management Services Corporation
Sun Microsystems Nederland B.V.
Sun Microsystems (NZ) Ltd.
Sun Microsystems Oy
Sun Microsystems Poland Sp.z.o.o
Sun Microsystems Properties, Inc.
Sun Microsystems Pte. Ltd.
Sun Microsystems Scotland B.V.
Sun MIcrosystems Scotland Ltd.
Sun Microsystems Technology Pty., Ltd.
Sun Microsystems de Chile, S.A.
Sun Microsystems de Colombia, S.A.
Sun Microsystems de Mexico, S. A. de C.V.
Sun Microsystems de Venezuela, S. A.
Sun Microsystems do Brasil Industria e Comercio Ltda.
Sun Microsystems of California, Inc.
Sun Microsystems of California, Ltd.
Sun Microsystems of Canada Inc.
Sun Microsystems of China Ltd.
Sun TSI Subsidiary, Inc.
SunExpress, Inc.
SunExpress International, Inc.
SunSoft, Inc.
SunSoft International, Inc.
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sun Microsystems, Inc. of our report dated July 16, 1996, included in the
1996 Annual Report to Stockholders of Sun Microsystems, Inc.
Our audits also included the financial statement schedule of Sun Microsystems,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-9293, 33-11154, 33-15271, 33-18602, 33-25860, 33-28505,
33-33344, 33-38220, 33-51129, 33-56577, 333-01459, and 333-09867) pertaining to
the 1982 Incentive Stock Option Plan, the Restricted Stock Plan, the 1984
Employee Stock Purchase Plan, as amended, the 1987 Stock Option Plan, the 1988
Director's Stock Option Plan, the 1989 French Stock Option Plan, the 1990
Employee Stock Purchase Plan, the 1990 Long-Term Equity Incentive Plan, and the
Equity Compensation Acquisition Plan of Sun Microsystems, Inc. and in the
related Prospectus of our report dated July 16, 1996, with respect to the
consolidated financial statements incorporated herein by reference and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Sun
Microsystems, Inc.
Ernst & Young LLP
Palo Alto, California
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 528,854
<SECURITIES> 460,743
<RECEIVABLES> 1,206,612
<ALLOWANCES> 100,730
<INVENTORY> 460,914
<CURRENT-ASSETS> 3,033,736
<PP&E> 533,849
<DEPRECIATION> 748,535
<TOTAL-ASSETS> 3,800,909
<CURRENT-LIABILITIES> 1,489,269
<BONDS> 39,930
<COMMON> 72
0
0
<OTHER-SE> 2,251,414
<TOTAL-LIABILITY-AND-EQUITY> 3,800,909
<SALES> 7,094,751
<TOTAL-REVENUES> 7,094,751
<CGS> 3,972,028
<TOTAL-COSTS> 6,419,739
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,739
<INTEREST-EXPENSE> 9,114
<INCOME-PRETAX> 708,874
<INCOME-TAX> 232,486
<INCOME-CONTINUING> 476,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476,388
<EPS-PRIMARY> 2.42
<EPS-DILUTED> 2.42
</TABLE>
