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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999*
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-11348
SILICON VALLEY GROUP, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2264681
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 METRO DRIVE, SUITE 400, SAN JOSE, CALIFORNIA 95110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 441-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in 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 persons other than
those who may be deemed affiliates of the Registrant, as of November 26, 1999,
was approximately $386,227,325. Shares of common stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
common stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.
The number of shares outstanding of the Registrant's Common Stock as of
November 26, 1999 was 33,336,829.
* See Part II, Item 8A. of this report for information regarding
Registrant's fiscal year.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
parts of this Form 10-K as indicated herein:
Proxy Statement for Annual Meeting of Stockholders to be held on
February 23, 2000........................................ Part III
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PART I
The information in this report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
certain risks and uncertainties, including those discussed below that could
cause actual results to differ materially from those described herein. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Forward-looking statements are indicated
by an asterisk (*) following the sentence in which such statement is made. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 1. BUSINESS.
Silicon Valley Group, Inc. (the "Company" or "SVG") primarily designs,
manufactures, markets and services semiconductor processing equipment used in
the fabrication of integrated circuits. The fabrication of integrated circuits
involves repeating a complex series of process steps to a semiconductor wafer.
The three broad categories of wafer processing steps are deposition,
photolithography and etching. SVG has three principal product groups which focus
primarily on photolithography, photoresist processing, and deposition for
oxidation/diffusion and low-pressure chemical vapor deposition ("LPCVD") and
with the acquisition of the Semiconductor Equipment Group of Watkins-Johnson
Company, thermal processing products which address atmospheric pressure chemical
vapor deposition ("APCVD"). In addition, a precision optics group supplies
certain components for the Company's photolithography products, government
markets and lens systems to the cinematography industry. The Company's products
incorporate proprietary technologies and unique processes, and focus on
providing process and product technologies and productivity enhancements to its
customers. SVG works closely with its existing and potential customers in the
development of new systems and technologies and supports its products through a
network of worldwide service and technical support organizations.
Herein the Company refers to its photolithography exposure products as SVG
Lithography Systems, Inc. "SVGL" products, its photoresist processing products
as "Track" products and its oxidation/diffusion, LPCVD and its newly acquired
APCVD products from Watkins-Johnson Company as "Thermal" products.
INDUSTRY BACKGROUND
Continuous improvements in semiconductor process and design technologies
have led to the production of smaller, more complex and more reliable
semiconductor devices at a lower cost per function. As performance has increased
and size and cost have decreased, the demand for semiconductors has expanded in
computer systems, telecommunications systems, automotive products, consumer
goods and industrial automation and control systems. Semiconductor content as a
percentage of system cost has also increased. The Company believes that these
long-term trends will continue and will be accompanied by a growing demand for
semiconductor production equipment that can produce advanced integrated circuits
in high volumes with a low cost of ownership.*
The rapid development of advanced semiconductor applications requires
semiconductor manufacturers to continually improve their core technology and
manufacturing capabilities to remain competitive within the industry. As a
consequence, semiconductor manufacturers demand increasingly sophisticated,
highly productive and cost effective processing equipment from semiconductor
equipment suppliers. The increasing diversity and complexity of semiconductor
products, the demands of technological change and the costs associated with
keeping pace with industry developments have contributed to the emergence of
cooperative development and manufacturing alliances both amongst semiconductor
manufacturers and between semiconductor manufacturers and semiconductor
equipment suppliers. The Company believes it is essential to have customer
alliances to provide access to valuable product and process technologies. These
factors result in customers concentrating their business with a small number of
key suppliers.
The semiconductor industry into which the Company sells its products is
highly cyclical and has, historically, experienced periodic downturns that have
had a severe effect on the semiconductor industry's demand for semiconductor
processing equipment. As a result of the Asian economic crisis which began in
1997, an oversupply of certain semiconductor products, the impact of low cost
personal computers, and various other factors, semiconductor manufacturers
reduced planned expenditures and cancelled or delayed the construction of new
fabrication facilities. This slowdown in demand began to impact the Company
during the first quarter of fiscal 1998 and continued to impact the Company
throughout fiscal 1999. The slowdown in demand resulted in the Company
experiencing lower new customer orders, customer deferrals of scheduled
equipment delivery dates and, to a lesser extent, customer order cancellations.
Last
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year's lower bookings, order rescheduling and cancellations, have caused sales
and net income during fiscal 1999 to decline from prior years amounts. Although,
the Company has experienced a modest improvement in new bookings, as during the
second half of fiscal 1999 the Company recorded new bookings of $324,213,000 up
from new bookings of $254,444,000 and $237,451,000 during the first half of
fiscal 1999 and the second half of fiscal 1998, respectively. There can be no
assurance that the dollar amount of new bookings will continue to increase.*
There can be no assurance that the Company will not experience further customer
delivery deferrals, additional order cancellations or a prolonged period of
customer orders at reduced levels, any or a combination of which would have a
material adverse effect on the Company's business and results of operations.*
STRATEGY
The Company's objective is to strengthen its position as a leading worldwide
semiconductor equipment supplier that offers a broad line of technologically
advanced products. The Company's strategy incorporates the following key
elements:
- Future Technological Innovation. The Company is committed to developing
new products, improving processes and enhancing existing products
through substantial investment in research and development. In this
regard, the Company has developed a roadmap for the development of next
generation lithography technology well into the next decade. The
Company's products incorporate proprietary technologies in
photolithography, control software, optics and particulate control and
unique processes focusing on providing process and product technologies
and productivity enhancements to customers. Additionally, the Company
works with universities and laboratories to leverage new concepts for
its advanced projects.
- Customer Commitment. The Company's objective is to strengthen its
position as a leading worldwide semiconductor equipment supplier by
offering a broad line of technologically advanced products. The Company
works closely with its existing and potential customers, industry
consortia and research institutions to improve current products and
processes and to define new product development opportunities. These
efforts enable the Company to participate in the development of new
technologies, to influence the design of new fabrication processes and
to position it as a principal supplier for volume equipment orders. The
Company believes that cooperative working relationships with leading
semiconductor manufacturers are critical to ensuring that its products
are designed in conjunction with the development of the semiconductor
manufacturers' advanced process requirements.
- Continued Operational Efficiency and Improvement. The industry requires
that equipment suppliers provide cost-effective products that are based
on extendible technology. Cost of ownership and the ability to satisfy
customer delivery requirements are critical ingredients in the selection
process for advanced equipment. To address these issues, the Company has
in the past and is continuing to respond to this issue by expanding
certain of its facilities and deploying capital for manufacturing and
test equipment to respond to the long term requirements of the
semiconductor industry. The Company continues to implement programs to
improve operational efficiency to improve the effectiveness of its
material procurement, reduce manufacturing cycle times and improve
production methods and processes to gain additional efficiencies.
- Expansion of Its Customer Base. The Company is committed to expanding
its worldwide customer base to address the needs of the global
semiconductor market. Continuous improvement programs and timely
introduction of new technology tools are key elements of the Company's
strategy. The Company remains focused on leveraging the strength of its
products and customer base to satisfy the diverse requirements of the
Logic, Memory and ASIC markets on a worldwide basis.
SVG LITHOGRAPHY SYSTEMS, INC. (SVGL)
SVGL designs, manufactures, markets and services advanced photolithography
exposure systems. Photolithography is one of the most critical and expensive
steps in integrated circuit fabrication, representing approximately one-third or
more of the fabrication cost. Consequently, integrated circuit manufacturers
focus on obtaining advanced photolithography equipment to help them produce
critical layers for increasingly complex devices reliably, efficiently and
cost-effectively.
In the photolithography step of the fabrication process, the integrated
circuit patterns are projected through masks, or reticles, onto the silicon
wafers. As semiconductors have become more complex, the patterns have become
finer, with line widths as narrow as 0.15 micron and below in many of today's
more advanced integrated circuits. As the patterns become finer,
photolithography exposure systems must be capable of projecting the patterns
through the masks with ever-finer resolution. The resolution capability of a
photolithography exposure system is a function of numerical aperture (a measure
of its light gathering characteristics) and the
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wavelength of the light used in exposure. With the advancement of
photolithography technology there has come a trend toward the reduction in
wavelength from G-line (436-nanometer) to I-line (365-nanometer) to DUV (248 and
193-nanometer) and the increase in numerical aperture from 0.2 to approximately
0.7. During fiscal 1999, the Company entered into an agreement with Intel
Corporation for the development of 157-nanometer lithography technology capable
of producing line widths as fine as .10 microns.
Historically, there have been two major approaches to photolithography
exposure systems: full field scanning projection aligners ("scanners") and
refractive steppers ("steppers"). Scanners project a full scale mask image onto
a moving full wafer, while steppers sequentially expose a small section of a
wafer in a stepped sequence of exposures, but do so by reducing the size of a
mask image by several fold (typically 5 times). Thus, scanners offer large
exposure fields while steppers offer masks that are easier to make and have a
lower cost. These strengths are combined in the step-and-scan system, a
technology pioneered by SVGL.
Micrascan. The Company believes that its Micrascan photolithography
step-and-scan exposure system provides the increased resolution required for
current advanced logic and memory devices and for succeeding generations of
complex, fine geometry integrated circuits through its use of DUV lamp or laser
light source and unique projection optics design. Micrascan overcomes the line
width limitations of steppers over a large exposure field by combining the
elements of both steppers and scanners into the Micrascan's step-and-scan
technology.*
The Micrascan combines advantages of scanning projection aligners and
steppers by projecting a light through a very narrow slit and scanning a portion
of the wafer, then "stepping" to another portion of the wafer and repeating the
process as necessary. Each scan has the capability to expose a large segment of
the wafer. The large exposure field enables Micrascan to fabricate larger
devices in a single scan than steppers, thus avoiding the necessity of
"stitching" a circuit together through two different exposures, and depending on
the size of the chip provides the ability to expose more than one device in an
exposure field. In addition, Micrascan continuously modifies the position of the
wafer surface during the scan, using its on-the-fly focus system to keep the
wafer in the optimal focal plane, thus providing a larger usable depth of focus.
The larger the usable depth of focus field is, the more tolerant of variations
in the wafer surface the equipment will be. The Company believes Micrascan's
greater tolerance of wafer surface variations can reduce the number of defective
devices on a wafer, thereby contributing to higher yields.* It further believes
that scanning across the field instead of exposing the entire field at one time
also enables Micrascan to achieve greater uniformity of resolution across the
entire exposure field and contributes to higher yields of faster devices.*
The Company believes that SVGL has substantial technological expertise and
process knowledge in developing deep ultraviolet ("DUV") step-and-scan
photolithography systems.* SVGL has developed internal capability to design and
fabricate optical lenses, mirrors and coatings. This includes a combination of
purchased and proprietary optical metrology using phase measuring interferometry
to precisely measure and test the optical elements it produces. Micrascan
incorporates both mirrors and lenses in its optical system, which the Company
believes allows for an optical projection system that is less sensitive to
environmental variants and accommodates the use of light sources with broader
spectral bandwidth (than refractive optics), with the additional benefits of
reduced operational cost and increased reliability.*
In addition to the optical system technology described above, SVGL has
developed certain proprietary mechanical systems incorporated in the Micrascan
to control the position of the wafer and the reticules prior to and during the
wafer exposure step. The Company believes that these servo controlled systems
contribute to the Micrascan's ability to scan the exposure field at high speeds
with no substantial loss of resolution, thereby increasing the throughput
capability of the machine.*
The Company believes that the photolithography exposure equipment market is
one of the largest segments of the semiconductor processing equipment industry
and that SVGL's Micrascan family of photolithography systems are currently the
most technically advanced step-and-scan machines shipping in multiple quantities
to global semiconductor manufacturers.* The Micrascan QML lamp-based systems and
Micrascan III laser-based systems, each capable of printing sub .30 micron line
widths, sell for up to approximately $4,300,000, depending upon configuration.
Micrascan III+ capable of producing line widths of sub .18 micron sells for
approximately $6,000,000. The Micrascan 193-nanometer system capable of
producing line widths of sub .15 micron sells for approximately $10,500,000
depending on configuration. Although the Company specifies that its systems
produce certain line widths, it is commonplace that the combination of the
tool's robustness and the customer's process technology achieves finer line
widths than those specified.
Uncertain Market for Micrascan Products. The Company believes that the
photolithography exposure equipment market is one of the largest segments of the
semiconductor processing equipment industry.* To address the market for advanced
photolithography exposure systems, the Company has invested and expects to
continue to invest substantial resources in SVGL's Micrascan technology and its
family of Micrascan DUV step-and-scan photolithography systems, which is
currently capable of producing line widths of .15
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micron and below and which the Company believes eventually will be capable of
producing line widths of .10 micron and below.* The development of a market for
the Company's Micrascan step-and-scan photolithography products will be highly
dependent on the continued trend towards finer line widths in integrated
circuits and the ability of other lithography manufacturers to keep pace with
this trend through either enhanced technologies or improved processes.* The
Company believes DUV lithography is required to fabricate devices with line
widths below 0.3 micron.* Semiconductor manufacturers can purchase DUV steppers
to produce product at .25 micron line widths. However, the Company believes that
as devices increase in complexity and size and require finer line widths, the
technical advantages of DUV step-and-scan systems, as compared to DUV steppers,
will enable semiconductor manufacturers to achieve finer line widths with
improved critical dimension control which will result in higher yields of faster
devices.* The Company also believes that the industry transition to DUV
step-and-scan systems has accelerated in calendar 1999 and that advanced
semiconductor manufacturers are beginning to require volume quantities of
production equipment as advanced as the current and pending versions of
Micrascan to produce both critical and to some degree sub-critical layers of
semiconductor devices.* Currently, competitive DUV step-and-scan equipment
capable of producing .25 micron line widths and below is available in limited
quantities from three competitors.* Further, if manufacturers of DUV steppers
are able to further enhance existing technology to achieve finer line widths
sufficiently to erode the competitive and technological advantages of DUV
step-and-scan systems, or other manufacturers of step-and-scan systems are
successful in supplying sufficient quantities of product in a timely manner that
are technically equal to or better than the Micrascan, demand for the Micrascan
technology may not develop as the Company expects.*
The Company believes that advanced logic devices, DRAMs and ASICs will
require increasingly finer line widths.* Consequently, SVGL must continue to
develop advanced technology equipment capable of meeting its customers' current
and future requirements while offering those customers a progressively lower
cost of ownership.* In particular, the Company believes that it must continue
its development of future systems capable of printing line widths finer than .10
micron and processing 300mm wafers.* Any failure by the Company to develop the
advanced technology required by its customers at progressively lower costs of
ownership and supply sufficient quantities to a worldwide customer base could
have a material adverse impact on the Company's financial condition and results
of operations.*
The Company believes that for SVGL to succeed in the long term, it must sell
its Micrascan products on a global basis.* The Japanese and Pacific Rim markets
(including fabrication plants located in other parts of the world which are
operated by Japanese and Pacific Rim semiconductor manufacturers as well as
foundries located primarily in Taiwan) represent a substantial portion of the
overall market for photolithography exposure equipment. To date, the Company has
not been successful in penetrating either of these markets. (See "Importance of
the Japanese and Pacific Rim Markets").
Micralign. SVGL also sells a family of scanning projection aligners known as
"Micralign." The most advanced product in this family, the Micralign 700, is
used primarily in the production of semiconductor devices with minimum feature
sizes above 1.25 microns, or in the fabrication of less critical layers within
more sophisticated semiconductor devices. Micralign products are a mature
product family and sales of Micralign products have declined in recent years as
steppers have supplanted scanning projection aligners. The Company anticipates
that such sales will continue to decline.* A large installed base of Micralign
systems exists throughout the world and a majority of SVGL's Micralign related
revenues is derived from servicing that installed base and the sales of spare
parts. The list price of the Micralign 700 is approximately $1,350,000.
TRACK SYSTEMS (TRACK)
Track designs, manufactures, markets and services photoresist processing
equipment which performs all the steps necessary to process semiconductor wafers
prior to photolithography exposure, including cleaning, adhesion promotion and
photoresist coating, and which performs all the steps required to treat wafers
after photolithography exposure prior to etching, including developing and
baking. As photoresist processing technology has evolved, the Company has
developed increasingly advanced products for this market, which are capable of
handling integrated circuits with line widths as narrow as 0.18 micron. Each
product line includes the principal processing capabilities described above and
is generally sold in customer-specified configurations that can include
specially engineered features and capabilities. All Track products are available
in fully automated cassette-to-cassette configurations either as stand-alone
processing stations or as in-line integrated manufacturing systems. The
equipment is modular in design to allow configuration to customer requirements.
Each semiconductor manufacturer may require certain of the processing stations
to effect its proprietary or specialized processes.
As a result of being able to supply its customers with both SVGL's Micrascan
photolithography systems and Track's photoresist processing products, the
Company believes it offers the only clustered solution manufactured by a single
supplier. Additionally, Track's 90 Series is designed to interface with all
other lithography exposure products, regardless of the manufacturer.
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Track's product lines correspond to the development of successive
generations of wafer processing technologies. In general, it has been the
Company's experience that introduction of new Track products has been followed
by lower order levels for older products.
ProCell. Announced in June 1999, the ProCell is designed for 200-mm advanced
fabrication processes with line widths of .18 micron and beyond. The ProCell,
which can process more than 40 wafers simultaneously offers scalability from
200-mm to-300-mm wafers and significant productivity improvement for the coat
and develop process through the use of ProCell's symmetrical cluster
configuration. The ProCell has enhanced reliability, uniformity in process
results and serviceability due to the use of a single software platform, cell
based design and the use of isolated process and coat environments. Prices for
the ProCell range from approximately $2,200,000 to $3,500,000.
90 Series. The 90 Series, the 90-S and the 90-SE photoresist processing
systems are designed for use in fabrication processes for integrated circuits
with line widths as narrow as 0.25 micron, such as is required for 64 megabit
DRAMs. The 90 Series incorporates a proprietary wafer transfer system to
increase throughput and provides features allowing it to interface with factory
automation systems, such as those using automated guided vehicles. The 90 Series
can process wafers up to eight inches in diameter. The 90-S and the more recent
90-SE offer improved cost of ownership through increased productivity and a
smaller floor space requirement. Prices of the 90 Series range from
approximately $650,000 to $1,700,000.
8800 Series. The 8800 Series is designed to meet market needs for
photoresist contamination control and photoresist processing down to 0.8 micron
line widths. The 8800 Series incorporates such automation features as beltless
wafer handling, compatibility with low contamination wafer storage and movement
techniques, advanced software and communications capabilities and certain
process control improvements. The 8800 Series can process wafers from three to
six inches in diameter. The 8800 series is a mature product and sales have
declined in recent years. The Company anticipates that such sales will continue
to decline.* Prices of the 8800 Series range from approximately $200,000 to
$550,000.
THERMAL SYSTEMS (THERMAL)
Thermal Systems product line includes large batch thermal processing
products which address the oxidation/diffusion and LPCVD steps of the
semiconductor fabrication process, and with the acquisition of the Semiconductor
Equipment Group of Watkins-Johnson Company, thermal processing products that
deposit thin dielectric films by using the process of atmospheric-pressure
chemical-vapor-deposition ("APCVD"). Thermal products are used for a broad range
of processing applications required in the fabrication of most semiconductor
devices, including growing insulating layers on the wafers, diffusing dopants
into the silicon structure and depositing insulating or conducting films on the
wafer surface. Thermal's products incorporate proprietary technology the Company
has developed or acquired in the areas of thermal control, gas handling,
particle control and automated wafer handling.
There are two major configurations of oxidation/diffusion and LPCVD
processing equipment, commonly referred to as vertical and horizontal,
corresponding to the orientation of their reaction chamber(s). Vertical
processing systems represent an increasing portion of the market for
oxidation/diffusion and LPCVD processing equipment. Vertical reactors generally
consist of a single, fully automated cylindrical reaction chamber, individually
controlled by a dedicated computer control system. Vertical systems generally
provide greater process uniformity and lower particle contamination than do
horizontal systems, due to improved thermal control and an increased ability to
maintain environmental integrity, thereby achieving higher yields in wafer
processing. Additionally, vertical systems provide more flexibility in
manufacturing configurations. Horizontal thermal processing systems, which are
typically much larger and less automated than vertical reactors, were the
standard of the semiconductor processing equipment industry and are still used
for a broad range of processes.
Rapid Vertical Processor -- 300 ("RVP-300"). Announced in 1997, the RVP-300
is the latest addition to the vertical furnace product line. RVP-300 is designed
for processing of 300mm (12 inch) wafers addressing requirements for 0.18 micron
technology and beyond. The design of RVP-300 focuses on maximizing productivity
and throughput. This is done by utilizing features such as fast temperature ramp
up and ramp down capability, Model Based Temperature Control (MBTC) for
optimized temperature control across the wafer, and a dual boat configuration.
Initial shipments of the RVP-300 occurred in the second quarter of fiscal 1998.
Prices of the RVP-300 range from $900,000 to $1,500,000, depending on
configuration.
Series 9000 Rapid Vertical Processor ("RVP"). Introduced in 1996, the RVP is
based on the Advanced Vertical Processor ("AVP") platform, processes both
eight-inch and six-inch wafers and meets .25 micron technology requirements. The
RVP features a proprietary and patented design that enables it to ramp up and
ramp down temperatures anywhere between twice and ten times as fast
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as the AVP and offers faster throughput and tighter junction depth control for
critical anneals. By utilizing the AVP platform, the Company believes that the
RVP, which incorporates key features of the AVP, such as 16-cassette wafer
handling and model based temperature control (MBTC), offers the high reliability
of the established AVP product line. The typical price range of an RVP system is
$1,000,000 to $1,200,000, depending on process configuration.
Series 8000 Advanced Vertical Processor ("AVP"). Initially shipped in
September 1992, the AVP is a vertical furnace designed to meet the eight and six
inch wafer requirements of sub-.50 micron processing. The Series 8000 single
tube systems include advanced process control, data acquisition software,
advanced automation, a proprietary process chamber design and an option for
atmospheric control within the wafer handling area. Key features of the AVP
system include storage capacity for sixteen 25-wafer cassettes (400 wafers), and
model based temperature control (MBTC) for accurate wafer temperature
regulation. The AVP system is designed to offer customers a low cost of
ownership, through high productivity and a low square footage requirement. The
typical price range of an AVP system is $500,000 to $1,200,000, depending on
process configuration.
Vertical Thermal Reactor ("VTR"). Thermal's VTR processes wafers from 100mm
to 200mm in diameter. It operates under computer control, providing specialized
process recipe introduction, cassette-to-cassette automation, monitoring of
critical system functions and automated loading of wafers into the reaction
chamber. In general, the VTR offers comparable reliability, lower contamination
and better process uniformity than horizontal reactors. The VTR can be installed
through-the-wall in a customer's clean room facility and is compatible with
industry standard software interfaces. The VTR 7000PLUS, in comparison to
earlier versions of VTR's, offers improved process control, uniformity, reduced
particle levels, higher throughput, internal storage capabilities and the
industry's standard mechanical interface (SMIF). Typical prices for the
Company's VTR products range from approximately $600,000 to $900,000.
Horizontal Processing Systems. The typical horizontal system consists of
four separately controlled cylindrical reaction chambers which are mounted
horizontally, one directly above the other. Horizontal systems are a mature
product family. Sales of these systems have been declining in recent years, as
semiconductor manufacturers have increasingly installed vertical reactors in
their newer fabrication facilities and the Company expects this trend to
continue.* However, the Company believes that manufacturers of less complex
devices will continue to have some need for horizontal processing systems for
the foreseeable future, but at successively declining rates.* In addition, the
existing installed base of horizontal processing systems enables the Company to
generate revenues through the sale of spare parts and upgrades. Prices for
horizontal systems range from approximately $400,000 to $900,000.
The Company's ("APCVD") products acquired from Watkins-Johnson Company
utilize a propriety approach to the APCVD process. The substrates are
transported under injectors on a continuously moving conveyor belt through a
resistance heated muffle. This approach allows high deposition rates with a
simpler reactor design yielding higher reliability operations and high wafer
throughput.
1500 System. The 1500 APCVD system processes 200mm wafers addressing
design-rule fabrication capability of 0.15 micron. It offers low cost of
ownership with a new process muffle design and an improved MonoBlok injector
assembly resulting in improved reliability, performance and serviceability
through enhanced film uniformity, reduced consumables, improved system
availability and ultra-low film metal levels. The 1500 system provides both
doped and undoped deposition of TEOS based silicon dioxide and can be utilized
in a broad range of dielectric film applications for both Logic and Memory
manufacturing requirements. Typical prices for the 1500 System range from
approximately $2,200,000 to $2,500,000 depending on process configuration.
1000 System. The 1000 APCVD system offers either hybrid or TEOS reactant
processes and is specifically designed for high-productivity on 200mm wafer
processing lines. The 1000 system provides both doped and undoped deposition of
TEOS based silicon dioxide and can be utilized in a broad range of dielectric
film applications for both Logic and Memory manufacturing requirements. Typical
prices for the 1000 System range from approximately $1,500,000 to $2,200,000
depending on process configuration.
999 Systems. The 999 and TEOS999 APCVD systems are for production lines
utilizing between 100mm to 150mm wafers and are capable of simultaneous
processing two wafers in parallel. Both systems offer doped and undoped silicon
dioxide. Typical prices for the 999 System range from approximately $1,500,000
to $2,300,000 depending on process configuration.
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CUSTOMERS
The Company's customer base includes companies that manufacture
semiconductor devices primarily for sale to others and companies that
manufacture semiconductor devices primarily for internal use. Repeat sales to
existing customers represent a significant portion of the Company's processing
equipment sales. The Company believes that its installed customer base
represents a significant competitive advantage.* By working closely with its
established customer base, the Company is able to identify new product
development opportunities. The Company's customers during fiscal 1999 included
the following:
IBM Microchip Technology
Intel Motorola
LSI Logic Philips Semiconductor
Maxim ST Microelectronics
The Company relies on a limited number of customers for a substantial
percentage of its sales. In fiscal 1999, Intel represented 56% of the Company's
net sales with the Company's five largest customers accounting for 74% of net
sales. For fiscal 1998, Intel, IBM and Motorola represented 40%, 17% and 13%,
respectively, of sales and the Company's largest five customers represented 76%
of sales. During fiscal years 1999 and 1998, no other customer represented more
than 10% of net sales for the Company. In fiscal 1999 and 1998, Intel
represented a substantial portion of the total sales of both Track and SVGL
products with Intel representing approximately 78% of SVGL's fiscal 1999 net
sales. The loss of a significant customer (and in particular the loss of Intel
as a Track or SVGL customer -- See "Manufacturing and Raw Materials"), a delay
in shipment due to customer rescheduling or any substantial reduction in orders
by a significant customer, including reductions in orders due to market,
economic or competitive conditions in the semiconductor industry, would
adversely affect the Company's business and results of operations.*
MARKETING, SALES AND SERVICE
The Company markets and sells its products primarily to independent
manufacturers of semiconductor devices and computer, telecommunications and
other companies that manufacture semiconductor devices for their own use. The
market for the Company's products is worldwide. The Company sells its products
in the United States principally through its direct sales organization. The
Company sells its products overseas through a direct sales staff, independent
distributors and independent representatives. The following table sets forth the
Company's revenues by geographic area as a percentage of net sales for the three
fiscal years ended September 30:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
United States.................. 72% 65% 68%
Europe......................... 18 31 26
Pacific Rim.................... 10 4 6
</TABLE>
Reliability, which is commonly measured in up-time and mean time between
failure, and performance are increasingly important factors by which customers
evaluate the potential suppliers of sophisticated processing systems. The
Company believes that its field service and process support capabilities are
major factors in its selection as an equipment supplier. Increasingly,
semiconductor manufacturers are requiring seven-day, around the clock, on site
or on call support. To meet this need, the Company continues to enhance its
training programs and deploy spare part inventories at both customer sites and
regional field depots. Service personnel are based in field offices throughout
the United States, Western Europe, Japan and the Pacific Rim and increasingly on
site at particularly large customer locations.
The Company warrants its products against defects in design, materials and
workmanship, generally for periods ranging from one to two years.
BACKLOG
At September 30, 1999 and 1998, the Company had a backlog of approximately
$357,455,000 and $254,129,000, respectively. The Company includes in backlog
only those orders to which a purchase order number has been assigned by the
customer and for which delivery has been specified within 12 months. Such orders
are subject to cancellation by the customer with limited charges. Because of the
possibility of customer changes in delivery schedules, cancellation of orders
and potential delays in product shipments, the
8
<PAGE> 9
Company's backlog as of any particular date may not be representative of actual
sales for any succeeding period. As a result of the slow down in demand which
began to impact the Company during the first quarter of fiscal 1998 and
continued to impact the Company through out fiscal 1999, the Company has
received customer deferrals and order cancellations of product with scheduled
delivery dates which resulted in reduced levels of shipments during these
periods. There can be no assurance that the Company will not in the future
continue to experience customer delivery deferrals, order cancellations or a
prolonged period of customer orders at reduced levels, any or a combination of
which would have an adverse effect on its operating results.*
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING
The market served by the Company is characterized by rapid technological
change. Accordingly, the Company's product and process development programs are
devoted to the development of new systems and processes, including new
generations of products for existing markets, enhancements and extensions of
existing products and custom engineering for specific customers. The Company
believes that its future success will depend upon its ability to continue to
enhance its existing products and their process capabilities and to successfully
develop, introduce and manufacture new and enhanced products and processes which
satisfy a broad range of customer needs and achieve market acceptance.*
Accordingly, the Company works closely with semiconductor manufacturers,
industry consortia, and research institutions to respond to the industry's
evolving product and process requirements. The Company's research staff
collaborates with key customers in order to evaluate designs, specifications and
prototypes of the Company's new products.
The Company believes that in selecting a photolithography equipment
manufacturer, customers look for a supplier with a long-term product development
strategy and the ability to fund that development since photolithography
exposure equipment can represent a substantial portion of the equipment cost of
a fabrication facility. Semiconductor manufacturers may be unwilling to rely on
a relatively small supplier, such as the Company, for a critical element of the
fabrication process if they believe that the Company does not have sufficient
capital to implement its product development strategy. The Company depends in
part on external sources to fund its photolithography development efforts.
During fiscal 1996, the Company entered into agreements with certain
customers (the "Participants") whereby each agreed to assist in funding the
Company's development of an advanced technology 193-nanometer Micrascan system.
In exchange for such funding, each Participant received the right to purchase
one such system and, in addition, received a right of first refusal (ratable
among such Participants) to all such machines manufactured during the first two
years following the initial system shipments. For each initial system ordered,
each Participant agreed to fund $5,000,000 in such development costs. The
agreements call for each Participant to pay $1,000,000 of initial development
funding and four subsequent payments of $1,000,000 upon the completion of
certain development milestones. The Participants may withdraw from the
development program without penalty, but payments made against completed
development milestones are not refundable and all rights to future equipment are
forfeited. At September 30, 1999, the Company had received and recognized
$20,000,000 in funding from program Participants against research and
development expenditures. Three competitors of the Company have either announced
the development of, or have shipped 193-nanometer products. In June 1999,
certain Participants decided that their product needs have changed for initial
193-nanometer machines and have withdrawn from the program and chosen to use or
are evaluating other solutions. At September 30, 1999, the Company's obligations
under these agreements are complete and no additional funding is expected or
required from the Participants.* As a result, the Company expects to use its own
funds to continue development of an advanced technology 193-nanometer Micrascan
system, which will result in an increase in the Company's research and
development expenses and a decrease in the Company's operating income.*
In May 1999, the Company entered into an agreement with Intel Corporation
("Intel") for the development of 157-nanometer lithography technology. This
agreement obligates the Company among other things to develop and sell to Intel
a predetermined number of initial tools. Intel has agreed to provide advanced
payments for the development and manufacture of these machines, based upon
predetermined milestones. Separately, Intel has invested approximately
$15,000,000 in the Company in the form of a purchase of Series 1 Convertible
Preferred Stock (see Note 11 to the Consolidated Financial Statements). The
Company is obligated to dedicate a certain amount of its 157-nanometer unit
production output to Intel. The Company is required to use the proceeds from the
Series 1 Preferred investment and funds received under the agreement for the
development of technology for use on 157-nanometer lithography equipment. There
can be no assurance that the Company will be successful in developing
157-nanometer technology or will be able to manufacture significant quantities
of machines to satisfy its obligations to Intel or other customers.* There is no
assurance that the Company will receive all funding which it currently
anticipates under its agreement with Intel.* If the Company were required to use
its own funds, its research and development expenses would increase and its
operating income would be reduced correspondingly.*
9
<PAGE> 10
The Company anticipates that it will need to continue to make substantial
research and development expenditures, particularly in its photolithography
products, in order to remain competitive in the semiconductor equipment
industry. There is no assurance that the Company will receive all funding which
it currently anticipates or that it will be able to obtain future outside
funding beyond that which it is currently receiving. If the Company were not
able to secure additional external funding, its new product development and
product enhancement efforts would either be impaired or would have a material
adverse effect on the Company's results of operations.*
In connection with the Company's acquisition of SVGL in 1990, SVGL received
an equity investment and research and development funding commitments for
Micrascan from IBM. Under the terms of the related research and development
agreement, SVGL owed IBM certain royalties based on future operating results.
During the second quarter of fiscal 1997, the Company satisfied its obligation,
recognized an expense of $32,582,000, which represented royalties related to
products currently under development, and recorded a prepayment of $5,418,000,
which represented royalties related to existing products which are being
amortized through fiscal 2000.
The Company has historically devoted a significant portion of its personnel
and financial resources to research and development programs. For fiscal years
1999, 1998, and 1997, total research and development expenditures were
approximately $98,000,000, $99,000,000, and $82,000,000, respectively, of which
approximately $3,000,000, $12,000,000, and $8,000,000, respectively, was funded
by outside parties. Substantially all development funding received by SVGL has
been for the development of its Micrascan technology and systems. During prior
years, the majority of development funding was received from the industry
consortium of semiconductor manufacturers, SEMATECH. In fiscal 1999, 1998 and
1997 the funding was received primarily from the Participants for the
development of the advanced technology 193-nanometer system.
COMPETITION
The semiconductor equipment industry is intensely competitive. The Company
faces substantial competition both in the United States and other countries in
all of its products. The Company's competitors include Tokyo Electron, Ltd.
("TEL") and DaiNippon Screen Mfg. Co., Ltd. in photoresist processing equipment;
TEL and Kokusai Electric Co., Ltd. in oxidation/diffusion, LPCVD equipment;
Applied Materials and Quester in its newly acquired APCVD products from
Watkins-Johnson; and Nikon, Canon, ASM Lithography and other suppliers in
photolithography exposure equipment, and projection aligners. The trend toward
consolidation in the semiconductor processing equipment industry has made it
increasingly important to have the financial resources necessary to compete
effectively across a broad range of product offerings, to fund customer service
and support on a worldwide basis and to invest in both product and process
research and development. Significant competitive factors include technology and
cost of ownership, a formula which includes such data as initial price, system
throughput and reliability, use of consumables and time to maintain or repair.
Other competitive factors include familiarity with particular manufacturers'
products, established relationships between suppliers and customers, product
availability and technological differentiation. Occasionally, the Company has
encountered intense price competition with respect to particular orders and has
had difficulty establishing new relationships with certain customers who have
long-standing relationships with other suppliers. The Company believes that
outside Japan and the Pacific Rim it competes favorably with respect to most of
these factors.* (See "Importance of Japanese and Pacific Rim Markets".)
Many of the Company's competitors are Japanese corporations. Although the
economic conditions in Asia are improving, the Company believes that an
oversupply of equipment from certain Japanese competitors may continue to cause
more severe price competition in its non-Asian markets.* To compete effectively
in these markets, the Company may be forced to reduce prices, which could cause
further reduction in net sales and gross margins and, consequently, have a
material adverse effect on the Company's financial condition and results of
operations.*
Certain of the Company's existing and potential competitors have
substantially greater name recognition, financial, engineering, manufacturing
and marketing resources and customer service and support capabilities than the
Company. Additionally, the Company is a relative newcomer in the commercial
photolithography exposure market. Nikon, and to a lesser extent Canon, have long
established relationships as suppliers of photolithography equipment to most of
the semiconductor manufacturers. Although the Company has supplied Track and
Thermal equipment to many of these customers, it has not previously sold
meaningful quantities of Micrascan photolithography equipment to most of them.
The Company's competitors can be expected to continue to improve the design
and performance of their current products and processes and to introduce new
products and processes with improved price/performance characteristics.
10
<PAGE> 11
The Micralign products manufactured by SVGL are generally not competitive with
steppers for fabrication of semiconductor devices with line widths smaller than
1.25 micron. In marketing Micrascan systems, SVGL continues to face competition
from suppliers employing other technologies, principally I-Line and DUV
steppers, including Nikon Corp., Canon and ASM Lithography who have begun
shipping initial quantities of .25 micron step-and-scan photolithography systems
which utilize DUV light sources. The Company believes DUV lithography is
required to fabricate devices with line widths below 0.3 micron.* Semiconductor
manufacturers can purchase DUV steppers to produce product at .25 micron line
widths. However, the Company believes that as devices increase in complexity and
size and require finer line widths, the technical advantages of DUV
step-and-scan systems, as compared to DUV steppers, will enable semiconductor
manufacturers to achieve finer line widths with improved critical dimension
control which will result in higher yields of faster devices.* The Company also
believes that the industry transition to DUV step-and-scan systems has
accelerated in calendar 1999 and that advanced semiconductor manufacturers are
beginning to require volume quantities of production equipment as advanced as
the current and pending versions of Micrascan to produce both critical and to
some degree sub-critical layers of semiconductor devices.* Currently,
competitive DUV step-and-scan equipment capable of producing .25 micron line
widths and below is available in limited quantities from Nikon, Canon and ASM
Lithography. There can be no assurance that the Company will be successful in
competing with such systems.* Further, if manufacturers of DUV steppers are able
to further enhance existing technology to achieve finer line widths sufficiently
to erode the competitive and technological advantages of DUV step-and-scan
systems, or other manufacturers of step-and-scan systems are successful in
supplying sufficient quantities of product in a timely manner that are
technically equal to or better than the Micrascan, demand for the Micrascan
technology may not develop as the Company expects.*
IMPORTANCE OF THE JAPANESE AND PACIFIC RIM MARKETS
The Company's customers are heavily concentrated in the United States and
Europe. The Japanese and Pacific Rim markets (including fabrication plants
located in other parts of the world which are operated by Japanese and Pacific
Rim semiconductor manufacturers) represent a substantial portion of the overall
market for semiconductor manufacturing equipment. To date, neither the Company's
shipments into Japan nor the Pacific Rim have been significant. The Company
believes that the Japanese companies with which it competes have a competitive
advantage because their dominance of the Japanese and Pacific Rim semiconductor
equipment market provides them with the sales and technology base to compete
more effectively throughout the rest of the world.* The Company is not engaged
in any significant collaborative effort with any Japanese or Pacific Rim
semiconductor manufacturers. As a result, the Company may be at a competitive
disadvantage to the Japanese equipment suppliers that are engaged in such
collaborative efforts with Japanese and Pacific Rim semiconductor manufacturers.
The Company believes that it must substantially increase its share of these
markets if it is to compete as a global supplier.* Further, in many instances,
Japanese and Pacific Rim semiconductor manufacturers fabricate devices such as
dynamic random access memory devices ("DRAMs"), with potentially different
economic cycles than those affecting the sales of devices manufactured by the
majority of the Company's U.S. and European customers. Failure to secure
customers in these markets may limit the global market share available to the
Company and may increase the Company's vulnerability to industry or geographic
downturns.*
In the past, several of the Company's larger customers have entered into
joint ventures ("JV") with European, Japanese or Pacific Rim semiconductor
manufacturers. In such cases, the Company has encountered intense price
competition from foreign competitors who are suppliers to the non-U.S. member of
the JV. Further, in certain instances the Company has not secured the equipment
order when the non-U.S. member has had the responsibility for selecting the
equipment to be used by the JV in its U.S. operations. There can be no assurance
that as the Company's customers form additional alliances, whether in the U.S.
or in other parts of the world, that the Company will be successful in obtaining
equipment orders or that it will be able to obtain orders with sufficient gross
margin to generate profitable transactions, either of which could have an
adverse effect on the Company's results of operations.*
Throughout the Pacific Rim, the Company is attempting to compete with major
equipment suppliers having significant market share and established service and
support infrastructures in place. The Company has invested in the staffing and
facilities that it believes are necessary to sell, service and support customers
in the Pacific Rim and with the acquisition of SEG, the Company acquired from
Watkins-Johnson Company a 36,000 square foot customer demonstration facility in
Kawasaki City, Japan. However, the Company anticipates that it will continue to
encounter significant price competition as well as competition based on
technological ability.* There can be no assurance that the Company's Pacific Rim
operations will be profitable, even if it is successful in obtaining significant
sales into this region.* Further, due to recent economic issues in certain Asian
countries, particularly Korea, the Company's ability to penetrate such markets
has been more difficult. Failure to secure customers in these markets would have
an adverse effect on the Company's business and results of operations.*
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<PAGE> 12
MANUFACTURING AND RAW MATERIALS
The Company manufactures its products from standard components and from
components manufactured by others according to the Company's design
specifications. Track products are manufactured in San Jose, California. Thermal
products are primarily manufactured in Orange and Scotts Valley, California.
Tinsley manufactures optical components in Richmond and North Hollywood,
California. SVGL photolithography exposure products are manufactured in Wilton
and Ridgefield, Connecticut.
From time-to-time, the Company has experienced delays in the introduction of
its products and product enhancements due to technical, manufacturing and other
difficulties and may experience similar delays in the future.* For example,
during fiscal 1996, the Company announced the subsequently terminated 200-APS
Track product. Initial shipments of the 200-APS were scheduled to commence
during the second quarter of fiscal 1997, and were delayed until the second
quarter of fiscal 1998. This delay, as well as industry developments, caused the
Company to implement a plan, which was announced on September 30, 1998, to
terminate future development and shipments of its 200-APS products, and to
concentrate its efforts on completing the ProCell product which had been in
development for approximately one year. There can be no assurance that the
Company will not experience delays in completing the development or
manufacturing problems related to the ProCell product as a result of instability
of the design of either the hardware or software elements of the new technology,
or be able to efficiently manufacture the new product or other products.* In
June of 1999 the Company introduced the ProCell product for shipment in fiscal
2000. The Company believes that protracted delays in delivering initial
quantities of this newly introduced product or any new product to multiple
customers could result in semiconductor manufacturers electing to install
competitive equipment and could preclude industry acceptance of the ProCell
product or any of the Company's products.* The inability to produce such
products or any failure to achieve market acceptance could have a material
effect on the Company's business, results of operations and could result in a
subsequent loss of future sales.*
In June of 1999, five participants in the 193 Development Program decided
that their product needs have changed for initial 193-nanometer machines and
have withdrawn from the development program and declined delivery of initial
tools. These participants withdrew in part due to delays in product introduction
and changes in participant's technical requirements. As the Lithography demands
continue, the Company is responding by accelerating the development of a very
high numerical aperture ("VHNA") version of its 193 product. In order to address
a broader market with this tool, the Company is also redesigning its stage
technology to optimize cost of ownership. Although the Company believes that the
timing of the introduction of the product will be sufficient to meet volume
production requirements of .13 micron, there can be no assurance that the
product will be introduced on time or that customers will wait for the product
to commit for their production needs.* The absence of a successful
implementation of the product or obtaining sufficient orders for this product
could have a material adverse impact on the future profitability of the
Company.*
Semiconductor manufacturers tend to select either a single supplier or a
primary supplier for a certain type of equipment. The Company believes that
prolonged delays in delivering initial quantities of newly developed products to
multiple customers, whether due to the protracted release of product from
engineering into manufacturing or due to manufacturing difficulties, could
result in semiconductor manufacturers electing to install competitive equipment
in their fabrication facilities and could preclude industry acceptance of the
Company's products.* For example, the Company's largest Track customer has
decided to secure deliveries from another source, a decision the Company
believes is primarily due to the delay and subsequent termination of the
200-APS. Initial shipments into the market of a new technology Track product,
the ProCell, is not expected until fiscal 2000.* As a result, competitors will
increase their market share, and it will be increasingly more difficult for the
Company to regain market position.* The Company's inability to effect the timely
production of new products or any failure of these products to achieve market
acceptance could have a material adverse effect on the Company's business and
results of operations.*
Historically, the unit cost of the Company's products has been the highest when
they are newly introduced into production and cost reductions have come over
time through engineering improvements, economies of scale and improvements in
the manufacturing process.* As a result, new products have, at times, had an
unfavorable impact on the Company's gross margins and results of operations.
There can be no assurance that the initial shipments of new products will not
have an adverse effect on the Company's profitability or that the Company will
be able to attain design improvements, manufacturing efficiencies or
manufacturing process improvements over time.* Further, the potential
unfavorable effect of newly introduced products on profitability can be
exacerbated when there is intense price competition in the marketplace.
The time required to build a Micrascan system is significant. If SVGL is to
be successful in supplying increased quantities of Micrascan systems, it will
not only need to be able to build more systems, it will need to build them
faster.* SVGL will require additional trained personnel, additional raw
materials and components and improved manufacturing and testing techniques to
both facilitate volume increases and shorten manufacturing cycle time.* To that
end, SVGL is continuing to develop its vendor supply infrastructure, and
implement manufacturing improvements.* Additionally, the Company believes that
as it increases its penetration
12
<PAGE> 13
of the Micrascan product, it must resume increasing its factory, field service
and technical support organization staffing and infrastructure to support the
anticipated customer requirements.* There can be no assurance that the Company
will successfully increase its penetration of the Micrascan product or that the
Company will not experience manufacturing difficulties or encounter problems in
its attempt to increase production and upgrade or expand existing operations.*
One of the most critical components of the Micrascan systems is the
projection optics, which are primarily manufactured by SVGL. As part of its
overall investment in capacity, the Company has increased SVGL's optical
manufacturing floor space. The Company believes that in order for SVGL to be a
viable supplier of advanced lithography systems in the future, it must
successfully reduce the cycle times required to build projection optics.*
In November 1997, the Company acquired Tinsley Laboratories, Inc. ("TLI") in
exchange for approximately 1,091,000 shares of Company common stock. TLI
designs, manufactures and sells precision optical components, assemblies and
systems to customers in a variety of industries and research endeavors. The
primary reasons for the acquisition were TLI's technology and expertise relating
to aspherical lenses, a key component of SVGL's photolithography products, the
adaptation of certain of TLI's manufacturing processes by SVGL and TLI's
commencement of the fabrication of non-aspherical lenses which are currently
produced by SVGL. However, there can be no assurance that TLI's manufacturing
technology is scaleable, or that such expertise can be transferred without
substantial time or expense, if at all.* The inability of SVGL to transfer this
production technology for use in processes of a substantially larger scale or
the inability of TLI to manufacture non-aspherical lenses for SVGL in sufficient
quantities to realize efficiencies of scale could adversely affect the Company's
ability to realize any significant benefits from the acquisition of TLI.*
The Company believes that protracted delays in delivering quantities of both
current and future generations of Micrascan products to multiple worldwide
customers could result in semiconductor manufacturers electing to install
competitive equipment in their advanced fabrication facilities, and could
preclude industry acceptance of the Micrascan technology and products.* In
addition, the Company's operating results could also be adversely affected by
the increase in fixed costs and operating expenses related to increases in
production capacity and field service and technical support activities if net
sales do not increase commensurately.*
Most raw materials and components not produced by the Company are available
from more than one supplier. However, certain raw materials, components and
subassemblies are obtained from single sources or a limited group of suppliers.
Although the Company seeks to reduce its dependence on these sole and limited
source suppliers, and the Company has not experienced significant production
delays due to unavailability or delay in procurement of component parts or raw
materials to date, disruption or termination of certain of these sources could
occur and such disruptions could have at least a temporary adverse effect on the
Company's business and results of operations.* Moreover, a prolonged inability
to obtain certain components could have a material adverse effect on the
Company's business and results of operations and could result in damage to
customer relationships.*
The raw material for a proprietary component of the optical system for the
Micrascan is available from only one supplier. The supplier has expanded its
capacity to meet SVGL's projected long-term requirements and has created and
stored agreed upon quantities of safety stock. There can be no assurance that
the supplier will be able to provide acceptable quantities of material required
by SVGL.* Additionally, a version of the Company's Micrascan III
photolithography system utilizes an Excimer laser that is manufactured in volume
by only one supplier. In fiscal 1999 SVGL qualified an additional source of
lasers for its current and future versions of Micrascan products, allowing the
potential for the integration of such lasers into its system configurations.*
However, there can be no assurance that its customers will be receptive to
procuring products with lasers from this supplier, or the supplier will be able
to provide product of sufficient quantity and quality.* If these suppliers were
unable to meet their commitments, SVGL would be unable to manufacture the
quantity of products required to meet the anticipated future demand, which would
have a material adverse effect on the Company's business and results of
operations.*
It is anticipated that a critical component of the optical system for the
157-nanometer lithography product, which is currently under development, will
utilize Calcium Fluoride.* Calcium Fluoride is a raw material that has been
known to be in short supply and is integral to the production of optics capable
of producing quality line widths of .10 and below. The Company has or expects to
shortly qualify three suppliers who could be sources of this raw material for
the Company.* There can be no assurance that these suppliers will be able to
supply the quality or quantity of the product necessary for the Company to meet
expected future demand, which could have a material adverse effect on the
Company's business and results of operations.*
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<PAGE> 14
PATENTS AND LICENSES
The Company owns several domestic and foreign patents relating to the
businesses of Track, Thermal and SVGL products. Although the Company has
historically relied and continues to rely on the technical and marketing
competence and creative ability of its personnel, rather than patents, to
maintain its competitive position, it has begun to pursue both domestic and
foreign patent protection more aggressively.
As is typical in the semiconductor equipment industry, the Company has from
time to time received, and may in the future receive, communications from third
parties asserting patents or copyrights on certain of the Company's products and
technologies. Two of the Company's customers have notified the Company that they
have received a notice of infringement from Jerome H. Lemelson, alleging that
equipment used in the manufacture of electronic devices infringes patents issued
to Mr. Lemelson relating to "machine vision" or "barcode reader" technologies.
The customers have put the Company on notice that it intends to seek
indemnification from the Company for any damages and expenses resulting from
this matter if found liable or if the customer settles the claim. The Company
cannot predict the outcome of this or any similar claim or its effect upon the
Company, and there can be no assurance that any such litigation or claim would
not have a material adverse effect upon the Company's financial condition or
results of operations.*
EMPLOYEES
At September 30, 1999, the Company had 2,815 full-time employees and 263
part-time employees and contract personnel, including 782 in research and
development, 1,315 in manufacturing, 833 in marketing, sales and customer
service and support and 148 in administration. None of the Company's employees
are represented by a union. Management considers its relations with its
employees to be good.
The Company's future success will continue to depend to a large extent on
the continued contributions of its executive officers and key management and
technical personnel. In particular, SVGL's future growth is very dependent on
the Company's ability to attract and retain key skilled employees, particularly
those related to the optical segment of its business. The Company is a party to
agreements with each of its executive officers to help ensure the officers'
continual service to the Company in the event of a change-in-control. Each of
the Company's executive officers, and key management and technical personnel
would be difficult to replace. The loss of the services of one or more of the
Company's executive officers or key personnel, or the inability to continue to
attract qualified personnel could delay product development cycles or otherwise
have a material adverse effect on the Company's business, financial condition
and results of operations.*
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Papken S. Der Torossian....... 60 Chairman of the Board and Chief Executive Officer
William A. Hightower.......... 56 President and Chief Operating Officer
Russell G. Weinstock.......... 56 Vice President, Finance and Chief Financial Officer
Steven L. Jensen.............. 50 Vice President, Worldwide Sales and Marketing
Jeffrey M. Kowalski........... 46 Vice President, President, Thermal Systems
Boris Lipkin.................. 52 Vice President, Corporate
Larry W. Sonsini.............. 58 Secretary
</TABLE>
Mr. Der Torossian became Chairman of the Board and Chief Executive Officer
in July 1991, and has been a director of the Company since October 1984.
Mr. Hightower became President and Chief Operating Officer in August 1997.
He has been a member of the Board of Directors of the Company since 1994. From
January 1996 to August 1997, Mr. Hightower was the Chairman of the Board of
Directors and Chief Executive Officer of Cadnet Corporation and from August 1989
to December 1995, he was the President and Chief Executive Officer of Telematics
International, Inc.
Mr. Weinstock has been Vice President of Finance and Chief Financial Officer
of the Company since July 1990.
Mr. Jensen became a Vice President of the Company in July 1992 and Vice
President, Worldwide Sales in April 1992.
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<PAGE> 15
Mr. Kowalski became a Vice President of the Company and President of Thermal
Systems in January 1995. From November 1992 to January 1995 he was the Vice
President of Marketing of Thermal Systems, as well as its Vice President of
Technology from November 1993.
Mr. Lipkin became a Vice President of the Company in March 1995. From August
1992 to March 1995 he was the Vice President and General Manager of the Thin
Film Systems business unit of Varian Associates.
Mr. Sonsini has been Secretary since November 1988. He was a member of the
Board of Directors of the Company from 1991 to 1997. Mr. Sonsini is a member of
the law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to the Company, and is the Chairman of the firm's Executive Committee.
Mr. Sonsini serves on the boards of directors of Lattice Semiconductor
Corporation, Novell, Inc., and PIXAR.
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in San Jose, California in
36,000 square feet of office space. This space is under a lease that expires in
2006 and has a current base rental of approximately $69,000 per month.
The Company's Track Systems Division has two leased facilities in San Jose,
California. The first is a 90,000 square foot, two-story building with a current
monthly base rental of approximately $95,000 and a lease expiration of 2004. The
second is also a two-story building consisting of approximately 83,000 square
feet. The monthly base rental for this facility is approximately $53,000 under a
lease expiring in 2003.
In March 1996, the Company purchased approximately nine acres of land
adjacent to one of the Track facilities in San Jose, California. Although the
Company currently has no plans to develop the parcel, it provides the
flexibility for future expansion of the Company's Track operations and its
thermal processing lab.
The Thermal Systems Division has two facilities in Orange and one nine
building facility in Scotts Valley, California. The first Orange facility
consists of approximately 92,000 square feet with a base monthly rent expense of
approximately $53,000 under a lease expiring in 2004. The second facility
consists of approximately 77,000 square feet with a base monthly rental expense
of approximately $46,000 under a lease expiring in 2000. The Scotts Valley
facility consists of nine buildings comprising approximately 205,000 square feet
with a base monthly rent expense of approximately $100,000 under a lease
expiring in 2004.
SVGL owns two facilities in Fairfield County, Connecticut. The first
consists of approximately 29 acres of land and buildings totaling approximately
276,000 square feet, located in Wilton, Connecticut. The second consists of
approximately 50 acres of land and a 201,000 square foot building located in
Ridgefield, Connecticut
The Company acquired a facility in Kawasaki, Japan from the Semiconductor
Equipment Group of Watkins-Johnson Company. The facility consists of a 36,000
square foot, two-story building on approximately one acre of land.
Tinsley owns two facilities in Richmond, California. The first consists of
approximately three acres of land and buildings totaling 64,000 square feet.
The second consists of two acres of land with a 32,000 square foot facility.
Tinsley, which owns Century Precision Optics, has two facilities in North
Hollywood, California. The first facility consists of approximately 21,000
square feet with a base monthly rent expense of approximately $21,300 under a
lease expiring in 2004. The second facility consists of approximately 5,000
square feet with a base monthly rent expense of approximately $4,500. This lease
is on a month to month basis.
The Company also leases storage and warehouse space near its headquarters in
San Jose, office and warehouse space near its Thermal facilities in Orange and
Scotts Valley, sales and service offices in key locations throughout the United
States, Western Europe and the Pacific Rim.
15
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS.
On or about August 12, 1998, Fullman International Inc. and Fullman Company
LLC (collectively, "Fullman") initiated a lawsuit in the United States District
Court for the District of Oregon alleging claims for fraudulent conveyance,
constructive trust and declaratory relief in connection with a settlement the
Company had previously entered into resolving its claims against a Thailand
purchaser of the Company's equipment. In its complaint against the Company,
Fullman, allegedly another creditor of the Thailand purchaser, alleges damages
of approximately $11,500,000 plus interest. The Company has successfully moved
to transfer the case to the United States District Court for the Northern
District of California. The trail is tentatively scheduled for July 2000.
While the outcome of such litigation is uncertain, the Company believes it
has meritorious defenses to the claims and intends to conduct a vigorous
defense. However, an unfavorable outcome in this matter could have a material
adverse effect on the Company's financial condition.*
On July 8, 1999, the Company filed a complaint for copyright infringement to
protect its investment and intellectual property from six third party vendors
("the Defendants"), subsequently, complaints against two of the Defendants were
withdrawn by the Company. The complaint was filed against the Defendants
alleging that the named defendants have infringed upon certain copyrights owned
by the Company on its 8X series equipment by duplicating or modifying software
in the refurbishment and sale of replacement boards. The complaint further asks
for preliminary and permanent injunction against the Defendants' further
infringement of the Company's copyrights and sale of infringing systems and
boards, and for an award of damages. One of the Defendants has filed a
counterclaim against the Company in response to the Company's complaint.
In addition to the above, the Company, from time to time, is party to
various legal actions arising out of the normal course of business, none of
which is expected to have a material effect on the Company's financial position
or operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders during
the fiscal quarter ended September 30, 1999.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded in the over-the-counter market on the
Nasdaq National Market System under the symbol SVGI. The following table sets
forth the range of high and low sales prices of the stock during fiscal years
1998 and 1999 as reported by Nasdaq-NMS.
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1999
-------------------- -----------------------
HIGH LOW HIGH LOW
------- ------- --------- --------
<S> <C> <C> <C> <C>
First Quarter $36-1/4 $18-3/8 $13-5/16 $ 6-5/8
Second Quarter 27-7/8 19 17-5/16 10-3/8
Third Quarter 21-1/2 15-3/4 16-13/16 12-1/16
Fourth Quarter 16-1/2 8 17-11/16 11
</TABLE>
To date, the Company has not declared or paid dividends on its common stock.
The Board of Directors of the Company presently intends to retain all earnings
for use in the Company's business and therefore does not anticipate declaring or
paying any cash dividends in the foreseeable future. The Company's revolving
credit facility prohibits the payment of cash dividends on common stock.
As of November 26, 1999, there were 806 holders of record of the common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data concerning the Company
for and as of the end of each of the years in the five year period ended
September 30, 1999, are derived from the audited consolidated financial
statements of the Company. The selected financial data are qualified in their
entirety by the more detailed information and financial statements, including
the notes thereto. The financial statements of the Company as of September 30,
1999, and for each of the three years in the period ended September 30, 1999,
and the report of Deloitte and Touche LLP thereon, are included elsewhere in
this report.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales $475,141 $657,337 $614,226 $608,625 $473,690
Income (loss) before income
taxes and minority interest 61,696 99,809 4,198 (27,157) (37,436)
Net income (loss) 39,263 64,099 2,592 (13,577) (25,456)
Preferred stock dividend 537 -- -- -- --
Net income (loss)
per share--basic $ 1.66 $ 2.09 $ 0.08 $ (0.42) $ (0.77)
Shares used in per share
computations--basic 23,627 30,657 31,635 32,438 32,926
Net income (loss)
per share--diluted $ 1.61 $ 2.06 $ 0.08 $ (0.42) $ (0.77)
Shares used in per share
computations--diluted 24,326 31,122 32,414 32,438 32,926
Balance Sheet Data:
Working capital $328,128 $466,637 $420,486 $371,960 $382,155
Total assets 513,665 744,257 756,017 730,590 754,773
Long-term debt and capital leases 2,015 1,718 6,515 5,865 26,790
Stockholders' equity 358,614 551,242 573,110 561,530 557,537
Other Data:
Backlog $400,324 $404,889 $437,668 $254,129 $357,455
Number of employees 2,757 3,185 3,515 2,660 3,078
</TABLE>
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. Such statements are subject
to certain risks and uncertainties, including those discussed below that could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Forward-looking statements are indicated by an
asterisk (*) following the sentence in which such statement is made. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The Company primarily designs, manufactures, markets and services
semiconductor processing equipment used in the fabrication of integrated
circuits. The Company's products are used in photolithography for exposure and
photoresist processing, and in deposition for oxidation/diffusion and low
pressure chemical vapor deposition ("LPCVD"), and with the acquisition of the
Semiconductor Equipment Group of Watkins-Johnson, thermal processing products
which address atmospheric pressure chemical vapor deposition ("APCVD"). The
Company manufactures and markets photolithography exposure SVGL products,
photoresist processing Track products, oxidation/diffusion, chemical vapor
deposition and LPCVD, APCVD Thermal products and certain precision optical
components.
On July 6, 1999, the Company acquired the business of the Semiconductor
Equipment Group of Watkins-Johnson Company ("SEG"). The acquisition was
accounted under the purchase method of accounting for financial reporting
purposes. The results of the Company for fiscal 1999 include the operating
results of SEG from the date of acquisition.
On November 26, 1997, the Company acquired Tinsley Laboratories, Inc. ("TLI").
The transaction has been accounted for as a pooling of interests for financial
reporting purposes. All amounts discussed below have been retroactively restated
to reflect the inclusion of TLI.
The semiconductor industry into which the Company sells its products is
highly cyclical and has, historically, experienced periodic downturns that have
had a severe effect on the semiconductor industry's demand for semiconductor
processing equipment. As a result of the Asian economic crisis which began in
1997, an oversupply of certain semiconductor products, the impact of low cost
personal computers, and various other factors, semiconductor manufacturers
reduced planned expenditures and cancelled or delayed the construction of new
fabrication facilities. This slowdown in demand began to impact the Company
during the first quarter of fiscal 1998 and continued to impact the Company
through out fiscal 1999. The slowdown in demand resulted in the Company
experiencing lower new customer orders, customer deferrals of scheduled
equipment delivery dates and, to a lesser extent, customer order cancellations.
Customer orders with scheduled delivery dates are referred to by the Company as
bookings. Last year's lower bookings, order rescheduling and cancellations, have
caused sales and net income during fiscal 1999 to decline from prior years
amounts. Although the Company has experienced a modest improvement in new
bookings as during the second half of fiscal 1999 the Company recorded new
bookings of $324,213,000 up from new bookings of $254,444,000 and $237,451,000
during the first half of fiscal 1999 and the second half of fiscal 1998,
respectively, there can be no assurance that the dollar amount of new bookings
will continue to increase. There can be no assurance that the Company will not
in the future experience further customer delivery deferrals, additional order
cancellations or a prolonged period of customer orders at reduced levels, any or
a combination of which would have a material adverse effect on the Company's
business and results of operations.*
During fiscal 1998 in an effort to lessen the impact of these lower sales
volumes, the Company took several steps to reduce operating expenses including a
reduction in workforce, temporary shutdowns and the restructuring of certain
portions of the Company's business. During the second half of fiscal 1998, the
Company shut down the majority of its operations for 15 days and recorded
restructuring and related charges of $33,680,000. The restructuring and related
charges include costs of $28,521,000 resulting from the termination of the
Company's previously announced 200-APS photoresist processing system and a
provision of $5,159,000 for 1998 reductions in the Company's workforce for
approximately 1,150 employees.
Historically, the Company has relied on a limited number of customers for a
substantial percentage of its net sales. In fiscal 1999, the Company's largest
customer accounted for 56% of net sales. The Company believes that, for the
foreseeable future, it will continue to rely on a limited number of major
customers for a substantial percentage of its net sales.*
18
<PAGE> 19
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal 1999 were $473,690,000, 22% below fiscal 1998 net sales
of $608,625,000. The decrease in net sales was due to lower shipments of Track,
Thermal and Lithography products during fiscal 1999, offset in part by sales of
APCVD products during the fourth quarter of fiscal 1999 resulting from the SEG
acquisition. The decrease in net sales occurred across all geographies except
Israel where sales increased by $40,298,000 reflecting continued expansion of
customer manufacturing operations in Israel.
The Company's fiscal 1999 net bookings were $545,709,000, representing a
book to bill ratio of 1.15 to 1, significantly above fiscal 1998 net bookings of
427,272,000, representing a book to bill ratio of .70 to 1. At September 30,
1999, the Company had a backlog of $357,455,000, a 41% increase over September
30, 1998 backlog of $254,129,000. The Company includes in backlog only those
orders to which a purchase order number has been assigned by the customer, with
substantially all of the terms and conditions agreed upon, and for which
delivery has been specified within twelve months. During the third quarter of
fiscal 1999, the Company reduced its 193-nanometer orders by approximately
$53,000,000; of this amount, customer orders for three machines totaling
$31,500,000 were cancelled and removed from the Company's backlog due to
customer requirements having changed. (See "SVGL- Research and Development
Funding"). Backlog at September 30, 1999, included orders for 47 Micrascan
photolithography products.
During the first quarter of fiscal 1999, the Company recognized net sales of
approximately $20,000,000 from one customer who accepted and took title to the
related equipment and agreed to normal payment terms, but requested that the
Company store the equipment until predetermined shipment dates. During fiscal
1998 approximately $58,000,000 in net sales to two such customers was
recognized. At September 30, 1999, the Company was storing approximately
$1,500,000 of such equipment with a scheduled shipment date of March 2000.
Fiscal 1999 gross margin was 34%, slightly above fiscal 1998 gross margin of
33%. Fiscal 1998 cost of sales includes $19,117,000 in restructuring charges for
the write-off of 200-APS inventory. Excluding the impact of the 200-APS
inventory charge, the fiscal 1998 adjusted gross margin was 36%. The decrease in
fiscal 1999 gross margin when compared to fiscal 1998 adjusted gross margin was
primarily the result of the impact associated with the fourth quarter fiscal
1999 inventory provision due to the cancellation of orders (discussed above)
under the Low NA 193nm Lithography program, higher per unit costs resulting from
lower shipment volumes of Thermal products, partially offset by higher margin
shipments of the Company's newly acquired APCVD products.
Research, development and related engineering ("R&D") expenses are net of
funding received from outside parties under various development agreements. Such
funding is typically payable upon the attainment of one or more development
milestones that are specified in the agreements. During fiscal years 1997, 1998
and 1999 funding was primarily related to agreements between the Company and
certain customers for the development of a 193-nanometer Micrascan system ("193
Development Program"). During June 1999 certain participants in the 193
Development Program decided that their product needs have changed for initial
193-nanometer machines and have withdrawn from the development program and
chosen to use or are evaluating other solutions. (See "SVGL-Research and
Development Funding.")
During fiscal 1999, R&D expenses were $94,698,000 (20% of net sales),
compared to $87,272,000 (14% of net sales) during fiscal 1998. Such R&D amounts
are net of funding recognized under joint development agreements of $2,902,000
and $11,997,000 during fiscal 1999 and fiscal 1998, respectively. R&D expense
increased over fiscal 1998 primarily due to increased spending on the
157-nanometer development program, reduced development funding, offset in part
by reduced spending on the 200-APS Track product resulting from its fiscal 1998
cancellation. The increase in R&D as a percentage of net sales reflects the
significant year-to-year decrease in net sales.
Fiscal 1999, marketing, general and administrative ("MG&A") expenses were
$109,819,000 (23% of net sales), lower than fiscal 1998 MG&A of $130,615,000
(21% of net sales). The decrease in MG&A from the preceding year was primarily
due to reduced product support costs. The increase in MG&A as a percentage of
net sales reflects the significant year-to-year decrease in net sales.
As discussed above, during the fourth quarter of fiscal 1998, the Company
recorded restructuring and related charges of $33,680,000, of which $14,563,000
was classified as operating expenses. During the fourth quarter of fiscal 1999,
the Company revised its estimate primarily relating to severance and benefits
and reversed approximately $506,000 of the fiscal 1998 restructuring and related
charges accrued against operating expenses.
19
<PAGE> 20
For fiscal 1999, the Company had an operating loss of $42,640,000, compared
to an operating loss of $32,221,000 during fiscal 1998. In comparison to the
preceding year, the increase in the operating loss is primarily from reduced
gross margin resulting from reduced net sales, increased R&D expenses offset in
part by the absence of restructuring charges in fiscal 1999 and lower MG&A
expenses.
Interest and other income was $6,509,000 during fiscal 1999 compared to
$6,082,000 for fiscal 1998. The year to year increase in interest and other
income was primarily the result of foreign currency translation and exchange
gains offset in part by lower interest income due to lower average cash balances
available for investment.
Interest expense in fiscal 1999 was $1,305,000 compared to fiscal 1998
interest expense of $1,018,000. The increase in interest expense between periods
is primarily due to the three Japanese bank loans assumed in connection with the
acquisition of SEG. (See Note 8 to the Consolidated Financial Statements).
The Company recorded a 32% benefit for income taxes for fiscal 1999,
compared to a 50% benefit for fiscal 1998. Variations in the Company's effective
tax rate relate primarily to changes in the geographic distribution of its
pretax income and certain tax-free interest income. (See Note 10 to the
Consolidated Financial Statements).
For fiscal 1999 the Company had a net loss of $25,456,000 ($0.77 loss per
share--diluted), compared to a net loss of $13,577,000 ($0.42 loss per
share--diluted) for fiscal 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
For fiscal 1998, net sales were $608,625,000, slightly below fiscal 1997 net
sales of $614,226,000. The decrease in net sales was due to lower shipments of
Thermal and Track products during fiscal 1998, offset in part by increased
shipments of the SVGL Micrascan photolithography product. The decrease in net
sales occurred across all geographies except Ireland and Israel where sales
increased by $83,285,000 and $11,118,000, respectively. These increases
reflected expansions of customer manufacturing operations in these countries.
The Company's fiscal 1998 net bookings were $427,272,000, which represented
a book to bill ratio of 0.70 to 1, significantly below fiscal 1997 net bookings
of $648,001,000, which represented a book to bill ratio of 1.05 to 1. At
September 30, 1998, the Company had a backlog of $254,129,000, a 42% decrease
from the September 30, 1997 backlog of $437,668,000.
For fiscal 1998, the Company's gross margin was 33%, significantly below the
fiscal 1997 gross margin of 38%. Fiscal 1998 included a restructuring charge of
$19,117,000 for the write-off of 200-APS inventory, which has been included in
cost of sales. This restructuring charge accounted for 3% of the year to year
decrease in gross margin. Without taking into account the 200-APS inventory
charge, the fiscal 1998 gross margin was 36%, a decrease of 2% from the fiscal
1997 gross margin. This decrease was primarily the result of lower volumes and
higher fixed costs for SVGL products during the second half of fiscal 1998 and
the overall effect of lower volumes of Thermal and to a lesser degree, Track
products.
R&D expenses were $87,272,000 (14% of net sales) during fiscal 1998,
compared to $74,311,000 (12% of net sales) during fiscal 1997. Such R&D amounts
are net of funding recognized under joint development agreements of $11,997,000
and $7,968,000 during fiscal 1998 and fiscal 1997, respectively. The year to
year increase in R&D was primarily due to new product and process development,
particularly for SVGL products, the design and development of equipment capable
of processing the next generation 300mm wafer and costs associated with Track's
subsequently terminated 200-APS program.
During late fiscal 1996 and early fiscal 1997, the Company sold
approximately $20,000,000 in product to SubMicron Technology PCL ("SMT"), a
newly established semiconductor foundry in Thailand. SMT paid the Company
approximately $14,000,000 before encountering severe financial difficulties.
During the third quarter of fiscal 1997, the Company determined that the
remaining receivable from SMT was uncollectible. After reversing costs accrued
for the installation and warranty of the products sold to SMT, the Company
recorded a net charge against its fiscal 1997 operating results of approximately
$4,000,000 (the "SMT Charge").
20
<PAGE> 21
During fiscal 1998, marketing, general and administrative ("MG&A") expenses
were $130,615,000 (21% of net sales), lower than fiscal 1997 MG&A of
$134,642,000 (22% of net sales). The decrease in MG&A from the preceding year
was primarily due to the effect of the SMT Charge on fiscal 1997 MG&A.
As discussed above, during the fourth quarter of fiscal 1998, the Company
recorded restructuring and related charges of $33,680,000, of which $14,563,000
was classified as operating expenses.
Under the terms of a research and development agreement, SVGL owed IBM
certain royalties based on future operating results. During the second quarter
of fiscal 1997, the Company satisfied its obligation to IBM, recognized an
expense of $32,582,000, which represented royalties related to products
currently under development, and recorded a prepayment of $5,418,000, which
represented royalties related to existing products which are being amortized
through fiscal 2000.
For fiscal 1998, the Company had an operating loss of $32,221,000, compared
to an operating loss of $5,423,000 during fiscal 1997. In comparison to the
preceding year, the fiscal 1998 operating loss was the result of the
restructuring charges, lower gross margins on lower net sales and increased R&D
expenses, offset in part by the non-recurring royalty settlement during fiscal
1997.
Interest and other income was $6,082,000 during fiscal 1998 compared to
$10,639,000 for fiscal 1997. The year to year decrease in interest and other
income was primarily the result of lower interest income due to lower average
cash balances available for investment, foreign currency translation and
exchange losses, in large part due to the strength of the U.S. dollar during
fiscal 1998, and the absence of certain royalty income under an agreement which
expired during the fourth quarter of fiscal 1997.
Interest expense of $1,018,000 in fiscal 1998 was equivalent to fiscal 1997
interest expense of $1,018,000. Interest expense in fiscal 1998 and 1997 was
primarily associated with a $6,500,000 loan received from the Connecticut
Development Authority. (See Note 8 to the Consolidated Financial Statements).
The Company recorded a 50% benefit for income taxes for fiscal 1998,
compared to a 36% provision for fiscal 1997. Variations in the Company's
effective tax rate relate primarily to changes in the geographic distribution of
its pretax income, settlement of royalty obligations and certain tax-free
interest income. (See Note 10 to the Consolidated Financial Statements).
The minority interest reflected in the Company's 1997 financial statements
represents that share of SVGL's operating results attributable at the time to
its minority stockholder, IBM. In March 1997, the Company purchased IBM's
interest in SVGL for $3,000,000. The Company now accounts for SVGL as a wholly
owned subsidiary and there is no longer a minority interest. In fiscal 1997,
minority interest was recorded from the beginning of the fiscal year through the
date the Company purchased IBM's interest and represented a reduction from
income of $92,000.
For fiscal 1998 the Company had a net loss of $13,577,000 ($0.42 loss per
share--diluted), compared to net income of $2,592,000 ($0.08 per share--diluted)
for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, cash and cash equivalents and short-term investments
totaled $142,246,000, a decrease of $7,754,000 from the September 30, 1998
balance of $150,000,000 and a decrease of $64,415,000 from the September 30,
1997 balance of $206,661,000.
During fiscal years 1999 and 1998 the Company generated $2,933,000 and
$22,422,000, respectively, in cash from operating activities. Contributors to
positive cash from operations during fiscal 1999 include non-cash depreciation
and amortization, reduced inventories and refundable income taxes offset in part
by increased accounts receivable resulting from increased fourth quarter sales,
a net loss of $25,456,000 for the fiscal year and reduced accrued liabilities.
Net cash used for investing activities for fiscal years 1999 and 1998 was
$45,996,000 and $30,661,000, respectively. During fiscal 1999 purchases of
capital equipment were $30,937,000 and net purchases of temporary investments
were $15,198,000.
Net cash provided by financing activities was $19,056,000 in fiscal 1999
compared to $2,941,000 during fiscal 1998. During fiscal 1999 the Company
received $14,976,000 from the sale of preferred stock and $4,940,000 from the
exercise of stock options and issuance of stock under the Company's Employee
stock purchase plan.
21
<PAGE> 22
In connection with the acquisition of SEG (See Note 2 to the Consolidated
Financial Statements) the Company assumed three Yen-denominated bank loans
totaling approximately $22,700,000 bearing interest at rates of between 2.2% and
3.1%.
On June 30, 1998, the Company entered into an unsecured $150,000,000 bank
revolving line of credit agreement that expires June 30, 2001. Advances under
the line bear interest at the bank's prime rate or 0.65% to 1.50% over LIBOR.
The agreement includes covenants regarding liquidity, profitability, leverage,
and coverage of certain charges and minimum net worth and prohibits the payment
of cash dividends. On October 23, 1998 and May 14, 1999, certain of the
covenants were amended, in part to reflect the acquisition of SEG and change
quarterly profitability covenants. The Company is in compliance with the
covenants as amended. At September 30, 1999, there were no borrowings
outstanding under the facility.
The Company believes that it has sufficient working capital and available
bank credit to sustain operations and research and development activities, to
the extent such activities are not funded by third parties, and provide for the
expansion of its business for the next twelve months.*
YEAR 2000
As the Year 2000 approaches, a universal issue has emerged regarding how
existing application software programs and operating systems can accommodate
date values. The Company has evaluated and continues to evaluate its Year 2000
risk as it exists in three areas: information technology infrastructure,
including reviewing what actions are necessary to bring all software tools used
internally to Year 2000 compliance; Year 2000 readiness of critical suppliers;
and Year 2000 compliance of the products the Company supplies to its customers.
The Company evaluated its information technology infrastructure for Year
2000 compliance, which included reviewing what actions were required to make all
internal-use software systems Year 2000 compliant. The Company has completed the
modification of its internal-use computer software for the Year 2000. The third
party costs associated with such modifications were $124,000 and were expensed
in fiscal 1998. Although the Company believes that the solutions, which were
extensively tested, have resulted in its internal-use systems being Year 2000
compliant, there can be no assurance that unforeseen problems that could disrupt
operations will not arise, or that the Company will not be required to expend
further cost and effort to solve such problems.*
The Company has contacted its critical suppliers and service providers to
ascertain their state of readiness and compliance for Year 2000 issues.
Responses have generally indicated substantial remediation, or documented plans
to remediate the Year 2000 issue. Some suppliers have given written
certification of internal and product compliance. Substantially all critical
suppliers have indicated compliance of their products or service. The Company
will continue to monitor their progress and compliance for these issues. There
can be no assurance, however, that the Company's suppliers and service providers
will timely provide the Company with products or services which are Year 2000
compliant. Any failure to do so by such third parties could have a material
adverse impact on the Company's results of operations.*
The Company has evaluated its products and identified those areas containing
date sensitive Year 2000 issues. The Company adheres to Year 2000 test case
scenarios established by SEMATECH, an industry group comprised of U.S.
semiconductor manufacturers. The Company's compliance efforts and review and
identification of corrective measures are substantially complete. Based on this
review, the Company believes that all products currently being shipped are Year
2000 compliant. The Company has made available for potential sale the necessary
modifications to bring previously shipped products into compliance. As all
customer events cannot be anticipated, the Company may see an increase in
product warranty and other claims.* In the event that any of the Company's
products ultimately are not Year 2000 compliant, or there are customer claims
made against the Company, the Company's business, financial condition and
results of operations could be adversely affected.*
The total cost to address the Year 2000 issue has not been and is not
expected to be material to the Company's financial condition.* The Company is
using both internal and external resources in its Year 2000 project.* The
Company does not segregate internal costs incurred to assess and remedy
deficiencies related to the Year 2000 problem or modifications to its products.
At this time, the Company does not feel it is necessary to develop a
contingency plan.* As risks are identified, plans will be developed and
implemented as required.
22
<PAGE> 23
Although the Company believes its Year 2000 plans will be successful, there
can be no assurance that unforeseen problems will not happen which could have a
material adverse effect on the Company.*
RISKS INHERENT IN THE COMPANY'S BUSINESS
Fluctuations in Quarterly Results. The Company has, at times during its
existence, experienced quarterly fluctuations in its operating results. Due to
the relatively small number of systems sold during each fiscal quarter and the
relatively high revenue per system, customer order rescheduling or
cancellations, or production or shipping delays can significantly affect
quarterly revenues and profitability. The Company has experienced, and may again
experience, quarters during which a substantial portion of the Company's net
sales are realized near the end of the quarter.* Accordingly, shipments
scheduled near the end of a quarter, which are delayed for any reason, can cause
quarterly net sales to fall short of anticipated levels. Since most of the
Company's expenses are fixed in the short term, such shortfalls in net sales
could have an adverse effect on the Company's business and results of
operations.* The Company's operating results may also vary from quarter to
quarter based upon numerous factors including the timing of new product
introductions, product mix, level of sales, the relative proportion of domestic
and international sales, activities of competitors, acquisitions, international
events, currency exchange fluctuations, and difficulties obtaining materials or
components on a timely basis.* In light of these factors, the Company may again
experience variability in its quarterly operating results.*
Rapid Technological Change; Dependence on New Product Development.
Semiconductor manufacturing equipment and processes are subject to rapid
technological change. The Company believes that its future success will depend
upon its ability to continue to enhance its existing products and their process
capabilities and to develop and manufacture new products with improved process
capabilities that enable semiconductor manufacturers to fabricate more advanced
semiconductors with increased efficiency.* The Company is developing Track and
Lithography products, and has shipped limited quantities of Thermal products,
capable of processing 300mm wafers in anticipation of the industry's transition
to this larger wafer standard.* Failure to successfully introduce these or any
other new products in a timely manner would result in the loss of competitive
position and could reduce sales of existing products.* In addition, new product
introductions could contribute to quarterly fluctuations in operating results as
orders for new products commence and increase the potential for a decline in
orders of existing products, particularly if new products are delayed.*
From time-to-time, the Company has experienced delays in the introduction of
its products and product enhancements due to technical, manufacturing and other
difficulties and may experience similar delays in the future.* For example,
during fiscal 1996, the Company announced the subsequently terminated 200-APS
Track product. Initial shipments of the 200-APS were scheduled to commence
during the second quarter of fiscal 1997, and were delayed until the second
quarter of fiscal 1998. This delay, as well as industry developments, caused the
Company to implement a plan, which was announced on September 30, 1998, to
terminate future development and shipments of its 200-APS products, and to
concentrate its efforts on completing the ProCell product which had been in
development for approximately one year. There can be no assurance that the
Company will not experience delays in completing the development or
manufacturing problems related to the ProCell product as a result of instability
of the design of either the hardware or software elements of the new technology,
or be able to efficiently manufacture the new product or other products.* During
June of 1999 the Company introduced the ProCell product for shipment in fiscal
2000. The Company believes that protracted delays in delivering initial
quantities of this newly introduced product or any new product to multiple
customers could result in semiconductor manufacturers electing to install
competitive equipment and could preclude industry acceptance of the ProCell
product or any of the Company's products.* The inability to produce such
products or any failure to achieve market acceptance could have a material
effect on the Company's business, results of operations and could result in a
subsequent loss of future sales.*
In June of 1999, five participants in the 193-nanometer Development Program
decided that their product needs have changed for initial 193-nanometer machines
and have withdrawn from the development program and declined delivery of initial
tools. These participants withdrew in part due to delays in product introduction
and changes in participant's technical requirements. As the Lithography demands
continue, the Company is responding by accelerating the development of a very
high numerical aperture ("VHNA") version of its 193-nanometer product. In order
to address a broader market with this tool, the Company is also redesigning its
stage technology to optimize cost of ownership. Although the Company believes
that the timing of the introduction of the product will be sufficient to meet
volume production requirements of .13 micron, there can be no assurance that the
product will be introduced on time or that customers will wait for the product
to commit for their production needs.* The absence of a successful
implementation of the product or obtaining sufficient orders for this product
could have a material adverse impact on the future profitability of the
Company.*
Semiconductor manufacturers tend to select either a single supplier or a
primary supplier for a certain type of equipment. The Company believes that
prolonged delays in delivering initial quantities of newly developed products to
multiple customers, whether
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due to the protracted release of product from engineering into manufacturing or
due to manufacturing difficulties, could result in semiconductor manufacturers
electing to install competitive equipment in their fabrication facilities and
could preclude industry acceptance of the Company's products.* For example, the
Company's largest Track customer has decided to secure deliveries from another
source, a decision the Company believes is primarily due to the delay and
subsequent termination of the 200-APS. Initial shipments into the market of a
new technology Track product, the ProCell, is not expected until fiscal 2000.*
As a result, competitors will increase their market share, and it will be
increasingly more difficult for the Company to regain market position.* The
Company's inability to effect the timely production of new products or any
failure of these products to achieve market acceptance could have a material
adverse effect on the Company's business and results of operations.*
Historically, the unit cost of the Company's products has been the highest
when they are newly introduced into production and cost reductions have come
over time through engineering improvements, economies of scale and improvements
in the manufacturing process.* As a result, new products have, at times, had an
unfavorable impact on the Company's gross margins and results of operations.
There can be no assurance that the initial shipments of new products will not
have an adverse effect on the Company's profitability or that the Company will
be able to attain design improvements, manufacturing efficiencies or
manufacturing process improvements over time.* Further, the potential
unfavorable effect of newly introduced products on profitability can be
exacerbated when there is intense price competition in the marketplace.*
Competition. The semiconductor equipment industry is intensely competitive.
The Company faces substantial competition both in the United States and other
countries in all of its products. The Company's competitors include Tokyo
Electron, Ltd. ("TEL") and DaiNippon Screen Mfg. Co., Ltd. in photoresist
processing equipment; TEL and Kokusai Electric Co., Ltd. in oxidation/diffusion,
LPCVD equipment; in its newly acquired APCVD products from Watkins-Johnson the
Company's competitors include Applied Materials and Quester; and Nikon, Canon,
ASM Lithography and other suppliers of photolithography exposure equipment, and
projection aligners. The trend toward consolidation in the semiconductor
processing equipment industry has made it increasingly important to have the
financial resources necessary to compete effectively across a broad range of
product offerings, to fund customer service and support on a worldwide basis and
to invest in both product and process research and development. Significant
competitive factors include technology and cost of ownership, a formula which
includes such data as initial price, system throughput and reliability and time
to maintain or repair. Other competitive factors include familiarity with
particular manufacturers' products, established relationships between suppliers
and customers, product availability and technological differentiation.
Occasionally, the Company has encountered intense price competition with respect
to particular orders and has had difficulty establishing new relationships with
certain customers who have long-standing relationships with other suppliers. The
Company believes that outside Japan and the Pacific Rim it competes favorably
with respect to most of these factors.* (See "Importance of Japanese and Pacific
Rim Markets".)
Many of the Company's competitors are Japanese corporations. Although the
economic conditions in Asia are improving, the Company believes that an
oversupply of equipment from certain Japanese competitors may continue to cause
more severe price competition in its non-Asian markets.* To compete effectively
in these markets, the Company may be forced to reduce prices, which could cause
further reduction in net sales and gross margins and, consequently, have a
material adverse effect on the Company's financial condition and results of
operations.*
Customer Concentration. Historically, the Company has relied on a limited
number of customers for a substantial percentage of its net sales. In fiscal
1999, the Company's largest customer accounted for 56% of net sales and no other
single customer accounted for 10% or more of net sales. In fiscal 1998, the
Company's three largest customers accounted for 40%, 17% and 13% of net sales.
The Company believes that, for the foreseeable future, it will continue to rely
on a limited number of major customers for a substantial percentage of its net
sales.* As a result of delays in delivering initial quantities of the
subsequently terminated 200-APS Track product, one of the Company's largest
Track customers has decided to purchase systems with similar capabilities from
another supplier. We expect that the decision by such customer to purchase
systems from other suppliers and the cancellation of the 200-APS Track product
will continue to have an adverse effect on Track product sales in future
periods.* (See "Risks Inherent in the Company's Business - Rapid Technological
Change; Dependence on New Product Development"). The loss of any other
significant customer or additional reductions in orders by a significant
customer, including reductions in orders due to market, economic or competitive
conditions in the semiconductor industry, or delays in the introduction of newly
developed products and product enhancements will further exacerbate the adverse
effect the customer order rescheduling and cancellations discussed above will
have on the Company's business and results of operations.*
Importance of the Japanese and Pacific Rim Markets. The Company's customers
are heavily concentrated in the United States and Europe. The Japanese and
Pacific Rim markets (including fabrication plants located in other parts of the
world which are operated by Japanese and Pacific Rim semiconductor
manufacturers) represent a substantial portion of the overall market for
semiconductor manufacturing equipment. To date, neither the Company's shipments
into Japan nor the Pacific Rim have been significant. The
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Company believes that the Japanese companies with which it competes have a
competitive advantage because their dominance of the Japanese and Pacific Rim
semiconductor equipment market provides them with the sales and technology base
to compete more effectively throughout the rest of the world. The Company is not
engaged in any significant collaborative effort with any Japanese or Pacific Rim
semiconductor manufacturers. As a result, the Company may be at a competitive
disadvantage to the Japanese equipment suppliers that are engaged in such
collaborative efforts with Japanese and Pacific Rim semiconductor manufacturers.
The Company believes that it must substantially increase its share of these
markets if it is to compete as a global supplier.* Further, in many instances,
Japanese and Pacific Rim semiconductor manufacturers fabricate devices such as
dynamic random access memory devices ("DRAMs"), with potentially different
economic cycles than those affecting the sales of devices manufactured by the
majority of the Company's U.S. and European customers. Failure to secure
customers in these markets may limit the global market share available to the
Company and may increase the Company's vulnerability to industry or geographic
downturns.*
In the past, several of the Company's larger customers have entered into
joint ventures ("JV") with European, Japanese or Pacific Rim semiconductor
manufacturers. In such cases, the Company has encountered intense price
competition from foreign competitors who are suppliers to the non-U.S. member of
the JV. Further, in certain instances the Company has not secured the equipment
order when the non-U.S. member has had the responsibility for selecting the
equipment to be used by the JV in its U.S. operations. There can be no assurance
that as the Company's customers form additional alliances, whether in the U.S.
or in other parts of the world, that the Company will be successful in obtaining
equipment orders or that it will be able to obtain orders with sufficient gross
margin to generate profitable transactions, either of which could have an
adverse effect on the Company's results of operations.*
Throughout the Pacific Rim, the Company is attempting to compete with major
equipment suppliers having significant market share and established service and
support infrastructures in place. The Company has invested in the staffing and
facilities that it believes are necessary to sell, service and support customers
in the Pacific Rim and with the acquisition of SEG, the Company acquired from
Watkins-Johnson Company a 36,000 square foot customer demonstration facility in
Kawasaki City, Japan. However, the Company anticipates that it will continue to
encounter significant price competition as well as competition based on
technological ability.* There can be no assurance that the Company's Pacific Rim
operations will be profitable, even if it is successful in obtaining significant
sales into this region.* Further, due to recent economic issues in certain Asian
countries, particularly Korea, the Company's ability to penetrate such markets
has been more difficult. Failure to secure customers in these markets would have
an adverse effect on the Company's business and results of operations.*
Due to the high cost of building, equipping and maintaining fabrication
facilities, many customers are outsourcing their manufacturing to foundries,
many of which are located in Taiwan. Although the Company is focused on
increasing its penetration into Taiwan, it has had limited success in securing
volume orders from companies in this area, which have long standing
relationships with the Company's competitors. If the Company is not successful
in penetrating this market, it could have an adverse effect on the Company's net
sales and results of operations.*
Risks Associated with Acquisition of Watkins-Johnson Company's Semiconductor
Equipment Group. On July 6, 1999, the Company completed the acquisition of the
Semiconductor Equipment Group ("SEG") of Watkins-Johnson. The acquisition of the
assets of SEG is accompanied by a variety of risks, which could prevent the
Company from realizing any significant benefits from the transaction. The
Company may experience difficulty with integrating the operations and personnel
of the business acquired from Watkins-Johnson, need additional financial
resources to fund the operations of the acquired business, be unable to maximize
the Company's financial and strategic position by the incorporation or
development of the acquired technology and products or lose key employees of the
acquired business. In particular, the Company believes it must successfully
transition the acquired technology of SEG to incorporate process improvements
such as single wafer processing and scalability from 200mm to 300mm wafer
processing capability.* There can be no assurance that the Company will not
experience difficulties or delays in transitioning this technology which could
have a material adverse effect on the Company.*
The acquisition of SEG also included the assumption of certain liabilities
of SEG, which may prove more costly than the Company anticipates. For example,
certain environmental remediation steps have been put in place at the site,
there can be no assurance that additional environmental hazards or liabilities
will not surface which may have an adverse impact on the Company's business.* In
order to successfully integrate SEG, the Company must, among other things,
continue to attract and retain key personnel, integrate the acquired products,
technology and information systems from engineering, sales, product development
and marketing perspectives, and consolidate functions and facilities, which may
result in future charges to streamline the combined operations. Difficulties
encountered in the integration of SEG may have a material adverse effect on the
Company.*
Business Interruption. The Company manufactures its Track products in San
Jose, California and substantially all of its Thermal products in Orange and
Scotts Valley, California. Tinsley's optical components are manufactured in
Richmond and North Hollywood,
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California. These California facilities are located in seismically active
regions. SVGL's photolithography exposure products are manufactured in Wilton
and Ridgefield, Connecticut. If the Company were to lose the use of one of its
facilities as a result of an earthquake, flood or other natural disaster, the
resultant interruptions in operations would have a material adverse effect on
the Company's results of operations and financial condition.*
Euro Conversion. On January 1, 1999, 11 of the 15 member countries of the
European Union established fixed conversion rates between each of their existing
sovereign currencies and the Single European Currency. The participating
countries adopted the Euro as their common legal currency on that date, with a
transition period through January 2002 regarding certain elements of the Euro
change. In January 1999, the Company implemented changes to its internal systems
to make them Euro capable. The cost of system modifications to date has not been
material, nor are future system modifications expected to be material.* The
Company does not expect the transition to, or use of, the Euro to have a
material adverse effect on the Company's results of operations and financial
condition.*
Environmental Matters. The Company is subject to a number of governmental
regulations related to the discharge or disposal of toxic and hazardous
chemicals used in the manufacture of certain of the Company's products. The
Company believes that it is in general compliance with these regulations and
that it has obtained or expects to obtain shortly all necessary environmental
permits to conduct its business.* The failure to comply with present or future
regulations could result in fines or penalties being assessed against the
Company, interruption of production or reduction in the Company's customers
accepting its products.*
The Scotts Valley, California facility is subject to an environmental
remediation plan being monitored by various governmental agencies.
Watkins-Johnson Company purchased a guaranteed fixed price remediation contract
from a third party environmental consultant to remediate the groundwater
contamination at the facility. The remediation agreement (which includes
insurance policies covering performance of the environmental consultant and
coverage for undiscovered contamination) obligates the third party to perform
all of the obligations and responsibilities of Watkins-Johnson Company. There
can be no assurance that the third party consultant will have the financial
resources or technical expertise to execute under the remediation agreement.* It
is not inconceivable that environmental regulatory agencies could ultimately
look to the Company to remediate the groundwater contamination at the site.*
In August 1996, the Company purchased from Perkin-Elmer, approximately 50
acres of land and a 201,000 square foot building thereon (the "Property")
located in Ridgefield, Connecticut. At the time the Company purchased the
Property, it was aware that certain groundwater and soil contamination was
present and that the Property was subject to a clean-up order being performed by
Perkin-Elmer under the jurisdiction of the Connecticut Department of
Environmental Protection. Agreements between the Company and Perkin-Elmer
provide that Perkin-Elmer has sole responsibility for all obligations or
liabilities related to the clean-up order. While the Company believes that it
has been adequately indemnified, if for some reason Perkin-Elmer was unable to
comply or did not comply with the clean-up order, the Company could be required
to do so.*
The Company does not anticipate any material capital expenditures for
environmental control facilities in 2000.*
SVGL - Uncertain Market for Micrascan Products. The Company believes that
the photolithography exposure equipment market is one of the largest segments of
the semiconductor processing equipment industry.* To address the market for
advanced photolithography exposure systems, the Company has invested and expects
to continue to invest substantial resources in SVGL's Micrascan technology and
its family of Micrascan DUV step-and-scan photolithography systems, eventually
capable of producing line widths of .10 micron and below. The development of a
market for the Company's Micrascan step-and-scan photolithography products will
be highly dependent on the continued trend towards finer line widths in
integrated circuits and the ability of other lithography manufacturers to keep
pace with this trend through either enhanced technologies or improved
processes.* The Company believes DUV lithography is required to fabricate
devices with line widths below 0.3 micron.* Semiconductor manufacturers can
purchase DUV steppers to produce product at .25 micron line widths. However, the
Company believes that as devices increase in complexity and size and require
finer line widths, the technical advantages of DUV step-and-scan systems, as
compared to DUV steppers, will enable semiconductor manufacturers to achieve
finer line widths with improved critical dimension control which will result in
higher yields of faster devices.* The Company also believes that the industry
transition to DUV step-and-scan systems has accelerated in calendar 1999 and
that advanced semiconductor manufacturers are beginning to require volume
quantities of production equipment as advanced as the current and pending
versions of Micrascan to produce both critical and to some degree sub-critical
layers of semiconductor devices.* Currently, competitive DUV step-and-scan
equipment capable of producing .25 micron line widths and below is available in
limited quantities from three competitors.* Further, if manufacturers of DUV
steppers are able to further enhance existing technology to achieve finer line
widths sufficiently to erode the competitive and technological advantages of DUV
step-and-scan systems, or other manufacturers of step-and-scan systems are
successful in supplying sufficient quantities of product in a timely
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manner that are technically equal to or better than the Micrascan, demand for
the Micrascan technology may not develop as the Company expects.*
The Company believes that advanced logic devices, DRAMs and ASICs will
require increasingly finer line widths.* Consequently, SVGL must continue to
develop advanced technology equipment capable of meeting its customers' current
and future requirements while offering those customers a progressively lower
cost of ownership.* In particular, the Company believes that it must continue
its development of future systems capable of printing line widths finer than .10
micron and processing 300mm wafers.* Any failure by the Company to develop the
advanced technology required by its customers at progressively lower costs of
ownership and supply sufficient quantities to a worldwide customer base could
have a material adverse impact on the Company's financial condition and results
of operations.*
The Company believes that for SVGL to succeed in the long term, it must sell
its Micrascan products on a global basis. The Japanese and Pacific Rim markets
(including fabrication plants located in other parts of the world which are
operated by Japanese and Pacific Rim semiconductor manufacturers as well as
foundries located primarily in Taiwan) represent a substantial portion of the
overall market for photolithography exposure equipment. To date, the Company has
not been successful in penetrating either of these markets. (See "Importance of
the Japanese and Pacific Rim Markets").
SVGL - Need to Increase Manufacturing Capacity and System Output. The
Company believes that its ability to supply systems in volume to multiple
customers will be a major factor in customer decisions to commit to the
Micrascan technology.* Based upon the expected transition from steppers to
step-and-scan equipment for photolithography equipment, and potential future
demand for advanced lithography products, the Company has been in the process of
increasing SVGL's production capacity. In August 1996, as part of this
expansion, the Company purchased from The Perkin-Elmer Corporation a 243,000
square foot facility (subsequently increased by the Company to 276,000 square
feet) occupied by SVGL in Wilton, Connecticut and an additional 201,000 square
foot building, which SVGL now occupies, in Ridgefield, Connecticut. The Company
has invested in significant capital improvements related to the buildings
purchased and the equipment required to expand the production capabilities of
SVGL. While the Company has essentially completed its facility expansion
activities, it has not invested in all of the metrology and other equipment
required to maximize manufacturing capacity. However, the Company plans to
continue increasing capacity to produce optical components, thus enabling it to
quickly respond to customer requirements.* Once demand recovers, the timely
equipping of facilities to successfully complete the increase in capacity will
require the continued recruitment, training and retention of a high quality
workforce, as well as the achievement of satisfactory manufacturing results on a
scale greater than SVGL has attempted in the past. There can be no assurance
that demand will recover or, that if it does, that the Company can manage these
efforts successfully. Any failure to successfully manage such efforts could
result in product delivery delays and a subsequent loss of future revenues. In
particular, the Company believes that protracted delays in delivery quantities
of current and future Micrascan products could result in semiconductor
manufacturers electing to install competitive equipment in their advanced
fabrication facilities, which could impede acceptance of the Micrascan products
on an industry-wide basis.* This could result in the Company's operating results
being adversely affected by the increase in fixed costs and operating expenses
related to increases in production capacity if net sales, for any reason, do not
increase commensurately.*
The time required to build a Micrascan system is significant. If SVGL is to
be successful in supplying increased quantities of Micrascan systems, it will
not only need to be able to build more systems, it will need to build them
faster.* SVGL will require additional trained personnel, additional raw
materials and components and improved manufacturing and testing techniques to
both facilitate volume increases and shorten manufacturing cycle time.* To that
end, SVGL is continuing to develop its vendor supply infrastructure, and
implement manufacturing improvements.* Additionally, the Company believes that
as it increases its penetration of the Micrascan product, it must resume
increasing its factory, field service and technical support organization
staffing and infrastructure to support the anticipated customer requirements.*
There can be no assurance that the Company will not experience manufacturing
difficulties or encounter problems in its attempt to increase production and
upgrade or expand existing operations.*
One of the most critical components of the Micrascan systems is the
projection optics, which are primarily manufactured by SVGL. As part of its
overall investment in capacity, the Company has increased SVGL's optical
manufacturing floor space. The Company believes that in order for SVGL to be a
viable supplier of advanced lithography systems in the future, it must
successfully reduce the cycle times required to build projection optics.*
In November 1997, the Company acquired Tinsley Laboratories, Inc. ("TLI") in
exchange for approximately 1,091,000 shares of Company common stock. TLI
designs, manufactures and sells precision optical components, assemblies and
systems to customers in a variety of industries and research endeavors. The
primary reasons for the acquisition were TLI's technology and expertise relating
to aspherical lenses, a key component of SVGL's photolithography products, the
adaptation of certain of TLI's manufacturing
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processes by SVGL and TLI's commencement of the fabrication of non-aspherical
lenses which are currently produced by SVGL. However, there can be no assurance
that TLI's manufacturing technology is scaleable, or that such expertise can be
transferred without substantial time or expense, if at all.* The inability of
SVGL to transfer this production technology for use in processes of a
substantially larger scale or the inability of TLI to manufacture non-aspherical
lenses for SVGL in sufficient quantities to realize efficiencies of scale could
adversely affect the Company's ability to realize any significant benefits from
the acquisition of TLI.*
The Company believes that protracted delays in delivering quantities of both
current and future generations of Micrascan products to multiple worldwide
customers could result in semiconductor manufacturers electing to install
competitive equipment in their advanced fabrication facilities, and could
preclude industry acceptance of the Micrascan technology and products.* In
addition, the Company's operating results could also be adversely affected by
the increase in fixed costs and operating expenses related to increases in
production capacity and field service and technical support activities if net
sales do not increase commensurately.*
SVGL - Sole Source Materials and Components. Most raw materials and
components not produced by the Company are available from more than one
supplier. However, certain raw materials, components and subassemblies are
obtained from single sources or a limited group of suppliers. Although the
Company seeks to reduce its dependence on these sole and limited source
suppliers, and the Company has not experienced significant production delays due
to unavailability or delay in procurement of component parts or raw materials to
date, disruption or termination of certain of these sources could occur and such
disruptions could have at least a temporary adverse effect on the Company's
business and results of operations.* Moreover, a prolonged inability to obtain
certain components could have a material adverse effect on the Company's
business and results of operations and could result in damage to customer
relationships.*
The raw material for a proprietary component of the optical system for the
Micrascan is available from only one supplier. The supplier has expanded its
capacity to meet SVGL's projected long-term requirements and has created and
stored agreed upon quantities of safety stock. There can be no assurance that
the supplier will be able to provide acceptable quantities of material required
by SVGL.* Additionally, a version of the Company's Micrascan III
photolithography system utilizes an Excimer laser that is manufactured in volume
by only one supplier. In fiscal 1999 SVGL qualified an additional source of
lasers for its current and future versions of Micrascan products, allowing the
potential for the integration of such lasers into its system configurations.*
However, there can be no assurance that its customers will be receptive to
procuring products with lasers from this supplier, or the supplier will be able
to provide product of sufficient quantity and quality.* If these suppliers were
unable to meet their commitments, SVGL would be unable to manufacture the
quantity of products required to meet the anticipated future demand, which would
have a material adverse effect on the Company's business and results of
operations.*
It is anticipated that a critical component of the optical system for the
157-nanometer lithography product, which is currently under development, will
utilize Calcium Fluoride.* Calcium Fluoride is a raw material that has been
known to be in short supply and is integral to the production of optics capable
of producing quality line widths of .10 and below. The Company has or will
shortly qualify three suppliers who could be sources of this raw material for
the Company.* There can be no assurance that these suppliers will be able to
supply the quality or quantity of the product necessary for the Company to meet
expected future demand, which could have a material adverse effect on the
Company's business and results on operations.
SVGL - Research and Development Funding. Historically, the Company has
depended on external funding to assist in the high cost of development in its
photolithography operation. Beginning in fiscal 1996, the Company entered into
agreements with certain customers (the "Participants") whereby each agreed to
assist in funding the Company's development of an advanced technology
193-nanometer Micrascan system. In exchange for such funding, each Participant
received the right to purchase one such system and, in addition, received a
right of first refusal (ratable among such Participants) to all such machines
manufactured during the first two years following the initial system shipments.
For each initial system ordered, each Participant agreed to fund $5,000,000 in
such development costs. The agreements call for each Participant to pay
$1,000,000 of initial development funding and four subsequent payments of
$1,000,000 upon the completion of certain development milestones. The
Participants may withdraw from the development program without penalty, but
payments made against completed development milestones are not refundable and
all rights to future equipment are forfeited. At September 30, 1999, the Company
had received and recognized $20,000,000 in funding from program Participants
against research and development expenditures. Three competitors of the Company
have either announced the development of, or have shipped 193-nanometer
products. In June 1999, certain Participants decided that their product needs
have changed for initial 193-nanometer machines and have withdrawn from the
program and chosen to use or are evaluating other solutions. At September 30,
1999, the Company's obligations under these agreements are complete and no
additional funding is expected or required from the Participants.*
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In May 1999, the Company entered into an agreement with Intel Corporation
("Intel") for the development of 157-nanometer lithography technology. This
agreement obligates the Company among other things to develop and sell to Intel
a predetermined number of initial tools. Intel has agreed to provide advanced
payments for the development and manufacture of these machines, based upon
predetermined milestones. Separately, Intel has invested approximately
$15,000,000 in the Company in the form of a purchase of Series 1 Convertible
Preferred Stock (see Note 11 to the Consolidated Financial Statements). The
Company is obligated to dedicate a certain amount of its 157-nanometer unit
production output to Intel. The Company is required to use the proceeds from the
Series 1 Preferred investment and funds received under the agreement for the
development of technology for use on 157-nanometer lithography equipment. There
can be no assurance that the Company will be successful in developing
157-nanometer technology or will be able to manufacture significant quantities
of machines to satisfy its obligations to Intel or other customers.* There is no
assurance that the Company will receive all funding which it currently
anticipates or that it will be able to obtain future outside funding beyond that
which it is currently receiving, and any failure to do so could have a material
adverse impact on the Company's results of operations.* If the Company were
required to use its own funds, its research and development expenses would
increase and its operating income would be reduced correspondingly.
SVGL - Market Penetration. The Company believes that for SVGL to succeed in
the long term, it must expand its customer base and sell its Micrascan products
on a global basis.* The Japanese market (including fabrication plants operated
outside Japan by Japanese semiconductor manufacturers), the Taiwanese market and
the Korean market represent a substantial portion of the overall market for
photolithography exposure equipment. To date, the Company has not been
successful penetrating any of these markets. Economic difficulties in certain
Asian economies, particularly Korea, may adversely effect the Company's ability
to penetrate such markets.*
SVGL - Future Profitability. If SVGL is to attain its objective of being a
volume supplier of advanced photolithography products to multiple customers, the
Company believes that it must expand its customer base to include additional
customers from whom it secures and successfully fulfills orders for
production-quantities of Micrascan products.* The Company believes that in light
of the recent downturn in industry demand, costs associated with the continued
development of the Micrascan technology, the expansion of SVGL's manufacturing
capacity, the related increase in manpower and customer support, increased
competition and the potential difficulties inherent in developing and
manufacturing sub-.25 micron Micrascan products, in particular the projection
optics required for these products, there can be no assurance that SVGL will be
able to operate profitably in the future.*
Dependence on Key Personnel. The Company's future success will continue to
depend to a large extent on the continued contributions of its executive
officers and key management and technical personnel. In particular, SVGL's
future growth is very dependent on the Company's ability to attract and retain
key skilled employees, particularly those related to the optical segment of its
business. The Company is a party to agreements with each of its executive
officers to help ensure the officers' continual service to the Company in the
event of a change-in-control. Each of the Company's executive officers, and key
management and technical personnel would be difficult to replace. The loss of
the services of one or more of the Company's executive officers or key
personnel, or the inability to continue to attract qualified personnel could
delay product development cycles or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations.*
Legal Proceedings. On or about August 12, 1998, Fullman International Inc.
and Fullman Company LLC (collectively, "Fullman") initiated a lawsuit in the
United States District Court for the District of Oregon alleging claims for
fraudulent conveyance, constructive trust and declaratory relief in connection
with a settlement the Company had previously entered into resolving its claims
against a Thailand purchaser of the Company's equipment. In its complaint
against the Company, Fullman, allegedly another creditor of the Thailand
purchaser, alleges damages of approximately $11,500,000 plus interest. The
Company has successfully moved to transfer the case to the United States
District Court for the Northern District of California. The trial is tentatively
scheduled for July 2000.
While the outcome of such litigation is uncertain, the Company believes it
has meritorious defenses to the claims and intends to conduct a vigorous
defense. However, an unfavorable outcome in this matter could have a material
adverse effect on the Company's financial condition.*
On July 8, 1999, the Company filed a complaint for copyright infringement to
protect its investment and intellectual property from six third party vendors
("the Defendants") subsequently complaints against two of the Defendants were
withdrawn by the Company. The complaint was filed against the Defendants
alleging that the named defendants have infringed upon certain copyrights owned
by the Company on its 8X series equipment by duplicating or modifying software
in the refurbishment and sale of replacement boards. The complaint further asks
for preliminary and permanent injunction against the Defendants' further
infringement of the Company's copyrights and sale of infringing systems and
boards, and for an award of damages. One of the Defendants has filed a
counterclaim against the Company in response to the Company's complaint.
29
<PAGE> 30
In addition to the above, the Company, from time to time, is party to
various legal actions arising out of the normal course of business, none of
which is expected to have a material effect on the Company's financial position
or operating results.*
Recently Issued Accounting Pronouncements. In June 1998 and June 1999, the
Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." These statements require companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The Company is required to adopt SFAS 133 for
the fiscal year ending September 30, 2002. Although the Company has not fully
assessed the impact of adoption, management believes that the adoption of these
statements will not have a significant impact on its financial results.*
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin No. 101 (SAB101). SAB 101 summarizes certain
interpretations and practices followed by the Division of Corporation finance
and the Office of the Chief Accountant of the SEC in administering the
disclosure requirements of the Federal securities laws in applying generally
accepted accounting principles to revenue recognition in financial statements.
Although the company has not fully assessed the impact of adoption, management
believes that applying the guidance in this bulletin will not have a significant
impact on its financial statements.*
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in
foreign currency exchange rates and interest rates. The Company attempts to
minimize its currency fluctuation risk by actively managing the balances of
current assets and liabilities denominated in foreign currencies. A 10% change
in the foreign currency exchange rates would not have a material impact on the
Company's results of operations. During fiscal 1999 the Company did not use
foreign currency hedging transactions, however it is the Company's intent during
fiscal 2000 to sell forward contracts in Japanese Yen in order to hedge foreign
currency exposures.*
At September 30, 1999 the Company had investments in marketable debt
securities that are subject to interest rate risk (See Note 4 to the
Consolidated Financial Statements). However, due to the short-term nature of the
Company's debt investments and the Company's ability to hold it's fixed income
investments to maturity the impact of a 10% interest rate change would not have
a material impact on the value of such investments.*
At September 30, 1999 fixed rate debt obligations totaled $28,410,000 (See
Note 8 to the Consolidated Financial Statements). The fixed rate obligations
range between 2.2% to 12% with a weighted average of 3.93% and maturity dates
through February 2011. Certain of the Company's manufacturing facilities are
leased under operating lease agreements under which the monthly rent payments
adjust based on LIBOR. Monthly rent payments are variable at 0.75% to 2.0% over
LIBOR. For one of the leases, the Company has entered into an interest rate swap
contract to fix the interest rate and therefore, the lease payment. For the
other lease, the Company has income and cash flow exposure to the extent that
LIBOR changes. The impact of a 10% change in interest rates would not have a
material impact on the amount of lease payment.
30
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements Included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report................................................................................ 32
Consolidated Balance Sheets at September 30, 1998 and 1999.................................................. 33
Consolidated Statements of Operations for the Years Ended September 30, 1997, 1998 and 1999................. 34
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Years Ended
September 30, 1997, 1998 and 1999........................................................................... 35
Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, 1998 and 1999................. 36
Notes to Consolidated Financial Statements.................................................................. 37
Schedule for each of the three years in the period ended September 30, 1999 included in Item 14(a):
II--Valuation and Qualifying Accounts and Reserves.......................................................... 53
</TABLE>
Schedules other than those listed above have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
31
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Silicon Valley Group, Inc.:
We have audited the accompanying consolidated balance sheets of Silicon Valley
Group, Inc. and its subsidiaries as of September 30, 1998 and 1999 and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the
period ended September 30, 1999. Our audits also included the consolidated
financial statement schedule listed in Item 14.(a)2. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Silicon Valley Group, Inc. and its
subsidiaries at September 30, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1999, in conformity with generally accepted accounting principles. Also, in
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------------------
Deloitte & Touche LLP
San Jose, California
October 25, 1999
32
<PAGE> 33
SILICON VALLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $121,575 $ 98,278
Short-term investments 28,425 43,968
Accounts receivable (net of allowance for doubtful
accounts of $8,232 and $5,038, respectively) 121,562 153,981
Refundable income taxes 15,000 2,500
Inventories 212,975 200,769
Prepaid expenses and other assets 7,485 9,826
Deferred income taxes 22,740 35,489
-------- --------
Total current assets 529,762 544,811
Property and equipment, net 191,022 198,403
Deposits and other assets 6,070 8,299
Intangible assets, net 3,736 3,260
-------- --------
Total $730,590 $754,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,346 $ 34,202
Accrued liabilities 130,532 123,266
Current portion of long-term debt 640 1,620
Income taxes payable 1,284 3,568
-------- --------
Total current liabilities 157,802 162,656
-------- --------
Long-term debt 5,865 26,790
-------- --------
Deferred and other liabilities 5,393 7,790
-------- --------
Commitments (See Notes 9, 13, 14 and 17) -- --
Stockholders' Equity:
Convertible preferred stock--$0.01 par value,
Shares authorized: 1,000,000; shares outstanding:
1998: none; 1999: 15,000 -- 14,976
Common stock--$0.01 par value, shares authorized:
100,000,000; shares outstanding: 1998: 32,696,394;
1999: 33,333,884 404,462 410,068
Retained earnings 160,384 134,928
Accumulated other comprehensive loss (3,316) (2,435)
-------- --------
Total stockholders' equity 561,530 557,537
-------- --------
Total $730,590 $754,773
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 34
SILICON VALLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales $614,226 $608,625 $473,690
Cost of sales:
Cost of net sales 378,114 389,279 312,319
Restructuring charges -- 19,117 --
-------- -------- --------
Gross profit 236,112 200,229 161,371
Operating expenses:
Research, development and related engineering 74,311 87,272 94,698
Marketing, general and administrative 134,642 130,615 109,819
Settlement of royalty obligation 32,582 -- --
Restructuring and related charges -- 14,563 (506)
-------- -------- --------
Operating loss (5,423) (32,221) (42,640)
Interest and other income 10,639 6,082 6,509
Interest expense (1,018) (1,018) (1,305)
-------- -------- --------
Income (loss) before income taxes and
minority interest 4,198 (27,157) (37,436)
Provision (benefit) for income taxes 1,514 (13,580) (11,980)
Minority interest 92 -- --
-------- -------- --------
Net income (loss) $ 2,592 $(13,577) $(25,456)
======== ======== ========
Net income (loss) per share--basic $ 0.08 $ (0.42) $ (0.77)
======== ======== ========
Shares used in per share computations--basic 31,635 32,438 32,926
======== ======== ========
Net income (loss) per share--diluted $ 0.08 $ (0.42) $ (0.77)
======== ======== ========
Shares used in per share computations--diluted 32,414 32,438 32,926
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 35
SILICON VALLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK OTHER
----------------- ---------------------- RETAINED COMPREHENSIVE
(IN THOUSANDS EXCEPT SHARES) SHARES AMOUNT SHARES AMOUNT EARNINGS INCOME(LOSS) TOTAL
------ ------- ---------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1996 -- -- 31,199,148 $379,553 $171,817 $ (128) $551,242
------ ------- ---------- -------- -------- ------- --------
Stock issued in settlement of
royalty obligation 489,296 9,994 9,994
Stock options exercised 372,464 3,853 3,853
Employee stock purchase plan 216,709 3,753 3,753
Tax benefit of stock option
transactions 2,532 2,532
Adjustment to conform TLI fiscal year (5,275) (22) (22)
Components of comprehensive income:
Net income 2,592 2,592
Cumulative translation adjustment (240) (240)
Pension liability (146) (146)
Adjustment to conform TLI
fiscal year (448) (448)
--------
Total comprehensive income 1,758
------ ------- ---------- -------- -------- ------- --------
Balances, September 30, 1997 -- -- 32,272,342 399,663 173,961 (514) 573,110
------ ------- ---------- -------- -------- ------- --------
Stock options exercised 158,254 866 866
Employee stock purchase plan 265,798 3,196 3,196
Tax benefit of stock option transactions 737 737
Components of comprehensive loss:
Net loss (13,577) (13,577)
Cumulative translation adjustment (2,802) (2,802)
--------
Total comprehensive loss (16,379)
------ ------- ---------- -------- -------- ------- --------
Balances, September 30, 1998 -- -- 32,696,394 404,462 160,384 (3,316) 561,530
------ ------- ---------- -------- -------- ------- --------
Stock options exercised 214,659 1,444 1,444
Employee stock purchase plan 422,831 3,496 3,496
Tax benefit of stock option
transactions 357 357
Stock compensation 309 309
Sale of convertible preferred stock, net
of $24 in issuance costs 15,000 $14,976 14,976
Components of comprehensive loss:
Net loss (25,456) (25,456)
Cumulative translation adjustment 574 574
Change in unrealized gain
on investments 345 345
Pension liability (38) (38)
--------
Total comprehensive loss (24,575)
------ ------- ---------- -------- -------- ------- --------
Balances, September 30, 1999 15,000 $14,976 33,333,884 $410,068 $134,928 $(2,435) $557,537
====== ======= ========== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 36
SILICON VALLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30 (IN THOUSANDS) 1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 2,592 $ (13,577) $ (25,456)
Reconciliation to net cash provided by operating activities:
Depreciation and amortization 27,605 39,171 48,690
Settlement of royalty obligation 27,582 -- --
Amortization of intangibles 751 848 476
Deferred income taxes 948 (17,150) (11,620)
Stock compensation -- -- 309
Adjustment to conform TLI fiscal year (470) -- --
Minority interest 92 -- --
Changes in assets and liabilities:
Accounts receivable (14,250) 24,232 (32,419)
Refundable income taxes -- (15,000) 12,500
Inventories (13,249) 15,478 26,318
Prepaid expenses and other assets (120) 22 (819)
Deposits and other assets (1,159) 373 (2,502)
Accounts payable 7,481 (18,361) 3,507
Accrued liabilities (9,350) 5,617 (16,366)
Income taxes payable (3,416) 769 315
--------- --------- ---------
Net cash provided by operating activities 25,037 22,422 2,933
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of short-term investments, available for sale (109,872) (10,190) (54,773)
Maturities of short-term investments, available for sale 76,120 58,737 39,575
Purchases of property and equipment (89,932) (79,208) (30,937)
Net cash received from SEG acquisition (See Note 2) -- -- 139
Purchase of minority interest in subsidiary (3,000) -- --
--------- --------- ---------
Net cash used for investing activities (126,684) (30,661) (45,996)
--------- --------- ---------
Cash Flows from Financing Activities:
Sale of preferred stock -- -- 14,976
Sale of common stock 7,332 4,799 4,940
Proceeds from borrowings 6,462 250 --
Repayment of debt (1,406) (2,108) (860)
--------- --------- ---------
Net cash provided by financing activities 12,388 2,941 19,056
--------- --------- ---------
Effect of Exchange Rate Changes on Cash (839) (2,816) 710
--------- --------- ---------
Decrease in cash and equivalents (90,098) (8,114) (23,297)
Cash and equivalents:
Beginning of year 219,787 129,689 121,575
--------- --------- ---------
End of year $ 129,689 $ 121,575 $ 98,278
========= ========= =========
Non-Cash Investing and Financing Activities:
Common stock issued in settlement of royalty obligation $ 9,994 $ -- $ --
========= ========= =========
Tax benefit of stock option transactions $ 2,532 $ 737 $ 357
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE> 37
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS. Silicon Valley Group, Inc. (the Company) primarily designs,
manufactures, markets and services semiconductor wafer processing equipment used
in the fabrication of integrated circuits.
CERTAIN RISKS AND UNCERTAINTIES. The semiconductor industry is highly cyclical
and has, historically, experienced periodic downturns that have had a severe
effect on the industry's demand for semiconductor wafer processing equipment.
Any future such downturns are likely to have an adverse effect on the Company's
results of operations.
The Company relies on a limited number of major customers for a substantial
percentage of its net sales. The loss of or any substantial reduction or
rescheduling of orders by any such customer could adversely affect the Company's
business and results of operations.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of investments and
trade receivables. The Company places its cash equivalents and short-term
investments in high-grade instruments, which it places for safe keeping with
high-quality financial institutions. Further, by policy, it limits the amount of
credit exposure with any one counterparty and the amount of total investment
through any one financial institution or in any one type of investment.
The Company sells its systems to both domestic and international semiconductor
manufacturers. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company maintains an allowance for uncollectible accounts receivable. The
combined receivables at September 30, 1999 for the Company's top five
revenue-generating customers in fiscal 1999 total approximately $108,000,000.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company regularly assesses those estimates and, while
actual results may differ, management believes that the estimates are
reasonable.
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the
accounts of the Company and its wholly-owned subsidiaries, after elimination of
significant intercompany transactions and balances.
The functional currency for the majority of the Company's subsidiaries is the
U.S. dollar, and for such subsidiaries, foreign exchange gains and losses are
included in net income (loss) and were not significant in any of the periods
presented. For two subsidiaries, the functional currency is the local currency,
and for these subsidiaries, remeasurement gains and losses are included in a
separate component of stockholders' equity. Certain intercompany receivables
from two subsidiaries have been classified as long term and the cumulative
translation adjustments related to these receivables are presented as a separate
component of stockholders' equity.
CASH EQUIVALENTS. Cash and equivalents consist of highly liquid investments with
a maturity date at acquisition of three months or less. Cash and equivalents are
stated at cost, plus any accrued interest, which approximates fair value.
INVENTORIES. Inventories are stated at the lower of cost (which approximates
first-in, first-out) or market.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation
is computed on the straight-line method over the estimated useful lives of the
assets. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Land improvements 15
Buildings and improvements 35 to 40
Machinery and equipment 2 to 10
Furniture and fixtures 2 to 10
Leasehold improvements Shorter of the estimated
useful life or the lease term
</TABLE>
37
<PAGE> 38
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS. Intangible assets are amortized on a straight-line basis over
their estimated lives as follows: goodwill, twenty-five years; purchased
technology, six years.
REVENUE RECOGNITION. The Company generally recognizes revenue from the sale of
equipment upon shipment and transfer of title. During fiscal 1999, the Company
recognized net sales of approximately $20,000,000 from a customer who accepted
and took title to the related equipment and agreed to normal payment terms, but
requested that the Company store the equipment until predetermined shipment
dates. Approximately $58,000,000 in revenue to two such customers was recognized
in fiscal 1998. At September 30, 1999 the Company was storing $1,500,000 of such
equipment with a scheduled shipment date of March 2000.
Product liability and installation costs are accrued in the period that sales
are recognized.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING. Research, development and related
engineering costs are expensed as incurred. Funds received under development
funding arrangements are recorded as a reduction to such expenses as earned (See
Note 14). The Company's products include certain software applications that are
integral to the operation of the product. The costs to develop such software
have not been capitalized as the Company believes its current software
development process is essentially completed concurrent with the establishment
of technological feasibility of the software and/or development of the related
hardware.
NET INCOME (LOSS) PER SHARE. Effective October 1, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share"
(EPS), which requires a dual presentation of basic and diluted EPS. Basic net
income (loss) per common share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted net
income (loss) per share reflects the potential dilution that could occur if
securities to issue common stock (convertible preferred stock and common stock
options) were exercised or converted into common stock. Common stock equivalents
are excluded from the computation in loss periods, as their effect is
antidilutive.
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 2,592 $(13,577) $(25,456)
------- -------- --------
Denominator:
Denominator for basic earnings (loss) per share
--weighted average shares outstanding 31,635 32,438 32,926
Employee stock options 779 -- --
------- -------- --------
Denominator for diluted earnings (loss) per
share--adjusted weighted average shares outstanding 32,414 32,438 32,926
------- -------- --------
Basic earnings (loss) per share $ 0.08 $ (0.42) $ (0.77)
======= ======== ========
Diluted earnings (loss) per share $ 0.08 $ (0.42) $ (0.77)
======= ======== ========
</TABLE>
Weighted average options to purchase approximately 3,700,000 shares in 1999 and
2,800,000 shares in 1998 of common stock at weighted average exercise prices of
$18.22 and $18.59 per share, respectively, were excluded from the computation of
diluted earnings per common share because their effect was antidilutive.
Weighted average preferred stock convertible into approximately 461,000 common
shares was excluded from the computation of diluted earnings per share in 1999
because its effect was antidilutive. In 1997, 475,000 options with a weighted
average price of $20.61 per share were outstanding but excluded from the
computation of diluted earnings per share because their exercise price exceeded
the average market price and therefore, the effect would be anitdilutive.
38
<PAGE> 39
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE STOCK PLANS. The Company accounts for its stock option and employee
stock purchase plans in accordance with the provisions of the Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company continues to apply the provisions of APB No. 25 for
purposes of determining net income or loss and has adopted the pro forma
disclosure requirements of SFAS No. 123 (see Note 12).
COMPREHENSIVE INCOME. In the first quarter of fiscal 1999, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for the reporting and display of comprehensive income. Components of
comprehensive income (loss) include net income (loss), unrealized gains (losses)
on investments, foreign currency translation adjustments, and pension liability
changes (See Note 9). The adoption of SFAS No. 130 required additional
disclosure in the consolidated statement of stockholders' equity and
comprehensive income (loss), but did not impact the Company's consolidated
financial position, results of operations or cash flows.
SEGMENT INFORMATION. The Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," for the year ended September
30, 1999. SFAS No. 131 establishes annual and interim reporting standards for a
Company's business segments and related disclosures about its products,
services, geographic areas and major customers.
The Company primarily designs, manufactures, markets and services semiconductor
wafer processing equipment used in the fabrication of integrated circuits. All
operating units are aggregated into one segment because of their similarities in
the nature of products and services, production processes, types of customers,
and distribution method.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In June 1998 and June 1999, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." These
statements require companies to record all derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 is effective for the Company's fiscal year ending September 30, 2002.
Although the Company has not fully assessed the impact of the adoption,
management believes that the adoption of these statements will not have a
material effect on the Company's financial results.
RECLASSIFICATIONS. Certain reclassifications have been made to the prior years'
Consolidated Financial Statements to conform to the fiscal 1999 presentation.
Such reclassifications had no impact on the Company's financial position or
results of operations.
FISCAL YEAR. The Company uses a 52-53 week fiscal year ending on the Friday
closest to September 30. The accompanying financial statements have been shown
as ending on September 30. Fiscal 1997 included 53 weeks, fiscal 1998 and fiscal
1999 each included 52 weeks.
NOTE 2. ACQUISITION OF THE SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON.
On July 6, 1999, the Company acquired the business of the Semiconductor
Equipment Group of Watkins-Johnson Company ("SEG"), a California corporation,
pursuant to a Securities Purchase Agreement dated April 30, 1999 by and between
the Company and Watkins-Johnson, as amended by Amendment No. 1 to the Securities
Purchase Agreement dated July 2, 1999 by and between the Company and
Watkins-Johnson (as so amended, the "Purchase Agreement").
Under the terms of the Purchase Agreement, the Company acquired from
Watkins-Johnson all of its limited liability company interests in Semiconductor
Equipment Group, LLC and the outstanding capital stock of certain foreign
subsidiaries. The acquisition was accounted for as a purchase. The Company made
preliminary payments to Watkins-Johnson of approximately $9,000,000 based upon
certain values of assets and liabilities at December 31, 1998. The purchase
price was adjusted to $2,700,000 based upon the final closing Balance Sheet of
July 2, 1999. The $6,300,000 excess payment to Watkins-Johnson appears in
prepaid expenses and other assets at September 30, 1999 and was refunded in
October 1999. The total purchase price of $3,750,000 included approximately
$1,050,000 in costs directly attributable to the acquisition and was allocated
to the assets acquired and liabilities assumed based on
39
<PAGE> 40
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
their respective fair values. The excess of the net SEG assets over the total
purchase price was used to proportionately reduce the value of material
noncurrent assets acquired.
Also, in connection with the acquisition, $3,450,000 was placed in escrow by
Watkins-Johnson to cover potential claims by the Company. The Company has up to
twelve months from the closing date to file claims for indemnification against
this escrow fund. At the end of this period, the remaining funds, interest and
earnings accrued revert to Watkins-Johnson.
The operating results of SEG have been included in the consolidated statements
of operations since the date of acquisition. Had the acquisition taken place at
the beginning of the periods presented, unaudited pro forma results of
operations would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net sales $705,606 $ 570,636
Net loss (64,728) (22,170)
Diluted loss per share (2.00) (0.67)
</TABLE>
Pro forma financial information is presented for illustrative purposes only and
does not purport to be indicative of the operating results that would have
occurred had the acquisition been effected as of the periods indicated, nor is
it indicative of the future operating results of the Company.
NOTE 3. RESTRUCTURING AND RELATED CHARGES
During the fourth quarter of fiscal 1998, the Company recorded restructuring and
related charges of $33,680,000. The charge includes costs of $28,521,000
resulting from the termination of the Company's previously announced 200-APS
photoresist processing system (the 200-APS charge) and a provision of $5,159,000
for reductions in the Company's workforce that includes severance compensation
and benefit costs for workforce reductions announced in July 1998 ($2,696,000)
and September 1998 ($2,463,000). These workforce reductions were implemented in
response to global weakness in the demand for semiconductor capital equipment as
well as the decision to terminate the 200-APS product.
The 200-APS charge consisted of: the write-off of 200-APS inventory and purchase
commitments, which has been classified as cost of sales; the write-off of fixed
assets that were employed in the 200-APS effort; costs to fulfill obligations to
customers utilizing 200-APS systems, including the cancellation of certain
receivables and the support of such systems through fiscal 2000; and certain
other costs related to exiting the 200-APS program.
Changes to the restructuring accrual in fiscal 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
200-APS
INVENTORY
SEVERANCE AND PURCHASE CUSTOMER OTHER EXIT
AND BENEFITS COMMITMENTS OBLIGATIONS COSTS TOTAL
------------ ----------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 3,006 $ 1,832 $ 2,293 $ 201 $ 7,332
Incurred to date (1,761) (1,832) (2,037) (201) (5,831)
Adjustments (506) -- -- -- (506)
------- ------- ------- ----- -------
Balance at September 30, 1999 $ 739 $ -- $ 256 $ -- $ 995
======= ======= ======= ===== =======
</TABLE>
The Company revised its estimate related to severance and benefits in fiscal
1999. Substantially all employee terminations have been effected as of September
30, 1999, although benefits will continue to be paid during fiscal 2000.
Customer obligations will be concluded in fiscal 2000.
40
<PAGE> 41
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENTS
Investments in debt and equity securities are classified as available for sale
and measured at fair value. Material unrealized gains and losses, net of tax,
are recorded as a separate component of stockholders' equity until realized. At
September 30, 1999 net unrealized gains on investments totaled $435,000.
Investments at September 30 are comprised of the following:
<TABLE>
<CAPTION>
1998 1999
---- ----
MARKET MARKET
(IN THOUSANDS) COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Available for sale:
Institutional money market funds
included in cash and cash equivalents $101,123 $101,123 $ 64,652 $ 64,652
-------- -------- -------- --------
Municipal bonds 25,425 25,425 256 251
Municipal notes -- -- 13,833 13,806
Auction rate preferreds 3,000 3,000 -- --
Market auction preferreds -- -- 4,000 4,000
Certificates of deposit -- -- 5,030 4,985
Foreign debt securities -- -- 2,036 2,000
Corporate bonds -- -- 1,003 1,003
U.S. government agencies -- -- 17,995 17,923
-------- -------- -------- --------
Total included in short-term investments 28,425 28,425 44,153 43,968
-------- -------- -------- --------
Institutional mutual funds
included in deposits and other assets 2,487 2,487 4,610 5,230
-------- -------- -------- --------
Total available for sale $132,035 $132,035 $113,415 $113,850
======== ======== ======== ========
</TABLE>
All of the Company's investments at September 30, 1999 mature within one year.
NOTE 5. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
SEPTEMBER 30 (IN THOUSANDS) 1998 1999
--------- ---------
<S> <C> <C>
Inventories:
Raw materials $ 103,738 $ 83,080
Work-in-process 103,362 115,172
Finished goods 5,875 2,517
--------- ---------
Total $ 212,975 $ 200,769
========= =========
Property and equipment:
Land and improvements $ 11,494 $ 19,351
Buildings and improvements 74,822 87,645
Machinery and equipment 172,584 195,944
Furniture and fixtures 36,114 41,554
Leasehold improvements 24,220 26,611
--------- ---------
Total 319,234 371,105
--------- ---------
Accumulated depreciation and amortization (128,212) (172,702)
--------- ---------
Property and equipment, net $ 191,022 $ 198,403
========= =========
</TABLE>
41
<PAGE> 42
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Intangible assets:
Goodwill $ 6,019 $ 5,705
Purchased technology 1,000 --
7,019 5,705
-------- --------
Accumulated amortization (3,283) (2,445)
-------- --------
Total $ 3,736 $ 3,260
======== ========
Accrued liabilities:
Compensation $ 28,792 $ 23,853
Product warranty 48,943 53,746
Customer deposits and advances 31,452 23,131
Restructuring and related charges 7,332 995
Other 14,013 21,541
-------- --------
Total $130,532 $123,266
======== ========
</TABLE>
NOTE 6. SVG LITHOGRAPHY SYSTEMS, INC.
Through March 17, 1997, the Company owned 94% of SVG Lithography Systems, Inc.
(SVGL) and International Business Machines, Inc. (IBM) owned the remaining 6%.
The minority interest reflected in the Consolidated Statement of Operations
represented that share of SVGL's operating results which were attributable to
IBM. On March 18, 1997, the Company purchased IBM's 6% interest in SVGL for
$3,000,000. As a result, the Company now accounts for SVGL as a wholly-owned
subsidiary.
NOTE 7. SETTLEMENT OF ROYALTY OBLIGATION
Under the terms of a research and development agreement, SVGL owed IBM certain
royalties based on future operating results. On March 18, 1997, the Company
satisfied this royalty obligation to IBM in exchange for $5,000,000 in cash,
489,296 shares of common stock valued at $10,000,000 and $23,000,000 in SVGL
product. Of the $38,000,000 total, $32,582,000 related to products currently
under development and was recognized as an expense in the second quarter of
fiscal 1997, and $5,418,000 related to existing products and was recorded as a
prepayment which is being amortized to expense through fiscal year 2000.
NOTE 8. DEBT ARRANGEMENTS
On June 30, 1998, the Company entered into an unsecured $150,000,000 bank
revolving line of credit agreement, which expires June 30, 2001. Advances under
the line bear interest at the bank's prime rate (8.25% at September 30, 1999) or
0.65% to 1.50% over LIBOR (6.13% at September 30, 1999). The agreement includes
covenants regarding liquidity, profitability, leverage, coverage of certain
charges and minimum net worth and prohibits the payment of cash dividends. On
October 23, 1998 and May 14, 1999, certain of the covenants were amended to
reflect the effects of the acquisition of SEG (See Note 2) and change quarterly
profitability covenants. The Company is in compliance with the covenants as
amended and there were no outstanding borrowings under this facility at
September 30, 1999.
In February 1997, the Company received a $6,500,000 loan from the Connecticut
Development Authority. The loan has a ten year term, bears interest at 8.25%,
and is secured by the Company's Wilton, Connecticut facility which houses
certain operations of SVGL.
Tinsley Laboratories, Inc. (TLI) has two loans and one special assessment bond
outstanding, which bear interest at rates between 8.5% and 12% with maturity
dates through April 2007.
In 1999, the Company assumed three Yen-denominated loans in connection with the
acquisition of SEG (See Note 2). Approximately $7,700,000 (Y804.6 million),
which is secured by land and buildings in Japan, is payable in monthly
installments through the year 2011, bearing interest at 2.5%. Approximately
$13,000,000 (Y1,350.0 million) and $2,000,000 (Y200.0 million) are unsecured and
require a payment in 2006 and 2007, respectively, bearing interest at 3.1% and
2.2%, respectively, payable semiannually.
42
<PAGE> 43
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest rates on substantially all of the Company's debt reflect current market
rates, therefore the carrying value of the Company's debt approximates fair
value.
Long-term debt balances at September 30, consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Connecticut Development Authority loan $ 5,791 $ 5,294
TLI loans and special assessment bonds 714 512
Japanese Yen-denominated bank loans -- 22,604
-------- --------
6,505 28,410
Less current portion (640) (1,620)
-------- --------
$ 5,865 $ 26,790
======== ========
</TABLE>
Interest payments were $488,000 in 1997, $655,000 in 1998 and $662,000 in 1999.
At September 30, 1999, aggregate debt maturities were approximately: $1,620,000
in fiscal 2000; $1,309,000 in fiscal 2001; $1,354,000 fiscal 2002; $1,384,000 in
fiscal 2003; $1,443,000 in 2004; and $21,300,000 thereafter.
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company's profit-sharing plan provides quarterly distributions to eligible
employees as determined by the Board of Directors. Profit-sharing distributions
were $1,172,000 in 1997, and $1,623,000 in 1998. No profit-sharing distributions
were made in fiscal 1999.
Under the Company's Cash or Deferred Profit Sharing Plan (401(k) Plan), the
Company may make contributions, depending on the amount of the employee's
contribution, up to a maximum of 3% of compensation. The Company's contributions
were $3,135,000 in 1997, $3,407,000 in 1998 and $3,432,000 in 1999.
In February 1997, the Company adopted a non-qualified deferred compensation plan
that allows a select group of management or highly compensated Employees and
Directors to defer a portion of their salary, bonus and other benefits. The plan
is unfunded and amounts due participants represent general obligations of the
Company. The Company may credit additional amounts to participants' account
balances, depending on the amount of the employee's contribution, up to a
maximum of 5% of an employee's annual salary and bonus. In addition, interest is
credited to the participants' account balances at 120% of the average Moody's
corporate bond rate. For 1999, participants' accounts will be credited at 7.18%.
Company contributions and related interest become 100% vested five years after
the plan year in which the contribution was made. During fiscal 1997, 1998 and
1999, the Company's expense was $609,000, $878,000 and $774,000, respectively,
and at September 30, 1999, the Company's liability under the deferred
compensation plan was $5,227,000.
Additionally, the Company assumed unfunded salary continuation agreements with
certain key executives and employees of TLI. Under the terms of the agreement,
the Company has agreed to pay certain fixed amounts over a ten year period after
the employees reach the age of 65. Payments began vesting December 1990 and
become fully vested only if the participants remain employed by the Company
through the age of 65. The present value of these payments, calculated using a
discount rate of 6% is being charged ratably to expense over the vesting period.
During fiscal 1997, 1998, and 1999 the Company had related expenses of $32,000,
$14,000, and $21,000, respectively, and at September 30, 1999, the Company's
liability under these agreements was $532,000.
At September 30, 1999, four officers of the Company had employment agreements
that provide, in the event of disability, death, or termination meeting certain
criteria, for severance payments based on a multiple of their then-current
compensation. At September 30, 1999, the aggregate potential payments under
these agreements would have been approximately $5,500,000.
The Company also assumed the defined benefit pension plan of TLI. The plan had
previously been terminated during 1995 and the Company is currently in the
process of finalizing the termination process. At September 30, 1998 and 1999,
the Company had recorded a minimum pension liability of $274,000 and $312,000,
respectively, within stockholders' equity, net of income taxes, which is based
upon the excess of the estimated accumulated benefit obligation of $1,705,000
and $2,174,000, respectively, over the fair
43
<PAGE> 44
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market value of plan assets (primarily corporate bond mutual funds) of
$1,510,000 and $1,513,000, respectively. Upon finalization of the plan
termination, the minimum pension liability will be charged to the statement of
operations.
NOTE 10. INCOME TAXES
The provision (benefit) for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Current:
Federal $(1,218) $ 478 $ (2,500)
State 1,433 1,252 --
Foreign 351 1,840 2,140
------- -------- --------
Total current 566 3,570 (360)
------- -------- --------
Deferred:
Federal (293) (14,720) (9,921)
State 1,241 (2,430) (1,699)
------- -------- --------
Total Deferred 948 (17,150) (11,620)
------- -------- --------
$ 1,514 $(13,580) $(11,980)
======= ======== ========
</TABLE>
Domestic and foreign income (loss) before income taxes and minority interest is
as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Domestic $ 3,898 $(30,925) $(43,762)
Foreign 300 3,768 6,326
-------- -------- --------
$ 4,198 $(27,157) $(37,436)
======== ======== ========
</TABLE>
The effective tax rate differs from the Federal statutory rate as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Statutory rate $ 1,469 $ (9,505) $(13,103)
State taxes, net of Federal effect 200 (1,178) (486)
Foreign taxes at differing rates 268 (51) 395
FSC commission (464) (1,437) --
Tax exempt interest (2,284) (1,799) (360)
Settlement of royalty obligation 1,500 -- --
Other 825 390 1,574
------- -------- --------
Total $ 1,514 $(13,580) $(11,980)
======= ======== ========
</TABLE>
The items giving rise to deferred taxes were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not recognized for tax purposes $ 28,907 $ 37,256
Net operating loss carryforwards 3,130 7,530
Accelerated depreciation 273 (497)
-------- --------
Total deferred tax assets 32,310 44,289
Valuation allowance (9,297) (9,297)
-------- --------
Total $ 23,013 $ 34,992
======== ========
</TABLE>
44
<PAGE> 45
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components giving rise to the net deferred tax asset described above have
been included in the accompanying consolidated balance sheet as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1999
------- -------
<S> <C> <C>
Current assets $22,740 $35,489
Deposits and other assets 273 --
Deferred and other liabilities -- (497)
</TABLE>
At September 30, 1999, the Company had approximately $11,300,000 and $4,200,000
of federal and state loss carryforwards available to offset future income. These
losses begin to expire in year 2004. Additionally, approximately $7,900,000 of
federal loss carryforwards were available to offset future federal taxable
income generated by SVGL, through the year 2007, subject to certain limitations.
The valuation allowance relates to the net deferred tax assets of SVGL.
In 1997 and 1998, the Company made income tax payments of $2,882,000, and
$16,878,000 respectively. In 1999, income tax refunds were $13,207,000.
NOTE 11. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK. On May 5, 1999 Intel Corporation (Intel) made a
$15,000,000 equity investment in the Company in the form of a purchase of 15,000
shares of newly issued non-voting Series 1 Convertible Preferred Stock (Series 1
Preferred). The Series 1 Preferred investment is convertible into 1,111,111
shares of the Company's common stock subject to adjustments for events of
dilution in certain circumstances such as stock splits or dividends. Intel has
the option to convert, at any time, it's Series 1 Preferred into shares of the
Company's common stock.
In connection with the Series 1 Preferred investment, Intel and the Company
entered into an agreement for the development of 157-nanometer lithography
technology. This agreement obligates the Company, among other things, to develop
and sell to Intel a predetermined number of initial development tools. Intel has
agreed to provide advance payments for the development and manufacture of these
machines based on predetermined milestones. Under certain conditions, the
Company is obligated to dedicate a certain amount of 157-nanometer unit
production output to Intel. The Company is required to use the proceeds from the
Series 1 Preferred investment and funds received under this development
agreement for the development of technology for use on 157-nanometer lithography
equipment.
PREFERRED SHARES PURCHASE RIGHTS. In September 1996, the Company's Board of
Directors adopted a plan for the distribution of one Preferred Shares Purchase
Right (the Rights) to the holder of each outstanding share of the Company's
common stock. The rights expire in September 2006 and are not exercisable until
a person or group announces the acquisition of 15% or more of the Company's
outstanding common stock, or the commencement of a tender or exchange offer for
15% or more of the Company's common stock. Each Right entitles its holder to
purchase 1/1000 of one new share of the Company's Series A Participating
Preferred Stock at an exercise price of $125, subject to certain antidilution
adjustments. Additionally, a holder would be entitled, under certain
circumstances, to purchase shares of common stock of the Company or, in other
cases, of the acquiring company, having a market value of twice the exercise
price of the Right. Under certain conditions, the Company may redeem the Rights
for a price of $0.01 per Right or exchange each Right not held by the acquirer
for one share of the Company's common stock.
NOTE 12. STOCK OPTION AND PURCHASE PLANS
Under the Company's stock option plans, the Board of Directors may, at its
discretion, grant incentive or nonqualified stock options to employees and
directors, and options are automatically granted annually to directors who are
not employees of the Company. Options may be granted with a period not to exceed
ten years from the date of grant, at prices at least equal to the fair market
value of common stock at the grant date, and vest and become exercisable
generally over a period of up to five years.
45
<PAGE> 46
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity under the plans is as follows (shares in thousands):
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER OPTION EXERCISE PRICE
------------ --------------
<S> <C> <C>
Balances, October 1, 1996 2,127 $13.02
Granted 823 25.03
Exercised (372) 10.34
Canceled (117) 17.94
----- ------
Balances, September 30, 1997 2,461 16.97
Granted 1,121 21.64
Exercised (158) 5.47
Canceled (218) 20.24
----- ------
Balances, September 30, 1998 3,206 18.93
Granted 1,502 13.35
Exercised (215) 6.73
Canceled (173) 19.34
----- ------
Balances, September 30, 1999 4,320 $17.60
===== ======
</TABLE>
The following table summarizes information concerning options outstanding and
exercisable as of September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.66 - $15.00 1,965,754 6.53 $12.88 644,823 $11.61
16.13 717,212 3.79 16.13 524,515 16.13
16.63 - 20.63 653,527 7.97 20.25 215,825 19.90
$21.25 - $32.69 983,051 6.30 26.36 418,665 26.26
--------- ---- ------ --------- ------
Total 4,319,544 6.24 $17.60 1,803,828 $17.31
========= ==== ====== ========= ======
</TABLE>
At September 30, 1999, approximately 5,567,120 options to purchase common stock
were authorized, with 1,247,576 options available for future grant.
Under the Company's Employee Stock Purchase Plan, 2,950,000 shares of common
stock were reserved for issuance of which 1,915,354 had been issued at September
30, 1999. The plan permits eligible employees to purchase, through payroll
deductions, common stock at 85% of the lower of the fair market value of the
common stock on the first or last day of the offering period. The plan has
offering periods of twelve months, with a new twelve-month period beginning each
April 1 and October 1.
PRO FORMA NET INCOME AND EARNINGS PER SHARE. The Company has elected to continue
following APB No. 25, in accounting for its employee stock options. Under APB
No. 25, because the exercise price of the Company's employee options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized in the Company's financial statements.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123. This information is required to be determined as if the Company
had accounted for its employee stock options (including shares under the
Employee Stock Purchase Plan) granted subsequent to September 30, 1995 under the
fair value method of that statement.
The fair value of options was estimated at the date of grant using the
Black-Scholes option pricing model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and which are
46
<PAGE> 47
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fully transferable. In addition, the Black-Scholes model requires the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock option and stock purchase plans have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company's
stock-based awards to employees. The fair value of the stock option plan and the
stock purchase plan was estimated assuming no expected dividends and the
following weighted average assumptions
<TABLE>
<CAPTION>
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Stock option plan:
Expected stock price volatility 56% 64% 69%
Risk free interest rate 6.4% 6.0% 4.9%
Expected life of options after vesting:
Officers and directors 2 years 7.2 months 1 month
All others 9 months 7.3 months 1.7 months
Stock purchase plan:
Expected stock price volatility 56% 60% 67%
Risk free interest rate 5.8% 6.0% 5.3%
Expected life of options 1 year 1 year 1 year
</TABLE>
The Company's calculations are based on a multiple option valuation approach and
recognition of forfeitures as they occur. The weighted average fair value of
options granted during the fiscal 1997, 1998 and 1999 was approximately $12.57,
$9.85 and $4.18 per share, respectively. The weighted average fair value of
purchase rights granted in fiscal 1997, 1998 and 1999 was approximately $8.76,
$7.68 and $5.94 per share, respectively.
For purposes of pro forma disclosures required by SFAS No. 123, the estimated
fair value of the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows (in thousands except for
earnings per share information):
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Proforma net loss $(3,738) $(21,116) $(34,006)
Proforma loss per share--basic (0.12) (0.65) (1.03)
Proforma loss per share--diluted (0.12) (0.65) (1.03)
</TABLE>
For pro forma purposes in accordance with SFAS No. 123, the repricing of
employee stock options during 1996 is treated as a modification of the
stock-based award, with the original options being repurchased and new options
granted. Any additional compensation arising from the modification is recognized
over the remaining vesting period of the new grant. SFAS 123 is effective for
stock-based awards granted by the Company commencing October 1, 1995. All
stock-based awards granted before October 1, 1995, have not been valued and no
pro forma compensation expense has been recognized. However, any option granted
before October 1, 1995 that was repriced in 1996 is treated as a new grant
within 1996 and valued accordingly. In addition, because compensation expense is
recognized over the vesting period of the option, the initial impact on pro
forma income may not be representative of pro forma compensation expense in
future years.
47
<PAGE> 48
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. COMMITMENTS
Future minimum lease payments for operating leases for the years ended September
30 (primarily facilities) are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 7,149
2001 5,948
2002 5,604
2003 5,201
2004 24,250
Thereafter through 2010 1,196
-------
Total $49,348
=======
</TABLE>
Rent expense was $7,009,000, $7,006,000 and $7,360,000 in 1997, 1998 and 1999,
respectively.
During 1999, the Company entered into two synthetic lease agreements for
facilities in San Jose and for the Scotts Valley facility (See Note 2). Both
leases are for a five-year term. Monthly rent payments are variable at 0.61% to
2.0% over LIBOR. For the Scotts Valley facility, the Company entered into an
interest rate swap contract to fix the interest rate and, therefore, the lease
payment. Under the terms of the leases, the Company, at its option, can acquire
the properties at their original cost or arrange for properties to be acquired.
If the Company does not purchase the properties by the end of the lease terms,
the Company will be contingently liable to the lessors for residual value
guarantees of approximately $8,400,000 and $12,125,000 respectively (included in
future minimum lease payments above). In addition, under the terms of the
leases, the Company must maintain compliance with certain financial covenants.
As of September 30, 1999, the Company was in compliance with all of its
covenants. Management believes that the contingent liability related to the
residual value guarantees does not currently have a material adverse effect on
the Company's financial position or results of operations.
NOTE 14. RESEARCH AND DEVELOPMENT AGREEMENTS
The Company, primarily through SVGL, has obtained research and development
funding from outside parties. Under the research and development agreements, the
Company receives payments based on meeting specified product development
milestones and retains ownership of the developed technology and products. The
Company does not anticipate that such funding will cover the entire cost of the
development efforts to which it pertains. Therefore, it is recorded as a
reduction of research, development, and related engineering, in amounts
approximating the percentage of costs incurred to date to the total estimated
costs of such development efforts.
The Company incurred costs of $40,227,000 in 1997, $12,842,000 in 1998 and
$9,231,000 in 1999 relating to such product development and recognized
$7,968,000, $11,997,000 and $2,902,000, respectively, in related funding.
During fiscal 1996, the Company entered into agreements with certain customers
(the Participants) whereby each agreed to assist in funding the Company's
development of an advanced technology 193-nanometer Micrascan system. In
exchange for such funding the Participants receive the right to purchase one
such system and in addition, receive a right of first refusal (ratable among
such participants) to all such machines manufactured during the first two years
following the initial system shipments. For each initial system ordered, each
Participant agreed to fund $5,000,000 in such development costs. The agreements
call for each Participant to pay $1,000,000 of initial development funding and
four subsequent payments of $1,000,000 upon the completion of certain
development milestones. The participants may withdraw from the development
program without penalty but payments made against completed development
milestones are not refundable and all preferential rights to future equipment
are forfeited. As of September 30, 1999, the Company had received $20,000,000 in
funding from six Participants, all of which had been recognized and offset
against research and development expenditures. During fiscal 1999 all but one of
the Participants withdrew from the development program and the Company shipped a
193-nanometer Micrascan system to the remaining Participant. The Company's
obligations under these agreements are complete, and no additional funding is
expected from the Participants.
48
<PAGE> 49
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. GEOGRAPHIC SEGMENTS
The Company's products are manufactured in the United States and are sold
worldwide. The Company designs, manufactures, markets and services semiconductor
wafer processing equipment used in the fabrication of integrated circuits. All
operating units are aggregated into one segment because of their similarities in
the nature of products and services, production processes, types of customers,
and distribution method. The Company markets internationally through both its
foreign-based sales and service operations and through outside distributors and
sales representatives.
One customer accounted for 36% of sales in 1997, 40% of sales in 1998, and 56%
of sales in 1999; a second customer accounted for 22% of sales in 1997, 17% of
sales in 1998 and 7% of sales in 1999; and a third customer accounted for 6% of
sales in 1997, 13% of sales in 1998 and 6% of sales in 1999.
The following table summarizes total net sales and long-lived assets attributed
to significant countries as of and for the years ended September 30 (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States $442,314 $393,375 $322,095
France 53,600 44,240 13,059
Ireland 3,180 86,465 20,641
Israel 65 11,183 51,481
Other 115,067 73,362 66,414
-------- -------- --------
Total net sales $614,226 $608,625 $473,690
======== ========= ========
Long-lived assets:
United States $157,289 $195,272 $185,187
Japan 536 489 18,341
Other 2,548 2,307 1,477
-------- -------- --------
Total long-lived assets $160,373 $198,068 $205,005
======== ======== ========
</TABLE>
Net sales are attributed to countries based upon the shipment destinations and
service locations of systems. Long-lived assets consist of net property and
equipment, deposits and other assets, and net intangible assets, excluding
long-term investments and long-term deferred tax assets. Export sales were 23%
of net sales in 1997, 29% of net sales in 1998, and 20% of net sales in 1999.
NOTE 16. ACQUISITION OF TINSLEY LABORATORIES, INC.
On November 26, 1997, the Company acquired Tinsley Laboratories, Inc. (TLI) in a
stock for stock transaction whereby approximately 1,091,000 shares of the
Company's common stock were exchanged for all outstanding shares of TLI common
stock. TLI designs, manufacturers and sells precision optical components,
assemblies and systems to customers in a variety of industries and research
endeavors. The transaction was accounted for as a pooling of interests for
financial reporting purposes. All prior periods have been restated to include
TLI financial results.
49
<PAGE> 50
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. LEGAL MATTERS
On or about August 12, 1998, Fullman International Inc. and Fullman Company LLC
(collectively, Fullman) initiated a lawsuit in the United States District
Court for the District of Oregon alleging claims for fraudulent conveyance,
constructive trust and declaratory relief in connection with a settlement the
Company had previously entered into resolving its claims against a Thailand
purchaser of the Company's equipment. In its complaint against the Company,
Fullman, allegedly another creditor of the Thailand purchaser, alleges damages
of approximately $11,500,000 plus interest. The Company has successfully moved
to transfer the case to the United States District Court for the Northern
District of California. The trial is tentatively scheduled for July 2000.
While the outcome of such litigation is uncertain, the Company believes it has
meritorious defenses to the claims and intends to conduct a vigorous defense.
However, an unfavorable outcome in this matter could have a material adverse
effect on the Company's financial condition.
In addition to the above, the Company, from time to time, is party to various
legal actions arising out of the normal course of business. The resolution of
such matters, and the Fullman litigation, are not expected to have a material
adverse effect on the Company's financial position or operating results.
NOTE 18. SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
Net sales $ 85,487 $ 61,496 $136,894 $189,813
Gross profit 24,030 14,170 47,860 75,311
Income (loss) before income taxes (10,353) (26,450) (3,037) 2,404
Net income (loss) (7,032) (17,994) (2,065) 1,635
Net income (loss) per share--basic (0.21) (0.55) (0.06) .05
Net income (loss) per share--diluted (0.21) (0.55) (0.06) .05
1998
Net sales $188,707 $195,872 $116,385 $107,661
Gross profit 74,388 77,514 38,088 10,239
Income (loss) before income taxes 17,860 14,059 (11,357) (47,719)
Net income (loss) 12,145 9,560 (6,817) (28,465)
Net income (loss) per share--basic 0.38 0.30 (0.21) (0.87)
Net income (loss) per share--diluted 0.37 0.29 (0.21) (0.87)
</TABLE>
50
<PAGE> 51
ITEM 8A. THE COMPANY'S FISCAL YEAR
The Company observes a 52-53 week fiscal year ending on the Friday closest
to September 30. Under this practice, the Company's last three fiscal years
ended October 3, 1997, October 2, 1998 and October 1, 1999. For convenience,
this Report and the Company's Consolidated Financial Statements refer to all
such fiscal years as ending at September 30. Fiscal 1998 and fiscal 1999 each
included 52 weeks. Fiscal 1997 included 53 weeks.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file its definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on February 23, 2000, pursuant to Regulation 14A of
the Securities Exchange Act of 1934 (the "Proxy Statement"), not later than 120
days after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Executive Officers. See the section entitled "Executive Officers of the
Registrant" in Part I, Item 1 of this Report.
(b) Directors. The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
section entitled "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to the
section entitled "Stock Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The financial statements (including the notes thereto) listed in the Index
to Consolidated Financial Statements and Financial Statements Schedule (set
forth in Item 8 of Part II of this Form 10-K) are filed within this Annual
Report on Form 10-K.
2. SUPPLEMENTAL SCHEDULE.
The financial statement schedule listed in the Index to Consolidated
Financial Statements and Financial Statements Schedule (set forth in Item 8 of
Part II of this Form 10-K) is filed within this Annual Report on Form 10-K.
51
<PAGE> 52
3. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
10.50 Amendment to Employment Agreement between the Registrant and
Papken S. Der Torossian dated June 7, 1999.*
10.51 Amendment to Employment Agreement between the Registrant and
William A. Hightower dated June 7, 1999.*
10.52 Amendment to Employment Agreement between the Registrant and
Russell G. Weinstock dated June 7, 1999.*
10.53 Amendment to Employment Agreement between the Registrant and
Boris Lipkin dated June 7, 1999.*
10.54 Participation Agreement by and among SELCO Service Corporation,
the Registrant and KeyBank National Association, as agent for the
participants named therein, dated June 30, 1999.
10.55 Purchase Agreement between SELCO Service Corporation and the
Registrant, dated June 30, 1999.
10.56 Lease Agreement, Deed of Trust with Assignment of Rents, Security
Agreement and Fixture Filing between SELCO Service Corporation
and the Registrant, dated June 30, 1999.
10.57 Loan Agreement dated as of February 9, 1996 (English Translation)
between Watkins-Johnson International Japan K.K. and The Bank of
Yokoyama Ltd., including Loan Guaranty Agreement by the
Registrant effective July 6, 1999.
10.58 Loan Agreement dated as of June 12, 1996 (English Translation)
between Watkins-Johnson International Japan K.K. and The Japan
Development Bank, including Loan Guaranty Agreement by the
Registrant effective July 6, 1999.
10.59 Loan and Relocation Agreement between the Registrant and Jeffrey
Kowalski dated August 31, 1999.*
21.1 Registrant's wholly-owned subsidiaries.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney (see page 54)
27 Financial Data Schedule.
</TABLE>
- ----------------
* Management contract or compensatory plans or arrangements
(b) REPORTS ON FORM 8-K.
The Company filed reports on Form 8-K on July 16, 1999 and an amended
Form 8-KA on September 17, 1999 in connection with the acquisition of
the Semiconductor Equipment Group of Watkins-Johnson Company. Included
in the Form 8-K are financial statements for the Company and for the
Semiconductor Equipment Group of Watkins-Johnson Company.
(c) EXHIBITS. See (a) above.
(d) FINANCIAL STATEMENT SCHEDULES. See (a) above.
52
<PAGE> 53
SILICON VALLEY GROUP
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COSTS AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
--------- -------- ------------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED 9/30/97:
Allowance for Doubtful Accounts.................. $ 6,078 $ 7,725 $ (7,009) $ 6,794
Product Warranty Reserves........................ 42,899 42,320 (41,685) 43,534
YEAR ENDED 9/30/98:
Allowance for Doubtful Accounts.................. 6,794 3,273 (1,835) 8,232
Product Warranty Reserves........................ 43,534 64,138 (58,729) 48,943
YEAR ENDED 9/30/99:
Allowance for Doubtful Accounts.................. 8,232 (2,579)(3) (615) 5,038
Product Warranty Reserves........................ 48,943 46,371 (2) (41,568) 53,746
</TABLE>
- ----------
(1) Write-offs of uncollectible accounts and costs incurred for warranty
repairs.
(2) Includes $7,076,000 in product warranty reserves acquired from
Watkins-Johnson Company's Semiconductor Equipment Group (See Note 2 of the
Consolidated Financial Statements included in Item 8).
(3) Includes approximately $2,800,000 of recoveries of previously reserved
amounts.
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
December 22, 1999
SILICON VALLEY GROUP, INC.
By: /s/ PAPKEN S. DER TOROSSIAN
-------------------------------------
Papken S. Der Torossian
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Papken S. Der Torossian and Russell G. Weinstock,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this report
on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ PAPKEN S. DER TOROSSIAN Chairman of the Board, December 22, 1999
- ----------------------------------- Chief Executive Officer
Papken S. Der Torossian And Director (Principal
Executive Officer)
/s/ WILLIAM A. HIGHTOWER President Chief December 22, 1999
- ----------------------------------- Operating Officer and Director
William A. Hightower
/s/ RUSSELL G. WEINSTOCK Vice President, Finance December 22, 1999
- ----------------------------------- And Chief Financial
Russell G. Weinstock Officer (Principal Financial
And Accounting Officer)
/s/ MICHAEL J. ATTARDO Director December 22, 1999
- -----------------------------------
Michael J. Attardo
/s/ WILLIAM L. MARTIN Director December 22, 1999
- -----------------------------------
William L. Martin
/s/ NAM P. SUH Director December 22, 1999
- -------------------------------------
Nam P. Suh
Director
- -------------------------------------
Kenneth M. Thompson
/s/ LAWRENCE TOMLINSON Director December 22, 1999
- -------------------------------------
Lawrence Tomlinson
</TABLE>
54
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
10.50 Amendment to Employment Agreement between the Registrant and
Papken S. Der Torossian dated June 7, 1999.*
10.51 Amendment to Employment Agreement between the Registrant and
William A. Hightower dated June 7, 1999.*
10.52 Amendment to Employment Agreement between the Registrant and
Russell G. Weinstock dated June 7, 1999.*
10.53 Amendment to Employment Agreement between the Registrant and
Boris Lipkin dated June 7, 1999.*
10.54 Participation Agreement by and among SELCO Service Corporation,
the Registrant and KeyBank National Association, as agent for the
participants named therein, dated June 30, 1999.
10.55 Purchase Agreement between SELCO Service Corporation and the
Registrant, dated June 30, 1999.
10.56 Lease Agreement, Deed of Trust with Assignment of Rents, Security
Agreement and Fixture Filing between SELCO Service Corporation
and the Registrant, dated June 30, 1999.
10.57 Loan Agreement dated as of February 9, 1996 (English Translation)
between Watkins-Johnson International Japan K.K. and The Bank of
Yokoyama Ltd., including Loan Guaranty Agreement by the
Registrant effective July 6, 1999.
10.58 Loan Agreement dated as of June 12, 1996 (English Translation)
between Watkins-Johnson International Japan K.K. and The Japan
Development Bank, including Loan Guaranty Agreement by the
Registrant effective July 6, 1999.
10.59 Loan and Relocation Agreement between the Registrant and Jeffrey
Kowalski dated August 31, 1999.*
21.1 Registrant's wholly-owned subsidiaries.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney (see page 54)
27 Financial Data Schedule.
</TABLE>
- ----------------
* Management contract or compensatory plans or arrangements
<PAGE> 1
EXHIBIT 10.50
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, is effective as of this __ day of June, 1999, by and
between Papken S. Der Torossian (the "Employee") and Silicon Valley Group, Inc.,
a Delaware corporation (the "Corporation").
It is the intent of the parties that this Agreement shall supersede and
replace that certain Employment Agreement by and between the parties dated as of
August 1, 1994.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Corporation, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Corporation agrees to employ the Employee for the
term of his employment under this Agreement in the position of Chief Executive
Officer, as such position was defined in terms of responsibilities and
compensation as of the effective date of this Agreement.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time to the
Corporation and its subsidiaries. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious activities
or from devoting a reasonable amount of time to private investments or from
serving on the boards of directors of other entities, as long as such activities
and service do not interfere or conflict with his responsibilities to the
Corporation.
2. Base Compensation. During the term of his employment under this
Agreement, the Corporation agrees to pay the Employee as compensation for his
services a base salary at the annual rate of $600,000, or at such higher rate as
the Corporation's Board of Directors may determine from time to time, along with
such performance bonus amounts and car allowances, if any, as the Board shall
authorize, in its discretion, from time to time. Such salary shall be payable in
approximately equal bi-weekly installments. (The annual compensation specified
in this Section 2, together with any increases in such compensation that the
Board of Directors may grant from time to time, is referred to in this Agreement
as "Base Compensation.")
<PAGE> 2
3. Employee Benefits.
(a) General. During the term of his employment under this Agreement,
the Employee shall be eligible to participate in the employee benefit plans and
executive compensation programs maintained by the Corporation, including
(without limitation) pension plans, savings or profit-sharing plans, deferred
compensation plans, supplemental retirement or excess-benefit plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee administering such
plan or program.
(b) Stock Options. The Corporation has granted to the Employee
options to purchase certain shares of the Common Stock of the Corporation. The
terms of the options shall be governed by the Corporation's Stock Option
Agreement attached hereto as Exhibit A.
4. Business Expenses and Travel. During the term of his employment
under this Agreement, the Employee shall be authorized to incur necessary and
reasonable travel, entertainment and other business expenses in connection with
his duties hereunder. The Corporation shall reimburse the Employee for such
expenses upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Corporation's generally applicable
policies.
5. Term of Employment.
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from the effective date of this Agreement until the date when the
Employee's employment terminates pursuant to the provisions of this Agreement.
(b) Termination by the Corporation. The Corporation may terminate
Employee's employment at any time, for any reason whatsoever, by giving the
Employee thirty (30) days' advance notice in writing.
-2-
<PAGE> 3
(i) Termination Without Cause. If the Corporation terminates
Employee's employment without Cause, the provisions of Section 6(a) shall apply.
(ii) Termination Upon Disability. If the Corporation terminates
the Employee's employment for Disability, the provisions of Section 6(a) shall
apply. For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to perform his duties
under this Agreement for a period of not less than six consecutive months as the
result of his incapacity due to physical or mental illness. In the event that
the Employee resumes the performance of substantially all of his duties
hereunder before the termination of his employment under this subsection (ii)
becomes effective, the notice of termination shall automatically be deemed to
have been revoked.
(iii) Termination Within Twelve (12) Months of a Change in
Control. If the Corporation terminates Employee's employment within twelve (12)
months after a Change in Control, whether such termination is with or without
Cause, is due to Employee's death or Disability, or constitutes a Constructive
Termination (as defined in Section 5(c) below), the provisions of Sections 6(a)
and 6(b) shall apply. For all purposes under this Agreement, "Change in Control"
shall mean the occurrence of any of the following events:
(x) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Corporation representing fifty percent (50%) or
more of the total voting power represented by the Corporation's then outstanding
voting securities except pursuant to a negotiated agreement with the Corporation
and pursuant to which such securities are purchased from the Corporation; or
(y) A change in the composition of the Board of Directors
of the Corporation, as a result of which fewer than a majority of the incumbent
directors are directors who either (A) had been directors of the Corporation
thirty-six (36) months prior to such change or (B) were elected, or nominated
for election, to the Board of Directors of the Corporation with the affirmative
votes of at least a majority of the directors who had been directors of the
Corporation
-3-
<PAGE> 4
thirty-six (36) months prior to such change and who were still in office at the
time of the election or nomination; or
(z) The shareholders of the Corporation approve a merger
or consolidation of the Corporation with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the corporation approve a plan of complete liquidation of the Corporation or
an agreement for the sale or disposition by the Corporation of all or
substantially all the Corporation's assets.
Any other provision of this Section notwithstanding, the term "Change
in Control" shall not include either of the following events undertaken at the
election of the Corporation:
(1) Any transaction, the sole purpose of which is to
change the state of the Corporation's incorporation;
(2) A transaction, the result of which is to sell all or
substantially all of the assets of the Corporation to another corporation (the
"surviving corporation"); provided that the surviving corporation is owned
directly or indirectly by the shareholders of the Corporation immediately
following such transaction in substantially the same proportions as their
ownership of the Corporation's common stock immediately preceding such
transaction; and provided, further, that the surviving corporation expressly
assumes this Agreement.
(iv) Death. Upon the event of the Employee's death, Employee's
employment with the Corporation shall be considered automatically terminated and
the provisions of Section 6(a) shall apply.
(v) Termination for Cause. Except as set forth in Section
5(b)(iii), if the Corporation terminates Employee's employment for Cause, the
provisions of Section 6(c) shall apply. For all purposes under this Agreement,
"Cause" shall mean (i) a willful failure by the
-4-
<PAGE> 5
Employee to substantially perform his duties hereunder (other than a failure
resulting from the Employee's complete or partial incapacity due to physical or
mental illness or impairment) after there has been delivered to Employee a
written demand for performance from the Company which describes the basis for
the Company's belief that Employee has not substantially performed his duties
and sets forth specific performance goals to cure such defaults; provided that
upon any determination by the Company that Employee has willfully failed to
perform his duties, Employee shall have 120 days in which to cure such willful
failure to perform his duties, (ii) a willful act by the Employee which
constitutes gross misconduct and which is injurious to the Corporation, (iii) a
willful breach by the Employee of a material provision of this Agreement, or
(iv) a material and willful violation of a federal or state law or regulation
applicable to the business of the Corporation. No act, or failure to act, by the
Employee shall be considered "willful" unless committed without good faith and
without a reasonable belief that the act or omission was in the Corporation's
best interest.
(c) Voluntary Termination by the Employee. The Employee may
terminate his employment by giving the Corporation thirty (30) days' advance
notice in writing. If the Employee terminates his employment under the preceding
sentence other than as a result of a Constructive Termination, the provisions of
Section 6(d) shall apply. If the Employee terminates his employment pursuant to
this Section 5(c) as a result of a Constructive Termination, the provisions of
Section 6(a) shall apply. For all purposes under this Agreement, "Constructive
Termination" shall mean any of the following: a material reduction in salary or
benefits, a material change in responsibilities, or a requirement to relocate,
except for office relocations that would not increase the Employee's one-way
commute distance by more than forty (40) miles.
(d) Waiver of Notice. Any waiver of notice shall be valid only if it
is made in writing and expressly refers to the applicable notice requirement in
this Section 5.
6. Payments Upon Termination of Employment.
(a) Payments Upon Termination Pursuant to Section 5(b)(i)-(iv) and
Constructive Termination. If, during the term of this Agreement, the Employee's
employment is terminated pursuant to any of the reasons set forth in Section
5(b)(i)-(iv) or voluntarily by Employee under
-5-
<PAGE> 6
Section 5(c) as a result of a Constructive Termination, the Employee shall be
entitled, upon the execution of the Agreement and Release attached hereto as
Exhibit A, to receive a severance payment from the Corporation (the "Severance
Payment") in an amount equal to the following:
(i) an amount equal to three hundred percent (300%) of the
Employee's Base Compensation in effect on the date of employment termination;
plus
(ii) the greater of (x) an amount equal to three hundred percent
(300%) of the aggregate bonus and car allowance, if any, payable to the employee
for the immediately preceding 12-month period, and (y) an amount equal to three
hundred percent (300%) of the target aggregate bonus and car allowance, if any,
paid to the employee for the immediately preceding fiscal year.
The Severance Payment shall be made in a lump sum within thirty (30)
days following the date of the employment termination. The Severance Payment
shall be in lieu of any further payments to the Employee under Section 2 and any
further accrual of benefits under Section 3 with respect to periods subsequent
to the date of the employment termination. Notwithstanding the preceding
sentence, the Severance Payment shall not reduce or offset any benefits the
Employee may be entitled to under the specific terms of the benefit plans of the
Corporation, including but not limited to payments of premiums on a life
insurance policy for which the Employee or any designee of the Employee is the
beneficiary.
The Employee shall not be required to mitigate the amount of any
payment contemplated by this Section 6(a) (whether by seeking new employment or
in any other manner), nor shall any such payment be reduced by any earnings that
the Employee may receive from any other source.
(iii) Employee shall also be entitled to thirty-six (36) months
from the date of the employment termination to exercise any vested stock options
he may have at the time of his employment termination notwithstanding anything
to the contrary in the applicable Stock Option Agreement between Employee and
the Company.
(b) Option Acceleration Upon Termination on Change in Control. If,
during the term of this Agreement, the Employee's employment is terminated
pursuant to the reasons set forth
-6-
<PAGE> 7
in Section 5(b)(iii), then the unvested portion of any stock option held by the
Employee under the Company's stock option plans shall automatically be fully
vested and exercisable as of the date of employment termination and the Employee
or the Employee's representative, as the case may be, shall have the right to
exercise all or any portion of such stock option, in addition to any portion of
the option vested and exercisable prior to such termination. If a termination of
Employee's employment results in acceleration of vesting of any option, the
Employee shall have thirty-six (36) months following the date of employment
termination to exercise such option, notwithstanding any contrary provision of
the option agreement.
(c) Termination For Cause. If the Employee's employment is
terminated for Cause pursuant to Section 5(b)(v), except as otherwise set forth
in Section 5(b)(iii), no compensation or payments will be paid or provided to
the Employee for the periods following the date when such a termination of
employment is effective. Notwithstanding the preceding sentence, nothing herein
shall be interpreted to reduce or offset any benefits the Employee may be
entitled to under the terms of the benefit plans of the Corporation.
(d) Payments Upon Voluntary Termination. In the event that, during
the term of this Agreement, the Employee's employment is terminated pursuant to
Section 5(c) other than as a result of a Constructive Termination, no
compensation or payments will be paid or provided to the Employee for the
periods following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, nothing herein shall be interpreted to
reduce or offset any benefits the Employee may be entitled to under the terms of
the benefit plans of the Corporation.
(e) Limitation on Payments.
(i) In the event that the severance and other benefits provided
for in this Agreement or otherwise payable to the Executive (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) but for this Section would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Executive's severance benefits under Section 6 shall be payable either (i) in
full, or (ii) as to such lesser amount which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the
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<PAGE> 8
applicable federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by the Executive on an after-tax basis, of
the greatest amount of severance benefits under this Agreement, notwithstanding
that all or some portion of such severance benefits may be taxable under Section
4999 of the Code.
(ii) If a reduction in the payments and benefits that would
otherwise be paid or provided to the Executive under the terms of this Agreement
is necessary to comply with the provisions of Section 6(e)(i), the Executive
shall be entitled to select which payments or benefits will be reduced and the
manner and method of any such reduction of such payments or benefits (including
but not limited to the number of options that would vest under Section 6(b)
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section
6(e)(i) are met). Within thirty (30) days after the amount of any required
reduction in payments and benefits is finally determined in accordance with the
provisions of Section 6(e)(iii), the Executive shall notify the Company in
writing regarding which payments or benefits are to be reduced. If no
notification is given by the Executive, the Company will determine which amounts
to reduce. If, as a result of any reduction required by Section 6(e)(i), amounts
previously paid to the Executive exceed the amount to which the Executive is
entitled, the Executive will promptly return the excess amount to the Company.
(iii) Unless the Company and the Executive otherwise agree in
writing, any determination required under this Section shall be made in writing
by the Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
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7. Successors.
(a) Corporation's Successors. Any successor to the Corporation
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Corporation's business and/or assets shall assume this Agreement and agree
expressly to perform this Agreement in the same manner and to the same extent as
the Corporation would be required to perform it in the absence of a succession.
For all purposes under this Agreement, the term "Corporation" shall include any
successor to the Corporation's business and/or assets which executes and
delivers the assumption agreement described in this subsection (a) or which
becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall continue to benefit, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Corporation in writing. In the case of the Corporation,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
9. Termination of Agreement. This Agreement shall terminate upon the
earlier of (i) the date that all obligations of the parties hereunder have been
satisfied or (ii) August 1, 2004. A termination of this Agreement pursuant to
the preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of this Agreement.
10. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the
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Employee and by an authorized officer of the Corporation (other than the
Employee). No waiver by either party of any breach of, or of compliance with,
any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to employment matters.
(c) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(e) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
San Jose, California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Punitive damages shall not be awarded.
(f) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment At Will; Limitation of Remedies. The Corporation and
the Employee acknowledge that the Employee's employment is at will, as defined
under applicable law. If the Employee's employment terminates for any reason,
the Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement.
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(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) Assignment of Agreement by Corporation. The Corporation may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Corporation
or to the Corporation. In the case of any such assignment, the term
"Corporation" when used in a section of this Agreement shall mean the
corporation that actually employs the Employee.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Corporation by its duly authorized officer, as of the day and
year first above written.
SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Title:
--------------------------------
--------------------------------------
PAPKEN S. DER TOROSSIAN
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<PAGE> 1
EXHIBIT 10.51
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, is effective as of this __day of June 1999, by and between
William A. Hightower (the "Employee") and Silicon Valley Group, Inc., a Delaware
corporation (the "Corporation").
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Corporation, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Corporation agrees to employ the Employee for the
term of his employment under this Agreement in the position of President and
Chief Operating Officer, as such position was defined in terms of
responsibilities and compensation as of the effective date of this Agreement.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time to the
Corporation and its subsidiaries. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious activities
or from devoting a reasonable amount of time to private investments or from
serving on the boards of directors of other entities, as long as such activities
and service do not interfere or conflict with his responsibilities to the
Corporation.
2. Base Compensation. During the term of his employment under this
Agreement, the Corporation agrees to pay the Employee as compensation for his
services a base salary at the annual rate of $375,000, or at such higher rate as
the Corporation's Board of Directors may determine from time to time, along with
such performance bonus amounts and car allowances, if any, as the Board shall
authorize, in its discretion, from time to time. Such salary shall be payable in
approximately equal bi-weekly installments. (The annual compensation specified
in this Section 2, together with any increases in such compensation that the
Board of Directors may grant from time to time, is referred to in this Agreement
as "Base Compensation.")
<PAGE> 2
3. Employee Benefits.
(a) General. During the term of his employment under this Agreement,
the Employee shall be eligible to participate in the employee benefit plans and
executive compensation programs maintained by the Corporation, including
(without limitation) pension plans, savings or profit-sharing plans, deferred
compensation plans, supplemental retirement or excess-benefit plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee administering such
plan or program.
(b) Stock Options. The Corporation has granted to the Employee
options to purchase 200,000 shares of the Common Stock of the Corporation at the
closing price on the date hereof. The terms of the options shall be governed by
the Corporation's Stock Option Agreement attached hereto as Exhibit A.
(c) The Employee shall be entitled to receive a target bonus in the
amount of $243,750 for the fiscal year ended September 31, 1998. Such bonus may
be adjusted by the Board of Directors from time to time.
4. Business Expenses and Travel. During the term of his employment under
this Agreement, the Employee shall be authorized to incur necessary and
reasonable travel, entertainment and other business expenses in connection with
his duties hereunder. The Corporation shall reimburse the Employee for such
expenses upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Corporation's generally applicable
policies.
5. Term of Employment.
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from the effective date of this Agreement until the date when the
Employee's employment terminates pursuant to the provisions of this Agreement.
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<PAGE> 3
(b) Termination by the Corporation. The Corporation may terminate
Employee's employment at any time, for any reason whatsoever, by giving the
Employee thirty (30) days' advance notice in writing.
(i) Termination Without Cause. If the Corporation terminates
Employee's employment without Cause, the provisions of Section 6(a) shall apply.
(ii) Termination Upon Disability. If the Corporation
terminates the Employee's employment for Disability, the provisions of Section
6(a) shall apply. For all purposes under this Agreement, "Disability" shall mean
that the Employee, at the time notice is given, has been unable to perform his
duties under this Agreement for a period of not less than six consecutive months
as the result of his incapacity due to physical or mental illness. In the event
that the Employee resumes the performance of substantially all of his duties
hereunder before the termination of his employment under this subsection (ii)
becomes effective, the notice of termination shall automatically be deemed to
have been revoked.
(iii) Termination Within Twelve (12) Months of a Change in
Control. If the Corporation terminates Employee's employment within twelve (12)
months after a Change in Control, whether such termination is with or without
Cause, is due to Employee's death or Disability, or constitutes a Constructive
Termination (as defined in Section 5(c) below), the provisions of Sections 6(a)
and 6(b) shall apply. For all purposes under this Agreement, "Change in Control"
shall mean the occurrence of any of the following events:
(1) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Corporation representing fifty percent (50%) or
more of the total voting power represented by the Corporation's then outstanding
voting securities except pursuant to a negotiated agreement with the Corporation
and pursuant to which such securities are purchased from the Corporation; or
(2) A change in the composition of the Board of
Directors of the Corporation, as a result of which fewer than a majority of the
incumbent directors are directors who either (A) had been directors of the
Corporation thirty-six (36) months prior to such change or (B) were elected, or
nominated for election, to the Board of Directors of the Corporation with the
affirmative votes of at least a majority of the directors who had been directors
of the Corporation thirty-six (36) months prior to such change and who were
still in office at the time of the election or nomination; or
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<PAGE> 4
(3) The shareholders of the Corporation approve a merger
or consolidation of the Corporation with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the corporation approve a plan of complete liquidation of the Corporation or
an agreement for the sale or disposition by the Corporation of all or
substantially all the Corporation's assets.
Any other provision of this Section notwithstanding, the term "Change in
Control" shall not include either of the following events undertaken at the
election of the Corporation:
(1) Any transaction, the sole purpose of which is
to change the state of the Corporation's incorporation;
(2) A transaction, the result of which is to sell
all or substantially all of the assets of the Corporation to another corporation
(the "surviving corporation"); provided that the surviving corporation is owned
directly or indirectly by the shareholders of the Corporation immediately
following such transaction in substantially the same proportions as their
ownership of the Corporation's common stock immediately preceding such
transaction; and provided, further, that the surviving corporation expressly
assumes this Agreement.
(iv) Death. Upon the event of the Employee's death, Employee's
employment with the Corporation shall be considered automatically terminated and
the provisions of Section 6(a) shall apply.
(v) Termination for Cause. Except as set forth in Section
5(b)(iii), if the Corporation terminates Employee's employment for Cause, the
provisions of Section 6(c) shall apply. For all purposes under this Agreement,
"Cause" shall mean (i) a willful failure by the Employee to substantially
perform his duties hereunder (other than a failure resulting from the Employee's
complete or partial incapacity due to physical or mental illness or impairment)
after there has been delivered to Employee a written demand for performance from
the Company which describes the basis for the Company's belief that Employee has
not substantially performed his duties and sets forth specific performance goals
to cure such defaults; provided that upon any determination by the Company that
Employee has willfully failed to perform his duties, Employee
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<PAGE> 5
shall have 120 days in which to cure such willful failure to perform his duties,
(ii) a willful act by the Employee which constitutes gross misconduct and which
is injurious to the Corporation, (iii) a willful breach by the Employee of a
material provision of this Agreement, or (iv) a material and willful violation
of a federal or state law or regulation applicable to the business of the
Corporation. No act, or failure to act, by the Employee shall be considered
"willful" unless committed without good faith and without a reasonable belief
that the act or omission was in the Corporation's best interest.
(c) Voluntary Termination by the Employee. The Employee may
terminate his employment by giving the Corporation thirty (30) days' advance
notice in writing. If the Employee terminates his employment under the preceding
sentence other than as a result of a Constructive Termination, the provisions of
Section 6(d) shall apply. If the Employee terminates his employment pursuant to
this Section 5(c) as a result of a Constructive Termination, the provisions of
Section 6(a) shall apply. For all purposes under this Agreement, "Constructive
Termination" shall mean any of the following: a material reduction in salary or
benefits, a material change in responsibilities, or a requirement to relocate,
except for office relocations that would not increase the Employee's one-way
commute distance by more than forty (40) miles.
(d) Waiver of Notice. Any waiver of notice shall be valid only if it
is made in writing and expressly refers to the applicable notice requirement in
this Section 5.
6. Payments Upon Termination of Employment.
(a) Payments Upon Termination Pursuant to Section 5(b)(i)-(iv) and
Constructive Termination. If, during the term of this Agreement, the Employee's
employment is terminated pursuant to any of the reasons set forth in Section
5(b)(i)-(iv) or voluntarily by Employee under Section 5(c) as a result of a
Constructive Termination, the Employee shall be entitled, upon the execution of
the Agreement and Release attached hereto as Exhibit A, to receive a severance
payment from the Corporation (the "Severance Payment") in an amount equal to the
following:
(i) an amount equal to three hundred percent (300%) of the
Employee's Base Compensation in effect on the date of employment termination;
plus
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(ii) the greater of (x) an amount equal to three hundred
percent (300%) of the aggregate bonus and car allowance, if any, payable to the
employee for the immediately preceding 12-month period, and (y) an amount equal
to three hundred percent (300%) of the target aggregate bonus and car allowance,
if any, paid to the employee for the immediately preceding fiscal year.
The Severance Payment shall be made in a lump sum within thirty (30) days
following the date of the employment termination. The Severance Payment shall be
in lieu of any further payments to the Employee under Section 2 and any further
accrual of benefits under Section 3 with respect to periods subsequent to the
date of the employment termination. Notwithstanding the preceding sentence, the
Severance Payment shall not reduce or offset any benefits the Employee may be
entitled to under the specific terms of the benefit plans of the Corporation,
including but not limited to payments of premiums on a life insurance policy for
which the Employee or any designee of the Employee is the beneficiary.
The Employee shall not be required to mitigate the amount of any payment
contemplated by this Section 6(a) (whether by seeking new employment or in any
other manner), nor shall any such payment be reduced by any earnings that the
Employee may receive from any other source.
(iii) Employee shall also be entitled to thirty-six (36)
months from the date of the employment termination to exercise any vested stock
options he may have at the time of his employment termination notwithstanding
anything to the contrary in the applicable Stock Option Agreement between
employee and the Company.
(b) Option Acceleration Upon Termination on Change in Control. If,
during the term of this Agreement, the Employee's employment is terminated
pursuant to the reasons set forth in Section 5(b)(iii), then the unvested
portion of any stock option held by the Employee under the Company's stock
option plans shall automatically be fully vested and exercisable as of the date
of employment termination and the Employee or the Employee's representative, as
the case may be, shall have the right to exercise all or any portion of such
stock option, in addition to any portion of the option vested and exercisable
prior to such termination. If a termination of Employee's employment results in
acceleration of vesting of any option, the Employee shall have thirty-six (36)
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<PAGE> 7
months following the date of employment termination to exercise such option,
notwithstanding any contrary provision of the option agreement.
(c) Termination For Cause. If the Employee's employment is
terminated for Cause pursuant to Section 5(b)(v), except as otherwise set forth
in Section 5(b)(iii), no compensation or payments will be paid or provided to
the Employee for the periods following the date when such a termination of
employment is effective. Notwithstanding the preceding sentence, nothing herein
shall be interpreted to reduce or offset any benefits the Employee may be
entitled to under the terms of the benefit plans of the Corporation.
(d) Payments Upon Voluntary Termination. In the event that, during
the term of this Agreement, the Employee's employment is terminated pursuant to
Section 5(c) other than as a result of a Constructive Termination, no
compensation or payments will be paid or provided to the Employee for the
periods following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, nothing herein shall be interpreted to
reduce or offset any benefits the Employee may be entitled to under the terms of
the benefit plans of the Corporation.
(e) Limitation on Payments.
(i) In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Executive (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section would be subject to the excise tax imposed by Section 4999 of the Code,
then the Executive's severance benefits under Section 6 shall be payable either
(i) in full, or (ii) as to such lesser amount which would result in no portion
of such severance benefits being subject to excise tax under Section 4999 of the
Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Executive on an after-tax basis, of the
greatest amount of severance benefits under this Agreement, notwithstanding that
all or some portion of such severance benefits may be taxable under Section 4999
of the Code.
(ii) If a reduction in the payments and benefits that would
otherwise be paid or provided to the Executive under the terms of this Agreement
is necessary to comply with the
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<PAGE> 8
provisions of Section 6(e)(i), the Executive shall be entitled to select which
payments or benefits will be reduced and the manner and method of any such
reduction of such payments or benefits (including but not limited to the number
of options that would vest under Section 6(b) subject to reasonable limitations
(including, for example, express provisions under the Company's benefit plans)
(so long as the requirements of Section 6(e)(i) are met). Within thirty (30)
days after the amount of any required reduction in payments and benefits is
finally determined in accordance with the provisions of Section 6(e)(iii), the
Executive shall notify the Company in writing regarding which payments or
benefits are to be reduced. If no notification is given by the Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 6(e)(i), amounts previously paid to the Executive exceed the
amount to which the Executive is entitled, the Executive will promptly return
the excess amount to the Company.
(iii) Unless the Company and the Executive otherwise agree in
writing, any determination required under this Section shall be made in writing
by the Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
7. Successors.
(a) Corporation's Successors. Any successor to the Corporation
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Corporation's business and/or assets shall assume this Agreement and agree
expressly to perform this Agreement in the same manner and to the same extent as
the Corporation would be required to perform it in the absence of a succession.
For all purposes under this Agreement, the term "Corporation" shall include any
successor to the Corporation's business and/or
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<PAGE> 9
assets which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall continue to benefit, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Corporation in writing. In the case of the Corporation,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
9. Termination of Agreement. This Agreement shall terminate upon the
earlier of (i) the date that all obligations of the parties hereunder have been
satisfied or (ii) August 1, 2004. A termination of this Agreement pursuant to
the preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of this Agreement.
10. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the
Corporation (other than the Employee). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to employment matters.
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<PAGE> 10
(c) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(e) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
San Jose, California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Punitive damages shall not be awarded.
(f) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment At Will; Limitation of Remedies. The Corporation and
the Employee acknowledge that the Employee's employment is at will, as defined
under applicable law. If the Employee's employment terminates for any reason,
the Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) Assignment of Agreement by Corporation. The Corporation may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Corporation
or to the Corporation. In the case of any such assignment, the term
"Corporation" when used in a section of this Agreement shall mean the
corporation that actually employs the Employee.
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(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Corporation by its duly authorized officer, as of the day and
year first above written.
SILICON VALLEY GROUP, INC.
By:
-------------------------------
Title:
----------------------------
----------------------------------
WILLIAM A. HIGHTOWER
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EXHIBIT 10.52
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This First Amended and Restated Employment Agreement (the "Agreement") is
effective as of June __, 1999, by and between Russell G. Weinstock (the
"Employee") and Silicon Valley Group, Inc., a Delaware corporation (the
"Company").
R E C I T A L S
A. The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and commitment of the Employee.
B. In order to accomplish the foregoing objectives, the Board of Directors
has directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in Section
6 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Employee in the position
of Vice President of Finance and Chief Financial Officer, as such position was
defined in terms of responsibilities and compensation as of the effective date
of this Agreement; provided, however, that the Board shall have the right, prior
to the occurrence of a Change of Control (as defined in Section 6 below), to
revise such responsibilities and compensation from time to time as the Board may
deem necessary or appropriate, subject to the Involuntary Termination provisions
under Section 6(b).
(b) Obligations. The Employee shall devote his full business efforts
and time to the Company and its subsidiaries. The foregoing, however, shall not
preclude the Employee from engaging in such activities and services as do not
interfere or conflict with his responsibilities to the Company.
2. Base Compensation. The Company shall pay the Employee as compensation
for his services a base salary at the annualized rate of $300,000, along with
such performance bonus amounts and car allowances, if any, as the Board shall
authorize, in its discretion, from time to time. Such salary shall be reviewed
at least annually and shall be increased from time to time subject to
accomplishment of such performance and contribution goals and objectives as may
be established from time to time by the Board. Such salary shall be paid
periodically in accordance with normal Company payroll. The annual compensation
(including bonus amounts) specified in this Section 2, together with any
increases in such compensation that the Board may grant from time to time, is
referred to in this Agreement as "Base Compensation."
<PAGE> 2
3. Employee Benefits. The Employee shall be eligible to participate in the
employee benefit plans and executive compensation programs maintained by the
Company applicable to other key executives of the Company, including (without
limitation) retirement plans, savings or profit-sharing plans, deferred
compensation plans, supplemental retirement or excess-benefit plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee administering such
plan or program.
4. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is at will, as defined under applicable law. If the
Employee's employment terminates for any reason, the Employee shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement. The terms of this Agreement shall terminate upon
the earlier of (i) the date that all obligations of the parties hereunder have
been satisfied, (ii) twelve (12) months after a Change of Control or (iii) so
long as there has been no Change in Control, August 1, 2004. A termination of
the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
5. Severance Benefits. Subject to Section 7 below, if the Employee's
employment terminates at any time, then the Employee's right, if any, to receive
severance benefits shall be as set forth in this Section 5 in lieu of any other
severance or severance-type benefits to which Employee may otherwise be entitled
under the Company's existing plans, policies or programs.
(a) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
termination applicable to a voluntary termination or termination for cause.
(b) Involuntary Termination. If the Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, then the
Employee shall be entitled, upon the execution of the Agreement and Release
attached hereto as Exhibit A, to receive severance pay in an aggregate amount
equal to two times the Employee's Base Compensation for the twelve-calendar
month period immediately preceding the Termination Date. Any severance payments
to which the Employee is entitled pursuant to this section shall be paid, at the
option of the Employee, either in twenty-four (24) equal monthly installments
following the Termination Date, or in a single, lump-sum payment within thirty
days following the Termination Date. Employee shall also be entitled to
twenty-four (24) months from the Termination Date to exercise any vested stock
options he may have at the time his employment terminates under this section
notwithstanding anything to the contrary in the Company's Stock Option Plan or
the applicable Stock Option Agreement between Employee and the Company.
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<PAGE> 3
(c) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or the Employee's
employment is terminated due to the death of the Employee, then the Employee (or
the Employee's estate, if such termination results from Employee's death) shall
be entitled, at the Employee's option, to (i) continue receiving the Employee's
Base Compensation for 24 months following such termination, at the same
annualized rate as was in effect at the Termination Date, offset, in the case of
Disability, by any payments Employee receives from any governmental agency or
private disability insurance plan as a result of such Disability, or (ii)
receive the full amount set forth in Section 5(c)(i) in a single, lump-sum
payment.
(d) Options.
(i) If the Employee's employment is terminated following a
Change of Control as a result of an Involuntary Termination other than for
Cause, then the unvested portion of any stock option held by the Employee under
the Company's stock option plans shall automatically become fully vested and
exercisable as of the Termination Date and the Employee or the Employee's
representative, as the case may be, shall have the right to exercise all or any
portion of such stock option, in addition to any portion of the option vested or
exercisable prior to such termination. If a termination of Employee's employment
results in acceleration of vesting of any option, the Employee shall have 24
months following the Termination Date to exercise such option, notwithstanding
any contrary provision of the option agreement.
(ii) If a Change of Control occurs within 90 days following
the termination of Employee's employment as a result of an Involuntary
Termination other than for Cause, then Employee or the Employee's
representative, as the case may be, shall be fully vested in and have the right
to exercise all options which were not vested or exercisable as of the
Termination Date, at the same exercise price as would have applied if Employee
had still been employed at the time of the Change in Control. Promptly following
the occurrence of any such Change of Control within such 90 days, the Company
will provide to the Employee written notice of such Change of Control and a
written statement as to the number of shares vested and exercisable by Employee
as a result of this Section 5(d)(ii) and the exercise price or prices thereof.
The right to exercise such option shall continue for 24 months following the
Company's delivery of the written notice contemplated by the preceding sentence.
In the event that the securities issuable upon exercise of such options have
been converted into different securities as a result of the Change of Control,
or have been converted into a right to receive consideration as a result of the
Change of Control, Employee shall, upon exercise of such option, be entitled to
receive the same securities or consideration as Employee would have received had
the option been exercised immediately prior to the Change of Control.
(e) Set-off. In the event that, upon any termination of Employee's
employment (whether voluntary or involuntary) prior to a Change of Control, the
Employee owes any amounts to the Company, (i) the amount of each monthly
severance payment to be paid to Employee shall be reduced by the amount of all
accrued interest on, and a portion of the outstanding principal amount of, any
such debt owing from Employee to the Company at the Termination Date if the
Employee has elected to receive severance payments over twenty-four months, or
(ii) the payment will be reduced by the outstanding principal amount and accrued
interest if the Employee has elected to
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receive a single, lump-sum payment. The portion of the principal amount of such
debt by which each monthly severance payment will be reduced shall be 1/24 in
the case of a termination covered under Section 5(b) or Section 5(c) or in full
if the Employee has elected to receive a single, lump-sum payment.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board occurring within
a two-year period, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or the consummation of the sale or disposition by the
Company of all or substantially all the Company's assets.
(b) Involuntary Termination. "Involuntary Termination" shall mean
any of the following (i) without the Employee's express written consent, the
assignment to the Employee of any duties or the reduction of the Employee's
duties, either of which results in a significant diminution in the Employee's
position or responsibilities with the Company in effect immediately prior to
such assignment, or the removal of the Employee from such position and
responsibilities, including but not limited to the removal of the title of Vice
President of Finance and Chief Financial Officer; (ii) a substantial reduction,
without good business reasons and without the Employee's written consent, of the
facilities and perquisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a reduction by the
Company in the Base Compensation of the Employee as in effect immediately prior
to such reduction, other than (A) a bonus reduction resulting from application
of a bonus formula or plan on a basis that is consistent with prior practice
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<PAGE> 5
or (B) a reduction which is comparable (on a percentage basis) to a reduction
applicable to all executive officers of the Company; (iv) a material reduction
by the Company in the kind or level of employee benefits to which the Employee
is entitled immediately prior to such reduction with the result that the
Employee's overall benefits package is significantly reduced other than, so long
as there is no Change of Control, a reduction which is comparable to a reduction
applicable to all executive officers of the Company; (v) the relocation of the
Employee to a facility or a location more than 25 miles from the Employee's then
present location, without the Employee's express written consent; (vi) any
purported termination of the Employee by the Company which is not effected for
Disability or for Cause, or any purported termination for which the grounds
relied upon are not valid; (vii) the failure of the Company to obtain the
assumption of this agreement by any successors contemplated in Section 9 below;
or (viii) any purported termination of the Employee's employment by the Company
which is not effected pursuant to a notice of termination satisfying the
requirements of Section 10(b) below, and for purposes of this Agreement, no such
purported termination shall be effective.
(c) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii) the
conviction of a felony, (iii) a willful act by the Employee which constitutes
gross misconduct and which is injurious to the Company, and (iv) continued
violations by the Employee of the Employee's obligations under Section 1 of this
Agreement which are demonstrably willful and deliberate on the Employee's part
after (a) there has been delivered to the Employee a written demand for
performance from the Company which describes the basis for the Company's belief
that the Employee has not substantially performed his duties and sets forth
specific performance goals to cure such defaults, and (b) the Employee has been
given 120 days during which the Employee has been unable to cure such failure to
perform hereunder.
(d) Disability. "Disability" shall mean that the Employee has been
unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and agreed to the Employee or
the Employee's legal representative (such agreement not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(e) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
notice of termination is given to the Employee (provided that the Employee shall
not have returned to the performance of the Employee's duties on a full-time
basis during such thirty (30) day period), (ii) if the Employee's employment is
terminated by the Company for any other reason, the date on which a notice of
termination is given, provided that if within thirty (30) days after the Company
gives the Employee notice of termination, the Employee notifies the Company that
a dispute exists concerning the termination, the Termination Date shall be the
date on which the dispute is finally determined, either by mutual written
agreement
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<PAGE> 6
of the parties, by final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected), or (iii) if the Agreement is terminated by the Employee, the
date on which the Employee delivers the notice of termination to the Company.
7. Limitation on Payments.
(a) In the event that the severance and other benefits provided for
in this Agreement or otherwise payable to the Executive (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) but for this Section would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Executive's severance benefits under Section 5 shall be payable either (i) in
full, or (ii) as to such lesser amount which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Executive on an after-tax basis, of the greatest amount of
severance benefits under this Agreement, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code.
(b) If a reduction in the payments and benefits that would otherwise
be paid or provided to the Executive under the terms of this Agreement is
necessary to comply with the provisions of Section 7(a), the Executive shall be
entitled to select which payments or benefits will be reduced and the manner and
method of any such reduction of such payments or benefits (including but not
limited to the number of options that would vest under Section 5(d) subject to
reasonable limitations (including, for example, express provisions under the
Company's benefit plans) (so long as the requirements of Section 7(a) are met).
Within thirty (30) days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the provisions of Section
7(c), the Executive shall notify the Company in writing regarding which payments
or benefits are to be reduced. If no notification is given by the Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 7(a), amounts previously paid to the Executive exceed the
amount to which the Executive is entitled, the Executive will promptly return
the excess amount to the Company.
(c) Unless the Company and the Executive otherwise agree in writing,
any determination required under this Section shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
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8. Covenants of the Employee.
(a) Covenants. As additional consideration for the Company's
agreements set forth herein, Employee agrees that Employee will not:
(i) directly or indirectly, in any manner or capacity, as
advisor, principal, agent, partner, officer, director, stockholder, employee,
member of any association or otherwise, engage in any business or activity
conducted by the Company as of the Termination Date or have an interest in any
firm, corporation, partnership or association engaged in any such business or
activity or similar business or activity; provided, however, that ownership by
Employee, as a passive investment, of less than 1% of the outstanding shares of
capital stock of any corporation with one or more classes of its capital stock
listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a breach of this paragraph;
(ii) so long as there has been no Change of Control, engage in
any conduct detrimental to the Company or the conduct of its business.
(b) Consequences of Breach. In the event Employee breaches his
obligations under Section 8(a), (i) the Company's obligation to make payments to
Employee pursuant to this Agreement shall immediately terminate upon the
occurrence of the actions which constitute such breach, (ii) all loans from the
Company to Employee shall become immediately due and payable and (iii) if the
Company has paid any amounts to Employee since the occurrence of the actions
which constitute such breach, Employee shall repay such amounts upon demand by
the Company.
9. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Employee's Successors. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
10. Notice.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
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<PAGE> 8
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for
Disability or Cause, or by the Employee as a result of a voluntary resignation
or an Involuntary Termination shall be communicated by a notice of termination
to the other party hereto given in accordance with this Section 10(b). Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than thirty (30)
days after the giving of such notice). The failure by the Employee to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in enforcing his
rights hereunder.
11. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Employee may receive from any other source,
except as specifically provided for herein.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth or explicitly referenced in this Agreement have been
made or entered into by either party with respect to employment matters.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Santa Clara County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Punitive damages shall not
be awarded.
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<PAGE> 9
(g) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (g) shall be
void.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(ii) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY SILICON VALLEY GROUP, INC.
By:
------------------------------
Papken S. Der Torossian,
Chief Executive Officer
EMPLOYEE
---------------------------------
Russell G. Weinstock
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<PAGE> 1
EXHIBIT 10.53
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This First Amended and Restated Employment Agreement (the "Agreement") is
effective as of June __, 1999, by and between Boris Lipkin (the "Employee") and
Silicon Valley Group, Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and commitment of the Employee.
B. In order to accomplish the foregoing objectives, the Board of Directors
has directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in Section
6 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Employee in the position
of Vice President, Corporate, as such position was defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board shall have the right, prior to the occurrence
of a Change of Control (as defined in Section 6 below), to revise such
responsibilities and compensation from time to time as the Board may deem
necessary or appropriate subject to the Involuntary Termination provisions under
Section 6(b).
(b) Obligations. The Employee shall devote his full business efforts
and time to the Company and its subsidiaries. The foregoing, however, shall not
preclude the Employee from engaging in such activities and services as do not
interfere or conflict with his responsibilities to the Company.
2. Base Compensation. The Company shall pay the Employee as compensation
for his services a base salary at the annualized rate of $275,000, along with
such performance bonus amounts and car allowances, if any, as the Board shall
authorize, in its discretion, from time to time. Such salary shall be reviewed
at least annually and shall be increased from time to time subject to
accomplishment of such performance and contribution goals and objectives as may
be established from time to time by the Board. Such salary shall be paid
periodically in accordance with normal Company payroll. The annual compensation
(including bonus amounts) specified in this Section 2, together with any
increases in such compensation that the Board may grant from time to time, is
referred to in this Agreement as "Base Compensation."
<PAGE> 2
3. Employee Benefits. The Employee shall be eligible to participate in the
employee benefit plans and executive compensation programs maintained by the
Company applicable to other key executives of the Company, including (without
limitation) retirement plans, savings or profit-sharing plans, deferred
compensation plans, supplemental retirement or excess-benefit plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee administering such
plan or program.
4. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is at will, as defined under applicable law. If the
Employee's employment terminates for any reason, the Employee shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement. The terms of this Agreement shall terminate upon
the earlier of (i) the date that all obligations of the parties hereunder have
been satisfied, (ii) twelve (12) months after a Change of Control or (iii) so
long as there has been no Change in Control, August 1, 2004. A termination of
the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
5. Severance Benefits. Subject to Section 7 below, if the Employee's
employment terminates at any time, then the Employee's right, if any, to receive
severance benefits shall be as set forth in this Section 5 in lieu of any other
severance or severance-type benefits to which Employee may otherwise be entitled
under the Company's existing plans, policies or programs.
(a) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
termination applicable to a voluntary termination or termination for cause.
(b) Involuntary Termination. If the Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, then the
Employee shall be entitled, upon the execution of the Agreement and Release
attached hereto as Exhibit A, to receive severance pay in an aggregate amount
equal to two times the Employee's Base Compensation for the twelve-calendar
month period immediately preceding the Termination Date. Any severance payments
to which the Employee is entitled pursuant to this section shall be paid, at the
option of the Employee, either in twenty-four (24) equal monthly installments
following the Termination Date, or in a single, lump-sum payment within thirty
days following the Termination Date. Employee shall also be entitled to
twenty-four (24) months from the Termination Date to exercise any vested stock
options he may have at the time his employment terminates under this section
notwithstanding anything to the contrary in Company's Stock Option Plan or the
applicable Stock Option Agreement between Employee and the Company.
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(c) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or the Employee's
employment is terminated due to the death of the Employee, then the Employee (or
the Employee's estate, if such termination results from Employee's death) shall
be entitled, at the Employee's option, to (i) continue receiving the Employee's
Base Compensation for 24 months following such termination, at the same
annualized rate as was in effect at the Termination Date, offset, in the case of
Disability, by any payments Employee receives from any governmental agency or
private disability insurance plan as a result of such Disability, or (ii)
receive the full amount set forth in Section 5(c)(i) in a single, lump-sum
payment.
(d) Options.
(i) If the Employee's employment is terminated following a
Change of Control as a result of an Involuntary Termination other than for
Cause, then the unvested portion of any stock option held by the Employee under
the Company's stock option plans shall automatically become fully vested and
exercisable as of the Termination Date and the Employee or the Employee's
representative, as the case may be, shall have the right to exercise all or any
portion of such stock option, in addition to any portion of the option vested or
exercisable prior to such termination. If a termination of Employee's employment
results in acceleration of vesting of any option, the Employee shall have 24
months following the Termination Date to exercise such option, notwithstanding
any contrary provision of the option agreement.
(ii) If a Change of Control occurs within 90 days following
the termination of Employee's employment as a result of an Involuntary
Termination other than for Cause, then Employee or the Employee's
representative, as the case may be, shall be fully vested in and have the right
to exercise all options which were not vested or exercisable as of the
Termination Date, at the same exercise price as would have applied if Employee
had still been employed at the time of the Change in Control. Promptly following
the occurrence of any such Change of Control within such 90 days, the Company
will provide to the Employee written notice of such Change of Control and a
written statement as to the number of shares vested and exercisable by Employee
as a result of this Section 5(d)(ii) and the exercise price or prices thereof.
The right to exercise such option shall continue for 24 months following the
Company's delivery of the written notice contemplated by the preceding sentence.
In the event that the securities issuable upon exercise of such options have
been converted into different securities as a result of the Change of Control,
or have been converted into a right to receive consideration as a result of the
Change of Control, Employee shall, upon exercise of such option, be entitled to
receive the same securities or consideration as Employee would have received had
the option been exercised immediately prior to the Change of Control.
(e) Set-off. In the event that, upon any termination of Employee's
employment (whether voluntary or involuntary) prior to a Change of Control, the
Employee owes any amounts to the Company, (i) the amount of each monthly
severance payment to be paid to Employee shall be reduced by the amount of all
accrued interest on, and a portion of the outstanding principal amount of, any
such debt owing from Employee to the Company at the Termination Date if the
Employee has elected to receive severance payments over twenty-four months, or
(ii) the payment will be
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reduced by the outstanding principal amount and accrued interest if the Employee
has elected to receive a single, lump-sum payment. The portion of the principal
amount of such debt by which each monthly severance payment will be reduced
shall be 1/24 in the case of a termination covered under Section 5(b) or Section
5(c) or in full if the Employee has elected to receive a single, lump-sum
payment.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board occurring within
a two-year period, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or the consummation of the sale or disposition by the
Company of all or substantially all the Company's assets.
(b) Involuntary Termination. "Involuntary Termination" shall mean
any of the following: (i) without the Employee's express written consent, the
assignment to the Employee of any duties or the reduction of the Employee's
duties, either of which results in a significant diminution in the Employee's
position or responsibilities with the Company in effect immediately prior to
such assignment, or the removal of the Employee from such position and
responsibilities; (ii) a substantial reduction, without good business reasons
and without the Employee's written consent, of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to such reduction; (iii) a reduction by the Company in the Base
Compensation of the Employee as in effect immediately prior to such reduction,
other than (A) a bonus reduction
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resulting from application of a bonus formula or plan on a basis that is
consistent with prior practice or (B) a reduction which is comparable (on a
percentage basis) to a reduction applicable to all executive officers of the
Company; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such
reduction with the result that the Employee's overall benefits package is
significantly reduced other than, so long as there is no Change of Control, a
reduction which is comparable to a reduction applicable to all executive
officers of the Company; (v) the relocation of the Employee to a facility or a
location more than 25 miles from the Employee's then present location, without
the Employee's express written consent; (vi) any purported termination of the
Employee by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; (vii)
the failure of the Company to obtain the assumption of this agreement by any
successors contemplated in Section 9 below; or (viii) any purported termination
of the Employee's employment by the Company which is not effected pursuant to a
notice of termination satisfying the requirements of Section 10(b) below, and
for purposes of this Agreement, no such purported termination shall be
effective.
(c) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii) the
conviction of a felony, (iii) a willful act by the Employee which constitutes
gross misconduct and which is injurious to the Company, and (iv) continued
violations by the Employee of the Employee's obligations under Section 1 of this
Agreement which are demonstrably willful and deliberate on the Employee's part
after (a) there has been delivered to the Employee a written demand for
performance from the Company which describes the basis for the Company's belief
that the Employee has not substantially performed his duties and sets forth
specific performance goals to cure such defaults, and (b) the Employee has been
given 120 days during which the Employee has been unable to cure such failure to
perform hereunder.
(d) Disability. "Disability" shall mean that the Employee has been
unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and agreed to the Employee or
the Employee's legal representative (such agreement not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(e) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
notice of termination is given to the Employee (provided that the Employee shall
not have returned to the performance of the Employee's duties on a full-time
basis during such thirty (30) day period), (ii) if the Employee's employment is
terminated by the Company for any other reason, the date on which a notice of
termination is given,
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provided that if within thirty (30) days after the Company gives the Employee
notice of termination, the Employee notifies the Company that a dispute exists
concerning the termination, the Termination Date shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by final judgment, order or decree of a court of competent jurisdiction
(the time for appeal therefrom having expired and no appeal having been
perfected), or (iii) if the Agreement is terminated by the Employee, the date on
which the Employee delivers the notice of termination to the Company.
7. Limitation on Payments.
(a) In the event that the severance and other benefits provided for
in this Agreement or otherwise payable to the Executive (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) but for this Section would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Executive's severance benefits under Section 5 shall be payable either (i) in
full, or (ii) as to such lesser amount which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Executive on an after-tax basis, of the greatest amount of
severance benefits under this Agreement, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code.
(b) If a reduction in the payments and benefits that would otherwise
be paid or provided to the Executive under the terms of this Agreement is
necessary to comply with the provisions of Section 7(a), the Executive shall be
entitled to select which payments or benefits will be reduced and the manner and
method of any such reduction of such payments or benefits (including but not
limited to the number of options that would vest under Section 5(d) subject to
reasonable limitations (including, for example, express provisions under the
Company's benefit plans) (so long as the requirements of Section 7(a) are met).
Within thirty (30) days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the provisions of Section
7(c), the Executive shall notify the Company in writing regarding which payments
or benefits are to be reduced. If no notification is given by the Executive, the
Company will determine which amounts to reduce. If, as a result of any reduction
required by Section 7(a), amounts previously paid to the Executive exceed the
amount to which the Executive is entitled, the Executive will promptly return
the excess amount to the Company.
(c) Unless the Company and the Executive otherwise agree in writing,
any determination required under this Section shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
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<PAGE> 7
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
8. Covenants of the Employee.
(a) Covenants. As additional consideration for the Company's
agreements set forth herein, Employee agrees that Employee will not:
(i) directly or indirectly, in any manner or capacity, as
advisor, principal, agent, partner, officer, director, stockholder, employee,
member of any association or otherwise, engage in any business or activity
conducted by the Company as of the Termination Date or have an interest in any
firm, corporation, partnership or association engaged in any such business or
activity or similar business or activity; provided, however, that ownership by
Employee, as a passive investment, of less than 1% of the outstanding shares of
capital stock of any corporation with one or more classes of its capital stock
listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a breach of this paragraph;
(ii) so long as there has been no Change of Control, engage in
any conduct detrimental to the Company or the conduct of its business.
(b) Consequences of Breach. In the event Employee breaches his
obligations under Section 8(a), (i) the Company's obligation to make payments to
Employee pursuant to this Agreement shall immediately terminate upon the
occurrence of the actions which constitute such breach, (ii) all loans from the
Company to Employee shall become immediately due and payable and (iii) if the
Company has paid any amounts to Employee since the occurrence of the actions
which constitute such breach, Employee shall repay such amounts upon demand by
the Company.
9. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Employee's Successors. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
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10. Notice.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for
Disability or Cause, or by the Employee as a result of a voluntary resignation
or an Involuntary Termination shall be communicated by a notice of termination
to the other party hereto given in accordance with this Section 10(b). Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than thirty (30)
days after the giving of such notice). The failure by the Employee to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in enforcing his
rights hereunder.
11. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Employee may receive from any other source,
except as specifically provided for herein.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth or explicitly referenced in this Agreement have been
made or entered into by either party with respect to employment matters.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
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<PAGE> 9
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Santa Clara County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Punitive damages shall not
be awarded.
(g) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (g) shall be
void.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(i) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case of
any such assignment, the term "Company" when used in a section of this Agreement
shall mean the corporation that actually employs the Employee.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY SILICON VALLEY GROUP, INC.
By:
---------------------------------
Papken S. Der Torossian,
Chief Executive Officer
EMPLOYEE
------------------------------------
Boris Lipkin
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EXHIBIT 10.54
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (this "Agreement" herein), dated as of
June 30, 1999, is entered into by and among:
(1) SILICON VALLEY GROUP, INC., a Delaware corporation
("Lessee");
(2) SELCO SERVICE CORPORATION, an Ohio corporation doing
business in California as Ohio SELCO Service Corporation ("Lessor");
(3) Each of the financial institutions from time to time
listed in Schedule I hereto, as amended from time to time (such
financial institutions to be referred to collectively as the
"Participants"); and
(4) KEYBANK NATIONAL ASSOCIATION, as agent for the
Participants (in such capacity, "Agent").
RECITALS
A. Lessee has requested Lessor and the Participants to provide to
Lessee a lease facility pursuant to which:
(1) Lessor would (a) purchase the land described in Exhibit A
(as more fully defined in Schedule 1.01, the "Land"), together with the
improvements thereto, (b) lease such property to Lessee and (c) grant
to Lessee the right to purchase such property; and
(2) The Participants would participate in such lease facility
by (a) funding the advance to be made by Lessor to purchase such
property and (b) acquiring participation interests in the rental and
certain other payments to be made by Lessee.
B. Lessor and the Participants are willing to provide such lease
facility upon the terms and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, each term set forth in Schedule 1.01, when used in
this Agreement or any other Operative Document, shall have the respective
meaning given to that term in Schedule 1.01 or in
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the provision of this Agreement or other document, instrument or agreement
referenced in Schedule 1.01.
1.02. Rules of Interpretation. Unless otherwise indicated in this
Agreement or any other Operative Document, the rules of interpretation set forth
in Schedule 1.02 shall apply to this Agreement and the other Operative
Documents.
SECTION 2. LEASE FACILITY.
2.01. Acquisition, Lease, Amount Limitations, Etc.
(a) Acquisition, Lease, Etc. Subject to the terms and
conditions of this Agreement (including the limitations set forth in
Subparagraph 2.01(b)), on the date specified by Lessee pursuant to
Subparagraph 2.03(b) (the "Closing Date"):
(i) Lessor shall purchase (with funds provided by the
Participants) the Land, certain of the Improvements and
certain other property (as more fully defined in Schedule
1.01, the "Property") and shall pay (with funds provided by
the Participants) related expenses specified by Lessee to the
extent such expenses are Permitted Transaction Expenses; and
(ii) Immediately upon the purchase by Lessor of the
Property, Lessor and Lessee shall execute (A) a Lease
Agreement in the form of Exhibit B (the "Lease Agreement"),
pursuant to which Lessor leases to Lessee the Property and (2)
a Purchase Agreement in the form of Exhibit C (the "Purchase
Agreement"), pursuant to which Lessor grants to Lessee the
right to purchase the Property.
(b) Amount Limitations. The advance made by Lessor on the
Closing Date to purchase the Property and pay Permitted Transaction
Expenses (the "Acquisition Advance") shall not exceed the following
limitations:
(i) The portion of the Acquisition Advance used to
pay the Acquisition Price for the Property shall not exceed
the Closing Date Appraisal for the Property; and
(ii) The aggregate amount of the Acquisition Advance
shall not exceed the lesser of (A) Fourteen Million Eight
Hundred Seventy Nine Thousand Five Hundred Dollars
($14,879,500) (the "Total Commitment") and (B) the Expiration
Date Appraisal for the Property.
(c) Tranches. The Acquisition Advance shall consist of a
Tranche A Portion and a Tranche B Portion. For accounting purposes, the
Tranche A Portion shall constitute debt and the Tranche B Portion shall
constitute equity.
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2.02. Participation Agreement.
(a) Acquisition Advance. Each Participant severally,
unconditionally and irrevocably agrees with Lessor to participate in
the Acquisition Advance made by Lessor in an amount equal to such
Participant's Proportionate Share of the Acquisition Advance; provided,
however, that the aggregate amount of each Participant's Proportionate
Share of the Acquisition Advance shall not exceed such Participant's
Commitment. Each Participant shall fund its Proportionate Share of the
Acquisition Advance as provided in Subparagraph 2.05(a). Each
Participant's Proportionate Share of the Acquisition Advance shall
consist of such Participant's Tranche A Portion and Tranche B Portion.
(b) Payments. In consideration of each Participant's
participation in the Acquisition Advance made by Lessor, such
Participant shall participate in the payments made by Lessee under this
Agreement and the other Operative Documents as provided in Paragraph
2.06.
(c) Other Rights of Participants and Agent.
(i) Until all amounts payable to Agent and
Participants under this Agreement and the other Operative
Documents are paid in full, Lessee shall deliver all notices
for Lessor under this Agreement and the other Operative
Documents to Agent at the office or facsimile number and
during the hours specified in Paragraph 7.01. Agent shall
promptly furnish to Lessor and each Participant copies of each
such notice and, in the case of the Acquisition Request, shall
notify each Participant of the amount of such Participant's
Proportionate Share of the Acquisition Advance requested
thereby.
(ii) Lessor is not an agent for Participants or Agent
and may exercise or refrain from exercising its rights under
this Agreement and the other Operative Documents in its
discretion; provided, however that:
(A) Until all amounts payable to Agent and
Participants under this Agreement and the other
Operative Documents are paid in full, (1) Lessor
shall, subject to the limitations set forth in
Section VI, be required to act or to refrain from
acting upon instructions of the Required Participants
as provided in Paragraph 6.03 and (2) Agent may
exercise any or all of the rights and remedies of
Lessor, and shall be entitled to the other benefits
afforded Lessor, under this Agreement and the other
Operative Documents; and
(B) This clause (ii) shall not relieve the
Lessor Parties of any of their obligations to Lessee
under the Operative Documents.
(iii) Neither Agent nor any Participant shall have
any right, title or interest in the Property except for the
Lien therein granted to Agent, for the
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benefit of the Participants, under the Lessor Deed of Trust,
the Assignment of Lease and the Lessor Security Agreement.
2.03. Acquisition Request. Lessee shall request Lessor to make the
Acquisition Advance by delivering to Lessor an irrevocable written request in
the form of Exhibit D, appropriately completed (the "Acquisition Request"),
which specifies, among other things:
(a) The amount of the Acquisition Advance;
(b) The date of the Acquisition Advance, which shall be a
Business Day on or prior to July 15, 1999 (the "Commitment Termination
Date");
(c) The portion of the Acquisition Advance to be used to pay
the Acquisition Price of the Property; and
(d) The portion of the Acquisition Advance to be used to pay
Permitted Transaction Expenses and the Permitted Transaction Expenses
so to be paid.
Lessee shall deliver the Acquisition Request to Lessor by 11:00 a.m. on the
Closing Date by first-class mail or facsimile as required by Subparagraph
2.02(c) and Paragraph 7.01; provided, however, that Lessee shall promptly
deliver to Lessor the original of the Acquisition Request if initially delivered
by facsimile. The amount set forth in the Acquisition Request shall constitute
the Outstanding Lease Amount as of the Closing Date.
2.04. Agent Fees. Lessee shall pay to Agent, for its own account, an
agent structuring fee in the amount and at the time set forth in the Agent's
Structuring Fee Letter (the "Agent's Structuring Fee").
2.05. Funding of Acquisition Advance.
(a) Participant Funding and Disbursement. Each Participant
shall, before 11:00 a.m. on the Closing Date, make available to Agent
at its office specified in Paragraph 7.01, in same day or immediately
available funds, such Participant's Proportionate Share of the
Acquisition Advance. After Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Section 3, Agent
will promptly disburse such funds on behalf of Lessor, in same day or
immediately available funds, to an escrow or other account established
for the payment of the Acquisition Price and any related Permitted
Transaction Expenses pursuant to the Acquisition Agreement or otherwise
as directed by Lessee in the Acquisition Request.
(b) Participants' Obligations Several. The failure of any
Participant to fund its Proportionate Share of the Acquisition Advance
shall not relieve any other Participant of its obligation hereunder to
fund its Proportionate Share of the Acquisition Advance, and no
Participant shall be responsible for the failure of any other
Participant to fund its Proportionate Share of the Acquisition Advance
on the Closing Date.
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2.06. Sharing of Payments.
(a) Outstanding Lease Amount. Lessor shall share payments
applied to reduce the Outstanding Lease Amount as follows:
(i) Each payment of the Outstanding Lease Amount
derived from the purchase price paid by Lessee (or an Assignee
Purchaser) to purchase the Property pursuant to the Purchase
Agreement shall be shared first by the Participants pro rata
according to their respective Outstanding Participation
Amounts at the time of such payment, up to the Outstanding
Participation Amount for each Participant.
(ii) Each payment of the Outstanding Lease Amount
derived from the Residual Value Guaranty Amount paid by Lessee
pursuant to the Purchase Agreement shall be shared first by
the Tranche A Participants pro rata according to their
respective Outstanding Tranche A Participation Amounts at the
time of such payment up to the Outstanding Tranche A
Participation Amount for each Participant; and second, if any
amounts remain after all Outstanding Tranche A Participation
Amounts are paid in full, by the Tranche B Participants pro
rata according to their respective Outstanding Tranche B
Participation Amounts at the time of such payment up to the
Outstanding Tranche B Participation Amount for each
Participant.
(iii) Each payment of the Outstanding Lease Amount
derived from:
(A) The purchase price paid by a Designated
Purchaser to purchase the Property pursuant to the
Purchase Agreement;
(B) The Indemnity Amount paid by Lessee
pursuant to the Purchase Agreement;
(C) Casualty Proceeds or Condemnation
Proceeds related to any of the Property; or
(D) The purchase price paid by any other
Person to purchase the Property (whether after the
retention of such Property by Lessor following the
Expiration Date, upon foreclosure or otherwise);
Shall be shared first by the Tranche A Participants pro rata
according to their respective Outstanding Tranche A
Participation Amounts at the time of such payment up to the
Outstanding Tranche A Participation Amount for each
Participant; and second, if any amounts remain after all
Outstanding Tranche A Participation Amounts are paid in full,
by the Tranche B Participants pro rata according to their
respective Outstanding Tranche B Participation Amounts at the
time of such payment up to the Outstanding Tranche B
Participation Amount for each Participant.
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(b) Base Rent. Lessor shall share each payment applied to Base
Rent among the Participants which funded the Outstanding Lease Amount
pro rata according to (i) the respective Outstanding Participation
Amounts so funded by such Participants and (ii) the dates on which such
Participants so funded such amounts.
(c) Supplemental Rent. Lessor shall share each payment applied
to Supplemental Rent among the Lessor Parties as follows:
(i) Each payment applied to Agent's Structuring Fee
shall be solely for the account of Agent.
(ii) Each payment applied to reimburse any Lessor
Party for any fees, costs and expenses incurred by such Lessor
Party shall be solely for the account of such Lessor Party.
(iii) Each payment of interest (other than Base Rent)
shall be shared among the Lessor Parties owed the amount upon
which such interest accrues pro rata according to (A) the
respective amounts so owed such Lessor Parties and (B) the
dates on which such amounts became owing to such Lessor
Parties.
(iv) All other payments under this Agreement and the
other Operative Documents shall be for the benefit of the
Person or Persons specified.
(d) Disproportionate Payments, Etc. If any Participant shall
obtain any payment (whether voluntary, involuntary, through the
exercise of any right of setoff, or otherwise) on account of amounts
owed to it in excess of its ratable share of payments on account of
such amounts obtained by all Participants entitled to such payments,
such Participant shall forthwith purchase from the other Participants
such participations in the payments to be made under the Operative
Documents as shall be necessary to cause such purchasing Participant to
share the excess payment ratably with each of them; provided, however,
that if all or any portion of such excess payment is thereafter
recovered from such purchasing Participant, such purchase shall be
rescinded and each other Participant shall repay to the purchasing
Participant the purchase price to the extent of such recovery together
with an amount equal to such other Participant's ratable share
(according to the proportion of (i) the amount of such other
Participant's required repayment to (ii) the total amount so recovered
from the purchasing Participant) of any interest or other amount paid
or payable by the purchasing Participant in respect of the total amount
so recovered. Lessee agrees that any Participant so purchasing a
participation from another Participant pursuant to this Subparagraph
2.06(d) may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of setoff) with respect to such
participation as fully as if such Participant were the direct creditor
of Lessee in the amount of such participation.
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2.07. Other Payment Terms.
(a) Place and Manner of Payments by Lessee. Lessee shall make
all payments due to any Lessor Party under this Agreement and the other
Operative Documents by payments to Agent, for the account of such
Person, at Agent's office, located at the address specified in
Paragraph 7.01, with each payment due to a Participant to be for the
account of such Participant's Applicable Participating Office. Lessee
shall make all payments in lawful money of the United States and in
same day or immediately available funds not later than 11:00 a.m. on
the date due. Agent shall promptly disburse to the appropriate Person
each such payment received by Agent for such Person.
(b) Date. Whenever any payment due under this Agreement or any
other Operative Document shall fall 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 be included in the computation of
Rent, interest or fees, as the case may be.
(c) Late Payments. If any amounts required to be paid by
Lessee under this Agreement or any other Operative Document (including
Rent, interest, fees or other amounts) remain unpaid after such amounts
are due, Lessee shall pay interest on the aggregate, outstanding
balance of such amounts from the date due until those amounts are paid
in full at a per annum rate equal to the Base Rate plus two percent
(2.0%), such rate to change from time to time as the Base Rate shall
change.
(d) Application of Payments. Except as otherwise expressly
provided herein or in the other Operative Documents, all payments and
all other sums received by Lessor Parties under this Agreement and the
other Operative Documents shall be applied first to unpaid fees, costs
and expenses and other Supplemental Rent then due and payable under
this Agreement or any other Operative Document, second to the accrued
Base Rent then due and payable under this Agreement or any other
Operative Document and finally to reduce the Outstanding Lease Amount.
If, at any time, after Lessor Parties have so applied, or should have
so applied, all payments received by Lessor Parties to Lessee
Obligations then due and payable by Lessee any excess remains, Lessor
Parties promptly shall return such excess to Lessee unless an Event of
Default has occurred and is continuing.
(e) Failure to Pay Agent. Unless Agent shall have received
notice from Lessee at least one (1) Business Day prior to the date on
which any payment is due to Lessor or the Participants under this
Agreement or the other Operative Documents that Lessee will not make
such payment in full, Agent may assume that Lessee has made such
payment in full to Agent on such date and Agent may, in reliance upon
such assumption, cause to be distributed to the appropriate Persons on
such due date an amount equal to the amount then due such Persons. If
and to the extent Lessee shall not have so made such payment in full to
Agent, each such Person shall repay to Agent forthwith on demand such
amount distributed to such Person together with interest thereon, for
each day from the date such amount is distributed to such Person until
the date such Person repays such
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amount to Agent, at (i) the Federal Funds Rate for the first three (3)
days and (ii) the Base Rate plus two percent (2.0%) thereafter, such
rate to change from time to time as the Base Rate shall change. A
certificate of Agent submitted to any Person with respect to any
amounts owing by such Person under this Subparagraph 2.07(e) shall be
conclusive absent manifest error.
2.08. Commitment Termination. Any undrawn portion of the Commitments
shall terminate on the earlier of (a) the Closing Date, after the funding by the
Participants of the Acquisition Advance, and (b) July 15, 1999.
2.09. Lease Extensions. Lessee may, as provided herein but not more
than three (3) times, request Lessor to extend the Scheduled Expiration Date of
the Lease Agreement for an additional period of one (1) year by appropriately
completing, executing and delivering to Agent a written request in the form of
Exhibit E, together with an attachment thereto setting forth the terms upon
which Lessee would propose for the requested extension (a "Lease Extension
Request"). Lessee shall deliver each Lease Extension Request to Agent not more
than eighteen (18) months and not less than fifteen (15) months before the then
current Scheduled Expiration Date. Agent shall promptly deliver to Lessor and
each Participant three (3) copies of each Lease Extension Request received by
Agent. If Lessor or a Participant, in its sole and absolute discretion, consents
to a Lease Extension Request, such Person shall evidence such consent by
executing and returning two (2) copies of such Lease Extension Request to Agent
not later than the last Business Day which is not less than thirteen (13) months
prior to the then current Scheduled Expiration Date. Any failure by Lessor or
any Participant so to execute and return a Lease Extension Request shall be
deemed a denial thereof. If Lessee shall deliver a Lease Extension Request to
Lessor pursuant to the first sentence of this Subparagraph 2.09(b), then not
later than the last Business Day which is not less than 364 days prior to the
then current Scheduled Expiration Date, Agent shall notify Lessee, Lessor and
the Participants in writing whether (i) Agent has received a copy of the Lease
Extension Request executed by Lessor and each Participant, in which case the
definition of "Scheduled Expiration Date" set forth in Subparagraph 2.02(a) of
the Lease Agreement shall be deemed extended to the date which is one (1) year
after the then current Scheduled Expiration Date (subject to the receipt by
Agent of any amounts payable by Lessee in connection with such extension), or
(ii) Agent has not received a copy of the Lease Extension Request executed by
Lessor and each Participant, in which case such Lease Extension Request shall be
deemed denied. Lessee acknowledges that neither Lessor nor any Participant has
promised (either expressly or implicitly), or has any obligation or commitment,
to extend or consent to the extension of the Scheduled Expiration Date at any
time.
2.10. Nature of the Transaction. Lessee and the Lessor Parties intend
that the transaction evidenced by this Agreement and the other Operative
Documents constitute an operating lease for purposes of Lessee's financial and
SEC reporting and a loan secured by the Property for purposes of federal, state
and local income tax and commercial, real estate and bankruptcy law. To the
extent that this Agreement and the other Operative Documents reflect the lease
form alone, they do so for convenience only, and such form should not be
construed to alter the intent expressed in the preceding sentence. Lessee and
the Lessor Parties intend that the
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Operative Documents have the dual form referred to in the first sentence of this
paragraph, notwithstanding the use of the lease form alone. However, the parties
hereto reserve the right to report this transaction in their legal documents as
required by law, and such reporting will not affect the characterization of this
transaction, inter se, as described in this Paragraph 2.10.
(a) Tax Treatment. For purposes of all income, franchise and
other taxes imposed upon or measured by income, Lessee and Lessor
Parties intend that the transaction evidenced by the Operative
Documents shall be treated as a loan by the Participants (through
Lessor) to Lessee secured by the Property, with Lessee as owner of the
Property. Lessee and the Lessor Parties may only take deductions,
credits, allowances and other reporting positions on their respective
returns, reports and statements which are consistent with such
treatment, unless required to do otherwise by an appropriate taxing
authority after the completion of judicial proceedings at which Lessee
has had a full and complete opportunity to present its position or
after a clearly applicable change in applicable Governmental Rules;
provided, however, that if an appropriate taxing authority or a clearly
applicable change in applicable Governmental Rules requires any Lessor
Party to take such an inconsistent position, such Lessor Party shall
promptly notify Lessee.
(b) Other Legal Treatment. For purposes of commercial, real
estate and bankruptcy law, Lessee and Lessor Parties also intend that
the transaction evidenced by the Operative Documents shall be treated
as a loan by the Participants (through Lessor) to Lessee secured by the
Property, with Lessee as owner of the Property. Consistent with such
treatment, Lessee and the Lessor Parties intend that, among other
things for such purposes, (i) the Acquisition Advance be treated as a
loan to Lessee by the Participants (through Lessor); (ii) the
Acquisition Advance be secured by the Property and the Lessor Parties
have the rights and remedies of secured lenders; (iii) Base Rent be
treated as interest on the Acquisition Advance; (iv) Lessee be required
to pay on the Expiration Date only the Residual Value Guaranty Amount,
the Indemnity Amount and the other amounts required by Subparagraph
3.03(b) of the Purchase Agreement if Lessee exercises the Return Option
in accordance with the Purchase Agreement; and (v) Lessee be required
to pay on the Expiration Date the Outstanding Lease Amount and all
other amounts outstanding under this Agreement and the other Operative
Documents if the Lease Agreement is terminated or all Lessee
Obligations are declared due prior to the Scheduled Expiration Date
after an Event of Default occurs under the Lease Agreement or if Lessee
fails to or is otherwise not entitled to exercise the Return Option in
accordance with the Purchase Agreement.
(c) No Reliance by Lessee. Lessee acknowledges and agrees that
no Lessor Party has made any representations or warranties to Lessee
concerning the tax, accounting or legal characteristics of the
Operative Documents and that Lessee has obtained and relied upon such
tax, accounting and legal advice concerning the Operative Documents as
it deems appropriate.
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(d) Loss of Lease Treatment. If the transaction evidenced by
this Agreement and the other Operative Documents can no longer be
treated as an operating lease pursuant to GAAP for accounting purposes,
all provisions in the Operative Documents limiting Lessee's obligation
to pay less than the Outstanding Lease Amount (including the Return
Option) on the Expiration Date shall no longer apply. If any such
change in accounting treatment shall occur, and the provisions of the
Operative Documents cannot be modified in a manner which will preserve
such accounting treatment without resulting in a Material Adverse
Effect, then Lessee and Lessor shall enter into such amendments to the
Operative Documents as Lessor or Required Participants may reasonably
request to reflect the foregoing.
2.11. Security.
(a) Lessee Obligations.
(i) To the extent that the transaction evidenced by
the Lease Agreement, Purchase Agreement and other Operative
Documents is treated as a loan by the Participants (through
Lessor) to Lessee secured by the Property, with Lessee as
owner of the Property pursuant to Paragraph 2.10, the Lessee
Obligations shall be secured by the Real Property Collateral
and the Personal Property Collateral (collectively, the
"Property Collateral") as provided in Subparagraphs 2.07(a)
and 2.07(b) of the Lease Agreement and in an Assignment of
Remediation Agreements in the form of Exhibit M, executed by
Lessee (the "Assignment of Remediation Agreements").
(ii) In addition to the Property Collateral, the
Lessee Obligations shall be secured by a Cash Collateral
Agreement in the form of Exhibit F, duly executed by Lessee
(the "Cash Collateral Agreement") and Cash Collateral
delivered to Agent or Participants pursuant to the Cash
Collateral Agreement. Lessee shall deliver to Depository Banks
pursuant to the Cash Collateral Agreement Cash Collateral in
an amount not less than 105% of the total Tranche A
Proportionate Shares of the Outstanding Lease Amounts at any
time Lessee elects, pursuant to Subparagraph 3.01(a) of the
Purchase Agreement, to exercise the Return Option after Lessor
notifies Lessee that Lessor is terminating the Lease Agreement
pursuant to Subparagraph 5.03(a) of the Lease Agreement or
declaring all Lessee Obligations due pursuant to Subparagraph
5.04(a) of the Lease Agreement on a Termination Date that is
prior to the Scheduled Expiration Date. At the time Lessee
delivers any Cash Collateral to Agent or Participants pursuant
to this clause (ii), Lessee also shall deliver to Lessor a
favorable written opinion of its counsel, in form and
substance reasonably satisfactory to Lessor and Agent but
subject to customary qualifications and assumptions, to the
effect that the Cash Collateral Agreement is a legal, valid
and binding agreement of Lessee, enforceable in accordance
with its terms, and that Lessor has a perfected security
interest in the Cash Collateral. Lessee may not withdraw any
Cash Collateral
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required to be delivered pursuant to this clause (ii) until
the Expiration Date and the satisfaction in full of all Lessee
Obligations.
(iii) Lessee shall deliver to Lessor and Agent such
additional mortgages, deeds of trust, security agreements,
pledge agreements, lessor consents and estoppels (containing
appropriate mortgagee and lender protection language) and
other instruments, agreements, certificates, opinions and
documents (including Uniform Commercial Code financing
statements and fixture filings and landlord waivers) as Lessor
or Agent may reasonably request to (A) grant, perfect,
maintain, protect and evidence security interests in favor of
Lessor or Agent in the Property Collateral prior to the Liens
or other interests of any Person, except for Permitted
Property Liens; and (B) otherwise establish, maintain, protect
and evidence the rights provided to Lessor and Agent in the
Property Collateral. Lessee shall fully cooperate with Lessor
and Agent and perform all additional acts reasonably requested
by Lessor or Agent to effect the purposes of this Subparagraph
2.11(a).
(b) Lessor Obligations to Lessor Parties.
(i) The Lessor Obligations to the Lessor Parties
shall be secured by the following:
(A) An Assignment of Lease Agreement and
Purchase Agreement in the form of Exhibit G, duly
executed by Lessor (the "Assignment of Lease");
(B) A Deed of Trust with Assignment of
Rents, Security Agreement and Fixture Filing in the
form of Exhibit H, duly executed by Lessor (the
"Lessor Deed of Trust"); and
(C) A Security Agreement in the form of
Exhibit I, duly executed by Lessor (the "Lessor
Security Agreement").
(ii) Lessor shall deliver to Agent such additional
mortgages, deeds of trust, security agreements, pledge
agreements, lessor consents and estoppels (containing
appropriate mortgagee and lender protection language) and
other instruments, agreements, certificates, opinions and
documents (including Uniform Commercial Code financing
statements and fixture filings and landlord waivers) as Agent
may reasonably request to (A) grant, perfect, maintain,
protect and evidence security interests in favor of Agent in
Lessor's rights in the Property Collateral and the Cash
Collateral; and (B) otherwise establish, maintain, protect and
evidence the rights provided to Agent in the Property
Collateral and the Cash Collateral. Lessor shall fully
cooperate with Agent and perform all additional acts
reasonably requested by Agent to effect the purposes of this
Subparagraph 2.11(b).
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(iii) Lessee hereby consents to the Assignment of
Lease, the Lessor Deed of Trust and the Lessor Security
Agreement; the Liens granted to Agent therein; and all other
Liens granted to Agent in any of the Operative Documents and
the Property to secure the Lessor Obligations.
(c) Lessor Obligations to Lessee. The Lessor Obligations to
Lessee shall be secured by a Deed of Trust with Assignment of Rents,
Security Agreement and Fixture Filing in the form of Exhibit J, duly
executed by Lessor (the "Lessor/Lessee Deed of Trust").
2.12. Change of Circumstances.
(a) Inability to Determine Rates. If, on or before the first
day of any Rental Period for any Portion, (i) any Participant shall
advise Agent that the LIBOR Rental Rate for such Rental Period and
Portion cannot be adequately and reasonably determined due to the
unavailability of funds in or other circumstances affecting the London
interbank market or (ii) Required Participants shall advise Agent that
the LIBOR Rental Rate for such Rental Period and Portion does not
adequately and fairly reflect the cost to such Participants of funding
their shares of such Portion, Agent shall immediately give notice of
such condition to Lessee, Lessor and the other Participants. After the
giving of any such notice (and until Agent shall otherwise notify
Lessee and Lessor that the circumstances giving rise to such condition
no longer exist), the LIBOR Rental Rate shall be unavailable and the
Rental Rate for each new Rental Period shall be the Alternate Rental
Rate.
(b) Illegality. If, after the date of this Agreement, the
adoption of any Governmental Rule, any change in any Governmental Rule
or the application or requirements thereof (whether such change occurs
in accordance with the terms of such Governmental Rule as enacted, as a
result of amendment or otherwise), any change in the interpretation or
administration of any Governmental Rule by any Governmental Authority,
or compliance by Lessor or any Participant with any request or
directive (whether or not having the force of law) of any Governmental
Authority (a "Change of Law") shall make it unlawful or impossible for
any Participant to fund or maintain its portion of the Outstanding
Lease Amount at the LIBOR Rental Rate, such Participant shall
immediately notify Agent and Agent shall immediately notify Lessee,
Lessor and the other Participants of such Change of Law. Upon the
termination of the Rental Period during which such notice was given,
and until Agent shall otherwise notify Lessee and Lessor that such
Change of Law is no longer in effect, the LIBOR Rental Rate shall be
unavailable for the Outstanding Participation Amount of the Participant
affected by such Change of Law and the Rental Rate for the Outstanding
Participation Amount of such Participant after the end of the Rental
Period during which such notice was given shall be the Alternate Rental
Rate.
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(c) Increased Costs. Subject to Paragraph 2.16, if, after the
date of this Agreement, any Change of Law:
(i) Shall subject Lessor or any Participant to any
tax, duty or other charge with respect to the Outstanding
Lease Amount, or shall change the basis of taxation of Base
Rent payments by Lessee to Lessor or any Participant under
this Agreement or any other Operative Document (except for
changes in the rate of taxation on the overall net income of
Lessor or any Participant imposed by its jurisdiction of
incorporation or, in the case of any Participant, the
jurisdiction in which its Applicable Participating Office is
located); or
(ii) Shall impose, modify or hold applicable any
reserve (excluding any Reserve Requirement or other reserve to
the extent included in the calculation of the LIBOR Rental
Rate), special deposit or similar requirement against assets
held by, deposits or other liabilities in or for the account
of, advances or loans by, or any other acquisition of funds by
Lessor or any Participant or its portion of the Outstanding
Lease Amount; or
(iii) Shall impose on Lessor or any Participant any
other condition related to the Outstanding Lease Amount, Base
Rent or Lessor's or such Participant's commitments hereunder;
And the effect of any of the foregoing is to increase the cost to
Lessor or such Participant of funding or maintaining its portion of the
Outstanding Lease Amount or commitments or to reduce any amount
receivable by Lessor or such Participant hereunder; then Lessee shall
from time to time within thirty (30) days after demand by such Person,
pay to such Person additional amounts sufficient to reimburse such
Person for such increased costs or to compensate such Person for such
reduced amounts; provided, however, that Lessee shall have no
obligation to make any payment to any demanding party under this
Subparagraph 2.12(c) on account of any such increased costs or reduced
amounts relating to any Rental Period that ended more than six (6)
months prior to such demanding party's first demand for payment (or, if
any increased costs or reduced amounts do not relate to a particular
Rental Period, on account of any such increased costs or reduced
amounts realized by the demanding party more than six (6) months prior
to its first demand for payment). A certificate of Lessor or any
Participant setting forth in reasonable detail the computation of any
such increased costs or reduced amounts, delivered by such Person to
Lessee shall constitute prima facie evidence of such costs or amounts.
The obligations of Lessee under this Subparagraph 2.12(c) shall survive
the payment and performance of the Lessee Obligations and the
termination of this Agreement.
(d) Capital Requirements. Subject to Paragraph 2.16, if, after
the date of this Agreement, Lessor or any Participant determines that
(i) any Change of Law affects the amount of capital required to be
maintained by such Person or any other Person controlling such Person
(a "Capital Adequacy Requirement") and (ii) the amount of capital
maintained by such Person or such other Person which is attributable to
or based
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upon the Acquisition Advance, the Commitments or this Agreement must be
increased as a result of such Capital Adequacy Requirement (taking into
account such Person's or such other Person's policies with respect to
capital adequacy), Lessee shall pay to such Person or such other
Person, within thirty (30) days after demand of such Person, such
amounts as such Person or such other Person reasonably shall determine
are necessary to compensate such Person or such other Person for the
increased costs to such Person or such other Person of such increased
capital; provided, however, that Lessee shall have no obligation to
make any payment to any demanding party under this Subparagraph 2.12(d)
on account of any such increased costs relating to any Rental Period
that ended more than six (6) months prior to such demanding party's
first demand for payment (or, if any increased costs or reduced amounts
do not relate to a particular Rental Period, on account of any such
increased costs or reduced amounts realized by the demanding party more
than six (6) months prior to its first demand for payment). A
certificate of Lessor or any Participant setting forth in reasonable
detail the computation of any such increased costs, delivered by such
Person to Lessee shall constitute prima facie evidence of such costs.
The obligations of Lessee under this Subparagraph 2.12(d) shall survive
the payment and performance of the Lessee Obligations and the
termination of this Agreement.
(e) Mitigation. If Lessor or any Participant becomes aware of
(i) any Change of Law which will make it unlawful or impossible for
such Person to fund or maintain its portion of the Outstanding Lease
Amount at the LIBOR Rental Rate or (ii) any Change of Law or other
event or condition which will obligate Lessee to pay any amount
pursuant to Subparagraph 2.12(c) or Subparagraph 2.12(d), such Person
shall notify Lessee and Agent thereof as promptly as practical. If any
Person has given notice of any such Change of Law or other event or
condition and thereafter becomes aware that such Change of Law or other
event or condition has ceased to exist, such Person shall notify Lessee
and Agent thereof as promptly as practical. Each Person affected by any
Change of Law which makes it unlawful or impossible for such Person to
fund or maintain its portion of the Outstanding Lease Amount at the
LIBOR Rental Rate or to which Lessee is obligated to pay any amount
pursuant to Subparagraph 2.12(c) or Subparagraph 2.12(d) shall use
reasonable commercial efforts (including changing the jurisdiction of
its Applicable Participating Office) to avoid the effect of such Change
of Law or to avoid or materially reduce any amounts which Lessee is
obligated to pay pursuant to Subparagraph 2.12(c) or Subparagraph
2.12(d) if, in the reasonable opinion of such Person, such efforts
would not be disadvantageous to such Person or contrary to such
Person's normal business practices for transactions of this type.
2.13. Taxes on Payments.
(a) Payments Free of Taxes. Subject to Paragraph 2.16, all
payments made by Lessee under this Agreement and the other Operative
Documents shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future Indemnified
Taxes, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority. If any Indemnified Taxes are
required to be withheld from any amounts payable to any Lessor Party
hereunder or under the other Operative
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Documents, the amounts so payable to such Lessor Party shall be
increased to the extent necessary to yield to such Lessor Party (after
payment of all Indemnified Taxes) the Base Rent or any such other
amounts payable hereunder at the rates or in the amounts specified in
this Agreement and the other Operative Documents. Whenever any
Indemnified Taxes are payable by Lessee, as promptly as possible
thereafter, Lessee shall send to Agent for its own account or for the
account of Lessor or such Participant, as the case may be, a certified
copy of an original official receipt received by Lessee showing payment
thereof. If Lessee fails to pay any Indemnified Taxes when due to the
appropriate taxing authority or fails to remit to Agent the required
receipts or other required documentary evidence, Lessee shall indemnify
the Lessor Parties for any incremental taxes, interest or penalties
that may become payable by the Lessor Parties as a result of any such
failure. The obligations of Lessee under this Subparagraph 2.13(a)
shall survive the payment and performance of the Lessee Obligations and
the termination of this Agreement.
(b) Withholding Exemption Certificates. On or prior to the
Closing Date or, if such date does not occur within thirty (30) days
after the date of this Agreement, by the end of such 30-day period,
Lessor, if it is not organized under the laws of the United States of
America or a state thereof, and each Participant which is not organized
under the laws of the United States of America or a state thereof shall
deliver to Lessee and Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or successor applicable
form), as the case may be, certifying in each case that Lessor or such
Participant, as the case may be, is entitled to receive payments under
this Agreement and the other Operative Documents without deduction or
withholding of any United States federal income taxes. Lessor and each
Participant further agree (i) promptly to notify Lessee and Agent of
any change of circumstances (including any change in any treaty, law or
regulation) which would prevent such Person from receiving payments
hereunder without deduction or withholding of such taxes and (ii) if
Lessor or such Participant has not so notified Lessee and Agent of any
change of circumstances which would prevent such Person from receiving
payments hereunder without deduction or withholding of taxes, then on
or before the date that any certificate or other form delivered by such
Person under this Subparagraph 2.13(b) expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent
form previously delivered by such Person, to deliver to Lessee and
Agent a new certificate or form certifying that such Person is entitled
to receive payments under this Agreement and the other Operative
Documents without deduction or withholding of such taxes. If Lessor or
any Participant fails to provide to Lessee or Agent pursuant to this
Subparagraph 2.13(b) (or, in the case of an Assignee Participant,
Subparagraph 7.05(b)) any certificates or other evidence required by
such provision to establish that such Person is, at the time it becomes
a Lessor or a Participant hereunder, entitled to receive payments under
this Agreement and the other Operative Documents without deduction or
withholding of any United States federal income taxes, Lessor or such
Participant, as the case may be, shall not be entitled to any
indemnification under Subparagraph 2.13(a) for any Indemnified Taxes
imposed on such Lender primarily as a result of such failure.
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(c) Mitigation. If any Lessor Party claims any additional
amounts to be payable to it pursuant to this Paragraph 2.13, such
Lessor Party shall use reasonable commercial efforts to file any
certificate or document requested in writing by Lessee (including
copies of Internal Revenue Service Form 1001 (or successor forms)
reflecting a reduced rate of withholding) or to change the jurisdiction
of its Applicable Participating Office if the making of such a filing
or such change in the jurisdiction of its Applicable Participating
Office would avoid the need for or materially reduce the amount of any
such additional amounts which may thereafter accrue and if, in the
reasonable opinion of a Participant, in the case of a change in the
jurisdiction of its Applicable Participating Office, such change would
not be disadvantageous to such Person.
(d) Tax Returns. Nothing contained in this Paragraph 2.13
shall require any Lessor Party to make available any of its tax returns
(or any other information relating to its taxes which it deems to be
confidential).
(e) Tax Savings. In the event an Indemnitee receives a refund
(or similar tax savings) in respect of any Indemnified Tax paid or
reimbursed by Lessee, such Indemnitee shall, within thirty (30) days
thereafter, remit the amount of such refund (or tax savings) to Lessee,
provided that the amount so remitted shall not exceed the lesser of:
(i) the amount received by such Indemnitee as a refund (or tax savings)
net of all reasonable costs and expenses incurred by such Indemnitee in
connection with obtaining and paying such amount; and (ii) the
remainder of (A) the amount of all prior payments by Lessee to such
Indemnitee with respect to Indemnified Taxes, plus any refunded
interest, less (B) the amount of all prior payments by such Indemnitee
to Lessee under this Subparagraph 2.13(e); provided that (1) any
disallowance or other loss of such refund (or tax savings) shall be
treated as an "Indemnified Tax" without regard to all exclusions and
(2) no such remittance shall be made if any Default or Event of Default
has occurred and is continuing.
2.14. Funding Loss Indemnification. Subject to Paragraph 2.16, if
Lessee shall (a) pay all or any portion of the Outstanding Lease Amount on any
day other than the last day of a Rental Period therefor (whether an optional
payment, a mandatory payment or otherwise) or (b) cancel or otherwise fail to
consummate the Acquisition Request which has been delivered to Agent (whether as
a result of the failure to satisfy any applicable conditions or otherwise), then
Lessee shall, within five (5) Business Days after demand by Lessor or any
Participant, reimburse such Person for and hold such Person harmless from all
costs and losses incurred by such Person as a result of such payment,
cancellation or failure. Lessee understands that such costs and losses may
include, without limitation, losses incurred by Lessor or a Participant as a
result of funding and other contracts entered into by such Person to fund its
portion of the Outstanding Lease Amount. Each Person demanding payment under
this Paragraph 2.14 shall deliver to Lessee, with a copy to Agent, a certificate
setting forth the amount of costs and losses for which demand is made, which
certificate shall set forth in reasonable detail the calculation of the amount
demanded. Such a certificate so delivered to Lessee shall constitute prima facie
evidence of such costs and losses. The obligations of Lessee under this
Paragraph 2.14 shall survive the payment and performance of the Lessee
Obligations and the termination of this Agreement.
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2.15. Replacement of Participants. If any Participant shall (a) become
a Defaulting Participant more than one (1) time in a period of twelve (12)
consecutive months, (b) continue as a Defaulting Participant for more than five
(5) Business Days at any time, (c) deliver, pursuant to Subparagraph 2.12(b), a
notice of a Change of Law which does not affect any other Participant, or (d)
demand any payment under Subparagraph 2.12(c), 2.12(d) or 2.13(a) for a reason
which is not applicable to any other Participant, then Agent may (or upon the
written request of Lessee, shall) replace such Participant (the "affected
Participant"), or cause such affected Participant to be replaced, with another
financial institution (the "replacement Participant") satisfying the
requirements of an Assignee Participant under Subparagraph 7.05(b), by having
the affected Participant sell and assign all of its rights and obligations under
this Agreement and the other Operative Documents to the replacement Participant
pursuant to Subparagraph 7.05(b); provided, however, that if Lessee seeks to
exercise such right, it must do so within sixty (60) days after it first knows
or should have known of the occurrence of the event or events giving rise to
such right, and no Lessor Party shall have any obligation to identify or locate
a replacement Participant for Lessee. Upon receipt by any affected Participant
of a written notice from Agent stating that Agent is exercising the replacement
right set forth in this Paragraph 2.15, such affected Participant shall sell and
assign all of its rights and obligations under this Agreement and the other
Operative Documents to the replacement Participant pursuant to an Assignment
Agreement and Subparagraph 7.05(b) for a purchase price equal to the sum of its
portion of the Outstanding Lease Amount, the accrued and unpaid portion of the
Base Rent relating to such portion and its ratable share of all fees to which it
is entitled.
2.16. Limitation on Collection of Costs. Lessee shall not be obligated
to reimburse any Lessor Party for any cost or expense incurred by such Lessor
Party pursuant to Paragraph 2.12, Paragraph 2.13 or Paragraph 2.14 unless demand
for such payment is made by such Lessor Party to Lessee within one (1) year
after the date such cost or expense was incurred.
SECTION 3. CONDITIONS PRECEDENT.
3.01. Acquisition Advance. The obligation of Lessor to make the
Acquisition Advance hereunder (and the obligations of the Participants to fund
their respective Proportionate Shares of the Acquisition Advance) is (are)
subject to receipt by Agent, on or prior to the Closing Date, of each item
listed in Schedule 3.01).
3.02. Other Conditions Precedent. The occurrence of each Credit Event
(including the making of the Acquisition Advance by Lessor and the funding of
the Acquisition Advance by the Participants) is subject to the further
conditions that, on the date such Credit Event is to occur and after giving
effect to such Credit Event, the following shall be true and correct:
(a) The representations and warranties of Lessee set forth in
Paragraph 4.01 and in the other Operative Documents are true and
correct in all material respects as if made on such date (except for
representations and warranties expressly made as of a specified date,
which shall be true as of such date);
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(b) No Default has occurred and is continuing or will result
from such Credit Event; and
(c) All of the Operative Documents are in full force and
effect.
The submission by Lessee to Lessor and Agent of the Acquisition Request and a
Notice of Return Option Exercise shall be deemed to be a representation and
warranty by Lessee that each of the statements set forth above in this Paragraph
3.02 is true and correct as of the date of such request and notice.
3.03. Covenant to Deliver. Lessee agrees (not as a condition but as a
covenant) to deliver to Lessor and Agent each item required to be delivered to
Lessor and Agent as a condition to the Acquisition Advance if the Acquisition
Advance is made. Lessee expressly agrees that the making of the Acquisition
Advance prior to the receipt by Lessor and Agent of any such item shall not
constitute a waiver by Lessor, Agent or any Participant of Lessee's obligation
to deliver such item, unless expressly waived in writing.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
4.01. Lessee's Representations and Warranties. In order to induce the
Lessor Parties to enter into this Agreement and the other Operative Documents to
which they are parties, Lessee hereby represents and warrants to the Lessor
Parties, except as has been previously disclosed to the Lessor Parties in the
Disclosure Letter, the Environmental Reports or the Financial Statements
delivered on or before the date of this Agreement, as follows:
(a) Due Incorporation, Qualification, etc.
(i) Lessee (A) is a corporation duly organized,
validly existing and in good standing under the laws of its
state of incorporation; (B) has the power and authority to
own, lease and operate its properties and carry on its
business as now conducted; and (C) is duly qualified, licensed
to do business and in good standing as a foreign corporation
in each jurisdiction where the failure to be so qualified or
licensed is reasonably likely to have a Material Adverse
Effect.
(ii) Each Material Subsidiary and, to the knowledge
of Lessee, each other Subsidiary, (A) is a corporation duly
organized, validly existing and in good standing under the
laws of its state of incorporation; (B) has the power and
authority to own, lease and operate its properties and carry
on its business as now conducted; and (C) is duly qualified,
licensed to do business and in good standing as a foreign
corporation in each jurisdiction where the failure to be so
qualified or licensed is reasonably likely to have a Material
Adverse Effect.
(b) Authority. The execution, delivery and performance by
Lessee of each Operative Document executed, or to be executed, by
Lessee and the consummation of the
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transactions contemplated thereby (i) are within the power of Lessee
and (ii) have been duly authorized by all necessary actions on the part
of Lessee.
(c) Enforceability. Each Operative Document executed, or to be
executed, by Lessee has been, or will be, duly executed and delivered
by Lessee and constitutes, or will constitute, a legal, valid and
binding obligation of Lessee, enforceable against Lessee in accordance
with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by Lessee of
the Operative Documents executed by Lessee and the performance and
consummation of the transactions contemplated thereby do not (i)
violate any Requirement of Law applicable to Lessee; (ii) violate any
provision of, or result in the breach or the acceleration of, or
entitle any other Person to accelerate (whether after the giving of
notice or lapse of time or both), any Contractual Obligation of Lessee;
or (iii) result in the creation or imposition of any Lien (or the
obligation to create or impose any Lien) upon any property, asset or
revenue of Lessee (except such Liens as may be created in favor of
Lessor or Agent pursuant to this Agreement or the other Operative
Documents).
(e) Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Authority or other Person (including, without limitation, the
shareholders of any Person) is required in connection with the
execution and delivery of the Operative Documents executed by Lessee
and the performance and consummation by Lessee of the transactions
contemplated thereby, except such as have been made or obtained and are
in full force and effect.
(f) No Violation or Default. Neither Lessee, nor any of its
Material Subsidiaries, nor to the best knowledge of Lessee any other
Subsidiary, is in violation of or in default with respect to (i) any
Requirement of Law applicable to such Person; (ii) any Contractual
Obligation of such Person (nor is there any waiver in effect which, if
not in effect, would result in such a violation or default), where, in
each case, such violation or default is reasonably likely to have a
Material Adverse Effect. Without limiting the generality of the
foregoing, neither Lessee, nor any of its Material Subsidiaries, nor to
the best knowledge of Lessee any other Subsidiary, (A) has violated any
Environmental Laws, (B) has any liability under any Environmental Laws
or (C) has received notice or other communication of an investigation
or is under investigation by any Governmental Authority having
authority to enforce Environmental Laws, where such violation,
liability or investigation is reasonably likely to have a Material
Adverse Effect. No Default has occurred and is continuing.
(g) Litigation. No actions (including, without limitation,
derivative actions), suits, proceedings or investigations are pending
or, to the knowledge of Lessee, threatened against Lessee or any of its
Subsidiaries at law or in equity in any court or before any other
Governmental Authority which (i) is reasonably likely (alone or in the
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aggregate) to have a Material Adverse Effect or (ii) seeks to enjoin,
either directly or indirectly, the execution, delivery or performance
by Lessee of the Operative Documents or the transactions contemplated
thereby.
(h) Title; Possession Under Leases. Lessee and its
Subsidiaries own and have good and marketable title, or a valid
leasehold interest in, all their respective properties and assets as
reflected in the most recent Financial Statements delivered to Agent
(except those assets and properties disposed of in the ordinary course
of business or otherwise in compliance with this Agreement since the
date of such Financial Statements) and all respective assets and
properties acquired by Lessee and its Subsidiaries since such date
(except those disposed of in the ordinary course of business or
otherwise in compliance with this Agreement). Such assets and
properties are subject to no Lien, except for Permitted Liens. Each of
Lessee and its Subsidiaries has complied with all material obligations
under all material leases to which it is a party and all such leases
are in full force and effect (except such leases that have expired in
accordance with their terms or have been replaced by similar leases or
where such failure to comply is not reasonably likely to have a
Material Adverse Effect). Each of Lessee and its Subsidiaries enjoys
peaceful and undisturbed possession under such leases.
(i) Financial Statements. The Financial Statements of Lessee
and its Subsidiaries which have been delivered to Agent, (i) are in
accordance with the books and records of Lessee and its Subsidiaries,
which have been maintained in accordance with good business practice;
(ii) have been prepared in conformity with GAAP; and (iii) fairly
present the financial conditions and results of operations of Lessee
and its Subsidiaries as of the date thereof and for the period covered
thereby. Neither Lessee nor any of its Subsidiaries has any Contingent
Obligations, liability for taxes or other outstanding obligations which
are material in the aggregate, except as disclosed in the audited
Financial Statements dated September 30, 1998, furnished by Lessee to
Agent prior to the date hereof, or in the Financial Statements
delivered to Agent pursuant to clause (i) or (ii) of Subparagraph 5.01.
(j) Equity Securities. To the knowledge of Lessee, all
outstanding Equity Securities of Lessee are duly authorized, validly
issued, fully paid and non-assessable.
(k) No Agreements to Sell Assets; Etc. Except as otherwise
permitted by Subparagraph 5.02(c) or Subparagraph 5.02(d), neither
Lessee nor any of its Subsidiaries has any legal obligation, absolute
or contingent, to any Person to sell the assets of Lessee or any of its
Subsidiaries (other than sales in the ordinary course of business), or
to effect any merger, consolidation or other reorganization of Lessee
or any of its Subsidiaries or to enter into any agreement with respect
thereto.
(l) Employee Benefit Plans.
(i) Based on the latest valuation of each Employee
Benefit Plan that either Lessee or any ERISA Affiliate
maintains or contributes to, or has any obligation under
(which occurred within twelve months of the date of this
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representation), the aggregate benefit liabilities of such
plan within the meaning of Section 4001 of ERISA did not
exceed the aggregate value of the assets of such plan. Neither
Lessee nor any ERISA Affiliate has any liability with respect
to any post-retirement benefit under any Employee Benefit Plan
which is a welfare plan (as defined in section 3(1) of ERISA),
other than liability for health plan continuation coverage
described in Part 6 of Title I(B) of ERISA, which liability
for health plan contribution coverage is not reasonably likely
to have a Material Adverse Effect.
(ii) Each Employee Benefit Plan complies, in both
form and operation, in all material respects, with its terms,
ERISA and the IRC, and no condition exists or event has
occurred with respect to any such plan which would result in
the incurrence by either Lessee or any ERISA Affiliate of any
material liability, fine or penalty. Each Employee Benefit
Plan, related trust agreement, arrangement and commitment of
Lessee or any ERISA Affiliate is legally valid and binding and
in full force and effect. No Employee Benefit Plan is being
audited or investigated by any government agency or is subject
to any pending or threatened claim or suit. Neither Lessee nor
any ERISA Affiliate nor any fiduciary of any Employee Benefit
Plan has engaged in a prohibited transaction under section 406
of ERISA or section 4975 of the IRC.
(iii) Neither Lessee nor any ERISA Affiliate
contributes to or has any material contingent obligations to
any Multiemployer Plan. Neither Lessee nor any ERISA Affiliate
has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete
or partial withdrawal from such Multiemployer Plan under
Section 4201 of ERISA or as a result of a sale of assets
described in Section 4204 of ERISA. Neither Lessee nor any
ERISA Affiliate has been notified that any Multiemployer Plan
is in reorganization or insolvent under and within the meaning
of Section 4241 or Section 4245 of ERISA or that any
Multiemployer Plan intends to terminate or has been terminated
under Section 4041A of ERISA.
(m) Other Regulations. Lessee is not subject to regulation
under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act, any state public utilities
code or to any other Governmental Rule limiting its ability to incur
indebtedness.
(n) Patent and Other Rights. Lessee and its Subsidiaries own
or license under validly existing agreements, all patents, licenses,
trademarks, trade names, trade secrets, service marks, copyrights and
all rights with respect thereto, which are required to conduct their
businesses as now conducted, except to the extent that failure to own
or license the same could not reasonably be expected to have a Material
Adverse Effect.
(o) Governmental Charges and Other Indebtedness. Lessee and
its Material Subsidiaries have filed or caused to be filed all tax
returns which are required to be filed
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by them. Lessee and its Subsidiaries have paid, or made provision for
the payment of, all taxes and other Governmental Charges which have or
may have become due pursuant to said returns or otherwise and all other
indebtedness, except such Governmental Charges or indebtedness, if any,
which are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided or
which are not reasonably likely to have a Material Adverse Effect if
unpaid.
(p) Margin Stock. Lessee owns no Margin Stock which, in the
aggregate, would constitute a substantial part of the assets of Lessee,
and no proceeds of any Loan will be used to purchase or carry, directly
or indirectly, any Margin Stock or to extend credit, directly or
indirectly, to any Person for the purpose of purchasing or carrying any
Margin Stock.
(q) Subsidiaries, etc. Set forth in Schedule 4.01(q) (as
supplemented by Lessee from time to time in a written notice to Agent)
is a complete list of all of Lessee's Subsidiaries, the jurisdiction of
incorporation of each, the classes of Equity Securities of each and the
number of shares and percentages of shares of each such class owned
directly or indirectly by Lessee.
(r) Catastrophic Events. Neither Lessee, nor any of its
Material Subsidiaries, nor to the knowledge of Lessee any other
Subsidiary, and none of their properties is or has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or other casualty
that is reasonably likely to have a Material Adverse Effect. There are
no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements,
employment contracts or employee welfare or incentive plans to which
Lessee, any of its Material Subsidiaries, or to the knowledge of Lessee
any of its Subsidiaries, is a party, and there are no strikes,
lockouts, work stoppages or slowdowns, or, to the best knowledge of
Lessee, jurisdictional disputes or organizing activities occurring or
threatened which alone or in the aggregate are reasonably likely to
have a Material Adverse Effect.
(s) No Material Adverse Effect. No event has occurred and is
continuing and no condition exists which is reasonably likely to have a
Material Adverse Effect.
(t) The Property.
(i) The Land consists of approximately 43.5 acres
located in the City of Scotts Valley, California, more
particularly described in Exhibit A.
(ii) The Lessor Improvements on the Land consist of a
nine (9) building, multi-story facility containing
approximately 210,140 square feet of floor area, together with
parking, landscaping, recreational and related facilities,
amenities and improvements. The Lessor Improvements are in
good condition and fit for use as an administrative office and
a manufacturing, research and development facility.
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(iii) Access to the Land for pedestrians and motor
vehicles from publicly dedicated streets and public highways
is available. All utilities required to adequately service the
Lessor Improvements for Lessee's use are available and "tapped
on" and hooked up pursuant to adequate permits (including any
that may be required under applicable Environmental Laws
except where the absence of such permits will not have a
Material Adverse Effect).
(iv) No portion of the Property is located in an area
identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable Governmental
Authority, or if any portion of the Property is located in
such an area, flood insurance has been obtained for the
Property or such portion thereof in accordance with Paragraph
3.03 of the Lease Agreement and the National Flood Insurance
Act of 1968.
(v) All of the Property complies and will comply at
all times with all applicable Governmental Rules (including
Title III of the Americans with Disabilities Act; except as
has been previously disclosed to the Lessor Parties in writing
in the Environmental Reports, Environmental Laws; and zoning,
land use, building, planning and fire laws, rules, regulations
and codes) and Insurance Requirements, except for violations
which are not reasonably likely to have a Material Adverse
Effect. Except as has been previously disclosed to the Lessor
Parties in writing in the Environmental Reports, no Hazardous
Materials have been used, generated, manufactured, stored,
treated, disposed of, transported or present on or released or
discharged from the Property in any manner that is reasonably
likely to have a Material Adverse Effect. Except as has been
previously disclosed to the Lessor Parties in writing, there
are no claims or actions which are reasonably likely to have a
Material Adverse Effect pending or, to Lessee's knowledge,
threatened against any of the Property by any Governmental
Authority or any other Person relating to Hazardous Materials
or pursuant to any Environmental Laws.
(vi) None of the Lessor Improvements encroach or will
at any time encroach onto any adjoining land in any manner
that is reasonably likely to have a Material Adverse Effect,
except as permitted by express written and recorded
encroachment agreements approved by Agent or as affirmatively
insured against by appropriate title insurance.
(vii) All licenses, approvals, authorizations,
consents, permits, easements and rights-of-way which are
required for the use of any of the Property and which are
reasonably likely to have a Material Adverse Effect if not
obtained have been obtained or, if not yet required, will be
obtained before required.
(viii) After the purchase of the Property on the
Closing Date in accordance with the Operative Documents,
Lessor will have good and valid fee simple title to such
Property, subject to no Liens except for Permitted Property
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Liens. As of the Closing Date, no Person, other than Lessee,
leases or subleases all or any portion of the Property.
(u) Chief Executive Office. Lessee's chief executive office is
located at 101 Metro Drive, Suite 400, San Jose, CA 95110, or at such
other location as Lessee may notify Lessor from time to time in
accordance with Subparagraph 5.01(g).
(v) Year 2000 Compatibility. Lessee and its Subsidiaries have
reviewed the areas within their business and operations which could be
adversely affected by, and have developed or are developing a program
to address on a timely basis, the "Year 2000 Problem" (that is, the
risk that computer applications used by Lessee and its Subsidiaries may
be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date on or after December 31,
1999), and have made related appropriate inquiry of material suppliers
and vendors. Based on such review and program, Lessee believes that the
"Year 2000 Problem" will not have a Material Adverse Effect.
(w) Accuracy of Information Furnished. None of the Operative
Documents and none of the other certificates, statements or information
furnished to any Lessor Party by or on behalf of Lessee or any of its
Subsidiaries in connection with the Operative Documents or the
transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Lessee shall be deemed to have reaffirmed, for the benefit of the Lessor
Parties, each representation and warranty contained in this Paragraph 4.01 on
and as of the date of each Credit Event (except for representations and
warranties expressly made as of a specified date, which shall be true as of such
date).
4.02. Lessor's Representations and Warranties. In order to induce
Lessee, Agent and the Participants to enter into this Agreement and the other
Operative Documents to which they are parties, Lessor hereby represents and
warranties to Lessee, Agent and the Participants as follows:
(a) Due Organization, Qualification, etc. Lessor (i) is a
corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation and (ii) has the power and
authority to own, lease and operate its properties and carry on its
business as now conducted. Lessor is a Wholly-Owned Subsidiary of
KeyBank.
(b) Authority. The execution, delivery and performance by
Lessor of each Operative Document executed, or to be executed, by
Lessor and the consummation of the transactions contemplated thereby
(i) are within the power of Lessor and (ii) have been duly authorized
by all necessary actions on the part of Lessor.
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(c) Enforceability. Each Operative Document executed, or to be
executed, by Lessor has been, or will be, duly executed and delivered
by Lessor and constitutes, or will constitute, a legal, valid and
binding obligation of Lessor, enforceable against Lessor in accordance
with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by Lessor of
the Operative Documents executed by Lessor and the performance and
consummation of the transactions contemplated thereby do not (i)
violate any Requirement of Law applicable to Lessor; (ii) violate any
provision of, or result in the breach or the acceleration of, or
entitle any other Person to accelerate (whether after the giving of
notice or lapse of time or both), any Contractual Obligation of Lessor;
or (iii) result in the creation or imposition of any Lien (or the
obligation to create or impose any Lien) upon any property, asset or
revenue of Lessor (except such Liens as may be created in favor of
Agent pursuant to this Agreement or the other Operative Documents).
(e) Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Authority or other Person (including, without limitation, the
shareholders of any Person) is required in connection with the
execution and delivery of the Operative Documents executed by Lessor
and the performance and consummation of the transactions contemplated
thereby, except such as have been made or obtained and are in full
force and effect.
(f) Litigation. No actions (including, without limitation,
derivative actions), suits, proceedings or investigations are pending
or, to the knowledge of Lessor, threatened against Lessor at law or in
equity in any court or before any other Governmental Authority which
(i) is reasonably likely (alone or in the aggregate) to materially and
adversely affect the ability of Lessor to perform its obligations under
the Operative Documents to which it is a party or (ii) seeks to enjoin,
either directly or indirectly, the execution, delivery or performance
by Lessor of the Operative Documents or the transactions contemplated
thereby.
(g) Other Regulations. Lessor is not subject to regulation
under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce
Act, any state public utilities code or to any other Governmental Rule
limiting its ability to incur indebtedness.
(h) Chief Executive Office. Lessor's chief executive office is
located at 54 State Street, Albany, New York 12201.
4.03. Participants' Representations and Warranties. In order to induce
Lessee, Lessor and Agent to enter into this Agreement and the other Operative
Documents to which they are parties, each Participant hereby represents and
warranties to Lessee, Lessor and Agent as follows:
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(a) Due Organization, Qualification, etc. Such Participant (i)
is a legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and (ii) has the
power and authority to own, lease and operate its properties and carry
on its business as now conducted.
(b) Authority. The execution, delivery and performance by such
Participant of each Operative Document executed, or to be executed, by
such Participant and the consummation of the transactions contemplated
thereby (i) are within the power of such Participant and (ii) have been
duly authorized by all necessary actions on the part of such
Participant.
(c) Enforceability. Each Operative Document executed, or to be
executed, by such Participant has been, or will be, duly executed and
delivered by such Participant and constitutes, or will constitute, a
legal, valid and binding obligation of such Participant, enforceable
against such Participant in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights generally
and general principles of equity.
(d) Non-Contravention. The execution and delivery by such
Participant of the Operative Documents executed by such Participant and
the performance and consummation of the transactions contemplated
thereby do not (i) violate any Requirement of Law applicable to such
Participant; (ii) violate any provision of, or result in the breach or
the acceleration of, or entitle any other Person to accelerate (whether
after the giving of notice or lapse of time or both), any Contractual
Obligation of such Participant; or (iii) result in the creation or
imposition of any Lien (or the obligation to create or impose any Lien)
upon any property, asset or revenue of such Participant (except such
Liens as may be created in favor of Lessor or Agent pursuant to this
Agreement or the other Operative Documents).
(e) Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Authority or other Person (including, without limitation, the
shareholders of any Person) is required in connection with the
execution and delivery of the Operative Documents executed by such
Participant and the performance and consummation of the transactions
contemplated thereby, except such as have been made or obtained and are
in full force and effect.
(f) Litigation. No actions (including, without limitation,
derivative actions), suits, proceedings or investigations are pending
or, to the knowledge of such Participant, threatened against such
Participant at law or in equity in any court or before any other
Governmental Authority which (i) is reasonably likely (alone or in the
aggregate) to materially and adversely affect the ability of such
Participant to perform its obligations under the Operative Documents to
which it is a party or (ii) seeks to enjoin, either directly or
indirectly, the execution, delivery or performance by such Participant
of the Operative Documents or the transactions contemplated thereby.
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(g) Own Account. Such Participant is acquiring its
participation interest hereunder for its own account for investment and
not with a view to any distribution (as such term is used in Section
2(11) of the Securities Act of 1933) thereof, and, if in the future it
should decide to dispose of its participation interest, it understands
that it may do so only in compliance with the Securities Act of 1933
and the rules and regulations of the Securities and Exchange Commission
thereunder and any applicable state securities laws.
SECTION 5. COVENANTS.
5.01. Lessee's Affirmative Covenants. Until the termination of this
Agreement and the satisfaction in full by Lessee of all Lessee Obligations,
Lessee will comply, and will cause compliance, with the following affirmative
covenants, unless Lessor and Required Participants shall otherwise consent in
writing:
(a) Financial Statements, Reports, etc. Lessee shall furnish
to Agent, with sufficient copies for Lessor and each Participant, the
following, each in such form and such detail as Agent, Lessor or the
Required Participants shall reasonably request:
(i) As soon as available and in no event later than
forty-five (45) days after the last day of each fiscal quarter
of Lessee (other than the last quarter of each fiscal year), a
copy of the Financial Statements of Lessee and its
Subsidiaries (prepared on a consolidated basis) for such
quarter and for the fiscal year to date, certified by the
chief financial officer or treasurer of Lessee to present
fairly the financial condition, results of operations and
other information reflected therein and to have been prepared
in accordance with GAAP (subject to normal year-end audit
adjustments);
(ii) As soon as available and in no event later than
one hundred, five (105) days after the close of each fiscal
year of Lessee, (A) copies of the audited Financial Statements
of Lessee and its Subsidiaries (prepared on a consolidated
basis) for such year, audited by Deloitte & Touche or other
independent certified public accountants of recognized
national standing or otherwise reasonably acceptable to Agent
and Required Participants, (B) copies of the unqualified
opinions (or qualified opinions reasonably acceptable to Agent
and Required Participants) delivered by such accountants in
connection with all such Financial Statements and (C)
certificates of such accountants stating that in making the
examination necessary for their opinion they have reviewed
Paragraph 5.03 and have obtained no knowledge of any violation
by Lessee and its Subsidiaries of the covenants set forth
therein, or if, in the opinion of such accountants, any such
violation has occurred, a statement as to the nature thereof;
(iii) Contemporaneously with the quarterly and
year-end Financial Statements required by the foregoing
clauses (i) and (ii), a compliance certificate of the chief
financial officer or treasurer of Lessee in a form acceptable
to Agent (a "Compliance Certificate") which (A) states that no
Default has occurred and is
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continuing, or, if any such Default has occurred and is
continuing, a statement as to the nature thereof and what
action Lessee proposes to take with respect thereto; (B) sets
forth, for the quarter or year covered by such Financial
Statements or as of the last day of such quarter or year (as
the case may be), the calculation of the financial ratios and
tests provided in Paragraph 5.03; (C) states that the Year
2000 remediation efforts of Lessee and its Subsidiaries are
proceeding as scheduled; and (D) indicates whether an auditor,
regulator or third party consultant has issued a management
letter or other communication regarding the Year 2000
exposure, program or progress of Lessee and/or its
Subsidiaries;
(iv) As soon as available and in no event later than
forty-five (45) days after the last day of each fiscal quarter
of Lessee, a certificate of the chief financial officer or
treasurer of Lessee which sets forth, for the consecutive four
quarter period ending on the last day of such quarter, the
calculation of Lessee's EBITDA and Senior Debt/EBITDA Ratio
for such period;
(v) As soon as possible and in no event later than
five (5) Business Days after any officer of Lessee knows of
the occurrence or existence of (A) any Reportable Event under
any Employee Benefit Plan or Multiemployer Plan; (B) any
actual or threatened litigation, suits, claims or disputes
against Lessee or any of its Subsidiaries involving potential
monetary damages payable by Lessee or its Subsidiaries of
$2,000,000 or more (alone or in the aggregate); (C) any other
event or condition which is reasonably likely to have a
Material Adverse Effect; or (D) any Default; the statement of
the chief financial officer or treasurer of Lessee setting
forth details of such event, condition or Default and the
action which Lessee proposes to take with respect thereto;
(vi) As soon as available and in no event later than
ten (10) Business Days after they are sent, made available or
filed, copies of (A) all registration statements and reports
filed by Lessee or any of its Subsidiaries with any securities
exchange or the Securities and Exchange Commission (including,
without limitation, all 10-Q, 10-K and 8-Q reports); (B) all
reports, proxy statements and financial statements sent or
made available by Lessee or any of its Subsidiaries to its
security holders; and (C) all press releases and other similar
public announcements concerning any material developments in
the business of Lessee or any of its Subsidiaries made
available by Lessee or any of its Subsidiaries to the public
generally;
(vii) As soon as available and in no event later than
one hundred, twenty (120) days after the first day of each
fiscal year of Lessee, the consolidated plan and forecast of
Lessee and its Subsidiaries for such fiscal year and the next
two succeeding years;
(viii) As soon as possible and in no event later than
thirty (30) days after the establishment or acquisition by
Lessee or any of its Subsidiaries of any new
28
<PAGE> 29
Subsidiary or any new Equity Securities of any Existing
Subsidiary, written notice thereof; and
(ix) Such other instruments, agreements,
certificates, opinions, statements, documents and information
relating to the operations or condition (financial or
otherwise) of Lessee or its Subsidiaries, and compliance by
Lessee with the terms of this Agreement and the other
Operative Documents as Agent may from time to time reasonably
request.
(b) Books and Records. Lessee and its Subsidiaries shall at
all times keep proper books of record and account in which full, true
and correct entries will be made of their transactions in accordance
with GAAP.
(c) Inspections.
(i) If no Default then exists, at such Lessor Party's
expense, Lessee and its Subsidiaries shall permit any Person
designated by any Lessor Party, upon reasonable notice and
during normal business hours, to visit and inspect any of the
properties and offices of Lessee and its Subsidiaries, to
examine the books and records of Lessee and its Subsidiaries
and make copies thereof and to discuss the affairs, finances
and business of Lessee and its Subsidiaries with, and to be
advised as to the same by, their officers, auditors and
accountants, all at such times and intervals as any Lessor
Party may reasonably request.
(ii) If a Default then exists, at the expense of
Lessee, Lessee and its Subsidiaries shall permit any Person
designated by any Lessor Party, to visit and inspect any of
the properties and offices of Lessee and its Subsidiaries, to
examine the books and records of Lessee and its Subsidiaries
and make copies thereof and to discuss the affairs, finances
and business of Lessee and its Subsidiaries with, and to be
advised as to the same by, their officers, auditors and
accountants, all at such times and intervals as any Lessor
Party may reasonably request.
(d) Insurance. In addition to the insurance requirements set
forth in the Lease Agreement with respect to the Property, Lessee and
its Subsidiaries shall:
(i) Carry and maintain insurance of the types and in
the amounts customarily carried from time to time during the
term of this Agreement by others engaged in substantially the
same business as such Person and operating in the same
geographic area as such Person, including, but not limited to,
fire, public liability, property damage and worker's
compensation;
(ii) Carry and maintain each policy for such
insurance with financially sound insurers; and
(iii) Deliver to Agent from time to time, as Agent
may reasonably request, schedules setting forth all insurance
then in effect.
29
<PAGE> 30
(e) Governmental Charges and Other Indebtedness. Lessee and
its Material Subsidiaries shall promptly pay and discharge when due (i)
all taxes and other Governmental Charges prior to the date upon which
penalties accrue thereon, (ii) all indebtedness which, if unpaid, could
become a Lien upon the property of Lessee or its Subsidiaries (other
than Liens permitted under Subparagraph 5.02(b)) and (iii) all other
indebtedness which, in each case, if unpaid, is reasonably likely to
have a Material Adverse Effect, except such Indebtedness as may in good
faith be contested or disputed, or for which arrangements for deferred
payment have been made, provided that in each such case appropriate
reserves are maintained to the reasonable satisfaction of Agent.
(f) Use of Proceeds. Lessee shall not use any part of the
proceeds of the Acquisition Advance, directly or indirectly, for the
purpose of purchasing or carrying any Margin Stock or for the purpose
of purchasing or carrying or trading in any securities under such
circumstances as to involve Lessee or any Lessor Party in a violation
of Regulations T, U or X issued by the Federal Reserve Board.
(g) General Business Operations. Each of Lessee and its
Material Subsidiaries shall (i) preserve and maintain its corporate
existence and all of its rights, privileges and franchises reasonably
necessary to the conduct of its business(except as otherwise permitted
pursuant to Subparagraph 5.02(c) and Subparagraph 5.02(d)), (ii)
conduct its business activities in compliance with all Requirements of
Law and Contractual Obligations applicable to such Person, the
violation of which is reasonably likely to have a Material Adverse
Effect and (iii) keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted.
Lessee shall maintain its chief executive office and principal place of
business in the United States and shall not relocate its chief
executive office or principal place of business outside of California
except upon not less than thirty (30) days prior written notice to
Agent.
(h) Year 2000 Compatibility. Each of Lessee and its
Subsidiaries shall take all acts reasonably necessary so that all
internal software, hardware, firmware, equipment, goods and systems
utilized by or material to their business operations or financial
condition will properly perform date sensitive functions before, during
and after the year 2000. At the request of Agent, Lessee shall provide
to Agent such certifications or other evidence of compliance with this
Subparagraph 5.01(h) as Agent may from time to time reasonably require.
5.02. Lessee's Negative Covenants. Until the termination of this
Agreement and the satisfaction in full by Lessee of all Lessee Obligations,
Lessee will comply, and will cause compliance, with the following negative
covenants, unless Lessor and Required Participants shall otherwise consent in
writing:
(a) Indebtedness. Neither Lessee nor any of its Subsidiaries
shall create, incur, assume or permit to exist any Indebtedness except
for the following ("Permitted Indebtedness"):
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<PAGE> 31
(i) The Lessee Obligations under the Operative
Documents;
(ii) Indebtedness of Lessee and its Subsidiaries
listed in Schedule 5.02(a) of the Disclosure Letter and
existing on the date of this Agreement;
(iii) Indebtedness of Lessee and its Subsidiaries
arising from the endorsement of instruments for collection in
the ordinary course of Lessee's or a Subsidiary's business;
(iv) Indebtedness of Lessee and its Subsidiaries for
trade accounts payable, provided that (A) such accounts arise
in the ordinary course of business and (B) no material part of
such account is more than ninety (90) days (or such greater
number of days to which the payee shall agree) past due
(unless subject to a bona fide dispute and for which adequate
reserves have been established);
(v) Cash advances received from customers in the
ordinary course of business;
(vi) Indebtedness of Lessee and its Subsidiaries
under Rate Contracts, provided that all such arrangements are
entered into in connection with bona fide hedging operations
and not for speculation;
(vii) Indebtedness of Lessee and its Subsidiaries
under purchase money loans and Capital Leases incurred by
Lessee or any of its Subsidiaries to finance the acquisition
by such Person of real property, fixtures or equipment
provided that (A) in each case, (y) such Indebtedness is
incurred at the time of, or not later than one hundred twenty
(120) days after, the acquisition of the property so financed
and (z) such Indebtedness does not exceed the purchase price
of the property so financed and (B) the aggregate amount of
such Indebtedness outstanding at any time does not exceed ten
percent (10%) of Lessee's Tangible Net Worth on the last day
of the immediately preceding fiscal year;
(viii) Indebtedness of Lessee and its Subsidiaries
under initial or successive refinancings of any Indebtedness
permitted by clause (ii), (vii), (xii) or (xiii) hereof,
provided that (A) the principal amount of any such refinancing
does not exceed the principal amount of the Indebtedness being
refinanced (except to the extent any excess is otherwise
permitted by another clause of this Subparagraph 5.02(a)) and
(B) the material terms and provisions of any such refinancing
(including maturity, redemption, prepayment, default and
subordination provisions) are no less favorable to Lessor and
Participants than the Indebtedness being refinanced;
(ix) Indebtedness of Lessee and its Subsidiaries with
respect to surety, appeal, indemnity, performance or other
similar bonds in the ordinary course of business;
31
<PAGE> 32
(x) Indebtedness of Lessee and its Subsidiaries to
and among each other;
(xi) Indebtedness of any Subsidiary acquired by
Lessee or any of its Subsidiaries after the date of this
Agreement pursuant to Subparagraph 5.02(d), provided that (A)
such Indebtedness exists at the time such Subsidiary is so
acquired and (B) such Indebtedness was not created in
contemplation of such acquisition;
(xii) Indebtedness of Lessee under the Credit
Documents, provided that the aggregate principal amount of
such Indebtedness outstanding at any time does not exceed
$150,000,000;
(xiii) Indebtedness of Lessee under the ABN Synthetic
Lease Facility, provided that the aggregate amount of the
"Outstanding Lease Amount" (as such term is defined in the ABN
Synthetic Lease Facility) outstanding at any time does not
exceed $10,000,000;
(xiv) Subordinated Indebtedness of Lessee, provided
that the aggregate principal amount of such Indebtedness
outstanding at any time does not exceed $250,000,000; and
(xv) Other Indebtedness of Lessee and its
Subsidiaries, provided that the aggregate amount of such other
Indebtedness outstanding at any time does not exceed ten
percent (10%) of Lessee's Tangible Net Worth on the last day
of the immediately preceding fiscal year.
(b) Liens. Neither Lessee nor any of its Subsidiaries shall
create, incur, assume or permit to exist any Lien on or with respect to
any of its assets or property of any character, whether now owned or
hereafter acquired, except for the following ("Permitted Liens"):
(i) Liens in favor of any Lessor Party created by the
Operative Documents and securing the Lessee Obligations;
(ii) Liens listed in Schedule 5.02(b) of the
Disclosure Letter and existing on the date of this Agreement;
(iii) Liens for taxes or other Governmental Charges
not at the time delinquent or thereafter payable without
penalty or being contested in good faith, provided that
adequate reserves for the payment thereof have been
established in accordance with GAAP;
(iv) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords and other similar Liens
imposed by law incurred in the ordinary course of business for
sums not overdue or being contested in good faith,
32
<PAGE> 33
provided that adequate reserves for the payment thereof have
been established in accordance with GAAP;
(v) (A) Deposits under workers' compensation,
unemployment insurance and social security laws or to secure
the performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, or to secure
statutory obligations of surety or appeal bonds or to secure
indemnity, performance or other similar bonds in the ordinary
course of business and (B) Liens on equipment under operating
leases entered into in the ordinary course of business;
(vi) Zoning restrictions, easements, rights-of-way,
title irregularities and other similar encumbrances, which
alone or in the aggregate are not substantial in amount and do
not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business
of Lessee or any of its Subsidiaries and (B) Liens on
equipment under operating leases entered into in the ordinary
course of business;
(vii) Banker's Liens and similar Liens (including
set-off rights) in respect of bank deposits or brokerage
accounts;
(viii) Liens on any property or assets acquired, or
on the property or assets of any Persons acquired, by Lessee
or any of its Subsidiaries after the date of this Agreement
pursuant to Subparagraph 5.02(d), provided that (A) such Liens
exist at the time such property or assets or such Persons are
so acquired and (B) such Liens were not created in
contemplation of such acquisitions;
(ix) Judgement Liens, provided that such Liens do not
constitute an Event of Default under Subparagraph 5.01(h) of
the Lease Agreement;
(x) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
and in connection with the importation of goods in the
ordinary course of Lessee's and its Subsidiaries' businesses;
(xi) Liens securing Indebtedness which constitutes
Permitted Indebtedness under clause (vii) of Subparagraph
5.02(a) provided that, in each case, such Lien (A) covers only
those assets, the acquisition of which was financed by such
Permitted Indebtedness, and (B) secures only such Permitted
Indebtedness;
(xii) Liens on the property or assets of any
Subsidiary of Lessee in favor of Lessee or any other
Subsidiary of Lessee;
(xiii) Liens incurred in connection with the
extension, renewal or refinancing of the Indebtedness secured
by the Liens described in clause (i), (ii),
33
<PAGE> 34
(xii) above or clause (xv) below, provided that any extension,
renewal or replacement Lien (A) is limited to the property
covered by the existing Lien and (B) secures Indebtedness
which is no greater in amount and has material terms no less
favorable to the Participants than the Indebtedness secured by
the existing Lien;
(xiv) Permitted Property Liens in the Property;
(xv) Liens securing the "Lessee Obligations" (as such
term is defined in the ABN Synthetic Lease Facility) of Lessee
arising under the ABN Synthetic Lease Facility or any
replacement thereof; and
(xvi) Other Liens, provided that the aggregate amount
of the Indebtedness secured by such other Liens does not
exceed at any time five percent (5%) of Lessee's Tangible Net
Worth on the last day of the immediately preceding fiscal
year;
Provided, however, that the foregoing exceptions shall not be construed
to permit any Liens, except for Permitted Property Liens, in any of the
Property or in any Cash Collateral.
(c) Asset Dispositions. Neither Lessee nor any of its Material
Subsidiaries shall sell, lease, transfer or otherwise dispose of all or
any part of its assets or property, whether now owned or hereafter
acquired, except for the following:
(i) Sales of inventory by Lessee and its Subsidiaries
in the ordinary course of their businesses;
(ii) Sales or other dispositions of surplus, damaged,
worn or obsolete equipment or inventory in the ordinary course
of their businesses;
(iii) Sales or other dispositions of Investments
permitted by clause (i) of Subparagraph 5.02(e) for not less
than fair market value;
(iv) Sales or assignments of defaulted receivables to
a collection agency in the ordinary course of business;
(v) Sales for cash of Accounts if such sales are on a
non-recourse basis and at a discount not exceeding fifteen
percent (15%) of the face amount of such Account; provided,
however, that the aggregate amount of Accounts which can be so
transferred in any fiscal quarter of Lessee shall not exceed
the lesser of Twenty-Five Million Dollars ($25,000,000) and
twenty percent (20%) of the gross amount of all Accounts
created during the immediately preceding fiscal quarter;
(vi) Sales of the capital stock of any non-Material
Subsidiary;
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<PAGE> 35
(vii) Sales of the Property or any portion thereof
permitted by the Operative Documents;
(viii) Sales or other dispositions of assets or
property in connection with mergers and acquisitions permitted
under clause (i) of Subparagraph 5.02(d);
(ix) Licenses by Lessee or its Subsidiaries of its
patents, copyrights, trademarks, trade names and service marks
in the ordinary course of its business provided that, in each
case, the terms of the transaction are terms which then would
prevail in the market for similar transactions between
unaffiliated parties dealing at arm's length;
(x) Sales or other dispositions of assets and
property by Lessee to any of Lessee's Subsidiaries or by any
of Lessee's Subsidiaries to Lessee or any of its other
Subsidiaries, provided that unless such Subsidiary is not a
Material Subsidiary or any other Subsidiary in which
seventy-five percent (75%) or more of the equity interest in
such Subsidiary is owned by Lessee or a Material Subsidiary,
the terms of any such sales or other dispositions by or to
Lessee are terms which are no less favorable to Lessee then
would prevail in the market for similar transactions between
unaffiliated parties dealing at arm's length;
(xi) Transfers of property subject to synthetic
leases in connection with the replacement or refinancing of a
synthetic lease for such property, including without
limitation, the sale and leaseback of such property; and
(xii) Other sales, leases, transfers and disposals of
assets and property, provided that (A) no Default has occurred
and is continuing on the date of, or will result after giving
effect to, any such sale, lease, transfer or disposal and (B)
the aggregate book value of all such assets and property so
sold, leased, transferred or otherwise disposed of in any
fiscal year does not exceed five percent (5%) of Lessee's
Tangible Net Worth on the last day of the immediately
preceding fiscal year;
Provided, however, that the foregoing exceptions shall not be construed
to permit any sales, leases, transfers or other disposals of any of the
Property, except as expressly permitted by the Lease Agreement, or of
any of the Cash Collateral.
(d) Mergers, Acquisitions, Etc. Neither Lessee nor any of its
Subsidiaries shall consolidate with or merge into any other Person or
permit any other Person to merge into it, acquire any Person as a new
Subsidiary or acquire all or substantially all of the assets of any
other Person, except for the following:
(i) Lessee and its Subsidiaries may merge with each
other, provided that (A) in any such merger involving Lessee,
Lessee is the surviving corporation and (B) no Default has
occurred and is continuing on the date of, or will result
after giving effect to, any such merger; and
35
<PAGE> 36
(ii) Other acquisitions of any Person as a new
Subsidiary or of all or substantially all of the assets of any
other Person, provided that:
(A) No Default has occurred and is
continuing on the date of, or will result after
giving effect to, any such acquisition; and
(B) The aggregate consideration paid by
Lessee and its Subsidiaries for all such acquisitions
during the period from the date of the Credit
Agreement through the Scheduled Expiration Date does
not exceed (1) $50,000,000 in either cash or
seller-financed Indebtedness or (2) $100,000,000 in
Equity Securities of Lessee and its Subsidiaries
(calculated as of the date such consideration is
paid).
(e) Investments. Neither Lessee nor any of its Subsidiaries
shall make any Investment except for Investments in the following:
(i) Investments permitted by the investment policy of
Lessee set forth in Schedule 5.02(e) or, if any changes to the
investment policy of Lessee are hereafter duly approved by the
Board of Directors of Lessee, in any subsequent investment
policy which is the most recent investment policy delivered by
Lessee to Agent with a certificate of Lessee's chief financial
officer to the effect that such investment policy has been
duly approved by Lessee's Board of Directors and is then in
effect;
(ii) Investments received by Lessee and its
Subsidiaries in connection with the bankruptcy or
reorganization of customers and suppliers and in settlement of
delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(iii) Investments by Lessee and its consolidated
Subsidiaries in each other;
(iv) Investments consisting of loans to employees and
officers for travel, relocation and other similar expenses
incurred in the ordinary course of business;
(v) Investments by Lessee and its Subsidiaries in
interest rate protection, currency swap and other Rate
Contracts (including without limitation the Synthetic Lease
Swap Agreement), provided that all such arrangements are
entered into in connection with bona fide hedging operations
and not for speculation;
(vi) Deposit accounts;
(vii) Endorsements of negotiable instruments in the
ordinary course of business;
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<PAGE> 37
(viii) Investments permitted by Subparagraph 5.02(d);
(ix) Loans, advances or other extensions of credit to
suppliers in the ordinary course of Lessee's or such
Subsidiary's business as presently conducted which do not
exceed in the aggregate Seven Million Five Hundred Thousand
Dollars ($7,500,000) at any time outstanding; and
(x) Other Investments, provided that:
(A) No Default has occurred and is
continuing on the date of, or will result after
giving effect to, any such Investment; and
(B) The aggregate consideration paid by
Lessee and its Subsidiaries for all such Investments
in any fiscal year does not exceed $20,000,000.
(f) Dividends, Redemptions, Etc. Neither Lessee nor any of its
Subsidiaries shall pay any dividends or make any distributions on its
Equity Securities; purchase, redeem, retire, defease or otherwise
acquire for value any of its Equity Securities; return any capital to
any holder of its Equity Securities as such; make any distribution of
assets, Equity Securities, obligations or securities to any holder of
its Equity Securities as such; or set apart any sum for any such
purpose; except as follows:
(i) Either Lessee or any of its Subsidiaries may pay
dividends on its capital stock payable solely in such Person's
own capital stock;
(ii) Any Subsidiary of Lessee may pay dividends to
Lessee; and
(iii) Lessee may repurchase or redeem its capital
stock for cash, provided that, in each case, no Default has
occurred and is continuing on the date of, or will result
after giving effect to, any such payment, repurchase or
redemption.
(g) Change in Business. Neither Lessee nor any of its
Subsidiaries shall engage in any business other than the designing,
manufacturing, assembling, marketing, licensing and distributing, of
semiconductor capital equipment, optical or related equipment or
devices or components thereof, and related activities.
(h) Employee Benefit Plans. Neither Lessee nor any ERISA
Affiliate shall (A) adopt or institute any Employee Benefit Plan that
is an employee pension benefit plan within the meaning of Section 3(2)
of ERISA, (B) take any action which will result in the partial or
complete withdrawal, within the meanings of sections 4203 and 4205 of
ERISA, from a Multiemployer Plan, (C) engage or permit any Person to
engage in any transaction prohibited by section 406 of ERISA or section
4975 of the IRC involving any Employee Benefit Plan or Multiemployer
Plan which would subject Lessee or any ERISA Affiliate to any tax,
penalty or other liability including a liability to indemnify,
37
<PAGE> 38
(D) incur or allow to exist any accumulated funding deficiency (within
the meaning of section 412 of the IRC or section 302 of ERISA), (E)
fail to make full payment when due of all amounts due as contributions
to any Employee Benefit Plan or Multiemployer Plan, (F) fail to comply
with the requirements of section 4980B of the IRC or Part 6 of Title
I(B) of ERISA, or (G) adopt any amendment to any Employee Benefit Plan
which would require the posting of security pursuant to section
401(a)(29) of the IRC, where singly or cumulatively, the above would be
reasonably likely to have a Material Adverse Effect.
(i) Transactions With Affiliates. Neither Lessee nor any of
its Subsidiaries shall enter into any Contractual Obligation with any
Affiliate (other than Lessee or one of its Subsidiaries) or engage in
any other transaction with any such Affiliate except upon terms at
least as favorable to Lessee or such Subsidiary as an arms-length
transaction with unaffiliated Persons.
(j) Accounting Changes. Neither Lessee nor any of its
Subsidiaries shall (i) change its fiscal year (currently October 1
through September 30) or (ii) except as required by GAAP, change its
accounting practices in any manner which would affect Lessee's
compliance with Paragraph 5.03.
5.03. Lessee's Financial Covenants. Until the termination of this
Agreement and the satisfaction in full by Lessee of all Lessee Obligations,
Lessee will comply, and will cause compliance, with the following financial
covenants, unless Lessor and Required Participants shall otherwise consent in
writing:
(a) Quick Ratio. Lessee shall not permit its Quick Ratio on
the last day of any fiscal quarter to be less than 1.00.
(b) Fixed Charge Coverage Ratio. Lessee shall not permit its
Fixed Charge Coverage Ratio for any period set forth below to be less
than the ratio set forth opposite such period below:
<TABLE>
<S> <C> <C>
The consecutive two-quarter
period beginning on April
3, 1999 and ending on
October 1, 1999 2.00;
The consecutive three-quarter
period beginning on April
3, 1999 and ending on
December 31, 1999 2.50;
The consecutive four-quarter
period beginning on April
3, 1999 and ending on
March 31, 2000 3.00;
</TABLE>
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<PAGE> 39
<TABLE>
<S> <C> <C>
Each consecutive four-quarter
period ending on the
last day of each quarter
thereafter 3.50.
</TABLE>
(c) Leverage Ratio. Lessee shall not permit its Leverage Ratio
on the last day of any fiscal quarter to be greater than 0.25.
(d) Tangible Net Worth. Lessee shall not permit its Tangible
Net Worth on the last day of any fiscal quarter (such date to be
referred to in this Subparagraph 5.03(d) as a "determination date")
which occurs after March 31, 1999 (such date to be referred to in this
Subparagraph 5.03(d) as the "base date") to be less than the sum on
such determination date of the following:
(i) Five Hundred Thirteen Million Three Hundred
Thousand Dollars ($513,300,000);
plus
(ii) Eighty percent (80%) of the sum of:
(A) The sum of Lessee's consolidated
quarterly net income (ignoring any quarterly losses)
for each fiscal quarter after the base date through
and including the fiscal quarter ending on the
determination date; and
(B) The after tax effect of the lesser of
(A) the sum of all Watkins-Johnson Charges taken by
Lessee and its Subsidiaries for each fiscal quarter
after the base date through and including the fiscal
quarter ending on the determination date, and (B)
fifteen million Dollars ($15,000,000);
plus
(iii) Seventy-five percent (75%) of the Net Proceeds
of all Equity Securities issued by Lessee and its Subsidiaries
(to Persons other than Lessee or its Subsidiaries) during the
period commencing on the base date and ending on the
determination date;
plus
(iv) Seventy-five percent (75%) of the principal
amount of all debt securities of Lessee and its Subsidiaries
converted into Equity Securities of Lessee and its
Subsidiaries during the period commencing on the base date and
ending on the determination date;
minus
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<PAGE> 40
(v) The lesser of (A) the aggregate amount paid by
Lessee (including reasonable expenses incurred in connection
therewith) to repurchase up to one million shares of its
common stock during the period commencing on the base date and
ending on the determination date and (B) $10,000,000.
(e) Profitability.
(i) Lessee shall not permit its Adjusted Net Income
for the consecutive three-quarter period beginning on April 3,
1999 and ending on December 31, 1999 to be a loss.
(ii) Thereafter, Lessee shall not permit (A) its
Adjusted Net Income for any quarter to be a loss exceeding
$10,000,000, (B) its Adjusted Net Income to be a loss in more
than two quarters in any consecutive four-quarter period
(commencing with the consecutive four-quarter period ending on
March 31, 2000) or (C) its Adjusted Net Income for any
consecutive four-quarter period (commencing with the
consecutive four-quarter period ending on March 31, 2000) to
be a loss.
5.04. Lessor's Covenants. Until the termination of this Agreement and
the satisfaction in full by Lessor of all Lessor Obligations, Lessor will
comply, and will cause compliance, with the following covenants, unless Lessee
and Required Participants shall otherwise consent in writing:
(a) Use of Proceeds. Lessor shall use the proceeds of all
amounts delivered to Lessor by Participants pursuant to Subparagraph
2.05(a) solely to fund the Acquisition Advance.
(b) Lessor Liens. Lessor shall not create, incur, assume or
permit to exist any Lessor Lien (other than any Lien granted to Agent
or any Participant pursuant to the Operative Documents to secure the
Lessor Obligations) and shall promptly discharge, at its sole cost and
expense, any Lessor Lien on the Property (other than any Liens granted
to Agent or any Participant pursuant to the Operative Documents to
secure the Lessor Obligations); provided, however, that Lessor shall
not be required so to discharge any such Lessor Lien if (i) the same is
being (or promptly will be) contested in good faith by appropriate
proceedings diligently prosecuted and there is no immediate risk of
foreclosure upon any of the Property, and (ii) any such contest is
completed and all Lessor Liens are discharged on or prior to the
Expiration Date.
(c) Property Disposition. Lessor shall not sell, lease,
transfer or otherwise dispose of its right, title and interest in the
Property and/or the Operative Documents except as provided in
Subparagraph 2.11(b) or Subparagraph 7.05(d), as provided in the
Purchase Agreement or after retaining the Property following the
Expiration Date in accordance with the Purchase Agreement.
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(d) Chief Executive Office. Lessor shall not change its chief
executive office without giving Agent prompt written notice.
5.05. Participants' Covenants. Each Participant covenants that it will
not fund its portion of the Acquisition Advance with the assets of any "employee
benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I
of ERISA or any "plan" (as defined in Section 4975(e)(1) of the IRC.
SECTION 6. LESSOR, AGENT AND THEIR RELATIONS WITH PARTICIPANTS.
6.01. Appointment of Agent. Each Participant hereby appoints and
authorizes Agent to act as its agent hereunder and under the other Operative
Documents with such powers as are expressly delegated to Agent by the terms of
this Agreement and the other Operative Documents, together with such other
powers as are reasonably incidental thereto. Lessor is not an agent for the
Participants or Agent, and neither this Agreement nor any other Operative
Document shall be construed to constitute or evidence a partnership among the
Lessor Parties or otherwise to impose upon Lessor or Agent any fiduciary duty.
6.02. Powers and Immunities. Neither Lessor nor Agent shall have any
duties or responsibilities except those expressly set forth in this Agreement or
in any other Operative Document, be a trustee for any Participant or have any
fiduciary duty to any Participant. Notwithstanding anything to the contrary
contained herein, neither Lessor nor Agent shall be required to take any action
which is contrary to this Agreement or any other Operative Document or any
applicable Governmental Rule. Neither Lessor nor Agent nor any Participant shall
be responsible to any Participant for any recitals, statements, representations
or warranties made by Lessee or any of its Subsidiaries contained in this
Agreement or in any other Operative Document, for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Operative Document or for any failure by Lessee or any of its
Subsidiaries to perform their respective obligations hereunder or thereunder.
Lessor and Agent may employ agents and attorneys-in-fact and shall not be
responsible to any Participant for the negligence or misconduct of any such
agents or attorneys-in-fact selected by it with reasonable care. Neither Lessor
nor Agent nor any of their respective directors, officers, employees, agents or
advisors shall be responsible to any Participant for any action taken or omitted
to be taken by it or them hereunder or under any other Operative Document or in
connection herewith or therewith, except for its or their own gross negligence
or willful misconduct. Except as otherwise provided under this Agreement, Lessor
and Agent shall take such action with respect to the Operative Documents as
shall be directed by the Required Participants.
6.03. Reliance. Lessor or Agent shall be entitled to rely upon any
certificate, notice or other document (including any cable, telegram, facsimile
or telex) believed by it in good faith to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by Lessor or Agent with reasonable care. As to any other
matters not expressly provided for by this Agreement, neither Lessor nor Agent
shall be required to take any action or
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exercise any discretion, but shall be required to act or to refrain from acting
upon instructions of the Required Participants and shall in all cases be fully
protected by the Participants in acting, or in refraining from acting, hereunder
or under any other Operative Document in accordance with the instructions of the
Required Participants, and such instructions of the Required Participants and
any action taken or failure to act pursuant thereto shall be binding on all of
the Participants.
6.04. Defaults. Neither Lessor nor Agent shall be deemed to have
knowledge or notice of the occurrence of any Default unless Lessor and Agent
have received a written notice from a Participant or Lessee, referring to this
Agreement, describing such Default and stating that such notice is a "Notice of
Default". If Lessor and Agent receive such a notice of the occurrence of a
Default, Agent shall give prompt notice thereof to the Participants. Lessor and
Agent shall take such action with respect to such Default as shall be reasonably
directed by the Required Participants; provided, however, that until Lessor and
Agent shall have received such directions, Lessor or Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interest of the
Participants.
6.05. Indemnification. Without limiting the obligations of Lessee
hereunder, each Participant agrees to indemnify Lessor and Agent, ratably in
accordance with such Participant's Proportionate Share, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may at
any time be imposed on, incurred by or asserted against Lessor or Agent in any
way relating to or arising out of this Agreement or any documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby or the enforcement of any of the terms hereof or thereof; provided,
however, that no Participant shall be liable for any of the foregoing to the
extent they arise from Lessor's or Agent's gross negligence or willful
misconduct. Lessor or Agent shall be fully justified in refusing to take or in
continuing to take any action hereunder unless it shall first be indemnified to
its satisfaction by the Participants against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The obligations of each Participant under this Paragraph 6.05 shall
survive the payment and performance of the Lessee Obligations, the termination
of this Agreement and any Participant ceasing to be a party to this Agreement
(with respect to events which occurred prior to the time such Participant ceased
to be a Participant hereunder).
6.06. Non-Reliance. Each Participant represents that it has,
independently and without reliance on Lessor, Agent, or any other Participant,
and based on such documents and information as it has deemed appropriate, made
its own appraisal of the business, prospects, management, financial condition
and affairs of Lessee and the Subsidiaries and its own decision to enter into
this Agreement and agrees that it will, independently and without reliance upon
Lessor, Agent or any other Participant, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
appraisals and decisions in taking or not taking action under this Agreement or
any other Operative Document. Neither Lessor nor Agent nor any of their
respective affiliates nor any of their respective directors, officers,
employees, agents or advisors shall (a) be required to keep any Participant
informed as to the performance or observance by Lessee or any of its
Subsidiaries of the obligations under this Agreement or any
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other document referred to or provided for herein or to make inquiry of, or to
inspect the properties or books of Lessee or any of its Subsidiaries; (b) have
any duty or responsibility to provide any Participant with any credit or other
information concerning Lessee or any of its Subsidiaries which may come into the
possession of Lessor or Agent, except for notices, reports and other documents
and information expressly required to be furnished to the Participants by Lessor
or Agent hereunder; or (c) be responsible to any Participant for (i) any
recital, statement, representation or warranty made by Lessee or any officer,
employee or agent of Lessee in this Agreement or in any of the other Operative
Documents, (ii) the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any Operative Document, (iii) the value or
sufficiency of the Property or the validity or perfection of any of the liens or
security interests intended to be created by the Operative Documents, or (iv)
any failure by Lessee to perform its obligations under this Agreement or any
other Operative Document.
6.07. Resignation or Removal of Agent. Agent may resign at any time by
giving thirty (30) days prior written notice thereof to Lessee and the
Participants, and Agent may be removed at any time with or without cause by the
Required Participants. Upon any such resignation or removal, the Required
Participants shall have the right to appoint a successor Agent, which Agent, if
not a Participant, shall be reasonably acceptable to Lessee; provided, however,
that Lessee shall have no right to approve a successor Agent if an Event of
Default has occurred and is continuing. 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 the
duties and obligations thereafter arising hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section VI and
any other provision of this Agreement or any other Operative Document which by
its terms survives the termination of this Agreement shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.
6.08. Authorization. Agent is hereby authorized by the Participants to
execute, deliver and perform, each of the Operative Documents to which Agent is
or is intended to be a party and each Participant agrees to be bound by all of
the agreements of Agent contained in the Operative Documents.
6.09. Lessor and Agent in their Individual Capacities. Lessor, Agent
and their respective affiliates may make loans to, accept deposits from and
generally engage in any kind of banking or other business with Lessee and its
Subsidiaries and affiliates as though Lessor were not Lessor hereunder and Agent
were not Agent hereunder. With respect to the Acquisition Advance made by Agent
in its capacity as a Participant, Agent in its capacity as a Participant shall
have the same rights and powers under this Agreement and the other Operative
Documents as any other Participant and may exercise the same as though it were
not Agent, and the terms "Participant" or "Participants" shall include Agent in
its capacity as a Participant.
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SECTION 7. MISCELLANEOUS
7.01. Notices. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Lessor, Lessee, any Participant or Agent under this Agreement or the other
Operative Documents shall be in writing and faxed, mailed or delivered, if to
Lessor, Lessee or Agent, at its respective facsimile number or address set forth
below or, if to any Participant, at the address or facsimile number specified
beneath the heading "Address for Notices" under the name of such Participant in
Part B of Schedule I (or to such other facsimile number or address for any party
as indicated in any notice given by that party to the other parties); provided,
however, that any notice to Lessor shall be delivered to Agent as provided in
Subparagraph 2.02(c) hereof. All such notices and communications shall be
effective (a) when sent by an overnight courier service of recognized standing,
on the second Business Day following the deposit with such service; (b) when
mailed, first class postage prepaid and addressed as aforesaid through the
United States Postal Service, upon receipt; (c) when delivered by hand, upon
delivery; and (d) when faxed, upon confirmation of receipt; provided, however,
that any of the Acquisition Request, Notice of Rental Period Selection,
Extension Request, Notice of Term Purchase Option Exercise or Notice of Return
Option Exercise delivered to Lessor or Agent shall not be effective until
received by Lessor or Agent.
Lessee: Silicon Valley Group, Inc.
101 Metro Drive, Suite 400
San Jose, CA 95110
Attn: Chief Financial Officer
Tel. No: (408) 434-0500
Fax. No: (408) 434-0216
Lessor: SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
Tel. No: (206) 684-6085
Fax. No: (206) 684-6035
With a copy to:
KeyCorp Leasing
54 State Street
Albany, NY 12201
Attn: Donald Davis
Tel. No: (518) 486-8984
Fax. No: (518) 487-4635
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Agent: KEYBANK NATIONAL ASSOCIATION
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
Tel. No: (206) 684-6085
Fax. No: (206) 684-6035
With a copy to:
KEYBANK NATIONAL ASSOCIATION
4 Embarcadero Center, Suite 3660
San Francisco, CA 94111-5812
Attn: Kevin McBride
Tel. No: (415) 248-1252
Fax. No: (415) 243-1248
Each Acquisition Request, Notice of Rental Period Selection, Extension Request,
Notice of Term Purchase Option Exercise and Notice of Return Option Exercise
shall be given by Lessee to Agent's office located at its address referred to
above during its normal business hours; provided, however, that any such notice
received by Agent after 11:00 a.m. on any Business Day shall be deemed received
by Agent on the next Business Day. In any case where this Agreement authorizes
notices, requests, demands or other communications by Lessee to any Lessor Party
to be made by telephone or facsimile, any Lessor Party may conclusively presume
that anyone purporting to be a person designated in any incumbency certificate
or other similar document received by such Lessor Party is such a person.
7.02. Expenses. Lessee shall pay on demand, whether or not the
Acquisition Advance is made hereunder, (a) all reasonable fees and expenses,
including reasonable attorneys' fees and expenses, incurred by Lessor and Agent
in connection with the preparation, negotiation, execution and delivery of, the
consummation of the transactions contemplated by and the exercise of their
duties under, this Agreement and the other Operative Documents, and the
preparation, negotiation, execution and delivery of amendments and waivers
hereunder and thereunder and (b) all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by the Lessor Parties in the
enforcement or attempted enforcement of any of the Lessee Obligations or in
exercising or preserving any of the Lessor Parties' rights and remedies
(including all such fees and expenses incurred in connection with any "workout"
or restructuring affecting the Operative Documents or the Lessee Obligations or
any bankruptcy or similar proceeding involving Lessee or any of its
Subsidiaries). As used herein, the term "reasonable attorneys' fees and
expenses" shall include, without limitation, allocable costs and expenses of
Agent's and Participants' in-house legal counsel and staff. The obligations of
Lessee under this Paragraph 7.02 shall survive the payment and performance of
the Lessee Obligations and the termination of this Agreement.
7.03. Indemnification. To the fullest extent permitted by law, Lessee
agrees to protect, indemnify, defend and hold harmless, on an after-tax basis,
the Lessor Parties and the other
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Indemnitees from and against any and all liabilities, losses, damages or
expenses of any kind or nature (including Indemnified Taxes) and from any suits,
claims or demands (including in respect of or for reasonable attorney's fees and
other expenses) arising on account of or in connection with any matter or thing
or action or failure to act by Indemnitees, or any of them, arising out of or
relating to the Operative Documents, any transaction contemplated thereby
(including arising under the Acquisition Agreement) or the Property, including
any use by Lessee of the Property or the Acquisition Advance, except to the
extent such liability arises from (a) the willful misconduct or gross negligence
of such Indemnitee, (b) any act or occurrence which first occurs after the Lease
Agreement has terminated and Lessee is no longer in possession of the Property,
(c) the breach by any Lessor Party of its obligations under the Operative
Documents; (d) Hazardous Materials to the extent such indemnification is limited
pursuant to Subparagraph 3.06(c) of the Lease Agreement; or (e) except as
otherwise specifically provided in the Operative Documents, the performance by
any Lessor Party of its obligations thereunder. Upon receiving knowledge of any
suit, claim or demand asserted by a third party that any Lessor Party believes
is covered by this indemnity, such Lessor Party shall give Lessee notice of the
matter and an opportunity to defend it, at Lessee's sole cost and expense, with
legal counsel reasonably satisfactory to such Lessor Party; provided, however,
that Lessee shall not be responsible for the costs and expenses of more than one
such counsel (other than any local counsel and special counsel) in any such
action. Such Lessor Parties may also require Lessee to defend the matter. Any
failure or delay of any Lessor Party to notify Lessee of any such suit, claim or
demand shall not relieve Lessee of its obligations under this Paragraph 7.03 but
shall reduce such obligations to the extent of any increase in those obligations
caused solely by any such failure or delay that is unreasonable. The obligations
of Lessee under this Paragraph 7.03 shall survive the payment and performance of
the Lessee Obligations and the termination of this Agreement.
7.04. Waivers; Amendments. Any term, covenant, agreement or condition
of this Agreement or any other Operative Document may be amended or waived, and
any consent under this Agreement or any other Operative Document may be given,
if such amendment, waiver or consent is in writing and is signed by Lessor,
Lessee and the Required Participants (or Agent on behalf of the Required
Participants with the written approval of the Required Participants); provided,
however that:
(a) Any amendment, waiver or consent which (i) increases the
Total Commitment, (ii) extends the Scheduled Expiration Date, (iii)
reduces the Rental Rate or any fees or other amounts payable for the
account of the Participants hereunder, (iv) postpones any date
scheduled for any payment of Base Rent or any fees or other amounts
payable for the account of the Participants hereunder or thereunder,
(v) amends Paragraph 2.06 or this Paragraph 7.04, (vi) amends the
definition of Required Participants or (vii) releases Lessor's interest
in any substantial part of the Property, must be in writing and signed
or approved in writing by all Participants;
(b) Any amendment, waiver or consent which increases or
decreases the Proportionate Share of any Participant must be in writing
and signed by such Participant; and
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<PAGE> 47
(c) Any amendment, waiver or consent which affects the rights
or obligations of Agent must be in writing and signed by Agent.
No failure or delay by any Lessor Party in exercising any right under this
Agreement or any other Operative Document shall operate as a waiver thereof or
of any other right hereunder or thereunder nor shall any single or partial
exercise of any such right preclude any other further exercise thereof or of any
other right hereunder or thereunder. Unless otherwise specified in such waiver
or consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
7.05. Successors and Assigns.
(a) Binding Effect. This Agreement and the other Operative
Documents shall be binding upon and inure to the benefit of Lessee,
Lessor, the Participants, Agent and their respective permitted
successors and assigns. All references in this Agreement to any Person
shall be deemed to include all successors and assigns of such Person.
(b) Participant Assignments.
(i) Any Participant may, at any time, sell and assign
to any other Participant or any Eligible Assignee
(individually, an "Assignee Participant") all or a portion of
its rights and obligations under this Agreement and the other
Operative Documents (such a sale and assignment to be referred
to herein as an "Assignment") pursuant to an assignment
agreement in the form of Exhibit K (an "Assignment
Agreement"), executed by each Assignee Participant and such
assignor Participant (an "Assignor Participant") and delivered
to Agent for its acceptance and recording in the Register;
provided, however, that:
(A) Without the written consent of Lessor,
Agent and, if no Default has occurred and is
continuing, Lessee (which consent of Lessor, Agent
and Lessee shall not be unreasonably withheld), no
Participant may make any Assignment to any Assignee
Participant which is not, immediately prior to such
Assignment, a Participant hereunder or an Affiliate
thereof; or
(B) Without the written consent of Lessor,
Agent and, if no Default has occurred and is
continuing, Lessee (which consent of Lessor, Agent
and Lessee shall not be unreasonably withheld), no
Participant may make any Assignment to any Assignee
Participant if, after giving effect to such
Assignment, the Commitment of such Participant or
such Assignee Participant would be less than Five
Million Dollars ($5,000,000) (except that a
Participant may make an Assignment which reduces its
Commitment to zero without the written consent of
Lessor, Agent or Lessee);
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(C) Without the written consent of Lessor,
Agent and, if no Default has occurred and is
continuing, Lessee (which consent of Lessor, Agent
and Lessee shall not be unreasonably withheld), no
Participant may make any Assignment of its
Outstanding Tranche A Participation Amount which does
not assign and delegate an equal pro rata interest in
(1) such Participant's Tranche A Percentage, and (2)
such Participant's other rights, duties and
obligations relating to the Tranche A Portion under
this Agreement and the other Operative Documents; or
(D) Without the written consent of Lessor,
Agent and, if no Default has occurred and is
continuing, Lessee (which consent of Lessor, Agent
and Lessee shall not be unreasonably withheld), no
Tranche B Participant may make any Assignment of its
Outstanding Tranche B Participation Amount which does
not assign and delegate an equal pro rata interest in
(1) such Participant's Tranche B Percentage, and (2)
such Participant's other rights, duties and
obligations relating to the Tranche B Portion under
this Agreement and the other Operative Documents.
Upon such execution, delivery, acceptance and recording of
each Assignment Agreement, from and after the Assignment
Effective Date determined pursuant to such Assignment
Agreement, (y) each Assignee Participant thereunder shall be a
Participant hereunder with a Tranche A Percentage, Tranche B
Percentage and Proportionate Share as set forth on Attachment
1 to such Assignment Agreement (under the caption "Tranche
Percentages and Proportionate Shares After Assignment") and
shall have the rights, duties and obligations of such a
Participant under this Agreement and the other Operative
Documents, and (z) the Assignor Participant thereunder shall
be a Participant with a Tranche A Percentage, Tranche B
Percentage and Proportionate Share as set forth on Attachment
1 to such Assignment Agreement (under the caption "Tranche
Percentages and Proportionate Shares After Assignment") , or,
if the Proportionate Share of the Assignor Participant has
been reduced to 0%, the Assignor Participant shall cease to be
a Participant and to have any obligation to fund any portion
of the Acquisition Advance; provided, however, that any such
Assignor Participant which ceases to be a Participant shall
continue to be entitled to the benefits of any provision of
this Agreement which by its terms survives the termination of
this Agreement. Each such Assignment Agreement shall be deemed
to amend Schedule I to the extent, and only to the extent,
necessary to reflect the addition of each Assignee
Participant, the deletion of each Assignor Participant which
reduces its Proportionate Share to 0% and the resulting
adjustment of Tranche A Percentages, Tranche B Percentages and
Proportionate Shares arising from the purchase by each
Assignee Participant of all or a portion of the rights and
obligations of an Assignor Participant under this Agreement
and the other Operative Documents. Each Assignee Participant
which was not previously a Participant hereunder and which is
not incorporated under the laws of the United States of
America or a state thereof shall, within three (3) Business
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<PAGE> 49
Days of becoming a Participant, deliver to Lessee and Agent
two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 (or successor applicable form), as
the case may be, certifying in each case that such Participant
is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income
taxes.
(ii) Agent shall maintain at its address referred to
in Paragraph 7.01 a copy of each Assignment Agreement
delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Participants and
the Tranche A Percentage, Tranche B Percentage and
Proportionate Share of each Participant from time to time. The
entries in the Register shall be conclusive in the absence of
manifest error, and Lessee, Agent and the Participants may
treat each Person whose name is recorded in the Register as
the owner of the interests recorded therein for all purposes
of this Agreement. The Register shall be available for
inspection by Lessee or any Participant at any reasonable time
and from time to time upon reasonable prior notice.
(iii) Upon its receipt of an Assignment Agreement
executed by an Assignor Participant and an Assignee
Participant (and, to the extent required by clause (i) of this
Subparagraph 7.05(b), by Lessor, Agent and Lessee), together
with payment to Agent by Assignor Participant of a
registration and processing fee of $3000, Agent shall (A)
promptly accept such Assignment Agreement and (B) on the
Assignment Effective Date determined pursuant thereto record
the information contained therein in the Register and give
notice of such acceptance and recordation to Lessor, the
Participants and Lessee. Agent may, from time to time at its
election, prepare and deliver to Lessor, the Participants and
Lessee a revised Schedule I reflecting the names, addresses
and respective Proportionate Shares of all Participants then
parties hereto.
(iv) Subject to Paragraph 7.13, the Lessor Parties
may disclose the Operative Documents and any financial or
other information relating to Lessee or any Subsidiary to each
other or to any potential Assignee Participant.
(c) Participant Subparticipations. Any Participant may at any
time sell to one or more banks or other financial institutions
("Subparticipants") subparticipation interests in the rights and
interests of such Participant under this Agreement and the other
Operative Documents. In the event of any such sale by a Participant of
subparticipation interests, such Participant's obligations under this
Agreement and the other Operative Documents shall remain unchanged,
such Participant shall remain solely responsible for the performance
thereof and Lessee and the other Lessor Parties shall continue to deal
solely and directly with such Participant in connection with such
Participant's rights and obligations under this Agreement. Any
agreement pursuant to which any such sale is effected may require the
selling Participant to obtain the consent of the Subparticipant in
order for such Participant to agree in writing to any amendment, waiver
or consent of a type specified in clause (i), (ii), (iii) or (iv) of
Subparagraph 7.04(a) but may not
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otherwise require the selling Participant to obtain the consent of such
Subparticipant to any other amendment, waiver or consent hereunder.
Lessee agrees that any Participant which has transferred any
subparticipation interest shall, notwithstanding any such transfer, be
entitled to the full benefits accorded such Participant under Paragraph
2.12, Paragraph 2.13, and Paragraph 2.14, as if such Participant had
not made such transfer.
(d) Lessor Assignments. Lessor may, upon one (1) month's prior
written notice to Lessee and Agent, sell and assign all of its right,
title and interest in the Property and its rights, powers, privileges,
duties and obligations under this Agreement and the other Operative
Documents, provided that:
(i) If such sale and assignment is effected after
either (A) the occurrence of a Change of Law which makes it
unlawful or unreasonably burdensome for Lessor to hold legal
or beneficial title to the Property or to perform its
obligations and duties under this Agreement and the other
Operative Documents or (B) the resignation or removal of the
Agent which was the Agent at the time Lessor became the
Lessor, the purchaser/assignee (the "successor Lessor") shall
be either (1) a Participant or an Eligible Assignee that is a
multi-asset Person having substantial assets beyond its
interest in the Property and the Operative Documents or (2) a
Person approved as provided in clause (ii) below; or
(ii) If such sale and assignment is effected in any
other circumstance, the successor Lessor shall be a Person
that is approved in writing by Agent, Required Participants
and, if no Default has occurred and is continuing, Lessee
(which consents of Agent, Required Participants and Lessee
shall not be unreasonably withheld); and
(iii) The successor Lessor executes such documents,
instruments and agreements as may reasonably be necessary to
evidence its agreement to assume all of the obligations and
duties of the Lessor under this Agreement and the other
Operative Documents.
Upon the consummation of any such sale and assignment, (A) the
successor Lessor shall become the "Lessor" and shall succeed to and
become vested with all the rights, powers, privileges, duties and
obligations of the Lessor under this Agreement and the other Operative
Documents and (B) the retiring Lessor shall be discharged from the
duties and obligations of the Lessor thereafter arising under this
Agreement and the other Operative Documents which are assumed by the
successor Lessor. After any retiring Lessor's discharge as the Lessor,
the provisions of Section VI and any other provision of this Agreement
or any other Operative Document which by its terms survives the
termination of this Agreement shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it
was acting as the Lessor.
7.06. Setoff. In addition to any rights and remedies of the
Participants provided by law, each Participant shall have the right, with the
prior written consent of Agent, but without prior
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notice to or consent of Lessee, any such notice and consent being expressly
waived by Lessee to the extent permitted by applicable law, upon the occurrence
and during the continuance of an Event of Default, to set-off and apply against
the Lessee Obligations any amount owing from such Participant to Lessee. The
aforesaid right of set-off may be exercised by such Participant against Lessee
or against any trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, receiver or execution, judgment or attachment creditor of
Lessee or against anyone else claiming through or against Lessee or such trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off may not have been exercised by such Participant
at any prior time. Each Participant agrees promptly to notify Lessee after any
such set-off and application made by such Participant, provided that the failure
to give such notice shall not affect the validity of such set-off and
application.
7.07. No Third Party Rights. Nothing expressed in or to be implied from
this Agreement is intended to give, or shall be construed to give, any Person,
other than the parties hereto and their permitted successors and assigns
hereunder, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
7.08. Partial Invalidity. If at any time any provision of this
Agreement or any other Operative Document is or becomes illegal, invalid or
unenforceable in any respect under the law or any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of this
Agreement or the other Operative Documents nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
7.09. JURY TRIAL. EACH OF LESSEE AND THE LESSOR PARTIES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY AS TO ANY ISSUE RELATING TO THE OPERATIVE DOCUMENTS IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OPERATIVE
DOCUMENT.
7.10. Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
7.11. No Joint Venture, Etc. Neither this Agreement nor any other
Operative Document nor any transaction contemplated hereby or thereby shall be
construed to (a) constitute a partnership or joint venture between Lessee and
any Lessor Party or (b) impose upon any Lessor Party any agency relationship
with or fiduciary duty to Lessee.
7.12. Usury Savings Clause. Nothing contained in this Agreement or any
other Operative Documents shall be deemed to require the payment of interest or
other charges by Lessee in excess of the amount the applicable Lessor Parties
may lawfully charge under applicable usury laws. In the event any Lessor Party
shall collect monies which are deemed to constitute interest which would
increase the effective interest rate to a rate in excess of that
51
<PAGE> 52
permitted to be charged by applicable law, all such sums deemed to constitute
excess interest shall, upon such determination, at the option of Lessor, be
returned to Lessee or credited against other Lessee Obligations.
7.13. Confidentiality. No Lessor Party shall disclose to any Person any
information with respect to Lessee or any of its Subsidiaries which is furnished
pursuant to this Agreement or under the other Operative Documents, except that
any Lessor Party may disclose any such information (a) to its own directors,
officers, employees, auditors, counsel and other advisors and to its Affiliates;
(b) to any other Lessor Party; (c) which is otherwise available to the public;
(d) if required or appropriate in any report, statement or testimony submitted
to any Governmental Authority having or claiming to have jurisdiction over such
Lessor Party; (e) if required in response to any summons or subpoena; (f) in
connection with any enforcement by any Lessor Party of its rights under this
Agreement or the other Operative Documents or any litigation among the parties
relating to the Operative Documents or the transactions contemplated thereby;
(g) to comply with any Requirement of Law applicable to such Lessor Party; (h)
to any Assignee Participant or Subparticipant or any prospective Assignee
Participant or Subparticipant, provided that such Assignee Participant or
Subparticipant or prospective Assignee Participant or Subparticipant agrees to
be bound by this Paragraph 7.13; or (i) otherwise with the prior consent of
Lessee; provided, however, that (i) any Lessor Party served with any summons or
subpoena demanding the disclosure of any such information shall use reasonable
efforts to notify Lessee promptly of such summons or subpoena if not prohibited
by any Requirement of Law and, if requested by Lessee and not disadvantageous to
such Lessor Party, to cooperate with Lessee in obtaining a protective order
restricting such disclosure, and (ii) any disclosure made in violation of this
Agreement shall not affect the obligations of Lessee and its Subsidiaries under
this Agreement and the other Operative Documents.
7.14. Governing Law. Unless otherwise provided in any Operative
Document, this Agreement and each of the other Operative Documents shall be
governed by and construed in accordance with the laws of the State of California
without reference to conflicts of law rules.
[The first signature page follows.]
52
<PAGE> 53
IN WITNESS WHEREOF, Lessee, Lessor, the Participants and Agent have
caused this Agreement to be executed as of the day and year first above written.
LESSEE: SILICON VALLEY GROUP, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
LESSEE: SILICON VALLEY GROUP, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
AGENT: KEYBANK NATIONAL ASSOCIATION
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
PARTICIPANTS: KEYBANK NATIONAL ASSOCIATION
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
SELCO SERVICE CORPORATION
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
53
<PAGE> 54
SCHEDULE I
PARTICIPANTS
PART A
TRANCHE PERCENTAGES AND PROPORTIONATE SHARES
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B PROPORTIONATE
PARTICIPANT PERCENTAGE PERCENTAGE SHARE
---------- ----------- ---------- -------------
<S> <C> <C> <C>
KeyBank National Association 81.49300000% 0% 81.49300000%
SELCO Service Corporation 0% 18.50700000% 18.50700000%
TOTAL 81.49300000% 18.50700000% 100.00000000%
</TABLE>
I-1
<PAGE> 55
PART B - ADDRESSES, ETC.
KEYBANK NATIONAL ASSOCIATION
Applicable Participating Office:
KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
Tel. No: (206) 684-6085
Fax No: (206) 684-6035
Address for Notices:
KeyBank National Association
431 E. Park Center Boulevard
Boise, ID 83706
Attn: Vicky Heineck or Margaret Herring
Tel. No: (800) 297-5518
Fax No: (800) 297-5495
With a copy to:
KeyBank National Association
4 Embarcadero Center, Suite 3660
San Francisco, CA 94111
Attn: Kevin McBride
Tel. No: (415) 248-1252
Fax No: (415) 243-1248
Wiring Instructions:
KeyBank National Association
Seattle, WA
NW Region Specialty Services
Account #: 01500163
Reference: Silicon Valley Group,
Inc. Synthetic Lease
I-2
<PAGE> 56
SELCO SERVICE CORPORATION
Applicable Participating Office:
SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
Tel. No: (206) 684-6085
Fax No: (206) 684-6035
Address for Notices:
KeyBank National Association
431 E. Park Center Boulevard
Boise, ID 83706
Attn: Vicky Heineck or Margaret Herring
Tel. No: (800) 297-5518
Fax No: (800) 297-5495
With a copy to:
KeyBank National Association
4 Embarcadero Center, Suite 3660
San Francisco, CA 94111
Attn: Kevin McBride
Tel. No: (415) 248-1252
Fax No: (415) 243-1248
and
KeyCorp Leasing
54 State Street
Albany, NY 12201
Attn: Donald Davis
Tel. No: (518) 486-8984
Fax. No: (518) 487-4635
Wiring Instructions:
KeyBank National Association
Seattle, WA
NW Region Specialty Services
Account #: 01500163
I-3
<PAGE> 57
Reference: Silicon Valley Group, Inc. Synthetic Lease
I-4
<PAGE> 58
II-2
SCHEDULE II
PRICING GRID
(For LIBOR Rental Rate)
<TABLE>
<CAPTION>
SENIOR DEBT/ PRICING APPLICABLE MARGIN
EBITDA PERIOD FOR
EBITDA RATIO LEVEL LIBOR RENTAL RATE
------ ----------- ------- -----------------
<S> <C> <C> <C> <C>
>/=$150,000,000 </=1.00 1 0.610%
<$150,000,000 </=1.00 2 0.710%
>1.00,
</=1.50 3 0.960%
>/=1.50,
<2.00 4 1.335%
>/=2.00 5 1.460%
</TABLE>
EXPLANATION
1. The Applicable Margin with respect to the LIBOR Rental Rate will be set
for each Pricing Period and will vary depending upon whether such
period is a Level 1 Period, a Level 2 Period, a Level 3 Period, a Level
4 Period or a Level 5 Period.
2. The first Pricing Period, which commences on the date of this Agreement
and ends on March 31, 2000, will be a Level 5 Period.
3. The second pricing period, which commences on April 1, 2000 and ends on
June 30, 2000, will be a Level 1 Period, a Level 2 Period, a Level 3
Period, a Level 4 Period or a Level 5 Period depending upon Lessee's
EBITDA and Senior Debt/EBITDA Ratio for the consecutive four-quarter
period ending on December 31, 1999. (Lessee's EBITDA is a factor only
in determining whether a Pricing Period will be a Level 1 Period or a
Level 2 Period when Lessee's Senior Debt/EBITDA is less than 1.00.)
3. Each Pricing Period thereafter will be a Level 1 Period, a Level 2
Period, a Level 3 Period, a Level 4 Period or a Level 5 Period
depending upon Lessee's EBITDA and Senior Debt/EBITDA Ratio for the
consecutive four-quarter period ending on the last day of the fiscal
quarter ending one quarter prior to the first day of such Pricing
Period.
4. Examples:
II-1
<PAGE> 59
(a) Lessee's EBITDA and Senior Debt/EBITDA Ratio for the
consecutive four-quarter period ending on March 31, 2000 are
$160,000,000 and 0.90, respectively. The Pricing Period of July 1, 2000
through September 30, 2000 will be a Level 1 Period.
(b) Lessee's EBITDA and Senior Debt/EBITDA Ratio for the
consecutive four-quarter period ending on June 30, 2000 are
$149,000,000 and 0.98, respectively. The Pricing Period of October 1,
2000 through December 31, 2000 will be a Level 2 Period.
(c) Lessee's EBITDA and Senior Debt/EBITDA Ratio for the
consecutive four-quarter period ending on September 30, 2000 are
$160,000,000 and 1.35, respectively. The Pricing Period of January 1,
2001 through March 31, 2001 will be a Level 3 Period.
II-2
<PAGE> 60
SCHEDULE 1.01
DEFINITIONS
"ABN Synthetic Lease Facility" shall mean that certain synthetic lease
facility entered into on or about December 15, 1998 among Lessee, Lease Plan
North America, Inc., the financial institutions from time to time party thereto,
and ABN AMRO Bank N.V., as agent for such financial institutions, with respect
to the lease by Lessee of certain land and improvements located in San Jose,
California.
"Accounts" shall mean, with respect to any Person, all accounts
receivable owned by such Person including all "accounts" within the meaning of
Section 9106 of the UCC, and
"Account" shall mean any one of the Accounts.
"Acquisition Advance" shall have the meaning given to that term in
Subparagraph 2.01(b) of the Participation Agreement.
"Acquisition Agreement" shall mean that certain Securities Purchase
Agreement, dated April 30, 1999, by and among Lessee and Seller.
"Acquisition Charge Cap" shall mean, as of any date of calculation, the
lesser of (a) $50,000,000 and (b) an amount equal to five percent (5%) of
Lessee's Tangible Net Worth on the last day of the immediately preceding fiscal
year.
"Acquisition Price" shall mean the total purchase price payable by
Lessor for the Property pursuant to the Acquisition Agreement.
"Acquisition Request" shall have the meaning given to that term in
Paragraph 2.03 of the Participation Agreement.
"Adjusted Net Income" shall mean, with respect to Lessee for any
period, the sum, determined on a consolidated basis in accordance with GAAP
where applicable, of:
(a) The net income or net loss of Lessee and its Subsidiaries
for such period after provision for income taxes;
plus
(b) To the extent deducted in calculating such net income or
net loss for such period under clause (a) above, all non-recurring,
non-cash charges taken by Lessee and its Subsidiaries during such
period in connection with acquisitions permitted by Subparagraph
5.02(d) of the Participation Agreement (including charges for the
write-off of in-process research and development costs relating to such
acquisitions); provided, however, that the sum of all such charges so
added to net income or net loss in calculating
1.01(a)-1
<PAGE> 61
the Adjusted Net Income of Lessee during the period from the date of
the ABN Synthetic Lease Facility through the Scheduled Expiration Date
shall not at any time exceed the Acquisition Charge Cap at such time;
plus
(c) To the extent deducted in calculating such net income or
net loss for such period under clause (a) above, all Watkins-Johnson
Charges taken by Lessee and its Subsidiaries during such period;
provided, however, that the sum of all such charges so added to net
income or net loss in calculating the Adjusted Net Income of Lessee
during the period from the date of the Credit Agreement through the
Scheduled Expiration Date shall not at any time exceed fifteen million
Dollars ($15,000,000).
"Affiliate" shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially or as a
trustee, guardian or other fiduciary, five percent (5%) or more of any class of
Equity Securities of such Person, (b) each Person that controls, is controlled
by or is under common control with such Person or any Affiliate of such Person
or (c) each of such Person's officers, directors, joint venturers and partners;
provided, however, that in no case shall Lessor, Agent or any Participant be
deemed to be an Affiliate of Lessee or any of its Subsidiaries for purposes of
the Operative Documents. For the purpose of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" shall mean KeyBank, acting in its capacity as Agent for the
Participants under the Operative Documents.
"Agent's Structuring Fee Letter" shall mean the letter agreement dated
as of April 22, 1999 between Lessee and Agent regarding certain fees payable by
Lessee to Agent.
"Agent's Structuring Fee" shall have the meaning given to that term in
Subparagraph 2.04(a) of the Participation Agreement.
"Alternate Rental Rate" shall mean, for any Rental Period (or portion
thereof), the per annum rate equal to the Base Rate in effect from time to time
during such period plus the Applicable Margin, such rate to change from time
during such period as the Base Rate or Applicable Margin shall change.
"Applicable Margin" shall mean:
(a) With respect to the Outstanding Tranche A Participation
Amounts, (i) the per annum rate determined pursuant to the Pricing Grid
with respect to the LIBOR Rental Rate or (ii) zero percent (0%) per
annum with respect to the Alternate Rental Rate; and
(b) With respect to the Outstanding Tranche B Participation
Amounts, (i) the per annum rate determined pursuant to the Pricing Grid
with respect to the LIBOR Rental
1.01(a)-2
<PAGE> 62
Rate plus one quarter of one percent (0.25%) or (ii) one quarter of one
percent (0.25%) per annum with respect to the Alternate Rental Rate;
provided, however, that each Applicable Margin set forth in
subparagraphs (a) and (b) of this definition shall be increased by two
percent (2.0%) per annum at the option of Lessor, Agent or Required
Lenders on the date an Event of Default occurs and shall continue at
such increased rate unless and until such Event of Default is waived in
accordance with the Operative Documents.
"Applicable Participating Office" shall mean, with respect to any
Participant, (a) initially, its office designated as such in Part B of Schedule
I (or, in the case of any Participant which becomes a Participant by an
assignment pursuant to Subparagraph 7.05(b) of the Participation Agreement, its
office designated as such in the applicable Assignment Agreement) and (b)
subsequently, such other office or offices as such Participant may designate to
Agent as the office at which such Participant's interest in the Lease Agreement
will thereafter be maintained and for the account of which all payments of Rent
and other amounts payable to such Participant under the Operative Documents will
thereafter be made.
"Appraisal" shall mean an appraisal of an interest in the Property or a
portion thereof in a form satisfactory to Lessor, Agent and the Required
Participants, prepared by an independent MAI appraiser that (a) complies with
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and all
other applicable Governmental Rules and (b) is approved by Lessor, Agent and the
Required Participants (at the time such appraiser is selected).
"Appurtenant Rights" shall mean all easements and rights-of-way, strips
and gores of land, streets, ways, alleys, passages, sewer rights, water, water
courses, water rights and powers, air rights and development rights, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to any Land or the Lessor Improvements thereto
and the reversions, remainders, and all the estates, rights, titles, interests,
property, possession, claim and demand whatsoever, both in law and in equity,
of, in and to such Land and Lessor Improvements and every part and parcel
thereof, with the appurtenances thereto.
"Assignee Participant" shall have the meaning given to that term in
Subparagraph 7.05(b) of the Participation Agreement.
"Assignee Purchaser" shall have the meaning given to that term in
Subparagraph 5.03(b)of the Purchase Agreement.
"Assignment" shall have the meaning given to that term in Subparagraph
7.05(b) of the Participation Agreement.
"Assignment Agreement" shall have the meaning given to that term in
Subparagraph 7.05(b) of the Participation Agreement.
1.01(a)-3
<PAGE> 63
"Assignment Effective Date" shall have, with respect to each Assignment
Agreement, the meaning set forth therein.
"Assignment of Lease" shall have the meaning given to that term in
Subparagraph 2.11(b) of the Participation Agreement.
"Assignment of Remediation Agreements" shall have the meaning given to
that term in Subparagraph 2.11(a) of the Participation Agreement.
"Assignor Participant" shall have the meaning given to that term in
Subparagraph 7.05(b) of the Participation Agreement.
"Base Rate" shall mean, on any day, the greater of (a) the Prime Rate
in effect on such date and (b) the Federal Funds Rate for such day plus one-half
percent (0.50%).
"Base Rent" shall have the meaning given to that term in Subparagraph
2.03(a) of the Lease Agreement.
"Business Day" shall mean any day on which (a) commercial banks are not
authorized or required to close in San Francisco, California, Boston,
Massachusetts or New York, New York and (b) if such Business Day is related to a
LIBOR Rental Rate, dealings in Dollar deposits are carried out in the London
interbank market.
"Capital Adequacy Requirement" shall have the meaning given to that
term in Subparagraph 2.12(d) of the Participation Agreement.
"Capital Asset" shall mean, with respect to any Person, any tangible
fixed or capital asset owned or, in the case of a Capital Lease or "synthetic"
lease, leased by such Person, and any expense incurred by such Person that is
required by GAAP to be reported as a non-current asset on such Person's balance
sheet.
"Capital Expenditures" shall mean, with respect to any Person and any
period, all amounts expended by such Person during such period for the
acquisition of Capital Assets (including all amounts paid or accrued on Capital
Leases and "synthetic" leases and other Indebtedness incurred or assumed to
acquire Capital Assets).
"Capital Leases" shall mean any and all lease obligations that, in
accordance with GAAP, are required to be capitalized on the books of a lessee.
"Cash Collateral" shall mean United States Treasury Securities and
Deposit Accounts (including without limitation eurodollar deposit accounts) held
or maintained by Agent and Participants to the extent such securities and
accounts are held and maintained in accordance with the Cash Collateral
Agreement and Lessor has a first priority perfected security interest therein
securing the Lessee Obligations.
"Cash Collateral Agreement" shall have the meaning given to that term
in Subparagraph 2.11(a) of the Participation Agreement.
1.01(a)-4
<PAGE> 64
"Casualty" shall mean any damage to, destruction of or decrease in the
value of all or any portion of any of the Property as a result of fire, flood,
earthquake or other natural cause; the actions or inactions of any Person or
Persons (whether willful or unintentional and whether or not constituting
negligence); or any other cause.
"Casualty and Condemnation Proceeds" shall mean all awards, damages,
compensation, reimbursement and other payments made or to be made to Lessee,
Lessor or Agent from any insurer, Governmental Authority or other Person (other
than Lessee or any Lessor Party) on account of any Casualty or Condemnation.
"Change of Control" shall mean the occurrence of any of the following
events: (a) any person or group of persons (within the meaning of Section 13 or
14 of the Securities Exchange Act of 1934, as amended) shall (i) acquire
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended) of thirty percent (30%) or more of the outstanding Equity Securities of
Lessee entitled to vote for members of the board of directors, or (ii) acquire
all or substantially all of the assets of Lessee and its Subsidiaries taken as a
whole, or (b) during any period of twelve (12) consecutive calendar months,
individuals who are directors of Lessee on the first day of such period
("Initial Directors") and any directors of Lessee who are specifically approved
by two-thirds of the Initial Directors and previously-approved Directors
("Approved Directors") shall cease to constitute a majority of the Board of
Directors of Lessee before the end of such period.
"Change of Law" shall have the meaning given to that term in
Subparagraph 2.12(b) of the Participation Agreement.
"Closing Date" shall have the meaning given to that term in
Subparagraph 2.01(a) of the Participation Agreement.
"Closing Date Appraisal" shall mean, with respect to the Property on or
as of a recent date prior to the Closing Date, an Appraisal that assesses at
such time the Fair Market Value of Lessor's fee interest in the Property on the
Closing Date.
"Collateral" shall mean the Property Collateral, the Cash Collateral
and all other property in which any Lessor Party has a Lien to secure any of the
Lessee Obligations.
"Commencement Date" shall have the meaning given to that term in
Subparagraph 2.02(a) of the Lease Agreement.
"Commitment" shall mean, with respect to any Participant at any time,
the sum of such Participant's Proportionate Share of the Total Commitment at
such time.
"Commitment Period" shall have mean the period beginning on the date of
this Agreement and ending on the earlier of the Closing Date and the Commitment
Termination Date.
1.01(a)-5
<PAGE> 65
"Commitment Termination Date" shall have the meaning given to that term
in Subparagraph 2.03(b) of the Participation Agreement.
"Compliance Certificate" shall have the meaning given to that term in
Subparagraph 5.01(a) of the Participation Agreement.
"Condemnation" shall mean any condemnation, requisition, confiscation,
seizure or other taking or sale of the use, access, occupancy or other right in
or to all or any portion of any of the Property (whether wholly or partially,
temporarily or permanently), by or on account of any actual or threatened
eminent domain proceeding or other taking of action by any Governmental
Authority or other Person having the power of eminent domain, including an
action by any such Governmental Authority or Person to change the grade of, or
widen the streets adjacent to, such Property or alter the pedestrian or
vehicular traffic flow to such Property so as to result in change in access to
such Property, or by or on account of an eviction by paramount title or any
transfer made in lieu of any such proceeding or action. A "Condemnation" shall
be deemed to have occurred on the earliest of the dates that use, access,
occupancy or other right is taken.
"Contingent Obligation" shall mean, with respect to any Person, (a) any
Guaranty Obligation of that Person; and (b) any direct or indirect obligation or
liability, contingent or otherwise, of that Person (i) in respect of any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments, (ii) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered, or (iii) in respect to any Rate Contract that is not
entered into in connection with a bona fide hedging operation that provides
offsetting benefits to such Person. The amount of any Contingent Obligation
shall (subject, in the case of Guaranty Obligations, to the last sentence of the
definition of "Guaranty Obligation") be deemed equal to the maximum reasonably
anticipated liability in respect thereof, and shall, with respect to item
(b)(iii) of this definition be marked to market on a current basis.
"Contractual Obligation" of any Person shall mean, any indenture, note,
lease, loan agreement, security, deed of trust, mortgage, security agreement,
guaranty, instrument; contract, agreement or other form of contractual
obligation or undertaking to which such Person is a party or by which such
Person or any of its property is bound.
"Credit Agreement" shall mean the Credit Agreement dated as of June 30,
1998 among Lessee, the lending institutions parties thereto and ABN AMRO Bank
N.V., as agent for such lending institutions.
"Credit Documents" shall mean the Credit Agreement and all other
documents, instruments and agreements executed by Lessee and its Subsidiaries in
connection therewith.
"Credit Event" shall mean the making of the Acquisition Advance or the
exercise of the Return Option under the Purchase Agreement.
1.01(a)-6
<PAGE> 66
"Default" shall mean any Event of Default under the Lease Agreement or
any event or circumstance not yet constituting an Event of Default under the
Lease Agreement which, with the giving of any notice or the lapse of any period
of time or both, would become an Event of Default under the Lease Agreement.
"Defaulting Participant" shall mean a Participant which has failed to
fund its portion of the Acquisition Advance which it is required to fund under
the Participation Agreement and has continued in such failure for one (1)
Business Day after written notice from Agent.
"Deficiency" shall have the meaning given to that term in Subparagraph
3.03(a) of the Purchase Agreement.
"Deposit Accounts" shall have the meaning given to that term in
Subparagraph 2.01(a) of the Cash Collateral Agreement.
"Depositary Bank" shall have the meaning given to that term in
Paragraph 2.02 of the Cash Collateral Agreement.
"Designated Purchaser" shall have the meaning given to that term in
Subparagraph 3.02(b) of the Purchase Agreement.
"Disclosure Letter" shall mean the letter dated June 30, 1999 delivered
by Lessee to Agent pursuant to Schedule 3.01 of the Participation Agreement,
which letter is identified as the "Disclosure Letter".
"Dollars" and "$" shall mean the lawful currency of the United States
of America and, in relation to any payment under the Operative Documents, same
day or immediately available funds.
"EBITDA" shall mean, with respect to Lessee for any period, the sum,
determined on a consolidated basis in accordance with GAAP, of the following:
(a) The net income or net loss of Lessee for such period
before provision for income taxes;
plus
(b) To the extent deducted in calculating such net income or
net loss for such period under clause (a) above, the sum of (i) all
Interest Expenses of Lessee and its Subsidiaries accruing during such
period and (ii) all depreciation and amortization expenses of Lessee
and its Subsidiaries accruing during such period;
minus
(c) To the extent added in calculating such net income or net
loss for such period under clause (a) above, all interest income of
Lessee and its Subsidiaries accruing during such period;
1.01(a)-7
<PAGE> 67
plus
(d) To the extent deducted in calculating such net income or
net loss for such period under clause (a) above, all non-recurring,
non-cash charges taken by Lessee and its Subsidiaries during such
period in connection with acquisitions permitted by Subparagraph
5.02(d) of the Participation Agreement (including charges for the
write-off of in-process research and development costs relating to such
acquisitions); provided, however, that the sum of all such charges so
added to net income or net loss in calculating the EBITDA of Lessee
during the period from the date of the Credit Agreement through the
Scheduled Expiration Date shall not at any time exceed the Acquisition
Charge Cap at such time;
plus
(e) For the purposes of calculating the Fixed Charge Coverage
Ratio of Lessee for any period only, to the extent deducted in
calculating such net income or net loss for such period under clause
(a) above, all Watkins-Johnson Charges taken by Lessee and its
Subsidiaries during such period; provided, however, that the sum of all
such charges so added to net income or net loss in calculating the
EBITDA of Lessee during the period from the date of the Credit
Agreement through the Scheduled Expiration Date shall not at any time
exceed fifteen million Dollars ($15,000,000).
"Eligible Assignee" shall mean (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $250,000,000; (b) a commercial bank organized
under the laws of any other country or a political subdivision thereof and
having a combined capital and surplus of at least $250,000,000, provided that
such bank is acting through a branch or agency located in the United States; or
(c) a Person that is (i) a Subsidiary of a Participant, (ii) a Subsidiary of a
Person of which a Participant is a Subsidiary, or (iii) a Person of which a
Participant is a Subsidiary.
"Employee Benefit Plan" shall mean any employee benefit plan within the
meaning of section 3(3) of ERISA maintained of contributed to by Lessee or any
ERISA Affiliate, other than a Multiemployer Plan.
"Environmental Laws" shall mean the Clean Air Act, 42 U.S.C. Section
7401 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et
seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
et seq.; the Comprehensive Environment Response, Compensation and Liability Act
of 1980 (including the Superfund Amendments and Reauthorization Act of 1986,
"CERCLA"), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
Section 651; the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, 30 U.S.C.
Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et
seq.; and all other Governmental Rules relating to the protection of human
health and the environment, including all Governmental Rules pertaining to the
reporting, licensing, permitting, transportation, storage, disposal,
investigation, or remediation of emissions, discharges, releases, or threatened
releases of
1.01(a)-8
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Hazardous Materials into the air, surface water, groundwater, or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transportation, or handling of Hazardous Materials.
"Environmental Reports" shall have the meaning given to that term in
Schedule 3.01 of the Participation Agreement.
"Equity Securities" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, modified, codified or reenacted from time to time and in effect at
any given time.
"ERISA Affiliate" shall mean any Person which is treated as a single
employer with Lessee under Section 414 of the IRC.
"Escrow Agreement" shall mean that certain Escrow Agreement, dated as
of June 30, 1999, by and among Lessee, Seller, the Remediator and Norwest Bank
of Colorado, N.A. pursuant to which the funds to be paid to the Remediator in
connection with the Fixed Price Remediation Agreement shall be held in an escrow
account and disbursed to the Remediator in accordance with the Fixed Price
Remediation Agreement.
"Event of Default" shall have the meaning given to that term in
Paragraph 5.01 of the Lease Agreement.
"Expiration Date" shall mean the earlier of (a) the Scheduled
Expiration Date under the Lease Agreement, as such date may be extended pursuant
to this Agreement, and (b) the Termination Date, if the Lease Agreement is
terminated pursuant to Subparagraph 5.03(a) of the Lease Agreement or all Lessee
Obligations are declared due pursuant to Subparagraph 5.04(a) of the Lease
Agreement prior to the Scheduled Expiration Date in accordance with the terms of
the Lease Agreement.
"Expiration Date Appraisal" shall mean, with respect to the Property at
any time, an Appraisal that assesses at such time the Fair Market Value of
Lessor's fee interest in the Property on the Scheduled Expiration Date.
"Expiration Date Purchase Option" shall have the meaning given to that
term in Subparagraph 3.01(b) of the Purchase Agreement.
"Fair Market Value" shall mean, with respect to any of the Property or
any portion thereof, the maximum reasonable amount (not less than zero) that
would be paid in cash in an arm's-length transaction between an informed and
willing purchaser and an informed and willing seller, neither of whom is under
any compulsion to purchase or sell, for the ownership of the Property or such
portion.
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"FASB 13" shall mean Financial Accounting Standards Board Statement No.
13.
"Federal Funds Rate" shall mean, for any day, the rate per annum set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Board (including any
such successor publication, "H.15 (519)") for such day opposite the caption
"Federal Funds (Effective)". If on any relevant day, such rate is not yet
published in H.15 (519), the rate for such day shall be the rate set forth in
the daily statistical release designated as the Composite 3:30 p.m. Quotations
for U.S. Government Securities, or any successor publication, published by the
Federal Reserve Bank of New York (including any such successor publication, the
"Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds
Effective Rate". If on any relevant day, such rate is not yet published in
either H.15 (519) or the Composite 3:30 p.m. Quotations, the rate for such day
shall be the arithmetic means, as determined by Agent, of the rates quoted to
Agent for such day by three (3) Federal funds brokers of recognized standing
selected by Agent.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
"Financial Statements" shall mean, with respect to any accounting
period for any Person, statements of income, shareholders' equity and cash flows
of such Person for such period, and a balance sheet of such Person as of the end
of such period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year if such period is less than a
full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding annual audit, all prepared in reasonable detail and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" shall mean, with respect to Lessee for
any period, the ratio, determined on a consolidated basis in accordance with
GAAP, of:
(a) The sum of (i) Lessee's EBITDA for such period plus (ii)
to the extent deducted in calculating such EBITDA for such period, all
operating lease and "synthetic" lease payments of Lessee and its
Subsidiaries for such period;
to
(b) The sum of (i) to the extent deducted in calculating such
EBITDA for such period, all Interest Expenses of Lessee and its
Subsidiaries for such period, plus (ii) to the extent deducted in
calculating such EBITDA for such period, all operating lease and
"synthetic" lease payments of Lessee and its Subsidiaries for such
period, plus (iii) the aggregate principal amount of all long-term
Indebtedness of Lessee and its Subsidiaries that matures during the
consecutive four-quarter period immediately following such period, plus
(iv) twenty percent (20%) of the Outstanding Revolver Credit on the
last day of such period;
Provided, however, that that, in calculating Lessee's Fixed Charge Coverage
Ratio for the consecutive two-quarter period ending on October 1, 1999 and the
consecutive three-quarter
1.01(a)-10
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period ending on December 31, 1999, the amounts to be used in clauses (a)(i),
(a)(ii), (b)(i) and (b)(ii) shall be the actual respective amounts for such
periods annualized.
"Fixed Price Remediation Agreement" shall mean that certain Guaranteed
Fixed Price Remediation Agreement, dated as of June 30, 1999, by and among
Lessee, Seller and the Remediator pursuant to which, inter alia, the Remediator
has agreed to remediate the Property.
"GAAP" shall mean generally accepted accounting principles and
practices as in effect in the United States of America from time to time,
consistently applied.
"Governmental Authority" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without limitation, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, the
Comptroller of the Currency, any central bank or any comparable authority.
"Governmental Charges" shall mean, with respect to any Person, all
levies, assessments, fees, claims or other charges imposed by any Governmental
Authority upon such Person or any of its property or otherwise payable by such
Person.
"Governmental Rule" shall mean any law, rule, regulation, ordinance,
order, code, interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any Governmental Authority.
"Guaranty Obligation" shall mean, with respect to any Person, any
direct or indirect liability of that Person with respect to any indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent, (a) to purchase,
repurchase or otherwise acquire such primary obligations or any property
constituting direct or indirect security therefor, or (b) to advance or provide
funds (i) for the payment or discharge of any such primary obligation, or (ii)
to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of the primary obligor, or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect thereof. The
amount of any Guaranty Obligation shall be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof.
"Hazardous Materials" shall mean all pollutants, contaminants and other
materials, substances and wastes which are hazardous, toxic, caustic, harmful or
dangerous to human health or the environment, including petroleum and petroleum
products and byproducts, radioactive materials, asbestos, polychlorinated
biphenyls and all materials, substances and wastes which are
1.01(a)-11
<PAGE> 71
classified or regulated as "hazardous," "toxic" or similar descriptions under
any Environmental Law.
"Improvements" shall mean all buildings, structures, facilities,
fixtures and other improvements of every kind and description now or hereafter
located on any of the Land, including (a) all parking areas, roads, driveways,
walks, fences, walls, drainage facilities and other site improvements; and (b)
all water, sanitary and storm sewer, drainage, electricity, steam, gas,
telephone and other utility equipment and facilities, all plumbing, lighting,
heating, ventilating, air-conditioning, refrigerating, incinerating, compacting,
fire protection and sprinkler, surveillance and security, public address and
communications equipment and systems, partitions, elevators, escalators, motors,
machinery, pipes, fittings and other items of equipment of every kind and
description now or hereafter located on such Land or attached to the
Improvements thereto which by the nature of their location thereon or attachment
thereto are real property under applicable law.
"Indebtedness" of any Person shall mean, without duplication:
(a) All obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments and all other obligations of
such Person for borrowed money (including obligations to repurchase
receivables and other assets sold with recourse);
(b) All obligations of such Person for the deferred purchase
price of property or services (including obligations under letters of
credit and other credit facilities which secure or finance such
purchase price and the Lessee Obligations and obligations under other
"synthetic" leases);
(c) All obligations of such Person under conditional sale or
other title retention agreements with respect to property acquired by
such Person (to the extent of the value of such property if the rights
and remedies of the seller or lender under such agreement in the event
of default are limited solely to repossession or sale of such
property);
(d) All obligations of such Person as lessee under or with
respect to Capital Leases;
(e) All obligations of such Person, contingent or otherwise,
under or with respect to Surety Instruments;
(f) All obligations of such Person, contingent or otherwise,
under or with respect to Rate Contracts;
(g) All Guaranty Obligations of such Person with respect to
the obligations of other Persons of the types described in clauses
(a) - (f) above and all other Contingent Obligations of such Person;
and
1.01(a)-12
<PAGE> 72
(h) All obligations of other Persons of the types described in
clauses (a) - (f) above to the extent secured by (or for which any
holder of such obligations has an existing right, contingent or
otherwise, to be secured by) any Lien in any property (including
accounts and contract rights) of such Person, even though such Person
has not assumed or become liable for the payment of such obligations.
"Indemnified Taxes" shall mean all income taxes, stamp taxes, sales
taxes, use taxes, rental taxes, gross receipts taxes, property (tangible and
intangible) taxes, franchise taxes, excise taxes, value added taxes, turnover
taxes, withholding taxes and other taxes and Governmental Charges, together with
any and all assessments, penalties, fines, additions and interest thereon,
except:
(a) Any tax based on or measured by net income or net receipts
(including taxes based on capital gains, minimum taxes and franchise
taxes in lieu of net income taxes) imposed on any Lessor Party by its
jurisdiction of incorporation or, in the case of any Participant, the
jurisdiction in which its Applicable Participating Office is located
(provided, however, that this definition shall not be construed to
prevent a payment from being made on an after-tax basis);
(b) Any tax or other Governmental Charge that has not become a
Lien on any of the Property and that Lessee is contesting pursuant to
Paragraph 3.12 of the Lease Agreement (but only while Lessee is so
contesting such tax or Governmental Charge);
(c) Any tax or other Governmental Charge that is imposed upon
an Indemnitee primarily as a result of the gross negligence or willful
misconduct of such Indemnitee itself (as opposed to gross negligence or
willful misconduct imputed to such Indemnitee), but not taxes or other
Governmental Charges imposed as a result of ordinary negligence of such
Indemnitee
(d) Any tax or other Governmental Charge to the extent it
relates to any act, event or omission that occurs with respect to the
Property after the termination of the Lease Agreement, redelivery or
sale of the Property in accordance with the terms of the Operative
Documents and payment by Lessee of all amounts due under the Operative
Documents, unless and to the extent such tax or Governmental Charge is
attributable to actions, omissions or events occurring in connection
with the exercise of remedies following an Event of Default; provided,
that this exclusion shall not apply to taxes or Governmental Charges
that are related to or arising from payments made under the Operative
Documents, or events, acts or omissions occurring or matters arising
prior to or simultaneous with the time set forth above; or
(e) Any tax which is a withholding tax if such tax is imposed
in respect of payments to a Lessor Party that is required to deliver a
United States Internal Revenue Service Form 1001 or 4224 if such form
is not effective to entitle such Lessor Party to receive payment under
the Operative Documents without deduction or withholding of United
States federal income tax as a result of an act or omission of such
Lessor Party.
1.01(a)-13
<PAGE> 73
"Indemnitees" shall mean the Lessor Parties and their Affiliates and
their respective directors, officers, employees, agents, attorneys and advisors.
"Indemnity Amount" shall have the meaning given to that term in
Subparagraph 3.03(a) of the Purchase Agreement.
"Insurance Requirements" shall mean all terms, conditions and
requirements imposed by the policies of insurance which Lessee is required to
maintain by the Operative Documents.
"Interest Expenses" shall mean, with respect to Lessee and its
Subsidiaries for any period, the sum, determined on a consolidated basis in
accordance with GAAP, of (a) all interest (including Base Rent) accrued on the
Indebtedness of Lessee and its Subsidiaries during such period (including
interest attributable to Capital Leases and imputed interest on zero-coupon,
original issue discount and other similar instruments) and (b) all letter of
credit fees payable by Lessee and its Subsidiaries accrued during such period.
"Investment" of any Person shall mean any loan or advance of funds by
such Person to any other Person (other than advances to employees of such Person
for moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business), any purchase or other acquisition of any Equity
Securities or Indebtedness of any other Person, any capital contribution by such
Person to or any other investment by such Person in any other Person; provided,
however, that Investments shall not include (a) accounts receivable or other
indebtedness owed by customers of such Person which are current assets and arose
from sales of inventory in the ordinary course of such Person's business or (b)
prepaid expenses of such Person incurred and prepaid in the ordinary course of
business.
"IRC" shall mean the Internal Revenue Code of 1986.
"Issues and Profits" shall mean all present and future rents,
royalties, issues, profits, receipts, revenues, income, earnings and other
benefits accruing from any of the Land, Lessor Improvements or Appurtenant
Rights (whether in the form of accounts, chattel paper, instruments, documents,
investment property, general intangibles or otherwise) including all rents and
other amounts payable pursuant to any Subleases, but excluding revenues to the
extent received by Lessee as a result of its occupation of the Property and
conduct of its business thereon.
"KeyBank" shall mean KeyBank National Association.
"Land" shall mean all lots, pieces, tracts or parcels of land described
in Exhibit A to the Lease Agreement and leased by Lessee pursuant to the Lease
Agreement.
"Lease Agreement" shall have the meaning given to that term in
Subparagraph 2.01(a) of the Participation Agreement.
"Lease Extension Request" shall have the meaning given to that term in
Paragraph 2.09 of the Participation Agreement.
1.01(a)-14
<PAGE> 74
"Lease Reduction Payments" shall mean each of the following to the
extent applied to reduce the Outstanding Lease Amount pursuant to the Operative
Documents:
(a) Casualty and Condemnation Proceeds;
(b) The purchase price paid for the Property (or any portion
thereof) by Lessee, an Assignee Purchaser or a Designated Purchaser
pursuant to the Purchase Agreement;
(c) The Residual Value Guaranty Amount and the Indemnity
Amount, paid by Lessee pursuant to the Purchase Agreement;
(d) Any proceeds received by Lessee from any sale of the
Property after the Expiration Date if such Property is retained by
Lessor after such Expiration Date pursuant to the Purchase Agreement;
(e) Any proceeds received by any Lessor Party from the
exercise of any of its remedies under the Operative Documents after the
occurrence of an Event of Default under the Lease Agreement; and
(f) Any other amounts received by any Lessor Party which are
applied or required by the Operative Documents to be applied to reduce
the Outstanding Lease Amount.
"Lessee" shall mean Silicon Valley Group, Inc., acting in its capacity
as Lessee under the Operative Documents.
"Lessee Improvements" shall mean all alterations, renovations,
improvements and additions to the Property, and all substitutions and
replacements therefor, not financed by the Acquisition Advance and not made part
of the Lessor Improvements.
"Lessee Obligations" shall mean and include all liabilities and
obligations owed by Lessee to any Lessor Party under any of the Operative
Documents (including, without limitation, the Synthetic Lease Swap Agreement) of
every kind and description and however arising (whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising), including the obligation of Lessee to pay Rent, to pay the Residual
Value Guaranty Amount, the Indemnity Amount and/or Outstanding Lease Amount and
to pay all interest, fees, charges, expenses, attorneys' fees and accountants'
fees chargeable to Lessee or payable by Lessee under the Operative Documents.
"Lessee Property" shall have the meaning given to that term in
Subparagraph 3.10(b) of the Lease Agreement.
"Lessee Security Documents" shall mean and include the Lease Agreement,
the Assignment of Remediation Agreements, the Cash Collateral Agreement and all
other instruments, agreements, certificates, opinions and documents (including
Uniform Commercial
1.01(a)-15
<PAGE> 75
Code financing statements and fixture filings and landlord waivers) delivered by
Lessee to any Lessor Party in connection with any Collateral or to secure the
Lessee Obligations.
"Lessor" shall mean SELCO Service Corporation, acting in its capacity
as Lessor under the Operative Documents.
"Lessor Deed of Trust" shall have the meaning given to that term in
Subparagraph 2.11(b) of the Participation Agreement.
"Lessor Improvements" shall mean all Improvements, other than Lessee
Improvements, and all Modifications, except that (a) any Modifications removed
from the Property prior to the Expiration Date in accordance with Paragraph 3.10
of the Lease Agreement shall cease to be Lessor Improvements and (b) any Lessee
Improvements not removed from the Property prior to the Expiration Date in
accordance with Paragraph 3.10 of the Lease Agreement shall, if Lessor shall so
elect in accordance with such subparagraph, become Lessor Improvements.
"Lessor/Lessee Deed of Trust" shall have the meaning given to that term
in Subparagraph 2.11(c) of the Participation Agreement.
"Lessor Liens" shall mean any Liens or other interests in any of the
Property of any Person other than Lessee or a Lessor Party arising as a result
of (a) any transfer or assignment by a Lessor Party to such Person of any of
such Lessor Party's interests in such Property in violation of any of the
Operative Documents or (b) any claim against a Lessor Party by any such Person
unrelated to any of the Operative Documents or the transactions contemplated
thereby. (Lessor Liens shall include Liens granted by Lessor to Agent or any
Participant to secure the Lessor Obligations.)
"Lessor Obligations" shall mean and include (a) with respect to Agent
and the Participants, all liabilities and obligations owed by Lessor to Agent or
any Participant under any of the Operative Documents of every kind and
description and however arising (whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising), including
the obligation of Lessor to share payments made by Lessee to Lessor under the
Operative Documents as provided in Paragraph 2.06 of the Participation Agreement
and (b) with respect to Lessee, all liabilities and obligations owed by Lessor
to Lessee under any of the Operative Documents of every kind and description and
however arising (whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising), including the obligation of
Lessor to sell and convey the Property to Lessee pursuant to the Purchase
Agreement.
"Lessor Parties" shall mean Lessor, the Participants and Agent.
"Lessor Security Agreement" shall have the meaning given to that term
in Subparagraph 2.11(b) of the Participation Agreement.
"Lessor's Retention Amount" shall have the meaning given to that term
in Subparagraph 3.03(b) of the Purchase Agreement.
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<PAGE> 76
"Leverage Ratio" shall mean, with respect to Lessee at any time, the
ratio, determined on a consolidated basis in accordance with GAAP, of (a) the
Senior Indebtedness of Lessee and its Subsidiaries at such time to (b) the Total
Capital of Lessee and its Subsidiaries at such time.
"LIBO Rate" shall mean, with respect to any Rental Period for a
Portion, a rate per annum equal to the quotient (rounded upward if necessary to
the nearest 1/100 of one percent) of (a) the arithmetic mean (rounded upward if
necessary to the nearest 1/16 of one percent) of the rates per annum appearing
on the Telerate Page 3750 (or any successor publication) on the second Business
Day prior to the first day of such Rental Period at or about 11:00 A.M. (London
time) (for delivery on the first day of such Rental Period) for a term
comparable to such Rental Period, divided by (b) one minus the Reserve
Requirement in effect from time to time. If for any reason rates are not
available as provided in clause (a) of the preceding sentence, the rate to be
used in clause (a) shall be the rate per annum at which Dollar deposits are
offered to Agent in the London interbank eurodollar currency market on the
second Business Day prior to the first day of such Rental Period at or about
10:00 A.M. (New York time) (for delivery on the first day of such Rental Period)
in an amount substantially equal to Agent's Proportionate Share of the
applicable Portion and for a term comparable to such Rental Period. The LIBO
Rate shall be adjusted automatically as of the effective date of any change in
the Reserve Requirement.
"LIBOR Rental Rate" shall mean, for any Rental Period and Portion, the
per annum rate equal to the LIBO Rate for such Rental Period and Portion, plus
the Applicable Margin, such rate to change from time to time during such period
as the Applicable Margin shall change.
"Lien" shall mean, with respect to any property, any security interest,
mortgage, pledge, lien, charge or other encumbrance in, of, or on such property
or the income therefrom, including, without limitation, the interest of a vendor
or lessor under a conditional sale agreement, Capital Lease or other title
retention agreement, or any agreement to provide any of the foregoing, and the
filing of any financing statement or similar instrument under the Uniform
Commercial Code or comparable law of any jurisdiction.
"Major Casualty" shall mean, with respect to the Property, any Casualty
affecting the Property where (a) the damage to the Property is treated by any
insurer of the Property as a total loss; or (b) the Property cannot reasonably
be repaired and restored prior to the expiration of the Term of the Lease to
substantially the condition in which it existed immediately prior to such
Casualty.
"Major Condemnation" shall mean, with respect to the Property, any
Condemnation affecting the Property where (a) all or substantially all of the
Property is taken by such Condemnation; or (b) the Property cannot reasonably be
repaired and restored prior to the expiration of the Term of the Lease to a
value that is not less than the Expiration Date Appraisal.
"Margin Stock" shall have the meaning given to that term in Regulation
U issued by the Federal Reserve Board.
"Marketing Period" shall have the meaning given to that term in
Subparagraph 3.02(a) of the Purchase Agreement.
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<PAGE> 77
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
Lessee and its Subsidiaries, taken as a whole; (b) the ability of Lessee to pay
or perform the Lessee Obligations when due in accordance with the terms of the
Operative Documents; (c) the rights and remedies of any Lessor Party under the
Operative Documents or any related document, instrument or agreement; (d) the
perfection or the priority of any Lessor Party's security interests, Liens or
other rights in the Property and the Collateral; or (e) the value of the
Property and the Collateral.
"Material Subsidiary" shall mean SVGL, SVGIS, Tinsley, and any other
Subsidiary which at any time has assets with a book value equal to or greater
than ten percent (10%) of the total consolidated assets of Lessee and its
Subsidiaries and any Subsidiary which owns more than ten percent (10%) of the
capital stock of any Material Subsidiary.
"maturity" shall mean, with respect to any Rent, interest, fee or other
amount payable by Lessee under the Operative Documents, the date such Rent,
interest, fee or other amount becomes due, whether upon the stated maturity or
due date, upon acceleration or otherwise.
"Modifications" shall have the meaning given to that term in
Subparagraph 3.01(b) of the Lease Agreement.
"Multiemployer Plan" shall mean any multiemployer plan within the
meaning of Section 3(37) of ERISA maintained or contributed to by Lessee or any
ERISA Affiliate.
"Net Proceeds" shall mean, with respect to any issuance of Equity
Securities by Lessee or any of its Subsidiaries, the aggregate consideration
received by Lessee or such Subsidiary from such issuance less the sum of the
actual amount of the reasonable fees and commissions payable to Persons other
than Lessee or any Affiliate of Lessee and the other reasonable costs and
expenses (including reasonable legal expenses) directly related to such issuance
that are to be paid by Lessee or any of its Subsidiaries.
"Net Proceeds of Sale" shall mean, with respect to a sale of the
Property by Lessor to a Designated Purchaser pursuant to Paragraph 3.02 of the
Purchase Agreement, the net amount of the proceeds of the sale of the Property,
after deducting from the gross proceeds of such sale (a) all sales taxes and
other taxes as may be applicable to such sale or transfer of the Property, (b)
all fees, costs and expenses of such sale incurred by Lessor and (c) any amounts
for which, if not paid, Lessor would be liable or which, if not paid, would
constitute a Lien on the Property.
"Notice of Rental Period Selection" shall have the meaning given to
that term in Subparagraph 2.03(a) of the Lease Agreement.
"Notice of Return Option Exercise" shall have the meaning given to that
term in Subparagraph 3.01(a) of the Purchase Agreement.
"Notice of Security Interest" shall have the meaning given to that term
in Subparagraph 2.01(a) of the Cash Collateral Agreement.
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<PAGE> 78
"Notice of Term Purchase Option Exercise" shall have the meaning given
to that term in Paragraph 2.02 of the Purchase Agreement.
"Operative Documents" shall mean and include the Participation
Agreement, the Lease Agreement, the Purchase Agreement, the Lessee Security
Documents, the Lessor Deed of Trust, the Lessor Security Agreement, the
Assignment of Lease, the Agent's Structuring Fee Letter and the Synthetic Lease
Swap Agreement; all other notices, requests, certificates, documents,
instruments and agreements delivered to any Lessor Party pursuant to Paragraph
3.01 of the Participation Agreement; and all notices, requests, certificates,
documents, instruments and agreements executed by Lessee and delivered to any
Lessor Party in connection with any of the foregoing on or after the date of the
Participation Agreement. (Without limiting the generality of the preceding
definition, the term "Operative Documents" shall include all written waivers,
amendments and modifications to any of the notices, requests, certificates,
documents, instruments and agreements referred to therein.)
"Outstanding Lease Amount" shall mean, on any date, the remainder of
(a) the amount of the Acquisition Advance, minus (b) the sum of all Lease
Reduction Payments applied on or prior to such date.
"Outstanding Participation Amount" shall mean, with respect to any
Participant on any date, the remainder of (a) the portion of the Acquisition
Advance funded by such Participant on or prior to such date, minus (b) the sum
of such Participant's share of all Lease Reduction Payments applied to the
Outstanding Lease Amount on or prior to such date.
"Outstanding Revolver Credit" shall mean, at any time, the sum of (a)
the aggregate principal amount of all loans outstanding at such time under the
Credit Agreement, (b) the aggregate amount available for drawing under all
letters of credit outstanding at such time under the Credit Agreement and (c)
the aggregate amount of all reimbursement obligation outstanding at such time
under the Credit Agreement.
"Outstanding Tranche A Participation Amount" shall mean, with respect
to any Tranche A Participant on any date, the remainder of (a) such
Participant's Tranche A Portion of the Acquisition Advance made by Lessor on or
prior to such date, minus (b) such Participant's share of all Lease Reduction
Payments applied to the Tranche A Portion of the Acquisition Advance on or prior
to such date.
"Outstanding Tranche B Participation Amount" shall mean, with respect
to any Tranche B Participant on any date, the remainder of (a) such
Participant's Tranche B Portion of the Acquisition Advance made by Lessor on or
prior to such date, minus (b) such Participant's share of all Lease Reduction
Payments applied to the Tranche B Portion of the Acquisition Advance on or prior
to such date.
"Participants" shall mean the financial institutions from time to time
listed in Schedule I to the Participation Agreement (as amended from time to
time pursuant to Subparagraph 7.05(b) of the Participation Agreement), acting in
their capacities as Participants under the Operative Documents.
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"Participation Agreement" shall mean the Participation Agreement, dated
as of June 30, 1999 among Lessee and the Lessor Parties.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Indebtedness" shall have the meaning given to that term in
Subparagraph 5.02(a) of the Participation Agreement.
"Permitted Liens" shall have the meaning given to that term in
Subparagraph 5.02(b) of the Participation Agreement.
"Permitted Property Liens" shall have the meaning given to that term in
Subparagraph 3.07(a) of the Lease Agreement.
"Permitted Transaction Expenses" shall mean the following costs and
expenses to the extent payable by Lessee in connection with and directly related
to the preparation, execution and delivery of the Operative Documents and the
transactions contemplated thereby:
(a) The reasonable fees and expenses of counsel for each of
Lessor and Agent incurred in connection with the Operative Documents;
(b) The reasonable fees and expenses incurred in recording,
registering or filing any of the Operative Documents;
(c) The title fees, premiums and escrow costs and other
expenses relating to title insurance and the closing of the
transactions contemplated by the Operative Documents;
(d) The reasonable fees and expenses of required environmental
audits; and
(e) The reasonable fees and expenses for surveys and
appraisals.
"Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, an
unincorporated association, a limited liability company, a joint venture, a
trust or other entity or a Governmental Authority.
"Personal Property Collateral" shall have the meaning given to that
term in Subparagraph 2.07(b) of the Lease Agreement.
"Portion" shall mean a portion of the Outstanding Lease Amount. If, at
any time, Lessee has not elected to divide the Outstanding Lease Amount into two
or more portions, any reference to a Portion shall mean the total Outstanding
Lease Amount at such time.
"Pricing Grid" shall mean Schedule II to the Participation Agreement.
"Pricing Period" shall mean (a) the period commencing on the date of
this Agreement (i.e., June 30, 1999) and ending on September 30, 1999 and (b)
each consecutive three-calendar
1.01(a)-20
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month period thereafter which commences on the day following the last day of the
immediately preceding three-calendar month period and ends on the last day of
that time period.
"Prime Rate" shall mean the per annum rate publicly announced by
KeyBank from time to time at its office in Cleveland, Ohio as its "prime rate."
The Prime Rate is determined by KeyBank from time to time as a means of pricing
credit extensions to some customers and is neither directly tied to any external
rate of interest or index nor necessarily the lowest rate of interest charged by
KeyBank at any given time for any particular class of customers or credit
extensions. Any change in the Base Rate resulting from a change in the Prime
Rate shall become effective on the Business Day on which each change in the
Prime Rate occurs.
"Property" shall have the meaning given to that term in Paragraph 2.01
of the Lease Agreement.
"Property Collateral" shall have the meaning given to that term in
Subparagraph 2.11(a) of the Participation Agreement.
"Proportionate Share" shall mean, with respect to each Participant, the
percentage set forth under the caption "Proportionate Share" opposite such
Participant's name in Part A of Schedule I or, if changed, such percentage as
may be set forth for such Participant in the Register. The Proportionate Share
of each Participant shall equal the sum of such Participant's Tranche A and
Tranche B Percentage.
"Purchase Agreement" shall have the meaning given to that term in
Subparagraph 2.01(a) of the Participation Agreement.
"Purchase Documents" shall have the meaning given to that term in
Subparagraph 4.01(a) of the Purchase Agreement.
"Purchaser" shall have the meaning given to that term in Subparagraph
4.01(b) of the Purchase Agreement.
"Quick Ratio" shall mean, with respect to Lessee at any time, the
ratio, determined on a consolidated basis in accordance with GAAP, of:
(a) The remainder at such time of (i) the sum of (A) all cash
of Lessee and its Subsidiaries, (B) the current market value of all
cash equivalents of Lessee and its Subsidiaries and (C) all accounts
receivable of Lessee and its Subsidiaries (net of all reserves
therefor) minus (ii) to the extent included in the foregoing sum, the
sum of all cash, cash equivalents and accounts receivable of Lessee and
its Subsidiaries that are subject to a Lien or otherwise restricted;
to
1.01(a)-21
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(b) The sum at such time of (i) the current liabilities of
Lessee and its Subsidiaries and (ii) to the extent not included in such
current liabilities, the Outstanding Revolver Credit at such time.
"Rate Contracts" shall mean swap agreements (as that term is defined in
Section 101 of the Federal Bankruptcy Reform Act of 1978, as amended) and any
other agreements or arrangements designed to provide protection against
fluctuations in interest or currency exchange rates, including without
limitation, the Synthetic Lease Swap Agreement.
"Real Property Collateral" shall have the meaning given to that term in
Subparagraph 2.07(a) of the Lease Agreement.
"Register" shall have the meaning given to that term in Subparagraph
7.05(b) of the Participation Agreement.
"Related Agreements" shall mean all chattel paper, accounts,
instruments, documents, investment property and general intangibles relating to
any of the Land, Lessor Improvements or Appurtenant Rights or to the present or
future development, construction, operation or use of any of the Land, Lessor
Improvements or Appurtenant Rights, including (a) all plans, specifications,
construction agreements, maps, surveys, studies, books of account, records,
files, insurance policies, guarantees and warranties relating to such Land or
Lessor Improvements or to the present or future development, construction,
operation or use of such Land, Lessor Improvements or Appurtenant Rights; (b)
all architectural, engineering, construction and management contracts, all
supply and service contracts for water, sanitary and storm sewer, drainage,
electricity, steam, gas, telephone and other utilities relating to such Land,
Lessor Improvements or Appurtenant Rights or to the present or future
development, construction, operation or use of such Land, Lessor Improvements or
Appurtenant Rights; and (c) all computer software and intellectual property,
guaranties and warranties, letters of credit, and documents relating to such
Land, Lessor Improvements or Appurtenant Rights or to the present or future
development, construction, operation or use of such Land, Lessor Improvements or
Appurtenant Rights.
"Related Goods" shall mean:
(a) All machinery, furniture, equipment, fixtures and other
goods and tangible personal property (including construction materials
and supplies) financed by the Acquisition Advance, including all such
property (if any) described in Exhibit B to the Lease Agreement; and
(b) All machinery, equipment, fixtures and other goods and
tangible personal property (including construction materials and
supplies) hereafter made part of the Lessor Improvements or other
Property, except that any Related Goods removed from the Property prior
to the Expiration Date in accordance with Paragraph 3.10 of the Lease
Agreement shall cease to be Lessor Improvements.
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"Related Permits" shall mean all licenses, authorizations,
certificates, variances, consents, approvals and other permits, now or hereafter
pertaining to any of the Land, Lessor Improvements or Appurtenant Rights and all
tradenames or business names primarily relating to any of the Land, Lessor
Improvements or Appurtenant Rights or the present or future development,
construction, operation or use of any of the Land, Lessor Improvements or
Appurtenant Rights, but shall not include any of the foregoing if primarily
related to the conduct by an occupant of the Property of its business.
"Remediation Agreements" shall have the meaning given to that term in
the Paragraph 2.01 of the Assignment of Remediation Agreements.
"Remediator" shall mean ARCADIS Geraghty & Miller, Inc., a Delaware
corporation.
"Rent" shall mean collectively Base Rent and Supplemental Rent.
"Rental Periods" shall mean (a) with respect to the entire Outstanding
Lease Amount, the initial period that begins on the Commencement Date for the
Lease Agreement and ends on the first Business Day in the first calendar month
immediately following the month in which the Commencement Date occurs; and (b)
With respect to any Portion of the Outstanding Lease Amount thereafter, the time
period selected by Lessee for such Portion pursuant to Subparagraph 2.03(a) of
the Lease Agreement which commences on the first day of such Portion and ends on
the last day of the period so selected by Lessee and each subsequent time period
selected by Lessee pursuant to Subparagraph 2.03(a) of the Lease Agreement. Each
Rental Period shall commence on the last day of the immediately preceding Rental
Period.
"Rental Rate" shall have the meaning given to that term in Subparagraph
2.03(a) of the Lease Agreement.
"Repair and Restoration Account" shall have the meaning given to that
term in Subparagraph 3.04(c) of the Lease Agreement.
"Reportable Event" shall have the meaning given to that term in ERISA
and applicable regulations thereunder.
"Required Participants" shall mean, at any time, Participants whose
Proportionate Shares then equal or exceed sixty-six and two-thirds percent
(66 2/3%), except at any time any Participant is a Defaulting Participant. At
any time any Participant is a Defaulting Participant, all Defaulting
Participants shall be excluded in determining "Required Participants", and
"Required Participants" shall mean non-defaulting Participants having total
Commitments that then equal or exceed sixty-six and two-thirds percent (66 2/3%)
of the total Commitments of all non-defaulting Participants.
"Requirement of Law" applicable to any Person shall mean (a) the
Articles or Certificate of Incorporation and By-laws, Partnership Agreement or
other organizational or governing documents of such Person, (b) any Governmental
Rule applicable to such Person, (c) any license, permit, approval or other
authorization granted by any Governmental Authority to or for the
1.01(a)-23
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benefit of such Person or (d) any judgment, decision or determination of any
Governmental Authority or arbitrator, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its
property is subject.
"Reserve Requirement" shall mean, with respect to any day in any Rental
Period, the aggregate of the reserve requirement rates (expressed as a decimal)
in effect on such day for eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of the Federal Reserve Board)
maintained by a member bank of the Federal Reserve System. As used herein, the
term "reserve requirement" shall include, without limitation, any basic,
supplemental or emergency reserve requirements imposed on any Participant by any
Governmental Authority. (As of the Closing Date, the Reserve Requirement is zero
percent (0%).)
"Residual Value Guaranty Amount" shall have the meaning given to that
term in Subparagraph 3.03(a) of the Purchase Agreement.
"Return Option" shall have the meaning given to that term in
Subparagraph 3.01(a) of the Purchase Agreement.
"Scheduled Expiration Date" shall have the meaning given to that term
in Subparagraph 2.02(a) of the Lease Agreement.
"Scheduled Rent Payment Date" shall have the meaning given to that term
in Subparagraph 2.03(a) of the Lease Agreement.
"Seller" shall mean Watkins-Johnson Company.
"Senior Debt/EBITDA Ratio" shall mean, with respect to Lessee for any
period, the ratio, determined on a consolidated basis in accordance with GAAP,
of:
(a) Lessee's Senior Indebtedness on the last day of such
period;
to
(b) Lessee's EBITDA for such period.
"Senior Indebtedness" shall mean, with respect to Lessee and its
Subsidiaries at any time, the remainder, determined on a consolidated basis in
accordance with GAAP, of (a) the total Indebtedness of Lessee and its
Subsidiaries at such time minus (b) the total Subordinated Indebtedness of
Lessee and its Subsidiaries at such time.
"Solvent" shall mean, with respect to any Person on any date, that on
such date (a) the fair value of the property of such Person is greater than the
fair value of the liabilities (including contingent, subordinated, matured and
unliquidated liabilities) of such Person, (b) the present fair saleable value of
the assets of such Person is greater than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature and (d) such Person is not engaged in
1.01(a)-24
<PAGE> 84
or about to engage in business or transactions for which such Person's
property would constitute an unreasonably small capital.
"Subleases" shall mean all leases and subleases of any of the Land,
Lessor Improvements and/or Appurtenant Rights by Lessee as lessor or sublessor,
now or hereafter in effect, whether or not of record, including all guaranties
and security therefor and the right to bring actions and proceedings thereunder
or for the enforcement thereof and to do anything which Lessee is or may become
entitled to do thereunder.
"Subordinated Indebtedness" shall mean Indebtedness which is unsecured
and subordinated to the Lessee Obligations on terms reasonably acceptable to
Lessor and the Required Participants.
"Subparticipants" shall have the meaning given to that term in
Subparagraph 7.05(c) of the Participation Agreement.
"Subsidiary" of any Person shall mean (a) any corporation of which more
than 50% of the issued and outstanding Equity Securities having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries, (b) any partnership, joint venture,
limited liability company or other association of which more than 50% of the
equity interest having the power to vote, direct or control the management of
such partnership, joint venture or other association is at the time owned and
controlled by such Person, by such Person and one or more of the other
Subsidiaries or by one or more of such Person's other Subsidiaries or (c) any
other Person included in the Financial Statements of such Person on a
consolidated basis.
"Supplemental Rent" shall have the meaning given to that term in
Subparagraph 2.03(b) of the Lease Agreement.
"Surety Instruments" shall mean all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"SVGL" shall mean SVG Lithography Systems, Inc., a Delaware
corporation.
"SVGIS" shall mean SVG International Service, a California corporation.
"Synthetic Lease Swap Agreement" shall mean that certain interest rate
swap agreement in the form of Exhibit L, dated as of June 29, 1999, between
Lessee and KeyBank, pursuant to which Lessee is provided protection against
fluctuations in the LIBOR Rental Rates payable by Lessee from time to time on
the Outstanding Lease Amount.
"Tangible Net Worth" shall mean, with respect to Lessee at any time,
the remainder at such time, determined on a consolidated basis in accordance
with GAAP, of:
1.01(a)-25
<PAGE> 85
(a) The sum of (i) the total assets of Lessee and its
Subsidiaries at such time plus (ii) the after tax effect of the lesser
of (A) the sum of all Watkins-Johnson Charges taken by Lessee and its
Subsidiaries prior to such time and (B) fifteen million Dollars
($15,000,000);
minus
(b) The sum (without limitation and without duplication of
deductions) of (i) the total liabilities of Lessee and its
Subsidiaries, (ii) all reserves established by Lessee and its
Subsidiaries for anticipated losses and expenses (to the extent not
deducted in calculating total assets in clause (a) above), and (iii)
all intangible assets of Lessee and its Subsidiaries (to the extent
included in calculating total assets in clause (a) above), including,
without limitation, goodwill (including any amounts, however designated
on the balance sheet, representing the cost of acquisition of
businesses and investments in excess of underlying tangible assets),
trademarks, trademark rights, trade name rights, copyrights, patents,
patent rights, licenses, unamortized debt discount, marketing expenses,
organizational expenses, non-compete agreements and deferred research
and development.
"Term" shall mean the period beginning on the Commencement Date and
ending on the Expiration Date.
"Termination Date" shall mean the earliest of (a) the date set forth in
a Notice of Term Purchase Option as the Scheduled Rent Payment Date on which the
Lease Agreement will be terminated by Lessee pursuant to Paragraph 4.01 of the
Lease Agreement and the Property will be purchased by Lessee pursuant to Section
II of the Purchase Agreement, (b) the date set forth in a written notice
delivered by Lessor to Lessee pursuant to Subparagraph 5.03(a) of the Lease
Agreement after the occurrence of an Event of Default thereunder as the date on
which the Lease Agreement will be terminated, and (c) the date set forth in a
written notice delivered by Lessor to Lessee pursuant to Subparagraph 5.04(a) of
the Lease Agreement after the occurrence of an Event of Default thereunder as
the date on which all unpaid Lessee Obligations are due and payable.
"Term Purchase Option" shall have the meaning given to that term in
Paragraph 2.01 of the Purchase Agreement.
"Tinsley" shall mean Tinsley Laboratories, Inc., a California
corporation.
"Total Capital" shall mean, with respect to Lessee at any time, the
sum, determined on a consolidated basis in accordance with GAAP, of (a) the
total Indebtedness of Lessee and its Subsidiaries (including Subordinated
Indebtedness) at such time plus (b) the stockholders' equity of Lessee and its
Subsidiaries at such time.
"Total Commitment" shall mean the amount set forth as such in
Subparagraph 2.01(b) of the Participation Agreement or, if such amount is
reduced pursuant to Subparagraph 2.08(a) of the Participation Agreement, the
amount to which so reduced.
1.01(a)-26
<PAGE> 86
"Tranche A Participant" shall mean, at any time, any Participant having
an Outstanding Tranche A Participation Amount at such time.
"Tranche A Percentage" shall mean, with respect to each Participant at
any time, the percentage set forth under the caption "Tranche A Percentage"
opposite such Participant's name in Part A of Schedule I or, if changed, such
percentage as may be set forth for such Participant in the Register.
"Tranche A Portion" shall mean, (a) with respect to the Acquisition
Advance without reference to any Participant, the portion of the Acquisition
Advance equal to the Tranche A Proportionate Share of the Acquisition Advance
and (b) with respect to the Acquisition Advance with reference to any
Participant, the portion of the Acquisition Advance equal to such Participant's
Tranche A Percentage of the Acquisition Advance.
"Tranche A Proportionate Share" shall mean eighty-five percent
(85.00%).
"Tranche B Participant" shall mean, at any time, any Participant having
an Outstanding Tranche B Participation Amount at such time.
"Tranche B Percentage" shall mean, with respect to each Participant,
the percentage set forth under the caption "Tranche B Percentage" opposite such
Participant's name in Part A of Schedule I or, if changed, such percentage as
may be set forth for such Participant in the Register.
"Tranche B Portion" shall mean, (a) with respect to the Acquisition
Advance without reference to any Participant, the portion of the Acquisition
Advance equal to the Tranche B Proportionate Share of the Acquisition Advance
and (b) with respect to the Acquisition Advance with reference to any
Participant, the portion of the Acquisition Advance equal to such Participant's
Tranche B Percentage of the Acquisition Advance.
"Tranche B Proportionate Share" shall mean fifteen percent (15.00%).
"UCC" shall mean the California Uniform Commercial Code.
"Watkins-Johnson Acquisition" shall mean the acquisition of certain
assets and liabilities of Watkins-Johnson Semiconductor Equipment Group, a
division of Watkins-Johnson Company.
"Watkins-Johnson Charges" shall mean, with respect to any period, all
non-recurring charges taken by Lessee and its Subsidiaries during such period in
connection with the Watkins-Johnson Acquisition (including charges for the
write-off of in-process research and development costs, consolidation,
relocation and other charges relating to such acquisitions).
"Water Supply Agreement" shall mean that certain Water Supply
Agreement, dated as of June 30, 1999, by and between Lessee and the Remediator.
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<PAGE> 87
SCHEDULE 1.02
RULES OF INTERPRETATION
(a) GAAP. Unless otherwise indicated in any Operative Document, all
accounting terms used in the Operative Documents shall be construed, and all
accounting and financial computations thereunder shall be computed, in
accordance with GAAP. If GAAP changes after the date of the Participation
Agreement such that any covenants contained in the Operative Documents would
then be calculated in a different manner or with different components, Lessee
and the Lessor Parties agree to negotiate in good faith to amend the applicable
Operative Documents in such respects as are necessary to conform those covenants
as criteria for evaluating Lessee's financial condition to substantially the
same criteria as were effective prior to such change in GAAP; provided, however,
that, until Lessee and the Lessor Parties so amend the Operative Documents, all
such covenants shall be calculated in accordance with GAAP as in effect
immediately prior to such change.
(b) Headings. Headings in each of the Operative Documents are for
convenience of reference only and are not part of the substance thereof.
(c) Plural Terms. All terms defined in any Operative Document in the
singular form shall have comparable meanings when used in the plural form and
vice versa.
(d) Time. All references in each of the Operative Documents to a time
of day shall mean San Francisco, California time, unless otherwise indicated.
All references in each of the Operative Documents to a date (the "action date")
which is one month prior to or after another date (the "reference date") shall
mean the date in the immediately preceding or succeeding calendar month (as the
case may be) which numerically corresponds to the reference date; provided,
however, that (i) if such corresponding date in the immediately preceding or
succeeding calendar month (as the case may be) is not a Business Day, the action
date shall be the next succeeding Business Day after such corresponding date
(unless, in the case of a Rental Period, such next Business Day falls in another
calendar month, in which case the action date shall be the immediately preceding
Business Day) and (ii) if the reference date is the last Business Day of a
calendar month (or a day for which there is no numerically corresponding day in
the immediately preceding calendar month) the action date shall be the last
Business Day of the immediately preceding or succeeding calendar month (as the
case may be). All references in each of the Operative Documents to an earlier
date which is two or more months prior to a reference date or to a later date
which is two or more months after a reference date shall be determined in a
comparable manner.
(e) Governing Law. Unless otherwise provided in any Operative Document,
each of the Operative Documents shall be governed by and construed in accordance
with the laws of the State of California without reference to conflicts of law
rules.
(f) Interpretation. The Operative Documents are the result of
negotiations among, and have been reviewed by Lessee and each Lessor Party and
their respective counsel.
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<PAGE> 88
Accordingly, the Operative Documents shall be deemed to be the product of all
parties hereto, and no ambiguity shall be construed in favor of or against
Lessee or any Lessor Party.
(g) Entire Agreement. The Operative Documents, taken together,
constitute and contain the entire agreement of Lessee and the Lessor Parties and
supersede any and all prior agreements, negotiations, correspondence,
understandings and communications among the parties, whether written or oral,
respecting the subject matter thereof (including the proposal dated April 21,
1999) but excluding the Agent's Structuring Fee Letter).
(h) Calculation of Base Rent, Interest and Fees. All calculations of
Base Rent, interest and fees under the Operative Documents for any period (i)
shall include the first day of such period and exclude the last day of such
period and (ii) shall be calculated on the basis of a year of 360 days for
actual days elapsed, except that during any period that Base Rent or any
interest is to be calculated based upon the Base Rate, such Base Rent or
interest shall be calculated on the basis of a year of 365 or 366 days, as
appropriate, for actual days elapsed.
(i) References.
(i) References in any Operative Document to "Recitals,"
"Sections," "Paragraphs," "Subparagraphs," "Articles," "Exhibits" and
"Schedules" are to recitals, sections, paragraphs, subparagraphs,
articles, exhibits and schedules therein and thereto unless otherwise
indicated.
(ii) References in any Operative Document to any document,
instrument or agreement (A) shall include all exhibits, schedules and
other attachments thereto, (B) shall include all documents, instruments
or agreements issued or executed in replacement thereof, and (C) shall
mean such document, instrument or agreement, or replacement or
predecessor thereto, as amended, modified and supplemented from time to
time and in effect at any given time.
(iii) References in any Operative Document to any Governmental
Rule (A) shall include any successor Governmental Rule, (B) shall
include all rules and regulations promulgated under such Governmental
Rule (or any successor Governmental Rule), and (C) shall mean such
Governmental Rule (or successor Governmental Rule) and such rules and
regulations, as amended, modified, codified or reenacted from time to
time and in effect at any given time.
(iv) References in any Operative Document to any Person in a
particular capacity (A) shall include any permitted successors to and
assigns of such Person in that capacity and (B) shall exclude such
Person individually or in any other capacity.
(j) Other Interpretive Provisions. The words "hereof," "herein" and
"hereunder" and words of similar import when used in any Operative Document
shall refer to such Operative Document as a whole and not to any particular
provision of such Operative Document. The words "include" and "including" and
words of similar import when used in any Operative Document shall not be
construed to be limiting or exclusive. In the event of any inconsistency
1.02-2
<PAGE> 89
between the terms of the Participation Agreement and the terms of any other
Operative Document, the terms of the Participation Agreement shall govern.
1.02-3
<PAGE> 90
SCHEDULE 3.01
CONDITIONS PRECEDENT TO ACQUISITION ADVANCE
A. PRINCIPAL OPERATIVE DOCUMENTS EXECUTED BY LESSEE.
(1) The Participation Agreement, duly executed by Lessee,
Lessor, each Participant and Agent;
(2) The Lease Agreement, duly executed by Lessee and Lessor
and appropriately notarized for recording;
(3) The Purchase Agreement, duly executed by Lessee and
Lessor;
(4) The Assignment of Remediation Agreements;
(5) The Cash Collateral Agreement, duly executed by Lessee,
Lessor, Agent and KeyBank; and
(6) The Synthetic Lease Swap Agreement, duly executed by
Lessee and KeyBank.
B. LESSEE CORPORATE DOCUMENTS.
(1) The Certificate or Articles of Incorporation of Lessee,
certified as of a recent date prior to the Closing Date by the
Secretary of State (or comparable official) of its jurisdiction of
incorporation;
(2) A Certificate of Good Standing (or comparable certificate)
for Lessee, certified as of a recent date prior to the Closing Date by
the Secretary of State (or comparable official) of its jurisdiction of
incorporation;
(3) A certificate of the Secretary or an Assistant Secretary
of Lessee, dated the Closing Date, certifying (a) that attached thereto
is a true and correct copy of the Bylaws of Lessee as in effect on the
Closing Date; (b) that attached thereto are true and correct copies of
resolutions duly adopted by the Board of Directors of Lessee and
continuing in effect, which authorize the execution, delivery and
performance by Lessee of the Operative Documents executed or to be
executed by Lessee and the consummation of the transactions
contemplated thereby; and (c) that there are no proceedings for the
dissolution or liquidation of Lessee;
(4) A certificate of the Secretary or an Assistant Secretary
of Lessee, dated the Closing Date, certifying the incumbency,
signatures and authority of the officers of Lessee authorized to
execute, deliver and perform the Operative Documents and all other
3.01-1
<PAGE> 91
documents, instruments or agreements related thereto executed or to be
executed by Lessee; and
(5) Certificates of Good Standing (including tax good
standing) for Lessee, certified as of a recent date prior to the
Closing Date by the Secretary of State of the State of California.
C. FINANCIAL STATEMENTS, FINANCIAL CONDITION, ETC.
(1) A copy of the unaudited Financial Statements of Lessee and
its Subsidiaries for the fiscal quarter ended March 31, 1999 and for
the fiscal year to such date (prepared on a consolidated and
consolidating basis), certified by the chief financial officer of
Lessee to present fairly the financial condition, results of operations
and other information reflected therein and to have been prepared in
accordance with GAAP (subject to normal year-end audit adjustments);
(2) A copy of the audited consolidated Financial Statements of
Lessee for the fiscal year ended September 30, 1998, prepared by
Deloitte & Touche and a copy of the unqualified opinion delivered by
such accountants in connection with such Financial Statements;
(3) A copy of the 10-Q report filed by Lessee with the
Securities and Exchange Commission for the quarter ended March 31,
1999;
(4) A copy of the 10-K report filed by Lessee with the
Securities and Exchange Commission for the fiscal year ended September
30, 1998; and
(5) The consolidated plan and forecast of Lessee and its
Subsidiaries for the fiscal year[s] to end September 30, 1999 and 2000.
D. COLLATERAL DOCUMENTS.
(1) A deed transferring to Lessor the fee interest in the
Land, Lessor Improvements and Appurtenant Rights, duly executed by
Seller and appropriately notarized for recording;
(2) A Memorandum of Purchase Agreement, appropriately
completed and duly executed by Lessee and Lessor and appropriately
notarized for recording;
(3) Evidence that the Assignment of Lease, the Lessor Deed of
Trust, the Lessor/Lessee Deed of Trust, the deed, the Memorandum of
Lease Agreement and the Memorandum of Purchase Agreement have been or
will be properly recorded in the Official Records of Santa Cruz County,
California;
(4) An extended coverage owner's policy or binder of title
insurance (or a commitment therefor) for the Property insuring Lessor's
fee interest in the Property
3.01-2
<PAGE> 92
(subject to such exceptions as Agent may approve), in such amounts and
with such endorsements as Agent may reasonably require, issued by
Chicago Title Insurance Company or another title insurer acceptable to
Agent;
(5) An extended coverage lender's policy of title insurance
(or a commitment therefor) for the Property insuring the validity and
priority of the Lease Agreement (subject to such exceptions as Agent
may approve), in such amounts and with such endorsements as Agent may
reasonably require, issued by Chicago Title Insurance Company or
another title insurer acceptable to Agent;
(6) An extended coverage lender's policy of title insurance
(or a commitment therefor) for the Property insuring the validity and
priority of the Lessor Deed of Trust (subject to such exceptions as
Agent may approve), in such amounts and with such endorsements as Agent
may reasonably require, issued by Chicago Title Insurance Company or
another title insurer acceptable to Agent;
(7) Uniform Commercial Code financing statements and fixture
filings (appropriately completed and executed) for filing in such
jurisdictions as Agent may request to perfect the Liens granted to
Lessor and Agent in the Lessee Security Documents, the Lessor Security
Agreement and the other Operative Documents;
(8) Uniform Commercial Code search certificates from the
jurisdictions in which Uniform Commercial Code financing statements are
to be filed pursuant to item D(8) above reflecting no other financing
statements or filings which evidence Liens of other Persons in the
Collateral which are prior to the Liens granted to Lessor and Agent in
the Lessee Security Documents, the Lessor Security Agreement and the
other Operative Documents, except for any such prior Liens (a) which
are expressly permitted by the Operative Documents to be prior or (b)
for which Agent has received a termination statement pursuant to item
D(9) above.
E. OPINIONS.
(1) A favorable written opinion of Wilson, Sonsini, Goodrich &
Rosati, counsel to Lessee, dated the Closing Date, addressed to Lessor
and Agent, for the benefit of Lessor, Agent and the Participants, and
covering such legal matters as Agent may reasonably request and
otherwise in form and substance satisfactory to Agent.
F. OTHER ITEMS.
(1) A duly completed and timely delivered Acquisition Request,
duly executed by Lessee;
(2) A Closing Date Appraisal for the Property, dated as of a
recent date prior to the Closing Date, appraising the Property at not
less than the Acquisition Price;
3.01-3
<PAGE> 93
(3) An Expiration Date Appraisal for the Property, dated as of
a recent date prior to the Closing Date, appraising the Property at not
less than the Total Commitment;
(4) An ALTA/ACSM survey of the Property (a) prepared and dated
not more than two (2) months prior to the Closing Date by a registered
surveyor reasonably satisfactory to Agent, (b) certified as correct and
as (i) having been made in accordance with the most recent standards
for "Minimum Standard Detail Requirements for ALTA/ACSM Land Title
Surveys," jointly established and adopted by ALTA and ACSM, and (ii)
meeting the accuracy requirements of a Class A survey (as defined
therein) and including items 2-4, 6, 7(a), 7(b), 7(c), 8-10 and 13 of
Table A thereof, and (c) disclosing, among other things, (i) the
location of the perimeter of the Property by courses and distances,
(ii) all easements and rights-of-way, (iii) the lines of the street
abutting the Property and the width thereof, (iv) encroachments, if
any, and the extent thereof in feet and inches upon the Property, and
(v) all boundary and lot lines, and all other matters that would be
disclosed by inspection of the Property and the public records;
(5) Environmental reports and assessments of the Property
satisfactory to Agent issued by environmental consultants acceptable to
Agent with respect to the Property (collectively, the "Environmental
Reports");
(6) A copy of the Fixed Price Remediation Agreement, the
Escrow Agreement and the Water Supply Agreement, each duly executed by
the parties thereto, together with a Consent to Assignment of
Remediation Agreements, duly executed by Seller and Remediator, in the
form attached as Exhibit B to the Assignment of Remediation Agreements;
(7) Except as otherwise provided pursuant to Item F.(7) below,
certificates of insurance evidencing the insurance Lessee is required
to maintain pursuant to Paragraph 3.03 of the Lease Agreement;
(8) Binders or similar commitments for the issuance of
insurance with respect to the insurance that the Remediator is required
to carry and maintain pursuant to the Fixed Price Remediation
Agreement, in form and substance satisfactory to Lessor;
(9) The Disclosure Letter;
(10) A certificate of the Chief Financial Officer of Lessee,
addressed to Lessor and Agent and dated the Closing Date, certifying
that:
(a) The representations and warranties set forth in
Paragraph 4.01 of the Participation Agreement and in the other
Operative Documents are true and correct in all material
respects as of such date (except for such representations and
warranties made as of a specified date, which shall be true as
of such date);
(b) No Default has occurred and is continuing as of
such date; and
3.01-4
<PAGE> 94
(c) All of the Operative Documents are in full force
and effect on such date.
(11) All fees and expenses payable to the Lessor Parties and
demanded by the Lessor Parties to be paid on or prior to the Closing
Date (including the Agent's Structuring Fee); and
(12) All fees and expenses of Lessor's and Agent's counsels
and demanded by Agent to be paid on or prior to the Closing Date.
3.01-5
<PAGE> 95
SCHEDULE 4.01(q)
SUBSIDIARIES
See Disclosure Letter
4.01(q)-1
<PAGE> 96
SCHEDULE 5.02(c)
INVESTMENT POLICY
See Disclosure Letter
5.02(e)-1
<PAGE> 97
EXHIBIT A
LAND
A-1
<PAGE> 98
EXHIBIT B
LEASE AGREEMENT
B-1
<PAGE> 99
EXHIBIT C
PURCHASE AGREEMENT
C-1
<PAGE> 100
EXHIBIT D
ACQUISITION REQUEST
[Date]
SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
1. Reference is made to that certain Participation Agreement, dated as
of June 30, 1999 (the "Participation Agreement"), among Silicon Valley Group,
Inc. ("Lessee"), SELCO Service Corporation ("Lessor"), the financial
institutions listed in Schedule I to the Participation Agreement (the
"Participants") and KeyBank National Association, as agent for the Participants
(in such capacity, "Agent"). Unless otherwise indicated, all terms defined in
the Participation Agreement have the same respective meanings when used herein.
2. Pursuant to Paragraph 2.03 of the Participation Agreement, Lessee
hereby irrevocably requests Lessor to make the Acquisition Advance as follows:
(a) The Acquisition Advance shall be in the aggregate amount
of $________; and
(b) The date of the Acquisition Advance shall be ____________,
____ (the "Closing Date").
3. $_________ of the Acquisition Advance will be used to pay the
Acquisition Price of the Property.
4. $________ of the Acquisition Advance will be used to pay the costs
and expenses set forth in Attachment 1 hereto. All such costs and expenses are
Permitted Transaction Expenses.
5. Lessee hereby certifies to the Lessor Parties that, on the date of
this Acquisition Request and after giving effect to the Acquisition Advance:
(a) The representations and warranties of Lessee set forth in
Paragraph 4.01 of the Participation Agreement and in the other
Operative Documents are true and correct in all material respects as if
made on such date (except for representations and warranties expressly
made as of a specified date, which shall be true as of such date);
(b) No Default has occurred and is continuing; and
(c) All of the Operative Documents are in full force and
effect on such date.
D-1
<PAGE> 101
5. Please disburse the proceeds of the Acquisition Advance to
- ---------------------------------------------------.
IN WITNESS WHEREOF, Lessee has executed this Acquisition Request on the
date set forth above.
SILICON VALLEY GROUP, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
D-2
<PAGE> 102
EXHIBIT E
LEASE EXTENSION REQUEST
[Date]
SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
1. Reference is made to that certain Participation Agreement, dated as
of June 30, 1999 (the "Participation Agreement"), among Silicon Valley Group,
Inc. ("Lessee"), SELCO Service Corporation ("Lessor"), the financial
institutions listed in Schedule I to the Participation Agreement (the
"Participants") and KeyBank National Association, as agent for the Participants
(in such capacity, "Agent"). Unless otherwise indicated, all terms defined in
the Participation Agreement have the same respective meanings when used herein.
2. Pursuant to Paragraph 2.09 of the Participation Agreement, Lessee
hereby irrevocably requests Lessor to extend (and the Participants to consent to
such extension) the Term of the Lease Agreement for an additional one (1) year
by extending the current Scheduled Expiration Date from [__________] to
[__________].
3. Lessee hereby certifies to the Lessor Parties that, on the date of
this Lease Extension Request and after giving effect to the extension requested
hereby:
(a) The representations and warranties of Lessee set forth in
Paragraph 4.01 of the Participation Agreement and in the other
Operative Documents are true and correct in all material respects as if
made on such date (except for representations and warranties expressly
made as of a specified date, which shall be true as of such date);
(b) No Default has occurred and is continuing; and
(c) All of the Operative Documents are in full force and
effect on such date.
E-1
<PAGE> 103
IN WITNESS WHEREOF, Lessee has executed this Lease Extension Request on
the date set forth above.
SILICON VALLEY GROUP, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
CONSENT
The undersigned hereby consents to the extension of the Scheduled
Expiration Date requested above upon the terms set forth in the attachment
hereto.
----------------------------------------
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
-----------------------------------
E-2
<PAGE> 104
EXHIBIT F
CASH COLLATERAL AGREEMENT
F-1
<PAGE> 105
EXHIBIT G
ASSIGNMENT OF LEASE
G-1
<PAGE> 106
EXHIBIT H
LESSOR DEED OF TRUST
H-1
<PAGE> 107
EXHIBIT I
LESSOR SECURITY AGREEMENT
I-1
<PAGE> 108
EXHIBIT J
LESSOR/LESSEE DEED OF TRUST
J-1
<PAGE> 109
EXHIBIT K
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, dated as of the date set forth at the top of
Attachment 1 hereto, by and among:
(1) The party designated under item A of Attachment I hereto
as the Assignor Participant ("Assignor Participant"); and
(2) Each party designated under item B of Attachment I hereto
as an Assignee Participant (individually, an "Assignee Participant").
RECITALS
A. Assignor Participant is one of the "Participants" in a Participation
Agreement dated as of June 30, 1999, among Silicon Valley Group, Inc.
("Lessee"), SELCO Service Corporation ("Lessor"), Assignor Participant and the
other institutions parties thereto as "Participants" (collectively, the
"Participants") and KeyBank National Association, as agent for the Participants
(in such capacity, "Agent"). (Such Participation Agreement, as amended,
supplemented or otherwise modified in accordance with its terms from time to
time to be referred to herein as the "Participation Agreement").
B. Assignor Participant wishes to sell, and each Assignee Participant
wishes to purchase, all or a portion of Assignor Participant's rights under the
Participation Agreement pursuant to Subparagraph 7.05(b) of the Participation
Agreement.
AGREEMENT
Now, therefore, the parties hereto hereby agree as follows:
1. Definitions. Except as otherwise defined in this Assignment
Agreement, all capitalized terms used herein and defined in the Participation
Agreement have the respective meanings given to those terms in the Participation
Agreement.
2. Sale and Assignment. Subject to the terms and conditions of this
Assignment Agreement, Assignor Participant hereby agrees to sell, assign and
delegate to each Assignee Participant and each Assignee Participant hereby
agrees to purchase, accept and assume the rights, obligations and duties of a
Participant under the Participation Agreement and the other Operative Documents
equal to the Tranche A Percentage, Tranche B Percentage and Proportionate Share
set forth under the captions "Tranche Percentages and Proportionate Shares
Assigned" opposite such Assignee Participant's name on Part A of Attachment I
hereto. Such sale, assignment and delegation shall become effective on the date
designated in Part C of
K-1
<PAGE> 110
Attachment I hereto (the "Assignment Effective Date"), which date shall be,
unless Agent shall otherwise consent, at least five (5) Business Days after the
date following the date counterparts of this Assignment Agreement are delivered
to Agent in accordance with Paragraph 3 hereof.
3. Assignment Effective Notice. Upon (a) receipt by Agent of five (5)
counterparts of this Assignment Agreement (to each of which is attached a fully
completed Attachment 1), each of which has been executed by Assignor Participant
and each Assignee Participant (and, to the extent required by clause (i) of
Subparagraph 7.05(b) of the Participation Agreement, by Lessor, Lessee and
Agent) and (b) payment to Agent of the registration and processing fee specified
in clause (iii) of Subparagraph 7.05(b) of the Participation Agreement, Agent
will transmit to Lessor, Lessee, Assignor Participant and each Assignee
Participant an Assignment Effective Notice substantially in the form of
Attachment 2 hereto, fully completed (an "Assignment Effective Notice").
4. Assignment Effective Date. At or before 12:00 noon (local time of
Assignor Participant) on the Assignment Effective Date, each Assignee
Participant shall pay to Assignor Participant, in immediately available or same
day funds, an amount equal to the purchase price, as agreed between Assignor
Participant and such Assignee Participant (the "Assignment Purchase Price"), for
the respective Tranche A Percentage, Tranche B Percentage and Proportionate
Share purchased by such Assignee Participant hereunder. Effective upon receipt
by Assignor Participant of the Assignment Purchase Price payable by each
Assignee Participant, the sale, assignment and delegation to such Assignee
Participant of such Proportionate Share as described in Paragraph 2 hereof shall
become effective.
5. Payments After the Assignment Effective Date. Assignor Participant
and each Assignee Participant hereby agree that Agent shall, and hereby
authorize and direct Agent to, allocate amounts payable under the Participation
Agreement and the other Operative Documents as follows:
(a) All payments applied to reduce the Outstanding Lease
Amount after the Assignment Effective Date with respect to each Tranche
A Percentage, Tranche B Percentage and Proportionate Share assigned to
an Assignee Participant pursuant to this Assignment Agreement shall be
payable to such Assignee Participant.
(b) All Base Rent, interest, fees and other amounts accrued
after the Assignment Effective Date with respect to each Tranche A
Percentage, Tranche B Percentage and Proportionate Share assigned to an
Assignee Participant pursuant to this Assignment Agreement shall be
payable to such Assignee Participant.
Assignor Participant and each Assignee Participant shall make any separate
arrangements between themselves which they deem appropriate with respect to
payments between them of amounts paid under the Operative Documents on account
of the Tranche A Percentage, Tranche B Percentage and Proportionate Share
assigned to such Assignee Participant, and neither Agent nor Lessee shall have
any responsibility to effect or carry out such separate arrangements.
K-2
<PAGE> 111
6. Delivery of Copies of Operative Documents. Concurrently with the
execution and delivery hereof, Assignor Participant will provide to each
Assignee Participant (if it is not already a party to the Participation
Agreement) conformed copies of all documents delivered to Assignor Participant
on or prior to the Closing Date in satisfaction of the conditions precedent set
forth in the Participation Agreement.
7. Further Assurances. Each of the parties to this Assignment Agreement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment Agreement.
8. Further Representations, Warranties and Covenants. Assignor
Participant and each Assignee Participant further represent and warrant to and
covenant with each other, Lessor, Agent and the other Participants as follows:
(a) Other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned hereby free
and clear of any adverse claim, Assignor Participant makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with the Participation Agreement or the other Operative
Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Participation Agreement or the
other Operative Documents furnished or the Collateral or any security
interest therein.
(b) Assignor Participant makes no representation or warranty
and assumes no responsibility with respect to the financial condition
of Lessee or any of its obligations under the Participation Agreement
or any other Operative Documents.
(c) Each Assignee Participant confirms that it has received a
copy of the Participation Agreement and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment Agreement.
(d) Each Assignee Participant will, independently and without
reliance upon Lessor, Agent, Assignor Participant or any other
Participant and based upon 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 the Participation Agreement and
the other Operative Documents.
(e) Each Assignee Participant appoints and authorizes Agent to
take such action as Agent on its behalf and to exercise such powers
under the Participation Agreement and the other Operative Documents as
Agent is authorized to exercise by the terms thereof, together with
such powers as are reasonably incidental thereto, all in accordance
with Section 6 of the Participation Agreement.
K-3
<PAGE> 112
(f) Each Assignee Participant (i) affirms that each of the
representations and warranties set forth in Paragraph 4.03 of the
Participation Agreement is true and correct with respect to such
Participant and (ii) agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the
Participation Agreement and the other Operative Documents are required
to be performed by it as a Participant.
(g) Each Assignee Participant represents and warrants that, as
of the date hereof, it would not have any basis for demanding any
payment under Subparagraph 2.12(c) or Subparagraph 2.12(d) of the
Participation Agreement or, to its knowledge, under Subparagraph
2.13(a) of the Participation Agreement.
(h) Part B of Attachment 1 hereto sets forth administrative
information with respect to each Assignee Participant.
9. Effect of this Assignment Agreement. On and after the Assignment
Effective Date, (a) each Assignee Participant shall be a Participant with a
Tranche A Percentage, Tranche B Percentage and Proportionate Share as set forth
under the caption "Tranche Percentages and Proportionate Share After Assignment"
opposite such Assignee Participant's name in Part A of Attachment 1 hereto and
shall have the rights, duties and obligations of such a Participant under the
Participation Agreement and the other Operative Documents and (b) Assignor
Participant shall be a Participant with a Tranche A Percentage, Tranche B
Percentage and Proportionate Share as set forth under the caption "Tranche
Percentages and Proportionate Share After Assignment" opposite Assignor
Participant's name in Part A of Attachment 1 hereto and shall have the rights,
duties and obligations of such a Participant under the Participation Agreement
and the other Operative Documents, or, if the Proportionate Share of Assignor
Participant has been reduced to zero, Assignor Participant shall cease to be a
Participant and shall have no further obligation to fund any portion of the
Acquisition Advance.
10. Miscellaneous. This Assignment Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. Paragraph
headings in this Assignment Agreement are for convenience of reference only and
are not part of the substance hereof.
K-4
<PAGE> 113
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed by their respective duly authorized officers as of the
date set forth in Attachment 1 hereto.
, as
-------------------------------------------
Assignor Participant
By:
----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
, as an
------------------------------------
Assignor Participant
By:
----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
, as an
------------------------------------
Assignor Participant
By:
----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
, as an
------------------------------------
Assignor Participant
By:
----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
K-5
<PAGE> 114
CONSENTED TO AND ACKNOWLEDGED BY:
- ----------------------------------------
as Lessee
By:
-------------------------------------
Name:
----------------------------
Title:
---------------------------
- ----------------------------------------
as Agent
By:
-------------------------------------
Name:
----------------------------
Title:
---------------------------
- ----------------------------------------
As Lessor
By:
-------------------------------------
Name:
----------------------------
Title:
---------------------------
ACCEPTED FOR RECORDATION IN REGISTER:
- ----------------------------------------
As Agent
By:
-------------------------------------
Name:
----------------------------
Title:
---------------------------
K-6
<PAGE> 115
ATTACHMENT 1
TO ASSIGNMENT AGREEMENT
PART A TRANCHE PERCENTAGES AND PROPORTIONATE SHARES
Tranche Percentages and
Proportionate Shares After Assignment
<TABLE>
<CAPTION>
Tranche A Tranche B Proportionate Tranche A Tranche B Proportionate
Percentage Percentage Share Percentage Percentage Share
------------- ----------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Assignor Participant:
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
Assignee Participants:
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
- --------- --. -------% --. -------% --. -------% --. -------% --. -------% --. --------%
</TABLE>
K(1)-1
<PAGE> 116
PART B
[Assignee Participant]
- -----------------------------
Applicable Participating Office:
- -----------------------------
Address for notices:
Telephone No:
---------
Facsimile No:
---------
Wiring Instructions:
[Assignee Participant]
- -----------------------------
Applicable Participating Office:
- -----------------------------
Address for notices:
Telephone No:
---------
Facsimile No:
---------
Wiring Instructions:
K(1)-2
<PAGE> 117
PART C
ASSIGNMENT EFFECTIVE DATE ________, ____
K(1)-3
<PAGE> 118
ATTACHMENT 2
TO ASSIGNMENT AGREEMENT
FORM OF
ASSIGNMENT EFFECTIVE NOTICE
Reference is made to the Participation Agreement, dated as of June 30,
1999, among Silicon Valley Group, Inc. ("Lessee"), SELCO Service Corporation
("Lessor"), the financial institutions parties thereto as "Participants" (the
"Participants") and KeyBank National Association, as agent for the Participants
(in such capacity, "Agent"). Agent hereby acknowledges receipt of five executed
counterparts of a completed Assignment Agreement, a copy of which is attached
hereto. [Note: Attach copy of Assignment Agreement.] Terms defined in such
Assignment Agreement are used herein as therein defined.
1. Pursuant to such Assignment Agreement, you are advised that the
Assignment Effective Date will be____________.
2. Pursuant to such Assignment Agreement, each Assignee Participant is
required to pay its Purchase Price to Assignor Participant at or before 12:00
Noon on the Assignment Effective Date in immediately available funds.
Very truly yours,
KeyBank National Association,
as Agent
By:
--------------------------------
Name:
----------------------------
Title:
---------------------------
K(2)-1
<PAGE> 119
EXHIBIT L
SYNTHETIC LEASE SWAP AGREEMENT
K(2)-1
<PAGE> 120
EXHIBIT M
ASSIGNMENT OF REMEDIATION AGREEMENTS
THIS ASSIGNMENT OF REMEDIATION AGREEMENTS (this "Agreement"
herein), dated as of June 30, 1999, is executed by
(1) SILICON VALLEY GROUP, INC., a Delaware corporation
("Lessee"),
in favor of
(2) SELCO SERVICE CORPORATION, an Ohio corporation doing
business in California as Ohio SELCO Service Corporation ("Lessor").
RECITALS
A. Lessee has requested Lessor and the financial institutions which are
"Participants" under the Participation Agreement referred to in Recital B below
(such financial institutions to be referred to collectively as the
"Participants") to provide to Lessee a lease facility pursuant to which:
(1) Lessor would (a) purchase certain property, (b) lease such
property to Lessee and (c) grant to Lessee the right to purchase such
property; and
(2) The Participants would participate in such lease facility
by (a) funding the advance to be made by Lessor to purchase such
property and (b) acquiring participation interests in the rental and
certain other payments to be made by Lessee.
B. Pursuant to a Participation Agreement dated of even date herewith
(the "Participation Agreement") among Lessee, Lessor, the Participants and
KeyBank National Association, as agent for the Participants (in such capacity,
"Agent"), Lessor and the Participants have agreed to provide such lease facility
upon the terms and subject to the conditions set forth therein, including
without limitation the execution and delivery of this Agreement setting forth
the terms for the purchase of the Property by Lessee from Lessor.
C. One of the conditions to the effectiveness of the Participation
Agreement is the execution and delivery of this Agreement by the parties hereto
setting forth the terms of the assignment by Lessee to Lessor of certain
documents, instruments and agreements related to the remediation of the
Property.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
<PAGE> 121
SECTION 1. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this
Agreement or any other Operative Document, each term set forth in Schedule 1.01
to the Participation Agreement, when used in this Agreement or any other
Operative Document, shall have the respective meaning given to that term in such
Schedule 1.01 or in the provision of this Agreement or other document,
instrument or agreement referenced in such Schedule 1.01.
1.02. Rules of Construction. Unless otherwise indicated in
this Agreement or any other Operative Document, the rules of construction set
forth in Schedule 1.02 to the Participation Agreement shall apply to this
Agreement and the other Operative Documents.
SECTION 2. ASSIGNMENT.
2.01. Assignment. Subject to Paragraph 2.02 hereof, Lessee
hereby assigns to Lessor all of Lessee's right, title and interest in, to and
under all documents, instruments and agreements between Lessee and any other
Person relating to the remediation of the Property and/or use of the groundwater
on the Property for a water supply (including, without limitation, the Fixed
Price Remediation Agreement, the Escrow Agreement and the Water Supply
Agreement) (collectively, the "Remediation Agreements") and all future
Remediation Agreements which may be entered into by Lessee and/or issued for the
benefit of Lessee prior to the termination of this Agreement. Upon execution or
receipt of any new Remediation Agreement, Lessee shall promptly notify Lessor as
to the existence of such Remediation Agreement. Upon Lessor's request, Lessee
shall provide Lessor with copies of the Remediation Agreement.
2.02. Absolute Assignment. This Agreement constitutes a
present and absolute assignment to Lessor; provided, however, that (a) Lessor
may not enforce the terms of the Remediation Agreement unless and until an Event
of Default occurs and (b) so long as no Event of Default has occurred, Lessee
shall have the right to enforce the terms and exercise the rights granted to
Lessee pursuant to the Remediation Agreements for the benefit of Lessee and
Lessor provided that such exercise is not otherwise inconsistent with the terms
of this Agreement and the other Operative Documents. Upon the occurrence of any
Event of Default, Lessor may, in its sole discretion, give notice to any Person
referred to in the Remediation Agreement or any other party to a Remediation
Agreement of its intent to enforce the rights of Lessee under the Remediation
Agreements and may initiate or participate in any legal proceedings respecting
the enforcement of said rights. Lessee acknowledges that, by accepting this
assignment, Lessor does not assume any of Lessee's obligations under the
Remediation Agreements.
2.03. Seller's and Remediator's Consent. In connection with
the execution and delivery to Lessor of this Agreement, Lessee shall obtain and
deliver to Lessor consents from each of Seller and Remediator in the form
attached hereto as Exhibit A with respect to the assignment by Lessee of all of
its right, title and interest in and to the Fixed Price Remediation Agreement,
the Escrow Agreement and the Water Supply Agreement. Upon Lessor's request,
Lessee shall obtain and provide to Lessor a Consent to Assignment for any new
Remediation Agreements entered into by Lessee after the date hereof which Lessor
determines in its sole
3
<PAGE> 122
discretion is material to the remediation of the Property.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
3.01. Representations and Warranties. Lessee represents and
warrants to Lessor that (a) all Remediation Agreements entered into by Lessee
are in full force and effect and are enforceable in accordance with their terms
(subject to applicable laws regarding insolvency and principles of equity) and,
to the best of Lessee's knowledge, no default, or event which would constitute a
default after notice or the passage of time, or both, exists with respect to
said Remediation Agreements; (b) all copies of the Remediation Agreements
delivered to Lessor are complete and correct; and (c) Lessee has not assigned
any of its rights under the Remediation Agreements, except as otherwise provided
herein or in the other Operative Documents.
3.02. Covenants. Lessee agrees (a) to pay and perform all
obligations of Lessee under the Remediation Agreements; (b) to enforce the
payment and performance of all obligations of any other Person under the
Remediation Agreements; (c) not to amend or modify the Remediation Agreements
(including, without limitation, the Fixed Price Remediation Agreement, the
Escrow Agreement and the Water Supply Agreement), not exercise its rights under
Paragraph 1.C. of the Fixed Price Remediation Agreement with respect to the
placement of any deed or use restrictions on the Property, nor enter into any
future Remediation Agreements without Lessor's prior written approval which
shall not be unreasonably withheld, except as otherwise may be permitted by the
Operative Documents; and (d) not to further assign, for security or any other
purposes, its rights under the Remediation Agreements without Lessor's prior
written approval.
SECTION 4. MISCELLANEOUS.
4.01. Notices. Except as otherwise specified herein, all
notices, requests, demands, consents, instructions or other communications to or
upon Lessee or Lessor under this Agreement shall be given as provided in
Subparagraph 2.02(c) and Paragraph 7.01 of the Participation Agreement.
4.02. Waivers; Amendments. Any term, covenant, agreement or
condition of this Agreement may be amended or waived only as provided in the
Participation Agreement. No failure or delay by any Lessor Party in exercising
any right hereunder shall operate as a waiver thereof or of any other right nor
shall any single or partial exercise of any such right preclude any other
further exercise thereof or of any other right. Unless otherwise specified in
any such waiver or consent, a waiver or consent given hereunder shall be
effective only in the specific instance and for the specific purpose for which
given.
4.03. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Lessor Parties and Lessee and their
permitted successors and assigns; provided, however, that the Lessor Parties and
Lessee shall not sell, assign or delegate their respective rights and
obligations hereunder except as provided in the Participation Agreement.
4.04. No Third Party Rights. Nothing expressed in or to be
implied from this
4
<PAGE> 123
Agreement is intended to give, or shall be construed to give, any Person, other
than the Lessor Parties and Lessee and their permitted successors and assigns,
any benefit or legal or equitable right, remedy or claim under or by virtue of
this Agreement or under or by virtue of any provision herein.
4.05. Partial Invalidity. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law or any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
4.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of law rules.
4.07. Termination. After the expiration of the Lease Agreement
and the satisfaction in full of all Lessee Obligations, the assignment of the
Remediation Agreements set forth herein shall terminate, Lessor shall re-assign
to Lessee its interests in such Remediation Agreements and this Agreement shall
terminate.
[The signature page follows.]
5
<PAGE> 124
IN WITNESS WHEREOF, Lessee has caused this Agreement to be
executed as of the day and year first above written.
LESSEE: SILICON VALLEY GROUP, INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
6
<PAGE> 125
EXHIBIT A
CONSENT TO ASSIGNMENT
1. Reference is made to (a) the property located at 440 Kings
Village Road, as more particularly described in Exhibit A to the Participation
Agreement (the "Property") and (b) the agreement[s] described in Attachment 1
hereto.
2. Silicon Valley Group, Inc. ("Lessee") has notified the
undersigned that, pursuant to an Assignment of Remediation Agreements dated as
of June 30, 1999 between Lessee and SELCO Service Corporation, an Ohio
corporation doing business in California as Ohio SELCO Service Corporation
("Lessor") (the "Assignment"), Lessee has assigned to Lessor the agreement[s]
described in Attachment 1 hereto and all future documents, instruments and
agreements relating to the remediation of the Property (collectively, the
"Remediation Agreements").
3. The undersigned hereby consents to the Assignment and
acknowledges and agrees as follows for the benefit of Lessor that:
(a) Pursuant to the Assignment, Lessee may not amend or modify
the Remediation Agreements (including, without limitation, the
agreement[s] described in Attachment 1 hereto), [not exercise its
rights under Paragraph 1.C. of the Fixed Price Remediation Agreement
with respect to the placement of any deed or use restrictions on the
Property,] nor enter into any future Remediation Agreements without
Lessor's prior written approval which shall not be unreasonably
withheld; and
(b) If requested by Lessor in the exercise of Lessor's rights
under the Assignment, the undersigned shall continue to perform its
obligations under the Remediation Agreements in accordance with the
terms thereof. The undersigned acknowledges that Lessor may have no
means of discovering when or if the undersigned claims a default under
the Remediation Agreements and agrees that it will give Lessor prior
written notice of any default claimed by the undersigned under the
Remediation Agreements. Said notice shall set forth a description of
the default and a request to Lessor to cure the same within thirty (30)
days. Said notice shall be deemed served upon delivery or, if mailed,
upon the first to occur of receipt or the expiration of seventy-two
(72) hours after deposit in United States Postal Service certified
mail, postage prepaid and addressed to the address of Lessor appearing
below. No termination of the Remediation Agreements by the undersigned
shall be binding upon Lessor unless Lessor has received such notice and
has failed to cure the described default within said thirty (30) days.
The undersigned further acknowledges that, unless and until Lessor
elects to exercise its rights under the Assignment and requests the
undersigned's performance under the Remediation Agreements in writing,
Lessor neither undertakes nor assumes any obligations or liability
under the Remediation Agreements. Upon any such election, Lessor agrees
to be bound by the terms and conditions of the Remediation Agreements
to the same extent as Lessee (including, without limitation, all
obligations and liabilities of Lessee arising prior to such
L-1
<PAGE> 126
election as to which the undersigned has notified Lessor in writing
prior to such election that such obligations or liabilities have yet to
be performed by Lessee).
L-2
<PAGE> 127
IN WITNESS WHEREOF, the undersigned has executed this Consent on this
___________ day of___________, ____.
[________________________________]
By:
________________________________
Name:
___________________________
Title:
__________________________
Signatory's Address:
[__________________________]
[__________________________]
[__________________________]
[__________________________]
Lessor's Address:
SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
L-3
<PAGE> 128
EXECUTION VERSION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
AMONG
SILICON VALLEY GROUP, INC.
AND
SELCO SERVICE CORPORATION
An Ohio corporation during business in California
Ohio SELCO Service Corporation
AND
THE PARTICIPANTS NAMED HEREIN
AND
KEYBANK NATIONAL ASSOCIATION,
AS AGENT FOR THE PARTICIPANTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 129
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.INTERPRETATION....................................................................................... 1
1.01. Definitions........................................................................................... 1
1.02. Rules of Interpretation............................................................................... 2
SECTION 2.LEASE FACILITY....................................................................................... 2
2.01. Acquisition, Lease, Amount Limitations, Etc........................................................... 2
2.02. Participation Agreement............................................................................... 2
2.03. Acquisition Request................................................................................... 4
2.04. Agent Fees............................................................................................ 4
2.05. Funding of Acquisition Advance........................................................................ 4
2.06. Sharing of Payments................................................................................... 4
2.07. Other Payment Terms................................................................................... 6
2.08. Commitment Termination................................................................................ 8
2.09. Lease Extensions...................................................................................... 8
2.10. Nature of the Transaction............................................................................. 8
2.11. Security.............................................................................................. 10
2.12. Change of Circumstances............................................................................... 11
2.13. Taxes on Payments..................................................................................... 14
2.14. Funding Loss Indemnification.......................................................................... 16
2.15. Replacement of Participants........................................................................... 16
2.16. Limitation on Collection of Costs..................................................................... 16
SECTION 3.CONDITIONS PRECEDENT................................................................................. 17
3.01. Acquisition Advance................................................................................... 17
3.02. Other Conditions Precedent............................................................................ 17
3.03. Covenant to Deliver................................................................................... 17
SECTION 4.REPRESENTATIONS AND WARRANTIES....................................................................... 17
4.01. Lessee's Representations and Warranties............................................................... 17
4.02. Lessor's Representations and Warranties............................................................... 23
4.03. Participants' Representations and Warranties.......................................................... 25
</TABLE>
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<PAGE> 130
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 5.COVENANTS............................................................................................ 26
5.01. Lessee's Affirmative Covenants........................................................................ 26
5.02. Lessee's Negative Covenants........................................................................... 29
5.03. Lessee's Financial Covenants.......................................................................... 37
5.04. Lessor's Covenants.................................................................................... 39
5.05. Participants' Covenants............................................................................... 39
SECTION 6.LESSOR, AGENT AND THEIR RELATIONS WITH PARTICIPANTS.................................................. 39
6.01. Appointment of Agent.................................................................................. 39
6.02. Powers and Immunities................................................................................. 40
6.03. Reliance.............................................................................................. 40
6.04. Defaults.............................................................................................. 40
6.05. Indemnification....................................................................................... 41
6.06. Non-Reliance.......................................................................................... 41
6.07. Resignation or Removal of Agent....................................................................... 41
6.08. Authorization......................................................................................... 42
6.09. Lessor and Agent in their Individual Capacities....................................................... 42
SECTION 7.MISCELLANEOUS........................................................................................ 42
7.01. Notices............................................................................................... 42
7.02. Expenses.............................................................................................. 44
7.03. Indemnification....................................................................................... 44
7.04. Waivers; Amendments................................................................................... 45
7.05. Successors and Assigns................................................................................ 45
7.06. Setoff................................................................................................ 49
7.07. No Third Party Rights................................................................................. 49
7.08. Partial Invalidity.................................................................................... 49
7.09. JURY TRIAL............................................................................................ 49
7.10. Counterparts.......................................................................................... 49
7.11. No Joint Venture, Etc................................................................................. 50
</TABLE>
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<PAGE> 131
<TABLE>
<CAPTION>
PAGE
<S> <C>
7.12. Usury Savings Clause.................................................................................. 50
7.13. Confidentiality....................................................................................... 50
7.14. Governing Law......................................................................................... 50
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
I Participants
II Pricing Grid
1.01 Definitions
1.02 Rules of Interpretation
3.01 Conditions Precedent to Acquisition Advance
4.01(q) Subsidiaries
5.02(e) Investment Policy
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
A Land (Recital A; Schedule 1.01))
B Lease Agreement (2.01(a))
C Purchase Agreement (2.01(a))
D Acquisition Request (2.03)
E Lease Extension Request (2.09)
F Cash Collateral Agreement (2.11(a))
G Assignment of Lease (2.11(b))
H Lessor Deed of Trust (2.11(b))
I Lessor Security Agreement (2.11(b))
J Lessor/Lessee Deed of Trust (2.11(c))
K Assignment Agreement (7.05(b))
L Synthetic Lease Swap Agreement (Schedule 3.01))
M Assignment of Remediation Agreements (2.11(a))
</TABLE>
-iii-
<PAGE> 1
EXHIBIT 10.55
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement" herein), dated as of June 30,
1999, is entered into by and between:
(1) SILICON VALLEY GROUP, INC., a Delaware corporation ("Lessee");
and
(2) SELCO SERVICE CORPORATION, an Ohio corporation doing business
in California as Ohio SELCO Service Corporation ("Lessor").
RECITALS
A. Lessee has requested Lessor and the financial institutions which are
"Participants" under the Participation Agreement referred to in Recital B below
(such financial institutions to be referred to collectively as the
"Participants") to provide to Lessee a lease facility pursuant to which:
(1) Lessor would (a) purchase certain property, (b) lease such
property to Lessee and (c) grant to Lessee the right to purchase such
property; and
(2) The Participants would participate in such lease facility by
(a) funding the advance to be made by Lessor to purchase such property
and (b) acquiring participation interests in the rental and certain other
payments to be made by Lessee.
B. Pursuant to a Participation Agreement dated of even date herewith (the
"Participation Agreement") among Lessee, Lessor, the Participants and KeyBank
National Association, as agent for the Participants (in such capacity, "Agent"),
Lessor and the Participants have agreed to provide such lease facility upon the
terms and subject to the conditions set forth therein, including without
limitation the execution and delivery of this Agreement setting forth the terms
for the purchase of the Property by Lessee from Lessor.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, each term set forth in Schedule 1.01 to the
Participation Agreement, when used in this Agreement or any other Operative
Document, shall have the respective meaning given to
<PAGE> 2
that term in such Schedule 1.01 or in the provision of this Agreement or other
document, instrument or agreement referenced in such Schedule 1.01.
1.02. Rules of Interpretation. Unless otherwise indicated in this
Agreement or any other Operative Document, the rules of interpretation set forth
in Schedule 1.02 to the Participation Agreement shall apply to this Agreement
and the other Operative Documents.
SECTION 2. OPTIONAL PURCHASE BY LESSEE DURING THE TERM.
2.01. Term Purchase Option. Subject to the terms and conditions of this
Agreement and the other Operative Documents (including those set forth below in
this Section 2), Lessee may, at its option on any Business Day selected by
Lessee prior to the Scheduled Expiration Date, terminate the Lease Agreement and
purchase all of the Property (the "Term Purchase Option").
2.02. Notice of Term Purchase Option Exercise. Lessee shall notify Lessor
of Lessee's exercise of the Term Purchase Option by delivering to Lessor an
irrevocable written notice in the form of Exhibit A, appropriately completed
(the "Notice of Term Purchase Option Exercise"), which states that Lessee is
exercising its right to terminate the Lease Agreement prior to the Scheduled
Expiration Date pursuant to Paragraph 4.01 of the Lease Agreement and purchase
all of the Property pursuant to this Section 2 and specifies the Business Day on
which such termination and purchase are to occur (which date, after the delivery
of such notice, shall be the Expiration Date). Lessee shall give the Notice of
Term Purchase Option Exercise to Lessor at least one (1) month prior to the
Business Day on which such termination and purchase are to occur. The Notice of
Term Purchase Option Exercise shall be delivered as required by Subparagraph
2.02(c) and Paragraph 7.01 of the Participation Agreement; provided, however,
that Lessee shall promptly deliver the original of any Notice of Term Purchase
Option Exercise initially delivered by facsimile.
2.03. Purchase Price . Lessee shall pay to Lessor on the Expiration Date,
as the purchase price for the Property, an amount equal to the Outstanding Lease
Amount on such date.
2.04. Effect of Certain Events. Lessee may exercise the Term Purchase
Option as provided in this Section 2, notwithstanding:
(a) The prior election by Lessee of the Return Option pursuant to
Subparagraph 3.01(a), provided that (i) Lessee completes the purchase of
the Property pursuant to the Term Purchase Option and this Agreement on
or prior to the Scheduled Expiration Date and (ii) Lessor has not
previously entered into an agreement with (A) a Designated Purchaser
following Lessee's election of the Return Option pursuant to Subparagraph
3.01(a) or (b) an Assignee Purchaser following Lessee's election and
subsequent assignment of the Expiration Date Purchase Option pursuant to
Paragraph 3.02; or
2
<PAGE> 3
(b) The occurrence of any Event of Default or the exercise by the
Lessor Parties of any of their rights or remedies under the Operative
Documents following the occurrence of such Event of Default, provided
that (i) such exercise by Lessee of the Term Purchase Option after the
occurrence of any Event of Default shall not require the Lessor Parties
to cease exercising such rights and remedies unless and until Lessee
completes the purchase of the Property pursuant to the Term Purchase
Option and this Agreement and (ii) Lessee completes the purchase of the
Property pursuant to the Term Purchase Option and this Agreement prior to
the earlier of the Scheduled Expiration Date and the date the Lessor
Parties complete any judicial or non-judicial foreclosure sale of the
Property.
SECTION 3. OBLIGATIONS OF LESSEE ON THE EXPIRATION DATE.
3.01. Alternative. Unless Lessee has exercised the Term Purchase Option
or the Lease Agreement has otherwise been earlier terminated pursuant to
Subparagraph 5.03(a) of the Lease Agreement, Lessee may elect to exercise one of
the following options on the Expiration Date:
(a) Return Option. Lease may elect to return to Lessor on the
Expiration Date all, but not less than all, of the Property by delivering
to Lessor an irrevocable written notice in the form of Exhibit B,
appropriately completed ("Notice of Return Option Exercise"), which
states that Lessee is exercising its right to return the Property to
Lessor pursuant to this Paragraph 3.01 (the "Return Option"). Lessee
shall give the Notice of Return Option Exercise to Lessor at least three
hundred sixty-four (364) days prior to the then Scheduled Expiration
Date, in which case the Property shall be returned to Lessor in
accordance with Subparagraph 4.02 of the Lease Agreement on the
Expiration Date of the Lease Agreement, and the provisions of
Subparagraph 3.03(b) hereof shall apply (unless on or before such
Expiration Date, Lessee purchases the Property in accordance with Section
2 or Subparagraph 3.01(b), or the Property is to delivered to Designated
Purchaser in accordance with Subparagraph 3.02(b) hereof, in which case
the provisions of Subparagraph 3.03(a) hereof shall apply). The Notice of
Return Option Exercise shall be delivered as required by Subparagraph
2.02(c) and Paragraph 7.01 of the Participation Agreement; provided,
however, that Lessee shall promptly deliver to Lessor the original of any
notice initially delivered by facsimile. If Lessee has not given the
Notice of Return Option Exercise to Lessor as provided above, Lessee
shall have been conclusively deemed to have elected to purchase the
Property on the Expiration Date as provided in Subparagraph 3.01(b)
hereof; provided, however, that in no event shall such election
constitute a waiver by Lessee of its right to exercise the Term Purchase
Option prior to the Expiration Date. If Lessee has duly elected to
exercise the Return Option on the Expiration Date and the Property has
not been so returned or delivered to Lessor on the Expiration Date,
Lessee shall pay to Lessor such amounts as are required to be paid
pursuant to Subparagraph 4.03 of the Lease Agreement.
(b) Expiration Date Purchase Option. Subject to Subparagraph 5.03,
if Lessee does not elect to exercise the Return Option on the Expiration
Date in accordance with
3
<PAGE> 4
Subparagraph 3.01(a) hereof, Lessee shall be deemed to have elected to
purchase Lessor's interest in all, but not less than all, of the Property
on the Expiration Date in accordance with Section 4 hereof, for an amount
equal to the Outstanding Lease Amount (the "Expiration Date Purchase
Option"). Notwithstanding the provisions of this Subparagraph 3.01(b),
Lessee may freely assign to an Assignee Purchaser its option to purchase
the Property from Lessor on the Expiration Date provided that such
Assignee Purchaser purchases Lessor's interest in all, but not less than
all, of the Property on the Expiration Date in accordance with Section 4
hereof, for an amount equal to the Outstanding Lease Amount.
3.02. Sale of Property to Third Party Purchaser.
(a) Remarketing Obligations Upon Exercise of Return Option. If
Lessee elects to exercise the Return Option in accordance with
Subparagraph 3.01(a) hereof, then Lessee shall have the obligation during
the final three hundred sixty-four (364) days of the Term (the "Marketing
Period"), to use such commercially reasonable efforts as would be made by
a self-interested property owner in the geographic area or areas in which
the Property is located to actively market commercial property and to
obtain bona fide bids for such Property from prospective purchasers who
are financially capable of purchasing the Property for cash on an as-is,
where-is basis, without recourse or warranty by Lessor (other than a
warranty against Lessor Liens) on the terms and conditions set forth in
this Subparagraph 3.02. Lessee shall be responsible for hiring brokers
who shall be reasonably acceptable to Lessor, and promptly upon Lessor's
request, shall permit inspection of the Property and any maintenance
records relating to the Property by Lessor, or any potential purchasers,
and shall otherwise do all things reasonably necessary to sell and
deliver possession of the Property to any such third party purchaser. All
such marketing of the Property shall be at Lessee's sole cost and
expense. Lessee shall allow Lessor and any potential purchaser access to
the Property for purposes of showing the same. All bids received by
Lessee during the Marketing Period shall be immediately certified to
Lessor in writing, setting forth the amount of such bid and the name and
address of the third party purchaser submitting such bid.
(b) Delivery of Property to Third Party Purchaser. On the
Expiration Date, Lessee shall deliver the Property to the third party
purchaser (if any) who shall have submitted the highest bid during the
Marketing Period (such third party purchaser, the "Designated
Purchaser"), and Lessor shall simultaneously therewith sell (or cause to
be sold), its ownership interest in the Property to such Designated
Purchaser; provided, however, that Lessor shall not be obligated to sell
the Property to such Designated Purchaser if the Net Proceeds of Sale of
the Property would be less than the Tranche B Proportionate Share of the
Outstanding Lease Amount.
(c) Delivery of Appraisals and Reports. Lessor shall have the
right (but not the obligation) in its sole discretion, but at Lessee's
sole cost and expense, to retain one or more Persons to act as its agent
for the purpose of determining compliance by Lessee with the conditions
applicable to a return of the Property pursuant to Subparagraph 4.02
4
<PAGE> 5
of the Lease Agreement. Upon the request of Lessor and at Lessee's sole
cost and expense, Lessee shall provide Lessor with a written report
describing in reasonable detail Lessee's efforts during the Marketing
Period to obtain bona fide bids for the purchase of the Property,
including a list of all Persons approached for the purpose of soliciting
bids to purchase the Property.
3.03. End of Term Adjustment.
(a) This Subparagraph 3.03(a) shall apply only if the Property has
been sold to a Designated Purchaser on the Expiration Date pursuant to
Paragraph 3.02 hereof. If the Net Proceeds of Sale of the Property from a
sale to a Designated Purchaser are less than the Outstanding Lease Amount
on the date of the sale, Lessee shall, on the Expiration Date, pay to
Lessor, in immediately available funds, an amount equal to such
deficiency (a "Deficiency"); provided, however, that the amount of the
Deficiency to be paid by Lessee with respect to the Property shall not
exceed the following sum:
(i) An amount (the "Residual Value Guaranty Amount") equal
to the total Tranche A Proportionate Share of the Outstanding
Lease Amount on such date;
plus
(ii) An amount (the "Indemnity Amount") equal to the
decrease, if any, between the Commencement Date and the Expiration
Date in the fair market value of the Property caused by (A) any
representation or warranty of Lessee or any of its Affiliates
regarding the Property set forth in any of the Operative Documents
proving to be false or inaccurate when made, (B) the existence of,
or the failure of Lessee to pay any Governmental Charge,
Indebtedness or other obligation which might give rise to, any
Liens in the Property (other than Permitted Property Liens), (C)
the failure of Lessee to complete any Modifications, (D) the
impairment of the value, utility or useful life of the Property or
any part thereof in connection with Modifications, (E) the failure
of Lessee to comply with the Lease Agreement in removing any of
the Property or in removing or failing to remove any Lessee
Property; or (F) any other failure of Lessee to comply with any of
its obligations regarding the Property set forth in any of the
Operative Documents.
If the Net Proceeds of Sale of the Property exceed the Outstanding Lease
Amount on the date of such sale, Lessor shall pay to Lessee an amount
equal to such excess. Lessor's obligation to sell (or cause to be sold)
the Property to a Designated Purchaser in accordance with Paragraph 3.02
hereof is contingent upon the receipt of the amounts, if any, payable by
Lessee pursuant to this Subparagraph 3.03 (a).
(b) If, on the Expiration Date, either (i) Lessee or an Assignee
Purchaser does not purchase the Property pursuant to Subparagraph 3.01(b)
hereof, or (ii) a Designated Purchaser does not purchase the Property in
accordance with Paragraph 3.02 hereof,
5
<PAGE> 6
Lessee shall immediately pay to Lessor (in addition to all unpaid Rent
accrued through or due and payable on or prior to such date and all other
amounts, if any, due and payable by Lessee under the Operative Documents
on or prior to such date) the Residual Value Guaranty Amount and the
Indemnity Amount. Thereafter, Lessor shall use commercially reasonable
efforts to sell the Property in a reasonable time to one or more
unrelated third parties for the fair market value of the Property. Upon
the consummation of any such sale of the Property, the total amount
realized from such sale shall be retained by Lessor, provided, however,
that if the Net Proceeds of Sale realized by Lessor exceed the Tranche B
Proportionate Share of the Outstanding Lease Amount on the Expiration
Date plus seven percent (7%) per annum thereon from and after the
Expiration Date to the date such sale is consummated (such sum, the
"Lessor's Retention Amount"), Lessee shall be entitled to receive from
Lessor an amount equal to the lesser of: (i) the amount by which the Net
Proceeds of Sale exceeds said Lessor's Retention Amount, and (ii) the sum
of the Residual Value Guaranty Amount and the Indemnity Amount as paid to
Lessor. Lessee shall remain liable for the payment of, and upon the
consummation by Lessor of the sale of the Property after the Expiration
Date, Lessee shall pay or reimburse Lessor for the payment of, all
applicable sales, excise, transfer, recording or other taxes imposed as a
result of such sale, and fees and all other expenses reasonably incurred
by Lessor as a result of such sale, including without limitation,
expenses incurred in titling and registering the conveyance of Lessor's
title to the Property, title insurance fees and expenses, Indemnified
Taxes and reasonable fees and expenses of Lessor's legal counsel.
SECTION 4. TERMS OF ALL PURCHASES.
4.01. Representations and Warranties of Parties.
(a) Representations and Warranties of Certain Purchasers. Each
Designated Purchaser shall represent and warrant to Lessor on the
Expiration Date as follows:
(i) Such Person is a legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction
of organization or an individual with legal capacity to purchase
the Property.
(ii) The execution, delivery and performance by such Person
of each document, instrument and agreement executed, or to be
executed, by such Person in connection with its purchase of the
Property (the "Purchase Documents") and the consummation of the
transactions contemplated thereby (A) are within the power of such
Person and (B) have been duly authorized by all necessary actions
on the part of such Person.
(iii) Each Purchase Document executed, or to be executed, by
such Person has been, or will be, duly executed and delivered by
such Person and constitutes, or will constitute, a legal, valid
and binding obligation of such Person, enforceable against such
Person in accordance with its terms, except as limited by
6
<PAGE> 7
bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights
generally and general principles of equity.
(iv) Such Person has not (A) made a general assignment for
the benefit of creditors, (B) filed any voluntary petition in
bankruptcy or suffered the filing of any involuntary petition by
such Person's creditors, (C) suffered the appointment of a
receiver to take possession of all, or substantially all, of such
Person `s assets, (D) suffered the attachment or other judicial
seizure of all, or substantially all, of such Person `s assets,
(E) admitted in writing its inability to pay its debts as they
come due, or (F) made an offer of settlement, extension or
composition to its creditors generally.
(v) Such Person is not a "party in interest" within the
meaning of Section 3(14) of the ERISA, with respect to any
investor in or beneficiary of Lessor.
(b) Representations and Warranties of Lessor and Lessee. Each of
Lessor and Lessee shall represent and warrant to each purchaser of the
Property, whether Lessee, an Assignee Purchaser or a Designated Purchaser
(a "Purchaser"), on the Expiration Date as follows:
(i) Such Person is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction
of organization.
(ii) The execution, delivery and performance by such Person
of each Purchase Document executed, or to be executed, by such
Person and the consummation of the transactions contemplated
thereby (A) are within the power of such Person and (B) have been
duly authorized by all necessary actions on the part of such
Person.
(iii) Each Purchase Document executed, or to be executed, by
such Person has been, or will be, duly executed and delivered by
such Person and constitutes, or will constitute, a legal, valid
and binding obligation of such Person, enforceable against such
Person in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights
generally and general principles of equity.
(iv) Such Person has not (A) made a general assignment for
the benefit of creditors, (B) filed any voluntary petition in
bankruptcy or suffered the filing of any involuntary petition by
such Person's creditors, (C) suffered the appointment of a
receiver to take possession of all, or substantially all, of such
Person's assets, (D) suffered the attachment or other judicial
seizure of all, or substantially all, of such Person's assets, (E)
admitted in writing its inability to pay its debts as they come
due, or (F) made an offer of settlement, extension or composition
to its creditors generally.
7
<PAGE> 8
In addition to the foregoing, (A) Lessee shall represent and warrant to
the Designated Purchaser (or Lessor if Lessor is to retain the Property)
on the Expiration Date that no Liens are attached to the Property, except
for Permitted Property Liens, and (B) Lessor shall represent and warrant
to Purchaser on the Expiration Date that no Lessor Liens are attached to
the Property. Lessee shall also provide to the Designated Purchaser all
customary seller's indemnities (including environmental indemnities),
representations and warranties regarding the condition of the Property.
Except for the foregoing representations and warranties to be made by
Lessor on the Expiration Date, no Lessor Party shall make any
representation or warranty regarding the Property or the sale of the
Property.
(c) Survival of Representations and Warranties. The
representations and warranties of Purchaser, Lessor and Lessee shall
survive for a period of twelve (12) months after the Expiration Date. Any
claim which any such party may have at any time against any other such
party for a breach of any such representation or warranty, whether known
or unknown, which is not asserted by written notice within such twelve
(12) month period shall not be valid or effective, and the party shall
have no liability with respect thereto.
4.02. "As Is" Purchase. All purchases of the Property hereunder shall be
"as is, with all faults" and without any representations, warranties or
indemnities by the Lessor Parties except for any representations, warranties or
indemnities provided by Lessor pursuant to Subparagraph 4.01(b). Purchaser shall
specifically acknowledge and agree that Lessor is selling and Purchaser is
purchasing the Property on an "as is, with all faults" basis and that Purchaser
is not relying on any representations or warranties of any kind whatsoever,
express or implied, from any Lessor Party, its agents, or brokers as to any
matters concerning the Property (except for any representations and warranties
provided by Lessor pursuant to Subparagraph 4.01(b)), including (a) the
condition of the Property (including any Improvements or other Modifications to
the Property made prior to the Commencement Date or during the Term of the Lease
Agreement); (b) title to the Property (including possession of the Property by
any Person or the existence of any Lien or any other right, title or interest in
or to any of the Property in favor of any Person); (c) the value, habitability,
usability, design, operation or fitness for use of the Property; (d) the
availability or adequacy of utilities and other services to the Property; (e)
any latent, hidden or patent defect in the Property; (f) the zoning or status of
the Property or any other restrictions on the use of the Property; (g) the
economics of the Property; (h) any Casualty or Condemnation; or (i) the
compliance of the Property with any applicable Governmental Rule or Insurance
Requirement.
4.03. Release. Without limiting the foregoing, Purchaser shall, on behalf
of itself and its successors and assigns, waive its right to recover from, and
forever release and discharge, Lessor and the other Indemnitees from any and all
demands, claims, legal or administrative proceedings, losses, liabilities,
damages, penalties, fines, liens, judgments, costs or expenses whatsoever
(including attorneys' fees and costs), whether direct or indirect, known or
unknown, foreseen or unforeseen, that may arise on account of or in any way be
connected with the physical condition of the Property or any Governmental Rule
applicable thereto, including any
8
<PAGE> 9
Environment Law. Purchaser shall expressly waive the benefits of Section 1542 of
the California Civil Code, which provides that, "a general release does not
extend to claims which the creditor does not know or expect to exist in his
favor at the time of executing the release, which if known to him must have
materially affected the settlement with the debtor."
4.04. Permits, Approvals, Etc. Lessee shall obtain all permits, licenses
and approvals from and make all filings with Governmental Authorities and other
Persons, comply and cause compliance with all applicable Governmental Rules and
take all other actions required for the marketing, purchase and sale of the
Property.
4.05. Costs. Lessee shall pay directly, without deduction from the
purchase price or any other amount payable to Lessor hereunder, all costs and
expenses of Lessee and Lessor associated with the marketing and sale of the
Property, including brokers' fees and commissions; title insurance premiums;
survey charges; utility, tax and other prorations; fees and expenses of
environmental consultants and attorneys; appraisal costs; escrow fees; recording
fees; documentary, transfer and other taxes; and all other fees, costs and
expenses which might otherwise be deducted from the purchase price or any other
amount payable to Lessor hereunder.
4.06. Lessor Liens. Lessor shall remove all Lessor Liens from the
Property on or before the Expiration Date.
4.07. Transfer Documents.
(a) Lessor. Subject to receipt by Lessor on the Expiration Date of
the full amount required to be paid for the Property pursuant to
Paragraph 2.03, Subparagraph 3.01(b) or Subparagraph 3.03 (as
applicable), Lessor shall transfer its interest in the Property to
Purchaser on the Expiration Date (unless Lessor is to retain the Property
pursuant to Subparagraph 3.01(a)) by executing and delivering to
Purchaser a Deed in substantially the form of Exhibit C(1) , an
Acknowledgment of Disclaimer of Representations and Warranties in
substantially the form of Exhibit C(2), and (if applicable) a Bill of
Sale in substantially the form of Exhibit D and such other documents,
instruments and agreements as such Person may reasonably request.
(b) Lessee. On the Expiration Date, unless Lessee is to purchase
the Property, Lessee shall transfer its interest in the Property to the
Designated Purchaser or the Assignee Purchaser (or Lessor if Lessor is to
retain the Property) by executing and delivering to such Person a Deed in
substantially the form of Exhibit E, and (if applicable) a Bill of Sale
in substantially the form of Exhibit F and such other documents,
instruments and agreements as such Person may reasonably request.
4.08. Casualty and Condemnation Proceeds. If, on the Expiration Date, any
Casualty and Condemnation Proceeds are held by Lessor in a Repair and
Restoration Account or otherwise, Lessor shall (a) if Lessee is to purchase the
Property on the Expiration Date and Lessee shall so direct, apply such proceeds
to the purchase price to be paid by Lessee or (b) in all other cases, release
such proceeds to Lessee; provided, however, that Lessor shall not have any
9
<PAGE> 10
obligation so to apply or release such proceeds unless Lessee and/or any
Designated Purchaser has complied with all of the terms and conditions of this
Agreement.
4.09. Payments. Purchaser and Lessee shall make all payments in lawful
money of the United States and in same day or immediately available funds not
later than 11:00 a.m. on the date due.
4.10. Environmental Reports. Lessee shall obtain and deliver to Lessor,
in accordance with Paragraph 4.02 of the Lease Agreement, environmental reports
and assessments with respect to the Property.
4.11. Further Assurances. Lessee shall, and shall cause any Designated
Purchaser to, execute and deliver such documents, instruments and agreements and
take such other actions as Lessor may reasonably request to effect the purposes
of this Agreement and comply with the terms hereof. Similarly, Lessor shall
execute and deliver such documents, instruments and agreements and take such
other actions as Lessee or a Designated Purchaser may reasonably request to
effect the purposes of this Agreement and comply with the terms hereof.
10
<PAGE> 11
SECTION 5. MISCELLANEOUS.
5.01. Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Lessee or Lessor under this Agreement shall be given as provided in Subparagraph
2.02(c) and Paragraph 7.01 of the Participation Agreement.
5.02. Waivers, Amendments. Any term, covenant, agreement or condition of
this Agreement may be amended or waived only as provided in the Participation
Agreement. No failure or delay by any Lessor Party in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise of any such right preclude any other further exercise
thereof or of any other right. Unless otherwise specified in any such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
5.03. Successors and Assigns.
(a) General. This Agreement shall be binding upon and inure to the
benefit of the Lessor Parties and Lessee and their permitted successors
and assigns; provided, however, that the Lessor Parties and Lessee shall
not sell, assign or delegate their respective rights and obligations
hereunder except as provided in the Participation Agreement and in
Subparagraph 5.03(b).
(b) Assignment by Lessee of Purchase Rights. Lessee may assign to
a third party (an "Assignee Purchaser") its right to purchase the
Property pursuant to the Term Purchase Option or the Expiration Date
Purchase Option; provided, however, that (i) such an assignment shall not
relieve Lessee of its obligations to consummate or cause the consummation
of any such purchase in accordance with the terms of this Agreement and
(ii) Lessee assumes all responsibility for determining the
creditworthiness of any such Assignee Purchaser. If, after any purchase
by an Assignee Purchaser hereunder, the purchase price paid by such
Assignee Purchaser is recovered from any Lessor Party, Lessee shall
reimburse such Lessor Party for such recovery unless such recovery is due
solely to a material misrepresentation or covenant breach by such Lessor
Party.
5.04. No Third Party Rights. Nothing expressed in or to be implied from
this Agreement is intended to give, or shall be construed to give, any Person,
other than the Lessor Parties and Lessee and their permitted successors and
assigns, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
5.05. Partial Invalidity. If at any time any provision of this Agreement
is or becomes illegal, invalid or unenforceable in any respect under the law or
any jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
11
<PAGE> 12
5.06. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without reference to
conflicts of law rules.
5.07. Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
5.08. Nature of Lessee's Obligations.
(a) Independent Obligation. The obligation of Lessee to pay the
amounts payable by Lessee under this Agreement and the other Operative
Documents and to perform the other Lessee Obligation are absolute,
unconditional (except as expressly provided herein) and irrevocable
obligations which are separate and independent of the obligations of the
Lessor Parties under this Agreement and the other Operative Documents and
all other events and circumstances, including the events and
circumstances set forth in Subparagraph 5.08(c).
(b) No Termination or Abatement. This Agreement and the other
Operative Documents and Lessee's obligation to pay all amounts hereunder
and to pay and perform all other Lessee Obligations shall continue in
full force and effect without abatement notwithstanding the occurrence or
existence of any event or circumstance, including any event or
circumstance set forth in Subparagraph 5.08(c).
(c) Full Payment and Performance. Lessee shall make all payments
under this Agreement and the other Operative Documents in the full
amounts and at the times required by the terms of this Agreement and the
other Operative Documents without setoff, deduction or reduction of any
kind and shall perform all other Lessee Obligations as and when required,
without regard to any event or circumstances whatsoever, including (i)
the condition of the Property (including any Improvements or other
Modifications to the Property made prior to the Commencement Date or
during the Term of the Lease Agreement); (ii) title to the Property
(including possession of the Property by any Person or the existence of
any Lien or any other right, title or interest in or to any of the
Property in favor of any Person); (iii) the value, habitability,
usability, design, operation or fitness for use of the Property; (iv) the
availability or adequacy of utilities and other services to the Property;
(v) any latent, hidden or patent defect in the Property; (vi) the zoning
or status of the Property or any other restrictions on the use of the
Property; (g) the economics of the Property; (vii) any Casualty or
Condemnation; (viii) the compliance of the Property with any applicable
Governmental Rule or Insurance Requirement; (ix) any failure by any
Lessor Party to perform any of its obligations under this Agreement or
any other Operative Document (other than the obligations of Lessor
pursuant to Paragraph 4.06 and Subparagraph 4.07(a)); or (x) the exercise
by any Lessor Party of any of its remedies under this Agreement or any
other Operative Document; provided, however, that (A) Lessee shall have
no obligation to purchase the Property on the Expiration Date if Lessor
fails to remove Lessor Liens or deliver the required deed and bill of
sale or other documents required to be delivered by Lessor hereunder and
(B)
12
<PAGE> 13
this Paragraph 5.08 shall not abrogate any right which Lessee may have to
recover damages from any Lessor Party for any material breach by such
Lessor Party of its obligations under this Agreement or any other
Operative Document to the extent permitted hereunder or thereunder.
13
<PAGE> 14
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed as of the day and year first above written.
LESSEE: SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
LESSOR: SELCO SERVICE CORPORATION
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
14
<PAGE> 15
EXHIBIT A
NOTICE OF TERM PURCHASE OPTION EXERCISE
[Date]
SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
1. Reference is made to the following:
(a) The Participation Agreement, dated as of June 30, 1999 (the
"Participation Agreement"), among Silicon Valley Group, Inc. ("Lessee"),
SELCO Service Corporation ("Lessor"), the financial institutions listed
in Schedule I to the Participation Agreement (the "Participants") and
KeyBank National Association, as agent for the Participants (in such
capacity, "Agent");
(b) The Lease Agreement, dated as of June 30, 1999 (the "Lease
Agreement"), between Lessee and Lessor; and
(c) The Purchase Agreement, dated as of June 30, 1999 (the
"Purchase Agreement"), between Lessee and Lessor.
Unless otherwise indicated, all terms defined in the Participation Agreement
have the same respective meanings when used herein.
2. Pursuant to Paragraph 4.01 of the Lease Agreement and Section 2 of the
Purchase Agreement, Lessee hereby irrevocably notifies Lessor that Lessee is
exercising its right to terminate the Lease Agreement prior to the Scheduled
Expiration Date and purchase the Property on [_________, ____] (which date is a
Business Day and which date, after the delivery of this notice, shall be the
Expiration Date).
IN WITNESS WHEREOF, Lessee has executed this Notice of Term Purchase
Option Exercise on the date set forth above.
SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
A-1
<PAGE> 16
EXHIBIT B
NOTICE OF RETURN OPTION EXERCISE
[Date]
SELCO Service Corporation
c/o KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attn: Mary Young
1. Reference is made to the following:
(a) The Participation Agreement, dated as of June 30, 1999 (the
"Participation Agreement"), among Silicon Valley Group, Inc. ("Lessee"),
SELCO Service Corporation ("Lessor"), the financial institutions listed
in Schedule I to the Participation Agreement (the "Participants") and
KeyBank National Association, as agent for the Participants (in such
capacity, "Agent"); and
(b) The Purchase Agreement, dated as of June 30, 1999 (the
"Purchase Agreement"), between Lessee and Lessor.
Unless otherwise indicated, all terms defined in the Participation Agreement
have the same respective meanings when used herein.
2. Pursuant to Paragraph 3.01 of the Purchase Agreement, Lessee hereby
notifies Lessor that Lessee is electing to exercise the Return Option on the
Scheduled Expiration Date of [_____, ____].
3. Lessee hereby certifies to Lessor, Agent and the Participants that, on
the date of this notice:
(a) The representations and warranties of Lessee set forth in
Paragraph 4.01 of the Participation Agreement are true and correct in all
material respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true as
of such date);
(b) No Default has occurred and is continuing; and
(c) All of the Operative Documents are in full force and effect on
such date.
B-1
<PAGE> 17
IN WITNESS WHEREOF, Lessee has executed this Notice of Return Option
Exercise on the date set forth above.
SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
B-2
<PAGE> 18
EXHIBIT C(1)
RECORDING REQUESTED BY
WHEN RECORDED RETURN TO
AND MAIL TAX STATEMENTS TO:
[Purchaser]
- ------------------
- ------------------
- ------------------
Documentary Transfer Tax is not of public record and is shown on a separate
sheet attached to this deed.
- ----------------------------------------------------------------------------
QUITCLAIM DEED
FOR VALUABLE CONSIDERATION, the receipt of which is hereby acknowledged,
SELCO Service Corporation, an Ohio corporation doing business in California as
Ohio SELCO Service Corporation ("Grantor"), hereby releases, remises and forever
quitclaims to [Purchaser], a _____________ ("Grantee"), the real property
located in the County of [________________], State of California, described on
EXHIBIT A attached hereto and made a part hereof (the "Property").
Executed as of ________________, ____.
SELCO SERVICE CORPORATION,
an Ohio corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
C(1)-1
<PAGE> 19
EXHIBIT A
LEGAL DESCRIPTION
Assessor's Parcel No.:
------------------
C(1)(A)-1
<PAGE> 20
State of
----------------
County of
----------------------
On before me, ,
------------------- -------------------------
Date Name, Title of Officer
personally appeared ,
-----------------------------------------------------------
Name(s) of signer(s)
(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.
------------------------------------
<PAGE> 21
----------------------, ----
[___________] Recorder
Re: Request That Statement of Documentary
Transfer Tax Not be Recorded
Dear Sir:
Request is hereby made in accordance with Section 11932 of the Revenue
and Taxation Code that this statement of tax due not be recorded with the
attached deed but be affixed to the deed after recordation and before return as
directed on the deed.
The attached deed names SELCO SERVICE CORPORATION, an Ohio corporation
doing business in California as Ohio SELCO Service Corporation, as grantor, and
[PURCHASER], a _________________, as grantee.
The property being transferred and described in the attached deed is
located in the [City of _________ and County of_______], State of California.
The amount of Documentary Transfer Tax due on the attached deed is
$__________, computed on full value of the property conveyed.
SELCO SERVICE CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 22
EXHIBIT C(2)
ACKNOWLEDGMENT AND DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
THIS ACKNOWLEDGMENT OF DISCLAIMER OF REPRESENTATIONS AND WARRANTIES (this
"Certificate") is made as of ___________, ____ by [PURCHASER], a _____________
("Grantee").
Contemporaneously with execution of this Acknowledgement, SELCO SERVICE
CORPORATION, an Ohio corporation doing business in California as Ohio SELCO
Service Corporation ("Grantor"), is executing and delivering to Grantee a
Quitclaim Deed and a Bill of Sale (the foregoing documents and any other
documents to be executed and delivered to Grantee 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 "Property") pursuant to the terms of a Purchase
Agreement dated as of June 30, 1999 by and between Grantor and Silicon Valley
Group, Inc., a Delaware corporation ("Lessee").
Notwithstanding any provision contained in the Conveyancing Documents to
the contrary, Grantee acknowledges that Grantor is selling and Grantee is
purchasing the Property on an "as is, with all faults" basis and that, except as
expressly set forth in the Conveyancing Documents executed by Grantor to the
contrary, Grantee is not relying on any representations or warranties of any
kind whatsoever, express or implied, from Grantor, its agents, or brokers as to
any matters concerning the Property including (a) the condition of the Property
(including any improvements to the Property); (b) title to the Property
(including possession of the Property by any individual or entity or the
existence of any lien or any other right, title or interest in or to any of the
Property in favor of any person, but excluding any Lessor Liens as defined in
that certain Participation Agreement dated as of June 30, 1999 among Grantor,
Lessee, the Participants and KeyBank National Association, as agent for the
Participants (in such capacity, "Agent")); (c) the value, habitability,
usability, design, operation or fitness for use of the Property; (d) the
availability or adequacy of utilities and other services to the Property; (e)
any latent, hidden or patent defect in the Property; (f) the zoning or status of
the Property or any other restrictions on the use of the Property; (g) the
economics of the Property; (h) any damage to, destruction or, or decrease in the
value of all or any portion of the Property or any condemnation or other taking
or sale of all or any portion of the Property, by or on account of any actual or
threatened eminent domain proceeding or other taking of action by any
governmental authority or other person have the power of eminent domain; or (i)
the compliance of the Property with any applicable law, rule, regulation,
ordinance, order, code, judgment or similar form of decision of any governmental
authority or any terms, conditions or requirements imposed by any policies of
insurance relating to the Property.
[See next page]
C(2)-1
<PAGE> 23
The provisions of this Acknowledgement shall be binding on Grantee, its
successors and assigns and any other party claiming through Grantee. Grantee
hereby acknowledges that Grantor is entitled to rely and is relying on this
Certificate.
EXECUTED as of ____________, _______.
[PURCHASER]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
C(2)-2
<PAGE> 24
EXHIBIT D
BILL OF SALE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt of which is hereby
acknowledged, SELCO SERVICE CORPORATION, an Ohio corporation doing business in
California as Ohio SELCO Service Corporation ("Seller") does hereby sell,
transfer and convey to [PURCHASER], a _________________________ ("Purchaser"),
the personal property owned by Seller in connection with that certain real
property commonly known as _______________, _________, California, including,
without limitation, the personal property itemized on SCHEDULE 1 attached hereto
and incorporated herein by this reference (the "Property").
Seller is selling and Purchaser is purchasing the Property on an "as is,
with all faults" basis and, except as expressly set forth in the Conveyancing
Documents executed by Seller to the contrary, Purchaser is not relying on any
representations or warranties of any kind whatsoever, express or implied, from
Seller, its agents, or brokers as to any matters concerning the Property
including (a) the condition of the Property; (b) title to the Property
(including possession of the Property by any individual or entity or the
existence of any lien or any other right, title or interest in or to any of the
Property in favor of any person); (c) the value, habitability, usability,
design, operation or fitness for use of the Property; or (d) any latent, hidden
or patent defect in the Property.
Dated: ____________, ____
SELCO SERVICE CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[PURCHASER]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
D-1
<PAGE> 25
SCHEDULE 1
PROPERTY
D(1)-1
<PAGE> 26
EXHIBIT E
RECORDING REQUESTED BY
WHEN RECORDED RETURN TO
AND MAIL TAX STATEMENTS TO:
- -------------------------
- -------------------------
Attention:
---------------
Documentary Transfer Tax is not of public record and is shown on a separate
sheet attached to this deed.
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR VALUABLE CONSIDERATION, the receipt of which is hereby acknowledged,
SILICON VALLEY GROUP, INC., a Delaware corporation ("Grantor"), hereby releases,
remises and forever quitclaims to [PURCHASER] ("Grantee"), the real property
located in the [County of _______], State of California, described on EXHIBIT A
attached hereto and made a part hereof (the "Property").
Executed as of __________, ____.
SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
E-1
<PAGE> 27
EXHIBIT A
LEGAL DESCRIPTION
Assessor's Parcel No.: ____________________
E(A)-1
<PAGE> 28
State of
----------------------
County of
---------------------
On before me, ,
------------------- -------------------------
Date Name, Title of Officer
personally appeared ,
---------------------
Name(s) of signer(s)
(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.
<PAGE> 29
-------------------- , ----
[___________] Recorder
Re: Request That Statement of Documentary
Transfer Tax Not be Recorded
Dear Sir:
Request is hereby made in accordance with Section 11932 of the Revenue
and Taxation Code that this statement of tax due not be recorded with the
attached deed but be affixed to the deed after recordation and before return as
directed on the deed.
The attached deed names SILICON VALLEY GROUP, INC., a Delaware
corporation, as grantor, and [PURCHASER], as grantee.
The property being transferred and described in the attached deed is
located in the [City of _______, County of _______], State of California.
The amount of Documentary Transfer Tax due on the attached deed is
$__________, computed on full value of the property conveyed.
SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 30
EXHIBIT F
BILL OF SALE
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Silicon Valley Group, Inc., a Delaware corporation
("Seller"), does hereby sell, transfer, and convey unto [PURCHASER] ("Buyer"),
the personal property owned by Seller in connection with that certain real
property commonly known as _______________, ________, California, which Seller
warrants to be free and clear of all liens and encumbrances other than Lessor
Liens and those disclosed on EXHIBIT A, including, without limitation, the
personal property itemized on SCHEDULE 1 attached hereto and incorporated herein
by this reference.
Seller does hereby covenant with Buyer that Seller is the lawful owner of
such personal property, and that the undersigned has good right to sell the same
as aforesaid and will warrant and defend the title thereto unto Buyer, its
successors and assigns, against the claims and demands of all persons
whomsoever.
DATED this ____ day of __________, ____.
SILICON VALLEY GROUP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
G-1
<PAGE> 31
EXHIBIT A
PROPERTY
F-1
<PAGE> 32
SCHEDULE 1
PROPERTY
F(1)-1
<PAGE> 33
EXECUTION VERSION
================================================================================
PURCHASE AGREEMENT
BETWEEN
SILICON VALLEY GROUP, INC.
AND
SELCO SERVICE CORPORATION
JUNE 30, 1999
================================================================================
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. INTERPRETATION.............................................................................1
1.01. Definitions................................................................................1
1.02. Rules of Interpretation....................................................................2
SECTION 2. OPTIONAL PURCHASE BY LESSEE DURING THE TERM................................................2
2.01. Term Purchase Option.......................................................................2
2.02. Notice of Term Purchase Option Exercise....................................................2
2.03. Purchase Price.............................................................................2
2.04. Effect of Certain Events...................................................................2
SECTION 3. OBLIGATIONS OF LESSEE ON THE EXPIRATION DATE...............................................3
3.01. Alternative................................................................................3
3.02. Sale of Property to Third Party Purchaser..................................................4
3.03. End of Term Adjustment.....................................................................4
SECTION 4. TERMS OF ALL PURCHASES.....................................................................6
4.01. Representations and Warranties of Parties..................................................6
4.02. "As Is" Purchase...........................................................................8
4.03. Release....................................................................................8
4.04. Permits, Approvals, Etc....................................................................8
4.05. Costs......................................................................................8
4.06. Lessor Liens...............................................................................9
4.07. Transfer Documents.........................................................................9
4.08. Casualty and Condemnation Proceeds.........................................................9
4.09. Payments...................................................................................9
4.10. Environmental Reports......................................................................9
4.11. Further Assurances.........................................................................9
SECTION 5. MISCELLANEOUS.............................................................................10
5.01. Notices...................................................................................10
5.02. Waivers, Amendments.......................................................................10
5.03. Successors and Assigns....................................................................10
5.04. No Third Party Rights.....................................................................10
5.05. Partial Invalidity........................................................................10
5.06. Governing Law.............................................................................10
</TABLE>
-i-
<PAGE> 35
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.07. Counterparts..............................................................................11
5.08. Nature of Lessee's Obligations............................................................11
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
A Notice of Term Purchase Option Exercise (2.02)
B Notice of Return Option Exercise (3.01)
C(1) Deed (Lessor) (4.07(a))
C(2) Acknowledgement and Disclaimer of Representations and Warranties (4.07(a))
D Bill of Sale (Lessor) (4.07(a))
E Deed (Lessee) (4.07(b))
F Bill of Sale (Lessee) (4.07(b))
</TABLE>
-ii-
<PAGE> 1
EXHIBIT 10.56
LEASE AGREEMENT,
DEED OF TRUST WITH ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS LEASE AGREEMENT, DEED OF TRUST WITH ASSIGNMENT OF RENTS, SECURITY
AGREEMENT AND FIXTURE FILING (this "Agreement" herein), dated as of June 30,
1999 is entered into by and between:
(1) SILICON VALLEY GROUP, INC., a Delaware corporation ("Lessee");
and
(2) SELCO SERVICE CORPORATION, an Ohio corporation doing business in
California as Ohio SELCO Service Corporation, as lessor under this
Agreement and as trustee under the deed of trust contained herein
("Lessor").
RECITALS
A. Lessee has requested Lessor and the financial institutions which are
"Participants" under the Participation Agreement referred to in Recital B below
(such financial institutions to be referred to collectively as the
"Participants") to provide to Lessee a lease facility pursuant to which:
(1) Lessor would (a) purchase certain property, (b) lease such
property to Lessee and (c) grant to Lessee the right to purchase such
property; and
(2) The Participants would participate in such lease facility by (a)
funding the advance to be made by Lessor to purchase such property and (b)
acquiring participation interests in the rental and certain other payments
to be made by Lessee.
B. Pursuant to a Participation Agreement dated of even date herewith (the
"Participation Agreement") among Lessee, Lessor, the Participants and KeyBank
National Association, as agent for the Participants (in such capacity, "Agent"),
Lessor and the Participants have agreed to provide such lease facility upon the
terms and subject to the conditions set forth therein, including without
limitation the execution and delivery of this Agreement setting forth the terms
of the lease by Lessor to Lessee of the property.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
<PAGE> 2
SECTION 1. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, each term set forth in Schedule 1.01 to the
Participation Agreement, when used in this Agreement or any other Operative
Document, shall have the respective meaning given to that term in such Schedule
1.01 or in the provision of this Agreement or other document, instrument or
agreement referenced in such Schedule 1.01.
1.02. Rules of Interpretation. Unless otherwise indicated in this
Agreement or any other Operative Document, the rules of interpretation set forth
in Schedule 1.02 to the Participation Agreement shall apply to this Agreement
and the other Operative Documents.
SECTION 2. BASIC PROVISIONS.
2.01. Lease of the Property. Subject to the acquisition thereof by Lessor
pursuant to the Participation Agreement and the Acquisition Agreement (either as
of the date hereof or during the term hereof), Lessor agrees to lease to Lessee
and Lessee agrees to lease from Lessor the following property (the "Property")
to the extent of Lessor's estate, right, title and interest therein, thereto or
thereunder:
(a) All lots, pieces, tracts and parcels of land described in
Exhibit A (the "Land");
(b) All Lessor Improvements located on the Land;
(c) All Appurtenant Rights belonging, relating or pertaining to any
of the Land or Lessor Improvements;
(d) All Related Goods (including those described in Exhibit B),
Related Permits and Related Agreements related to any of the foregoing
Land, Lessor Improvements or Appurtenant Rights; and
(e) All accessions and accretions to and replacements and
substitutions for the foregoing.
2.02. Term.
(a) Original Term. The original term of this Agreement shall
commence on the Closing Date (the "Commencement Date") and shall end on
the fifth anniversary of the Closing Date (such date as it may be extended
pursuant to Subparagraph 2.02(b) to be referred to as the "Scheduled
Expiration Date").
(b) Extensions. Lessee may request Lessor to extend the Scheduled
Expiration Date in effect for three (3) additional periods of one (1) year
each, as provided in Paragraph 2.09 of the Participation Agreement. If
Lessor and each Participant consents to any such a request in accordance
with such provision, the then current
2
<PAGE> 3
Scheduled Expiration Date shall be deemed extended by one (1) year. Lessee
acknowledges that neither Lessor nor any Participant has any obligation or
commitment (either express or implied) to extend, or consent to the
extension of, the Scheduled Expiration Date at any time.
2.03. Rent.
(a) Base Rent.
(i) Lessee shall pay to Lessor as base rent hereunder ("Base
Rent") for each Rental Period for each Portion an amount equal to
the product of (A) the Rental Rate for such Rental Period, times (B)
the amount of the Portion on the first day of such Rental Period,
times (C) a fraction, the numerator of which is the number of days
in such Rental Period and the denominator of which is 360. If the
Rental Rate shall change during any Rental Period, the Rental Rate
for such Rental Period shall be the weighted average of the Rental
Rates in effect from time to time during such Rental Period.
(ii) After the initial Rental Period, Lessee may select the
number and amounts of the Portions into which the Outstanding Lease
Amount is to be divided and the Rental Period for each such Portion
by delivering to Lessor, at least three (3) Business Days prior to
the last day of each Rental Period for a Portion, an irrevocable
written notice in the form of Exhibit C, appropriately completed (a
"Notice of Rental Period Selection"), subject to the following:
(A) Each Portion shall be in the amount of $2,000,000 or
an integral multiple of $100,000 in excess thereof; provided,
however, that (1) the total number of Portions outstanding at
any time shall not exceed two (2), and (2) the Outstanding
Lease Amount shall consist of a single Portion in the amount
of the Outstanding Lease Amount if the Outstanding Lease
Amount is less than $4,000,000.
(B) The initial and each subsequent Rental Period
selected by Lessee for each Portion shall be one (1) month, or
if the Synthetic Lease Swap Agreement is no longer in effect,
two (2), three (3) or six (6) months; provided, however, that
(1) each Rental Period shall begin and end on the first
Business Day of a calendar month, (2) no Rental Period shall
end after the Scheduled Expiration Date, (3) no Rental Period
shall be longer than one (1) month if an Event of Default has
occurred and is continuing on the date three (3) Business Days
prior to the first day of such Rental Period and (4) each
Rental Period after the initial Rental Period for any Portion
for which Lessee fails to make a selection by delivering a
Notice of Rental Period Selection in accordance with this
clause (ii) shall be one (1) month.
3
<PAGE> 4
Lessee shall deliver each Notice of Rental Period Selection by
overnight courier, first-class mail or facsimile as required
by Subparagraph 2.02(c) and Paragraph 7.01 of the
Participation Agreement; provided, however, that Lessee shall
promptly deliver the original of any Notice of Rental Period
Selection initially delivered by facsimile.
(iii) The rental rate for each Rental Period ("Rental
Rate") shall be the LIBOR Rental Rate for such Rental Period,
except as follows:
(A) The Rental Rate for the initial Rental Period
shall be the Alternate Rental Rate;
(B) If any other Rental Period is less than one
(1) month, the Rental Rate for such Rental Period shall
be the Alternate Rental Rate; or
(C) If the LIBOR Rental Rate is unavailable for
any Rental Period pursuant to Subparagraph 2.12(a) or
Subparagraph 2.12(b) of the Participation Agreement, the
Rental Rate for such Rental Period shall be the
Alternate Rental Rate.
(iv) Lessee shall pay Base Rent in arrears (A) for each
Portion, on the last day of each Rental Period therefor and,
in the case of any Rental Period which exceeds three (3)
months, each day occurring every three (3) months after the
first day of such Rental Period (individually, a "Scheduled
Rent Payment Date") and (B) for all Portions, on the
Expiration Date.
(b) Supplemental Rent. Lessee shall pay as supplemental rent
hereunder ("Supplemental Rent") all amounts (other than Base Rent,
the purchase price payable by Lessee for any purchase of the
Property by Lessee pursuant to the Purchase Agreement and the
Residual Value Guaranty Amount payable under the Purchase Agreement)
payable by Lessee under this Agreement and the other Operative
Documents. Lessee shall pay all Supplemental Rent amounts on the
dates specified in this Agreement and the other Operative Documents
for the payment of such amounts or, if no date is specified for the
payment of any such amount, upon the demand of Lessor or any other
Person to whom such amount is payable.
2.04. Use. Lessee may use the Property for office purposes, and for
any other purpose which is in compliance with applicable zoning laws and
ordinances for the Property.
2.05. "As Is" Lease. Lessee has conducted, or will conduct from time
to time with regard to property that may be added hereto after the date
hereof, all due diligence which it deems appropriate regarding the
Property and agrees that no Lessor Party has any obligation to conduct any
such due diligence. Lessee is leasing the Property "as is, with all
faults" without any representation, warranty, indemnity or undertaking by
any Lessor Party regarding any aspect of the Property, including (a) the
condition of the Property (including the Lessor Improvements); (b) title
to the Property (including possession of the Property by any Person or the
existence of
4
<PAGE> 5
any Lien or any other right, title or interest in or to any of the
Property in favor of any Person); (c) the value, habitability, usability,
design, operation or fitness for use of the Property; (d) the availability
or adequacy of utilities and other services to the Property; (e) any
latent, hidden or patent defect in the Property; (f) the zoning or status
of the Property or any other restrictions on the use of the Property; (g)
the economics of the Property; (h) any Casualty or Condemnation; or (i)
the compliance of the Property with any applicable Governmental Rule or
Insurance Requirement; provided, however, that Lessor shall be obligated
to remove Lessor Liens to the extent required in Subparagraph 5.04(b) of
the Participation Agreement. Without limiting the generality of the
foregoing, Lessee specifically waives any covenant of quiet enjoyment
except as otherwise provided in Subparagraph 5.04(b) of the Participation
Agreement.
2.06. Nature of Transaction. As more fully provided in Paragraph
2.10 of the Participation Agreement, Lessee and the Lessor Parties intend
that the transaction evidenced by this Agreement and the other Operative
Documents constitute an operating lease for purposes of Lessee's financial
and SEC reporting and a loan secured by the Property for purposes of state
and local income tax and commercial, real estate and bankruptcy law.
2.07. Security, Etc. In order to secure the Lessee Obligations and
otherwise to assure the Lessor Parties the benefits hereof in the event
that the transaction evidenced by this Agreement and the other Operative
Documents is, pursuant to the intent of Lessee and the Lessor Parties,
treated as a loan for certain purposes, Lessee hereby makes the following
grants and agrees as follows:
(a) Real Property Security. As security for the Lessee
Obligations, Lessee hereby irrevocably and unconditionally grants,
conveys, transfers and assigns to Lessor, as beneficiary (in trust
for the benefit of the Lessor Parties), with power of sale and right
of entry and possession, all estate, right, title and interest of
Lessee in the following property, whether now owned or leased or
hereafter acquired, (collectively, the "Real Property Collateral"):
(i) The Land;
(ii) All Lessor Improvements located on the Land;
(iii) All Appurtenant Rights belonging, relating or
pertaining to any of the foregoing Land or Lessor
Improvements;
(iv) All Subleases of and all Issues and Profits
accruing from any of the foregoing Land, Lessor Improvements
or Appurtenant Rights to the extent that such Subleases and
Issues and Profits constitute real property;
(v) All Related Goods, Related Permits and Related
Agreements related to any of the foregoing Land, Lessor
Improvements or Appurtenant Rights to the extent that such
Related Goods, Related Agreements and Related Permits
constitute real property;
5
<PAGE> 6
(vi) All other Property to the extent that such property
constitutes real property; and
(vii) All proceeds of the foregoing, including Casualty
and Condemnation Proceeds.
(b) Personal Property Security. As security for the Lessee
Obligations, Lessee hereby irrevocably and unconditionally assigns
and grants to Lessor, for the benefit of the Lessor Parties, a
security interest in all estate, right, title and interest of Lessee
in the following property, whether now owned or leased or hereafter
acquired, (collectively, the "Personal Property Collateral"):
(i) All Subleases of and all Issues and Profits accruing
from any of the Land, Lessor Improvements or Appurtenant
Rights to the extent that such Subleases and Issues and
Profits constitute personal property;
(ii) All Related Goods, Related Permits and Related
Agreements related to any of the Land, Lessor Improvements or
Appurtenant Rights to the extent that such Related Goods,
Related Agreements and Related Permits constitute personal
property;
(iii) All Cash Collateral and all other deposit
accounts, instruments, investment property and monies held by
any Lessor Party in connection with this Agreement or any
other Operative Document (including any Repair and Restoration
Account);
(iv) All other Property to the extent such Property
constitutes personal property; and
(v) All proceeds of the foregoing, including Casualty
and Condemnation Proceeds.
This Agreement constitutes a fixture filing for purposes of the
California Commercial Code with respect to the Related Goods and
Modifications which are or are to become fixtures on the Land or
Lessor Improvements.
(c) Absolute Assignment of Subleases, Issues, and Profits.
Lessee hereby irrevocably assigns to Lessor, for the benefit of the
Lessor Parties, all of Lessee's estate, right, title and interest
in, to and under the Subleases and the Issues and Profits, whether
now owned or hereafter acquired. This is a present and absolute
assignment, not an assignment for security purposes only, and
Lessor's right to the Subleases and Issues and Profits is not
contingent upon, and may be exercised without possession of, the
Property.
(i) If no Event of Default has occurred and is
continuing, Lessee shall have a revocable license to collect
and retain the Issues and Profits as they become due. Upon the
occurrence and during the continuance of an Event of
6
<PAGE> 7
Default, such license shall automatically terminate, and
Lessor may collect and apply the Issues and Profits pursuant
to Subparagraph 5.02(d) without further notice to Lessee or
any other Person and without taking possession of the
Property. All Issues and Profits thereafter collected by
Lessee shall be held by Lessee as trustee in a constructive
trust for the benefit of Lessor. Lessee hereby irrevocably
authorizes and directs the sublessees under the Subleases,
without any need on their part to inquire as to whether an
Event of Default has actually occurred or is then existing, to
rely upon and comply with any notice or demand by Lessor for
the payment to Lessor of any rental or other sums which may
become due under the Subleases or for the performance of any
of the sublessees' undertakings under the Subleases.
Collection of any Issues and Profits by Lessor shall not cure
or waive any default or notice of default hereunder or
invalidate any acts done pursuant to such notice, but shall be
applied by Lessor to pay Lessee Obligations in such order as
Lessor shall determine in accordance with the Operative
Documents.
(ii) The foregoing irrevocable assignment shall not
cause any Lessor Party to be (A) a mortgagee in possession;
(B) responsible or liable for (1) the control, care,
management or repair of the Property or for performing any of
Lessee's obligations or duties under the Subleases, (2) any
waste committed on the Property by the sublessees under any of
the Subleases or by any other Persons, (3) any dangerous or
defective condition of the Property, or (4) any negligence in
the management, upkeep, repair or control of the Property
resulting in loss or injury or death to any sublessee,
licensee, employee, invitee or other Person; or (C)
responsible for or impose upon any Lessor Party any duty to
produce rents or profits. No Lessor Party, in the absence of
gross negligence or willful misconduct on its part, shall be
liable to Lessee as a consequence of (y) the exercise or
failure to exercise any of the rights, remedies or powers
granted to Lessor hereunder or (z) the failure or refusal of
Lessor to perform or discharge any obligation, duty or
liability of Lessee arising under the Subleases.
SECTION 3. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.
3.01. Maintenance, Repair, Etc.
(a) General. Lessee shall not permit any waste of the
Property, except for ordinary wear and tear, and shall, at its sole
cost and expense, maintain the Property in good working order,
mechanical condition and repair and make all necessary repairs
thereto, of every kind and nature whatsoever, whether interior or
exterior, ordinary or extraordinary, structural or nonstructural or
foreseen or unforeseen, in each case as required by all applicable
Governmental Rules and Insurance Requirements and on a basis
consistent with the operation and maintenance of commercial
properties comparable in type and location to the Property and in
compliance with prudent industry practice.
7
<PAGE> 8
(b) Modifications. Lessee, at its sole cost and expense, may
from time to time make alterations, renovations, improvements and
additions to the Property and substitutions and replacements
therefor (collectively, except for any such property removed in
accordance with Paragraph 3.10, "Modifications"); provided that:
(i) No Modification materially impairs the value,
utility or useful life of the Property or any part thereof
from that which existed immediately prior to such
Modification;
(ii) All Modifications are made expeditiously and, in
all cases, unless Lessee currently is exercising either the
Term Purchase Option or the Expiration Date Purchase Option,
completed not later than six (6) months prior to the Scheduled
Expiration Date;
(iii) All Modifications are made in a good and
workmanlike manner and in compliance with all applicable
Governmental Rules and Insurance Requirements;
(iv) Subject to Paragraph 3.12 relating to permitted
contests, Lessee pays all costs and expenses and discharges
(or cause to be insured or bonded over) any Liens arising in
connection with any Modification not later than the earlier of
(A) sixty (60) days after the same shall be filed (or
otherwise becomes effective) and (B) unless Lessee currently
is exercising either the Term Purchase Option or the
Expiration Date Purchase Option, six (6) months prior to the
Scheduled Expiration Date;
(v) At least one (1) month prior to the commencement of
(A) any Modifications which are anticipated to cost $1,000,000
or more in the aggregate, or (B) any Modifications which cause
the total of all Modifications undertaken during the previous
twelve-month period to exceed an aggregate cost of $2,500,000,
Lessee shall deliver to Lessor, with sufficient copies for
Agent and each Participant, a brief written description of
such Modifications; and
(vi) All Modifications otherwise comply with this
Agreement and the other Operative Documents.
(c) Abandonment. Lessee shall not abandon the Property or any
material portion thereof for any period in excess of thirty (30)
consecutive days during the term hereof, except as a part of any
Modifications as permitted herein or in the other Operative
Documents.
(d) Maintenance. Lessee shall maintain the Property and each
material portion thereof in a manner consistent with other similar
properties in the same area.
3.02. Risk of Loss. Lessee assumes all risks of loss arising from
any Casualty or Condemnation which arises or occurs prior to the
Expiration Date or while Lessee is in
8
<PAGE> 9
possession of the Property and all liability for all personal injuries and
deaths and damages to property suffered by any Person or property on or in
connection with the Property which arises or occurs prior to the
Expiration Date or while Lessee is in possession of the Property, except
in each case to the extent any such loss or liability is primarily caused
by the gross negligence or willful misconduct of a Lessor Party. Lessee
hereby waives the provisions of California Civil Code Sections 1932(1),
1932(2) and 1933(4), and any and all other applicable existing or future
Governmental Rules permitting the termination of this Agreement as a
result of any Casualty or Condemnation, and Lessor shall in no event be
answerable or accountable for any risk of loss of or decrease in the
enjoyment and beneficial use of the Property as a result of any such
event.
3.03. Insurance.
(a) Coverage. Lessee, at its sole cost and expense, shall
carry and maintain the insurance coverage not less than set forth in
Schedule 3.03 and such additional insurance of the types (including
the types set forth in Schedule 3.03), in amounts, in a form and
with deductibles customarily carried by a reasonably prudent Person
owning or operating properties similar to the Property in the same
geographic area as the Property.
(b) Carriers. Any insurance carried and maintained by Lessee
pursuant to this Paragraph 3.03 shall be underwritten by an
insurance company which (i) has, at the time such insurance is
placed and at the time of each renewal thereof, a general
policyholder rating of "A" and a financial rating of at least 13
from A.M. Best and Company or any successor thereto (or if there is
none, an organization having a similar national reputation) or (ii)
is otherwise approved by Lessor and Required Participants.
(c) Terms. Each insurance policy maintained by Lessee pursuant
to this Paragraph 3.03 shall provide as follows, whether through
endorsements or otherwise:
(i) Lessor and Agent shall be named as additional
insureds, in the case of each policy of liability insurance
and property insurance, and additional loss payees, in the
case of each policy of property insurance.
(ii) In respect of the interests of Lessor in the
policy, the insurance shall not be invalidated by any action
or by inaction of Lessee or by any Person having temporary
possession of the Property while under contract with Lessee to
perform maintenance, repair, alteration or similar work on the
Property, and shall insure the interests of Lessor regardless
of any breach or violation of any warranty, declaration or
condition contained in the insurance policy by Lessee, Lessor
or any other additional insured (other than by such additional
insured, as to such additional insured); provided, however,
that the foregoing shall not be deemed to (A) cause such
insurance policies to cover matters otherwise excluded from
coverage by the terms of such policies or (B) require any
insurance to remain in force notwithstanding non-payment of
premiums except as provided in clause (iii) below.
9
<PAGE> 10
(iii) If the insurance policy is cancelled for any
reason whatsoever, or substantial change is made in the
coverage that affects the interests of Lessor, or if the
insurance coverage is allowed to lapse for non-payment of
premium, such cancellation, change or lapse shall not be
effective as to Lessor for thirty (30) days after receipt by
Lessor of written notice from the insurers of such
cancellation, change or lapse.
(iv) No Lessor Party shall have any obligation or
liability for premiums, commissions, assessments, or calls in
connection with the insurance.
(v) The insurer shall waive any rights of set-off or
counterclaim or any other deduction, whether by attachment or
otherwise, that it may have against any Lessor Party.
(vi) The insurance shall be primary without right of
contribution from any other insurance that may be carried by
any Lessor Party with respect to its interest in the Property.
(vii) The insurer shall waive any right of subrogation
against any Lessor Party.
(viii) All provisions of the insurance, except the
limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured party.
(ix) The insurance shall not be invalidated should
Lessee or any Lessor Party waive, in writing, prior to a loss,
any or all rights of recovery against any Person for losses
covered by such policy, nor shall the insurance in favor of
any Lessor Party or Lessee, as the case may be, or their
respective rights under and interests in said policies be
invalidated or reduced by any act or omission or negligence of
any Lessor Party or Lessee, as the case may be, or any other
Person having any interest in the Property.
(x) All insurance proceeds with a value of less than one
million Dollars ($1,000,000) in respect of any loss or
occurrence with respect to the Property shall be paid to and
adjusted solely by Lessee and all other insurance proceeds
shall be paid to Lessor and adjusted jointly by Lessor and
Lessee, except that, from and after the date on which the
insurer receives written notice from Lessor that an Event of
Default has occurred and is continuing (and unless and until
such insurer receives written notice from Lessor that all
Events of Default have been waived), all losses shall be
adjusted solely by, and all insurance proceeds shall be paid
solely to, Lessor.
(xi) Each policy of property insurance shall contain a
standard form mortgagee endorsement in favor of Lessor.
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(xii) Each insurance policy shall provide that the
coverage to be provided thereunder shall not be invalidated in
the event Lessee or any Lessor Party fails to maintain other
insurance covering losses of a similar type or types.
(xiii) Each insurance policy shall contain a
"severability of interest" provision.
(xiv) Each insurance policy which is written as "excess
insurance" shall contain a provision that it will drop down in
the event that any underlying insurance coverage has been
reduced or exhausted by reason of losses paid thereunder.
(xv) In the event of claims, losses and damages arising
from a single incident or occurrence (or related incidents or
occurrences) that relate to the Property and other property of
Lessee and that are covered by a "blanket" policy, claims,
losses and damages relating to the Property shall be
separately adjusted.
(d) Evidence of Insurance. Lessee, at its sole cost and
expense, shall furnish to Lessor from time to time upon the request
of Lessor such certificates or other documents as Lessor may
reasonably request to evidence Lessee's compliance with the
insurance requirements set forth in this Paragraph 3.03.
(e) Release of Lessor Parties. Lessee hereby waives, releases
and discharges each Lessor Party and its directors, officers,
employees, agents and advisors from all claims whatsoever arising
out of any loss, claim, expense or damage to or destruction covered
or coverable by insurance required under this Paragraph 3.03 to the
extent the policies for such insurance permit such waiver,
notwithstanding that such loss, claim, expense or damage may have
been caused by any such Person, and, as among Lessee and such
Persons, Lessee agrees to look to the insurance coverage only in the
event of such loss.
(f) Insurance to be Maintained Pursuant to the Fixed Price
Remediation Agreement. In addition to the other insurance
requirements set forth in this Paragraph 3.03 and in Subparagraph
5.01(d) of the Purchase Agreement , Lessee shall:
(i) Within ninety (90) days after the Commencement Date,
provide Lessor with evidence in form and substance
satisfactory to Lessor that (A) the policies of insurance of
the types and in the amounts required to be carried and
maintained by the Remediator pursuant to the Fixed Price
Remediation Agreement as indicated in the binders therefor
delivered to Lessor on the Commencement Date pursuant to
Schedule 3.01 of the Participation Agreement have been
obtained; and (B) that Lessor has been named additional
insured or loss payee (as applicable) with respect to all such
policies of insurance to the extent required pursuant to the
Fixed Price Remediation Agreement;
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(ii) Cause the Remediator to continue to carry and
maintain at all times such insurance of the types and in the
amounts required pursuant to the Fixed Price Remediation
Agreement; and;
(iii) Deliver to Lessor from time to time, as Lessor may
reasonably request, schedules setting forth all such insurance
then in effect.
With respect to all such insurance to be maintained pursuant to the
Remediation Agreement, Lessee acknowledges and agrees that neither
Lessor nor the other Lessor Parties shall be responsibility for
co-payments, deductibles and/or self-insured retentions to paid by
any Person with respect thereto.
3.04. Casualty and Condemnation.
(a) Notice. Lessee shall give Lessor prompt written notice of
the occurrence of any Casualty affecting, or the institution of any
proceedings for the Condemnation of, the Property or any portion
thereof.
(b) Repair or Purchase Option. After the occurrence of any
Casualty or any Condemnation affecting the Property or any portion
thereof, Lessee shall either (i) repair and restore the Property as
required by Subparagraph 3.04(c) or (ii) exercise the Term Purchase
Option and purchase the Property pursuant to the Purchase Agreement;
provided, however, that Lessee may not elect to repair and restore
the Property if such Casualty or Condemnation is a Major Casualty or
Major Condemnation or if any other Event of Default has occurred and
is continuing, unless Lessor and the Required Participants shall
consent in writing. Not later than one (1) month after the
occurrence of any Casualty or any Condemnation, Lessee shall deliver
to Lessor a written notice indicating whether it elects to repair
and restore or purchase the Property.
(c) Repair and Restoration. If Lessee elects to repair and
restore the Property following any Casualty or any Condemnation,
Lessee shall diligently proceed to repair and restore the Property
to the condition in which it existed immediately prior to such
Casualty or such Condemnation and shall complete all such repairs
and restoration as soon as reasonably practicable, but not later
than the earlier of (y) six (6) months after the occurrence of the
Casualty or the Condemnation and (z) six (6) months prior to the
Scheduled Expiration Date unless Lessee currently is exercising
either the Term Purchase Option or the Expiration Date Purchase
Option. Lessee shall use its own funds to make such repairs and
restoration, except to the extent any Casualty and Condemnation
Proceeds are available and are released to Lessee for such purpose
pursuant to Subparagraph 3.04(f). Lessee's exercise of the repair
and restoration option shall, if Lessor or Required Participants
direct, be subject to satisfaction of the following conditions:
(i) Within one (1) month after the occurrence of the
Casualty or the Condemnation, Lessee shall deposit in an
interest bearing deposit account acceptable to and controlled
by Lessor (a "Repair and Restoration Account")
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funds (including any Casualty and Condemnation Proceeds which
are available and are released to Lessee pursuant to
Subparagraph 3.04(f)) in the amount which Lessor determines is
needed to complete and fully pay all costs of the repair or
restoration (including taxes, financing charges, insurance and
rent during the repair period).
(ii) As soon as reasonably possible and in no event
later than two (2) months after the occurrence of the Casualty
or the Condemnation, Lessee shall establish an arrangement for
lien releases and disbursement of funds acceptable to Lessor
and in a manner and upon such terms and conditions as would be
required by a prudent interim construction lender.
(iii) As soon as reasonably possible and in no event
later than two (2) months after the occurrence of the Casualty
or the Condemnation, Lessee shall deliver to Lessor the
following, each in form and substance acceptable to Lessor:
(A) Evidence that the Property can, in Lessor's
reasonable judgment, with diligent restoration or
repair, be returned to a condition at least equal to the
condition thereof that existed prior to the Casualty or
Condemnation causing the loss or damage within the
earlier to occur of (A) six (6) months after the
occurrence of the Casualty or Condemnation and (B)
unless Lessee currently is exercising either the Term
Purchase Option or the Expiration Date Purchase Option,
six (6) months prior to the Scheduled Expiration Date;
(B) Evidence that all necessary governmental
approvals can be timely obtained to allow the rebuilding
and reoccupancy of the Property;
(C) Copies of all plans and specifications for the
work;
(D) Copies of contracts for all material aspects
of the work, signed by a contractor reasonably
acceptable to Lessor;
(E) A cost breakdown for the work;
(F) A payment and performance bond for the work or
other security satisfactory to Lessor;
(G) Evidence that, upon completion of the work,
the size, capacity and total value of the Property will
be at least as great as it was before the Casualty or
Condemnation occurred; and
(H) Evidence of satisfaction of any additional
conditions that Lessor or Required Participants may
reasonably establish to protect their rights under this
Agreement and the other Operative Documents.
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All plans and specifications for the work must be reasonably
acceptable to Lessor, except that Lessor's approval shall not
be required if the restoration work is based on the same plans
and specifications as were originally used to construct the
Property. To the extent that the funds in a Repair and
Restoration Account include both Casualty and Condemnation
Proceeds and other funds deposited by Lessee, the other funds
deposited by Lessee shall be used first. Lessee acknowledges
that the specific conditions described above are reasonable.
(d) Prosecution of Claims for Casualty and Condemnation
Proceeds. Lessee shall proceed promptly and diligently to prosecute
in good faith the settlement or compromise of any and all claims for
Casualty and Condemnation Proceeds; provided, however, that any
settlement or compromise of any such claim shall, except as
otherwise provided in clause (x) of Subparagraph 3.03(c), be subject
to the written consent of Lessor and Required Participants, which
consents shall not be unreasonably withheld. Lessor may participate
in any proceedings relating to such claims, and, after the
occurrence and during the continuance of any Event of Default,
Lessor is hereby authorized, in its own name or in Lessee's name, to
adjust any loss covered by insurance or any Casualty or Condemnation
claim or cause of action, and to settle or compromise any claim or
cause of action in connection therewith, and Lessee shall from time
to time deliver to Lessor any and all further assignments and other
instruments required to permit such participation.
(e) Assignment of Casualty and Condemnation Proceeds. As
security for the Lessee Obligations, Lessee hereby absolutely and
irrevocably assigns to Lessor all Casualty and Condemnation Proceeds
and all claims relating thereto. Except as otherwise provided in
clause (x) of Subparagraph 3.03(c), Lessee agrees that all Casualty
and Condemnation Proceeds are to be paid to Lessor and Lessee hereby
authorizes and directs any insurer, Governmental Authority or other
Person responsible for paying any Casualty and Condemnation Proceeds
to make payment thereof directly to Lessor alone, and not to Lessor
and Lessee jointly. If Lessee receives any Casualty and Condemnation
Proceeds payable to Lessor hereunder, Lessee shall promptly pay over
such Casualty and Condemnation Proceeds to Lessor. Lessee hereby
covenants that until such Casualty and Condemnation Proceeds are so
paid over to Lessor, Lessee shall hold such Casualty and
Condemnation Proceeds in trust for the benefit of Lessor and shall
not commingle such Casualty and Condemnation Proceeds with any other
funds or assets of Lessee or any other Person. Except as otherwise
provided in clause (x) of Subparagraph 3.03(c), Lessor may commence,
appear in, defend or prosecute any assigned right, claim or action,
and may adjust, compromise, settle and collect all rights, claims
and actions assigned to Lessor, but shall not be responsible for any
failure to collect any such right, claim or action, regardless of
the cause of the failure.
(f) Use of Casualty and Condemnation Proceeds.
(i) If (A) no Event of Default has occurred and is
continuing, (B) Lessee exercises the repair and restoration
option pursuant to Subparagraphs
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<PAGE> 15
3.04(b) and 3.04(c) and (C) Lessee complies with any
conditions imposed pursuant to Subparagraph 3.04(c); then
Lessor shall (1) deposit all Casualty and Condemnation
Proceeds it receives into a Repair and Restoration Account,
(2) release to Lessee such Casualty and Condemnation Proceeds
from the Repair and Restoration Account for repair and
restoration of the Property and (3) if any proceeds remain in
the Repair and Restoration Account after the completion of the
repair and restoration of the Property in accordance with this
Agreement and the other Operative Documents, released such
proceeds to Lessee.
(ii) If (A) an Event of Default has occurred and is
continuing, (B) Lessee fails to or is unable to comply with
any conditions imposed pursuant to Subparagraph 3.04(c) or (C)
Lessee elects to exercise the Term Purchase Option and
purchase the Property pursuant to the Purchase Agreement;
then, at the absolute discretion of Lessor and the Required
Participants, regardless of any impairment of security or lack
of impairment of security, but subject to applicable
Governmental Rules governing the use of Casualty and
Condemnation Proceeds, if any, Lessor may (1) apply all or any
of the Casualty and Condemnation Proceeds it receives to the
expenses of Lessor Parties in obtaining such proceeds; (2)
apply the balance to the payment of Rent and/or the reduction
of the Outstanding Lease Amount, notwithstanding that such
amounts are not then due and payable or that such amounts are
otherwise adequately secured and/or (3) release all or any
part of such proceeds to Lessee upon any conditions Lessor and
the Required Participants may elect.
(iii) Lessor shall apply any Casualty and Condemnation
Proceeds which are to be used to reduce the Outstanding Lease
Amount only on the last day of a Rental Period unless an Event
of Default has occurred and is continuing.
(iv) Application of all or any portion of the Casualty
and Condemnation Proceeds, or the release thereof to Lessee,
shall not cure or waive any Default or notice of default or
invalidate any acts done pursuant to such notice.
3.05. Taxes. Subject to Paragraph 3.12 relating to permitted
contests, Lessee shall promptly pay when due all Indemnified Taxes imposed
on or payable by Lessee or any Lessor Party in connection with the
Property, this Agreement or any of the other Operative Documents, or any
of the transactions contemplated hereby or thereby. As promptly as
possible after any Indemnified Taxes are payable by Lessee, Lessee shall
send to Lessor for the account of the applicable Lessor Party a certified
copy of an original official receipt received by Lessee showing payment
thereof. If Lessee fails to pay any such Indemnified Taxes when due to the
appropriate taxing authority or fails to remit to Lessor the required
receipts or other required documentary evidence, Lessee shall indemnify
the Lessor Parties for any incremental taxes, interest or penalties that
may become payable by the Lessor Parties as a result of any such failure.
The obligations of Lessee under this Paragraph 3.05 shall survive the
payment and performance of the Lessee Obligations and the termination of
this Agreement.
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3.06. Environmental Matters.
(a) Lessee's Covenants. Lessee shall not cause or, except as
previously disclosed to the Lessor Parties in the Environmental
Reports, permit Hazardous Materials to be used, generated,
manufactured, stored, treated, disposed of, transported or present
on or released or discharged from the Property in any manner that is
reasonably likely to have a Material Adverse Effect. Lessee may use
Hazardous Materials in connection with the operation of its business
(or the business of permitted subtenants) so long as such use is
consistent with the preceding sentence. Lessee shall immediately
notify Lessor in writing of (i) the discovery of any Hazardous
Materials on, under or about the Property not previously disclosed
to Lessor Parties pursuant to the Environmental Reports; (ii) any
knowledge by Lessee that the Property does not comply with any
Environmental Laws not previously disclosed to Lessor Parties
pursuant to the Environmental Reports; (iii) any claims against
Lessee or the Property relating to Hazardous Materials or pursuant
to Environmental Laws; (iv) to the extent not previously disclosed
to Lessor Parties pursuant to the Environmental Reports, the
discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the
Property or any part thereof to be designated as "border zone
property" under the provisions of California Health and Safety Code
Sections 25220 et seq. or any regulation adopted in accordance
therewith; and (v) any material dispute or potential material
dispute among any of Lessee, Seller, Remediator or any other Person
in connection with the remediation of the Property pursuant to the
Fixed Price Remediation Agreement and the other Remediation
Agreements (including, without limitation, disputes with insurers
with respect to the insurance coverage to be maintained by
Remediator pursuant to the Fixed Price Remediation Agreement). In
response to the presence of any Hazardous Materials on, under or
about the Property not previously disclosed to Lessor Parties
pursuant to the Environmental Reports and which are not being
remediated pursuant to the Fixed Price Remediation Agreement and the
other Remediation Agreements, Lessee shall immediately take, at
Lessee's sole expense, all remedial action required by any
Environmental Laws or any judgment, consent decree, settlement or
compromise in respect to any claim based thereon.
(b) Inspection By Lessor. Upon reasonable prior notice to
Lessee, Lessor, its employees and agents, may from time to time
(whether before or after the commencement of a nonjudicial or
judicial foreclosure proceeding), enter and inspect the Property
(including, without limitation, the contents of any groundwater
monitoring wells on the Property, which groundwater monitoring wells
Lessee shall periodically sample as required by Environmental Laws)
for the purpose of determining the existence, location, nature and
magnitude of any past or present release or threatened release of
any Hazardous Materials into, onto, beneath or from the Property.
(c) Indemnity. Without in any way limiting any other indemnity
contained in this Agreement or any other Operative Document, Lessee
agrees to defend, indemnify and hold harmless the Lessor Parties and
the other Indemnitees from and against any claim, loss, damage,
cost, expense or liability directly or indirectly arising out of (i)
the
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use, generation, manufacture, storage, treatment, release,
threatened release, discharge, disposal (including off-site
disposal), transportation or presence of any Hazardous Materials
which have not been previously disclosed to Lessor Parties pursuant
to the Environmental Reports and which are not being remediated
pursuant to the Fixed Price Remediation Agreement and the other
Remediation Agreements and which are hereafter found in, on, under
or about the Property or which are hereafter discovered off of the
Property for which Lessee has an obligation to remediate, or (ii)
the breach of any covenant, representation or warranty of Lessee
relating to Hazardous Materials or Environmental Laws contained in
this Agreement or any Operative Document, except to the extent such
liability arises from any act or occurrence which first occurs after
the Expiration Date and Lessee is no longer in possession of the
Property. This indemnity shall include (A) the costs, whether
foreseeable or unforeseeable, of any investigation, repair, cleanup
or detoxification of the Property which is required by any
Governmental Authority or is otherwise necessary to render the
Property in compliance with all Environmental Laws; (B) all other
direct or indirect consequential damages (including any third party
claims, claims by any Governmental Authority, or any fines or
penalties against the Indemnitees; and (C) all court costs and
attorneys' fees (including expert witness fees and the cost of any
consultants) paid or incurred by the Indemnitees. Lessee shall pay
immediately upon Lessor's demand any amounts owing under this
indemnity. Lessee shall use legal counsel reasonably acceptable to
Lessor in any action or proceeding arising under this indemnity.
Lessee further acknowledges and agrees that Lessor shall be entitled
to the benefit of any and all indemnification and related rights
that Lessee may have obtained from Seller (including, without
limitation, the indemnification and related rights set forth in the
Acquisition Agreement or any other document, instrument or agreement
related thereto) with respect to pre-existing environmental matters
(including, without limitation, such environmental matters as has
been previously disclosed to Lessor Parties pursuant to the
Environmental Reports and which are to be remediated pursuant to the
Fixed Price Remediation Agreement and the other Remediation
Agreements). The obligations of Lessee under this Subparagraph
3.06(c) shall survive the payment and performance of the Lessee
Obligations and the termination of this Agreement.
(d) Legal Effect of Section. Lessee and Lessor agree that (i)
this Paragraph 3.06 and clause (vi) of Subparagraph 4.01(t) of the
Participation Agreement are intended as Lessor's written request for
information (and Lessee's response) concerning the environmental
condition of the real property security as required by California
Code of Civil Procedure Section 726.5 and (ii) each representation
and warranty and covenant herein and therein (together with any
indemnity applicable to a breach of any such representation and
warranty) with respect to the environmental condition of the
Property is intended by Lessor and Lessee to be an "environmental
provision" for purposes of California Code of Civil Procedure
Section 736.
3.07. Liens, Easements, Etc.
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(a) Lessee's Covenants. Subject to Paragraph 3.12 relating to
permitted contests, Lessee shall not create, incur, assume or permit
to exist any Lien or easement on or with respect to any of the
Property of any character, whether now owned or hereafter acquired,
except for the following ("Permitted Property Liens"):
(i) Liens in favor of a Lessor Party securing the Lessee
Obligations and other Lessor Liens;
(ii) Liens and easements in existence on the
Commencement Date to the extent reflected in the title
insurance policies delivered to Agent pursuant to Paragraph
3.01 of and Schedule 3.01 to the Participation Agreement and
approved by Lessor;
(iii) Liens for taxes or other Governmental Charges not
at the time delinquent or thereafter payable without penalty;
and
(iv) Liens of carriers, warehousemen, mechanics,
materialmen and vendors and other similar Liens imposed by law
incurred in the ordinary course of business for sums not
overdue.
Subject to Paragraph 3.12 relating to permitted contests, Lessee
shall promptly (A) pay all Indebtedness of Lessee and other
obligations prior to the time the non-payment thereof would give
rise to a Lien on the Property and (B) discharge, at its sole cost
and expense, any Lien on the Property which is not a Permitted
Property Lien.
(b) No Consents. Nothing contained in this Agreement shall be
construed as constituting the consent or request of any Lessor
Party, express or implied, to or for the performance by any
contractor, mechanic, laborer, materialman, supplier or vendor of
any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to
the Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NO
LESSOR PARTY IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE
HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE,
AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES
OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF ANY LESSOR
PARTY IN AND TO THE PROPERTY.
3.08. Subletting. Lessee may, in the ordinary course of business,
sublease the Property or any portion thereof to any Person, provided, that
(a) Lessee remains directly and primarily liable for performing its
obligations under this Agreement and all other Lessee Obligations; (b)
each sublease is subject to and subordinated to this Agreement; (c) each
sublease has a term which expires on or prior to the Scheduled Expiration
Date (or, if longer, includes a provision that the sublease terminates on
the Expiration Date if such Expiration Date occurs prior to the Scheduled
Expiration Date unless Lessee purchases the Property on the Expiration
Date pursuant to the Purchase Agreement); (d) each sublease prohibits the
sublessee from engaging in any
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activities on the Property other than those permitted by Paragraph 2.04;
and (e) no sublease has a Material Adverse Effect. Any sublease which does
not satisfy each of the requirements of the immediately preceding sentence
shall be null and void as to the Lessor Parties and their successor and
assigns. Except for such permitted subleases, Lessee shall not assign any
of its rights or interests under this Agreement to any other Person. (No
consolidation or merger by Lessee with any other Person or acquisition by
Lessee of any other Person shall constitute an assignment by Lessee of its
rights or interests under this Agreement unless such merger, consolidation
or acquisition is prohibited by Subparagraph 5.02(d) of the Participation
Agreement or constitutes a Change of Control.)
3.09. Utility Charges. Lessee shall pay all charges for electricity,
power, gas, oil, water, telephone, sanitary sewer service and all other
utilities and services to, on or in connection with the Property during
the Term.
3.10. Removal of Property.
(a) Lessor Improvements, Etc. Lessee shall not remove any
Lessor Improvements from the Land or any Related Good or
Modification from the Land or Lessor Improvements, except that,
during the Term, if no Event of Default has occurred and is
continuing:
(i) Lessee may remove any Lessor Improvement,
Modification or Related Good to make a Modification if such
Modification is made in accordance with Subparagraph 3.01(b);
and
(ii) Lessee may remove any Modification or Related Good
if:
(A) Such Modification or Related Good (1) was not
financed by an Acquisition Advance, (2) is not required
for the remaining Property to comply with any applicable
Governmental Rule or Insurance Requirement, and (3) is
removed without impairing the condition or useful life
of the remaining Property; and
(B) The value of the remaining Property after such
removal is not less than (1) the Expiration Date
Appraisal of the Property and (2) the value of the
Property prior to such removal.
(b) Lessee Improvements, Etc. Lessee may remove any Lessee
Improvement from the Land or any other property not constituting
Property from the Land or Lessor Improvements at any time during the
Term if such Lessee Improvement or other property (collectively,
"Lessee Property") (i) was not financed by an Acquisition Advance,
(ii) is not required for the Property to comply with any applicable
Governmental Rule or Insurance Requirement, and (iii) is removed
without impairing the condition, useful life or value of the
Property. If Lessor shall so request, Lessee shall remove all Lessee
Property (or any portion thereof specified by Lessor) from the
Property not later than the Expiration Date. If Lessee fails to
remove any such Lessee Property which Lessor has
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requested Lessee to remove prior to the Expiration Date, Lessor may
remove such Lessee Property or elect to treat such property as
abandoned pursuant to Subparagraph 3.10(c). Lessee shall pay all
costs incurred by Lessor in removing any such Lessee Property.
(c) Title. All Lessor Improvements, Modifications and Related
Goods removed by Lessee in accordance with this Paragraph 3.10 shall
cease to be part of the Property, and Lessee shall be the owner
thereof after such removal. Lessor acknowledges that Lessee is the
owner of the Lessee Property, except that Lessor may (unless Lessee
purchases the Property pursuant to the Purchase Agreement) treat any
Lessee Property remaining on the Property after the Expiration Date
as abandoned and part of the Property, without compensation to
Lessee. Lessor and Lessee shall execute and deliver to each other
such conveyancing and release documents and acknowledgements as the
other party may reasonably request to evidence the rights and title
of the parties in the Property and the Lessee Property.
(d) Repair of Damage. Lessee shall, at its expense, promptly
repair any damage to the remaining Property caused by its removal of
Lessor Improvements, Modifications and Related Goods pursuant to
Subparagraph 3.10(a) and any damage to the Property caused by its
removal of Lessee Property pursuant to Subparagraph 3.10(b).
3.11. Compliance with Governmental Rules and Insurance Requirements.
Lessee, at its sole cost and expense, shall, unless its failure is not
reasonably likely to have a Material Adverse Effect, (a) comply, and cause
its agents, sublessees, assignees, employees, invitees, licensees,
contractors and tenants, and the Property to comply, with all Governmental
Rules and Insurance Requirements relating to the Property (including the
construction, use, operation, maintenance, repair and restoration thereof,
whether or not compliance therewith shall require structural or
extraordinary changes in the Lessor Improvements or interfere with the use
and enjoyment of the Property), and (b) procure, maintain and comply with
all licenses, permits, orders, approvals, consents and other
authorizations required for the construction, use, maintenance and
operation of the Property and for the use, operation, maintenance, repair
and restoration of the Lessor Improvements.
3.12. Permitted Contests. Lessee, at its sole cost and expense, may
contest any alleged Lien or easement on any of the Property or any alleged
Governmental Charge, Indebtedness or other obligation which is payable by
Lessee hereunder to Persons other than the Lessor Parties or which, if
unpaid, would give rise to a Lien on any of the Property, provided that
(a) each such contest is diligently pursued in good faith by appropriate
proceedings; (b) the commencement and continuation of such proceedings
suspends the enforcement of such Lien or easement or the collection of
such Governmental Charge, Indebtedness or obligation; (c) Lessee has
established adequate reserves for the discharge of such Lien or easement
or the payment of such Governmental Charge, Indebtedness or obligation in
accordance with GAAP and, if the failure to discharge such Lien or
easement or the failure to pay such Governmental Charge, Indebtedness or
obligation might result in any civil liability for any Lessor Party,
Lessee has provided to such Lessor Party a bond or other security
satisfactory to such Lessor Party; (d) the failure to discharge such Lien
or easement or the failure to pay such Governmental Charge, Indebtedness
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or obligation could not result in any criminal liability for any Lessor
Party; (e) the failure to discharge such Lien or easement or the failure
to pay such Governmental Charge, Indebtedness or obligation is not
otherwise reasonably likely to have a Material Adverse Effect; and (f)
unless Lessee currently is exercising either the Term Purchase Option or
the Expiration Date Purchase Option, any such contest is completed and
such Lien or easement is discharged (either pursuant to such proceedings
or otherwise) or such Governmental Charge, Indebtedness or obligation is
declared invalid, paid or otherwise satisfied not later than six (6)
months prior to the Scheduled Expiration Date.
3.13. Lessor Obligations; Right to Perform Lessee Obligations. No
Lessor Party shall have any obligation to (a) maintain, repair or make any
improvements to the Property, (b) maintain any insurance on the Property,
(c) perform any other obligation of Lessee under this Agreement or any
other Lessee Obligation, (d) make any expenditure on account of the
Property (except to make the Acquisition Advance as required by the
Participation Agreement) or (e) take any other action in connection with
the Property, this Agreement or any other Operative Document, except as
expressly provided herein or in another Operative Document; provided
however, that Lessor may, in its sole discretion and without any
obligation to do so, perform any Lessee Obligation not performed by Lessee
when required. Lessor may enter the Property or exercise any other right
of Lessee under this Agreement or any other Operative Document to the
extent Lessor determines in good faith that such entry or exercise is
reasonably necessary for Lessor to perform any such Lessee Obligation not
performed by Lessee when required. Lessee shall reimburse Lessor and the
other Lessor Parties, within five (5) Business Days after demand, for all
reasonable fees, costs and expenses incurred by them in performing any
such obligation or curing any Default.
3.14. Inspection Rights. During the Term, Lessee shall permit any
Person designated by Lessor, upon reasonable notice and during normal
business hours, to visit and inspect any of the Property.
3.15. Cooperation of Lessor to Facilitate Operation, Etc. During the
Term, Lessor shall take any action reasonably requested by Lessee to
facilitate the operation, management, development or repair of the
Property, including joining in or consenting to any of the following:
(a) The grant of easements, licenses, rights of way, and other
rights in the nature of easements encumbering the Property;
(b) The release or termination of easements, licenses, rights
of way or other rights in the nature of easements which are for the
benefit of the Property or any portion thereof;
(c) The dedication or transfer of portions of the Land not
improved with a building, for road, highway or other public
purposes;
(d) Agreements for the use and maintenance of common areas,
for reciprocal rights of parking, for ingress and egress and for
amendments to any Related Agreements (including amendments to the
Related Agreements that Lessee may reasonably request to
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facilitate construction or development on land owned by it or its
Affiliates other than the Land);
(e) Instruments necessary or desirable for the exercise or
enforcement of rights under the Related Agreements or any contract,
permit, license, franchise or other right included within the term
"Property";
(f) Permit applications or other documents reasonably required
to accommodate the construction or alteration of Lessor Improvements
otherwise permitted by this Agreement;
(g) Confirmations of Lessee's rights under any particular
provisions of this Agreement which Lessee may wish to provide to a
third party;
(h) The execution or filing of a tract or parcel map
subdividing the Property into lots or parcels or reconfiguring
existing parcels; or
(i) Agreements providing development incentives or tax
abatements with respect to the Property;
Provided that (i) no Event of Default has occurred and is continuing at
the time of any such action and (ii) neither such action alone nor such
action cumulatively with any other actions is reasonably likely to have a
Material Adverse Effect or materially increase the obligations or
potential liability of any Lessor Party.
3.16. Survey and Title Matters . Lessee, at its sole cost and
expense, shall promptly take steps to diligently pursue in good faith and
by appropriate proceedings to address the following survey and title
matters as disclosed by that certain ALTA/ACSM survey prepared by Dunbar
and Craig, Job No. 99166, dated June 1999: (a) recordation of an access
and easement agreement and consent to encroachment from the City of Scotts
Valley to provide access from Bluebonnet Lane and Kings Village Road to
the Property as contemplated by that certain Agreement dated August 1,
1967, by and among the City of Scotts Valley, the City of Santa Cruz, and
Watkins-Johnson Company; (b) recordation of an easement agreement for a
sanitary sewer easement from the City of Scotts Valley along the route
described in the unrecorded easement prepared by George Dunbar, LS 3666,
in 1987; (c) recordation of an easement agreement or consent to
encroachment as to the existing route of the overhead electric line
running along the access road described in clause (a) above; and (d)
recordation of an agreement from the Scotts Valley Water District to
relocate a water line around the building located on Parcel 2 as
contemplated by that certain unrecorded water line easement by and between
Watkins-Johnson Company and Scotts Valley Water District dated June 26,
1989.
SECTION 4. EXPIRATION DATE.
4.01. Termination by Lessee Prior to Scheduled Expiration Date.
Subject to the terms and conditions of the Purchase Agreement, Lessee may,
at any time prior to the Scheduled Expiration Date, terminate this
Agreement and purchase the Property pursuant to Section 2 of the
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Purchase Agreement. Lessee shall notify Lessor of Lessee's election so to
terminate this Agreement and purchase the Property by delivering to Agent
a Notice of Term Purchase Option Exercise pursuant to and in accordance
with the provisions of Paragraph 2.02 of the Purchase Agreement.
4.02. Return of Property.
(a) Upon the expiration or earlier termination of this
Agreement (unless Lessee, a Designated Purchase or an Assignee
Purchaser has purchased the Property on or prior to the Expiration
Date pursuant to the Purchase Agreement), Lessee shall vacate,
surrender and deliver possession of the Property to Lessor in broom
clean condition and in the condition required pursuant to Paragraph
3.01 hereof. Lessee shall remove from the Property on or prior to
the expiration or earlier termination of this Agreement, all Lessee
Modifications (other than those which Lessor has agreed in writing
will be surrendered) and all of Lessee's personal property,
furniture and fixtures situated thereon which is not the property of
Lessor under the terms of this Lease Agreement, and shall repair any
damages caused by such removal. Property not so removed shall become
the property of Lessor, and Lessor may cause such property to be
removed from the Property and disposed of, and Lessee shall pay the
reasonable cost of any such removal and disposition and of repairing
any damage caused by such removal.
(b) Except for surrender upon the expiration or earlier
termination of the Term, no surrender to Lessor of this Lease
Agreement shall be valid or effective unless agreed to and accepted
in writing by Lessor or any assignee of Lessor.
(c) Without limiting the generality of the foregoing, upon the
surrender and return of the Property to Lessor pursuant to this
Paragraph 4.02 (unless Lessee, a Designated Purchase or an Assignee
Purchaser has purchased the Property on or prior to the Expiration
Date pursuant to the Purchase Agreement), the Property shall (i) be
returned in a condition suitable for redevelopment and capable of
being immediately utilized by a third-party purchaser or third-party
lessee without further inspection, construction, repair,
replacement, alterations or improvements, licenses, permits, or
approvals, except for any of the foregoing required solely by virtue
of the change in ownership (other than to Lessor or an assignee of
Lessor), use or occupancy of the Property, (ii) be in accordance and
compliance with all Requirements of Law and Environmental Laws
including, without limitation, any of the foregoing required by
virtue of a change in ownership, use or occupancy of the Property
other than to Lessee, (iii) be free and clear of all Liens, other
than any Lessor Liens and Permitted Property Liens.
(d) On or prior to the date of such surrender and return of
the Property (unless Lessee, a Designated Purchase or an Assignee
Purchaser has purchased the Property on or prior to the Expiration
Date pursuant to the Purchase Agreement), Lessor shall have received
from Lessee, at Lessee's expense, evidence satisfactory to Lessor,
of compliance with the provisions of this Paragraph 4.02, including
without limitation, an environmental
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assessment for the Property addressed in form and substance
satisfactory to Lessor and each assignee of Lessor or, in lieu of
addressing to such parties directly, accompanied by a letter
permitting Lessor and each assignee of Lessor to rely thereon,
performed by an independent, licensed professional engineer
satisfactory to Lessor and each assignee of Lessor, and which
assessment (i) shall be sufficient in scope to determine compliance
with Environmental Laws, (ii) shall reveal no actual or potential
environmental liabilities which cannot be remediated by Lessee as
provided in the following clause (iii), and (iii) if such
environmental assessment reveals the need for additional review,
Lessee shall have provided such additional information or
environmental assessments as are required by Lessor and each
assignee of Lessor and, subject to Subparagraph 3.06 hereof, any
remediation recommended therein to be performed shall have been
performed, and evidence of compliance with clause (ii) of
Subparagraph 4.02(c).
(e) Upon such return of the Property to Lessor or any assignee
of Lessor, Lessee shall deliver to Lessor a then current title
insurance policy or a binding commitment to issue a title insurance
policy written by a title insurance company reasonably acceptable to
Lessor, insuring good and marketable title in the Property in an
amount equal to the Outstanding Lease Amount as determined as of the
Expiration Date, unencumbered except for Lessor Liens or Permitted
Liens. Upon the request of Lessor, Lessee shall continue to maintain
its insurance policies for the Property required under Subparagraph
3.03 hereof if able to do so on a commercially reasonable basis,
provided that Lessor shall pay or reimburses Lessee for its pro rata
costs thereof.
(f) The provisions of this Paragraph 4.02 are of the essence
of this Lease Agreement, and any breach thereof shall be deemed an
Event of Default hereunder, and upon application to any court of
equity having jurisdiction in the premises, Lessor shall be entitled
to a decree against Lessee requiring specific performance of the
covenants of Lessee set forth in this Paragraph 4.02.
4.03. Holding Over. If (a) Lessee does not purchase the Property on
the Expiration Date pursuant to the Purchase Agreement but continues in
possession of any portion of the Property after the Expiration Date or (b)
Lessee has failed to return the Property to Lessor in the condition
required pursuant to Paragraph 4.02 hereof, Lessee shall pay rent for each
day it so continues in possession, payable upon demand of Lessor, at a per
annum rate equal to the Alternate Rental Rate plus two percent (2.0%) and
shall pay and perform all of its other Lessee Obligations under this
Agreement and the other Operative Documents in the same manner as though
the Term had not ended; provided, however, that this Paragraph 4.03 shall
not be interpreted to permit such holding over or to limit any right or
remedy of Lessor for such holding over.
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SECTION 5. DEFAULT.
5.01. Events of Default. The occurrence or existence of any one or
more of the following shall constitute an "Event of Default" hereunder:
(a) Non-Payment. Lessee shall (i) fail to pay on the
Expiration Date any amount payable by Lessee under this Agreement or
any other Operative Document on such date, (ii) fail to pay within
five (5) Business Days after the same becomes due, any Base Rent, or
(iii) fail to pay within five (5) Business Days after delivery to
Lessee of written demand therefor, any Supplemental Rent or other
amount required under the terms of this Agreement or any other
Operative Document (other than any such amount payable on the
Expiration Date); or
(b) Specific Defaults. Lessee or any of its Subsidiaries shall
fail to observe or perform any covenant, obligation, condition or
agreement set forth in Paragraph 3.03 hereof or in clause (ii) of
Subparagraph 2.11(a), Paragraph 5.02 (other than Subparagraph
5.02(i)) or Paragraph 5.03 of the Participation Agreement; or
(c) Other Defaults. Lessee or any of its Subsidiaries shall
fail to observe or perform any other covenant, obligation, condition
or agreement contained in this Agreement or any other Operative
Document and such failure shall continue until the earliest of (i)
thirty (30) days after Lessee's written acknowledgement of such
failure, (ii) thirty (30) days after any Lessor Party's written
notice to Lessee of such failure and (iii) thirty (30) days prior to
the Expiration Date, provided, however, that, in the event that any
such failure cannot reasonably be cured within a thirty (30) day
period, such failure shall not constitute an Event of Default
hereunder if (A) such failure can reasonably be cured within one
hundred, eighty (180) days, (B) Lessee promptly commences and
diligently proceeds to cure such failure and (C) Lessee completes
such cure not later than the earliest of (1) one hundred, eighty
days (180) days after Lessee's written acknowledgement of such
failure, (2) one hundred, eighty days (180) days after any Lessor
Party's written notice to Lessee of such failure and (3) thirty (30)
days prior to the Expiration Date; or
(d) Representations and Warranties. Any representation,
warranty, certificate, information or other statement (financial or
otherwise) made or furnished by or on behalf of Lessee or any of its
Subsidiaries to any Lessor Party in or in connection with this
Agreement or any other Operative Document, or as an inducement to
any Lessor Party to enter into this Agreement or any other Operative
Document, shall be false, incorrect, incomplete or misleading in any
material respect when made or furnished and Lessee shall not have
cured the facts or circumstances causing such representation,
warranty, certificate or other statement to be false, incorrect,
incomplete or misleading not later than the earliest of (i) thirty
(30) days after Lessee's written acknowledgement thereof to Lessor,
(ii) thirty (30) days after any Lessor Party's written notice to
Lessee thereof, and (iii) thirty (30) days prior to the Expiration
Date; or
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(e) Cross-Default. (i) Lessee or any of its Subsidiaries shall
fail to make any payment on account of any Indebtedness of such
Person (other than the Lessee Obligations) when due (whether at
scheduled maturity, by required prepayment, upon acceleration or
otherwise) and such failure shall continue beyond any period of
grace provided with respect thereto, if the amount of such
Indebtedness exceeds $2,000,000 or the effect of such failure is to
cause, or permit the holder or holders thereof to cause,
Indebtedness of Lessee and its Subsidiaries (other than the Lessee
Obligations) in an aggregate amount exceeding $2,000,000 to become
due or payable (whether at scheduled maturity, by required
prepayment or redemption, upon acceleration or otherwise) and/or to
be secured by cash collateral or (ii) Lessee or any of its
Subsidiaries shall otherwise fail to observe or perform any
agreement, term or condition contained in any agreement or
instrument relating to any Indebtedness of such Person (other than
the Lessee Obligations), or any other event shall occur or condition
shall exist, if the effect of such failure, event or condition is to
cause, or permit the holder or holders thereof to cause,
Indebtedness of Lessee and its Subsidiaries (other than the Lessee
Obligations) in an aggregate amount exceeding $2,000,000 to become
due or payable (whether at scheduled maturity, by required
prepayment or redemption, upon acceleration or otherwise) and/or to
be secured by cash collateral; or
(f) Insolvency, Voluntary Proceedings. Lessee or any of its
Subsidiaries shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in
writing its inability, to pay its debts generally as they mature,
(iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under
any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such
relief or to the appointment of or taking possession of its property
by any official in an involuntary case or other proceeding commenced
against it, or (vi) take any action for the purpose of effecting any
of the foregoing; or
(g) Involuntary Proceedings. Proceedings for the appointment
of a receiver, trustee, liquidator or custodian of Lessee or any of
its Subsidiaries or of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to Lessee
or any of its Subsidiaries or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in
effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within sixty (60)
days of commencement; or
(h) Judgments. (i) One or more judgments, orders, decrees or
arbitration awards requiring Lessee and/or its Subsidiaries to pay
an aggregate amount of $2,000,000 or more (exclusive of amounts
covered by insurance issued by an insurer not an Affiliate of Lessee
and otherwise satisfying the requirements set forth in Subparagraph
3.03(b))
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shall be rendered against Lessee and/or any of its Subsidiaries in
connection with any single or related series of transactions,
incidents or circumstances and the same shall not be satisfied,
vacated or stayed for a period of forty (40) consecutive days after
issue or levy; (ii) any judgment, writ, assessment, warrant of
attachment, tax lien or execution or similar process shall be issued
or levied against a substantial part of the property of Lessee or
any of its Subsidiaries and the same shall not be released, stayed,
vacated or otherwise dismissed within fifteen (15) days after issue
or levy; or (iii) any other judgments, orders, decrees, arbitration
awards, writs, assessments, warrants of attachment, tax liens or
executions or similar processes which, alone or in the aggregate,
are reasonably likely to have a Material Adverse Effect are
rendered, issued or levied; or
(i) Operative Documents. Any Operative Document or any
material term thereof shall cease to be, or be asserted by Lessee or
any of its Subsidiaries not to be, a legal, valid and binding
obligation of Lessee or any of its Subsidiaries enforceable in
accordance with its terms in a manner which could result in a
Material Adverse Effect; or
(j) ERISA. Any Reportable Event which constitutes grounds for
the termination of any Employee Benefit Plan by the PBGC or for the
appointment of a trustee by the PBGC to administer any Employee
Benefit Plan shall occur, or any Employee Benefit Plan shall be
terminated within the meaning of Title IV of ERISA or a trustee
shall be appointed by the PBGC to administer any Employee Benefit
Plan; or
(k) Change of Control. Any Change of Control shall occur; or
(l) Major Casualty or Condemnation. Any Major Casualty or
Major Condemnation affecting the Property shall occur and Lessee
shall not purchase the Property pursuant to the Term Purchase Option
in the Purchase Agreement within two (2) months after the occurrence
thereof; or
(m) Material Adverse Effect. Any event(s) or condition(s)
which is (are) reasonably likely to have a Material Adverse Effect
shall occur or exist.
5.02. General Remedies. In all cases, upon the occurrence or
existence of any Event of Default and at any time thereafter unless such
Event of Default is waived, Lessor may, with the consent of the Required
Participants, or shall, upon instructions from the Required Participants,
exercise any one or more of the following rights and remedies (except that
the remedy set forth in the first sentence of Subparagraph 5.02(a) shall
be automatic):
(a) Termination of Commitments. If such Event of Default is an
Event of Default of the type described in Subparagraph 5.01(f) or
Subparagraph 5.01(g) affecting Lessee, immediately and without
notice the obligation of Lessor to make the Acquisition Advance and
the obligations of the Participants to fund the Acquisition Advance
shall automatically terminate. If such Event of Default is any other
Event of Default, Lessor may by written notice to Lessee, terminate
the obligation of Lessor to make the Acquisition Advance and the
obligations of the Participants to fund the Acquisition Advance.
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(b) Appointment of a Receiver. Lessor may apply to any court
of competent jurisdiction for, and obtain appointment of, a receiver
for the Property.
(c) Specific Performance. Lessor may bring an action in any
court of competent jurisdiction to obtain specific enforcement of
any of the covenants or agreements of Lessee in this Agreement or
any of the other Operative Documents.
(d) Collection of Issues and Profits. Lessor may collect
Issues and Profits as provided in Subparagraph 2.07(c) and apply the
proceeds to pay Lessee Obligations.
(e) Protection of Property. Lessor may enter, manage and
operate all or any part of the Property or take any other actions
which it reasonably determines are necessary to protect the Property
and the rights and remedies of the Lessor Parties under this
Agreement and the other Operative Documents, including (i) taking
and possessing all of Lessee's books and records relating to the
Property; (ii) entering into or enforcing subleases on such terms
and conditions as Lessor may consider proper; (iii) obtaining and
evicting tenants; (iv) entering into agreements with subtenants to
fix or modify sublease rents; (v) collecting and receiving any
payment of money owing to Lessee with respect to the Property; (vi)
completing any unfinished Lessor Improvements; and/or (vii)
contracting for and making needed repairs and alterations to the
Property.
(f) Other Rights and Remedies. In addition to the specific
rights and remedies set forth above in this Paragraph 5.02 and in
Paragraph 5.03 and Paragraph 5.04, Lessor may exercise any other
right, power or remedy permitted to it by any applicable
Governmental Rule, either by suit in equity or by action at law, or
both.
5.03. Lease Remedies. If a court of competent jurisdiction
determines that the transaction evidenced by this Agreement and the other
Operative Documents is a lease, upon the occurrence or existence of any
Event of Default and at any time thereafter unless such Event of Default
is waived, Lessor may, with the consent of the Required Participants, or
shall, upon instructions from the Required Participants, exercise any one
or more of the following rights and remedies in addition to those rights
and remedies set forth in Paragraph 5.02:
(a) Termination of Lease. Lessor may, by written notice to
Lessee, terminate this Agreement on a Termination Date which is
prior to the Scheduled Expiration Date and take possession of the
Property. Such Termination Date shall be the last day of a Rental
Period unless Required Participants shall otherwise direct. On such
Termination Date (which shall then be the Expiration Date), subject
to the limitations set forth in the Purchase Agreement, Lessee shall
pay all unpaid Base Rent accrued through such date and all
Supplemental Rent due and payable on or prior to such date and all
other amounts payable by Lessee on the Expiration Date pursuant to
this Agreement and the other Operative Documents, together with the
worth at the time of such payment of the amount by which the unpaid
Base Rent through the Scheduled Expiration Date exceeds the amount
of such rental loss for the same period that Lessee proves could
reasonably be avoided.
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(b) Continuation of Lease. Lessor may exercise the rights and
remedies provided by California Civil Code Section 1951.4, including
the right to continue this Agreement in effect after Lessee's breach
and abandonment and recover Rent as it becomes due. Acts of
maintenance or preservation, efforts to relet the Property, the
appointment of a receiver upon Lessor's initiative to protect its
interest under this Agreement or withholding consent to or
terminating a sublease shall not of themselves constitute a
termination of Lessee's right to possession.
(c) Removal and Storage of Property. Lessor may enter the
Property and remove therefrom all Persons and property, store such
property in a public warehouse or elsewhere at the cost of and for
the account of Lessee and sell such property and apply the proceeds
therefrom pursuant to applicable California law.
(d) Marketing. Notwithstanding the termination of Lessee's
tenancy hereunder, Lessor is subject to the duties and obligations
to Lessee set forth in Subparagraph 3.03(b) of the Purchase
Agreement.
5.04. Loan Remedies. Unless a court of competent jurisdiction
determines that the transaction evidenced by this Agreement and the other
Operative Documents is a lease, upon the occurrence or existence of any
Event of Default and at any time thereafter unless such Event of Default
is waived, Lessor may, with the consent of the Required Participants, or
shall, upon instructions from the Required Participants, exercise any one
or more of the following rights and remedies in addition to those rights
and remedies set forth in Paragraph 5.02:
(a) Acceleration of Lessee Obligations. Lessor may, by written
notice to Lessee, declare all unpaid Lessee Obligations due and
payable on a Termination Date prior to the Scheduled Expiration
Date. Such Termination Date shall be the last day of a Rental Period
unless Required Participants shall otherwise direct. On such
Termination Date (which shall then be the Expiration Date), subject
to the limitations set forth in the Purchase Agreement, Lessee shall
pay all unpaid Base Rent accrued through such date, all Supplemental
Rent due and payable on or prior to such date and all other amounts
payable by Lessee on the Expiration Date pursuant to this Agreement
and the other Operative Documents.
(b) Uniform Commercial Code Remedies. Lessor may exercise any
or all of the remedies granted to a secured party under the
California Uniform Commercial Code.
(c) Judicial Foreclosure. Lessor may bring an action in any
court of competent jurisdiction to foreclose the security interest
in the Property granted to Lessor by this Agreement or any of the
other Operative Documents.
(d) Power of Sale. Lessor may cause some or all of the
Property, including any Personal Property Collateral, to be sold
under a power of sale or otherwise disposed of in any combination
and in any manner permitted by applicable Governmental Rules.
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(i) Sales of Personal Property. Lessor may dispose of
any Personal Property Collateral separately from the sale of
Real Property Collateral, in any manner permitted by Division
9 of the California Uniform Commercial Code, including any
public or private sale, or in any manner permitted by any
other applicable Governmental Rule. Any proceeds of any such
disposition shall not cure any Event of Default or reinstate
any Lessee Obligation for purposes of Section 2924c of the
California Civil Code. In connection with any such sale or
other disposition of Personal Property Collateral, Lessee
agrees that the following procedures constitute a commercially
reasonable sale:
(A) Lessor shall mail written notice of the sale
to Lessee not later than thirty (30) days prior to such
sale.
(B) Once per week during the three (3) weeks
immediately preceding such sale, Lessor will publish
notice of the sale in a local daily newspaper of general
circulation.
(C) Upon receipt of any written request, Lessor
will make the Property available to any bona fide
prospective purchaser for inspection during reasonable
business hours.
(D) Notwithstanding, Lessor shall be under no
obligation to consummate a sale if, in its judgment,
none of the offers received by it equals the fair value
of the Property offered for sale.
(E) If Lessor so requests, Lessee shall assemble
all of the Personal Property Collateral and make it
available to Lessor at the site of the Land. Regardless
of any provision of this Agreement or any other
Operative Document, Lessor shall not be considered to
have accepted any property other than cash or
immediately available funds in satisfaction of any
Lessee Obligation, unless Lessor has given express
written notice of its election of that remedy in
accordance with California Uniform Commercial Code
Section 9505.
The foregoing procedures do not constitute the only procedures
that may be commercially reasonable.
(ii) Lessor's Sales of Real Property or Mixed
Collateral. Lessor may choose to dispose of some or all of the
Property which consists solely of Real Property Collateral in
any manner then permitted by applicable Governmental Rules,
including without limitation a nonjudicial trustee's sale
pursuant to California Civil Code Sections 2924 et seq. In its
discretion, Lessor may also or alternatively choose to dispose
of some or all of the Property, in any combination consisting
of both Real Property Collateral and Personal Property
Collateral, together in one sale to be held in accordance with
the law and procedures applicable to real property, as
permitted by Section 9501(4) of the California
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Uniform Commercial Code. Lessee agrees that such a sale of
Personal Property Collateral together with Real Property
Collateral constitutes a commercially reasonable sale of the
Personal Property Collateral. (For purposes of this power of
sale, either a sale of Real Property Collateral alone, or a
sale of both Real Property Collateral and Personal Property
Collateral together in accordance with California Uniform
Commercial Code Section 9501(4), will sometimes be referred to
as a "Lessor's Sale.")
(A) Before any Lessor's Sale, Lessor shall give
such notice of default and election to sell as may then
be required by applicable Governmental Rules.
(B) When all time periods then legally mandated
have expired, and after such notice of sale as may then
be legally required has been given, Lessor shall sell
the property being sold at a public auction to be held
at the time and place specified in the notice of sale.
(C) Neither Lessor nor Agent shall have any
obligation to make demand on Lessee before any Lessor's
Sale.
(D) From time to time in accordance with then
applicable law, Lessor may postpone any Lessor's Sale by
public announcement at the time and place noticed for
that sale.
(E) At any Lessor's Sale, Lessor shall sell to the
highest bidder at public auction for cash in lawful
money of the United States.
(F) Lessor shall execute and deliver to the
purchaser(s) a deed or deeds conveying the Property
being sold without any covenant or warranty whatsoever,
express or implied. The recitals in any such deed of any
matters or facts, including any facts bearing upon the
regularity or validity of any Lessor's Sale, shall be
conclusive proof of their truthfulness. Any such deed
shall be conclusive against all Persons as to the facts
recited in it.
(e) Foreclosure Sales.
(i) Single or Multiple. If the Property consists of more
than one lot, parcel or item of property, Lessor may:
(A) Designate the order in which the lots, parcels
and/or items shall be sold or disposed of or offered for
sale or disposition; and
(B) Elect to dispose of the lots, parcels and/or
items through a single consolidated sale or disposition
to be held or made under the power of sale granted in
Subparagraph 5.04(d), or in connection with judicial
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proceedings, or by virtue of a judgment and decree of
foreclosure and sale; or through two or more such sales
or dispositions; or in any other manner Lessor may deem
to be in its best interests (any such sale or
disposition, a "Foreclosure Sale;" any two or more,
"Foreclosure Sales").
If Lessor chooses to have more than one Foreclosure Sale,
Lessor at its option may cause the Foreclosure Sales to be
held simultaneously or successively, on the same day, or on
such different days and at such different times and in such
order as it may deem to be in its best interests. No
Foreclosure Sale shall terminate or affect the security
interests granted to Lessor in the Property by this Agreement
on any part of the Property which has not been sold, until all
of the Lessee Obligations have been paid in full.
(ii) Credit Bids. At any Foreclosure Sale, any Person,
including any Lessor Party, may bid for and acquire the
Property or any part of it to the extent permitted by then
applicable Governmental Rules. Instead of paying cash for the
Property, Lessor may settle for the purchase price by
crediting the sales price of the Property against the Lessee
Obligations in any order and proportions as Lessor in its sole
discretion may choose.
(f) Marketing. Notwithstanding the termination of Lessee's
tenancy hereunder, Lessor is subject to the duties and obligations
to Lessee set forth in Subparagraph 3.03(b) of the Purchase
Agreement.
5.05. Remedies Cumulative. The rights and remedies of Lessor under
this Agreement and the other Operative Documents are cumulative and may be
exercised singularly, successively, or together.
5.06. No Cure or Waiver. Neither the performance by Lessor of any of
Lessee's obligations pursuant to Paragraph 3.13 nor the exercise by Lessor
of any of its other rights and remedies under this Agreement or any other
Operative Document (including the collection of Issues and Profits and the
application thereof to the Lessee Obligations) shall constitute a cure or
waiver of any Default or nullify the effect of any notice of default or
sale, unless and until all Lessee Obligations are paid in full.
5.07. Exercise of Rights and Remedies. The rights and remedies
provided to Lessor under this Agreement may be exercised by Lessor itself,
by Agent pursuant to Subparagraph 2.02(c) of the Participation Agreement,
by a court-appointed receiver or by any other Person appointed by any of
the foregoing to act on its behalf. All of the benefits afforded to Lessor
under this Agreement and the other Operative Documents shall accrue to the
benefit of Agent to the extent provided in Subparagraph 2.02(c) of the
Participation Agreement.
SECTION 6. MISCELLANEOUS.
32
<PAGE> 33
6.01. Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications to or
upon Lessee or Lessor under this Agreement shall be given as provided in
Subparagraph 2.02(c) and Paragraph 7.01 of the Participation Agreement.
6.02. Waivers; Amendments. Any term, covenant, agreement or
condition of this Agreement may be amended or waived only as provided in
the Participation Agreement. No failure or delay by any Lessor Party in
exercising any right hereunder shall operate as a waiver thereof or of any
other right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other right. Unless
otherwise specified in any such waiver or consent, a waiver or consent
given hereunder shall be effective only in the specific instance and for
the specific purpose for which given.
6.03. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Lessor Parties and Lessee and their
permitted successors and assigns; provided, however, that the Lessor
Parties and Lessee shall not sell, assign or delegate their respective
rights and obligations hereunder except as provided in the Participation
Agreement.
6.04. No Third Party Rights. Nothing expressed in or to be implied
from this Agreement is intended to give, or shall be construed to give,
any Person, other than the Lessor Parties and Lessee and their permitted
successors and assigns, any benefit or legal or equitable right, remedy or
claim under or by virtue of this Agreement or under or by virtue of any
provision herein.
6.05. Partial Invalidity. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect
under the law or any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Agreement nor the
legality, validity or enforceability of such provision under the law of
any other jurisdiction shall in any way be affected or impaired thereby.
6.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of law rules.
6.07. Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
6.08. Nature of Lessee's Obligations.
(a) Independent Obligation. Except as otherwise provided in
Section 2 of the Purchase Agreement, the obligation of Lessee to pay
the amounts payable by Lessee under this Agreement and the other
Operative Documents and to perform the other Lessee Obligation are
absolute, unconditional and irrevocable obligations which are
separate and independent of the obligations of the Lessor Parties
under this Agreement and the other Operative Documents and all other
events and circumstances, including the events and circumstances set
forth in Subparagraph 6.08(c).
33
<PAGE> 34
(b) No Termination or Abatement. This Agreement and the other
Operative Documents and Lessee's obligation to pay Rent and to pay
and perform all other Lessee Obligations shall continue in full
force and effect without abatement notwithstanding the occurrence or
existence of any event or circumstance, including any event or
circumstance set forth in Subparagraph 6.08(c).
(c) Full Payment and Performance. Lessee shall make all
payments under this Agreement and the other Operative Documents in
the full amounts and at the times required by the terms of this
Agreement and the other Operative Documents without setoff,
deduction or reduction of any kind and shall perform all other
Lessee Obligations as and when required, without regard to any event
or circumstances whatsoever, including (i) the condition of the
Property (including any Lessor Improvements to the Property made
prior to the Commencement Date or during the Term); (ii) title to
the Property (including possession of the Property by any Person or
the existence of any Lien or any other right, title or interest in
or to any of the Property in favor of any Person); (iii) the value,
habitability, usability, design, operation or fitness for use of the
Property; (iv) the availability or adequacy of utilities and other
services to the Property; (v) any latent, hidden or patent defect in
the Property; (vi) the zoning or status of the Property or any other
restrictions on the use of the Property; (g) the economics of the
Property; (vii) any Casualty or Condemnation; (viii) the compliance
of the Property with any applicable Governmental Rule or Insurance
Requirement; (ix) any failure by any Lessor Party to perform any of
its obligations under this Agreement or any other Operative
Document; or (x) the exercise by any Lessor Party of any of its
remedies under this Agreement or any other Operative Document;
provided, however, that this Paragraph 6.08 shall not abrogate any
right which Lessee may have to recover damages from any Lessor Party
for any material breach by such Lessor Party of its obligations
under this Agreement or any other Operative Document to the extent
permitted hereunder or thereunder.
[The signature page follows.]
34
<PAGE> 35
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed as of the day and year first above written.
LESSEE: SILICON VALLEY GROUP, INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
LESSOR: SELCO SERVICE CORPORATION
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
35
<PAGE> 36
STATE OF CALIFORNIA )
) ss
COUNTY OF _____________________)
On _____________, 1999, before me, ___________________ a Notary Public in
and for the State of California, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
Witness my hand and official seal.
[SEAL]
_____________________________
<PAGE> 37
STATE OF CALIFORNIA )
) ss
COUNTY OF _____________________)
On _____________, 1999, before me, ___________________ a Notary Public in
and for the State of California, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
Witness my hand and official seal.
[SEAL]
_____________________________
<PAGE> 38
SCHEDULE 3.03
INSURANCE REQUIREMENTS
(i) At all times during the Term, commercial general liability
insurance, umbrella insurance and excess liability insurance, each written
on an "occurrence basis", including products and completed operation
hazards, covering claims for bodily injury, personal injury or death
sustained by persons or damage to property, in an amount of not less than
$5,000,000 per occurrence and $10,000,000 annual aggregate;
(ii) At all times during the Term, workers' compensation insurance
for statutory limits and employer's liability insurance covering injury,
death or disease sustained by employees, in an amount not less than
$1,000,000 for disease and $1,000,000 for bodily injury or death by
accident; and
(iii) At all times during the Term, "all risk" property insurance
covering (A) loss or damage by flood in an amount not less than the lesser
of (1) the replacement cost of the Lessor Improvements and (2) the then
current Outstanding Lease Amount if any portion of the Property is located
in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable Governmental Authority,
(B) loss or damage by fire in an amount not less than the lesser of (1)
the replacement cost of the Lessor Improvements and (2) the then current
Outstanding Lease Amount, and (C) loss or damage by earthquake in an
amount not less than $3,500,000.
<PAGE> 39
EXHIBIT A
LAND
A-1
<PAGE> 40
EXHIBIT B
RELATED GOODS
None
B-1
<PAGE> 41
EXHIBIT C
NOTICE OF RENTAL PERIOD SELECTION
[Date]
KeyBank National Association,
as Agent
431 E. Park Center Boulevard
Boise, ID 83706
Attn: Vicky Heineck or Margaret Herring
1. Reference is made to (A) that certain Participation Agreement, dated as
of June 30, 1999 (the "Participation Agreement"), among Silicon Valley Group,
Inc. ("Lessee"), SELCO Service Corporation ("Lessor"), the financial
institutions listed in Schedule I to the Participation Agreement (the
"Participants") and KeyBank National Association, as agent for the Participants
(in such capacity, "Agent"); and (b) that certain Lease Agreement, dated as of
June 30, 1999 (the "Lease Agreement") between Lessee and Lessor. Unless
otherwise indicated, all terms defined in the Participation Agreement have the
same respective meanings when used herein.
2. [Insert one of the following as appropriate]
[Pursuant to Subparagraph 2.03(a) of the Lease Agreement, Lessee
hereby irrevocably selects a new Rental Period for a Portion of the Outstanding
Lease Amount as follows:
(a) The Portion for which a new Rental Period is to be selected is
the Portion in the amount of $__________ with a current Rental Period
which began on ________, ____ and ends on __________, ____; and
(b) The next Rental Period for such Portion shall be __________
month[s].]
[Pursuant to Subparagraph 2.03(a) of the Lease Agreement, Lessee
hereby irrevocably elects to divide a Portion of the Outstanding Lease Amount
into further Portions as follows:
(a) The Portion which is to be divided is the Portion in the amount
of $__________ with a current Rental Period which began on ________, ____
and ends on __________, ____; and
B-1
<PAGE> 42
(b) On the last day of the current Rental Period for such Portion,
such Portion is to be divided into the following Portions with the
following initial Rental Periods:
Portion Rental Period
------------ -----------------
$ month[s]
----------- -------
$ month[s]
----------- -------
$ month[s]
----------- -------
$ month[s]]
----------- -------
[Pursuant to Subparagraph 2.03(a) of the Lease Agreement, Lessee
hereby irrevocably elects to combine into a single Portion certain Portions of
the Outstanding Lease Amount as follows:
(a) The Portions which are to be combined are the Portions in the
amounts of $__________, $_________ and $_______, each with a current
Rental Period which ends on __________, ____; and
(b) The initial Rental Period for such newly created Portion shall
be __________ month[s].]
3. Lessee hereby certifies to the Lessor Parties that, on the date of this
Notice of Rental Period Selection and after giving effect to the selection[s] as
described above:
(a) The representations and warranties of Lessee set forth in
Paragraph 4.01 of the Participation Agreement and in the other Operative
Documents are true and correct in all material respects as if made on such
date (except for representations and warranties expressly made as of a
specified date, which shall be true as of such date);
(b) No Default has occurred and is continuing; and
(c) All of the Operative Documents are in full force and effect on
such date.
IN WITNESS WHEREOF, Lessee has executed this Notice of Rental Period
Selection on the date set forth above.
SILICON VALLEY GROUP, INC.
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
B-2
<PAGE> 43
Recording requested by and EXECUTION VERSION
when recorded return to:
Dolph M. Hellman, Esq.
Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEASE AGREEMENT,
DEED OF TRUST WITH ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
BETWEEN
SILICON VALLEY GROUP, INC.
AND
SELCO SERVICE CORPORATION
JUNE 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS LEASE IS NOT INTENDED TO CONSTITUTE
A TRUE LEASE FOR INCOME TAX PURPOSES
(SEE PARAGRAPH 2.06)
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. INTERPRETATION.............................................................................1
1.01. Definitions................................................................................1
1.02. Rules of Interpretation....................................................................2
SECTION 2. BASIC PROVISIONS...........................................................................2
2.01. Lease of the Property......................................................................2
2.02. Term.......................................................................................2
2.03. Rent.......................................................................................3
2.04. Use........................................................................................4
2.05. "As Is" Lease..............................................................................4
2.06. Nature of Transaction......................................................................5
2.07. Security, Etc..............................................................................5
SECTION 3. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.............................................7
3.01. Maintenance, Repair, Etc...................................................................7
3.02. Risk of Loss...............................................................................8
3.03. Insurance..................................................................................8
3.04. Casualty and Condemnation.................................................................11
3.05. Taxes.....................................................................................15
3.06. Environmental Matters.....................................................................15
3.07. Liens, Easements, Etc.....................................................................17
3.08. Subletting................................................................................18
3.09. Utility Charges...........................................................................18
3.10. Removal of Property.......................................................................18
3.11. Compliance with Governmental Rules and Insurance Requirements.............................19
3.12. Permitted Contests........................................................................19
3.13. Lessor Obligations; Right to Perform Lessee Obligations...................................20
3.14. Inspection Rights.........................................................................20
3.15. Cooperation of Lessor to Facilitate Operation, Etc........................................20
3.16. Survey and Title Matters..................................................................21
SECTION 4. EXPIRATION DATE...........................................................................22
4.01. Termination by Lessee Prior to Scheduled Expiration Date..................................22
</TABLE>
- i -
<PAGE> 45
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4.02. Return of Property........................................................................22
4.03. Holding Over..............................................................................23
SECTION 5. DEFAULT...................................................................................23
5.01. Events of Default.........................................................................23
5.02. General Remedies..........................................................................26
5.03. Lease Remedies............................................................................27
5.04. Loan Remedies.............................................................................28
5.05. Remedies Cumulative.......................................................................31
5.06. No Cure or Waiver.........................................................................31
5.07. Exercise of Rights and Remedies...........................................................31
SECTION 6. MISCELLANEOUS.............................................................................31
6.01. Notices...................................................................................31
6.02. Waivers; Amendments.......................................................................31
6.03. Successors and Assigns....................................................................31
6.04. No Third Party Rights.....................................................................32
6.05. Partial Invalidity........................................................................32
6.06. Governing Law.............................................................................32
6.07. Counterparts..............................................................................32
6.08. Nature of Lessee's Obligations............................................................32
SCHEDULE
3.03 Insurance Requirements
EXHIBITS
A Land (2.01(a))
B Related Goods (2.01(d))
C Notice of Rental Period Selection (2.03(a))
</TABLE>
- ii -
<PAGE> 1
EXHIBIT 10.57
(Translation)
Loan Agreement Deed
Dated: February 9, 1996
To: The Bank of Yokohama, Ltd.
Borrower: Watkins-Johnson International Japan K.K.
D-842, 2-1, Sakado 3-chrome
Takatsu-ku, Kawasaki
(stamp signature and seal)
Stephen E. Chelberg
Representative Director
Article 1.
The borrower hereby agrees to perform in accordance with the terms and
conditions set forth in the Agreement of Bank Transactions separately executed
and delivered to the Bank of Yokohama, Ltd. (hereinafter referred to as the
"Bank"). The borrower hereby confirms that, in accordance with the Summary of
Loans hereinafter provided, the Bank has lent the Borrower the funds described
below, and the Borrower has received such funds.
Article 2.
(1) With regard to any and all obligations which the Borrower may owe to the
Bank under this Agreement, the Guarantor shall be jointly and severally
liable with the Borrower for the performance of such obligations, and the
Guarantor hereby agrees to abide by the terms and conditions of this
Agreement in addition to those of the
<PAGE> 2
Agreement of Bank Transactions separately executed and delivered to the
Bank by the Borrower with regard to the performance of any and all such
obligations.
(2) Even if the Bank, at its discretion, modifies or releases either the
security or other guarantees it has received, the Guarantor shall not
claim exemption from any of its obligations.
(3) The Guarantor shall not set off its obligations by using either the
Borrower's deposits and/or other credits against the Bank.
(4) If and when the Guarantor performs any of its obligations under the
Guarantee, the Guarantor shall then not exercise any rights obtained from
the Bank by subrogation without the prior approval of the Bank as long as
transactions between the Borrower and the Bank continue. Upon the Bank's
demand, the Guarantor shall assign such rights and priority to the Bank
without compensation.
(5) If the Guarantor has already executed and delivered other guarantees for
the Borrower's transactions with the Bank, such other guarantees shall in
no way be modified by this Guarantee.
<TABLE>
<CAPTION>
SUMMARY OF LOANS
<S> <C>
Amount One Billion Yen (Y1,000,000,000)
Maturity Date January 20, 2011
Purpose of Borrowing Plant and equipment fund (for land purchases)
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Interest Rate Fixed rate of two point five percent (2.5%) per annum.
Repayment The Borrower shall repay the Loan in installments, and each
of the installments other than the final installment shall
be of an amount equal to Five Million Nine Hundred Twenty
Thousand Yen (Y5,920,000), which are scheduled to be paid on
the twentieth (20th) day of each month commencing on January
20, 1997, and the final installment, of an amount equal to
Five Million Four Hundred Forty Thousand Yen (Y5,440,000),
shall be payable on the Maturity Date.
Payment of Interest The first payment of interest, which shall consist of the
amount accrued between the date of this Agreement and
March 20, 1997, shall be made upon March 20, 1997.
Thereafter, payment of interest accrued between each
payment date shall be made on the twentieth (20th) day of
</TABLE>
<PAGE> 4
each month in arrears. Interest shall be computed per diem
on the basis of 365-days per year.
If any payment of the principal of, or interest on, the Loan falls due on a
non-business day of the Bank, such payment shall be made on the next succeeding
business day.
<PAGE> 5
AGREEMENT OF GUARANTEE
To: The Bank of Yokohama, Ltd.
In regard to any and all obligations of Watkins-Johnson International
Japan, K.K. (hereinafter referred to as "the Principle") may owe the Bank of
Yokohama Ltd. (hereinafter referred to as "your Bank") as a result of the Loan
of which amount is 1,000,000,000 yen made on the 9th day of February 1996:
Silicon valley Group, Inc. (hereinafter referred to as "the Guarantor") does
hereby agree to the terms and conditions set forth in Agreement of Bank
Transactions and the Agreement of the Loans on Deed separately executed and
delivered to your Bank by the Principle, shall be jointly and severally liable
with the Principle, and shall not cause any trouble or inconvenience to your
Bank.
The Guarantee Period shall commence on the date hereof and continue in
force until the expiration of the above mentioned agreements between the Bank
and the Principle.
Dated this 6th day of July, Nineteen Hundred and Ninety Nine.
Revenue Stamp
BY: SILICON VALLEY GROUP, INC.
Signature: /s/ RUSSELL G. WEINSTOCK Signature: /s/ BORIS LIPKIN
------------------------ -----------------------
Name: Russell G. Weinstock Name: Boris Lipkin
----------------------------- ----------------------------
Title: VP of Finance & CFO Title: CORPORATE V.P.
----------------------------- ----------------------------
(All questions that may arise within or without courts of law in regard to the
meaning of the words, provisions and stipulations of this Agreement shall be
decided in accordance with the Japanese text)
<PAGE> 1
EXHIBIT 10.58
(Translation)
Loan Agreement Deed
This document certifies that the Japan Development Bank (hereinafter
referred to as the "Bank") has loaned the funds set forth in the following
summary of loans (hereinafter referred to as the "Summary") to Watkins-Johnson
International Japan K.K. (hereinafter referred to as the "Borrower"), and that
the Borrower has acknowledged both the Summary and the terms and conditions set
forth in the Annex (hereinafter referred to as the "Conditions"), and that the
Borrower has received such funds.
The execution, validity, interpretation and performance of this Agreement
shall be governed by the laws of Japan.
IN WITNESS WHEREOF, the parties hereto have executed one original of this
Agreement in Japanese, and the Bank shall keep the original and the Borrower
shall keep a copy thereof respectively.
Dated: June 12, 1996
A: The Japan Development Bank
9-1, Otemachi 1-chrome
Chiyoda-ku, Tokyo
(stamp signature and seal)
--------------------------
Yoshihiko Yoshino
Governor
B: Watkins-Johnson International
Japan K.K.
D-842, 2-1, Sakado 3-chrome
Takatsu-ku, Kawasaki, Kanagawa
(stamp signature and seal)
--------------------------
Stephen E. Chelberg
Representative Director
<PAGE> 2
Summary of Loans
Principal: One Billion Three Hundred Fifty Million Yen
(Y1,350,000,000)
Name of and expenses for the project for which the loan is required (hereinafter
referred to as the "Project"):
Construction of Technology Center for Semiconductor-Manufacturing Equipment
Two Billion Seven Hundred Million Yen (Y2,700,000,000)
Repayment of the principal:
The full repayment shall be made on the 28th day of November, 2006.
Interest rate:
Three point one percent (3.1%) per annum (subject to per diem calculation
on the basis of 365 days per year).
Method of payment of interest:
The first payment shall be made on the 28th day of November, 1996, and
thereafter payment shall be made on the 28th day of May and November of each
year. Interest accrued between each payment date shall be paid at the end of
the accrual period.
<PAGE> 3
ANNEX
Terms and Conditions
(Purpose of the Borrowed Funds)
Article 1.
The Borrower shall perform the Project in accordance with the Project plan
as it exists as of the date of this Agreement and shall use the borrowed money
under this Agreement only for such Project.
(Installment Schedule for Payment of the Borrowed Funds)
Article 2.
The Borrower shall initially keep the borrowed funds under this Agreement
on deposit with the Bank and the Bank shall deliver such deposited funds
(hereinafter referred to as the "Deposited Funds") to the Borrower in
installments based upon the progress of the Project, the payment of expenses for
the Project and related matter.
2. When the Borrower withdraws the Deposited Funds from the Bank, the
Borrower shall, in advance, notify the Bank of such payment of expenses for the
Project and other related matters in a form prescribed by the Bank and shall
obtain the Bank's consent to such withdrawal.
3. The Bank shall pay no interest on the Deposited Funds to the Borrower,
and the Borrower shall pay no interest on the borrowed money up to the amount
of the Deposited Funds in the Bank.
4. The Borrower shall not assign or create a pledge on
<PAGE> 4
the right to deliver the Deposited Funds to a third party.
(Delivery of the Deposited Funds by Bank Transfer)
Article 3.
If the Bank delivers the Deposited Funds under this Agreement by
transfer to the Borrower's bank account, then the delivery of the Deposited
Funds to the Borrower shall be deemed to be fulfilled upon completion of the
Bank's procedure requesting the transfer of the Deposited Funds to the
Borrower's bank account. Even if the Borrower thereafter suffers a loss for
reasons including but not limited to accidents or procedural delays which occur
after completion of the Bank's procedure and for which the Bank is not
responsible, the Borrower shall not then demand compensation from or make other
claims on the Bank.
(Repayment of the Obligations by Bank Transfer)
Article 4.
If the Borrower repays its obligations by transfer to the Bank's account
with checks, notes or other securities (hereinafter collectively referred to as
"Securities"), the Borrower shall then ensure that the Securities are paid in
full by the due dates of the Borrower's obligations.
(Repayment of the Obligations by Delivering Securities)
Article 5.
If the Borrower repays its obligations by delivering the Securities to
the Bank, such Securities shall be negotiable
<PAGE> 5
for settlement through the clearing house consented to by the Bank and the
Borrower shall ensure that the Securities are paid in full by the due dates of
the Borrower's obligations.
2. If any of the Securities in the preceding paragraph is dishonored and
returned to the Borrower by the Bank, then the Borrower agrees that the Bank is
not responsible for taking any steps to preserve any rights relating to such
Securities.
(Prepayment)
Article 6.
If the expenses for the Project decrease to less than those set forth in
the Summary (hereinafter referred to as the "Summary Amount") because of a
change in the Project plan or other reasons, and the Bank so requests, the
Borrower shall then, notwithstanding the maturity date of the loan set forth in
the Summary, prepay the borrowed money under this Agreement in proportion equal
to the percentage of the reduction of the Summary Amount.
2. If the Bank finds that the fulfillment of the Project's aim is rendered
impracticable because the decreased amount referred to in the preceding
paragraph amounts to a substantial percentage of the Summary Amount, and the
Bank so requests, the Borrower shall then prepay the borrowed money received
under this Agreement in full.
3. If (i) the Borrower does not perform the Project without a justifiable
reason, despite the Bank's instructions, even after a reasonable period which
the Bank has deemed
<PAGE> 6
necessary for performance of the Project, or (ii) if the Borrower does not apply
the money delivered under paragraph 1 of Article 2 to satisfy the payments due
for the expenses of the Project, or (iii) if the Bank finds that the purpose of
the Project will not be completed on the ground that the Borrower has assigned
or leased an object which the Borrower obtained as a result of the Project to a
third party immediately after the Borrower obtained it or for other reasons and
the Bank so requests, the Borrower shall then, notwithstanding the maturity date
set forth in the Summary, prepay the borrowed money received under this
Agreement to the Bank either in whole or in part.
4. The Borrower may prepay the borrowed money under this Agreement in
whole or in part with the Bank's prior consent.
5. In addition to the preceding paragraph, the Borrower may prepay the
borrowed money under this Agreement in whole or in part by giving the Bank
written notice of prepayment at least ninety (90) days prior to the date of
prepayment.
6. In case the preceding paragraph applies, the Borrower may not cancel
the prepayment without the Bank's consent after the Bank's receipt of such
prepayment notice.
Article 7.
When the Borrower prepays the borrowed money, the Borrower shall pay the
amounts sets forth in each of the following upon such prepayment:
(1) Interest on the prepaid amount accrued up until the
<PAGE> 7
date of such prepayment.
(2) In case of the prepayment arising under paragraph 5 of the preceding
Article, if the interest rate under this Agreement (hereinafter referred to as
the "Agreed Interest Rate") exceeds the Bank's standard interest rate as of the
date of such prepayment (hereinafter referred to as the "Standard Interest
Rate"), in addition to the preceding item, the difference between (i) the amount
equal to interest which is calculated on the basis of the Agreed Interest Rate
on the prepaid amount for the period during the date of such prepayment and the
maturity date set forth in the Summary and (ii) the amount equal to interest
which is calculated on the basis of the Standard Interest Rate for the same
period (with the method of such calculation to be determined by the Bank).
Article 8.
The Bank may set off the Deposited Funds against any funds, including
interest thereon and any other obligation pertaining to such funds, which the
Borrower should prepay.
(Appropriation of Repayment)
Article 9.
(i) If the Borrower prepays the borrowed money under this Agreement to the
Bank in part, or (ii) if the Bank sets off the Deposited Funds against the
funds which the Borrower should prepay under this Agreement, or (iii) if the
amount of the repayment of obligations under this Agreement or under other loan
agreements between the Bank and the Borrower is
<PAGE> 8
less than the amount which the Borrower should repay under such agreements,
then the Bank may appropriate the amount due in such manner as decided upon by
the Bank.
(Inspection of Books, Etc.)
Article 10.
The Bank may at any time inspect the status of the Project as well as the
Borrower's assets, documents, books and other materials as the Bank deems
necessary based on reasonable grounds, such as to confirm the use of the loaned
funds under this Agreement or for the preservation of the Bank's rights.
2. The Borrower shall offer assistance as needed to the Bank for the
inspection set forth in the preceding paragraph.
(Matters to be Filed)
Article 11.
If the Borrower changes its name, corporate name, address, representative,
filed seal or other matters filed with the Bank, the Borrower shall then notify
the Bank thereof in writing forthwith.
(Matters to be Reported)
Article 12.
The Borrower shall report to the Bank, in accordance with the method as
instructed by the Bank, the matters mentioned in (1) and (2) below upon the
Bank's request and the matter mentioned in (3) below without delay upon the
occurrence of
<PAGE> 9
such event.
(1) Progress status of the Project and payment status of the expenses
of the Project.
(2) Each settlement of account (including mid-year settlements if the
company/companies which choose(s) yearly settlement make(s) such a mid-year
settlement) and decisions as to dividends (including interim dividends) of the
Borrower and Watkins Johnson Company (hereinafter referred to as the
"Guarantor").
(3) Other important events concerning management, finance or business.
(Acceleration of Payment)
Article 13.
If any one of the following events should occur and be continuing, and the
Bank so requests, the Borrower's obligations to the Bank shall then immediately
become due and payable and the Borrower shall forthwith pay the entire amount of
its obligations under this Agreement.
(1) When the Borrower does not perform the Project and uses the borrowed
money under this Agreement for a purpose other than that of the Project;
(2) When the Borrower fails to perform any of its obligations under
Articles 11 or 12 and continues not to perform such obligations despite the
Bank's request, or when the Borrower makes a false statement or report
thereunder;
(3) When the Borrower fails to pay any part of the principal or interest
under this Agreement;
<PAGE> 10
(4) When the Borrower fails to perform any of its obligations under this
Agreement other than those set forth in each of the preceding items, or fails
to perform any of its obligations to the Bank under any other agreements;
(5) When the Borrower dishonors any note or check;
(6) When an order or notice of provisional attachment, preservative
attachment or attachment with respect to the Deposited Funds is issued or given
to the Borrower;
(7) When attachment with respect to assets which the Borrower furnishes or
agrees to furnish to the Bank as security is made;
(8) When the Borrower or the Guarantor stops payment or an application is
filed by or against the Borrower or the Guarantor for bankruptcy, composition,
corporate reorganization or corporate arrangement;
(9) When the Borrower or the Guarantor is dissolved or its business is
closed;
(10) When any event reasonably requiring the preservation of the Bank's
rights other than those set forth in each of the preceding items occurs to the
Borrower;
(11) When the Guarantor fails to perform any of its obligations under the
guaranty agreement with the Bank dated June 12, 1996 (hereinafter referred to
as the "Guaranty Agreement" in this Article) and, if the Bank reasonably
determines that such failure can be cured, such failure to perform such
obligation continues unremedied for a period of thirty (30) days; or
(12) When any event of default occurs under or in
<PAGE> 11
connection with any obligation of the Guarantor to the Bank other than those
incurred under the Guaranty Agreement.
(Security)
ARTICLE 14.
The Borrower shall, upon a request by the Bank based on reasonable and
probable cause to preserve the Bank's rights under this Agreement, furnish the
Bank with security or additional security as may be approved by the Bank,
whether or not there is any security or a guarantor under this Agreement or any
other agreements.
(Execution of Notarial Deed)
ARTICLE 15.
The Borrower shall, at any time upon the Bank's request (with the
Guarantor, if the Bank so instructs), commission a notary public in Japan and
take all necessary actions to execute a notarial deed containing an
acknowledgement of the obligations under this Agreement and a statement of
acceptance of enforcement thereof.
(Burden of Expenses)
ARTICLE 16.
The Borrower shall bear any expenses for preparation of this Agreement,
registration, and all other expenses in connection with the performance of this
Agreement.
<PAGE> 12
(Post Default Interest)
ARTICLE 17.
The Borrower shall pay post default interest equivalent to 14.5% per annum
(subject to per diem calculation on the basis of 365 days per year) on the
principal, interest and any other amounts payable in the event of default of
any payment obligation, or on advance money the Bank paid for the expenses under
the preceding Article.
(Court Jurisdiction)
ARTICLE 18.
In the event of any litigation or controversies in connection with this
Agreement, the Borrower hereby submits and consents to the non-exclusive
jurisdiction of the Tokyo District Court.
<PAGE> 13
GUARANTY AGREEMENT
July 6, 1999
To: Mr. Masami Kogayu, Governor
The Japan Development Bank
The undersigned (hereinafter referred to as the "Guarantor"), after having
accepted the following terms and conditions, hereby guarantees all the
obligations of Watkins-Johnson International Japan K.K. (hereinafter referred
to as the "Debtor") to the Japan Development Bank (hereinafter referred to as
the "Bank") arising out of those certain agreements made by and between the
Bank and the Debtor dated June 12, 1996 and December 26, 1997 (hereinafter
referred to as the "Original Agreements"), certain basic provisions of which
are more fully described in Attachment A.
ARTICLE 1.
The Guarantor hereby confirms the obligations of the Debtor under the
Original Agreements, and agrees to each article and paragraph of the Original
Agreements.
ARTICLE 2.
1. The Guarantor, as primary obligor and not as surety only, shall be
jointly and severally responsible with the Debtor (this Guaranty being
Rentalhosho under the laws of Japan) for the full and prompt payment to the
Bank of the entire amount of the Debtor's obligations under, and in accordance
with the terms of, the Original Agreements. Even if any change or amendment is
made to either of the Original Agreements, the Guarantor shall perform its
guaranty obligations in accordance with the Debtor's obligations as changed
thereby.
2. The Guarantor shall not claim any exemption from its obligations
hereunder even if there occurs any increase, decrease, replacement, release of,
or any other change with respect to the security or the guaranty described in
the Original Agreements.
ARTICLE 3.
In the event the Guarantor performs its guaranty obligations, any rights
it acquires from the Bank by virtue of subrogation shall not be exercised
without the Bank's consent until the Debtor has paid in full all of its
obligations to the Bank under the Original Agreements, as it may be amended
from time to time. Further, upon the Bank's request, such rights or ranking
thereof shall be assigned to the Bank free of charge and all the procedures
required therefor shall be taken.
<PAGE> 14
Article 4.
On or prior to the date of the execution of this Guaranty Agreement, the
Bank shall have confirmed that the Guarantor is able to provide the documents
listed in Attachment B and has executed those documents to which it is a party;
and all such documents shall be dated the date of the execution of this
Guaranty Agreement and shall otherwise be in form and substance satisfactory to
the Bank. In any event, the Bank shall have received the originals of such
documents at its Tokyo head office by a date to be designated by the Bank.
Article 5.
If any change occurs in the name, the authorized signatories (including
the specimen signature(s) thereof), the address, or any other reported matters
of the Guarantor, notification thereof shall immediately be given to the Bank
in writing, and such change shall become effective upon receipt thereof by the
Bank.
Article 6.
All expenses incurred in the preparation of this Guaranty Agreement and
all other expenses otherwise incurred in connection with this Guaranty
Agreement shall be borne by the Guarantor.
Article 7.
1. This Guaranty Agreement shall be deemed to be a contractual
obligation under, and shall be governed by and construed and interpreted in
accordance with, the laws of Japan.
2. In the event of any litigation pertaining to this Guaranty Agreement,
the Guarantor hereby submits and consents to the non-exclusive jurisdiction of
the Tokyo District Court. The Guarantor hereby irrevocably appoints
Watkins-Johnson International Japan K.K., 12-7-2, Kuriki, Asao-ku,
Kawasaki-shi, Japan as its agent to receive service of process in Japan in
connection with any suit, action or proceeding relating to this Guaranty
Agreement. In the event that agent ceases to be able to act as agent of the
Guarantor hereunder or ceases to have an office in Tokyo, Japan and the
Guarantor fails to appoint a successor agent acceptable to the Bank, the
Guarantor agrees that the Bank shall automatically serve as its agent to
receive service of process in Japan.
Article 8.
The Guarantor agrees that this Guaranty Agreement shall be binding upon it
and its successors and assigns and may not be assigned without the prior
written consent of the Bank.
Article 9.
This Guaranty Agreement shall be prepared in English.
-2-
<PAGE> 15
SILICON VALLEY GROUP, INC.
By: /s/ RUSSELL G. WEINSTOCK
-----------------------------------
Name: Russell G. Weinstock
--------------------------------
Title: V.P. of Finance & CFO
-------------------------------
Address: 101 Metro Drive, Suite 400
-----------------------------
San Jose, CA 95110
-----------------------------
-3-
<PAGE> 16
ATTACHMENT A
DESCRIPTION OF THE ORIGINAL AGREEMENTS AND
SUMMARY OF BORROWING CONDITIONS
The Original Agreement dated June 12, 1996
Parties: The Japan Development Bank and Watkins-Johnson International
Japan K.K.
Summary of the Borrowing Conditions thereof
1) Principal: Yen 1,350,000,000
2) Project for which the loan is required: Construction of Technology Center
for Semiconductor Manufacturing Equipment
3) Repayment schedule of principal:
The repayment shall be made in full on the 28th day of November 2006
4) Interest rate:
3.1% per annum (subject to per diem calculation on the basis of 365 days a
year.)
5) Method of payment of interest:
The first payment shall be made on the 28th day of November 1996 and
thereafter payment shall be made on the 28th day of May and November of
every year. Interest accrued between each payment day shall be paid at the
end of the accrual period.
<PAGE> 17
ATTACHMENT B
Documents Required Under Article 4.
1. Copies, certified by a duly authorized officer of the Guarantor, of the
Guarantor's articles of incorporation and by-laws.
2. Copies, certified by a duly authorized officer of the Guarantor, of a
resolution of the board of directors of the Guarantor approving and
authorizing the execution, delivery, and performance of the Guaranty
Agreement by the Guarantor and authorizing specified officer(s) and/or other
representative(s) of the Guarantor to execute and deliver the Guaranty
Agreement on behalf of the Guarantor.
3. A certificate signed by a duly authorized officer of the Guarantor as to the
incumbency of those officers or other representatives of the Guarantor
authorized to sign the Guaranty Agreement and certifying the specimen
signatures of such persons.
<PAGE> 18
June 25, 1999
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Silicon Valley Group, Inc.
101 Metro Drive, Suite 400
San Jose, California 95110
Ladies and Gentlemen:
This letter is in reference to the letter (the "Letter") dated June 25, 1999
from Silicon Valley Group, Inc. ("SVG") and Watkins-Johnson Company ("WJ
Company").
We understand that the cancellation of the guaranty agreements with WJ Company
listed in the Letter (the "Old Guaranty Agreement") and the release of all WJ
Company's obligations thereunder are conditions precedent to the closing (the
"Closing") of the Acquisition set forth in the Letter. We hereby confirm and
agree that the guaranty agreement between THE JAPAN DEVELOPMENT BANK ("JDB") and
SVG (the "New Guaranty Agreement"), which has been executed by JDB and SVG, will
come into effect upon the completion of the Closing and, if the Closing fails to
occur on or prior to July 15, 1999 (the "Termination Date"), will be
automatically cancelled and will then never come into effect.
Based upon the foregoing understanding, JDB hereby irrevocably agrees to issue
and deliver the release letter in the same form as attached hereto to WJ Company
immediately following the completion of the Closing. JDB's agreement to issue
and deliver the release letter will become null and void if the Closing fails to
occur on or prior to the Termination Date.
THE JAPAN DEVELOPMENT BANK
By /s/ YASUGHI NISHIMURA
-----------------------
Name: Yasughi Nishimura
-----------------------
Title: Director of the Japan Development Bank
---------------------------------------------
<PAGE> 19
Acknowledged and agreed:
Watkins-Johnson Company
By /s/ W. KEITH KENNEDY JR
-----------------------
Name: W. Keith Kennedy Jr.
--------------------
Title: President
--------------------
Date:
--------------------
Silicon Valley Group, Inc.
By
---------------------------
Name:
----------------------
Title:
----------------------
Date:
----------------------
<PAGE> 20
Acknowledged and agreed:
Watkins-Johnson Company
By
---------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
---------------------------
Silicon Valley Group, Inc.
By /s/ RUSSELL G. WEINSTOCK
---------------------------------
Name: Russell G. Weinstock
----------------------------
Title: VP of Finance & CFO
---------------------------
Date: 7/1/99
---------------------------
<PAGE> 1
EXHIBIT 10.59
SVG
August 31, 1999
STRICTLY CONFIDENTIAL
Mr. Jeffrey M. Kowalski
20 Barneburg
Dove Canyon, CA 92679
Dear Jeff:
I am very pleased that you, as President, will be taking on the challenge of
managing the newly integrated Thermal Systems, LLC at Scotts Valley, CA. Your
current remuneration and perquisites will continue.
Based on the current business plan, the Orange, CA facility expects closure by
the end of March, 2000. Between now and March, 2000, SVG will reimburse you for
temporary living and reasonable meal expenses while you are at the Scotts Valley
location and your family is resident in Orange.
In consideration for relocating your family from Dove Canyon, CA to the Scotts
Valley, CA area, SVG agrees to provide you with Category III of SVG's Relocation
Guideline (attached). This relocation assistance is in effect April 1, 2000 and
good for a 6 month period. In addition, to assist you with the purchase of a new
residence, SVG agrees to provide you with a loan in the amount of $250,000,
forgivable monthly over a sixty (60) month period provided you are in good
standing with the company. In the event that you voluntarily leave the employ of
the company within this 60 month period, you will be required to pay back on a
pro-rata basis, any remaining balance, plus interest at the federal applicable
rate for August, 1999 of 7.2%.
So that you will be tax neutral, any taxable reimbursed expenses associated with
your relocation will be grossed-up. Since the federal and California tax laws
may differ on the treatment of certain reimbursements, I strongly recommend you
consult your tax advisor.
Jeff, I look forward to your contributions in this new opportunity and have
confidence that it will be a successful journey. Please sign this letter where
indicated to confirm your understanding of the above terms.
Sincerely,
- ------------------------------ -------------------------------
Papken S. Der Torossian Jeffrey M. Kowalski
Chairman and President, Thermal Systems LLC
Chief Executive Officer
<PAGE> 1
EXHIBIT 21.1
(i) SVG Lithography Systems, Inc., a Delaware corporation (SVGL),
(ii) Tinsley Laboratories, Inc., a California corporation ("TLI"),
(iii) Silicon Valley Group, Japan Ltd., a Japanese corporation,
(iv) SVG International Service, a California corporation ("SVG
International"),
(v) Silicon Valley Group FSC Incorporated, a Barbados corporation,
(vi) SVG Israel, Inc., a Delaware corporation,
(vii) SVG Thailand, Inc., a Delaware corporation,
(viii) Silicon Valley Group Korea, Inc., (SVG Korea) a Korean corporation,
(ix) SVG Taiwan, Inc., a Delaware corporation,
(x) Silicon Valley Group, Thermal Systems LLC, a Delaware company and
(xi) Watkins-Johnson International Taiwan, a Taiwan corporation.
SVG Lithography Japan Co., Ltd., a Japanese corporation, Silicon Valley
Group B.V., a Netherlands corporation, SVG France S.A.R.L., a French
corporation, and SVG Lithography Systems FSC, Inc., a Barbados
corporation are wholly-owned by SVGL.
Century Precision Industries, Inc., a California corporation and Tinsley
International FSC, a Barbados corporation are wholly-owned by TLI.
SVG Europe Limited, a United Kingdom corporation (SVG Europe), Silicon
Valley Group Deutschland GmbH, a German corporation, SVG Systems (Asia)
Pte. Ltd (SVG Singapore), a Singapore corporation and Thermco Systems
(Far East) Limited, a Hong Kong corporation are wholly-owned by SVG
International.
UK Systems Limited, an English corporation, and Watkins-Johnson Europe
Limited, an English corporation are wholly-owned by SVG Europe.
Watkins-Johnson International Singapore Pte. Ltd., is wholly owned by SVG
Singapore.
Watkins-Johnson International Korea, Ltd., is wholly owned by SVG Korea.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
Nos. 33-31298, 33-85020, 333-39499 and 333-80079 of Silicon Valley Group, Inc.
on Forms S-8 of our report dated October 25, 1999 appearing in this Annual
Report on Form 10-K of Silicon Valley Group, Inc. for the year ended September
30, 1999.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------
Deloitte & Touche LLP
San Jose, California
December 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR FISCAL 1999 AS FILED IN THE COMPANY'S FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 98,278
<SECURITIES> 43,968
<RECEIVABLES> 159,019
<ALLOWANCES> 5,038
<INVENTORY> 200,769
<CURRENT-ASSETS> 544,811
<PP&E> 371,105
<DEPRECIATION> 172,702
<TOTAL-ASSETS> 754,773
<CURRENT-LIABILITIES> 162,656
<BONDS> 0
0
14,976
<COMMON> 410,068
<OTHER-SE> 132,493
<TOTAL-LIABILITY-AND-EQUITY> 754,773
<SALES> 473,690
<TOTAL-REVENUES> 473,690
<CGS> 312,319
<TOTAL-COSTS> 312,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,305
<INCOME-PRETAX> (37,436)
<INCOME-TAX> (11,980)
<INCOME-CONTINUING> (25,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,456)
<EPS-BASIC> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
