1995
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Mark one
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended OCTOBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
OPTICAL COATING LABORATORY, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 0-2537
DELAWARE 68-0164244
(State or other jurisdiction of (IRS Identification No.)
incorporation or organization)
2789 NORTHPOINT PARKWAY, SANTA ROSA CALIFORNIA 95407-7397
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (707) 545-6440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value NASDAQ
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. [X] Yes [ ] 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. [X]
At December 31, 1995, the aggregate market value of the registrant's common
stock (based upon the closing price of these shares on the NASDAQ National
Market System) held by non-affiliates, which excludes shares held by
officers and directors and the Employee Stock Ownership Plan of the
registrant (not all of whom claim to be affiliates), was approximately
$85.5 million.
At December 31, 1995, there were 9,519,977 shares of the registrant's
common stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Optical Coating Laboratory, Inc.'s Annual Report to
Stockholders for the year ended October 31, 1995 are incorporated by
reference into Parts I, II and IV of this Form 10-K.
Portions of the definitive Proxy Statement for the Company's Annual Meeting
of Stockholders to be held March 29, 1996 are incorporated by reference
into Part III of this Form 10-K.
The Exhibit index appears on Pages 14-16.
PART I
ITEM 1. BUSINESS
GENERAL
Optical Coating Laboratory, Inc. and its consolidated subsidiaries (the
"Company" or "OCLI") is the world's largest independent manufacturer of
optical thin film coated components. OCLI designs, develops and
manufactures multi-layer thin film coatings which control and enhance light
by altering the transmission, reflection and absorption of its various
wavelengths to achieve a desired effect such as anti-reflection, anti-
glare, electromagnetic shielding, electrical conductivity and abrasion
resistance. OCLI markets and distributes components to original equipment
manufacturers (OEM's) of optical and electro-optical systems, such as
personal computers, photocopiers, LCD desktop projectors, point-of-sale
scanners, medical instruments and satellites. OCLI sells its Glare/Guard
brand ergonomic computer display products through resellers and office
retailers.
OCLI was originally incorporated in Delaware in 1948. Subsequently, the
Company was reincorporated in California in 1963 and again reincorporated
in Delaware in 1987.
OCLI manufactures its products at Company-owned facilities in Santa Rosa,
California, Goslar, Germany and Hillend, Scotland. The Company has
developed many of its thin film coating processes and has designed and
fabricated most of the coating equipment used to manufacture its products.
The Company believes its ability to design and build this specialized
equipment has been an important factor in its ability to compete
successfully.
The Company maintains an extensive array of thin film coating equipment,
glass fabrication equipment, precision injection molding equipment and
support facilities to satisfy its customers' requirements for thin film
coated products, fabricated glass components and precision injection molded
plastic optics components.
Through its wholly-owned subsidiary in Goslar, Germany and its principal
manufacturing facility in Santa Rosa, California, the Company operates
fully integrated precision glass fabrication operations with capability for
sawing, machining, heat-treating, chemical-treating, silk screening and
etching glass products to customer specifications. Fabricated glass
product lines include mirrors, platens, filters, panels and an array of
optics and components made of glass. OCLI supplies fabricated glass
elements for use as components in copiers, cameras and other electro-
optical devices and instruments. OCLI also manufactures and markets
fabricated glass products.
The Company also operates a fully integrated coating facility with
additional optical fabrication capability at its wholly-owned subsidiary in
Hillend, Scotland. From this platform, OCLI markets a broad array of
coated products with applications in commercial, scientific and military
markets. OCLI's Hillend facility also performs research and development
under scientific and UK Ministry of Defense sponsorships.
With its recent acquisition of Netra Corporation, the Company now offers
its customers precision injection molded plastic optical components that
are used in a variety of applications such as inkjet printers, point-of-
sale scanners and sunglasses. Precision molded plastic optics allow for the
production of aspheric surfaces and have significant cost advantages over
similar products made with glass. Plastic optics also improve impact
resistance and offer a substantial weight advantage over glass components.
With the acquisition of an additional 20% interest in Flex Products, Inc.
(Flex Products or Flex) in May 1995, the Company now holds a controlling
60% interest in Flex Products. Flex Products is a manufacturer of thin
film coatings on plastic film produced by a proprietary vacuum deposition
technology on large-scale, high-speed roll coating equipment, which was
developed by OCLI in the 1980's. Flex's principal product, optically
variable pigment (OVP), was also invented by the Company and is used
primarily in currency printing as a security and anti-counterfeiting
measure. SICPA Holding S.A., a Swiss company that is OCLI's 40% partner in
Flex Products, is the largest manufacturer of printing inks in the world
and is currently Flex Products' largest customer. Flex Products also
manufactures and sells energy efficient window film used for residential,
commercial and automotive energy conservation; printing plates used in
offset color printing; photoreceptor ground planes used in copiers; and
pigment used in automotive paint.
TECHNOLOGY LICENSING
The Company selectively licenses its coating technology to other companies,
primarily for integrated mass production applications that the Company
would not otherwise be able to serve as a manufacturer in the ordinary
course of its business. During the past five years, these licenses,
together with sales of equipment built for licensees in support of the
licenses, have generated revenues to the Company totaling approximately $13
million.
MANUFACTURING
The Company's initial growth came from the development of high precision
coated products for use primarily in defense and aerospace applications and
in sophisticated analytical equipment. These types of coated products are
produced by relatively costly batch processes and continue to represent a
portion of the Company's revenues. From this base, the Company has
expanded into commercial markets by designing and fabricating continuous
coating equipment capable of producing a high volume of relatively less
complex products at lower unit costs. This large-scale equipment has
enabled the Company to serve broad commercial markets with many of its
products.
The Company has developed many of its thin film coating processes and has
designed, fabricated or significantly customized most of the coating
equipment used in production, including its continuous coaters, batch
coaters and high speed roll-to-roll coaters. The Company believes its
ability to design and build this specialized equipment, and its ability to
develop proprietary process technologies, has been an important factor in
enabling it to compete successfully. Consequently, the Company maintains an
extensive array of thin film coating equipment, glass fabrication equipment
and metrology equipment to meet customer requirements for coated products
and fabricated glass components.
The Company employs various coating processes which it has developed and
established over many years. It employs batch coating by evaporation as
its historic coating process and batch coating by reactive metal mode
sputtering as a proprietary, patented process. In its continuous in-line
coating systems, the Company similarly employs evaporation and sputtering
processes. The Company's Flex Products subsidiary also employs proprietary
evaporation processes and sputtering in its high speed roll-to-roll coating
systems. The Company and its subsidiary operations have extensive
auxiliary material preparation and glass fabrication equipment in place
which allow the Company to produce a broad array of coated glass and
plastic components and coated products for a wide variety of applications.
The Company has developed and procured extensive state-of-the-art metrology
and test equipment to allow testing and verification of technological and
performance characteristics of its products. This capability, including
the expertise of the Company's scientific and technical staff to develop
and design specific thin film coatings to meet a customer's application
requirements, is frequently an integral aspect sought by customers in
selecting the Company as a supplier.
The Company has established strong, long-term customer relationships and
serves a wide range of markets, including leading manufacturers of
computers, photographic equipment, copier products, medical
instrumentation, home entertainment products, and space and defense
systems. The Company's Flex Products subsidiary also has long-term
relationships with customers in its markets.
PRODUCTS AND MARKETS
COMPUTER DISPLAY-OEM
The Company is a leading supplier of anti-reflection coatings used on
computer terminals and other cathode ray tube (CRT) displays, flat panel
displays, LCD (liquid crystal display) displays and touch panel displays
(among other applications) to improve the readability of the information
displayed by reducing glare from reflected light while optimizing the
transmission of light from the display. The coatings are produced in
several configurations to meet varied customer requirements, including as
laminates with conductive qualities to reduce electromagnetic and
electrostatic discharge.
COMPUTER DISPLAY-AFTERMARKET
The Company produces ergonomic enhancement products which are sold in the
computer end-user market under its Glare/Guard brand and on a private label
basis. The filters provide viewing comfort and health and safety protection
for computer users by improving the visibility of the information displayed
on computer display monitors. Several models are also capable of minimizing
electrical and magnetic field radiation and static charge buildup of
display devices.
OFFICE AUTOMATION
The Company manufactures a complete line of high quality products for
office automation OEMs, including front surface mirrors for photocopiers,
document scanners, overhead projectors, facsimile machines, LCD desktop
projectors and laser beam printers; platen glass and photoreceptors for
photocopiers; hot and cold mirrors used in micrographic readers, overhead
projectors and LCD desktop projectors; color separation filters for desktop
document scanners; and precision molded plastic components used in inkjet
printers.
SECURITY PRODUCTS
Through Flex Products, OCLI manufactures and markets optically variable
pigment used in currency printing as an anti-counterfeiting measure. Flex
Products' largest customer for OVP, and OCLI's partner in Flex Products'
ownership, is SICPA Holding S.A., one of the leading manufacturers of
printing inks in the world. Currently, over 35 countries have adopted the
use of ink made with optically variable pigment in the printing of
currencies and other valued documents, including Albania, Argentina,
Belgium, Bermuda, Czech Republic, France, Germany, Italy, Kazakhstan,
Kenya, Lebanon, Luxembourg, Morocco, Nigeria, Philippines, Poland,
Singapore, Slovak Republic, Slovenia, Switzerland, Thailand, Tunisia,
Turkey, United Arab Emirates, United States and Zaire.
INSTRUMENTATION
The Company manufactures a wide array of filters, reflectors and optical
components for use in medical, biochemical, scientific and analytical
instruments, manufacturing process control instruments, barcode scanners,
point-of-sale scanners, focus devices in cameras and slide projectors,
instruments used to monitor blood glucose levels and instruments used to
measure color in paint pigment.
SPECIALTY MARKETS
The Company manufactures products for a variety of specialty applications
including front surface mirrors for projection television; dichroic filters
for specialty stage lighting; energy control window film for architectural
applications; optically variable pigment used in automotive paint;
precision molded plastic optics for sunglasses and anti-reflection linear
polarizers for viewcams.
DEFENSE AND AEROSPACE
The Company designs and manufactures many sophisticated, high precision
coated products and optical components to meet the specific performance
requirements of advanced scientific, space and defense systems. Examples
include coated infrared optics for use in all-weather missile guidance
systems, reconnaissance systems and satellites; coatings to protect
photovoltaic solar cells on satellites from overheating and from harmful
ultraviolet energy and micro meteorite damage; coated thermal control
mirrors to regulate spacecraft temperature in areas of sensitive
instrumentation; and coated laser optics for use in defense applications,
the development of alternative energy sources and commercial high energy
laser instrumentation.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by the Company in its coating operations are
various forms of glass, germanium, fused silica and several types of
plastic and inorganic coating materials, such as magnesium fluoride,
silicon dioxide, aluminum or germanium. The Company has more than one
supplier for each of its raw materials and maintains adequate inventories
and close working relationships with its suppliers to assure a continuous
and adequate supply for production. The Company purchases special grade
flat glass under long-term allocation arrangements from one major US glass
supplier and cannot routinely increase its supply of such special grade
flat glass. The Company has not experienced any significant interruptions
in production due to a shortage of raw material. Substrate materials are
purchased by the Company or supplied by customers, while coating materials
and their composition are generally supplied by the Company, as they are
often considered a proprietary element of the manufacturing process.
In the Company's Netra operation, the primary raw material used is high
quality granular polycarbonite plastic base stock which the Company
procures from one principal supplier. Although the Company has experienced
price increases for this raw material, and there is currently product
supply allocation, it has been able to maintain its supply because of the
long-term customer relationship with the supplier. The Flex Products
subsidiary uses significant quantities of plastic film and inorganic
coating materials in the manufacture of its products. There is more than
one supplier for both materials, and Flex Products has not experienced
production interruptions due to a shortage of raw materials.
RESEARCH AND DEVELOPMENT
The Company devotes substantial resources to research and development in
order to develop new and improve existing thin film products, processes and
manufacturing equipment. As a result, the Company has developed a
technological leadership position in the thin film coatings industry, and
customers rely on the Company's thin film consulting expertise as well as
its products.
The Company has focused considerable effort over the past several years to
the development of solid-state electrochromic devices using thin film
coating technologies. Electrochromic devices dim or brighten in response
to low level variations in electrical current over their surface, allowing
for regulated changes in reflection or transmission of light. The Company's
research and development efforts in electrochromic coatings envision a
number of product applications, including plano and prescription
electrochromic sunglasses, photographic applications, privacy screens,
energy conserving architectural glass forms and brightness or reflection
controls for display devices.
The Company's ongoing research and development commitments include
techniques to improve coating uniformity on plastic substrates for flat
panel display applications; automation of the Company's coating equipment
to improve product and increase equipment productivity; development of new
and improved product configurations for the Glare/Guard market; and
reduction and eventual elimination of coating and cleaning materials that
may be hazardous to the environment.
Flex Products' major research and development effort has been toward the
development and integration of state-of-the-art coating processes for use
in new coating machines which the subsidiary will install during the first
half of fiscal 1996.
Company funded research and development expenditures totaled $8.4 million,
$5.2 million and $5.9 million, or 5.0%, 4.0% and 4.8% of revenues during
fiscal years 1995, 1994 and 1993. In addition to the research and
development funded by the Company, many of the Company's customer contracts
involve state-of-the-art coating applications requiring substantial amounts
of development in support of specific customer applications.
MARKETING
The Company's products are sold by its sales organizations headquartered in
Santa Rosa, California and Reinheim, Germany, who communicate directly with
customers' engineering, manufacturing and purchasing personnel in
determining the design, performance and cost specifications for customer
product requirements. The Company has regional sales offices in several
major cities throughout the United States and in Germany, France, Italy,
Spain and the United Kingdom. In Japan and other Asian countries, the
Company uses independent distributors and sales representatives, supported
by Company sales staff members, for product marketing and sales.
With the exception of its Glare/Guard(R) product line, the Company markets
most of its standard, high volume coated products and fabricated glass
components to original equipment manufacturers (OEMs). Its customized,
technically sophisticated products are also marketed to OEMs in addition to
defense and aerospace contractors. The Company exports some of its products
to major distributors who perform product conversion and other value added
process steps before resale. The Company's Glare/Guard(R) product line is
marketed through distributors and dealers directly to end users.
Flex Products sells into several significant markets with a small,
technically oriented sales organization supported by operations and
engineering personal in a sales team approach.
The Company's ten largest customers accounted for 36% of its sales in 1995
and its largest customer accounted for 8%, 7% and 7% of its sales in fiscal
years 1995, 1994, and 1993. The largest customer of Flex Products, who is
also the Company's 40% partner in the ownership of the subsidiary,
accounted for approximately 12% of total Company sales for the six months
of consolidation of Flex Products. Because relatively few customers
account for a substantial portion of the Company's sales, the loss of their
business could have a material adverse effect on the Company's operating
results. However, the Company believes that it has the resources and
capabilities to replace any lost business over time through the development
of new products and new applications for its products.
Foreign sales, primarily in Europe and Asia, including foreign sales of
Flex Products for six months of 1995, represented 47%, 45% and 41% of
revenues for fiscal years 1995, 1994 and 1993. Sales by the Company's
wholly-owned subsidiary in Scotland represented 10%, 16% and 18% of
revenues for fiscal years 1995, 1994 and 1993. Sales by the Company's
wholly-owned subsidiary in Germany represented 13%, 15% and 11% of revenues
for fiscal years 1995, 1994 and 1993. Sales by these subsidiaries are
primarily to customers in European countries.
Export sales by US operations to Asian countries represented 13%, 11% and
9% and to European countries 9%, 3% and 2% of revenues for fiscal years
1995, 1994 and 1993. Export sales can be affected by adverse currency
alignments, and in 1995, the Company incurred a foreign exchange
transaction loss on an export contract. This exchange transaction loss is
reflected in the operating results reported in the Consolidated Financial
Statements and Notes to Financial Statements in the Company's 1995 Annual
Report to Stockholders incorporated herein by reference. Overall, the loss
was not material to the operations of the Company. Since the Company also
manufactures in two European countries to serve local markets, the Company
thereby reduces its exposure to fluctuations in foreign currencies.
Furthermore, a major portion of export sales are to long-standing customers
of the Company who have participated in the development of product
specifications and standards for their use and who are, therefore, not
relying on competitive pricing alone in their decision to buy from the
Company. Accordingly, the Company considers its export sales portfolio
well balanced and with limited risk of substantial overall loss.
Sales of products to the federal government, primarily under subcontracts,
accounted for 10%, 11% and 7% of revenues for the fiscal years 1995, 1994
and 1993. The Company's cost-plus-fixed fee (CPFF) government contracts for
the years 1982 through 1995 are subject to pending governmental audit
review. The audits entail, primarily, a review of costs and expenses
charged to government contracts with the focus on potential adjustments to
the allocation of general and administrative expenses. For the period 1982
to 1995, general and administrative expenses allocated to government CPFF
contracts have averaged approximately $837,000 per year, and for the last
three fiscal years, general and administrative expense allocations were
$1,827,000 for 1995, $1,479,000 for 1994 and $457,000 for 1993. The
Company has established a reserve for anticipated adjustments and
disallowances that may result from the government audit reviews.
SEASONALITY
The Company's business is not seasonal in any material sense. However, the
Company customarily shuts down a major portion of its operations between
Christmas and New Year's Day. As a result, during the last five fiscal
years, normally scheduled work days for the first fiscal quarter have
averaged 56 compared to an average of 64 for the other three fiscal
quarters. Nonetheless, the Company generally has sufficient manufacturing
capacity and the ability to schedule additional production shifts to meet
its customers' shipment requirements in any period of the year. The
Company further believes that its revenues and costs are consistently
matched in each fiscal quarter since labor costs during the holiday
shutdown period are generally charged to holiday and vacation labor expense
categories which are accounted for on a pro rata basis over the fiscal
year.
The Company's European subsidiaries customarily shut down their operations
for a two week summer vacation. The summer shutdown has historically
reduced the Company's fiscal fourth quarter sales in Europe as compared to
sales in the other three fiscal quarters. In 1995 and prior years, the
decline in sales during the summer in Europe has not been significant to
the consolidated operations of the Company. Such seasonality, however,
could become significant in future periods depending upon the overall
significance of European sales to total Company sales.
BACKLOG
The Company's backlog of orders at the end of each of the last three fiscal
years was as follows:
OCTOBER 31,
1995 1994 1993
(In Millions)
$47.9 $35.0 $30.7
At October 31, 1995, backlog includes $7.1 million from Flex Products which
represents orders and specifically scheduled releases on long-term
contracts for delivery within 12 months. Substantially all orders in
backlog at October 31, 1995 are scheduled for shipment during 1996. The
amount of backlog at October 31, 1995 represents only a portion of
anticipated sales in 1996, with new orders historically comprising the
major portion of sales in a fiscal year.
Backlog consists of new orders on which shipments have not yet started
or unfilled portions of orders which are only partly completed. Some of
these orders are completed within several days of receipt, while others are
not completed for a number of months. Substantially all orders included in
backlog are subject to cancellation without penalty; however, the Company
generally has not experienced significant order cancellations.
Contractually specified delivery dates on orders sometimes are adjusted at
the request of either the customer or the Company.
The Flex Products subsidiary has two multi-year contracts to supply product
exclusively to the customers for the particular product. These contracts
include annual buy requirements with take or pay provisions. It is the
practice of Flex Products to only include in reported backlog specifically
scheduled shipment releases under these contracts.
COMPETITION
The Company believes its ability to compete successfully in its markets
depends on a number of factors, both within and outside of its control,
including the price, quality and performance of the Company's products, the
emergence of new optical standards, the ability to maintain adequate
coating capacity and sources of raw materials, the efficiency of its
manufacturing and production, the rate at which customers design the
Company's products into their products, the number and nature of the
Company's competitors in a given market, the assertion of intellectual
property rights and general market and economic conditions. The Company
attempts to position itself as the exclusive or principal supplier to most
of its key customers. To the extent competitors offer similar products to
the Company's customers, pricing pressure may result. When the Company is
unable to differentiate its product offerings, competition and related
pressure on profit margins can be intense.
The Company's competitors include several private companies whose sales of
coated products are believed to be considerably less than the Company's, as
well as coating operations that comprise only a portion of the total
business of other companies. The Company's glass fabrication operation in
Germany also has local and foreign competitors. The Company believes none
of these competitors has the wide array of technologies or manufacturing
capabilities available at OCLI.
The Company has a larger number of domestic and foreign competitors for its
Glare/Guard anti-glare optical filters. Companies that purchase coated
glass and assemble and sell filters in competition with the Company include
Fellows, Polaroid, ACCO and 3M. OCLI is the world's largest manufacturer of
anti-reflective optical filters, as measured by total number of units
produced, manufacturing filters for both Glare/Guard products and private
label distributors. Glare/Guard is one of the most recognized brand names
in its market, both domestically and internationally.
The Flex Products subsidiary has a technologically proprietary and patent
protected position in its major market area. In this market, and in the
remainder of its business, Flex Products competes through product
innovation, customer service and willingness to invest in additional
manufacturing capacity.
The Company responds to competition primarily on the basis of the advanced
technical characteristics and quality of its products; its ability to meet
and exceed individual customer design and performance specifications; its
dependability and capability as a manufacturer and supplier; the quality of
technical assistance and service furnished to its customers; and the
competitive pricing of its products.
PATENTS AND LICENSES
The Company considers its proprietary technology, its trade secrets and its
patents to be of considerable value to its business. The Company's patent
position is particularly important to its business in that its patents
demonstrate and support its technological leadership position, safeguard
its competitive position and support existing and potential sales volume.
The Company has 50 patents and 34 patent applications in the United States
which cover materials, processes, products and production equipment. The
Company also has patents and patent applications pending in various foreign
countries covering the same technology. Expiration dates for the Company's
various patents range from 1996 to 2010. Flex Products currently has 30
patents and 10 new patent applications pending that are separate from the
Company's patents. Expiration dates for Flex Products' patents range from
1997 to 2012. Flex Products also has patents and patent applications
pending in various foreign countries covering the same technology.
In 1988, at the formation of Flex Products as a joint venture, the Company
and Flex Products entered into a License Agreement under which certain of
the Company's patents relating to roll coating technology were assigned to
Flex Products and Flex Products agreed to make royalty payments to the
Company for the use of these patents. The License Agreement provides for
royalties of 4% of Flex Products' revenues. The royalty payments are to
continue for several years until a total of $13.7 million is paid. At
fiscal year end 1995, $8.4 million remained to be paid. Also, under the
License Agreement, the Company and Flex Products each hold royalty-free
licenses to use certain of the others' underlying technologies that are
applicable to their respective markets. In addition, the Company and Flex
Products hold royalty-free shared use licenses for technologies applicable
to both markets.
EMPLOYEES
At October 31, 1995, the Company, including Flex Products, Inc., had 1,410
employees of whom 1,091 were employed domestically, 123 were employed by
the Company's operations in Hillend, Scotland; 169 were employed by the
Company's OCLI/MMG Division in Goslar, Germany; and 26 were employed in the
Company's sales and administrative offices in Europe. The Company has not
experienced a work stoppage due to labor difficulties. The Company
believes its employee relations are satisfactory.
None of the Company's employees in its domestic operations, in its
operations in Scotland or in its European sales and administrative offices
are subject to collective bargaining agreements. Approximately 70% of the
Company's employees in Goslar, Germany, are members of the national
chemical, paper and ceramic union organization in Germany. The unionized
employees work under a collective bargaining agreement.
In 1987, the Board of Directors approved increases in severance benefits
for its domestic employees, not including Flex Products, in the event of
certain changes in control of the Company. These severance arrangements
have been extended through November 1997.
OCLI attributes much of its success to its strong relationship with its
employees. The Company has instituted several employee oriented programs,
including Total Quality Management and a Strategic Quality Plan, to enhance
the quality and efficiency of its operations while improving employee
relations.
JOINT VENTURES, INVESTMENTS AND ACQUISITIONS
Information regarding joint ventures, investments and acquisitions is
included in Note 4 to the Consolidated Financial Statements of the
Company's 1995 Annual Report, which note is incorporated herein by
reference.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal manufacturing and
research and development facilities are located on a Company-owned campus
in Santa Rosa, California. The site consists of approximately 75 acres of
land of which approximately 53 acres are occupied by existing operations,
with the remaining 22 acres currently held available for development or
sale. The site is within an industrial park area and is served by well-
developed road access and utilities. In addition, the Company leases
offices for its sales personal located in various cities in the US, Europe
and the Far East.
The following table sets forth certain information concerning the Company's
principal facilities.
NO. OF LEASED/ TOTAL SITE
LOCATION BUILDINGS OWNED SQ. FT. (ACRES) USE
Santa Rosa, CA 12 Owned(1) 426,000 75 Optical Coating
Laboratory, Inc.
and Flex Products, Inc.
corporate offices,
manufacturing,
engineering, research
and development
Santa Rosa, CA 1 Leased 23,000 -- Netra operations
administrative offices
and manufacturing
Santa Rosa, CA 1 Leased(2) 21,000 -- Glare/Guard Division
administrative offices,
assembly and packaging
Santa Rosa, CA 1 Leased(2) 30,000 -- Glare/Guard Division
warehousing
Hillend,
Scotland 1 Owned(3) 56,000 16 OCLI Optical Coatings Ltd.
administrative offices,
manufacturing and
research and development
Hillend,
Scotland 1 Leased 9,000 -- OCLI Optical Coatings Ltd.
warehousing
Goslar,
Germany 2 Owned(4) 63,000 22 OCLI/MMG Division
administrative offices
and manufacturing
Reinheim,
Germany 2 Leased(5) 7,400 -- OCLI Optical Coating
Laboratory GmbH
administrative and sales
offices; European
Glare/Guard distribution
center
(1) Subsequent to fiscal year end 1995, the Company entered into a non-
recourse mortgage loan arrangement in the amount of $2.6 million on a
recently completed 72,000 square foot manufacturing building. The loan has
a 15 year term and carries a fixed interest rate of 8%.
The Company is currently constructing an additional 72,000 square foot
building which will be leased to Flex Products upon its completion. Flex
Products will relocate its administrative and engineering activities to
this new building and will occupy the manufacturing portion of the building
with new, expanded manufacturing capacity. The Company anticipates that it
will mortgage this second new manufacturing building in a similar loan
arrangement as described above.
(2) Following the relocation of Flex Products' administrative and
engineering activities to the new building under construction, the
Glare/Guard operation will be relocated to the Company's main campus during
1996. The Company intends to continue to lease the warehouse space for
Glare/Guard after the relocation of the Glare/Guard operation.
(3) The facility occupied by OCLI Optical Coatings Limited in Scotland was
constructed for the subsidiary by the Scottish Development Agency (SDA).
The facility consists of a manufacturing and office building on a 16 acre
site in an industrial park area. The property is owned by the Company
subject to a mortgage held by SDA that has a remaining balance of $4.0
million as of October 31, 1995, with 11 years left on the term of the
mortgage. At the beginning of 1995, OCLI Optical Coatings Limited
negotiated a three year mortgage interest moratorium, with principal
continuing to be payable to Locate in Scotland (formerly SDA), as economic
inducement to encourage business and employment growth in the applicable
region of Scotland.
(4) The Company's OCLI/MMG Division in Goslar, Germany, occupies an
approximately 57,000 square foot manufacturing building and an adjacent
6,000 square foot office building on approximately 22 acres in an
industrial park area. The land is held under a long-term hereditary rights
agreement. The manufacturing facility is pledged as security on loans
totaling approximately $1.7 million with repayment terms running through
2013. The office building is collateralized on an approximately $350,000
mortgage loan with repayment over ten years by 2005.
(5) The Company leases approximately 3,100 square feet of office space for
its European headquarters and sales activities and approximately 4,300
square feet of warehousing space for its European Glare/Guard distribution
operation in Reinheim, Germany.
Management believes that the Company's facilities, including a new building
under construction, are adequate for its current level of business and the
near-term growth requirements of the Company and its subsidiaries.
ENVIRONMENTAL
In 1988, the Company discovered ground water contamination at its principal
facilities in Santa Rosa. The Company conducted extensive investigations to
determine the lateral and vertical extent and the environmental impact of
the contamination. During 1990, the Company substantially completed its
investigation and study and formulated a plan of remediation. The total
cost of the investigation was approximately $5 million which has been
charged to operations in prior periods.
Based upon extensive tests conducted to date, it has not been demonstrated
that contaminant levels pose a current public health hazard. The Company
has established a program for reducing contaminant concentration levels to
acceptable federal and state levels with the assistance of its
environmental consultants and under the regulatory guidance of the
California Regional Water Quality Control Board. The Company is continuing
to evaluate the effectiveness of its monitoring, extraction and remediation
systems. In addition, the Company anticipates drilling additional
monitoring and extraction wells in connection with its final remediation
plan.
Based upon the extensive tests conducted and advice of environmental
consultants, the Company believes the accruals it has previously
established to complete the remediation plan are sufficient and that the
annual cost of maintaining compliance with environmental standards related
to the above matter will not have a material adverse effect on the
Company's business, financial position or prospects.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are presently pending by or against the
Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the three months ended October 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the Company as
of January 15, 1996 are listed below, followed by a brief description of
their business experience during the past five years. Officers are
appointed annually by the Board of Directors at the next regularly
scheduled meeting of the Board following the Annual Meeting of
Stockholders. There are no family relationships among these officers nor
any arrangements or understandings between any officer and any other person
pursuant to which an officer was selected. None of these officers has been
involved in any court or administrative proceeding within the past five
years adversely reflecting on his ability or integrity.
NAME AGE POSITION
Herbert M. Dwight , Jr. 65 Chairman of the Board, President and Chief
Executive Officer
William C. Burgess 49 Vice President, Human Resources
Klaus F. Derge 58 Vice President, International Operations
John M. Markovich 39 Vice President, Finance and Chief Financial
Officer
John McCullough 63 Vice President and Director
Laurence D. Parson 47 Vice President and General Manager,
Glare/Guard(R) Division
Kenneth D. Pietrelli 47 Vice President, Corporate Services
James W. Seeser, Ph.D. 52 Vice President and Chief Technical Officer
N.E. Rick Strandlund 51 Vice President and General Manager,
Santa Rosa Division
Josef Wally 56 Vice President and Corporate Controller
Joseph C. Zils 41 Vice President, General Counsel and
Corporate Secretary
Mr. Dwight has served as Chairman of the Board, President and Chief
Executive Officer since August 19, 1991. From December 1993 to April 1995,
Mr. Dwight also served as Chief Financial Officer. Mr. Dwight was a founder
of Spectra Physics Inc., a leading manufacturer and developer of commercial
lasers. He served as Chief Executive Officer of Spectra Physics from 1967
to 1988. Mr. Dwight was Chairman, President and Chief Executive Officer of
Superconductor Technologies, Inc. from 1988 through August 1991 and
continued to serve as Chairman from 1991 until May 1994. Mr. Dwight also
serves as director of Trans Ocean Limited, Applied Materials, Inc. and
Applied Magnetics Corp.
Mr. Burgess has served as Vice President, Human Resources since June 1994.
Prior to joining the Company, Mr. Burgess was employed as Vice President,
Human Resources and Administration of Teknekron Communications Systems,
Inc., Berkeley, California, from February 1991, and from 1985 to 1991 was
employed by ABB Asea Brown Boveri, Ltd., Stamford, Connecticut, as Vice
President, Human Resources.
Mr. Derge has been employed by the Company as Vice President, International
Operations, since July 1992. Mr. Derge also serves as the Managing Director
of OCLI Optical Coating Laboratory GmbH, the Company's subsidiary located
in Reinheim, Germany. He is also Co-Managing Director of MMG Glastechnik
in Goslar, Germany, and Managing Director of the Company's various European
sales operations. Mr. Derge was previously employed by Spectra Physics,
Sweden, as Vice President, International Marketing.
Mr. Markovich joined the Company as Vice President, Finance and Chief
Financial Officer on April 11, 1995. Prior to joining the Company, Mr.
Markovich served as Vice President, Finance and Chief Financial Officer of
Electrosci, Inc., Newport Beach, California from May 1993 to February 1995
and from July 1992 to May 1993 was employed by the Norden Fruit Company,
Los Angeles, California as Vice President, Finance and Chief Financial
Officer. From 1987 to 1992, Mr. Markovich served as Vice President and
Treasurer of Western Digital Corporation, Irvine, California.
Mr. McCullough was the Company's Vice President, Finance and Administration
from 1958 to 1967. During 1976 and 1977, he was Vice President in charge of
the Company's Commercial Products and Raytek Divisions. In January 1978,
he was appointed Senior Vice President, and in December 1988, he was
appointed Executive Vice President of the Company. In January 1992, he
assumed a lesser involvement with the Company with the title of Vice
President. Mr. McCullough has served as a director of the Company since
1985.
Mr. Parson has been employed by the Company since 1973 in various
manufacturing, marketing and sales positions. He was appointed General
Manager, Glare/Guard(R) Division, in May 1992 and was appointed Vice
President in June 1993.
Mr. Pietrelli has been employed by the Company since 1980. Mr. Pietrelli
held the position of Corporate Materials Manager until May 1992 when he
assumed the position of Manager, Corporate Services. He was appointed Vice
President, Corporate Services in June 1993.
Dr. Seeser has been employed by the Company since 1983. Dr. Seeser held
various engineering and engineering management positions with the Company
and was appointed Vice President in March 1986 and Chief Technical Officer
effective in November 1993. From August 1987 through March 1989, he also
held the position of General Manager, Advanced Products Division, in
addition to his management responsibilities for the Corporate Technology
Group of the Company.
Mr. Strandlund has been employed by the Company since 1973 and has held
various engineering and management positions with the Company. He was
appointed Vice President and General Manager, Commercial Products Division
in September 1986. Effective with the formation of the Santa Rosa Division
in November 1992, he became Vice President and General Manager, Santa Rosa
Division.
Mr. Wally has been employed by the Company since 1978 as Controller, and
was appointed Vice President in December 1988. Mr. Wally served as acting
Corporate Secretary from July 1981 to April 1983 and as Corporate Secretary
from April 1983 to December 1993.
Mr. Zils has been employed by the Company since 1989 as General Counsel.
He was appointed Vice President in June 1993 and assumed the additional
position of Corporate Secretary in December 1993.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the definitive Proxy Statement
relating to the Company's 1996 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Information required by this item is included in the Company's 1995 Annual
Report to Stockholders under Market for Registrant's Common Stock and
Related Stockholder Matters and is herein incorporated by reference. The
Company's Common Stock is traded over-the-counter and quoted on the
NASDAQ/National Market System under the symbol OCLI. The number of
stockholders of record at December 31, 1995 was 1,080.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item (Five-Year Summary) is included on the
inside front cover of the Company's 1995 Annual Report to Stockholders and
is herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Information required by this item is included on pages 6 through 10 of the
Company's 1995 Annual Report to Stockholders under Management's Discussion
and Analysis of Results of Operations and Financial Condition and is herein
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included in the Company's 1995 Annual
Report to Stockholders under Consolidated Balance Sheets; Consolidated
Statements of Operations; Consolidated Statements of Cash Flows;
Consolidated Statements of Common Stockholders' Equity; Notes to
Consolidated Financial Statements; Independent Auditors' Report; and
Quarterly Financial Results (unaudited) and is herein incorporated by
reference.
The consolidated financial schedules of Optical Coating Laboratory, Inc.
and Subsidiaries are filed as part of Item 14 of this annual report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Items 10, 11, 12 and 13 of Form 10-K is
omitted since the Company will file, not later than 120 days after the
close of the fiscal year ended October 31, 1995, with the Securities and
Exchange Commission, a definitive proxy statement pursuant to Regulation
14A in connection with its 1996 Annual Meeting of Stockholders. The
information contained under the caption "Executive Officers of the
Registrant" in Part I of this Form 10-K is incorporated by reference into
Item 10.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)ITEMS FILED AS PART OF REPORT
ANNUAL REPORT
1. CONSOLIDATED FINANCIAL STATEMENTS: PAGE(S)
Consolidated Balance Sheets 11
Consolidated Statements of Operations 12
Consolidated Statements of Cash Flows 13-15
Consolidated Statements of Common
Stockholders' Equity 16
Notes to Consolidated Financial
Statements 17-26
Quarterly Financial Results (unaudited) 27
Independent Auditors' Report 28
The Consolidated Financial Statements, Independent Auditors' Report, Notes
to Consolidated Financial Statements and unaudited quarterly information of
Optical Coating Laboratory, Inc. and Subsidiaries listed in the above index
are incorporated herein by reference to the Company's 1995 Annual Report to
Stockholders. With the exception of the items referred to above and in
Items 5, 6, 7 and 8, the Company's Annual Report to Stockholders for the
fiscal year ended October 31, 1995 is not deemed filed as part of this
Report.
2. FINANCIAL STATEMENT SCHEDULES
Schedule VIII Valuation and Qualifying Accounts
The financial statement schedule should be read in conjunction with the
financial statements in the 1995 Annual Report to Stockholders. Schedules
not included in these financial statement schedules have been omitted
because they are not applicable or the required information is shown in the
financial statements or notes thereto.
The following are filed as Exhibits to this Annual Report on Form 10-K. The
numbers refer to the Exhibit Table of Item 601 of Regulation S-K.
3.1 Restated Certificate of Incorporation. Incorporated by reference to
Exhibit (4)(a) of the Registrant's Form 10-Q for the quarter ended
July 31, 1988.
3.2 By-Laws. Incorporated by reference to Exhibit (3)(b) of the
Registrant's Form 8-K under Item 5 dated November 20, 1987.
4.1 Rights Agreement between Registrant and First Interstate Bank of
California dated November 25, 1987. Incorporated by reference to
Exhibit (4) of the Registrant's Form 10-K for the year ended October
31, 1987.
4.2 Note Purchase Agreement(s) dated as of May 27, 1994 for the private
placement of $18,000,000 of 8.71% Senior Notes due June 1, 2002
between the Registrant and Connecticut Mutual Life Insurance
Company, Modern Woodman of America and American Life and Casualty
Insurance Company. Incorporated by reference to Exhibit (4)(a) of
the Registrant's Form 10-Q for the quarter ended July 31, 1994.
4.3 Stock Purchase Agreement dated as of February 8, 1995 by and between
the Registrant, Netra Corporation and the Sellers as identified on
the signature page of said agreement, each a shareholder of Netra
Corporation, for the purchase by the Registrant of all of the shares
of common and preferred stock of Netra Corporation. Incorporated by
reference to Exhibit (4) of the Registrant's Form 10-Q for the
quarter ended April 30, 1995.
4.4 Optical Coating Laboratory, Inc. 12,000 shares of 8% Series C
Convertible Redeemable Preferred Stock Purchase Agreement among the
Registrant and the investors named therein dated as of May 1, 1995.
Incorporated by reference to Exhibit 4(e) of Registrant's Form S-8
dated July 6, 1995.
4.5 Certificate of Designation, Preferences and Rights of Series C
Convertible Redeemable Preferred Stock of Optical Coating
Laboratory, Inc. dated May 2, 1995. Incorporated by reference to
Exhibit 4(f) of Registrant's Form S-8 dated July 6, 1995.
4.6 Credit Agreement dated as of May 24, 1995 among the Registrant, Bank
of America NT&SA as agent, and Letter of Credit Issuing Bank and the
other Financial Institutions party thereto arranged by BA
Securities, Inc. Incorporated by reference to Exhibit (4)(a) of the
Registrant's Form 10-Q for the quarter ended July 31, 1995.
4.7 Second Amended and Restated Credit Agreement dated as of May 24,
1995 between Optical Coating Laboratory, Inc. and Bank of America
NT&SA. Incorporated by reference to Exhibit (4)(b) of the
Registrant's Form 10-Q for the quarter ended July 31, 1995.
4.8* Secured Promissory Note between Optical Coating Laboratory, Inc. and
Aid Association for Lutherans dated November 8, 1995.
4.9* First Amendment to Credit Agreement dated as of May 24, 1995 between
Optical Coating Laboratory, Inc., Bank of America, NT&SA, as agent
for itself and the Banks, and the several financial institutions
party to the Credit Agreement, which amendment is dated as of
December 15, 1995.
9 Not applicable.
10.0 Registrant's Employee Stock Ownership Plan (OCLI ESOP+), as amended.
Incorporated by reference to Exhibit (10)(c) of the Registrant's
Form 10-K for the year ended October 31, 1988.
10.1 Registrant's 1995 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 10, 1995.(1)
10.2 Registrant's 1993 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 8, 1993.(1)
10.3 Registrant's 1992 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 8, 1992.(1)
10.4 Registrant's 1991 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
February 25, 1991.(1)
10.5 Registrant's 1987 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
February 19, 1987.(1)
10.6 Registrant's 1984 Incentive Stock Option Plan. Incorporated by
reference to Exhibit (10)(d) of the Registrant's Form 10-K for the
year ended October 31, 1985.(1)
10.7 Registrant's 1983 Incentive Stock Option Plan. Incorporated by
reference to Exhibit (10)(d) of the Registrant's Form 10-K for the
year ended October 31, 1983.(1)
10.8 Registrant's 1982 Incentive Stock Option Plan. Incorporated by
reference to Exhibit A of Proxy Statement of Registrant dated March
1, 1982.(1)
10.9 Registrant's Directors' and Officers' Liability and Corporate
Reimbursement Insurance Policy. Incorporated by reference to Exhibit
(10)(i) of the Registrant's Form 10-K for the year ended October 31,
1987.(1)
10.10 Form of Directors' and Officers' Indemnification Agreement.
Incorporated by reference to Exhibit (10)(j) of the Registrant's
Form 10-K for the year ended October 31, 1987.(1)
10.11 Employment Agreements between Registrant and its Executive Officers.
Incorporated by reference to Exhibit (10)(k) of the Registrant's
Form 10-K for the year ended October 31, 1987. Second Amendment
thereto incorporated by reference to Exhibit (28)(a) of the
Registrant's Form 10-Q for the quarter ended January 31, 1992. Third
Amendment thereto incorporated by reference to Exhibit 10.13 of the
Registrant's Form 10-K for the year ended October 31, 1993.(1)
10.12*Form of Fourth Amendment to Employment Agreements between Registrant
and its Executive Officers dated November 20, 1995.(1)
10.13 Form of Employment Assurance Agreements between Registrant and its
key technical and professional employees. Incorporated by reference
to Exhibit (10)(l) of the Registrant's Form 10-K for the year ended
October 31, 1987. Form of Amendment thereto incorporated by
reference to Exhibit (28)(b) of the Registrant's Form 10-Q for the
quarter ended January 31, 1992.(1)
10.14*Form of Amendment to Employment Assurance Agreements between
Registrant and its key technical and professional employees dated
November 20, 1995. (1)
10.15 Mortgage Agreement between the Scottish Development Agency and
Registrant's Scottish Subsidiary. Incorporated by reference to
Exhibit (10)(o) of the Registrant's Form 10-K for the year ended
October 31, 1987.
10.16 Acquisition Agreement between Henning Von Birkhahn and Ingo Mertens
and the Registrant's German subsidiary, OCLI Optical Coating
Laboratory GmbH, dated December 31, 1992 for the acquisition by the
Registrant of MMG MinnahYtte Maschinelle Glasbearbeitung GmbH.
Incorporated by reference to Exhibit 2A of Registrant's Form 8-K
dated December 31, 1992.
10.17 Stock and Note Purchase Agreement by and among OCLI, SICPA Holdings
S.A., ICIA, ICIAH and Flex Products, Inc. Incorporated by reference
to the Registrant's Form 8-K dated May 23, 1995.
10.18*Employment Agreement Letter between John McCullough and the
Registrant dated October 31, 1995.(1)
11* Computation of earnings (loss) per share for the years ended October
31, 1995, 1994 and 1993.
12 Not applicable.
13* 1995 Annual Report to Stockholders for the fiscal year ended October
31, 1995, not deemed to be filed herein except for certain portions
which have been incorporated herein by reference.
16 Not applicable.
18 Not applicable.
21* Subsidiaries of the Registrant.
22 Not applicable.
23* Independent Auditors' Consent and Report on Schedules
24 Not applicable
27 Financial Data Schedule
99 Not applicable.
* Items not previously filed are designated by an asterisk.
(1) Designates management contracts or compensatory plan arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-
K.
(b) REPORTS ON FORM 8-K
None
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (S-X, RULE 12-09)
(AMOUNTS IN THOUSANDS)
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other Amounts at End
Description of Period Expenses Accounts Charged off of Period
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended
October 31, 1995 $1,810 $369 $136(a) $1,086 $1,229
Year ended
October 31, 1994 $1,817 $667 $85(a) $759 $1,810
Year ended
October 31, 1993 $728 $1,167 $102(a) $180 $1,817
ALLOWANCE FOR INTER-
COMPANY PROFIT
IN INVENTORY:
Year ended
October 31, 1995 $1,166 $150 $ -0- $ -0- $1,316
Year ended
October 31, 1994 $1,130 $36 $ -0- $ -0- $1,166
Year ended
October 31, 1993 $1,809 $ -0- $ -0- $ 679 $1,130
VALUATION RESERVES
FOR INVENTORY:
Year ended
October 31, 1995 $ 765 $ -0- $ -0- $ 149 $ 616
Year ended
October 31, 1994 $ 826 $ -0- $ -0- $ 61 $ 765
Year ended
October 31, 1993 $ 248 $ 578 $ -0- $ -0- $ 826
(a)The 1995 balance consists primarily of amounts recorded in connection
with the acquisition of Flex Products. The 1994 balance consists of
recoveries and foreign currency translation effects. The 1993 balance
consists primarily of amounts recorded in connection with the
acquisition of MMG, net of recoveries.
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.
DATE: January 29, 1996 OPTICAL COATING LABORATORY, INC.
By: /s/John M. Markovich
John M. Markovich
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
Chairman of the Board, President,
Chief Executive Officer
(Principal Executive and
/s/Herbert M. Dwight, Jr Operating Officer) January 29,1996
Herbert M. Dwight, Jr.
Vice President, Finance
and Chief Financial Officer
/s/John M. Markovich (Principal Financial Officer) January 29, 1996
John M. Markovich
Vice President and
Corporate Controller
/s/Josef Wally (Principal Accounting Officer) January 29, 1996
Josef Wally
/s/John McCullough Director and Vice President January 29, 1996
John McCullough
/s/EDouglas C. Chance Director January 29, 1996
Douglas C. Chance
/s/Julian Schroeder Director January 29, 1996
Julian Schroeder
/s/Renn Zaphiropoulos Director January 29, 1996
Renn Zaphiropoulos
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Amounts in thousands, except per share data)
YEARS ENDED OCTOBER 31,
1995 1994 1993
PRIMARY SHARES:
Average common shares outstanding 9,144 8,975 8,795
Common equivalent shares outstanding 367 48
9,511 9,023 8,795
Net income (loss) $ 7,391 $4,604 $(5,737)
Less dividend on preferred stock 462
Net income (loss) applicable
to common stock $ 6,929 $ 4,604 $(5,737)
Net income (loss) per common and common
equivalent share, primary $ .73 $ .51 $ (.65)
FULLY DILUTED SHARES:
Average common shares outstanding 9,144 8,975 8,795
Common equivalent shares outstanding 456 70 304
Potential dilution of preferred stock 553
10,153 9,045 9,099
Net income (loss) applicable
to common stock $ 6,929 $ 4,604 $(5,737)
Add back dividend on preferred stock 462
Net income (loss) for calculating
fully diluted earnings per share $ 7,391 $4,604 $(5,737)
Net income (loss) per common and common
equivalent share, fully diluted $ .73 $ .51 $ (.63)
Note: Fully diluted earnings (loss) per share do not result in dilution of
three percent or more or are anti-dilutive and are, therefore, not
separately presented in the consolidated statements of operations.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 13 TO 1995 OCLI FORM 10-K
(ITEMS INCORPORATED BY REFERENCE TO THE
1995 ANNUAL REPORT TO STOCKHOLDERS)
Pages
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 2
Item 6. Selected Financial Data 3
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition 4-9
Item 8. Financial Statements and Supplementary Data:
Consolidated Balance Sheets 10
Consolidated Statements of Operations 11
Consolidated Statements of Cash Flows 12-14
Consolidated Statements of Common
Stockholders' Equity 15
Notes to Consolidated Financial Statements 16-32
Quarterly Financial Results (unaudited) 32-33
Independent Auditors' Report 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRINCIPAL MARKET
The Company's common stock is traded on the NASDAQ National Market System
under the symbol OCLI.
DIVIDEND INFORMATION
Since June 1991, the Company has paid a semiannual cash dividend on common
stock of $.06 per share.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's common stock as of
December 31, 1995 was 1,080.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED OCTOBER 31: 1995 1994 1993 1992 1991
(Amounts in thousands, except per share data)
Revenues $169,417 $131,780 $123,013 $115,016 $103,711
Net income (loss) before
cumulative effect of changes
in accounting principles and
dividend on preferred
stock $7,391 $4,604 $(5,737) $6,027 $1,530
Net income (loss) applicable to
common stock $6,929 $4,604 $(5,737) $6,537 $401
Net income (loss) per common and
common equivalent share $.73 $.51 $(.65) $.69 $.16
Average common and common
equivalent shares outstanding 9,510 9,023 8,795 8,636 7,455
Cash dividend paid on
common stock $1,083 $1,075 $1,043 $967 $491
AT OCTOBER 31:
Working capital $28,015 $28,692 $16,251 $27,399 $21,913
Total assets $169,834 $118,879 $99,226 $91,313 $84,419
Long-term debt $47,267 $35,441 $23,110 $14,900 $20,935
Convertible redeemable
preferred stock $11,357
Stockholders' equity $62,537 $52,037 $47,135 $52,254 $43,112
Stockholders' equity
per share $6.59 $5.79 $5.25 $6.16 $5.41
Number of employees 1,407 1,162 1,107 1,000 1,039
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues for the Company were $169.4 million for its fiscal
year ended October 31, 1995, an increase of $37.6 million, or 29%, over
revenues of $131.8 million in fiscal 1994. Revenues for 1995 include $15.6
million from the six months consolidation of Flex Products, Inc. (Flex
Products), a 60% owned joint venture company manufacturing coatings on
plastic film with a proprietary high speed process, and $3.7 million from
Netra Corporation, a precision molded plastic optics company acquired in
fiscal 1995.
Revenues in 1995 were strong for fabricated glass components and
precision molded plastic optics used in office automation applications,
filters used in medical and analytical instrumentation and front surface
mirrors used in office automation and projection television applications.
Fiscal 1995 revenues also included higher invoicing on the Company's
contract for the coating of the X-ray space telescope project for NASA, the
revenue contribution of the new DirectCoat capability and on sales of the
goods and services provided by Flex Products. Revenues of the Company's
Glare/Guard anti-glare filters, sold for use in the computer display
aftermarket, declined due to increased competition in the private label
segment and reduced product demand in several European countries.
During 1995, the Company experienced price decreases in original
equipment manufacturer (OEM) coated products component lines. These price
decreases were substantially offset by increases in volume and improvements
in manufacturing yields and production efficiencies, enabling maintenance
of consistent gross profit margins. The Company also experienced
competitive price decreases for its Glare/Guard products in the United
States as well as in foreign markets. The Company responded to such price
competition with product cost reductions and product redesign.
GROSS PROFIT. Gross profit as a percent of revenue was 37.4% in 1995,
a 1.1 percentage point improvement over 36.3% in 1994. In 1995, the gross
profit percentage improved as a result of the six months consolidation of
Flex Products, which has higher than Company average gross profit margins,
while the other operations of the Company maintained gross profit margins
consistent with 1994. Flex Products' higher than average gross profit
margins are a result of product, production capability and technology
exclusivity. In its other operations, the Company maintained gross profit
margins based on higher volume, production efficiency gains and
manufacturing yield improvements, offsetting the effect of price decreases;
and for the Glare/Guard product line, through product redesign for cost
reduction.
The Company's fiscal 1995 fourth quarter gross profit margin was
adversely impacted by start-up costs associated with the development of
increased manufacturing capacity and new products.
RESEARCH AND DEVELOPMENT. Research and development expenditures for
1995 increased $3.2 million, or 61%, compared to 1994. As a percentage of
revenue, research and development expenditures were 5% in 1995 compared to
4% in 1994. The increase in 1995 was due, in part, to the consolidation of
Flex Products ($1.1 million), increased research and development
expenditures relating to the development of additional continuous platform
coating capacity, development of coatings on plastic for flat panel display
applications, and further development of the Company's electrochromic
technology and related products.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased $6.1 million, or 20%, in 1995 over 1994. The increase in 1995
over 1994 was partially a result of the six months consolidation of Flex
Products ($2.3 million), continued emphasis on increasing regional sales
activities in the United States and Europe ($2.2 million) and higher
administrative and legal expenses ($1.6 million).
The Company recorded amortization of intangibles of $975,000 in 1995
and $648,000 in 1994 representing the amortization of goodwill relating to
the acquisitions of MMG and Netra.
INCOME FROM OPERATIONS. As a result of the foregoing changes in
revenues and costs and expenses, the Company had income from operations of
$16.6 million in 1995 compared to $10.6 million in 1994, an increase of $6
million or 57%.
INTEREST INCOME AND EXPENSE. Interest income increased $329,000, or
97%, in 1995 over 1994. The increase in 1995 was due to the higher cash
and temporary investment balances which resulted from the Company's
financing activities during the year. Interest expense increased $332,000,
or 10%, in 1995 over 1994. The increase in interest expense for 1995
resulted from higher debt incurred to finance the investments in additional
coating capacity and Flex Products. Fiscal 1995 interest expense was, in
part, offset by higher capitalized interest relating to self-constructed
asset and building projects.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate
was 40.1% in 1995 and 1994. For 1995 and 1994, the effective tax rate was
substantially at the statutory combined federal, state and applicable
foreign tax rates for the Company.
MINORITY INTEREST. In 1995, the Company recorded $816,000 as
minority interest representing the share of net income of Flex Products
accruing to the 40% stockholder in Flex Products for the six month period
that the Company consolidated the results of Flex Products.
NET INCOME. The Company had net income of $7.4 million in 1995
compared to $4.6 million in 1994, an increase of $2.8 million or 61%. In
1995, dividends of $462,000 were paid on the 8% Convertible Redeemable
Preferred Stock issued in connection with the Flex Products investment
transaction. As a result, net income attributable to common stock was $6.9
million for 1995.
FISCAL 1996 EFFECT. Management anticipates that the impact of the
start-up costs associated with the development of increased manufacturing
capacity and new products which began in the fourth quarter of 1995 will
continue to impact operating performance in the first quarter of 1996.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. Revenues were $131.8 million in 1994, an increase of $8.8
million, or 7%, over 1993. Comparative revenues for 1993 include only ten
months of revenues of MMG, a precision glass fabrication company in Germany
acquired December 31, 1992.
Revenues in 1994 were particularly strong in the office automation
market for fabricated coated glass products and components manufactured in
the United States and by MMG in Germany, for coated glass stock sheets for
custom fabrication and for projection television mirrors. Revenues for the
Company's Glare/Guard anti-glare filters, sold for use in the computer
display aftermarket, declined in 1994 due to increased competition and
generally recessionary economic conditions in European countries.
During 1994, the Company experienced price decreases in OEM display
and fabricated glass product lines. These price decreases were
substantially offset by increases in volume. The Company also reduced
prices for Glare/Guard products in the United States to maintain its market
share position. Although the Company was able to partially offset
Glare/Guard price decreases though the reduction of product costs, profit
margins for the product line were negatively impacted by the price
decreases.
GROSS PROFIT. Gross profit as a percent of revenue was 36.3% in 1994,
an increase of 2.9 percentage points, compared to 33.4% in 1993. In 1994,
gross profit margins improved from 1993 as a result of higher utilization
of available capacity, yield improvements associated with the Company's
continuous quality improvement program and cost savings resulting from the
1993 restructuring program.
RESEARCH AND DEVELOPMENT. In 1993, under a plan to restructure, the
Company's approach to research and development, technical personnel and
resources were transferred from corporate level research and development
activities into the Company's major operating division in order to focus on
product development and manufacturing process improvements. As a result of
this restructuring, reported research and development expenditures for 1994
decreased $697,000, or 12%, compared to 1993. As a percent of revenues,
research and development expenditures were 4% in 1994 compared to 4.8% in
1993.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased $1.2 million, or 4%, in 1994 over 1993. The increase was
principally in selling expense related to the establishment of seven new
regional sales offices in the US.
The Company recorded amortization of intangibles of $648,00 in 1994
and $446,000 in 1993 representing the amortization of goodwill relating to
the acquisition of MMG.
RESTRUCTURING CHARGES. In 1993, the Company recorded restructuring
charges and provisions for severance payments totaling $9.7 million
associated with cost reduction actions. The Company took write-offs and
established reserves for the reduction of the carrying value of certain
equipment, inventory and other assets and for severance payments for staff
reductions. These restructuring actions, including staff reductions, were
completed in fiscal 1993 and the first quarter of fiscal 1994 and the
related provisions and reserves were utilized for established purposes.
INCOME FROM OPERATIONS. As a result of the foregoing changes in
revenues and costs and expenses, the Company had income from operations of
$10.6 million in 1994 versus a loss from operations of $5.1 million in
1993, including the $9.7 million of restructuring charges.
INTEREST INCOME AND EXPENSE. Interest income increased $208,000, or
160%, in 1994 over 1993. The increase was due to substantially higher
short-term investment balances on hand in the second half of the year that
resulted from the $18 million senior note financing undertaken by the
Company. Interest expense increased $217,000, or 7%, in 1994 over 1993.
The increase in interest expense resulted from the issuance of the $18
million senior notes, partially offset by debt repayment of $11.3 million,
during 1994.
PROVISION (CREDIT) FOR INCOME TAXES. The provision for income taxes
as a percent of pre-tax income was 40.1% in 1994, substantially at the
statutory combined federal, state and applicable foreign tax rates for the
Company. The effective tax credit in 1993 was 28.4%, less than the
statutory combined rate, because, under the accounting standard for income
taxes, SFAS 109, the full tax benefit of losses incurred in European
operations could not be recognized.
NET INCOME (LOSS). As a result of the foregoing operations
activities, the Company had net income of $4.6 million in 1994 versus a net
loss of $5.7 million in 1993.
INFLATION EFFECT. Inflation did not have a significant effect on the
operations of the Company in 1995, 1994 or 1993. As described above, the
Company experienced price decreases in certain markets in 1995, 1994 as
well as in 1993.
ACQUISITION AND INVESTMENT TRANSACTIONS
FLEX PRODUCTS, INC. In May 1995, the Company acquired controlling
ownership of Flex Products with the purchase of an additional 20% interest
in Flex Products from ICI Americas Inc. (ICIA), an affiliate of Imperial
Chemical Industries PLC. Flex Products was founded as a division of the
Company in the early 1980's and subsequently established as a joint venture
between the Company and ICIA in 1988, with ICIA owning 60% and the Company
owning 40%. In conjunction with the Company's increase in ownership,
ICIA's remaining 40% interest in Flex Products was acquired by SICPA
Holding S.A. (SICPA), a privately held Swiss Corporation headquartered in
Lausanne, Switzerland. SICPA is the world's largest manufacturer of
printing inks and currently the major customer of Flex Products.
Pursuant to the terms of the Stock and Note Purchase Agreement dated
May 1, 1995 by and among the Company, SICPA, ICIA and Flex Products, the
Company acquired an incremental 20% interest in Flex Products for a cash
payment of $8.4 million and paid an affiliate of ICIA approximately $7.0
million in cash to acquire a 60% interest in an $11.7 million promissory
note previously issued by Flex Products to ICIA to fund Flex Products'
working capital requirements. SICPA acquired a 40% equity interest in Flex
Products and the balance of the $11.7 million promissory note.
In connection with this transaction, the Company entered into a Put
and Call, Right of First Refusal and Co-Sale Agreement with SICPA pursuant
to which SICPA was granted a call option to purchase the Company's 60%
interest in Flex Products and the Company was granted a put option to sell
the Company's 60% interest in Flex Products to SICPA. The call price is
$25 million plus (i) two times the amount by which Flex Products' annual
sales immediately preceding the call exceed $23.6 million (ii) times 60%
(the Company's ownership percentage of Flex Products). The put price is $20
million plus (i) 1.5 times the same increase in Flex Products' sales (ii)
times 60%. The put and call options can be exercised at any time after May
8, 1998 and before May 8, 2003, and cannot be exercised in the event Flex
Products goes public. This agreement also provides for a right of first
refusal in favor of each of SICPA and the Company to buy the other's shares
and also provides a co-sale right which requires that on any sale of a
party's shares, the other party is allowed to participate on a pro rata
basis in the sale.
The Agreement with SICPA also provides conditions under which either
party may cause Flex Products to have an initial public offering of its
common stock.
NETRA CORPORATION. In February 1995, the Company acquired the assets
and liabilities of Netra Corporation, a precision molded plastic component
manufacturer, for a total purchase price of approximately $3.1 million.
The purchase price consisted of a cash payment of $1.5 million and the
balance of approximately $1.6 million paid by the issuance of 164,735
shares of the Company's common stock to the sellers. Upon completion of
the acquisition, Netra was relocated from its facilities in Mountain View,
California to a facility immediately adjacent to the Company's principal
manufacturing site in Santa Rosa, California.
FINANCIAL CONDITION AND LIQUIDITY
In 1995, the Company's cash and short-term investment position
decreased by $13.1 million for the year. Operations provided $13.1 million
of cash, including $7.4 million from net earnings, $10.3 million from
depreciation and amortization offset by other operating activity
requirements of $4.6 million. Financing activities provided $21.4 million,
with $21.5 million from the issuance of debt, offset by $11.7 million in
debt repayment. Additionally, net proceeds from the issuance of the
Convertible Redeemable Preferred Stock were $11.4 million and the proceeds
from the exercise of stock options were $1.6 million. The Company paid $1.1
million of dividends on common stock and $462,000 on preferred stock.
During the year, the Company and its subsidiaries spent $30.9 million for
the purchase of new equipment and facilities. Also during 1995, the
Company spent $15.4 million for the purchase of the 20% incremental
investment in and notes payable of Flex Products and $1.5 million in cash
plus $1.6 million in Company common stock for the purchase of the Netra
operation. At year-end, October 31, 1995, the Company had cash and short-
term investments totaling $6.6 million.
The Company's financial condition and liquidity at October 31, 1995,
reflects various financing transactions during 1995. The Company increased
the amount of and extended the term of its primary bank credit agreement to
provide a $30 million unsecured credit facility, comprised of a $15 million
term loan and a $15 million revolving line of credit. In addition, the
Company issued $12 million of 8% Convertible Redeemable Preferred Stock.
The modification of the bank credit facility was undertaken in connection
with the Flex Products investment transaction, to finance capital
investment programs, to restructure the Company's debt at a favorable
interest rate and to provide the Company with additional liquidity for
general corporate purposes. The issuance of the Convertible Redeemable
Preferred Stock was in connection with the Flex Products investment
transaction and to increase the equity component of the Company's capital
structure. In addition, the Company's subsidiaries in Germany and Scotland
have separate credit arrangements in place for their operating
requirements.
In fiscal 1994, the Company issued $18 million of unsecured senior
notes in a private placement to three insurance companies. The private debt
placement was primarily to restructure the Company's debt at a favorable
interest rate and for additional liquidity for general corporate purposes.
The senior notes carry an interest rate of 8.71%, with interest payable
semiannually, and principal repayment of $3.6 million per year from 1998 to
2002.
In 1994, the Company's cash and short-term investment position
increased by $17.4 million for the year, primarily as a result of the
issuance of the $18 million senior notes. Cash generated from operations in
1994 was substantially offset by the purchase of plant and equipment and
net debt repayment and dividend payments.
In 1995, the Company's working capital, excluding cash and short-term
investments, increased by $12.4 million. Accounts receivable and
inventories increased as a result of increased business activities, the
consolidation of Flex Products and the acquisition of Netra. These
increases were, in part, offset by corresponding increases in accounts
payable and accrued expenses. In 1994, the Company's working capital,
excluding cash and short-term investments, had decreased by $4.9 million.
The Company conducts its export business from the United States
primarily in US dollars. In 1995, the Company incurred a foreign exchange
transaction loss on an export contract under which it had agreed to sell
product in Japanese yen. This exchange transaction loss is reflected in
1995 operating results and overall was not material to the operations of
the Company. The Company also manufactures in two European countries and
invoices in local currencies, thereby reducing the Company's exposure to
transaction losses on fluctuations between the US dollar and European
currencies. The assets and liabilities of the Company's foreign operations
are not hedged against fluctuations in international currency rates. During
fiscal 1995, in connection with the restructuring of its bank line of
credit, the Company terminated an interest rate swap agreement covering
$5.5 million of debt at an expense of approximately $150,000. The Company
has no financial derivative or financial hedging arrangements in place as
of October 31, 1995.
Subsequent to fiscal year end 1995, the Company entered into a
mortgage loan agreement in the amount of $2.6 million collateralized by
land and a newly constructed 72,000 square foot manufacturing facility
located at its Santa Rosa site. The term of the non-recourse loan is 15
years and carries a fixed interest rate of 8%. Payment of the loan is in
monthly installments of approximately $25,000.
Also subsequent to fiscal year end 1995, the Company entered into an
operating lease arrangement in the amount of $5.9 million for a newly
acquired continuous coating machine and related equipment. The term of the
operating lease is six years with an early purchase option at a fixed price
at the end of five years and a further purchase option at the end of the
lease term at a fixed price.
The Company is constructing a new 72,000 square foot manufacturing and
office building to be leased to Flex Products upon completion. The Company
anticipates that it will obtain mortgage debt financing upon completion of
the building in fiscal 1996.
Management believes that the cash on hand at October 31, 1995, cash
anticipated to be generated from future operations, the available funds
from revolving credit arrangements and the building financing will be
sufficient for the Company to meet its near-term working capital needs,
capital expenditures, debt service requirements and payment of dividends as
declared.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
OCTOBER 31,
ASSETS 1995 1994
Current Assets:
Cash and short-term investments $ 6,602 $19,663
Accounts receivable, net
of allowance for
doubtful accounts of
$1,229 and $1,810 29,565 22,007
Inventories 15,886 10,559
Current deferred income tax assets 6,665 4,235
Other current assets 2,476 1,246
Total Current Assets 61,194 57,710
Deferred income tax assets 4,597
Other assets and investments 12,432 9,159
Property, Plant and Equipment:
Land and improvements 8,651 8,623
Buildings and improvements 31,461 27,495
Machinery and equipment 101,586 80,206
Construction-in-progress 23,717 3,083
165,415 119,407
Less accumulated depreciation (73,804) (67,397)
Property, Plant and Equipment-Net 91,611 52,010
Total Assets $169,834 $118,879
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,324 $ 6,197
Accrued expenses 9,515 8,423
Accrued compensation expenses 6,559 4,785
Income taxes payable 1,671
Current maturities on long-term debt 3,344 6,878
Notes payable 3,339 428
Deferred revenue 98 636
Total Current Liabilities 33,179 29,018
Accrued postretirement health benefits
and pension liabilities 2,150 1,877
Deferred income tax liabilities 2,239 506
Long-term debt 47,267 35,441
Commitments and contingencies (Note 10)
Minority interest 11,105
Convertible redeemable preferred stock 11,357
Common Stockholders' Equity:
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding
9,489,000 and 8,978,000 shares 95 90
Paid-in capital 44,461 39,967
Retained earnings 17,901 12,055
Cumulative foreign currency
translation adjustment 80 (75)
Common Stockholders' Equity 62,537 52,037
Total Liabilities and
Stockholders' Equity $169,834 $118,879
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
YEAR ENDED OCTOBER 31,
1995 1994 1993
Revenues $169,417 $131,780 $123,013
Cost of sales 106,009 84,001 81,885
Gross profit 63,408 47,779 41,128
Operating Expenses:
Research and development 8,401 5,229 5,926
Selling and administrative 37,462 31,341 30,153
Restructuring charges 9,746
Amortization of intangibles 975 648 446
Total Operating Expenses 46,838 37,218 46,271
Income (loss) from operations 16,570 10,561 (5,143)
Other Income (Expense):
Interest income 667 338 130
Interest expense (3,547) (3,215) (2,998)
Income (loss) before provision
for income taxes and
minority interest 13,690 7,684 (8,011)
Provision for income taxes (credit) 5,483 3,080 (2,274)
Minority interest 816
Net income (loss) 7,391 4,604 (5,737)
Dividend on convertible
redeemable preferred stock 462
Net income (loss)
applicable to
common stock $6,929 $4,604 $(5,737)
Net income (loss) per common and
common equivalent share $.73 $.51 $(.65)
Weighted average number of
common shares used to compute
earnings (loss) per share 9,510 9,023 8,795
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1995, 1994 AND 1993
(Dollars in thousands)
YEAR ENDED OCTOBER 31,
1995 1994 1993
Cash Flows from Operating Activities:
Cash received from customers $162,568 $133,125 $129,852
Interest received 733 268 109
Cash paid to suppliers and employees (139,489) (112,341) (115,315)
Cash paid to ESOP+ (406) (947) (205)
Interest paid (3,730) (2,567) (2,740)
Income taxes paid, net of refunds (6,625) (986) (3,437)
Net cash provided by operating activities 13,051 16,552 8,264
Cash Flows from Investing Activities:
Purchase of plant and equipment (30,911) (8,821) (9,338)
Purchase of additional equity
interest and note of Flex
Products, net of cash
from consolidation (15,185)
Cash portion of payment for purchase
of Netra, net of cash acquired (1,477)
Cash portion of payment for purchase
of MMG, net of cash acquired _______ _______ (3,443)
Net cash used for investing activities (47,573) (8,821) (12,781)
Cash Flows from Financing Activities:
Net proceeds from issuance
of preferred stock 11,357
Proceeds from long-term debt 21,542 4,005 4,388
Proceeds from issuance of senior notes 18,000
Proceeds from notes payable 494 283
Proceeds from exercise of stock options 1,627 16 2,019
Repayment of long-term debt (11,700) (11,327) (7,916)
Repayment of notes payable (388) (400) (752)
Payment of dividend on preferred stock (462)
Payment of dividend on common stock (1,083) (1,075) (1,043)
Other _______ _______ 33
Net cash provided by (used for)
financing activities 21,387 9,502 (3,271)
Effect of exchange rate changes on cash 74 146 14
(Decrease) increase in cash and
short-term investments (13,061) 17,379 (7,774)
Cash and short-term investments
at beginning of year 19,663 2,284 10,058
Cash and short-term investments
at end of year $6,602 $19,663 $2,284
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1995, 1994 AND 1993
(Dollars in thousands)
YEAR ENDED OCTOBER 31,
1995 1994 1993
Reconciliation of net income (loss) to
cash flows from operating activities:
Net income (loss) $ 7,391 $ 4,604 $(5,737)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 10,261 7,635 7,372
Minority interest in earnings of
Flex Products 816
Loss on disposal or abandonment
of equipment 914 634 5,229
Accrued postretirement health benefits 238 76 143
Deferred income tax liabilities 2,515 (1,650) (2,038)
Other non-cash adjustments to net income 46 (98) 323
Change in:
Accounts receivable (3,792) (973) 2,250
Inventories (2,391) 1,572 2,237
Income tax receivable (76) 2,045 (1,925)
Deferred income tax assets (2,237) 275 (705)
Other current assets and
other assets and investments (1,547) (312) (631)
Accounts payable, accrued
expenses and accrued compensation
expenses 2,807 1,230 1,973
Deferred revenue (538) (28) 664
Income taxes payable (1,356) 1,542 (891)
Total adjustments 5,660 11,948 14,001
Net cash provided by
operating activities $13,051 $16,552 $ 8,264
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During 1995, the Company increased its ownership in Flex Products,
Inc. (Flex Products) from 40% to 60% through the investment of
approximately $8.4 million in cash and the payment of an additional $7.0
million to acquire a 60% interest in an $11.7 million promissory note
issued by Flex Products to its former majority shareholder. The investment
was financed, in part, by the issuance of $12 million of Series C
Convertible Redeemable Preferred Stock (yielding $11.4 million after
expenses) and from bank borrowings under the new bank line of credit that
was entered into subsequent to the Flex Products investment and preferred
stock transactions.
The cash and non-cash components of the Flex Products investment
transaction were as follows (amounts in thousands):
Fair value of assets being consolidated,
including intangibles $ 27,789
Cash balance in consolidation (508)
Liabilities in consolidation (1,807)
Minority interest in Flex Products, Inc. (10,289)
Cash paid, net of a $498
intercompany balance $ 15,185
During 1995, the Company acquired Netra Corporation for approximately
$1.5 million in cash and the issuance of approximately $1.6 million in
Company common stock. Cash and non-cash components of the acquisition were
as follows (amounts in thousands):
Fair value of assets acquired,
including intangibles $3,529
Cash acquired (188)
Liabilities assumed (279)
$3,062
Cash paid to sellers, net of
cash acquired $1,477
OCLI common stock issued to sellers 1,585
$3,062
During fiscal 1993, the Company acquired MMG Glastechnik GmbH (MMG) in
Germany for approximately $3.4 million in cash and approximately $9.3
million of notes payable to the sellers. Cash and noncash components of
the acquisition were as follows (amounts in thousands):
Fair value of assets acquired,
including intangibles $22,865
Cash acquired (16)
Liabilities assumed (10,141)
Notes payable to sellers (9,265)
Net cash paid $3,443
In 1995, 1994 and 1993, common stock, with an aggregate fair market
value of $30,000, $20,000 and $42,000, was awarded to the Company's outside
directors as remuneration.
During 1995 and 1993, the Company issued 81,825 and 46,500 shares of
common stock to its Employee Stock Ownership Plan (ESOP+) at fair market
value to satisfy a portion of its Company contribution.
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1995, 1994 AND 1993
(Amounts in thousands)
FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION
BALANCE AT NOVEMBER 1, 1992 8,481 $ 85 $36,679 $15,356 $ 134
Shares issued to Employee
Stock Ownership Plan 47 1 474
Exercise of stock options and
warrants, including tax
benefit and shares issued
to directors 438 4 2,716
Exercise of stock options
through surrender of common
stock,including tax benefit 6 61 (50)
Foreign currency translation
adjustment for the year (1,545)
Net loss for the year (5,737)
Dividend on common stock (1,043)
_____ __ ______ _____ ______
BALANCE AT OCTOBER 31, 1993 8,972 90 39,930 8,526 (1,411)
Exercise of stock options and
warrants, including tax
benefit and shares issued
to directors 6 37
Foreign currency translation
adjustment for the year 1,336
Net income for the year 4,604
Dividend on common stock (1,075)
_____ __ ______ ______ ____
BALANCE AT OCTOBER 31, 1994 8,978 90 39,967 12,055 (75)
Shares issued on purchase
of Netra 165 1 1,584
Shares issued to Employee
Stock Ownership Plan 82 1 794
Exercise of stock options,
including tax benefit and
shares issued to directors 264 3 2,116
Foreign currency translation
adjustment for the year 155
Net income for the year 7,391
Dividend on preferred stock (462)
Dividend on common stock (1,083)
_____ __ _______ _______ ___
BALANCE AT OCTOBER 31, 1995 9,489 $95 $44,461 $17,901 $80
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED OCTOBER 31, 1995, 1994 AND 1993
1. GENERAL
NATURE OF OPERATIONS. Optical Coating Laboratory, Inc. (OCLI)
develops, manufactures and sells thin film coated products. Thin film
coatings control and enhance light by altering the transmission, reflection
and absorption of the various wavelengths of light energy to achieve a
desired effect such as anti-reflection, shielding, conductivity or abrasion
resistance. OCLI markets and sells its products worldwide to original
equipment manufacturers (OEM's) who utilize thin film coated components or
devices for optical and electro-optical systems for computers,
photocopiers, LCD desktop projectors, scanners, instruments and satellites.
OCLI sells its Glare/Guard ergonomic computer display products through
distributors and office supply retailers. Flex Products, Inc. (Flex
Products), OCLI's 60% owned subsidiary, develops and manufactures thin film
coatings on plastic film with a proprietary, high speed process.
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 and 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.
CERTAIN SIGNIFICANT ESTIMATES. At October 31, 1995, the Company had
significant deferred tax assets related to operating losses available for
carryforward. These deferred tax assets have been recorded under the
guidelines of SFAS No. 109, Accounting for Income Taxes, on the premise
that future taxable income will more likely than not be adequate to realize
future tax benefits of the available net operating loss carryforwards.
Under tax regulations, realization of tax benefits per period will be
limited and full realization will depend on future taxable income over a
number of years. In Note 10, Contingencies and Commitments, the Company has
set forth an asserted claim amount arising out of a UK patent infringement
suit which is reported as a contingency matter. The Company has a ground
water contamination situation at its facility in Santa Rosa, California.
The Company has established a program for reducing contaminant
concentration levels to acceptable federal and state levels under the
regulatory guidance of the California Regional Water Quality Control Board.
Based upon the extensive tests conducted and advice of environmental
consultants, the Company believes that a previously established accrual for
completion of the ground water remediation plan is sufficient and that the
annual cost of maintaining compliance with environmental standards related
to the above matter will not have a material adverse effect on the
Company's business, financial position or prospects.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly and majority owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
INVESTMENTS. Cash and short-term investments are comprised of cash,
bank repurchase agreements and short-term commercial paper readily
convertible to cash. Short-term investments are carried at cost which
approximates market value. For purposes of the Statements of Cash Flows,
all highly liquid short-term investments with a maturity of three months or
less are considered cash equivalents.
REVENUE RECOGNITION. Revenue from sales of manufactured products and
from sales under fixed-price contracts is recorded at the time deliveries
are made or work is performed. Revenue from cost reimbursement contracts
is recorded as work is performed.
INVENTORIES. Inventories are stated at the lower of cost, on a first-
in, first-out basis, or market. Work-in-process inventories related to
fixed-price contracts are stated at the accumulated cost of material, labor
and manufacturing overhead, less the estimated cost of units delivered. To
the extent total costs under fixed-price contracts are estimated to exceed
the total sales price, charges are made to current operations to reduce
inventoried costs to net realizable value. In addition, if future costs
are estimated to exceed future revenues, an allowance for losses equal to
the excess is provided by a charge to current operations.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
stated at cost. Estimated service lives range from 5 to 45 years for
buildings and improvements and from 3 to 8 years for all other property,
plant and equipment. Buildings and improvements and substantially all
equipment are depreciated using accelerated methods.
RESEARCH AND DEVELOPMENT. Research and development costs are charged
to operations in the year incurred. The cost of equipment used in research
and development activities which has alternative uses is capitalized as
equipment and not treated as an expense of the period. Such equipment is
depreciated over estimated lives of 5 years.
FOREIGN OPERATIONS. The financial position and operating results of
foreign operations are consolidated using the local currency as the
functional currency. Local currency assets and liabilities are translated
at the rate of exchange to the US dollar on the balance sheet date, and the
local currency revenues and expenses are translated at average rates of
exchange to the US dollar during the period. Resulting translation gains
or losses are included in stockholders' equity under cumulative foreign
currency translation adjustment. Foreign currency transaction gains and
losses, which have not been material, are reflected in operating results.
INCOME TAXES. Income taxes include provisions for temporary
differences between earnings for financial reporting purposes and earnings
for income tax purposes under the guidelines of SFAS No. 109, Accounting
for Income Taxes, adopted by the Company in fiscal 1992. Tax credits are
taken as a reduction of current income tax provisions when available.
EARNINGS PER SHARE. Earnings per common and common equivalent share
assumes dilutive stock options outstanding (none in 1993) were exercised at
the beginning of the year or the date of grant, whichever is later. Fully
diluted earnings per share are not applicable, or the effect is anti-
dilutive, and are, therefore, not presented.
RECLASSIFICATIONS. Certain reclassifications have been made to prior
year data to conform to the current year presentation.
3. LONG-TERM DEBT
Long-term debt as of October 31 consisted of:
1995 1994
(Amounts in thousands)
Unsecured senior notes. Interest
at 8.71% payable semiannually.
Principal payable in annual
installments of $3.6 million from
1998 through 2002. $18,000 $18,000
Unsecured bank term loan. Variable interest
rates averaging 7.3% at October 31, 1995,
payable quarterly. Principal payable
semiannually as follows:
Payment Dates Amounts
April 1996 $ 500,000
October 1996
and April 1997 1,000,000
Each October and
April thereafter 2,000,000 14,500
Unsecured borrowings under revolving
bank line of credit. Interest at 7.2%
at October 31, 1995. Repaid subsequent
to fiscal year end. 2,000
Unsecured bank term loan. Balance paid in 1995. 5,500
Land improvement assessment. Interest at
an average rate of 6.75%. Principal and
interest payable in semiannual installments
of $77,000 through 1998. 401 517
Scottish Development Agency (SDA) building loan,
with a conditional interest moratorium from
February 1, 1995 through January 31, 1998
with interest at 9.5% thereafter. Semiannual
principal payments of approximately $100,000
are payable through January 1998 with
subsequent payments of $331,000, comprising
principal and interest, through 2006.
Collateralized by the land and building of
the Company's Scottish subsidiary. 4,026 4,289
Notes payable to private parties in connection
with the purchase of MMG. Principal and
interest at 8% payable over ten years in
quarterly installments of approximately
$420,000 through 2003. 7,721 8,167
Bank loans of MMG with interest rates ranging
from 4.5% to 8.0%. Payable in semiannual
and annual installments through 2005. Partly
collateralized by mortgages on MMG land
and buildings and liens on equipment. 3,050 5,133
Present value of obligations under capital
leases at an assumed interest rate of
8.0% payable in monthly installments
through 2004. 913 713
50,611 42,319
Less current maturities (3,344) (6,878)
$47,267 $35,441
Annual long-term debt maturities and capital lease payments for the
ensuing five years are as follows:
YEAR PAYMENT
(Amounts in thousands)
1996 $ 3,344
1997 5,549
1998 9,372
1999 9,202
2000 7,087
Thereafter 16,057
$50,611
The Company has a $30 million unsecured credit facility comprised of a
$15 million term loan and a $15 million revolving line of credit. In
connection with the Flex Products transaction discussed in Note 4, the
Company utilized the borrowings under the term loan for capital
expenditures and to liquidate outstanding debt. During 1995, $2 million was
borrowed under the $15 million revolving credit facility which expires on
April 28, 2000 and carries a commitment fee of .375% per year on the unused
portion of the facility. The Company has an incremental credit facility to
cover a surety letter for approximately $3.9 million issued to secure 50%
of the Company's notes payable arising from the purchase of MMG. The
Company also has a letter of credit for approximately $1.5 million to
satisfy the Company's workers' compensation self-insurance requirements.
The surety commitment and letter of credit facilities carry a fee of 1.25%
per year.
Subsequent to fiscal year end 1995, the Company entered into a
mortgage loan agreement in the amount of $2.6 million. The loan is
collateralized by the land and building of a newly constructed 72,000
square foot manufacturing facility located in the Company's Santa Rosa,
California campus area. The term of the non-recourse loan is 15 years and
carries a fixed interest rate of 8%. Payments of principal and interest are
approximately $25,000 per month.
Also subsequent to fiscal year end 1995, the Company entered into an
operating lease arrangement in the amount of $5.9 million for a newly
acquired continuous coating machine and related equipment. The term of the
operating lease is six years and provides for an early buyout at fair value
at the end of five years.
The Company's subsidiary in Scotland has a credit arrangement of up to
approximately $470,000 at market interest rates and has outstanding letters
of credit of approximately $320,000 to guarantee import duty. There were
no borrowings under the credit arrangement in fiscal years 1995 or 1994.
The Company's subsidiary in Germany has various credit facilities with
local banks totaling approximately $3 million which are used for working
capital requirements. These credit facilities are utilized as part of
normal local payment practices.
The Company has certain financial covenants and restrictions under its
bank credit arrangements and the unsecured senior notes.
4. ACQUISITIONS
FLEX PRODUCTS, INC. In May 1995, the Company acquired controlling
ownership of Flex Products with the purchase of an additional 20% interest
in Flex Products from ICI Americas Inc. (ICIA), an affiliate of Imperial
Chemical Industries PLC. Flex Products was founded as a division of the
Company in the early 1980's and subsequently established as a joint venture
between the Company and ICIA in 1988, with ICIA owning 60% and the Company
owning 40%. Upon formation of the 1988 joint venture, the Company received
proceeds in excess of the carrying amount of the assets contributed to the
joint venture. The proceeds were allocated first to reduce the carrying
amount of the Company's investment to zero, with the remaining proceeds
reported as gain on sale of equity in affiliated company. Since the
Company carried its investment in the joint venture at zero and was not
obligated to make further investment in the joint venture, it did not
recognize losses attributable to its equity position in the joint venture.
Pursuant to the terms of the Stock and Note Purchase Agreement dated
May 1, 1995, by and among the Company, SICPA Holding S.A. (SICPA), ICIA,
ICIAH and Flex Products, the Company acquired the incremental 20% interest
in Flex Products for a cash payment of $8.4 million and paid ICIAH
approximately $7.0 million in cash to acquire a 60% interest in an $11.7
million promissory note previously issued by Flex Products to ICIA to fund
Flex Products' working capital requirements. In conjunction with the
Company's increase in ownership, ICIA's remaining 40% interest in Flex
Products was acquired by SICPA, a privately held Swiss corporation
headquartered in Lausanne, Switzerland. SICPA is the largest manufacturer
of printing inks in the world and the major customer of Flex Products.
SICPA also acquired the balance of the note. The incremental investment in
Flex Products was recorded as a purchase transaction.
The funding for the purchase of the additional equity interest and
note of Flex Products, totaling $15.4 million, came from a $4 million draw
down from the Company's existing bank line of credit and from the issuance
of $12 million in convertible redeemable preferred stock in a private
placement.
The pro forma consolidated results of operations for the full year
periods 1995 and 1994, including the operating results of Flex Products,
assuming normal effective tax provision and the effect of the financing of
the transaction, would have been as follows:
1995 1994
(Amounts in thousands)
Revenues $181,389 $154,288
Net income before change
in accounting principle 7,847 4,550
Net income applicable to
common stock 6,887 3,521
Net income per common and
common equivalent share $.72 $.39
In connection with this transaction, the Company entered into a Put
and Call, Right of First Refusal and Co-Sale Agreement with SICPA pursuant
to which SICPA was granted a call option to purchase the Company's 60%
interest in Flex Products and the Company was granted a put option to sell
the Company's 60% interest in Flex Products to SICPA. The call price is
$25 million plus (i) two times the amount by which Flex Products' annual
sales immediately preceding the call exceed $23.6 million (ii) times 60%
(the Company's ownership percentage of Flex Products). The put price is $20
million plus (i) 1.5 times the same increase in Flex Products' sales (ii)
times 60%. The put and call options can be exercised at any time after May
8, 1998 and before May 8, 2003, and cannot be exercised in the event Flex
Products goes public. This agreement also provides for a right of first
refusal in favor of each of SICPA and the Company to buy the other's shares
and also provides a co-sale right which requires that on any sale of a
party's shares, the other party is allowed to participate on a pro rata
basis in the sale.
The Agreement with SICPA also provides conditions under which either
party may cause Flex Products to have an initial public offering of its
common stock.
NETRA. In February 1995, the Company acquired the assets and
liabilities of Netra Corporation, a precision injection molded plastic
optics manufacturer, for a total purchase price of approximately $3.1
million. The purchase price consisted of a cash payment of $1.5 million
and the balance of approximately $1.6 million paid by the issuance of
164,735 shares of the Company's common stock. The acquisition was recorded
as a purchase. If the acquisition of Netra had occurred at the beginning of
fiscal 1995, the results of operations would not have been materially
different.
MMG. During fiscal 1993, the Company completed its acquisition of MMG
Glastechnik GmbH (MMG), a precision glass fabrication company in Germany.
Payment consisted of approximately $3.4 million in cash and $9.3 million in
ten year notes to the sellers which are payable in equal quarterly
installments of principal plus interest at 8% per year. In connection with
the acquisition, the Company also assumed approximately $5.3 million of
long-term debt owed by MMG. This acquisition was accounted for as a
purchase.
GOODWILL. At October 31, 1995, other assets and investments includes
$8.2 million of goodwill, of which $7.2 million is attributed to the
purchase of MMG and is being amortized over 15 years and $1.0 million is
attributed to the purchase of Netra and is being amortized over five years.
5. STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN. In November 1987, the Company adopted a
Stockholder Rights Plan which expires in November 1997, under which the
Company declared a dividend of preferred stock purchase rights which only
become exercisable, if not redeemed, ten days after a person or group has
acquired 20% or more of the Company's common stock or the announcement of a
tender offer which would result in a person or group acquiring 30% or more
of the Company's common stock. Under certain circumstances, the plan
allows stockholders, other than the acquiring person or group, to purchase
the Company's common stock or the common stock of the acquirer having a
market value of twice the exercise price.
PREFERRED STOCK. The Company has authorized 100,000 shares of
preferred stock at $.01 par value of which 10,000 shares were designated
Series A Preferred Stock in connection with the Company's Stockholder
Rights Plan. None of the Series A Preferred Stock is issued.
Additionally, 15,000 shares were designated Series B Preferred Stock, of
which 8,350 shares were issued and subsequently converted to common stock
on call for redemption. None of the Series B Preferred Stock is currently
issued and outstanding.
In May 1995, as part of the financing of the acquisition of a
controlling interest in Flex Products, Inc., the Company issued 12,000
shares of 8% Series C Convertible Redeemable Preferred Stock (the "Series C
Preferred Stock") in consideration for $1,000 per share. The Series C
Preferred Stock is convertible into common stock at any time by the holders
at a conversion price of $10.50 per common share (subject to adjustment in
certain circumstances). The Series C Preferred Stock is redeemable by the
Company commencing two years from the date of issuance (if the Company's
common stock is trading at $17 per share or more for any 20 consecutive day
period) and, after three years, unconditionally, at 108% of the purchase
price per share, declining to 100% over four years. The holders of the
Series C Preferred Stock are entitled to receive a cumulative annual
dividend of $80 per share, which is payable quarterly and has preference to
any other dividends being paid by the Company.
The holders of shares of Series C Preferred Stock are not entitled to
notice of any stockholders' meetings or to vote on any matter, except as
provided by law or as otherwise specified in the Series C Preferred Stock
Certificate of Designation, Preferences and Rights. If, however, dividends
on the Series C Preferred Stock are in arrears in an amount equal to four
quarterly dividends, a default period would begin in which the holders of
the Series C Preferred Stock, voting as a class, would have the right to
elect the greater of 2 directors or a number of directors not less than 25%
of the total number of authorized directors. Such right terminates upon
expiration of the default period. The holders of the Series C Preferred
Stock are entitled to a liquidation preference equal to $1,000 per share
plus accrued and unpaid dividends. The Company may not create any series
or class of capital stock ranking prior or equal to the Series C Preferred
Stock unless the terms of any such series or class is approved by the
holders of not less than sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of Series C Preferred Stock, voting separately as a
class.
Pursuant to the terms of a Stock Purchase Agreement entered into with
the holders of the Series C Preferred Stock, the Company may not pay any
dividends or make any other distributions in respect of, or redeem or
repurchase any, securities of the Company to the extent such payments
exceed 25% of the difference between (a) aggregate "Net Income" (as such
term is defined in the Stock Purchase Agreement) of the Company after
January 31, 1995 and (b) all losses suffered by the Company during such
period.
6. INCENTIVE COMPENSATION PLANS, STOCK OPTION PLANS AND WARRANTS
Under the Company's incentive compensation and employee stock option
plans, options have been granted to purchase the common stock of the
Company at prices equal to 100% of the market price of the Company's common
stock at the date of grant. At October 31, 1995, outstanding options were
exercisable at prices ranging from $4.50 to $12.50 per share. Options
expire five and ten years from the date of grant.
Changes in options, shares reserved for issuance and options available
for future grants under these plans were as follows:
SHARES
__________________________________
SUBJECT TO AVAILABLE
OUTSTANDING FOR FUTURE
RESERVED OPTIONS GRANTS
BALANCE AT NOVEMBER 1, 1992 1,621,688 1,363,275 258,413
Authorized and reserved 300,000 300,000
Granted 181,800 (181,800)
Exercised for cash at an aggregate
price of $2,019,000 (398,337) (398,337)
Exercised for shares at an aggregate
fair market value of $101,000 (17,859) (17,859)
Canceled ________ (38,200) 38,200
BALANCE AT OCTOBER 31, 1993 1,505,492 1,090,679 414,813
Granted 819,900 (819,900)
Exercised for cash at an aggregate
price of $16,000 (2,884) (2,884)
Canceled (3,300) (564,100) 560,800
BALANCE AT OCTOBER 31, 1994 1,499,308 1,343,595 155,713
Authorized and reserved 600,000 600,000
Granted 474,500 (474,500)
Exercised for cash at an aggregate
price of $1,627,000 (261,295) (261,295)
Canceled ________ (25,000) 25,000
BALANCE AT OCTOBER 31, 1995 1,838,013 1,531,800 306,213
EXERCISABLE AT OCTOBER 31, 1995 956,675
The weighted average exercise price of the exercisable options at
October 31, 1995 was $7.76 per share.
In 1993, options to purchase 17,859 shares of common stock were
exercised through exchange of 11,200 shares of common stock at fair market
value.
In 1993, warrants to purchase 75,000 shares of the Company's common
stock were exercised at $5.51 per share with the net issuance of 34,913
shares of common stock.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires the
Company to adopt the disclosure provisions of the accounting standard for
fiscal year 1997. Pursuant to the new standard, companies are encouraged,
but are not required, to adopt the fair value method of accounting for
employee stock-based transactions. Companies are also permitted to
continue to account for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," but would be
required to disclose pro forma net income in a note to the financial
statements and, if presented, earnings per share as if the company had
applied the new method of accounting. The Company has not yet determined
if it will elect to change to the fair value method, nor has it determined
the effect the new standard will have on net income and earnings per share
should it elect to make such a change. Adoption of the new standard will
have no effect on the Company's cash flows.
7. INCOME TAXES
The provision (credit) for income taxes consisted of:
1995 1994 1993
(Amount in thousands)
Current:
Federal $ 3,617 $ 2,174 $ 584
Business tax credits (114)
3,617 2,174 470
State 964 516 221
Foreign 609 58 (24)
5,190 2,748 667
Deferred:
Federal 626 249 (1,738)
State (586) 281 (631)
Foreign 253 (198) (572)
293 332 (2,941)
$ 5,483 $ 3,080 $(2,274)
The reconciliation of the effective income tax rates to the federal
statutory rates was as follows:
1995 1994 1993
Statutory federal income tax rate 34.0% 34.0% (34.0)%
State taxes, net of federal tax benefit 6.3 6.9 (2.6)
Foreign income taxes at rates different
from US statutory rates 3.6 0.7 11.8
Business tax credits (state tax
credits net of federal tax effect) (3.0) (1.4)
Tax benefit from export sales corporation (1.0) (1.3) (0.3)
Adjustment of prior year provisions (0.8) (0.6) (0.4)
Other 1.0 0.4 (1.5)
Effective tax (benefit) rate 40.1% 40.1% (28.4)%
The tax benefit recorded in 1993 was less than what would have been
recorded by applying the federal and state statutory rates because, under
the requirements of SFAS 109, the full tax benefit of losses incurred by
European operations could not be recognized.
The Company's deferred tax assets and liabilities at October 31, 1995
and 1994 under SFAS 109 arise from the following temporary differences in
accounting for financial versus tax reporting purposes:
DEFERRED TAX ASSETS(LIABILITIES)
1995 1994
CURRENT: (Amounts in thousands)
Valuation reserves and accruals not deductible
for tax purposes until paid or utilized $ 4,700 $ 3,637
Intercompany profit eliminated for financial
reporting purposes which is taxable currently 570 505
Revenue recognized in different periods for
financial and tax reporting purposes 12 72
Domestic net operating losses available
for carryforward 896
Asset valuation difference between financial and
tax reporting basis due to purchase accounting 254
Other 233 21
6,665 4,235
NONCURRENT:
Tax depreciation greater than financial
reporting depreciation (3,169) (2,771)
Intangible assets, difference between financial
and tax reporting basis and periods (1,204)
Burden and interest on self-constructed assets
expensed for tax purposes and depreciated for
financial reporting purposes (659) (489)
Plant and equipment written off for financial
reporting purposes, depreciable for tax purposes 497 1,023
Valuation reserves and accruals not deductible for
tax reporting purposes until utilized or paid 136 191
Costs required to be capitalized under the uniform
capitalization tax rules which are deducted
for financial reporting purposes 781 353
Liability for postretirement health benefits not
deductible for tax purposes until paid 674 658
State tax credits eligible for carryforward related
to purchased equipment 419
Domestic net operating losses available
for carryforward 4,838
Foreign net operating losses available
for carryforward 1,245 1,724
Other (42) (118)
3,516 571
Less valuation allowance (1,158) (1,077)
2,358 (506)
Total deferred tax balances $ 9,023 $ 3,729
The Company has provided a valuation allowance related to the deferred
tax asset resulting from the operating loss carryforwards of certain of its
foreign subsidiaries until the realization of the loss carryforwards is
more likely than not. The change in the valuation allowance of $81,000 is
due to the change in the applicable foreign exchange rate between 1995 and
1994.
Income taxes have not been provided on approximately $9.3 million of
unremitted earnings of the Company's subsidiary in Scotland. The Company
intends to continue to reinvest these amounts in the subsidiary's
operations. Should any of these amounts be distributed to the Company, any
taxes on these distributions would be substantially offset by foreign tax
credits.
During 1995, the Company recorded $873,000 of deferred tax assets
related to the purchase of Netra and $4.7 million of deferred tax assets
with the consolidation of Flex Products. These deferred tax assets have
been recorded under the guidelines of SFAS No. 109, Accounting for Income
Taxes, on the premise that future taxable income will more likely than not
be adequate to realize future tax benefits of the available net operating
loss carryforwards giving rise to these deferred tax assets.
8. EMPLOYEE BENEFIT PLANS
US OPERATIONS. The Company has an Employee Stock Ownership Plan
(ESOP+), a defined contribution plan, for its non-Flex Products Santa Rosa
employees and a 401(k) plan with a Company match for the employees of Flex
Products. Company matching contributions to ESOP+ are determined by a
profit sharing formula with additional contributions, if any, determined by
the Company's Board of Directors. Company matching contributions to Flex
Products' 401(k) plan are 75% of the first 6% of employee contributions
under the plan. The Company follows the policy of funding Company
contributions as accrued. Company contributions to ESOP+ are made in the
form of the Company's common stock or in the form of cash to purchase the
Company's common stock. Company contributions under Flex Products' 401(k)
plan are paid in cash. The Company contributed to ESOP+ and charged to
operations $1,225,000, $950,000 and $500,000 in 1995, 1994 and 1993.
Contributions to Flex Products' 401(k) plan were $84,000 for the six months
May through October 1995.
In 1993, as part of its restructuring, the Company offered a voluntary
severance program to US employees who had met certain age and service
requirements. The Company expensed $550,000 as part of its restructuring
charges as a result of this program.
SCOTTISH OPERATIONS. The Company's Scottish subsidiary maintains a
contributory defined benefit pension program covering most of its
employees. Benefits are primarily based on years of service and the
employee's compensation. The program is funded in conformity with the
funding requirements of applicable UK government regulations. Plan assets
are invested in diversified fund units which are comprised, primarily, of
corporate equity securities.
The following table sets forth the plan's funded status at October 31:
1995 1994 1993
(Amounts in thousands)
Plan assets at fair value $5,464 $ 4,971 $ 3,824
Projected benefit obligation (5,575) (4,820) (3,890)
Plan assets greater (less) than projected
benefit obligation (111) 151 (66)
Unrecognized net loss 870 640 700
Unrecognized transition asset
being amortized over 19 years (473) (521) (510)
Net effect of exchange
rate fluctuations ______ ______ 13
Prepaid pension cost included
in other assets $ 286 $ 270 $ 137
At October 31, 1995, 1994 and 1993, the projected benefit obligations
include accumulated benefit obligations of $5,344,000, $4,621,000 and
$3,675,000 of which $5,323,000, $4,602,000 and $3,667,000 are vested.
A discount rate of 8.5% in 1995 and 1994 and 8.0% in 1993 was used in
determining the present value of the projected benefit obligation. The
expected long-term rate of return on assets was 9% and the assumed rate of
increase in future compensation levels was 5.5% in 1995, 1994 and 1993.
The net pension expense recorded in 1995, 1994 and 1993 included the
following components:
1995 1994 1993
(Amounts in thousands)
Service-cost benefits earned
during the period $ 313 $ 275 $ 278
Interest cost on projected
benefit obligation 439 317 269
Actual return on plan assets (318) (479) (688)
Net amortization and deferral (160) 92 389
Net pension expense $ 274 $ 205 $ 248
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a contributory defined benefit postretirement
plan for its US operations which provides medical, dental and life
insurance benefits to employees who meet age and years of service
requirements prior to retirement and agree to contribute a portion of the
cost. The Company has the right to modify or terminate these benefits.
The Company's contribution is a set amount per retiree depending on
the retiree's years of service and dependent status at the date of
retirement and the age of the retiree and dependents when benefits are
provided. Cost increases are paid by the retiree.
The postretirement plan's benefit obligation was as follows for the
year ended October 31:
1995 1994 1993
(Amounts in thousands)
Accumulated postretirement
benefit obligation:
Retirees $1,012 $ 894 $921
Fully eligible plan participants 243 175 135
Other active plan participants 744 590 653
Total accumulated postretirement
benefit obligation (unfunded) 1,999 1,659 1,709
Unrecognized loss (227) (91) (227)
Accrued postretirement
benefit obligation $1,772 $1,568 $1,482
Net periodic postretirement benefit cost included the following components
for the year ended October 31:
1995 1994 1993
(Amounts in thousands)
Service-cost benefits earned
during the period $ 50 $ 59 $ 42
Interest cost on accumulated
postretirement benefit obligation 133 120 114
Effect of special termination benefits _ 71
Net postretirement benefit cost $183 $179 $227
Net postretirement benefit costs and accumulated benefit obligation
for 1993 were increased by $71,000 as a result of special termination
benefits provided to US employees who participated in a voluntary severance
program.
Because the Company has established a maximum amount it will pay per
retiree under the plan, health care cost trends do not affect the
calculation of the accumulated benefit obligation or the net postretirement
benefit cost. The weighted average discount rate used in determining the
accumulated benefit obligation was 7.25% in 1995, 8.0% in 1994 and 7.0% in
1993.
10. CONTINGENCIES AND COMMITMENTS
UK PATENT INFRINGEMENT SUIT. During the past several years, the
Company has been engaged in litigation in the United Kingdom (UK) involving
infringement of a Company patent by a UK company. The Company won its
action at the Patents County Courts level, but lost on appeal to the UK
House of Lords. The UK company, through its counsel, submitted a claim for
damages for lost profits during the injunction period totaling
approximately $1.6 million. The Company and legal counsel are in the
process of reviewing the claim. Management believes that the amount of the
claim is substantially overstated and that the ultimate settlement will not
have a material adverse effect on the financial statements.
CONCENTRATIONS OF CREDIT RISK. The Company grants credit to
customers, subject to credit approval, for most of its sales. At October
31, 1995, accounts receivable from customers in foreign countries,
primarily in Europe and Asia, were $16.7 million, constituting 56% of
accounts receivable.
OPERATING LEASE AGREEMENTS. The Company and its subsidiaries lease
computer equipment, manufacturing space and warehouse space. Such
operating lease payments are recorded as rental expense and totaled
$2,481,000, $2,186,000 and $2,075,000 for 1995, 1994 and 1993. Future
minimum operating lease payments amount to $4,252,000, and for the years
1996 through 2000 are $2,166,000, $1,143,000, $440,000, $271,000, $144,000
and $88,000 thereafter under operating lease agreements in effect at
October 31, 1995.
EMPLOYMENT AGREEMENTS. The Company has approved employment agreements
for officers and employment assurance agreements for certain management and
technical employees, as well as increases in severance benefits for full-
time employees, to be effective in the event of certain changes in control
of the Company. These agreements are currently effective through 1997.
PROPERTY, PLANT AND EQUIPMENT PURCHASES. At October 31, 1995, the
Company had commitments of approximately $2.1 million for the completion of
a new manufacturing and office building to be leased on completion to Flex
Products. Separately, Flex Products has remaining commitments of
approximately $9.8 million on two large scale coating machines and $1.1
million for leasehold improvements as of October 31, 1995.
11. INFORMATION ON OPERATIONS
INVENTORIES. Inventories as of October 31 consisted of:
1995 1994
(Amounts in thousands)
Raw materials and supplies $ 7,330 $ 3,633
Work-in-process and finished goods 8,556 6,926
$15,886 $10,559
ACCRUED EXPENSES. Accrued expenses at October 31 consisted of the
following:
1995 1994
(Amounts in thousands)
Workers' compensation reserve $ 937 $ 1,578
Ground water remediation reserve 1,187 1,197
Other accrued liabilities 7,391 5,648
$ 9,515 $ 8,423
INTEREST. Interest expense and amounts capitalized were as follows
for the year ended October 31:
1995 1994 1993
(Amounts in thousands)
Interest costs incurred $4,326 $3,372 $3,176
Less amounts capitalized 779 157 178
Net interest expense $3,547 $3,215 $2,998
SALES INFORMATION. Information on sales to significant customers and
sales to the federal government is as follows:
Sales to the Company's largest customer, who is also an approximate
10% common stockholder of the Company, accounted for approximately 8% of
sales in 1995 and 7% of sales in 1994 and 1993. Sales to the largest
customer of Flex Products, who is a 40% owner of Flex Products, were 12% of
consolidated sales for the six months of consolidation of Flex Products.
Sales of products and services to the federal government, primarily
under subcontracts, were 10%, 11% and 7% of net revenues in 1995, 1994 and
1993. Certain of these contracts are subject to cost review by various
governmental agencies. Management believes that refunds will not exceed
amounts previously reserved.
FOREIGN OPERATIONS. Foreign sales of the Company were as follows for
the year ended October 31:
1995 1994 1993
(Amounts in thousands)
Export sales by US operations:
To Asian countries $21,305 $15,012 $11,454
To European and other countries 16,012 4,243 2,850
37,317 19,255 14,304
Foreign sales by European
operations 42,840 40,241 36,104
$80,157 $59,496 $50,408
Identifiable assets of the Company's foreign operations were $43.2
million at October 31, 1995, $43.3 million at October 31, 1994 and $37.7
million at October 31, 1993.
COMPONENTS OF EARNINGS. The components of earnings (loss) before
income taxes were as follows for the year ended October 31:
1995 1994 1993
(Amounts in thousands)
Domestic $12,867 $ 8,311 $(3,480)
Foreign 823 (627) (4,531)
$13,690 $ 7,684 $(8,011)
RESTRUCTURING CHARGES. In 1993, the Company took action to reduce its
worldwide work force and restructure certain of its operations.
Accordingly, in 1993, the Company recorded $9.7 million of restructuring
charges reflecting reduction of the carrying value of certain equipment,
inventory and other assets and severance payments relating to staff
reductions. Such restructuring charges increased the net loss per share by
$.70 for 1993.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets, which requires the Company to adopt the
accounting and disclosure provisions of the accounting standard for fiscal
year 1997. The new standard requires that long-lived assets, certain
identifiable intangibles and goodwill related to those assets, be reviewed
for impairment, measured by comparing the carrying amount of the asset to
its fair value, whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable. The
Company has decided not to adopt SFAS No. 121 early as the standard
encourages, since it has had insufficient time to fully assess the effect,
if any, of the application of the new standard. The Company fully intends
to comply with the accounting and disclosure provisions of the new standard
in fiscal 1997.
12. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Results of operations and stock price data for each quarter of fiscal 1995
and 1994 were as follows:
Three months ended
(in thousands, January 31, April 30, July 31, October 31,
except per share and 1995 1995 1995(1) 1995(1) 1995
stock price data)
Revenues $35,993 $41,487 $47,289 $44,648 $169,417
Cost of sales 21,352 25,923 29,536 29,198 106,009
Gross profit 14,641 15,564 17,753 15,450 63,408
Operating Expenses:
Research and development 1,387 1,632 2,546 2,836 8,401
Selling and administrative 9,244 9,390 9,707 9,121 37,462
Amortization of
intangibles 171 304 213 287 975
Total operating expenses 10,802 11,326 12,466 12,244 46,838
Income from operations 3,839 4,238 5,287 3,206 16,570
Other income (expense):
Interest income 266 196 127 118 667
Interest expense (920) (991) (974) (662) (3,547)
Income before provision
for income taxes and
minority interest 3,145 3,443 4,440 2,662 13,690
Provision for income taxes 1,321 1,445 1,866 851 5,483
Minority interest 443 373 816
Net income 1,824 1,998 2,131 1,438 7,391
Dividend on convertible
redeemable preferred
stock -- -- 222 240 462
Net income applicable
to common stock $1,824 $1,998 $1,909 $1,198 $6,929
Net income per common
and common equivalent
share $ .20 $ .21 $ .20 $ .12 $ .73
Weighted average number
of common shares out-
standing (in thousands) 9,025 9,377 9,557 10,066 9,510
Stock prices
High 7-7/8 10-1/8 11-3/8 13-7/8 13-7/8
Low 5-3/4 7-1/2 8-3/8 10-1/4 5-3/4
(1) Reflects the consolidation of Flex Products, Inc., a 60% owned
subsidiary.
January 31, April 30, July 31, October 31,
1994 1994 1994 1994 1994
Revenues $ 30,091 $ 33,544 $ 33,403 $ 34,742 $131,780
Cost of sales 19,017 20,544 22,039 22,401 84,001
Gross profit 11,074 13,000 11,364 12,341 47,779
Operating Expenses:
Research and development 1,111 1,344 1,434 1,340 5,229
Selling and administrative 7,208 8,476 7,402 8,255 31,341
Amortization of intangibles 166 150 173 159 648
Total operating expenses 8,485 9,970 9,009 9,754 37,218
Income from operations 2,589 3,030 2,355 2,587 10,561
Other income (expense):
Interest income 9 9 113 207 338
Interest expense (698) (716) (899) (902) (3,215)
Income before provision
for income taxes 1,900 2,323 1,569 1,892 7,684
Provision for income taxes 798 976 659 647 3,080
Net income $1,824 $1,347 $ 910 $1,245 $4,604
Net income per share $ .20 $ .15 $ .10 $ .14 $ .51
Weighted average number
of common shares out-
standing (in thousands) 9,025 9,049 9,557 9,006 9,023
Stock prices
High 7-3/8 7-3/8 7-1/8 6-5/8 7-3/8
Low 5-7/8 6-3/8 5-1/8 5-3/4 5-1/8
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
Optical Coating Laboratory, Inc. was incorporated in Delaware in 1948.
The Company was reincorporated in California in 1963 and again
reincorporated in Delaware November 2, 1987.
Optical Coating Laboratory, Inc. has the following subsidiaries:
NAME OWNERSHIP PLACE OF INCORPORATION
OCLI International Service
Corporation 100% California
OCLI Foreign Sales Corporation 100% Guam
OCLI Optical Coatings Limited 100% Scotland
OCLI Optical Coating
Laboratory GmbH 100% Germany
MMG Glastechnik GmbH 100% Germany
OCLI Monitor Produkte GmbH 100% Germany
OCLI Optical Coatings Espana S.A. 100% Spain
Optical Coating Laboratory B.V. 100% Netherlands
Optical Coating Laboratory EURL 100% France
Optical Coating Laboratory Srl 100% Italy
OCLI Monitor Products Srl 100% Italy
Flex Products, Inc. 60% Delaware
The subsidiaries listed above are included in the consolidated
financial statements of the Company which are incorporated herein by
reference to the Company's 1995 Annual Report to Stockholders.
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-41050, No. 33-12276, No. 33-48808, No. 33-65132 and No. 33-60891
of Optical Coating Laboratory, Inc. on Forms S-8 and Registration Statements
No. 2-97482, No. 33-61177 and No. 33-65319 on Form S-3 of our report dated
December 18, 1995, appearing in this Annual Report on Form 10-K of
Optical Coatng Laboratory, Inc. for the year ended October 31, 1995.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Optical Coating Laboratory, Inc., listed in Item 14(a)(2). The financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, the financial swtatement schedule, when considered in relation to
the basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
San Francisco, California
January 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000074697
<NAME> OCLI
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 2,799
<SECURITIES> 3,803
<RECEIVABLES> 29,565
<ALLOWANCES> 1,229
<INVENTORY> 15,886
<CURRENT-ASSETS> 61,194
<PP&E> 91,611
<DEPRECIATION> 73,804
<TOTAL-ASSETS> 169,834
<CURRENT-LIABILITIES> 33,179
<BONDS> 0
0
11,357
<COMMON> 62,537
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 169,834
<SALES> 169,417
<TOTAL-REVENUES> 169,417
<CGS> 106,009
<TOTAL-COSTS> 106,009
<OTHER-EXPENSES> 46,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,547
<INCOME-PRETAX> 13,690
<INCOME-TAX> 5,483
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,391
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
OPTICAL COATING LABORATORY, INC.
M E M O R A N D U M
TO: Employees with Employment Assurance Agreements
FROM: Herb Dwight
DATE: November 20, 1995
SUBJ: "CHANGE IN CONTROL" EMPLOYMENT ASSURANCE AGREEMENTS
________________________________________________________________________
Under Employment Assurance Agreements executed between OCLI and certain key
employees as of November 20, 1987, 1989, 1991 and 1993, such employees are
entitled to receive severance payments in certain situations if there is a
"Change in Control" of OCLI. The term "Change in Control" is defined
generally to mean an unfavorable change in control; that is, an
acquisition of OCLI whichis not approved by OCLI's Board of Directors.
The Board of Directors has approved the extension of the Employment Assurance
Agreements to certain key employees for an additional two years beginning
November 20, 1995 through November 20, 1997.
In accordance with the foregoing, Section 1 of the Employment Assurance
Agreements is amended to read as follows:
"1. Term. This Agreement shall be effective through November 20,
1997; provided, however, that if a Change in Control occurs on or
before November 20, 1997, this Agreement shall remain in effect for
two years from the date of occurrence of the Change in Control."
The Board has also approved the addition of a provision for acceleration of
unvested stock option in the event of a Change in Control. Accordingly, a
new Section 3 is hereby incorporated into the Employment Assurance Agreements
as follows:
"3. Acceleration of Unvested Stock Options. Upon a Change in Control
as defined herein, all unvested outstanding stock options held by
Employee shall be immediately exercisable."
With respect to Employment Assurance Agreements issued in 1991 and 1993, the
following definitions supercede the definitions contained in those Agreements
for items 4(a) and 4(e) (formerly 3(a) and 3(e)):
"4. Certain Definitions: For purposes of this agreement, the following
terms have the meanings indicated:
(a) "Acquiring Person" shall mean any person who or which, together
with all Affiliates and Associates of such person, shall be the owner,
beneficial or otherwise, of more than twenty percent (20%) of the shares of
Common Stock of OCLI or Employer then outstanding, but shall not include
OCLI, Employer, any subsidiary of OCLI or Employer, any employee benefit
plan of OCLI or Employer or of any subsidiary of OCLI or Employer, or
any person or entity organized, appointed or established by OCLI or
Employer for or pursuant to the terms of any such plan.
(e) "Change in Control" shall mean the occurrence of any of the events
described in subparagraph (i) or (ii) below:
(i) (A) The acquisition of more than twenty percent (20%) of the
shares of Common Stock of OCLI or Employer then outstanding by an
Acquiring Person, alone or together with such person's Affiliates or
Associates, including any such acquisitions pursuant to a "reorganization"
within the meaning of Section 181 of the California Corporations Code and
(B) the adoption by OCLI's Board of Directors of a resolution (x)
disapproving the acquisition in subparagraph 4(e)(i)(A); or (y) declaring
operative the provisions of this Agreement pertaining to a Change in
Control; or
(ii) The failure of a majority of the members of the Board of
Directors of OCLI or Employer to be Continuing Directors.
If you have any questions, please call Karen Rohde, Ext. 7564, Joe Zils, Ext.
7030 or Agie Navarro, Ext. 7072.
IN ACCEPTANCE OF THE AMENDED EMPLOYMENT ASSURANCE AGREEMENT BETWEEN YOU AND
OCLI, PLEASE SIGN THIS MEMORANDUM BELOW AND RETURN THE APPROPRIATE COPY TO
AGIE NAVARRO, D/108-1.
________________________ _________________________________________
DATE EMPLOYEE SIGNATURE
(OCLI Letterhead)
October 31, 1995
Mr. John McCullough
P.O. Box 6737
Santa Rosa, California 95406
Re: Continued Employment by Optical Coating Laboratory, Inc.
John:
On behalf of Optical Coating Laboratory, Inc. upon the expiration of the
August 19, 1991 Employment Agreement between yourself and OCLI, I am
pleased to offer you continued employment as a Vice President of the
Company on the following terms:
1. Term of Employment. Your employment under the terms of this
letter will commence upon the expiration of your current Employment
Agreement on November 1, 1995 and continue at the pleasure of the Board of
Directors.
2. Title and Duties. You will serve as a Vice President and
Officer of the Company. You will devote your knowledge and skill to the
performance of the following duties in an efficient, trustworthy and
businesslike manner:
Fixed Tasks
* Participation as a member of the Board of Directors of
Optical Coating Laboratory, Inc.
* Participation as a member of the Board of Directors of
Flex Products, Inc.
* Participation in the Company's Senior Staff meetings;
* Participation in the Company's business planning efforts
Variable Tasks
* Those tasks that may be identified and approved by
the CEO or his designees and which you agree to
undertake
3. Compensation. As compensation for the completion of the
Fixed Tasks set forth above, you will receive a base salary of $71,000 per
year payable biweekly. As compensation for any Variable Task you are
retained for by the Company, you will receive $150 per hour or $1,400 per
day, whichever is less. The base salary and the variable compensation rates
may be adjusted annually at the discretion of the Compensation Committee of
the Board of Directors based upon the Company's performance and your
contribution thereto. You may also participate in other incentive
compensation programs at the discretion of the Compensation Committee.
4. Other Benefits. You will continue to receive all benefits
consistent with the Company's executive officer benefits plan, including
major medical, dental and vision coverage and the Supplemental Medical
Reimbursement Program.
5. Indemnification. You will continue to be covered under the
Company's standard form of Directors' and Officers' Indemnification
Agreement pursuant to which the Company agrees to indemnify you to the
fullest extent permitted by law or its Certificate of Incorporation.
I trust that you will find this offer consistent with our earlier
discussions, and would ask you to indicate your acceptance by signing in
the space provided below.
Sincerely,
/s/HERBERT M. DWIGHT
Herbert M. Dwight
AGREED:
/S/JOHN MCCULLOUGH
John McCullough
Dated: October 31, 1995
FOURTH AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT to Employment Agreement is made as of this 20th
day of November 1995, between Optical Coating Laboratory, Inc., having
its principal place of business at 2789 Northpoint Parkway, Santa Rosa,
California ("Employer"), and EMPLOYEE NAME ("Employee").
RECITALS
WHEREAS, Employer and Employee executed an Employment Agreement as of
November 20, 1987 (the "Agreement"); and
WHEREAS, Employer and Employee desire to amend the Agreement as set
forth herein;
NOW, THEREFORE, the Employment Agreement is amended in its entirety as
follows:
First sentence of Paragraph 2 of the Agreement:
"Employer hereby agrees to employ Employee, and Employee hereby agrees
to be employed by Employer, commencing on November 20, 1995 and ending
on November 20, 1997, subject to the terms and provisions herein;
provided, however, that if a Change in Control occurs within such
period, Employee's employment hereunder shall be extended for two (2)
years from the date of occurrence of the Change in Control."
Insertion of new Section 6:
"6. Acceleration of Unvested Stock Options. Upon a Change in Control
as defined herein, all unvested outstanding stock options held by
Employee shall be immediately exercisable."
IN WITNESS WHEREOF, parties hereto have executed this Amendment as of
the date first above written.
OPTICAL COATING LABORATORY, INC.
By_________________________________________
EMPLOYEE
___________________________________________
Address:
___________________________________________
___________________________________________
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of December 15, 1995, is entered into by and among OPTICAL COATING
LABORATORY, INC. (the "Company"), BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent"), and
the several financial institutions party to the Credit Agreement
(collectively, the "Banks").
RECITALS
A. The Company, Bank of America National Trust and Savings
Association as a Bank, and Bank of America National Trust and Savings
Association, as letter of credit issuing bank and Agent are parties to a
Credit Agreement dated as of May 24, 1995 (the "Credit Agreement") pursuant
to which the Agent and the Banks have extended certain credit facilities to
the Company.
B. Bank of America National Trust and Savings Association as Assignor
and Creditanstalt Corporate Finance, Inc. as Assignee entered into an
Assignment and Acceptance Agreement dated as of July 10, 1995 pursuant to
which the Assignee acquired a 33.333333333% interest in the Assignor's
rights and obligations under the Credit Agreement and became a "Bank" under
the Credit Agreement.
B. The Company has requested that the Banks agree to certain
amendments of the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement.
(a) Section 8.06(g) of the Credit Agreement shall be amended in
its entirety to provide as follows:
"(g) In addition to the Indebtedness existing on the
Closing Date and set forth in Schedule 8.06:
"(1) Unsecured Indebtedness incurred by the Subsidiaries
(other than Flex Products) of the Company (this Indebtedness may be
guaranteed by the Company) not to exceed at any one time an aggregate
principal amount of $5,000,000 (utilized and unutilized);
"(2) Indebtedness incurred by Flex Products (including
Indebtedness to SICPA Holding, S.A. and the Company) not to exceed at
any one time an aggregate principal amount of $25,000,000 (utilized
and unutilized); of which up to $15,000,000 (utilized and unutilized)
may be extended by third parties in the form of credit extensions not
included in subsection (j) of this Section. Indebtedness incurred by
Flex Products to third parties shall not be guaranteed by the
Company;"
(b) Section 8.11(d) of the Credit Agreement is amended in its
entirety to provide as follows:
"(d) capital leases other than those permitted under clauses (a)
and (c) of this Section, entered into by the Company or any Subsidiary
after the Closing Date to finance the acquisition of equipment;
Provided that the aggregate amount of all such capital leases shall
not exceed $15,000,000."
3. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by the Company of
this Amendment have been duly authorized by all necessary corporate and
other action and do not and will not require any registration with, consent
or approval of, notice to or action by, any Person (including any
Governmental Authority) in order to be effective and enforceable. The
Credit Agreement as amended by this Amendment constitutes the legal, valid
and binding obligations of the Company, enforceable against it in
accordance with its respective terms, without defense, counterclaim or
offset.
(c) All representations and warranties of the Company contained
in the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of
its own investigation and for its own reasons, without reliance upon the
Agent and the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of
December 15, 1995 (the "Effective Date"), provided that on or before such
date, the Agent has received from the Company and each of the Banks a duly
executed original (or, if elected by the Agent, an executed facsimile copy)
of this Amendment.
5. Reservation of Rights. The Company acknowledges and agrees that
the execution and delivery by the Agent and the Banks of this Amendment
shall not be deemed to create a course of dealing or otherwise obligate the
Agent or the Banks to forbear or execute similar amendments under the same
or similar circumstances in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and
effect and all references therein to such Credit Agreement shall henceforth
refer to the Credit Agreement as amended by this Amendment. This Amendment
shall be deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective successors
and assigns. No third party beneficiaries are intended in connection with
this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Each of the parties hereto understands and agrees that this document (and
any other document required herein) may be delivered by any party thereto
either in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Agent of a facsimile transmitted document
purportedly bearing the signature of a Bank or the Company shall bind such
Bank or the Company, respectively, with the same force and effect as the
delivery of a hard copy original. Any failure by the Agent to receive the
hard copy executed original of such document shall not diminish the binding
effect of receipt of the facsimile transmitted executed original of such
document of the party whose hard copy page was not received by the Agent.
(e) This Amendment may not be amended except in accordance with
the provisions of Section 11.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or
the Credit Agreement, respectively.
IN WITNESS WHEREOF, the parties hereto have executed
and delivered this Amendment as of the date first above written.
OPTICAL COATING LABORATORY, INC.
By: /s/JOHN M. MARKOVICH
Name: John M. Markovich
Title: V.P. Finance and CFO
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/IVO BAKOVIC
Name: Ivo Bakovic
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Bank
By: /s/RICHARD E. BRYSON
Name: Richard E. Bryson
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/RICHARD E. BRYSON
Name: Richard E. Bryson
Title: Vice President
CREDITANSTALT CORPORATE FIANCE,
By: /s/PATRICK ROUNDS
Name: Patrick Rounds
Title: Vice President
By: /s/DENNIS O'DOWD
Name: Dennis O'Dowd
Title: Chief Executive Officer
SECURED PROMISSORY NOTE
$2,600,000
Santa Rosa, California
November 8, 1995
FOR VALUE RECEIVED, the undersigned, OPTICAL
COATING LABORATORY, INC., a Delaware corporation (the
"BORROWER"), hereby promises to pay, in a lawful money
of the United States, in installments as herein stated,
to the order of AID ASSOCIATION FOR LUTHERANS, a
Wisconsin corporation ("HOLDER"), the principal sum of
Two Million Six Hundred Thousand Dollars ($2,600,000)
("THE LOAN") together with interest on the unpaid
principal balance hereof from the "Interest Accrual
Date" (as hereinafter defined) at the rate of eight
percent (8%) per annum (the "INTEREST RATE") in legal
tender of the United States of America until paid in
full. The "INTEREST ACCRUAL DATE" shall be the date
hereafter endorsed on the first page of this Note.*
As used herein, the term "Loan Year" shall mean
and refer to each twelve (12) month period starting on
the Adjustment Date (as hereinafter defined).
Until otherwise directed by the Holder in writing,
the installments as herein stated shall be paid by
preauthorized Automated Clearinghouse transaction (ACH)
initiated by Holder of immediate available federal
funds to Harris Trust and Savings Bank, 111 West Monroe
Street, Chicago, Illinois 60690, Account No. 164-096-0
(Aid Association for Lutherans).
This Note is secured by (i) a Deed of Trust,
Financing Statement, Fixture Filing and Security
Agreement (With Assignment of Rents) (the "DEED OF
TRUST") of even date herewith executed by Borrower, as
trustor, for Holder, as beneficiary, which is a lien on
property (the "PROPERTY") (and the rents therefrom)
located in the City of Santa Rosa, County of Sonoma,
State of California, all as more particularly described
in the Deed of Trust; (ii) an Assignment of Rents and
Leases (the "ASSIGNMENT") of even date herewith
executed by Borrower, as assignor, in favor of Holder,
as assignee, in which Borrower has absolutely assigned
to Holder (with a license back to Borrower on the terms
and conditions contained therein) the rents, additional
rents, profits, royalties and payments of the Property.
(It being expressly understood and agreed that all
revenues derived from the Property which are received
by Borrower shall be held by Borrower in trust to be
used first for the payments required under this Note
and for legitimate operating expenses of the Property);
and (iii) such other and sundry documents executed by
Borrower to further evidence or secure the Loan. The
Deed of Trust, the Assignment and all other documents
and agreements now or hereafter executed and delivered
as
* Interest on the within Note to accrue from and after
___________, 1995 (the "INTEREST ACCRUAL DATE").
security for the Loan are referred to collectively as
the "Security Documents." Reference is hereby made to
the Security Documents for a description of the nature
and extent of such security and such assignment and the
rights of Holder with respect thereto.
If the Interest Accrual Date is on any day other
than the fifteenth day of a calendar month, Borrower
shall pay, on the fifteenth day of the next calendar
month (such payment date called the "ADJUSTMENT DATE"),
interest accrued on the principal amount from the
Interest Accrual Date to the Adjustment Date, such
payment to be deducted by Holder from the commitment
fee delivered by Borrower to Holder. If the Interest
Accrual Date is the fifteenth day of a calendar month,
such date shall be deemed to be the Adjustment Date,
and no interest payment shall be made on that date.
From and after the Adjustment Date, except as otherwise
provided herein, principal and interest on this Note
shall be payable in installments of Twenty-Four
Thousand Eight Hundred Forty-Seven Dollars ($24,847) to
be applied, except as otherwise provided herein, first
to the payment of accrued interest and then to the
reduction of principal, commencing on the fifteenth day
of the calendar month following the Adjustment Date and
continuing on the fifteenth day of each calendar month
thereafter through and including the one hundred
seventy-ninth (179th) month after the Adjustment Date.
The remaining principal balance hereof, together with
all accrued interest thereon, shall be due and payable
on the fifteenth day of the one hundred eightieth
(180th) month after the Adjustment Date.
Interest on this Note will be computed on the
basis of a three hundred sixty (360) day year comprised
of twelve (12) thirty (30) day months.
Borrower has no right, and no privilege is
reserved, to prepay principal during the first four (4)
Loan Years.
Commencing on the first day of the fifth (5th)
Loan Year (that is, on the fourth (4th) anniversary of
the Adjustment Date) through the last day of the sixth
(6th) month of the fifteenth (15th) Loan Year (premium
prepayment period), Borrower shall have the privilege
following the giving of at least sixty (60) days' prior
written notice to Holder, of prepaying all (but not
less than all) of the then outstanding principal
balance hereof, together with all interest accrued, but
unpaid thereon to the date of prepayment, and any
expenses then due Holder, upon payment by the Borrower
of a prepayment privilege fee (the "PREPAYMENT
PRIVILEGE FEE") equal to the amount prepaid times the
"Privilege Rate." As used herein, the term "PRIVILEGE
RATE" shall mean and refer to (a) the difference
between (1) the Interest Rate on the Loan and (2) the
market yield of U.S. Treasury issues (as quoted daily
in The Wall Street Journal), which have the closest
maturity date (month and year) to the date the Loan can
be prepaid at par multiplied by (b) the remaining term
of the premium prepayment period (the remaining term to
be expressed as a fraction equal to the number of days
between the date of prepayment and the last day of the
premium prepayment period over 365). The Prepayment
Privilege Fee shall be reduced to a present value on a
per period basis discounted at the above Treasury
issues rate. In no event, however, shall the
Prepayment Privilege Fee be less than one percent (1%)
of the outstanding principal. Notwithstanding the
above, Borrower agrees that in the event of the
occurrence of an Event of Default followed by
acceleration of the maturity of this Note, a tender of
an amount necessary to satisfy the entire indebtedness
shall be deemed a voluntary prepayment, and to the
extent permitted by law, shall include the foregoing
Prepayment Privilege Fee; provided, however, that if
such tender occurs during the first four (4) Loan
Years, Borrower shall pay a prepayment privilege fee
which is equal to the greater of (i) the amount prepaid
multiplied by the Privilege Rate or (ii) eight percent
(8%) of the amount prepaid.
Commencing with the first day of the seventh (7th)
month of the fifteenth (15th) Loan Year, Borrower shall
have the right, following the giving of not less than
sixty (60) days' prior written notice to Holder, to
prepay all (and not less than all) of the then
outstanding principal balance of the Loan, together
with interest accrued but unpaid thereon to the date of
prepayment and any expenses then due Holder, with no
prepayment privilege fee, penalty or other similar
charge.
Anything herein to the contrary notwithstanding,
Borrower shall not be liable for damages or any fee if,
after giving notice of prepayment, Borrower fails to
prepay this Note for any reason; provided, however,
that (a) Borrower's failure shall not relieve Borrower
of any of its obligations under this Note or any of the
Security Documents or any other documents relating
thereto, and (b) Borrower shall immediately reimburse
Holder for any out-of-pocket expenses (including
attorneys' fees and costs) incurred by Holder relating
to the proposed prepayment together with a processing
fee in the amount of One Thousand Dollars ($1,000).
If Holder should determine, in its sole option and
absolute discretion, to accept a prepayment of less
than all of the outstanding principal balance together
with accrued but unpaid interest thereon, all such
prepayments accepted in Holder's sole option and
absolute discretion shall, except for any prepayment
privilege fee assessed by Holder, first be applied
against accrued interest then due and owing and
thereafter against the principal due hereunder in the
inverse order of principal payments as they mature.
Such partial prepayments, if permitted at Holder's sole
option and absolute discretion, shall not relieve the
obligation of Borrower to pay installments of principal
and interest when due hereunder and any such partial
prepayments shall be subject to a prepayment privilege
fee as determined by Holder in its sole and absolute
discretion. Holder's consent to any such partial
prepayment will not be a consent to any other or
subsequent partial prepayment or a waiver of the need
for such consent in any future or other instance.
Notwithstanding anything to the contrary contained
in this Note, if the Deed of Trust specifically and
expressly permits prepayment without prepayment
privilege fee in any instance, no prepayment privilege
fee shall be assessed under this Note.
Without the prior written consent of Holder (which
consent or the denial thereof shall be in Holder's sole
and absolute discretion), Borrower shall not
hypothecate, pledge, grant a security interest in or
otherwise encumber (whether voluntarily or by operation
of law) all or any portion of the Trust Property (as
defined in the Deed of Trust) (a "PROHIBITED
ENCUMBRANCE").
Except as otherwise provided in Article 1, Section
1.8 of the Deed of Trust, in the event that without the
prior written consent of Holder, which consent or the
denial thereof shall be in Holder's sole and absolute
discretion, (a) Borrower (or any subsequent holder of
an interest in the Trust Property following a transfer
to which Holder consents or that is otherwise permitted
hereby (a "SUBSEQUENT OWNER")) sells, assigns, conveys,
contracts to sell, leases (other than pursuant to any
existing leases of the Trust Property that have been
approved by Holder) or otherwise transfers all or any
portion of the Trust Property or any interest or estate
therein (whether possessory or nonpossessory), whether
voluntarily or by operation of law; or (b) there occurs
a transfer, in the aggregate, of more than fifty
percent (50%) of the shares in Borrower to one person
or entity and any affiliates of any such person or
entity (the occurrence of an event described in (a) or
(b) that occurs without Holder's consent being referred
to herein as a "PROHIBITED TRANSFER"), then, at
Holder's election in its sole and absolute discretion,
without any notice to Borrower, Holder may declare the
whole of the principal balance of this Note and all
accrued but unpaid interest thereon immediately due and
payable, together with a transfer privilege fee of (a)
four percent (4%) of said principal balance if such
Prohibited Transfer occurs during the first four (4)
Loan Years, or (b) the greater of (i) one-half (1/2) of
the amount that would be the Prepayment Privilege Fee
and (ii) one percent (1%) of said principal balance if
such Prohibited Transfer occurs at any time after the
first four (4) Loan Years through the sixth (6th) month
of the fifteenth (15th) Loan Year. Commencing with the
seventh (7th) month of the fifteenth (15th) Loan Year,
there will be no transfer privilege fee. Any payment
of the amount necessary to satisfy this Note pursuant
to the terms of this paragraph shall be deemed to be a
voluntary prepayment of this Note.
Notwithstanding anything to the contrary contained
in the preceding paragraph, the occurrence of (a) a
Prohibited Encumbrance, or (b) a Prohibited Transfer
where (i) Borrower retains any interest in the property
so transferred, (ii) Borrower has any agreement or
understanding with the transferee of such property with
respect to the retransfer of such property to Borrower,
or (iii) Borrower has any interest in the transferee of
such property, shall be deemed an Event of Default, and
Holder shall have all of its rights and remedies in
such event, including, without limitation, the right to
declare the entire unpaid principal balance of this
Note and all accrued but unpaid interest thereon
immediately due and payable, together with the
Prepayment Privilege Fee due pursuant to the terms of
this Note upon the occurrence of an Event of Default
followed by acceleration of the maturity of this Note,
and to charge interest at the rate of thirteen percent
(13%) per annum on such sum from the date of such
Prohibited Transfer or Prohibited Encumbrance until
such sum is paid in full.
Upon the occurrence of any of the following
events, which events shall constitute events of default
hereunder ("EVENTS OF DEFAULT"), Holder hereof may, at
its sole option and in its absolute discretion, to be
exercised at any time thereafter, without notice to
Borrower, any right to which is hereby waived, declare
the entire unpaid principal balance hereof and accrued
but unpaid interest hereon immediately due and payable:
(a) Failure of Borrower to make any payment
of principal and/or interest on this Note within ten
(10) days after the date when due;
(b) Failure of Borrower to comply with any
other provision contained in this Note or to perform
any other obligation of Borrower hereunder pursuant to
the terms hereof, or the breach of any representations,
warranties, agreements or covenants contained in the
Note or any Security Document, and such failure or
breach (and the consequences that the delay in such
performance may have caused) are not cured and/or
remedied within fifteen (15) days after notice of such
failure or breach is given to Borrower from Holder;
provided, however, if such failure or breach cannot, in
the sole and absolute discretion of Holder exercised in
good faith, reasonably be cured and/or remediated
within said fifteen (15) day period, Borrower shall
have an additional sixty (60) days to cure such failure
or breach so long as Borrower is diligently pursuing
such cure and/or remediation; provided, further, that
in no event shall any cure and/or remediation period
exceed seventy five (75) days. Notwithstanding the
foregoing, any such failure or breach shall be deemed
an Event of Default upon the occurrence thereof (for
which no notice shall be required and no cure period
shall be available to Borrower) if (i) such failure or
breach is the third (3rd) default to occur within any
period of twelve (12) consecutive months and notice of
the first two (2) defaults has been sent to Borrower,
regardless of whether the same or different defaults
are involved and notwithstanding that Borrower may have
cured within any applicable cure period any previous
defaults occurring within such twelve (12) month period
or (ii) in the reasonable discretion of Holder, such
failure or breach constitutes or creates a clear and
present emergency or threat to the Trust Property (as
defined in the Deed of Trust);
(c) A Prohibited Encumbrance or a Prohibited
Transfer occurs; or
(d) An Event of Default (as defined in the
Deed of Trust or any other Security Document).
Commencing after an Event of Default occurs and
continuing for as long thereafter as the Event of
Default shall exist, the unpaid principal balance
together with interest accrued to such maturity shall
bear interest at an annual rate of interest equal to
thirteen percent (13%).
All notices, requests, demands and other
communications hereunder shall be in writing and shall
be deemed to have been duly given when personally
delivered, or, if mailed, on the date which is three
(3) business days after mailing by United States
certified mail, postage prepaid, return receipt
requested, to the parties at the following addresses
(until such addresses are changed by notice pursuant to
these notice provisions):
Borrower:
Optical Coating Laboratory, Inc.
2789 North Point Parkway
Santa Rosa, California 95407-7397
Attention: Mr. Jeff Ryan, Assistant
Treasurer
Holder:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attention: Director of Investments
with copies to:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attention: Law Department
and:
Pircher, Nichols & Meeks
1999 Avenue of the Stars, Suite 2600
Los Angeles, California 90067
Attention: Real Estate Notices (DLP)
All persons or entities now or at any time liable,
whether primarily or secondarily, for payment of the
indebtedness hereby evidenced, for themselves, their
heirs, legatees, devisees, legal representatives,
executors, administrators, conservators, successors and
assigns, respectively, expressly waive presentment for
payment, notice of dishonor, protest, notice of protest
and diligence in collection, and consent that the time
of said payments or any part thereof may be extended by
Holder and that additional security may be accepted by
Holder and further consent that the real or collateral
security or any part thereof now or hereafter securing
this Note may be released by Holder without in any way
modifying, altering, releasing, affecting, or limiting
their respective liability. Borrower further waives,
to the full extent permitted by law, the right to plead
any and all statutes of limitations as a defense to any
demand on this Note, or on any deed of trust, security
agreement, lease assignment, guaranty or other
agreement now or hereafter securing this Note.
The parties hereto intend and believe that each
provision in this Note comports with all applicable
local, state and federal laws and judicial decisions.
However, if any provision or provisions, or if any
portion of any provision or provisions, in this Note is
found by a court of law to be in violation of any
applicable local, state or federal ordinance, statute,
law, administrative or judicial decision, or to be
illegal, invalid, unlawful, void or unenforceable as
written, then it is the intent of all parties hereto
that such portion, provision or provisions shall be
given force to the fullest possible extent that they
are legal, valid and enforceable, that the remainder of
this Note shall be construed as if such illegal,
invalid, unlawful, void or unenforceable portion,
provision or provisions were not contained therein, and
that the rights, obligations and interest of Borrower
and Holder under the remainder of this Note shall
continue in full force and effect.
All agreements herein are expressly limited so
that in no contingency or event whatsoever, whether by
reason of advancement of the proceeds hereof,
acceleration of maturity of the unpaid principal
balance hereof, or otherwise, shall the amount paid or
agreed to be paid to Holder for the use, forbearance or
detention of the money to be advanced hereunder exceed
the highest lawful rate permissible under applicable
usury laws. If, from any circumstances whatsoever,
fulfillment of any provision in this Note or in the
Security Documents, at the time performance of such
provision shall be due, shall involve transcending the
limit of validity prescribed by law that a court of
competent jurisdiction may deem applicable hereto,
then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity and if from
any circumstance the Holder shall ever receive as
interest an amount that would exceed the highest lawful
rate, such amount that would be excessive interest
shall be applied to the reduction of the unpaid
principal balance due hereunder in the inverse order of
maturity and not to the payment of interest.
This Note shall be governed by and construed in
accordance with the laws of the State of California.
If, by the laws of the United States of America,
or of any state or local jurisdiction having
jurisdiction over Borrower, any tax is due or becomes
due in respect of the issuance of this Note or the
issuance or recording of the Security Documents or any
security interest created thereby, Borrower covenants
and agrees to pay such tax in the manner required by
any such law. Borrower further covenants to hold
harmless and agrees to indemnify Holder against any
liability incurred by reason of the imposition of any
tax on the issuance of this Note or the issuance or
recording of the Security Documents or any security
interest created thereby. Notwithstanding the
foregoing provisions of this paragraph, Borrower shall
not be required to indemnify Holder for any income
taxes incurred by Holder relating to this Note.
Time is of the essence with respect to each and
every obligation of Borrower set forth in this Note.
In the event that any monthly installment of this Note
is not received by Holder when due, then in addition to
all other rights set forth herein Borrower shall be
liable to Holder for a late payment privilege fee equal
to the greater of three percent (3%) of the overdue
payment or Five Hundred and No/Dollars ($500.00), which
fee, at Holder's option, may be either required in
addition to the monthly installment or added to
principal. Borrower acknowledges that this fee is a
good faith, reasonable and fair estimate under the
circumstances existing at the time this Note is
executed of the amount necessary to compensate Holder
for its additional costs and expenses incident to the
handling of such delinquent installment, including,
without limitation, disruption of Holder's accounting
and bookkeeping operations caused by Borrower's failure
to make payment when due, and the loss of Holder's
ability to promptly reinvest the payments.
Notwithstanding anything to the contrary contained in
this Note, any payment received while any late fees are
owed shall be applied first to such late fees unless
Holder has elected that such late fees be added to
principal.
No delay or omission on the part of Holder or
other holder hereof under this Note or under any
security agreement given to secure this Note (including
the Deed of Trust and Assignment) shall operate as a
waiver of such right or of any other right hereunder or
under said Deed of Trust or Assignment.
If Borrower fails to perform any of its covenants
or agreements contained in this Note or in any other
Security Document, then Borrower shall pay all out-of-
pocket expenses of Holder (including but not limited to
actual fees and disbursements of counsel) incurred by
reason of or in response to such nonperformance,
together with interest thereon at the rate of thirteen
percent (13%) per annum from the date such expenses are
incurred until paid.
Except as otherwise provided in this paragraph,
Borrower shall not have any personal liability under
this Note, and, in the event of a foreclosure of the
security interest in the Trust Property, no deficiency
judgement may be obtained against Borrower and in the
event of an Event of Default hereunder, Holder shall
look solely to the Trust Property and any other
collateral under the Security Documents for recovery of
Holder's losses or damages. If, however, there is a
Prohibited Encumbrance or a Prohibited Transfer, or the
filing of a voluntary petition by Borrower in
bankruptcy or any other petition under any section or
chapter of the Bankruptcy Code or any similar law,
whether state, federal, foreign, provincial or
otherwise, for relief of debtors, or if Holder is
permanently prevented from acquiring title in the Trust
Property following an Event of Default and is
unsuccessful in collecting on its title insurance
policy relating to the Trust Property, the Borrower
shall have personal liability on this Note and in the
event of a foreclosure of the security interest in the
Trust Property, a deficiency judgment may be obtained
against Borrower. Borrower shall also have personal
liability for all actual attorneys' fees and other
costs incurred by Holder in order to recover from
Borrower any of the amounts for which Borrower has
personal liability hereunder. Further, it is expressly
understood and agreed that nothing contained in this
paragraph shall impair, in any manner, any rights,
remedies or recourse Holder may have against any person
or entity other than Borrower or, in any manner or way,
constitute or be deemed a release of the debt evidenced
by this Note or otherwise affect or impair the
enforceability of the liens, deed of trust,
assignments, rights and security interests created by
the Deed of Trust or any other Security Documents or
any other instrument or agreement evidencing, securing,
or relating to the indebtedness evidenced by this Note.
Nothing in this paragraph shall preclude Holder from
foreclosing the Deed of Trust or from enforcing any of
its rights and remedies at law or in equity against
Borrower except as stated in this paragraph. Further,
Borrower shall indemnify and hold harmless Holder from,
and be personally liable for, any damage, loss,
liability or expense (including, without limitation,
actual attorney's fees and costs) incurred by Holder as
a result of (i) any abusive or destructive act that
Borrower may take or permit that diminishes the value
of the Trust Property or any other security under the
Deed of Trust (to the extent of such diminution in
value); (ii) the collection of any revenue received (a)
after Borrower has failed to pay Holder any sum then
due and payable or (b) after an Event of Default from
or because of lease of the Trust Property that are not
applied against the Note or to normal and necessary
operating expenses for the Trust Property together with
interest thereon from the date Borrower collects such
revenue at the rate of thirteen percent (13%) per
annum; (iii) any material misrepresentations contained
in any of the Security Documents, in any certificate,
document or instrument delivered to Holder by Borrower
or otherwise made to Holder by Borrower or any officer
of Borrower; (iv) any and all tenant security deposits
and rents collected more than one (1) month in advance
of their due date or after the occurrence of any Event
of Default, or any event that, with the passage of time
and/or the giving of notice, would constitute such an
Event of Default, together with interest on such amount
thereon from the date Borrower collects such rents at
the rate of thirteen percent (13%) per annum; (v) any
real estate taxes, assessments, or any other charges by
any governmental entity that are delinquent or the pro
rata amount of any such real estate taxes, assessments
or other charges that constitute a lien upon the Trust
Property or any portion thereof at such time as Holder
(or any successors or assigns of Holder) becomes owner
of the Trust Property; (vi) any amounts necessary to
satisfy any construction liens, mechanics' liens and
materialmen's liens arising out of the acts or
omissions of Borrower, provided, however, that Borrower
shall have the right to contest the amount or validity
of any such lien, by appropriate legal proceedings if:
(x) the legal proceedings shall operate to prevent the
collection of such lien, so contested and the sale of
the Trust Property to satisfy the same, and (y)
Borrower shall deposit with Holder or with the
appropriate court or other governmental authority or
title insurance company satisfactory to Holder a bond
or an amount, with such subsequent additions thereto as
may be necessary or sufficient in Holder's opinion to
pay such liens, together with all estimated interest
and penalties in connection therewith; (vii) any act or
omission constituting fraud; (viii) the use of any
condemnation or insurance proceeds relating to the
Trust Property for any purpose not approved in writing
by Holder or allowed under the Security Documents, or
the misapplication of any security deposits together
with interest thereon from the date of such use or
misapplication at the rate of thirteen percent (13%)
per annum; and (ix) fees required to be paid to any
government entity for the transfer of title to the
Trust Property (or any portion thereof).
Notwithstanding the foregoing, Borrower's liability
under this Note shall not extend to that portion of any
damage, loss, liability or expense that is payable by
Borrower to Holder under that certain Environmental
Indemnity Agreement of even date herewith executed by
Borrower in favor of Holder. Nothing in this paragraph
shall be construed to be an election by Holder to have
Borrower's obligations to Holder be treated as recourse
debt or nonrecourse debt for purposes of Section
1111(b) of the Bankruptcy Code or any successor
thereto.
In the event of any inconsistency between
provisions of this Note and those of the Security
Documents, the provisions of this Note shall control.
IN WITNESS WHEREOF, this Note is executed as of
the date set forth above.
OPTICAL COATING
LABORATORY, INC.,
a Delaware corporation
By:
__________________________
Name:
_____________________
Title:
____________________
When recorded mail to:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
Suite 2600
Los Angeles, California 90067
Attn: David L. Packer, Esq.
DEED OF TRUST, FINANCING STATEMENT,
FIXTURE FILING AND SECURITY AGREEMENT
(WITH ASSIGNMENT OF RENTS)
This DEED OF TRUST, FINANCING STATEMENT, FIXTURE
FILING AND SECURITY AGREEMENT (With Assignment of
Rents) (this "Deed of Trust") is dated as of November
8, 1995, by and among OPTICAL COATING LABORATORY, INC.,
a Delaware corporation (hereinafter called "Trustor"),
Commonwealth Land Title Insurance Company (hereinafter
called "Trustee"), and AID ASSOCIATION FOR LUTHERANS, a
Wisconsin corporation (hereinafter called
"Beneficiary").
W I T N E S S E T H
WHEREAS, for value received, Trustor has executed
and delivered to Beneficiary its original promissory
note of even date herewith payable to the order of
Beneficiary in the principal amount of Two Million Six
Hundred Dollars ($2,600,000), and Trustor has agreed to
execute and deliver to Beneficiary, as security for the
payment of said note and any and all extensions,
substitutions, replacements, rearrangements,
modifications, and/or renewals thereof (the "Note"),
this Deed of Trust respecting the Trust Property (as
hereinafter defined); and
WHEREAS, all things necessary have been done and
performed to make the Note the duly authorized, valid
and legally binding obligation of Trustor and to
constitute this instrument the duly authorized and,
when executed and delivered by Trustor, valid and
legally binding first Deed of Trust on the Trust
Property, in order to secure the Note as hereinafter
provided;
NOW, THEREFORE, Trustor, in consideration of the
loan of the principal sum of Two Million Six Hundred
Thousand Dollars ($2,600,000) to Trustor (the "Loan"),
receipt of which is hereby acknowledged, and in order
to secure repayment of all indebtedness evidenced by
the Note with interest, according to its tenor and
effect, to secure the performance and observance by
Trustor of all covenants, representations, warranties,
conditions and agreements contained in the Note, and to
secure the performance and observance by Trustor of all
covenants, representations, warranties, conditions and
agreements herein contained, does hereby irrevocably
grant, transfer, assign, exercise, release, alienate,
convey and pledge to Trustee in trust, with power of
sale and right of entry and possession as provided
below, all of its present and future estate (whether
now owned or hereafter acquired), right, title and
interest in and to the following described property
and all rents, additional rents, issues, payments and
profits thereof:
A. The real property (the "Property") described
in the attached Exhibit A which is hereby incorporated
into this Deed of Trust by reference, and all minerals,
oil, gas and other hydrocarbon substances on, in and
under the Property, as well as all development rights,
air rights, water, water rights, water stock, parking
rights and general intangibles relating to, generated
from, arising out of or incidental to the Property, its
ownership, development or use. The Property described
in the attached Exhibit A is commonly known as 1405
Thunderbolt Way, Santa Rosa, California;
B. All structures, buildings, improvements and
fixtures of any kind now or hereafter located on the
Property, including, without limitation, all apparatus,
equipment and appliances used to supply air cooling,
air conditioning, heat, gas, water, light, power,
refrigeration, ventilation, laundry, drying,
dishwashing, garbage disposal, waste removal,
recreation or other services on the Property; and all
elevators, escalators, and related machinery and
equipment, fire prevention and extinguishing apparatus,
security and access control apparatus, partitions,
ducts, compressors, plumbing, ovens, refrigerators,
dishwashers, disposals, washers, dryers, awnings, storm
windows, storm doors, screens, blinds, shades, curtains
and curtain rods, mirrors, cabinets, paneling, rugs,
attached floor coverings, furniture, pictures,
antennas, pools and spas and pool and spa operation and
maintenance equipment and apparatus; and all trees and
plants located on the Property (collectively, the
"Improvements"), all of which, including replacements
and additions thereto, shall conclusively be deemed to
be affixed to and be part of the real property conveyed
to Trustee under this Deed of Trust;
C. All easements, rights-of-way and rights used
in connection with the Property or as a means of access
thereto, and all tenements, hereditaments and
appurtenances of and to the Property;
D. All of the rents, additional rents, revenues,
issues, earnings, products, royalties, profits and
income of the Property and/or the Improvements, subject
to the limited and revocable right, power and authority
hereinafter given to and conferred upon Trustor to
collect and apply such rents, revenues, issues,
earnings, products, royalties, profits, incomes and
other benefits;
E. All present and future leases, subleases and
tenancy agreements affecting the Property and/or
Improvements, including, without limitation, any
security deposits, advance rentals and deposits or
payments of a similar nature;
F. All proceeds, causes of action and claims,
both in law and in equity, arising on account of any
damage to or taking of the Property and/or the
Improvements, including but not limited to insurance
proceeds and condemnation proceeds, and all claims
arising on account of any damage to or taking of the
Property or the Improvements, and all proceeds, causes
of action and claims for any loss or diminution in
value of the Property and/or the Improvements;
G. All "Equipment," "Farm Products,"
"Inventory," "Documents," "Instruments," "Chattel
Paper," "Accounts," and "General Intangibles" (as such
terms are defined in the California Uniform Commercial
Code) relating to, generated from, arising out of or
incidental to the ownership, development, use or
operation of the Property or the Improvements (whether
or not subsequently removed from the Property or the
Improvements), including, without limitation, all
(i) machinery and tools; (ii) rugs, carpets
and other floor coverings; (iii) draperies and
drapery rods and brackets, awnings, window shades,
venetian blinds and curtains; (iv) lamps,
chandeliers and other lighting fixtures; (v)
office maintenance and other supplies; (vi)
apparatus, appliances, furniture and furnishings,
building service equipment, and building
materials, supplies and equipment; (vii) rights,
royalties, rents, security deposits, advance
rentals, revenues, profits and benefits;
(viii) leases, lease guarantees, contracts,
contract rights, licenses, permits and
certificates; (ix) deposits, funds, money and
deposit accounts; (x) tenements, hereditaments and
appurtenances; (xi) approvals and parcel maps
(whether tentative or final), building permits and
certificates of occupancy; (xii) names under or by
which the Property or any of the Improvements may
at any time be operated or known and rights to
carry on business under any such names or any
variant thereof; (xiii) trademarks and good will;
(xiv) management agreements, service contracts,
supply contracts or other contracts or agreements;
(xv) warranties; (xvi) water stock; (xvii) shares
of stock or other evidence of ownership of any
part of the Property or Improvements that is owned
by Trustor in common with others, and all
documents of membership in any owners' or members'
association or similar group having responsibility
for managing, maintaining or operating any part of
the Property or Improvements; (xviii) plans and
specifications prepared for construction of
improvements on the Property, or any part thereof,
and studies, data and drawings related thereto,
including, without limitation, studies, data or
reports relating to toxic or hazardous wastes or
materials located on the Property and/or
Improvements, and contracts and agreements of
Trustor relating to the aforesaid plans and
specifications or to the aforesaid studies, data,
reports and drawings or to the construction of
improvements on the Property; (xix) sales
agreements, deposit receipts, escrow agreements
and other ancillary documents and agreements
entered into respecting the sale to any purchasers
of any part of the Property, and/or Improvements,
together with all deposits and other proceeds of
the sale thereof; (xx) damages, royalties and
revenue of every kind, nature and description
whatsoever that Trustor may be entitled to receive
from any person or entity owning or having or
hereafter acquiring a right to the oil, gas or
mineral rights and reservations of the Property;
(xxi) deposits made with or other security given
to utility companies by Trustor with respect to
the Property and/or Improvements; (xxii) advance
payments of insurance premiums made by Trustor
with respect to, and all claims or demands with
respect to, insurance; (xxiii) negotiable
certificates of deposit of Trustor in
Beneficiary's possession and all accounts of
Trustor maintained with Beneficiary and each
deposit account of Trustor assigned to Beneficiary
pursuant to any agreement; (xxiv) insurance
proceeds; (xxv) condemnation awards; (xxvi) causes
of action, claims, compensation, awards and
recoveries for any damage or injury to the
Property and/or Improvements or for any loss or
diminution in value of the Property and/or
Improvements; (xxvii) books and records,
including, without limitation, all computer
records, computer tapes and electronic and
electromagnetic representations and reproductions
thereof; (xxviii) guaranties of and security for
any of the foregoing; (xxix) all substitutions,
renewals, improvements, attachments, accessions,
additions and replacements to any of the
foregoing; and
H. All "Proceeds" (as such term is defined in
the California Uniform Commercial Code), collections,
insurance proceeds and products of any of the property
listed in the preceding paragraph G, including without
limitation, proceeds of any voluntary or involuntary
disposition or claim respecting any part thereof
(pursuant to judgment, condemnation award or otherwise)
and all documents, instruments, general intangibles,
goods, equipment, inventory, chattel paper, monies,
accounts, deposit accounts and other personal property
that may arise from the sale or disposition of any of
the foregoing, all guaranties of and security for any
of the foregoing, and all books and records, including,
without limitation, all computer records, computer
tapes and electronic and electromagnetic
representations and reproductions thereof, relating to
any of the foregoing.
Anything above or elsewhere in this Deed of Trust to
the contrary notwithstanding, the lien of this Deed of
Trust shall not encumber or attach to any items of
equipment or machinery located in or attached to the
Property and used solely in connection with Trustor's
manufacturing operations (including, without
limitation, the items of equipment attached to the
Property as of the date hereof known as the In-Line
Flat Glass Coating Sputtering Machine and the
Computerized Scribe-and-Break Glass Fabrication
Machine), even if such equipment or machinery is or may
be deemed a fixture or realty under California law, but
the lien of this Deed of Trust shall encumber and
attach to any items of equipment or machinery located
in or attached to the Property that are used for the
operation or maintenance of any Improvements. Upon
Trustor's written request, Beneficiary shall execute
and deliver a written certificate or instrument (in
recordable form requested by Trustor and reasonably
satisfactory to Beneficiary) confirming that any
equipment or machinery specifically identified in such
certificate or instrument is not subject to the lien or
encumbrance of this Deed of Trust, but Trustor shall
promptly reimburse Beneficiary for any out-of-pocket
costs incurred by Beneficiary relating to the review
and execution of such certificate or instrument
(including, without limitation, attorneys' fees and
costs). Trustor shall also have the right at any time
and from time to time to remove any or all equipment or
machinery located in or attached to the Property not
encumbered by the lien of the Deed of Trust, provided
that Trustor shall be responsible for repairing any and
all damage to the Property caused by such removal and
the failure to repair any and all such damage shall be
deemed to constitute bad-faith waste and provided
further that prior to removal of any such equipment or
machinery attached to the Property that Trustor
furnishes Beneficiary with whatever assurances and/or
further security that Beneficiary requires in good
faith that any such damage shall be repaired. In
addition, Beneficiary agrees to release its lien
against any equipment or machinery attached to the
Property and used solely in connection with the
operation of Trustor's manufacturing operations and not
used for the operation or maintenance of any
Improvements, that may be deemed a fixture or realty,
provided that Trustor removes such equipment or
machinery from the Property and Trustor immediately, to
Beneficiary's satisfaction, repairs any damage to the
Trust Property caused by such removal.
The property listed above in paragraphs (G) and (H)
above may be referred to herein as the "Personal
Property."
The Property together with the additional property
listed above in paragraphs A through H shall be
referred to herein as the "Trust Property."
This Deed of Trust secures:
One: Payment by Trustor of an indebtedness in
the principal sum of Two Million Six Hundred
Thousand Dollars ($2,600,000), with interest
thereon, according to the terms of the Note
(which, by reference, is hereby made a part
hereof), and the performance, observance and
discharge of each and every obligation,
representation, warranty, covenant and agreement
of Trustor contained in the Note [(including,
without limitation, provisions providing for the
adjustment of the interest rate)].
Two: Payment by Trustor of such additional
sums with interest thereon as may hereafter be
loaned by Beneficiary to Trustor when evidenced by
a promissory note or notes of Trustor and stated
by the terms thereof to be secured hereby.
Three: The performance, observance and
discharge of each and every obligation,
representation, warranty, covenant and agreement
of Trustor contained herein.
Four: Payment by Trustor of all other sums
with interest thereon becoming due or payable
under the provisions hereof to either Trustee or
Beneficiary.
Five: Payment by Trustor of all real estate
and personal property taxes and assessments levied
against the Trust Property.
Six: Payment of any and all sums advanced by
Beneficiary to protect the Trust Property, with
interest thereon at an annual rate of interest
equal to thirteen percent (13%).
Seven: Performance, observance and discharge
of each and every obligation, representation,
warranty, covenant and agreement of Trustor
contained in the Assignment of Rents and Leases
(the "Assignment"), executed by Trustor, in favor
of Beneficiary, and in any and all pledges,
agreements, security agreements, supplemental
agreements or other instruments of security
executed by Trustor as of even date herewith or at
any time subsequent to the date hereof for the
purpose of further securing any indebtedness
hereby secured, or any part thereof, or any
further advancements or further or additional
loans of any sums hereafter made by Beneficiary to
Trustor during the continuance of these trusts and
secured hereby, or for the purpose of
supplementing or amending this Deed of Trust or
any instrument secured hereby.
Eight: The performance, observance and
discharge of each and every obligation,
representation, warranty, covenant and agreement
of Trustor contained in the Borrower's Affidavit
and Solvency Certificate (the "Certificate"),
executed by Borrower, in favor of Beneficiary, and
under all other present and future agreements
executed by Trustor in favor of Beneficiary
relative to, evidencing, or securing the Loan or
the indebtedness evidenced by the Note (excluding
the obligations, representations, warranties,
covenants and agreements contained in that certain
Environmental Indemnity Agreement of even date
herewith executed by Borrower as indemnitor in
favor of Beneficiary, as indemnitee, which
obligations, representations, warranties,
covenants and agreements are not secured by this
Deed of Trust or the other Security Documents (as
defined hereinafter) nor are they related in any
manner to any amounts owed to Beneficiary pursuant
to the Note).
This Deed of Trust, the Note, the Certificate, the
Assignment and any other deeds of trust,
mortgages, agreements or other instruments given
to evidence or further secure the payment and
performance of any obligation secured hereby (and
any and all replacements, rearrangements,
modifications, substitutions, extensions, renewals
modifications or amendments thereto) are sometimes
referred to collectively herein as the "Security
Documents."
ARTICLE 1
COVENANTS, WARRANTIES AND REPRESENTATIONS OF TRUSTOR
To protect the security of this Deed of Trust, Trustor
hereby covenants, warrants, represents and agrees as
follows:
1.1 Ownership. Trustor is the lawful owner in
fee of the Trust Property. The Trust Property is free
from any adverse lien, security interest, encumbrance
or adverse claim thereon (except for the lien created
by this Deed of Trust and those claims that are of
record and have been previously disclosed to
Beneficiary in writing). Trustor has good right, full
power and lawful authority to convey the Trust Property
pursuant to and in accordance with this Deed of Trust.
Trustor shall warrant and forever defend said Trust
Property and the quiet and peaceful possession thereof
against the claims of all persons whomsoever.
1.2 Secured Obligations. Trustor shall pay when
due all indebtedness and perform all obligations that
are secured by this Deed of Trust in accordance with
their respective terms, pay when due any future
advances and perform all future obligations secured by
this Deed of Trust.
1.3 Insurance Policies.
1.3.1 Trustor shall maintain in full force
and effect, at Trustor's sole cost and expense, (i)
comprehensive public liability insurance insuring
Trustor and Beneficiary against loss, damage, or
liability for injury to, or death of, persons and loss
or damage to property occurring from any cause
whatsoever in, upon, or about the Property and the
Improvements, (ii) fire, hazard and extended coverage
insurance on the Trust Property, (iii) loss of rental
value, (iv) if required by Beneficiary, boiler and
machinery insurance covering pressure vessels, air
tanks, machinery, pressure piping, heating, air
conditioning and elevator and escalator equipment,
provided the Improvements contain equipment of such
nature, and insurance against loss of occupancy, use or
rents arising from any such breakdown, in such amounts
as are satisfactory to Beneficiary, and (v) any other
insurance required by law. The insurance policies must
be approved by Beneficiary in its reasonable discretion
as to amount, form, deductibles and insurer, and must
cover all risks Beneficiary requires and must be with
A+, A or A- rated companies that have a financial size
of X or better as shown in a current Best's Key Rating
Guide (or comparable guide book acceptable to
Beneficiary if Best's should become unavailable);
provided, however, that the above-referenced policy or
policies of comprehensive public liability insurance
shall be maintained in amounts not less than Two
Million and No/100 Dollars ($2,000,000) combined single
limit; and provided further that the hazard, fire and
extended coverage insurance policies must contain a
New York standard mortgagee or lender clause
endorsement making all losses payable to Beneficiary,
must contain cancellation provisions requiring not less
than thirty (30) days' written notice to Beneficiary as
a condition precedent to any cancellation thereof, must
be for the full replacement value of the Improvements,
and must contain a "Replacement Cost Endorsement"; and
provided further that Loss of "business interruption"
insurance shall be in the amount of at least Three
Hundred Ninety-Five Thousand Dollars ($395,000) for
each twelve (12) month period (and pro rata for any
portion thereof). The hazard, fire and extended
coverage insurance policies and a copy of all other
insurance policies, together with receipts for the
payment of premiums, are to be delivered to and held by
the Beneficiary. All renewal and replacement policies
(or certificates or binders evidencing same) must be
delivered to the Beneficiary at least fifteen (15) days
before expiration of the old policies. Approval of any
insurance by Beneficiary will not be a representation
of the solvency of any insurer or the sufficiency of
any amount of insurance. Anything above to the
contrary notwithstanding, in no event shall Trustor be
required to insure against loss by earthquake, earth
movement or flood unless such coverage unless such
insurance is available at commercially reasonable
rates. The deductible for fire, hazard and extended
coverage insurance may be One Hundred Thousand Dollars
($100,000).
1.3.2 All policies of insurance required to
be maintained by Trustor hereunder shall contain a
waiver of subrogation against the Trustee and
Beneficiary, and an endorsement or agreement by the
insurer that any loss shall be payable in accordance
with the terms of such policy notwithstanding any act
or negligence of Trustor that might otherwise result in
forfeiture of said insurance and the further agreement
of the insurer waiving all rights of set-off,
counterclaim or deductions against Trustor.
1.3.3 Notwithstanding anything to the
contrary herein, in the event Trustor fails to provide,
maintain, keep in full force and effect or deliver and
furnish to Beneficiary the policies of insurance
required hereunder, in addition to all other remedies
available under this Deed of Trust or any of the
Security Documents, Beneficiary, in its sole and
absolute discretion and without obligation with respect
thereto, may procure such insurance or single-interest
insurance for such risks covering Beneficiary's
interest, and Trustor will pay all premiums thereon
(and interest thereon at the rate of thirteen percent
(13%) per annum from the date of expenditure by
Beneficiary until the date of payment by Trustor)
promptly upon demand by Beneficiary, and until such
payment is made by Trustor the amount of all such
premiums together with interest thereon shall be
secured by this Deed of Trust.
1.3.4 Notwithstanding anything to the
contrary herein, in the event of foreclosure of this
Deed of Trust or other transfer of title or assignment
of the Trust Property in extinguishment, in whole or in
part, of the debt secured hereby, all right, title and
interest of Trustor in and to all policies of insurance
required herein or the proceeds thereof shall inure to
the benefit of and pass to the successor-in-interest to
Trustor or the purchaser or grantee of the Trust
Property.
1.4 Damage and Insurance Proceeds.
1.4.1 Trustor shall give prompt written
notice to Beneficiary of any damage or injury to the
Trust Property costing in excess of $25,000 to repair
and Trustor shall give whatever notice to insurers of
any such damage, injury, loss or diminution of value as
may be required. All insurance proceeds on the Trust
Property and all causes of action, claims,
compensation, awards and recoveries for any such damage
or injury to the Trust Property are hereby absolutely
assigned to and shall be paid to Beneficiary, and
Trustor agrees to execute such further evidence of such
absolute assignment of such insurance proceeds, causes
of action, claims, compensation, awards and recoveries
as Beneficiary or Trustee may require. Beneficiary may
(but shall not be obligated to) participate in any
suits or proceedings relating to any such proceeds,
causes of action, claims, compensation, awards or
recoveries and may join with Trustor in adjusting any
loss covered by insurance. Subject to the terms and
conditions of Section 1.4.4 below, Beneficiary will
apply any sums received by it under this paragraph
first to the payment of all of its costs and expenses
(including but not limited to legal fees and
disbursements) incurred in obtaining those sums, and
then, in its sole and absolute discretion and without
regard to the adequacy of its security, to the payment
of the indebtedness and obligations secured by this
Deed of Trust or to Trustor for restoration or repair
of the Trust Property under Beneficiary's prescribed
disbursement control procedures as hereinafter
described.
1.4.2 In the event Beneficiary elects,
subject to the terms and conditions of Section 1.4.4
below, to apply any sums received under Section 1.4.1
above in whole or in part to the payment of the
indebtedness and obligations secured by this Deed of
Trust, no prepayment privilege fee shall apply
(notwithstanding anything to the contrary in the Note).
Any sums applied to the payment of the indebtedness
secured by this Deed of Trust shall be applied first
against disbursements by Beneficiary (and any interest
thereon at the rate of thirteen percent (13%) per annum
from the date of expenditure by Beneficiary until the
date of payment by Trustor) chargeable to Trustor
pursuant to the terms of this Deed of Trust, then
against accrued interest then due and owing under the
Note, and thereafter against the principal due under
the Note in the inverse order of principal payments as
they mature.
1.4.3 Notwithstanding the foregoing, in the
event of loss, Beneficiary is hereby authorized either
(a) to settle, adjust or compromise any claim under the
above insurance policies without consent of Trustor,
which consent is hereby expressly waived; or (b) to
allow Trustor to agree with the insurance company or
companies on the amount to be paid upon the loss. In
either case, Beneficiary is authorized to collect and
receive any such insurance money. Notwithstanding
anything to the contrary contained herein, Trustor may,
without the consent of Beneficiary, so long as Trustor
is not in default hereunder, settle, adjust or
compromise any claim in an original amount less than
Twenty Five Thousand and No/100 Dollars ($25,000.00).
1.4.4 Notwithstanding anything to the
contrary herein contained, if (i) the insurers do not
deny liability as to the insured; (ii) no Event of
Default (as hereinafter defined) exists and no event
exists that, with the passage of time or the giving of
notice or both, would constitute such an Event of
Default; (iii) Beneficiary has received evidence,
satisfactory to Beneficiary in its good faith
discretion, that there are sufficient funds available
and/or committed, including such insurance proceeds, to
effectuate such restoration and to cover the expenses
of operating and maintaining the Trust Property and
servicing the debt secured hereby and any other debt
secured by the Trust Property until the Trust Property
is generating sufficient revenues to cover such
expenses and debt service; (iv) in Beneficiary's
judgment, Beneficiary's security will not be materially
impaired by the application of the insurance proceeds
to the restoration of the Improvements; (v) Trustor has
delivered to Beneficiary financial plans and
projections, including, without limitation, the status
of all tenancies or uses of the Trust Property, from
which Beneficiary, in its sole judgment, determines
that after the completion of such restoration the Trust
Property will be economically viable; (vi) Beneficiary
has approved the plans and specifications to be used in
connection with such restoration; and (vii) the
restoration will return the Improvements to
substantially the same condition, character and utility
and to at least the value that existed immediately
prior to such casualty; then such insurance proceeds,
after deducting therefrom all expenses incurred by
Beneficiary in the collection and administration
thereof, shall be used to pay Trustor for the cost of
rebuilding, replacing, restoring or repairing the Trust
Property so insured in accordance with the disbursement
procedures herein contained. In all other cases, such
insurance proceeds may at Beneficiary's discretion,
either be applied in payment or reduction of the
indebtedness secured hereby (whether then due or not)
in accordance with Section 1.4.2 above, or be held by
Beneficiary and used to reimburse Trustor or any other
party for the cost of the rebuilding, replacing,
restoring or repairing the Trust Property so insured.
1.4.5 In the event Trustor is entitled
(whether pursuant to the terms hereof or pursuant to
Beneficiary's election or otherwise) to payment out of
insurance proceeds for any repair, rebuilding,
restoration or replacement, such proceeds shall be made
available, from time to time, upon Beneficiary being
furnished with satisfactory evidence of progress in
such repair, rebuilding, restoration or replacement,
together with satisfactory evidence of the estimated
cost of completion thereof and together with any such
architect's certificates, waivers of lien, contractors'
sworn statements and other evidence of cost and
payments as Beneficiary may reasonably require and
approve. If the estimated cost of the work exceeds ten
percent (10%) of the original principal amount of the
indebtedness secured hereby, Beneficiary shall also be
furnished with all plans and specifications for such
rebuilding, replacement, restoration or repair as
Beneficiary may reasonably require and approve. The
aggregate amount of all payments made prior to the
final completion of the work shall never exceed ninety
percent (90%) of the value of the work performed, from
time to time, and at all times the undisbursed balance
of said proceeds remaining in the hands of Beneficiary
shall be at least sufficient to pay for the cost of
completion of the work free and clear of liens. If the
amount of such insurance proceeds is insufficient to
cover the cost of repair, rebuilding, replacement or
restoration, Trustor shall pay such cost in excess of
the insurance proceeds before being entitled to any
payment out of said insurance proceeds. Any surplus
that may remain out of said insurance proceeds after
payment of such cost of repair, rebuilding, restoration
or replacement shall, at the option of Beneficiary, be
applied on account of the indebtedness (whether then
due or not) secured hereby in accordance with the terms
of Section 1.4.2 above or be paid to any other party
entitled thereto.
1.4.6 Nothing herein contained shall be
deemed to excuse Trustor from repairing or maintaining
the Trust Property as provided in Section 1.9 hereof or
from restoring all damage or destruction to the Trust
Property, regardless of whether there are insurance
proceeds available or whether any such proceeds are
sufficient in amount. The application or release by
Beneficiary of any insurance proceeds shall not cure or
waive any default or notice of default under this Deed
of Trust or invalidate any act done pursuant to such
notice.
1.5 Waiver of Claims. Trustor waives any and all
right to claim or to recover against Beneficiary, its
officers, employees, agents, attorneys and
representatives, for loss of or damage to Trustor, the
Trust Property, Trustor's other property or the
property of others under Trustor's control from any
cause insured against or required to be insured against
by the provisions of this Deed of Trust.
1.6 Taxes and Assessments.
1.6.1 Trustor agrees to pay prior to
delinquency all taxes and assessments that are or may
become a lien on the Trust Property or that are
assessed against the Trust Property or its rents,
royalties, profits and income. Trustor shall furnish
to Beneficiary satisfactory evidence respecting the
payment of any and all taxes and assessments. Trustor
also agrees to pay when due all lawful claims and
demands of mechanics, materialmen, laborers and others
for any work performed or materials delivered for the
Trust Property. Trustor also agrees to pay when due
all utility charges that are incurred by Trustor for
the benefit of the Trust Property or that may become a
charge or lien against the Trust Property for gas,
electricity, water, telephone or sewer services
furnished to the Trust Property and all other charges
or assessments of a similar nature, whether public or
private, affecting the Trust Property or any portion
thereof, whether or not such taxes, assessments or
charges are liens thereon. Notwithstanding anything to
the contrary herein, in the event Trustor fails to pay
any of the foregoing when due or prior to delinquency
as required herein, in addition to all other remedies
available under this Deed of Trust or any other
Security Documents, Beneficiary, in its sole and
absolute discretion and without obligation with respect
thereto, may pay any or all such amounts, and Trustor
will pay such amounts advanced (and interest thereon at
the rate of thirteen percent (13%) per annum from the
date incurred by Beneficiary until the date of payment
by Trustor) promptly upon demand by Beneficiary, and
until such payment is made by Trustor, the amount of
all such advances together with interest thereon shall
be secured by this Deed of Trust. Notwithstanding the
forgoing provisions of this Section 1.6.1, Trustor
shall have the right to contest in good faith any
taxes, assessments, claims or demands at any time
affecting the Trust Property, provided that such
contest is diligently prosecuted and provided further
that during the course of such contest Trustor
furnishes Beneficiary with whatever assurances and/or
further security that Beneficiary reasonably requires
that its security will not be impaired by virtue of the
contest.
1.6.2 Unless waived in writing upon such
terms and conditions as Beneficiary in its sole
discretion may determine, Trustor shall deposit with
such party and at such place as Beneficiary may from
time to time in writing appoint, commencing on the
"Adjustment Date" (as defined in the Note), and on the
day monthly installments of principal and interest are
payable under the Note until the indebtedness secured
by this Deed of Trust is fully paid, a sum equal to one-
twelfth of the estimated total annual real property
taxes and assessments on the Trust Property and of the
estimated total annual premiums on insurance policies
required to be maintained with respect to the Trust
Property pursuant to the Deed of Trust, such estimate
to be made from time to time in Beneficiary's
reasonable discretion, with notice of any change in
such estimate to be given in writing by Beneficiary to
Trustor at least thirty (30) days in advance, and such
deposit to be held without any allowance of interest
and to be used for the payment of taxes, assessments
and insurance renewal premiums relating to the Trust
Property prior to delinquency. If the funds so
deposited are insufficient to pay any such tax,
assessment and insurance renewal premium prior to
delinquency, Trustor shall, within five (5) days after
receipt of demand therefor, deposit such additional
funds as may be necessary to pay such taxes,
assessments and insurance renewal premiums in full.
Upon the occurrence and during the continuance of an
Event of Default, Beneficiary may at its own option,
without being required to do so, apply any monies at
the time on deposit pursuant hereto on any of Trustor's
obligations contained in the Note and/or secured by
this Deed of Trust, in such order and manner as
Beneficiary in its sole and absolute discretion may
elect. Such deposits shall be held to be irrevocably
applied by Beneficiary or by any depository appointed
pursuant hereto for the purposes for which the deposits
are made hereunder and shall not be subject to the
direction and control of Trustor; provided, however,
that neither Beneficiary nor any such depository
appointed pursuant hereto, shall be liable for any
failure to apply to the payment of taxes, assessments
and insurance renewal premiums any amount so deposited
unless Trustor, while not in default under the Note or
this Deed of Trust, shall have requested Beneficiary or
said depository in writing, sent by certified mail
return receipt requested, to make application of such
funds to the payment of particular taxes, assessments
and/or insurance renewal premiums accompanied by the
bills or invoices for such taxes, assessments and/or
insurance renewal premiums, at least thirty (30) days
prior to the date when any such payment is delinquent.
Trustor hereby grants to Beneficiary a security
interest in any such deposits to secure Trustor's
obligation under this Deed of Trust and agrees to
execute such financing statements and take such other
actions as are required by Beneficiary to create and
perfect its security interest in such deposits.
1.7 Assignment of Rents.
1.7.1 Trustor hereby presently and
absolutely conveys, transfers and assigns to
Beneficiary, its successors and assigns, all the
rights, interest and privileges that Trustor as lessor
has and may have in any leases now existing or
hereafter made and affecting the Trust Property or any
part thereof, with all of the existing and future
rents, additional rents, revenues, issues, earnings,
products, royalties, income and profits of the Trust
Property that arise from any lease or occupancy
agreement pertaining to the Trust Property. Anything
to the contrary herein notwithstanding, Trustor also
hereby assigns to Beneficiary any award made hereafter
to Trustor in any court proceeding involving any of the
lessees (specifically including, without limitation, in
any bankruptcy, insolvency or reorganization proceeding
in any state or federal court) and any and all payments
made by or on behalf of any lessee in lieu of rent.
Trustor hereby appoints Beneficiary as its irrevocable
attorney-in-fact to appear in any action and/or to
collect any such award or payment.
1.7.2 Anything to the contrary herein
notwithstanding, unless and until there occurs an Event
of Default under this Deed of Trust or any other
Security Documents, Trustor will have a license to
collect and receive those rents, additional rents,
royalties, income and profits as they become due. Upon
the occurrence of an Event of Default under this Deed
of Trust or any other Security Documents, Beneficiary
may terminate Trustor's license in Beneficiary's sole
and absolute discretion at any time, and may thereafter
collect the rents, additional rents, royalties, income
and profits itself or by an agent or receiver.
Notwithstanding the foregoing, no action taken by
Beneficiary to collect any rents, additional rents,
royalties, income or profits will make Beneficiary a
mortgagee-in-possession of the Trust Property, unless
Beneficiary personally or by authorized agent enters
into actual possession of the Trust Property.
Possession by a court appointed receiver will not be
considered possession by Beneficiary.
1.7.3 Trustor hereby agrees to indemnify
Beneficiary against, and to hold Beneficiary harmless
from, any and all liability, claim, demand, damage,
loss, cost or expense (including actual attorneys' fees
and expenses) arising from any of said leases or from
this assignment, and this assignment shall not place
responsibility for the control, care, management or
repair of said premises upon Beneficiary, or make
Beneficiary responsible or liable for any negligence in
the management, operation, upkeep, repair or control of
the Trust Property resulting in loss or injury or death
to any tenant, licensee, employee or stranger. Any
expenditures made by Beneficiary to cure any default by
Trustor under any term of any lease (and interest
thereon at the rate of thirteen percent (13%) per annum
from the date incurred by Beneficiary until the date of
payment by Trustor) will be paid by Trustor promptly
upon demand by Beneficiary and will be additional
indebtedness secured by this Deed of Trust.
1.7.4 The receipt by Beneficiary of any
rents, additional rents, issues, royalties, income or
profits pursuant hereto after the institution of
foreclosure proceedings hereunder shall not cure such
default nor affect such proceedings or any sale
pursuant hereto. All rents, additional rents, issues,
royalties, income and profits collected by Beneficiary
or a receiver will be applied first to pay all expenses
of collection, and then to the payment of all costs of
operation and management of the Trust Property, and
then to the payment of the indebtedness and obligations
secured by this Deed of Trust in whatever order
Beneficiary directs in its sole and absolute discretion
and without regard to the adequacy of its security.
1.7.5 Concurrently with the recordation of
this Deed of Trust, the Assignment shall also be
recorded. To the extent of any inconsistency between
this Article 1, Section 1.7 of this Deed of Trust and
the Assignment, the terms and provisions of the
Assignment shall be controlling.
1.8 Transfer of Trust Property.
1.8.1 Without the prior written consent of
Beneficiary, which consent or the denial thereof shall
be in Beneficiary's sole and absolute discretion,
Trustor shall not hypothecate, pledge, grant a security
interest in or otherwise encumber (whether voluntarily
or by operation of law) all or any portion of the Trust
Property (a "Prohibited Encumbrance").
1.8.2 Without the prior written consent of
Beneficiary, which consent or the denial thereof shall
be in Beneficiary's sole and absolute discretion, (i)
Trustor (or any subsequent holder of an interest in the
Trust Property following a transfer to which
Beneficiary consents or that is otherwise permitted
hereby (a "Subsequent Owner")) shall not sell, assign,
convey, contract to sell, lease (other than pursuant to
any existing leases of the Trust Property that have
been approved by Beneficiary) or otherwise transfer all
or any portion of the Trust Property or any interest or
estate therein (whether possessory or nonpossessory),
whether voluntarily or by operation of law; or (ii)
there shall occur a transfer in the aggregate of more
than fifty percent (50%) of the shares in Trustor to
one person or entity and any affiliates of any such
person or entity (the occurrence of an event described
above in (i) or (ii) that occurs without Beneficiary's
consent being referred to herein as a "Prohibited
Transfer"). Notwithstanding the preceding provisions
of this Section 1.8.2, Trustor may, in good faith and
by appropriate proceedings, contest any lien or
encumbrance without cost or expense to Trustee or
Beneficiary, but only upon posting, and concurrently
supplying to Beneficiary a certified copy of, a
statutory bond or other security sufficient under
applicable law or causing the issuance of title
insurance satisfactory to Beneficiary, fully to protect
any and all of the Trust Property encumbered by such
claim of lien and otherwise sufficient in Beneficiary's
sole judgment to protect Trustee and Beneficiary
against any judgment in favor of lien claimant. If the
conditions of the preceding sentence are satisfied
within twenty (20) days after Trustor receives notice
of such lien or encumbrance, such lien or encumbrance
shall not be deemed to be a Prohibited Encumbrance or a
Prohibited Transfer.
1.8.3 Notwithstanding anything to the
contrary contained in this Section 1.8, Beneficiary
shall consent to a one-time transfer of the Trust
Property, provided, however, that it is established to
the satisfaction of Beneficiary in its good faith
discretion that all of the following requirements have
been satisfied:
(i) not less than thirty (30) days
prior to the proposed transfer, Trustor shall have
delivered to Beneficiary (A) a written request for
approval of the proposed transfer; (B) if the proposed
transferee is a limited partnership, a true and
complete copy of the such limited partnership's
Agreement of Limited Partnership and Certificate of
Limited Partnership (Form LP-1), and a good standing
certificate for such limited partnership; (C) if the
proposed transferee is a general partnership, a true
and complete copy of the Agreement of Partnership and
the Statement of Partnership of such partnership; (D)
if the proposed transferee is a corporation, a true and
complete copy of such corporation's Articles of
Incorporation and Bylaws and a good standing
certificate for such corporation; and (E) true and
complete copies of all agreements and documentation
relating to the transfer;
(ii) the proposed purchaser must be an
experienced owner of commercial real estate for
properties similar to the Trust Property and must have
internal property management personnel with
demonstrated capability in the management of such
properties such that the managerial and operational
skills of the proposed purchaser are as good as
Trustor's as of the date hereof and as of the date of
the proposed transfer;
(iii) as of the date of the proposed
transfer, the proposed purchaser must be at least as
creditworthy as Trustor as of the date hereof and as of
the date of the proposed transfer;
(iv) all documentation relating to the
transfer must be good faith satisfactory to
Beneficiary;
(v) no Event of Default and no event,
that with the passage of time and/or the giving of
notice would constitute such an Event of Default,
exists and no other event or condition exists that
could cause the Loan to be in jeopardy of default at
the time Trustor requests approval of the proposed
transfer and at the time of the transfer;
(vi) at the time of the request for
approval of the proposed transfer, Trustor shall have
paid to Beneficiary a nonrefundable transfer privilege
fee equal to one percent (1%) of the then outstanding
principal balance under the Note;
(vii) Trustor shall have obtained an
endorsement to Beneficiary's policy of title insurance,
if required by Beneficiary, insuring the continued
priority, without additional exceptions other than
current real property taxes and other matters approved
by Beneficiary, of the lien of this Deed of Trust;
(viii) Trustor and the transferee
shall have satisfied all other good faith requirements
of Beneficiary for providing its consent to such
transfers, including, without limitation, the execution
and delivery of an assumption agreement, a security
agreement and financing statement;
(ix) the use of the Trust Property shall
remain the same (that is, for general office and
industrial purposes) after the transfer; and
(x) Trustor shall pay all actual fees
and expenses incurred by Beneficiary or its counsel in
connection with the proposed transfer, including,
without limitation, all legal, recording and title
insurance fees and expenses. Trustor acknowledges and
agrees that Trustor shall be liable to Beneficiary for
such fees and expenses regardless of whether the
proposed transfer actually occurs, and such liability
shall be secured by the Deed of Trust and shall bear
interest at the rate of thirteen percent (13%) per
annum from the date incurred by Beneficiary until paid.
The right described in this Section 1.8. shall be
available only with respect to a single transfer by the
original Trustor and not with respect to subsequent
transfers. (A transfer in accordance with such one-
time right is hereinafter referred to as a "One-Time
Third Party Transfer.") For the purposes of this
provision, a transfer shall not be deemed to have
occurred if, following notice or request for consent to
Beneficiary, such transfer is not completed for any
reason whatsoever. The right to make a One-Time Third
Party Transfer by the original Trustor may be exercised
only with Beneficiary's prior approval of the matters
that require its approval, or as to which it is
required to be satisfied, as provided above.
1.8.4 In the event of a Prohibited Transfer,
then, at Beneficiary's election in its sole and
absolute discretion, upon notice to Trustor,
Beneficiary may declare the whole of the principal
balance of the Note and all accrued but unpaid interest
thereon immediately due and payable, together with a
transfer privilege fee of (i) four percent (4%) of said
principal balance if such Prohibited Transfer occurs
during the first four (4) Loan Years (as defined in the
Note) or (ii) the greater of (A) one half (1/2) of the
amount that would be the Prepayment Privilege Fee (as
provided in the Note) and (B) one percent (1%) of said
principal balance, if such Prohibited Transfer occurs
at any time during the fifth (5th) Loan Year through
the sixth (6th) month of the fifteenth (15th) Loan
Year. Commencing with the seventh (7th) month of the
fifteenth (15th) Loan Year, there will be no transfer
privilege fee.
1.8.5 Notwithstanding anything to the
contrary contained in this Section 1.8, the occurrence
of (a) a Prohibited Encumbrance, or (b) a Prohibited
Transfer where (i) Trustor or any Related Party retains
any interest in the property so transferred, (ii)
Trustor or any Related Party has any agreement or
understanding with the transferee of such property with
respect to the retransfer of such property to Trustor
or to any Related Party, or (iii) Trustor or any
Related Party has any interest in the transferee of
such property, shall be deemed an Event of Default, and
Beneficiary shall have all of its rights and remedies
in such event, including, without limitation, the right
to declare the entire unpaid principal balance of the
Note and all accrued but unpaid interest thereon
immediately due and payable, together with the
prepayment privilege fee due pursuant to the terms of
the Note upon the occurrence of an Event of Default
followed by acceleration of the maturity of the Note,
and to charge interest at the rate of thirteen percent
(13%) per annum on such sum from the date of such
Prohibited Transfer or Prohibited Encumbrance until
such sum is paid in full.
1.9 Maintenance, Repair, Alteration.
1.9.1 Trustor will not commit any waste on
the Trust Property or take any actions that would
invalidate or give cause for the cancellation of any
insurance carried on the Trust Property. Trustor will
maintain the Trust Property in good condition and
repair. Trustor will keep the Trust Property free from
mechanics' liens or other liens or claims for liens not
expressly subordinated to the lien hereof.
Notwithstanding the preceding sentence, Trustor may, in
good faith and by appropriate proceedings, contest any
lien or encumbrance without cost or expense to Trustee
or Beneficiary, but only upon posting, and concurrently
supplying to Beneficiary a certified copy of, a
statutory bond or other security sufficient under
applicable law or causing the issuance of title
insurance satisfactory to Beneficiary, fully to protect
any and all of the Property encumbered by such claim of
lien and otherwise sufficient in Beneficiary's sole
judgment to protect Trustee and Beneficiary against any
judgment in favor of the lien claimant. If the
conditions of the preceding sentence are satisfied
within twenty (20) days after Trustor receives notice
of such lien or claim, such lien or claim shall not be
deemed to be an Event of Default hereunder. Trustor
will pay when due any indebtedness that may be secured
by a lien or charge on the Trust Property or any part
thereof (other than liens for taxes and assessments,
which shall be paid prior to delinquency) and will,
upon request, exhibit satisfactory evidence of the
discharge of any such liens to Beneficiary. No
Improvements located on the Trust Property may be
removed, demolished or materially altered without the
prior written consent of Beneficiary. No personal
property in which Beneficiary has a security interest
hereunder may be removed from the Trust Property unless
it is immediately replaced by similar property of at
least equivalent value on which Beneficiary will
immediately have a valid and perfected first lien and
security interest, ranking senior in priority to any
and all other liens, security interests, encumbrances,
or charges thereon. Trustor shall complete promptly
and in good and workmanlike manner any building or
buildings or any improvements now or at any time in the
process of erection upon the Property and to restore
promptly in like manner any Improvement that may be
damaged or destroyed thereon. Without Beneficiary's
prior written consent, Trustor will make no material
alterations to the Trust Property except as required by
law or municipal ordinance. Trustor will suffer or
permit no change in the general nature of the occupancy
or use of the Trust Property without Beneficiary's
prior written consent.
1.9.2 Without the prior written consent of
Beneficiary, Trustor will not seek, make or consent to
any change in the zoning or conditions of use of the
Trust Property. Trustor will comply with and make all
payments required under the provisions of any and all
laws, ordinances, regulations, resolutions, covenants,
conditions, and restrictions now or hereafter affecting
the Trust Property or any part thereof or the business
or the activity conducted thereon. Trustor will comply
with all existing and future requirements of all
governmental authorities having jurisdiction over the
Trust Property or the use thereof and will not commit,
suffer, permit, or allow any act to be done in and upon
the Trust Property in violation of any existing or
future law, ordinance, resolution or regulation.
Trustor will comply with all restrictions of record
with respect to the Trust Property or use thereof.
Notwithstanding the forgoing provisions of this Section
1.9.2, Trustor shall have the right to contest in good
faith any laws, ordinances, regulations, resolutions,
covenants, conditions, and restrictions any time
affecting the Trust Property, provided that such
contest is diligently prosecuted and provided further
that during the course of such contest Trustor
furnishes Beneficiary with whatever assurances and/or
further security that Beneficiary requires in good
faith that its security will not be impaired by virtue
of the contest.
1.9.3 Beneficiary, at any time, is
authorized to engage an independent inspector to survey
the adequacy of the maintenance of the Trust Property
and/or to conduct an environmental audit of the Trust
Property to determine whether the Trust Property is in
compliance with and/or whether any conditions exist
that may cause the Trust Property to be in violation of
any "Environmental Laws" (as defined hereinafter). The
scope and type of a survey or environmental audit shall
be in Beneficiary's sole and absolute discretion, and
Trustor acknowledges that an environmental audit may
include, without limitation, air, soil and ground water
sampling. Provided that an Event of Default has
occurred and is continuing when the work on any such
survey or audit commenced or Beneficiary has a good
faith belief that the Property may be in violation of
Environmental Laws, Trustor shall pay the cost incurred
by Beneficiary for any such survey or environmental
audit (and interest thereon at the rate of thirteen
percent (13%) per annum from the date incurred by
Beneficiary until repayment by Trustor), and all such
costs with interest thereon shall be secured by this
Deed of Trust. If the Trust Property is found to be in
violation of any Environmental Laws or any conditions
exist that may make the Trust Property be in violation
of any Environmental Laws or if the maintenance of the
Trust Property is found to be in violation of this Deed
of Trust, such inspector shall make recommendations to,
and determine the estimated cost to, bring the Trust
Property into compliance with such laws, correct such
conditions or make such repairs and replacements
necessary to comply with this Deed of Trust. In such
event Trustor shall commence implementation of such
recommendations at its own cost and expense within
thirty (30) days, and shall thereafter with diligence,
complete such recommendations and Trustor shall provide
Beneficiary with bonds or other assurances required by
Beneficiary in its sole and absolute discretion that
said recommendations will be satisfactorily completed.
Trustor acknowledges that any survey or environmental
audit shall be conducted solely for the benefit of
Beneficiary and that in no manner should the completion
of such a survey or environmental audit be deemed to be
a representation by Beneficiary as to the Property's
compliance with any Environmental Laws or as to the
adequacy of the maintenance of the Trust Property.
1.10 Books and Records.
1.10.1 Trustor will keep adequate books and
records of account of the Trust Property and of
Trustor's own financial affairs sufficient to permit
the preparation of financial statements therefrom in
accordance with generally accepted accounting
principles. Beneficiary and its agents will have the
right to examine, copy and audit the records and books
of account of the Trust Property at all reasonable
times. If Trustor shall be in default under this Deed
of Trust or under any other Security Documents, Trustor
shall deliver to Beneficiary, upon demand, audited
financial statements and profit-and-loss statements for
the Trust Property prepared by an independent certified
public accountant in accordance with generally accepted
accounting principles consistently applied. In
addition to the foregoing, Trustor shall, within one
hundred twenty (120) days of the first day of each
calendar year, furnish to Beneficiary financial
statements of Trustor statements of income and expenses
of the Trust Property for the preceding calendar year,
a balance sheet of the Trust Property as of the first
day of the calendar year, and a current rent roll (if
any part of the Trust Property is then subject to
lease), each shall be certified as to truth and
accuracy by Trustor and shall be satisfactory in form
and substance to Beneficiary in its good faith and
absolute discretion and disclose a solvent condition.
1.10.2 Beneficiary, or its agents,
representatives or workmen, are authorized to enter at
any reasonable time (and upon reasonable advance notice
to Trustor) upon or in any part of the Trust Property
for the purpose of inspecting the Trust Property and
for the purpose of performing any of the acts it is
authorized to perform under the terms of this Deed of
Trust or any other Security Documents or any other
agreement between the parties.
1.10.3 Trustor will promptly furnish, upon
Beneficiary's request, a duly acknowledged written
statement setting forth all amounts due on the
indebtedness secured by this Deed of Trust and stating
that no offsets or defenses exist, and containing such
other matters as Beneficiary may reasonably require.
1.10.4 Trustor hereby represents, warrants
and certifies that all financial statements,
information and certificates previously or
contemporaneously delivered to Beneficiary concerning
Trustor, and/or the Trust Property are true, complete
and correct in all material respects.
1.11 Management of the Trust Property. Trustor
will provide for competent management of the Trust
Property. Any third party manager of the Trust
Property and their management contracts (including any
modification, extension or renewal thereof) shall be
approved by Beneficiary in its sole and absolute
discretion. All rights of any person or entity to
compensation or fees pursuant to any such management
contract shall be subordinate to Beneficiary's rights
under this Deed of Trust and any other Security
Documents. Any such management contracts shall be
terminable upon the occurrence of an Event of Default,
at the option of Beneficiary in Beneficiary's sole and
absolute discretion, upon thirty (30) days' written
notice to the manager thereunder.
1.12 Actions Affecting Trust Property.
1.12.1 Trustor will, at its own expense,
appear in and defend any action or proceeding that
would affect Beneficiary's security or the rights or
powers of Beneficiary or Trustee or that purports to
affect any of the Trust Property. If Trustor fails to
perform any of its covenants or agreements contained in
this Deed of Trust or in any of the Security Documents,
or if any action or proceeding of any kind (including,
but not limited to any condemnation proceeding or any
bankruptcy, insolvency, arrangement, reorganization or
other debtor relief proceeding) is commenced or if
there occurs any other event that might affect
Beneficiary's, Trustor's or Trustee's interest in the
Trust Property or Beneficiary's right to enforce its
security, then Beneficiary and/or Trustee may, without
notice, any right to such prior notice which is hereby
expressly waived, at their option and without
obligation to do so, make any appearances, disburse any
sums and take any actions as may be necessary or
desirable to protect the Trust Property, to protect or
enforce the security of this Deed of Trust or to remedy
the failure of Trustor to perform its covenants and
agreements (without, however, waiving any default of
Trustor). Trustor agrees to pay all out-of-pocket
expenses of Beneficiary and Trustee thus incurred
(including, without limitation, all actual attorneys'
fees and costs). Any sums so disbursed by Beneficiary
or Trustee (and interest thereon) will be additional
indebtedness of Trustor secured by this Deed of Trust,
will bear interest from the date incurred by
Beneficiary or Trustee until paid by Trustor at the
rate of thirteen percent (13%) per annum, and will be
payable by Trustor upon demand. This paragraph will
not be construed to require Beneficiary or Trustee to
incur any expenses, make any appearances, or take any
actions.
1.12.2 If Beneficiary is made or becomes a
party to any litigation concerning this Deed of Trust,
the other Security Documents or the Trust Property or
any part thereof or interest therein, or the occupancy
thereof by Trustor, then Trustor shall indemnify,
defend and hold Beneficiary harmless from all
liability, claims, demands, obligations, losses, costs
and expenses, incurred by reason of said litigation,
including, without limitation, all actual attorneys'
fees and expenses incurred by Beneficiary in such
litigation, whether or not any such litigation is
prosecuted to judgment. If Beneficiary commences an
action against Trustor or appears in any bankruptcy,
insolvency, reorganization or other proceeding for
debtor relief to enforce any of the terms hereof or
because of the breach by Trustor of any of the terms
hereof, or for the recovery of any sum secured hereby,
Trustor shall pay to Beneficiary, upon demand, all
actual attorneys' fees and expenses, and the right to
such attorneys' fees and expenses shall be deemed to
have accrued on the commencement of such action, shall
be enforceable whether or not such action is prosecuted
to judgment, will be additional indebtedness of Trustor
secured by this Deed of Trust and will bear interest at
the rate of thirteen percent (13%) per annum from the
date incurred until paid in full.
1.12.3 In the event Trustor requests (i) any
changes to this Deed of Trust or any other documents
relating to the Loan, (ii) releases of any part of the
Trust Property or any additional property upon which a
security interest has been granted to secure the
indebtedness secured hereby, or (iii) any waivers by
Beneficiary, then Trustor shall reimburse Beneficiary
for all resulting actual attorneys' fees and expenses
incurred by Beneficiary. The need for legal review and
preparation of any documentation shall be in the sole
discretion of Beneficiary.
1.13 Security Agreement and Fixture Filing.
1.13.1 Trustor hereby grants to Beneficiary
a security interest in the Personal Property to secure
all of Trustor's obligations to Beneficiary contained
in this Deed of Trust and any other Security Documents.
This Deed of Trust constitutes a Security Agreement
with respect to all personal property in which
Beneficiary is granted a security interest hereunder,
and Beneficiary shall have all of the rights and
remedies of a secured party under the Uniform
Commercial Code as enacted in California (the "Uniform
Commercial Code") as well as all other rights and
remedies available at law or in equity.
1.13.2 Trustor will execute, acknowledge,
deliver and cause to be recorded or filed, in the
manner and place required by any present or future law,
any instrument that may be requested by Beneficiary to
publish notice or protect, perfect, preserve, continue,
extend, or maintain the security interest and lien, and
the priority thereof, of this Deed of Trust or the
interest of Beneficiary in the Trust Property,
including, without limitation by reason of
specification, deeds of trust, security agreements,
financing statements, continuation statements, and
instruments of similar character, and Trustor shall pay
or cause to be paid (i) all filing and recording taxes
and fees incident to each such filing or recording,
(ii) all expenses, including without limitation, actual
attorneys' fees and costs, incurred by Beneficiary in
connection with the preparation, execution, and
acknowledgement of all such instruments, and (iii) all
federal, state, county and municipal stamp taxes and
other taxes, duties, imposts, assessments, and charges
arising out of or in connection with the execution and
delivery of such instruments. Trustor hereby
irrevocably constitutes and appoints Beneficiary the
attorney-in-fact of Trustor, to execute, deliver and,
if appropriate, to file with the appropriate filing
officer or office any such instruments if Trustor
should fail to do so.
1.13.3 Upon the occurrence and during the
continuance of any Event of Default, Beneficiary shall
have the right to cause any of the Trust Property that
is Personal Property and subject to the security
interest of Beneficiary hereunder to be sold at any one
or more public or private sales as permitted by
applicable law, and Beneficiary shall further have all
other rights and remedies, whether at law, in equity,
or by statute, as are available to secured creditors
under applicable law, specifically including, without
limitation, the right to proceed as to both the real
property and the personal property contained within the
Trust Property as permitted by Uniform Commercial Code
Section 9501(4). Any such disposition may be conducted
by an employee or agent of Beneficiary or Trustee. Any
person, including both Trustee and Beneficiary, shall
be eligible to purchase any part or all of such
property at any such disposition.
1.13.4 Expenses of retaking, holding,
preparing for sale, selling or the like shall be borne
by Trustor and shall include, without limitation,
Beneficiary's and Trustee's actual attorneys' fees and
legal expenses. Trustor, upon demand of Beneficiary,
shall assemble such personal property and make it
available to Beneficiary at such place as shall be
required by Beneficiary in its sole discretion.
Beneficiary shall give Trustor at least five (5) days'
prior written notice of the time and place of any
public sale or other disposition of such personal
property or of the time of or after which any private
sale or any other intended disposition is to be made,
and if such notice is sent to Trustor, at the same
address as is provided for the mailing of notices
herein, it is hereby deemed that such notice shall be
and is reasonable notice to Trustor.
1.13.5 Trustor maintains a place of business
in the State of California, as set forth as the address
of Trustor provided herein under "Requests for Notices"
below, and Trustor will immediately notify Beneficiary
in writing of any change in its place of business.
1.13.6 Portions of the Trust Property are
goods that are or are to become fixtures relating to
the Property, and Trustor covenants and agrees that the
filing of this Deed of Trust in the real estate records
of the county where the Trust Property is located shall
also operate from the time of filing as a fixture
filing in accordance with Sections 9313 and 9402(6) of
the Uniform Commercial Code.
1.14 Payments. All sums payable by Trustor
hereunder or secured hereby shall be paid without
notice, demand, counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment,
diminution or reduction, and the obligations and
liabilities of Trustor hereunder shall in no way be
released, discharged or otherwise affected (except as
expressly provided herein or in the Note) by reason of:
(i) any damage to or destruction of or any condemnation
or similar taking of the Trust Property or any part
thereof; (ii) any restriction or prevention of or
interference with any use of the Trust Property or any
part thereof; (iii) any defect in title to or
encumbrance on the Property or the Improvements or any
part thereof or any eviction from the Property or any
part thereof by title paramount or otherwise; (iv) any
bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like
proceeding relating to Beneficiary, or any action taken
with respect to this Deed of Trust by any trustee or
receiver of Beneficiary, or by any court, in any such
proceeding; (v) any claim that Trustor has or might
have against Beneficiary; (vi) any default or failure
on the part of Beneficiary to perform or comply with
any of the terms hereof or of any other agreement with
Trustor; or (vii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, and
whether or not Trustor shall have notice or knowledge
of any of the foregoing. Trustor waives all rights now
or hereafter conferred by statute or otherwise to any
abatement, suspension, deferment, diminution or
reduction of any sum secured hereby and payable by
Trustor.
1.15 Condemnation.
1.15.1 Should the Trust Property, or any
part thereof or interest therein, be taken or damaged
by reason of any public improvement or condemnation
proceeding, or in any other manner or should Trustor
receive any notice or other information regarding such
proceeding, Trustor shall give prompt written notice
thereof to Beneficiary.
1.15.2 Beneficiary shall be entitled to all
compensation, awards and other payments or relief
therefor, and shall be entitled at its option to
commence, appear in and prosecute in its own name any
action or proceedings. Beneficiary shall also be
entitled to make any compromise or settlement in
connection with such taking or damage. All such
compensation, awards, damages, rights of action and
proceeds awarded to Trustor (the "Proceeds") are hereby
assigned to and shall be paid to Beneficiary, and
Trustor agrees to execute such further assignments of
the Proceeds as Beneficiary or Trustee may require.
1.15.3 Subject to the terms and conditions
of Section 1.15.4 below, in the event any portion of
the Trust Property is so taken or damaged, Beneficiary
shall have the option, in its sole and absolute
discretion, to apply all such Proceeds, after deducting
therefrom all costs and expenses (whether incurred with
or without suit), including actual attorneys' fees and
costs, incurred by it in connection with such Proceeds,
to any indebtedness (whether due or not) secured hereby
and in such order as Beneficiary may determine, or to
require Trustor to restore and rebuild and to apply all
such Proceeds, after such deductions, to the
restoration of the Trust Property. Such application or
release shall not cure or waive any default or notice
of default hereunder or invalidate any act done
pursuant to such notice. Notwithstanding the
foregoing, if (i) no Event of Default exists and no
event exists that, with the passage of time or the
giving of notice or both, would constitute such an
Event of Default; (ii) Beneficiary has received
evidence, satisfactory to Beneficiary in its good faith
judgment, that there are sufficient funds available
and/or committed, including such condemnation proceeds,
to effectuate such restoration and to cover the
expenses of operating and maintaining the Trust
Property and servicing the debt secured hereby and any
other debt secured by the Trust Property until the
Trust Property is generating sufficient revenues to
cover such expenses and debt service; (iii) in
Beneficiary's judgment, Beneficiary's security will not
be materially impaired by the application of the
condemnation proceeds to the restoration of the
Improvements; (iv) Trustor has delivered to Beneficiary
financial plans and projections from which Beneficiary,
in its good faith judgment, determines that after the
completion of such restoration the Trust Property will
be economically viable; (v) Beneficiary has approved
the plans and specifications to be used in connection
with such restoration; and (vi) the restoration will
return the Improvements to substantially the same
condition, character and utility that existed
immediately prior to such taking; then the Proceeds,
after the deductions provided for above, shall be used
to pay Trustor for the cost of the rebuilding or
restoring of the buildings or improvements.
1.15.4 In the event Trustor is required by
Beneficiary's option or otherwise entitled to rebuild
or restore as aforesaid, the Proceeds, after said
deductions, shall be paid out in the same manner as
provided in Section 1.4.5 hereof for the payment of
insurance proceeds toward the cost of rebuilding or
restoration. If the amount of such Proceeds is
insufficient to cover the cost of rebuilding or
restoration, Trustor shall pay such cost in excess of
the Proceeds before being entitled to any payment out
of said Proceeds.
1.15.5 Any surplus that may remain out of
said Proceeds after payment of such cost of rebuilding
or restoration shall, at the option of Beneficiary, be
applied on account of the indebtedness (whether then
due or not) secured hereby in such order as Beneficiary
may determine or be paid to any other party entitled
thereto. In applying any Proceeds on account of the
indebtedness secured hereby, a prepayment privilege fee
shall be assessed based on the Privilege Rate as
defined in the Note. To the extent that any applicable
prepayment fee results from the application of the
award to the prepayment of the indebtedness secured
hereby, such amount shall be paid by the condemning
authority as part of the award and not by Trustor as an
amount in addition to the award, and if no such award
for prepayment fees is granted, Trustor shall have no
liability for any such fees (anything to the Note to
the contrary notwithstanding).
1.16 Additional Security. In the event
Beneficiary at any time holds additional security for
any of the obligations secured hereby, it may enforce
the sale thereof or otherwise realize upon the same, at
its option, either before or concurrently herewith or
after a sale is made hereunder.
1.17 Trustee Actions. At any time, or from time
to time, without liability therefor and without notice
to Trustor, upon written request of Beneficiary and
presentation of this Deed of Trust and the Note secured
hereby for endorsement, and without affecting the
personal liability of any person for payment of the
indebtedness secured hereby or the effect of this Deed
of Trust upon the remainder of said Trust Property,
Trustee may (i) reconvey all or any part of said Trust
Property, (ii) consent in writing to the making of any
map or plan thereof, (iii) join in granting any
easement thereon, or (iv) join in any extension
agreement or any agreement subordinating the lien or
charge hereof or other agreement affecting this Deed of
Trust.
1.18 Release or Discharge. Without affecting the
liability of any other person liable for the payment of
any obligation herein mentioned, and without affecting
the lien or charge of this Deed of Trust upon any
portion of the Trust Property not then or theretofore
released as security for the full amount of all unpaid
obligations, Beneficiary may, from time to time and
without notice (i) release any person so liable, (ii)
extend the maturity or alter any of the terms of any
such obligation, (iii) grant other indulgences, (iv)
release or reconvey, or cause to be released or
reconveyed at any time at Beneficiary's option any
parcel, portion or all of the Trust Property, (v) take
or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions
or other arrangements with debtors in relation thereto.
1.19 Taxes. If, by the laws of the United States
of America, or of any state having jurisdiction over
Trustor, any tax is due or becomes due in respect of
the issuance of this Deed of Trust or any other
Security Documents, or the recording of all or any of
the foregoing or of any security interest created
thereby, Trustor will pay such tax in the manner
required by such law. Trustor shall also hold harmless
and indemnify Trustee or Beneficiary against any
liability incurred by reason of the imposition of any
tax on the issuance of this Deed of Trust or any other
Security Documents, or on the recording of this Deed of
Trust or any other Security Documents or of any
security interest created hereby or thereby.
1.20 Regulated Substances.
1.20.1 As used herein, "Regulated Substance"
means any substance, material, or matter including,
without limitation, medical waste that may give rise to
liability under any Environmental Laws (as defined
herein). As used herein, "Environmental Laws" means
(a) any local, state or federal laws, rules, ordinances
or regulations, either in existence as of the date
hereof, or enacted or promulgated after the date of
this Deed of Trust, that concern the existence,
management, control, discharge, treatment, containment,
and/or removal of substances or materials that are or
may become a threat to public health or the
environment; or (b) any common law theory based on
nuisance, trespass, negligence, strict liability,
aiding and abetting or other tortious conduct.
1.20.2 Trustor represents and warrants that
(i) there has been no deposit, storage, seepage or
filtration of any Regulated Substances (including,
without limitation, asbestos, oil, petroleum or
chemical liquids or solids, liquids or gaseous
products) at, upon, under or within the Trust Property
or any contiguous real estate in violation of any
Environmental Laws, and (ii) Trustor has not caused or
permitted to occur, and shall not permit to exist, any
condition that may cause a discharge of any Regulated
Substances at, upon, under or within the Property or on
any contiguous real estate.
1.20.3 Trustor further represents and
warrants that (i) neither Trustor nor any other party
has been, is or will be involved in operations at or
near the Trust Property, which operations could lead to
(A) the imposition of liability under the Environmental
Laws on Trustor, or on any subsequent or former owner
of the Trust Property, or (B) the creation of a lien on
the Trust Property under the Environmental Laws or
under any similar laws or regulations; and (ii) Trustor
has not permitted, and Trustor will not permit, any
tenant or occupant of the Property to engage in any
activity that could impose liability under the
Environmental Laws on such tenant or occupant, on
Trustor or on any other owner of any of the Trust
Property.
1.20.4 Trustor and the Trust Property shall
comply strictly and in all respects with the
requirements of the Environmental Laws and related
regulations and with all similar laws and regulations
and shall notify Beneficiary immediately in the event
of any discharge or discovery of any Regulated
Substance at, upon, under or within the Trust Property
of which Trustor has notice. Trustor shall promptly
forward to Beneficiary copies of all orders, notices,
permits, applications or other communications and
reports of which Trustor has notice in connection with
any discharge or the presence of any Regulated
Substance or any other matters relating to the
Environmental Laws or any similar laws or regulations,
as they may affect the Trust Property.
1.21 Forfeiture. Trustor hereby represents and
warrants to Beneficiary that there has not been
committed by Trustor or any other person involved with
the Trust Property any act or omission affording the
federal government or any state or local government the
right of forfeiture as against the Trust Property or
any part thereof or any monies paid in performance of
Trustor's obligations under this Deed of Trust and the
other Security Documents, and each agreement and/or
obligation of Trustor incorporated by reference therein
or herein, and any modifications or amendments thereof.
Trustor hereby covenants and agrees not to commit,
permit or suffer to exist any act or omission affording
such right of forfeiture. In furtherance thereof,
Trustor hereby indemnifies Beneficiary and agrees to
defend and hold Beneficiary harmless from and against
any loss, damage or injury by reason of the breach of
the covenants and agreements or the warranties and
representations set forth in this Section 1.21.
Without limiting the generality of the foregoing, the
filing of formal charges or the commencement of
proceedings against Trustor, Beneficiary or all or any
part of the Trust Property under any federal or state
law for which a potential result is forfeiture of (a)
the Trust Property or any part thereof or (b) any
monies paid in performance of Trustor's obligations
under this Deed of Trust or the other Security
Documents shall, at the election of Beneficiary,
constitute an Event of Default hereunder without notice
or opportunity to cure.
1.22 Continuing Obligations. Trustor agrees to
fully and faithfully satisfy and perform the
obligations of Trustor contained in this Deed of Trust
and the other Security Documents, and each agreement
and/or obligation of Trustor incorporated by reference
therein or herein, and any modifications or amendments
thereof. All representations, agreements, obligations,
covenants and warranties of Trustor contained in any of
the Security Documents incorporated by reference
therein, or contained herein or in any other Security
Documents, or otherwise made by Trustor to or with
Beneficiary at any time whether or not contained in any
of the foregoing documents, shall survive the funding
of the Loan and shall remain continuing obligations,
agreements, covenants, warranties and representations
of Trustor during any time when any portion of the
obligations secured by this Deed of Trust remain
outstanding (it being understood, however, that
statements in any representation or warranty are
represented or warranted to be true and correct only as
of the date made except for representations or
warranties pertaining to future conduct, which such
representations and warranties pertaining to the future
shall be deemed to be covenants for purposes of Section
2.1 hereof).
1.23 Americans With Disabilities Act. Trustor
hereby represents to Beneficiary that the Trust
Property is in full compliance with the Americans With
Disabilities Act (the "ADA") to the extent that the ADA
applies to the Trust Property. Trustor hereby
covenants and agrees not to permit, commit or suffer to
exist any condition which might result in a violation
of the ADA, and if any such condition should occur to
immediately remedy any such condition. Trustor hereby
indemnifies and agrees to defend and hold Beneficiary
harmless from and against any loss, damage, injury,
claim, liability, cost or expense (including actual
attorneys' fees and expenses) by reason of the breach
of the covenants, agreements and indemnities set forth
in this Section 1.23.
ARTICLE 2
DEFAULT
2.1 Events of Default. Trustor will be in
default under this Deed of Trust if any of the
following events should occur, any one or all of which
events shall be an event of default ("Event of
Default") hereunder:
(a) Trustor fails to make any payment of
principal and/or interest under the Note within ten
(10) days after the date when due;
(b) There occurs either a Prohibited
Encumbrance or a Prohibited Transfer;
(c) Trustor fails to perform any other
covenant or obligation or breaches any other agreements
or warranties contained in this Deed of Trust or
incorporated into any other Security Document and such
failure or breach (and the consequences that the delay
in such performance may have caused) are not cured
and/or remedied within fifteen (15) days after notice
of such failure or breach is given to Trustor from
Beneficiary; provided, however, if such failure or
breach cannot, in the sole and absolute discretion of
Beneficiary exercised in good faith, reasonably be
cured and/or remediated within said fifteen (15) day
period, Trustor shall have an additional sixty (60)
days to cure such failure or breach so long as Trustor
is diligently pursuing such cure and/or remediation;
provided, further, that in no event shall any cure
and/or remediation period exceed forty five (45) days.
Notwithstanding the foregoing, any such failure or
breach shall be deemed an Event of Default upon the
occurrence thereof (for which no notice shall be
required and no cure period shall be available to
Trustor) if (a) such failure or breach is the third
(3rd) default to occur within any period of twelve (12)
consecutive months and notice of the first two (2)
defaults has been sent to Trustor, regardless of
whether the same or different defaults are involved and
notwithstanding that Trustor may have cured within any
applicable cure period any previous defaults occurring
within such twelve (12) month period or (b) in the
reasonable discretion of Beneficiary, such failure or
breach constitutes or creates a clear and present
emergency or threat to the Trust Property;
(d) Any representation by Trustor or
disclosure or certification made to the Beneficiary by
or on behalf of Trustor proves to be false or
misleading in any material respect on the date as of
which made, whether or not that representation,
disclosure or certification appears in this Deed of
Trust or in any other Security Documents;
(e) The filing of any claim or lien or
notice to withhold against the Trust Property or any
part thereof or of any interest or right made
appurtenant thereto and the continued maintenance of
said claim or lien or notice to withhold for a period
of thirty (30) days after discovery thereof without
discharge or satisfaction thereof or provision therefor
satisfactory to Beneficiary in its good faith
discretion;
(f) Any failure or breach of any covenant or
condition on Trustor's part to be performed under any
other loan agreement, note, deed of trust or assignment
applicable to the Trust Property and such failure or
breach continues for twenty (20) days after notice from
Beneficiary;
(g) Any of the following:
(1) A general assignment by Trustor or,
if Trustor is a partnership, by any of the general
partners of Trustor, or if Trustor is a corporation, by
any of the shareholders that control Trustor, for the
benefit of creditors;
(2) The filing of a voluntary petition
by Trustor or, if Trustor is a partnership, by any of
the general partners of Trustor, or if Trustor is a
corporation, by any of the shareholders that control
Trustor, in bankruptcy or any other petition under any
section or chapter of the Bankruptcy Code or any
similar law, whether state, federal, foreign,
provincial or otherwise, for the relief of debtors;
(3) The filing of an involuntary
petition or any other petition under any section or
chapter of the Bankruptcy Code or any similar law,
whether state, federal, foreign, provincial or
otherwise, for the relief of debtors against Trustor or
any of the general partners of Trustor if Trustor is a
partnership, or any of the shareholders that control
Trustor if Trustor is a corporation, by the creditors
of any of the aforementioned, said petition remaining
undischarged or the party subject thereof failing to
obtain vacation thereof for a period of sixty (60)
days;
(4) The appointment by any court of a
receiver to take possession of the Trust Property (or
any portion thereof) or of any asset or assets of
Trustor or any of the general partners of Trustor if
Trustor is a partnership or any of the shareholders
that control Trustor if Trustor is a corporation, such
asset or assets having a value in excess of One Hundred
Thousand Dollars ($100,000) and said receivership
remaining undischarged for a period of sixty (60) days;
(5) Attachment, execution or judicial
seizure of the Trust Property (or any portion thereof)
or of all or any part of the assets of Trustor or any
of the general partners of Trustor if Trustor is a
partnership, or any of the shareholders that control
Trustor if Trustor is a corporation, such attachment,
execution or other seizure remaining undismissed or
undischarged for a period of sixty (60) days after the
levy thereof;
(h) Trustor fails to pay, with respect to
the Trust Property, any installment of special
assessments, or any installment of general real estate
taxes, or any installment of personal property taxes,
or any insurance renewal premiums, prior to
delinquency, unless the same is being contested in good
faith pursuant to the last sentence of section 1.6.1
hereto; or
(i) Any default by Trustor under any leases
of the Trust Property or any termination, modification,
surrender, merger or other change of any leases of the
Trust Property (or any portion thereof), without the
prior written consent of Beneficiary.
ARTICLE 3
REMEDIES
3.1 Remedies Upon Default. If Trustor is in
default, Beneficiary may, at its sole option, without
notice to Trustor, which notice is hereby expressly
waived, do any one or more of the following:
(a) Declare any or all indebtedness secured
by this Deed of Trust to be due and payable immediately
(in which event, all such indebtedness shall thereafter
bear interest at the rate of thirteen percent (13%) per
annum until paid);
(b) Enter into the Trust Property, in
person, by agent or by court- appointed receiver; take
any and all steps that may be desirable in
Beneficiary's judgment to preserve and enhance the
value, marketability or rentability of the Trust
Property; complete any unfinished development; manage
and operate the Trust Property; and apply any rents,
additional rents, royalties, income or profits
collected against the indebtedness secured by this Deed
of Trust without in any way curing or waiving any
default of Trustor;
(c) Bring a court action to foreclose this
Deed of Trust or to enforce its provisions or any of
the indebtedness or obligations secured by this Deed of
Trust;
(d) Cause any or all of the Trust Property
to be sold under the power of sale granted hereby
(pursuant to California Civil Code Section 2924 et seq.
and/or any other provision of applicable law) in any
manner permitted by applicable law; and
(e) Exercise any other right or remedy
available under law or in equity, specifically
including, without limitation, any or all of the
remedies available to a secured party under the Uniform
Commercial Code as enacted in California as respects
personal property subject to any security interest
granted hereunder.
Nothing herein contained shall be construed
as constituting Beneficiary a "mortgagee-in-possession"
in the absence of the taking of actual possession of
the Property by Beneficiary pursuant to the terms
hereof. In the exercise of the powers herein granted
Beneficiary, no liability shall be asserted or enforced
against Beneficiary, all such liability being expressly
waived and released by Trustor.
3.2 Foreclosure by Power of Sale. For any sale
under the power of sale granted by this Deed of Trust,
Trustee shall record and give all notices required by
law and then, upon the expiration of such time as is
required by law, may sell the Trust Property upon any
terms and conditions specified by Beneficiary and
permitted by applicable law. Trustee may postpone any
sale by public announcement at the time and place
noticed for the sale. If the Trust Property consists
of several lots or parcels, Beneficiary in its sole and
absolute discretion may designate their order of sale
or may elect to sell all of them as an entirety,
whether or not Trustor objects. Any person, including
Trustee and Beneficiary, may purchase at any sale.
Upon any sale, Trustee will execute and deliver to the
purchaser or purchasers a deed or deeds conveying the
property sold, but without any covenant or warranty,
express or implied, and the recitals in the deed or
deeds of any facts affecting the regularity or validity
of the sale will be conclusive against all persons.
3.3 Proceeds of Foreclosure Sale. The proceeds
of any sale under this Deed of Trust will be applied in
the following manner:
FIRST: Payment of the costs and expenses of
the sale, including but not limited to Trustee's actual
fees, actual attorneys' fees and costs for
disbursements, title charges, transfer taxes, the cost
of surveys, engineering reports, appraisals, and
environmental audits of the Trust Property, all
expenses, liabilities and advances of Trustee, as well
as all allowances, costs and fees provided by law,
together with interest thereon at the maximum rate of
interest permitted by applicable law on all advances
made by Trustee;
SECOND: Payment of all sums expended by
Beneficiary under the terms of this Deed of Trust and
not yet repaid, together with interest thereon at the
rate of thirteen percent (13%) per annum from the date
incurred until paid;
THIRD: Payment of the indebtedness and
obligations of Trustor secured by this Deed of Trust in
any order that Beneficiary may choose in its sole and
absolute discretion; and
FOURTH: The remainder, if any, to the person
or persons legally entitled to it.
3.4 Marshalling. Trustor waives all rights to
direct the order in which any of the Trust Property
will be sold in the event of any sale under this Deed
of Trust, and also any right to have any of the Trust
Property marshalled upon any sale.
3.5 Remedies are Cumulative. All remedies
contained in this Deed of Trust are cumulative, and
Beneficiary shall also have all other remedies provided
by law or in any other agreement between Trustor and
Beneficiary. No delay or failure by Beneficiary to
exercise any right or remedy under this Deed of Trust
will be construed to be a waiver of that right or
remedy or of any default by Trustor. Beneficiary may
exercise any one or more of its rights and remedies at
its option without regard to the adequacy of its
security.
3.6 Fair Market Value. In consideration of the
limitation on personal liability as provided in the
Note, Trustor agrees that to the extent Trustor is
entitled to present competent evidence of the fair
market value of the Trust Property as of the date of
foreclosure or sale under this Deed of Trust or in
connection with a bankruptcy proceeding affecting
Trustor and/or the Trust Property, the following shall
be considered competent evidence for the fact finder's
determination of the fair market value of the Trust
Property as of the date of the sale:
(i) the Trust Property shall be valued in an "as
is" condition as of the date of the sale, without
any assumption or expectation that the Trust
Property will be repaired or improved in any
manner before a resale of the Trust Property after
sale;
(ii) the valuation shall be based upon an
assumption that the purchaser desires a prompt
resale of the Trust Property for cash promptly
(but no later than twelve (12) months) following
the sale;
(iii) all expenses to be incurred when the
purchaser at the sale resells the Trust Property,
including reasonable closing costs customarily
borne by the seller in a commercial real estate
transaction, should be taken into account in such
valuation, including, without limitation,
brokerage commissions, title insurance, a survey
of the Trust Property, tax prorations, attorneys'
fees, and marketing costs;
(iv) the gross fair market value of the Trust
Property shall be further discounted to account
for any estimated holding costs associated with
maintaining the Trust Property pending sale,
including, without limitation, utilities expenses,
property management fees, taxes and assessments
[to the extent not accounted for in (iii) above],
and other maintenance expenses; and
(v) any expert opinion testimony given or
considered in connection with a determination of
the fair market value of the Trust Property must
be given by persons having at least five (5) years
experience in appraising similarly improved
property in the vicinity where the Trust Property
is located and being actively engaged therein at
the time of such testimony.
ARTICLE 4
MISCELLANEOUS
4.1 Severability. The invalidity or
unenforceability of any one or more provisions of this
Deed of Trust will in no way affect any other
provision.
4.2 Beneficiary Statements. Trustor agrees to
pay Beneficiary a reasonable charge, not to exceed the
maximum allowed by law, for giving any statement of the
status of the obligations secured by this Deed of
Trust.
4.3 Notices. All notices given under this Deed
of Trust must be in writing and will be effectively
served upon personal delivery or, if mailed, no later
than three (3) business days mailing by United States
certified mail, postage prepaid, return receipt
requested, sent to the following addresses:
"Beneficiary": Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attn: Director of Investments
With copies to:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attn: Law Department
and:
Pircher, Nichols & Meeks
1999 Avenue of the Stars,
Suite 2600
Los Angeles, California 90067
Attention: Real Estate
Notices (DLP)
and sent to Trustor at its address appearing on
the signature page hereof.
Such addresses may be changed by written notice.
However, the service of any notice of default or notice
of sale under this Deed of Trust as required by law
will be effective on the date of recordation, and will
be effective if served upon Trustor at its address
appearing below.
4.4 Reconveyance. Upon the payment and
performance in full of all sums and obligations secured
by this Deed of Trust, Beneficiary agrees to request
Trustee to reconvey the Trust Property, and upon
payment of its fees and all other sums owing to it
under this Deed of Trust, Trustee will reconvey the
Trust Property without warranty to the person or
persons legally entitled to it. Such person or persons
must pay all costs and expenses in connection
therewith, including all costs of recordation. The
recitals in the reconveyance of any facts will be
conclusive on all persons. The grantee in the
reconveyance may be described as "the person or persons
legally entitled thereto."
4.5 Statutes of Limitations. Trustor waives all
present and future statutes of limitations as a defense
to any action to enforce the provisions of this Deed of
Trust or to collect any indebtedness secured by this
Deed of Trust to the fullest extent permitted by law.
4.6 Trustor/Beneficiary Defined. The term
"Trustor" includes both the original Trustor and any
subsequent owner or owners of any of the Trust
Property, and the term "Beneficiary" includes the
original Beneficiary and also any future owner or
holder, including pledgees and participants, of the
Note or any interest therein.
4.7 Construction. This Deed of Trust and the
other Security Documents shall be construed without
regard to any presumption or rule requiring
construction against the party causing such instruments
to be drafted. All terms and words used in this Deed
of Trust, whether singular or plural and regardless of
the gender thereof, shall be deemed to include any
other number and any other gender as the context may
require.
4.8 Captions. The captions and headings of the
articles and sections of this Deed of Trust are for
convenience only and are not to be used in construing
this Deed of Trust.
4.9 Amendment. Neither this Deed of Trust nor
any term, covenant, or condition contained herein may
be amended, modified, or terminated, except by an
agreement in writing, signed by the party charged
therewith.
4.10 Successors and Assigns. The terms of this
Deed of Trust will bind the legal representatives,
successors, heirs, legatees, devisees, assigns,
conservators, guardians, beneficiaries, or
administrators of Trustor and Beneficiary and the
successors in trust of Trustee. This provision shall
not limit or restrict the effect of the transfer
restrictions contained herein.
4.11 Substitution of Trustee. Beneficiary may
remove Trustee or any successor Trustee at any time or
times and appoint a successor Trustee by recording a
written substitution in the county where the real
property covered by this Deed of Trust is located, or
in any other manner permitted by law. Upon that
appointment, all of the powers, rights and authority of
Trustee will immediately become vested in its
successor.
4.12 Waivers.
4.12.1 To the fullest extent permitted by
law, Trustor waives the benefit of all laws now
existing or that hereafter may be enacted providing for
(i) any appraisement before sale of any portion of the
Trust Property and (ii) the benefit of all laws now
existing or that may be hereafter enacted in any way
extending the time for the enforcement or the
collection of the Note or the debt evidenced thereby or
creating or extending a period of redemption from any
sale made in collecting said debt. To the fullest
extent Trustor may do so, Trustor agrees that Trustor
will not at any time insist upon, plead, claim or take
the benefit or advantage of any law now or hereafter in
force providing for any appraisement, valuation, stay,
extension or redemption, and Trustor, for Trustor,
Trustor's representatives, successors, heirs, legatees,
devisees, assigns, beneficiaries, conservators,
administrators or guardians, and for any and all
persons ever claiming any interest in the Trust
Property, to the fullest extent permitted by law hereby
waives and releases all rights of redemption,
valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the
secured indebtedness and marshalling in the event of
foreclosure of the liens hereby created. If any law
referred to in this paragraph and now in force, of
which Trustor, Trustor's representatives, successors,
heirs, legatees, devisees, assigns, beneficiaries,
conservators, administrators, guardians, or other
person might take advantage despite this paragraph,
shall hereafter be repealed or cease to be in force,
such law shall not thereafter be deemed to preclude the
application of this paragraph. Trustor expressly
waives and relinquishes any and all rights and remedies
that Trustor may have or be able to assert by reason of
the laws of the State of California pertaining to the
rights and remedies of sureties.
4.12.2 TRUSTOR EXPRESSLY WAIVES ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION, COUNTERCLAIM OR
PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS DEED OF TRUST. THIS WAIVER APPLIES TO
ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS AND
PROCEEDINGS, INCLUDING PARTIES WHO ARE NOT PARTIES TO
THIS DEED OF TRUST. THIS WAIVER IS KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY MADE BY TRUSTOR, AND
TRUSTOR EXPRESSLY ACKNOWLEDGES THAT NEITHER
BENEFICIARY, NOR ANY PERSON ACTING ON BEHALF OF
BENEFICIARY HAS MADE ANY REPRESENTATIONS OF FACT TO
INCLUDE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO
MODIFY OR NULLIFY ITS EFFECT. TRUSTOR FURTHER
ACKNOWLEDGES THAT TRUSTOR HAS BEEN REPRESENTED (OR HAS
HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER
BY INDEPENDENT LEGAL COUNSEL, SELECTED OF TRUSTOR'S OWN
FREE WILL, AND THAT TRUSTOR HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. TRUSTOR FURTHER
ACKNOWLEDGES THAT TRUSTOR HAS READ AND UNDERSTANDS THE
MEANING AND RAMIFICATIONS OF THIS DEED OF TRUST AND,
SPECIFICALLY, THIS WAIVER PROVISION.
4.13 Taxation of Liens. In the event of the
enactment after the date hereof of any law deducting
from the value of all or any portion of the Trust
Property for the purpose of taxation any lien thereon,
or imposing upon Beneficiary the payment of the whole
or any part of the taxes or assessments or charges or
liens herein required to be paid by Trustor, or
changing in any way the law relating to the taxation of
deeds of trust or debts secured by deeds of trust or a
beneficiary's interest in the property, or the manner
of collection of taxes, so as to affect Beneficiary,
this Deed of Trust or the debt secured hereby, then,
and in any such event, Trustor, upon demand by
Beneficiary, shall pay such taxes or assessments, or
reimburse Beneficiary therefor; provided, however, that
if in the opinion of counsel for Beneficiary (a) it
might be unlawful to require Trustor to make such
payment or (b) the making of such payment might result
in the imposition of interest beyond the maximum amount
permitted by law, then and in such event, Beneficiary
may elect, in its sole and absolute discretion, by
notice in writing given to Trustor, to declare all of
the indebtedness secured hereby to be and become due
and payable thirty (30) days from the giving of such
notice. In the event of a prepayment of the Note
pursuant to the provisions of this paragraph, no
prepayment privilege fee shall apply (notwithstanding
anything to the contrary in the Note).
4.14 Consents and Approvals. No waiver of any
default or breach by Trustor hereunder shall be implied
from any omission by Beneficiary to take action on
account of such default even if such default persists
or is repeated, and no express waiver shall affect any
default other than the default specified in the waiver
and any such waiver shall be operative only for the
time and to the extent therein stated. Inaction of
Beneficiary shall never be considered as a waiver of
any right accruing to it on account of any default on
the part of Trustor. Waivers of any covenant, term or
condition contained herein shall not be construed as a
waiver of any subsequent breach of the same covenant,
term or condition. Beneficiary's consent to any act or
omission by Trustor will not be a consent to any other
or subsequent act or omission or a waiver of the need
for such consent in any future or other instance and
the consent or approval by Beneficiary to or of any act
by Trustor shall not be deemed to waive or render
unnecessary the consent or approval of Beneficiary to
or of any subsequent or similar act. The acceptance by
Beneficiary of any payment on the indebtedness secured
hereby shall not be deemed or construed as a waiver by
Beneficiary of any breach of any covenant, term or
condition hereof except any relating to the payment
accepted.
4.15 Costs of Nonperformance. If either Trustor
or Beneficiary fails to perform any of their respective
covenants or agreements contained in this Deed of Trust
or any of the Security Documents, then the
nonperforming party shall pay all out-of-pocket
expenses of the other party (including but not limited
to actual fees and disbursements of counsel) incurred
by reason of or in response to such nonperformance,
together with interest thereon at the rate of thirteen
percent (13%) per annum from the date such expenses are
incurred until paid.
4.16 Inconsistencies with Other Documents. In the
event of any inconsistency between the provisions of
this Deed of Trust or any of the Security Documents,
the provisions of the Note shall control over those of
the Deed of Trust.
4.17 Governing Law. This Deed of Trust shall be
governed by and construed in accordance with the laws
of the State of California.
REQUESTS FOR NOTICES
Trustor requests that a copy of any notice of
default and notice of sale required by law be mailed
to it at its address below:
Trustor: Optical Coating Laboratory,
Inc.
Address: 2789 North Point Parkway
Santa Rosa, California 95407-
7397
Attention: CFO
Executed in the State of California as of the day
and year first above written.
OPTICAL COATING
LABORATORY, INC.,
a Delaware corporation
By:
__________________________
_
Name:
_____________________
Title:
____________________
State of ____________ )
) ss.
County of ___________ )
On ________________, 1995, before me,
, a notary public in and for said state, personally
appeared ______________________, personally known to me
(or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature
(Seal)
UCC-1 Financing Statement
Item No. 6 cont.
All properties now owned and hereafter
acquired by Debtor and used in the operation or
maintenance of the buildings and real property located
in the County of Sonoma, State of California and more
particularly described on Exhibit B attached hereto and
hereby incorporated herein by this reference (the
"PROPERTY"); including but not limited to:
A. All proceeds, causes of action and
claims, both in law and in equity, arising on
account of any damage to or taking of the
Property, including but not limited to
insurance proceeds and condemnation proceeds,
and all claims arising on account of any
damage to or taking of the Property, and all
proceeds, causes of action and claims for any
loss or diminution in value of the Property;
B. All "EQUIPMENT," "FARM PRODUCTS,"
"INVENTORY," "DOCUMENTS," "INSTRUMENTS,"
"CHATTEL PAPER," "ACCOUNTS," and "GENERAL
INTANGIBLES" (as such terms are defined in
the California Uniform Commercial Code)
relating to, generated from, arising out of
or incidental to the ownership, development,
use or operation of the Property (whether or
not subsequently removed from the Property
and whether or not located on the Property),
including, without limitation, all (i)
machinery and tools; (ii) rugs, carpets and
other floor coverings; (iii) draperies and
drapery rods and brackets, awnings, window
shades, venetian blinds and curtains; (iv)
lamps, chandeliers and other lighting
fixtures; (v) office maintenance and other
supplies; (vi) apparatus, appliances,
furniture and furnishings, building service
equipment, and building materials, supplies
and equipment; (vii) rights, royalties,
rents, security deposits, advance rentals,
revenues, profits and benefits;
(viii) leases, lease guarantees, contracts,
contract rights, licenses, permits and
certificates; (ix) deposits, funds, money and
deposit accounts; (x) tenements,
hereditaments and appurtenances; (xi)
approvals and parcel maps (whether tentative
or final), building permits and certificates
of occupancy; (xii) names under or by which
the Property may at any time be operated or
known and rights to carry on business under
any such names or any variant thereof;
(xiii) trademarks and good will;
(xiv) management agreements, service
contracts, supply contracts or other
contracts or agreements; (xv) warranties;
(xvi) water stock; (xvii) shares of stock or
other evidence of ownership of any part of
the Property that is owned by Debtor in
common with others, and all documents of
membership in any owners' or members'
association or similar group having
responsibility for managing, maintaining or
operating any part of the Property;
(xviii) plans and specifications prepared for
construction of improvements on the Property,
or any part thereof, and studies, data and
drawings related thereto, including, without
limitation, studies, data or reports relating
to toxic or hazardous wastes or materials
located on the Property and contracts and
agreements of Trustor relating to the
aforesaid plans and specifications or to the
aforesaid studies, data, reports and drawings
or to the construction of improvements on the
Property; (xix) sales agreements, deposit
receipts, escrow agreements and other
ancillary documents and agreements entered
into respecting the sale to any purchasers of
any part of the Property, together with all
deposits and other proceeds of the sale
thereof; (xx) damages, royalties and revenue
of every kind, nature and description
whatsoever that Debtor may be entitled to
receive from any person or entity owning or
having or hereafter acquiring a right to the
oil, gas or mineral rights and reservations
of the Property; (xxi) deposits made with or
other security given to utility companies by
Debtor with respect to the Property and/or
Improvements; (xxii) advance payments of
insurance premiums made by Debtor with
respect to, and all claims or demands with
respect to, insurance; (xxiii) negotiable
certificates of deposit of Debtor in Secured
Party's possession and all accounts of Debtor
maintained with Beneficiary and each deposit
account of Trustor assigned to Secured Party
pursuant to any agreement; (xxiv) insurance
proceeds; (xxv) condemnation awards;
(xxvi) causes of action, claims,
compensation, awards and recoveries for any
damage or injury to the Property or for any
loss or diminution in value of the Property;
(xxvii) books and records, including, without
limitation, all computer records, computer
tapes and electronic and electromagnetic
representations and reproductions thereof;
(xxviii) guaranties of and security for any
of the foregoing; (xxix) all substitutions,
renewals, improvements, attachments,
accessions, additions and replacements to any
of the foregoing; and
C. All "PROCEEDS" (as such term is
defined in the California Uniform Commercial
Code), collections, insurance proceeds and
products of any of the property listed in the
preceding paragraph, including without
limitation, proceeds of any voluntary or
involuntary disposition or claim respecting
any part thereof (pursuant to judgment,
condemnation award or otherwise) and all
documents, instruments, general intangibles,
goods, equipment, inventory, chattel paper,
monies, accounts, deposit accounts and other
personal property that may arise from the
sale or disposition of any of the foregoing,
all guaranties of and security for any of the
foregoing, and all books and records,
including, without limitation, all computer
records, computer tapes and electronic and
electromagnetic representations and
reproductions thereof, relating to any of the
foregoing.
UCC-1 Financing Statement
Item No. 6 cont.
UCC-1 Financing Statement
Item No. 9 cont.
9. Signatures of Debtor
"DEBTOR"
OPTICAL COATING
LABORATORY, INC.,
a Delaware
corporation
By: _____________________________
Name:_______________________
Title:_______________________
When recorded mail to:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
Suite 2600
Los Angeles, California 90067
Attn: David L. Packer, Esq.
ASSIGNMENT OF RENTS AND LEASES
This ASSIGNMENT OF RENTS AND LEASES (the
"ASSIGNMENT") is made as of November 8, 1995 by OPTICAL
COATING LABORATORY, INC., a Delaware corporation
(hereinafter called "ASSIGNOR"), to AID ASSOCIATION FOR
LUTHERANS, a Wisconsin corporation (hereinafter called
"ASSIGNEE").
RECITALS
A. As of the date hereof, Assignor has delivered
to Assignee that certain Secured Promissory Note (which
note, and any and all replacements, rearrangements,
modifications, substitutions, extensions and renewals
thereof are hereinafter collectively called the "NOTE")
of even date herewith in the original principal amount
of Two Million Six Hundred Thousand Dollars
($2,600,000.00) evidencing a loan made by Assignee to
Assignor in said amount (the "LOAN"). The Note is
secured by that certain Deed of Trust, Financing
Statement, Fixture Filing and Security Agreement (With
Assignment of Rents) (the "DEED OF TRUST") of even date
herewith constituting a lien on that certain real
property located in the City of
Santa Rosa, County of Sonoma, State of California, as
more particularly described on Exhibit A attached
hereto and by this reference incorporated herein (the
"PROPERTY").
B. As a condition to the making of the Loan to
Assignor, Assignee has required Assignor to assign to
Assignee all the rights, interests and privileges that
Assignor, as landlord, has and may hereafter have in
any and all leases, subleases, licenses, franchises or
other occupancy agreements , whether now existing or
hereafter made, demising all or any portion of the
Property (the "LEASES").
NOW, THEREFORE, in consideration of the making of
the Loan to Assignor, and for other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, Assignor hereby absolutely and
presently conveys, transfers and assigns unto Assignee
all of the Leases, together with all rights and
privileges incident thereto, and together with all
rents, additional rents, income, profits and payments
due or to become due therefrom and together with all
security deposits, guaranties and other security now or
hereafter held by Assignor as security for the
performance of the obligations of the tenants
thereunder.
In connection therewith, Assignor hereby covenants
and declares as follows:
1. This Assignment is intended by Assignor and
Assignee to create and shall be construed to create an
absolute assignment to Assignee of all of Assignor's
right, title and interest in the Leases and in rents,
additional rents, income, payments and profits
therefrom and shall not be deemed to create a security
interest herein for the payment of any indebtedness or
the performance of any obligations of Assignor under
the Loan Documents (as hereinafter defined).
2. So long as there shall not have occurred a
default by Assignor with respect to any of its
obligations, financial or otherwise (the
"OBLIGATIONS"), under the terms of the Note, the Deed
of Trust, this Assignment or any other documents and
agreements now or hereafter executed and delivered in
connection with the Loan (the Note, the Deed of Trust,
this Assignment and any other documents and agreements
now or hereafter executed and delivered in connection
with the Loan being sometimes collectively referred to
as the "LOAN DOCUMENTS"), Assignor will have a
revocable license to collect all rents, additional
rents, income, profits and payments from the Leases and
to retain, use and enjoy the same. Upon the occurrence
of any such default under the Loan Documents by
Assignor, Assignee may terminate Assignor's license in
its sole and absolute discretion at any time by written
notice to Assignor and may thereafter collect such
rents, additional rents, income, profits and payments
itself or by an agent or a receiver.
3. Assignor will not, without Assignee's prior
written consent, which may be granted or denied in
Assignee's sole and absolute discretion, (a) terminate,
consent to the cancellation or surrender of, or alter,
modify or amend, any of the Leases; (b) accept
prepayments of any installment of rent or additional
rent to become due under any of the Leases in excess of
one (1) month's rent, except prepayments in the nature
of security for the performance of the lessee's
obligations thereunder; (c) relocate any tenant to any
location other than the Property; or (d) in any manner
impair the value of the Property or the security of
Assignee for the payment of the indebtedness secured
hereby. Any or all future Leases must provide, in a
manner satisfactory to Assignee in its sole and
absolute discretion, that the lessee will recognize as
its lessor any person succeeding to the interest of
Assignor upon any foreclosure of the Deed of Trust.
4. As an incident to this Assignment and
notwithstanding anything to the contrary contained in
Paragraph 2 hereof, Assignor hereby presently and
absolutely assigns to Assignee any award made hereafter
to Assignor in any court proceeding involving any of
the lessees under the Leases (including, without
limitation, in any bankruptcy, insolvency or
reorganization proceedings in any state or federal
court), and any and all payments made by such lessees
in lieu of rent and additional rent. Assignor hereby
irrevocably appoints Assignee as its attorney-in-fact
to appear in any such action and/or to collect any such
award or payment.
5. Upon or at any time after default in the
payment of the Loan or in the performance of any of the
Obligations, Assignee, without in any way waiving such
default, may at its option and without regard to the
adequacy of the security for the Loan, either by a
representative or by agent, with or without bringing
any action or proceeding, or by a receiver appointed by
a court, take possession of the Property and have,
hold, manage, lease and operate the same on such terms
and for such period of time as Assignee may deem
proper, including, without limitation, the right to
effect new Leases, to cancel, surrender, alter or amend
the terms of, and/or renew then-existing Leases, and/or
to make concessions to tenants; and, either with or
without taking possession of the Property in its own
name, demand, sue for or otherwise collect and receive
all rents, additional rents, income, payments and
profits of the Property, including those past due and
unpaid, with full power to make from time to time all
alterations, renovations, repairs or replacements
thereto or thereof as may seem proper to Assignee and
to apply such rents, additional rents, income and
profits to the payment of: (a) all expenses of
managing the Property, including, without being limited
thereto, the salaries, fees and wages of a managing
agent and such other employees as Assignee may deem
necessary or desirable and all expenses of operating
and maintaining the Property, including, without being
limited thereto, all taxes, charges, claims,
assessments, water rents, sewer rents and any other
liens, and premiums for all insurance that Assignee may
deem necessary or desirable and the cost of all
alterations, renovations, repairs or replacements, and
all expenses incident to taking and retaining
possession of the Property; (b) the indebtedness
evidenced by the Note or otherwise due and owing under
the Loan Documents, including all costs and attorneys'
fees, in such order of priority as to any of the items
mentioned in this paragraph as Assignee in its sole
discretion may determine, any statute, law, custom or
use to the contrary notwithstanding; and (c) the
remainder, if any, to the person or persons legally
entitled thereto. Assignor further agrees that it will
use diligent efforts to facilitate Assignee's
collection of said rents, additional rents, income,
payments and profits and will, upon request by
Assignee, execute a written notice to each tenant
directing the tenant to pay rents and other amounts due
and payable under the applicable Lease to said
Assignee. The exercise by Assignee of the option
granted it in this paragraph and the collection of the
rents, additional rents, income, payments and profits
and the application thereof as herein provided shall
not be considered a waiver of any default by Assignor
under the Note, Deed of Trust or under any of the other
Loan Documents. Notwithstanding the foregoing, no
action taken by Assignee to collect any rents,
additional rents, income, payments or profits will make
Assignee a "mortgagee-in-possession" of the Property
unless Assignee personally or by authorized agent
enters into actual possession of the Property.
Possession by a court-appointed receiver shall not be
considered possession by Assignee.
6. The receipt by Assignee of any rents,
additional rents, income, payments or profits pursuant
to this Assignment after the institution of foreclosure
proceedings either by court action or by the private
power of sale contained in the Deed of Trust shall not
cure any such default (unless sums so collected fully
reimburse Assignee for all sums then due) nor affect
such proceedings or any sale pursuant thereto, nor
shall the receipt of this Assignment or any rents,
additional rents, income, payments, or profits pursuant
hereto be deemed to limit any rights or remedies of
Assignee under the Deed of Trust.
7. Assignee shall not be obligated to perform or
discharge any obligation or duty to be performed or
discharged by Assignor under any of the Leases, and
Assignor hereby agrees to indemnify, defend and hold
Assignee harmless from and against any and all
liabilities, claims, losses, demands, damages, costs
and expenses (including, without limitation, actual
attorneys' fees and costs) arising from any of the
Leases or from this Assignment. This Assignment shall
not place responsibility upon Assignee for the control,
care, management or repair of the Property resulting in
loss or injury or death to any tenant, licensee,
employee or stranger or any other person or entity.
Assignee shall not be responsible for any loss
sustained by Assignor resulting from the failure of
Assignee to let the Property after default or from any
other act or omission of Assignee in managing the
Property after a default, other than any resulting from
Assignee's wilful misconduct. Assignee shall not be
liable for failure to collect rents, additional rents,
payments, income and profits.
8. Assignor covenants and represents that (a)
Assignor has full right and title to assign the Leases
and the rents, additional rents, income, payments and
profits due or to become due thereunder; (b) no other
assignment of any interest therein has been made; (c)
there are no existing defaults or events which, with
notice or the passage of time or both, shall constitute
a default under the provisions of any of the Leases;
and (d) there are no offsets, credits or defenses to
the payment of any obligations under any of the Leases.
Assignor further covenants and agrees that upon a
default in any of its Obligations, Assignor shall hold
in trust in a trust account for the benefit of
Assignee, all rents, additional rents, income,
revenues, issues, profits, condemnation awards,
administrative rents, use and occupancy payments,
damages, moneys, and security payable or receivable
under or with respect to the Leases, or pursuant to any
of the provisions thereof, whether as rent or
otherwise, that are not applied towards necessary
operating expenses of the Property or not immediately
paid to Assignee.
9. Assignor hereby authorizes Assignee to give
notice in writing of this Assignment at any time to any
lessee under any of the Leases. At the sole option of
Assignee, any such notice to a lessee may be
accompanied by a copy of this Assignment.
10. Violation of any of the covenants,
representations and provisions contained herein by
Assignor shall be deemed a default under the terms of
the Note and the Deed of Trust and shall give Assignee
the right to exercise any or all rights or remedies
provided hereunder and under the Note and the Deed of
Trust.
11. Payment in full of the Note and satisfaction
of all Obligations secured by the Deed of Trust and
recordation of a release of all property encumbered
thereby shall automatically terminate this Assignment.
Upon any partial release and reconveyance of any
portion of the property encumbered by the Deed of
Trust, this Assignment shall automatically terminate as
to such portion subject to such partial release and
reconveyance.
12. This Assignment applies to and binds the
original Assignor and its heirs, administrators,
executors, successors and assigns, as well as any
subsequent owner of the Property.
13. As used herein, the term "ASSIGNEE" includes
the original Assignee and also any future owner or
holder of the Note or any interest therein.
14. This Assignment is intended to cover all of
the Leases now or hereafter created that affect the
Property or any portion thereof. Nevertheless,
Assignor agrees that it will, at any time and from time
to time, on demand by Assignee, execute specific
assignments of any of the future Leases affecting the
Property or any portion thereof. Assignor covenants
and agrees to deliver copies of all future Leases
affecting the Property promptly to Assignee.
15. This Assignment has been executed and
delivered for value at Sonoma County, California on the
date first above written. This Assignment shall be
governed by and construed in accordance with the laws
of the State of California.
16. All notices, requests, demands and other
communications hereunder shall be in writing and shall
be deemed to have been duly given when personally
delivered, or, if mailed, on the date three (3)
business days after mailing by United States certified
mail, prepaid, return receipt requested, to the parties
at the following addresses (until such addresses are
changed by notice pursuant to these notice provisions):
Assignor:
Optical Coating Laboratory, Inc.
2789 North Point Parkway
Santa Rosa, California 95407-7397
Attention: Mr. Jeff Ryan, Assistant
Treasurer
Assignee:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attn: Director of Investments
With copies to:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attn: Law Department
IN WITNESS WHEREOF, Assignor has executed this
Assignment as of the date first above written.
OPTICAL COATING
LABORATORY, INC.,
a Delaware corporation
By: ___________________________
Name: _____________________
Title: ____________________
EXHIBIT A
Legal Description
[Attach Notarial Acknowledgements]
ENVIRONMENTAL INDEMNITY AGREEMENT
This ENVIRONMENTAL INDEMNITY AGREEMENT (the
"AGREEMENT") is entered into as of November 8, 1995 by
and between AID ASSOCIATION FOR LUTHERANS, a Wisconsin
corporation ("AAL"), and OPTICAL COATING LABORATORY,
INC., a Delaware corporation (individually and
collectively, "INDEMNITOR"). The parties hereto enter
into this contract with reference to the following
facts:
A. AAL has agreed to make a loan to Indemnitor
in the amount of Two Million Six Hundred Thousand
Dollars ($2,600,000.00) (the "LOAN") (AAL Loan No.
74750). The Loan is to be evidenced by a Mortgage Note
(the "NOTE"), and the Note is to be secured by a Real
Estate Mortgage and Security Agreement, Assignment of
Rents and Leases and Financing Statements (the "LOAN
DOCUMENTS") creating a lien on certain real property,
and all improvements thereon, located in the City of
Santa Rosa, County of Sonoma, State of California (the
"PROPERTY"), as more particularly described in
Exhibit A attached hereto. (The Note, the Deed of
Trust and any other documents relating to the Loan
other than this Agreement may be referred to herein
collectively as the "LOAN DOCUMENTS"). The making of
the Loan is subject to a condition precedent that
Indemnitor make and deliver this Agreement to AAL.
B. Indemnitor acknowledges that AAL would not
make the Loan in the absence of this Agreement.
C. Indemnitor acknowledges that AAL may sustain
"LOSSES" (as defined herein) should AAL become an owner
of the Property, whether by foreclosure of the Deed of
Trust, judicial or nonjudicial, by the acceptance of a
deed in lieu of foreclosure, or otherwise, or after the
reconveyance of the Deed of Trust in amounts that have
no relationship to the amounts owed to AAL pursuant to
the Note or any of the other Loan Documents.
D. Indemnitor acknowledges and agrees that any
amounts owed to AAL by Indemnitor pursuant to the
provisions of this Agreement are not secured by the
Loan Documents nor are they related in any manner to
any amounts owed to AAL pursuant to the Note and that
said liabilities shall survive and continue to be of
full force and effect notwithstanding satisfaction of
the Loan Documents, a foreclosure conducted pursuant to
the Loan Documents, the making of a deed in lieu of
foreclosure in favor of AAL or a transfer of any other
interest in the Property, whether by Indemnitor or AAL
or by any successor or assignee of Indemnitor or AAL.
NOW, THEREFORE, in consideration of the foregoing
recitals, which recitals are hereby incorporated herein
by this reference, and for other good and valuable
consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. REGULATED SUBSTANCES. As used herein,
"REGULATED SUBSTANCE" means any substance, material or
matter that may give rise to liability under any
Environmental Laws. "ENVIRONMENTAL LAWS" shall mean
any local, state or federal laws, rules, ordinances or
regulations either in existence as of the date hereof,
or enacted or promulgated after the date of this
Agreement, that concern the existence, management,
control, discharge, treatment, containment and/or
removal of substances or materials that are or may
become a threat to public health or the environment; or
any common law theory based on nuisance, trespass,
negligence, strict liability, aiding and abetting or
other tortious conduct.
2. COVENANTS. Promptly upon the written and
good faith request of AAL from time to time, Indemnitor
shall provide AAL, at Indemnitor's expense, with an
environmental site assessment or environmental audit
report prepared by an environmental engineering firm
acceptable to AAL, to assess with a reasonable degree
of certainty the presence or absence of any Regulated
Substances and the potential costs in connection with
abatement, cleanup or removal of any Regulated
Substances in violation of Environmental Laws found at,
upon, under or within the Property; provided, however,
that Indemnitor shall not be responsible for the costs
of such an assessment or audit unless an "EVENT OF
DEFAULT" (as defined in the Deed of Trust) has occurred
and is continuing when the work on an environmental
site assessment or environmental audit report is
commenced or AAL has a good faith belief that the
Property may be in violation of Environmental Laws.
3. INDEMNITY.
3.1 Scope of Indemnity. Indemnitor hereby
agrees to indemnify, save, defend (at Indemnitor's cost
and sole expense) and hold harmless AAL and the
officers, directors, agents and employees of AAL, and
the successors and assigns of each of the foregoing
(all of such persons or entities being collectively
referred to herein as "INDEMNIFIED PERSONS" and each
such reference shall refer jointly and severally to
each such person), from and against the full amount of
any and all Losses, regardless of the negligence of
Indemnified Persons except as hereinafter specifically
excepted. "LOSSES" shall mean any and all liabilities,
obligations, losses, damages, injuries, penalties,
claims, actions, suits, costs, expenses and
disbursements (including, but not limited to, all
actual attorneys' fees and expenses (including, without
limitation, the allocated costs for services of in-
house counsel)) and all other professional or
consultants' expenses incurred in investigating,
preparing for, serving as a witness in or defending
against any action or proceeding, whether actually
commenced or threatened, which may be asserted against
any Indemnified Person, arising from, in respect of, as
a consequence of, or in connection with any of the
following: (a) the removal of any Regulated Substance
on, within or released from the Property, whether such
removal is done or completed by Indemnitor, AAL, or any
other person or entity and regardless of whether or not
such removal is rendered pursuant to a court order or
the order of an administrative agency; (b) claims
asserted by any person or entity (including, without
limitation, any governmental agency or quasi-
governmental authority, board, bureau, commission,
department, instrumentality or public body, court, or
administrative tribunal (a "GOVERNMENTAL AGENCY")), in
connection with or in any way arising out of the
presence, storage, use, disposal, generation,
transportation or treatment of any Regulated Substance
at, upon, under or within the Property, either prior to
or after the date of this Agreement and either prior to
or after the time that Indemnitor became owner of the
Property; (c) the violation or claimed violation of any
Environmental Laws in regard to the Property, whether
such violation or claimed violation occurred prior to
or after the date of this Agreement and regardless of
whether such violation occurred prior to or after the
time that Indemnitor became owner of the Property; or
(d) the preparation of an environmental audit on the
Property, whether conducted or authorized by
Indemnitor, AAL or a third party or the implementation
of any environmental audit's recommendations. AAL may
employ the attorneys and/or consultants of its choice.
Notwithstanding the foregoing provisions of this
Section 3.1, (a) Indemnitor shall not be required to
indemnify any Indemnified Person to the extent that any
Losses result from Regulated Substances being brought
onto the Property by such Indemnified Persons, and (b)
if the Property is transferred to AAL or any of its
successors or assigns, then Indemnitor shall not be
liable for any Losses that a final decree of a court of
competent jurisdiction holds arise solely due to
conditions that did not exist on the Property prior to
the transfer of the Property to AAL or its successors
or assigns.
3.2 Claim Settlement. So long as AAL is
beneficiary under the Loan Documents or if AAL at any
time shall have become a mortgagee in possession or a
successor in interest to Indemnitor by foreclosure or
deed in lieu of foreclosure with respect to all or part
of the Property, Indemnitor shall not settle any claim
under or on account of the Environmental Laws without
AAL's prior written consent, which consent may be
withheld in AAL's sole and absolute discretion;
provided, however, that if the proposed settlement
involves (i) no admission of guilt or liability on the
part of AAL, (ii) no adverse financial impact on AAL,
and (iii) no adverse impact on the value of the
Property, then such consent shall not be unreasonably
withheld or delayed.
4. PAYMENTS. Payments under this Agreement in
respect of all Losses shall be due and payable as such
Losses are incurred. Within a reasonable time after
any such Losses are incurred, the Indemnified Person
shall give notice to Indemnitor; provided, however,
that failure by an Indemnified Person to give such
notice shall not relieve Indemnitor from any liability,
duty or obligation hereunder. Indemnitor will pay
interest on any amount not paid from the time such
Losses are incurred regardless of date of notice, at
the interest rate equal to the One-Year Treasury Rate
then in effect plus five percent (5%), but in no event
to exceed the maximum interest rate allowed by law.
5. OBLIGATION TO DEFEND.
5.1 Assumption of Defense. Upon request of
any Indemnified Person, Indemnitor shall defend any and
all actions or proceedings that may be brought against
such Indemnified Person in connection with or arising
out of the matters covered by this Agreement. In the
event that Indemnitor is defending an Indemnified
Person, Indemnitor may settle the claim only with the
Indemnified Person's prior written consent, said
consent or the denial thereof to be in the Indemnified
Person's sole and absolute discretion.
5.2 Delivery of Acknowledgement. Within
thirty (30) days from the date of receipt by Indemnitor
from Indemnified Person of a request to defend,
Indemnitor must acknowledge in a writing, satisfactory
to the Indemnified Person in its good faith discretion,
its duty to defend and that such claim is covered in
its entirety by this Agreement (the "ACKNOWLEDGEMENT");
provided, however, that until the Indemnified Person
receives the Acknowledgement, the Indemnified Person
shall be entitled to defend such claim and Indemnitor
shall be bound in the manner set forth in subparagraph
5.4 hereof.
5.3 Conduct of Defense; Participation by
Indemnified Person. If Indemnitor defends an Indemnified
Person, the defense must be conducted by reputable attorneys
satisfactory to Indemnified Person, retained and paid
solely by Indemnitor. Indemnified Person may
participate in the proceedings and retain a separate
counsel at its own expense. But if the Indemnified
Person concludes in its sole discretion exercised in
good faith that there is a conflict of interest -
consistent with applicable standards of professional
responsibility - between itself and Indemnitor, then
Indemnitor will be conclusively liable for the results,
including the amount of any judgment, compromise, or
good faith, out-of-court settlement.
5.4 Indemnitor's Failure to Defend. If
Indemnitor fails to deliver the Acknowledgment or fails
to choose counsel satisfactory to the Indemnified
Person, Indemnitor shall not thereafter be entitled to
elect to defend, and Indemnitor shall be bound by and
shall be conclusively liable for the results obtained
by the Indemnified Person, including without
limitation, the amount of any judgment or good faith
out-of-court settlement or compromise and all costs and
actual fees of counsel incurred by the Indemnified
Person in connection therewith.
6. NOTIFICATION BY INDEMNITOR. Indemnitor
agrees promptly to notify AAL of the commencement of
any litigation or proceedings pending, threatened or
commenced (whether or not served) against Indemnitor or
any other party in connection with Regulated Substances
and the Property and of the receipt of any notice from
any Governmental Agency in regard to Regulated
Substances and the Property. Indemnitor shall promptly
upon receipt provide the Indemnified Person with true,
complete and correct copies of all such notices and
other documentation related to said notices, litigation
or proceedings.
7. INVALIDITY. If any terms of this Agreement
shall be held invalid, illegal or unenforceable, such
provisions shall be severable from the rest of this
Agreement and the validity, legality, or enforceability
of the remaining provisions shall not in any way be
affected or impaired thereby.
8. ATTORNEYS' FEES. In any action to enforce or
interpret this Agreement, the prevailing party shall be
entitled to receive from the losing party its
reasonable attorneys' fees and costs incurred in
connection therewith.
9. NO TIME LIMIT. There is no time limitation
on Indemnitor's obligations hereunder, and Indemnitor
waives all present and future statutes of limitations
as a defense to any action to enforce the provisions of
this Agreement.
10. NOTICE. Any notice that Indemnitor or AAL
may be required or entitled to give to the other party
hereunder shall be in writing and shall be deemed given
three (3) days after being sent by certified mail,
return receipt requested, postage prepaid, at the
addresses specified below:
"AAL" or "Indemnified Persons"
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attn: Law Department
With a copy to:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
Suite 2600
Los Angeles, California 90067
Attn: Real Estate Notices (DLP)
"Indemnitor"
Optical Coating Laboratory, Inc.
2789 North Point Parkway
Santa Rosa, California 95407-7397
Attention: Mr. Jeff Ryan, Assistant Treasurer
The addresses set forth above may be changed as to
any party by such party delivering to the other parties
written notice as to such change of address.
11. CAPTIONS, GENDER, AND NUMBER. Any section or
paragraph, title or caption contained in this Agreement
is for convenience only and shall not be deemed a part
of this Agreement. As used in this Agreement, the
masculine, feminine or neuter gender, and the singular
or plural number, shall each be deemed to include the
others whenever the context so indicates.
12. INDEMNIFIED PERSONS' RIGHTS. The parties
hereto expressly acknowledge that this Agreement is
made expressly for the benefit of the Indemnified
Persons.
13. SUCCESSORS AND ASSIGNS. This Agreement shall
be binding upon, and inure to the benefit of, the
parties named herein and their respective successors
and assigns. Indemnitor's obligations hereunder shall
survive and continue to be of full force and effect
notwithstanding a foreclosure conducted pursuant to the
Loan Documents, the making of a deed in lieu of
foreclosure by Indemnitor in favor of AAL or a transfer
of any other interest in the Property, whether by
Indemnitor, Indemnitor or AAL or by any successor or
assignee of Indemnitor, Indemnitor or AAL.
14. WAIVERS, FAILURE OR INDULGENCES NOT WAIVER.
INDEMNITOR WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT
ON, UNDER OR BY VIRTUE OF THIS AGREEMENT AND WAIVES ANY
RIGHT TO REQUIRE AAL AT ANY TIME TO PURSUE ANY REMEDY
IN AAL'S POWER WHATSOEVER. No failure or delay on the
part of an Indemnified Person in the exercise of any
power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial
exercise of any power, right or privilege preclude any
other or further exercise of any such power, right or
privilege. All powers, rights and privileges hereunder
are cumulative to, and not exclusive of, any powers,
rights or privileges otherwise available.
15. JOINT AND SEVERAL LIABILITY. The obligations
and liabilities of the persons constituting Indemnitor
are joint and several.
16. COMPLETE AGREEMENT. This Agreement
supersedes any prior negotiations, discussions or
communications between AAL and Indemnitor and
constitutes the entire agreement between AAL and
Indemnitor with respect to this Agreement.
17. NO AMENDMENT OR WAIVER EXCEPT IN WRITING.
This Agreement may be amended or modified only by a
writing duly executed by Indemnitor and AAL, which
expressly refers to this Agreement and the intent of
the parties so to amend this Agreement.
18. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws
of the State of Wisconsin (without regard to conflicts
of law).
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first written above.
"Indemnitor"
OPTICAL COATING LABORATORY, INC.,
a Delaware corporation
By: ___________________________
Name: _____________________
Title: ____________________
"AAL"
Aid Association for Lutherans,
a Wisconsin corporation
By: __________________________
Wayne C. Streck
Vice President -
Mortgages and Real Estate
By: __________________________
Kenneth E. Podell
Assistant Secretary
Exhibit A
LEGAL DESCRIPTION
BORROWER'S AFFIDAVIT AND SOLVENCY CERTIFICATE
On November 8, 1995, OPTICAL COATING LABORATORY,
INC., a Delaware corporation ("BORROWER"), being duly
sworn, deposes and says as follows:
1. The principal place of business of Borrower
is 2789 North Point Parkway, Santa Rosa, California 95407-
7397.
2. This Borrower's Affidavit and Solvency
Certificate ("AFFIDAVIT") is given to Aid Association
for Lutherans ("LENDER") to induce Lender to make a
loan to Borrower in the amount of Two Million Six
Hundred Thousand Dollars ($2,600,000.00) (the "LOAN")
as evidenced by a certain Secured Promissory Note (the
"NOTE") dated as of even date herewith, in the original
principal amount of Two Million Six Hundred Thousand
Dollars ($2,600,000.00) executed by Borrower and
payable to the order of Lender, said Note being secured
by, among other things, a Deed of Trust, Financing
Statement, Fixture Filing and Security Agreement (With
Assignment of Rents) (the "DEED OF TRUST") dated as of
even date herewith, from Borrower for the benefit of
Lender and an Assignment of Rents and Leases (the
"ASSIGNMENT") dated as of even date herewith. Borrower
intends that Lender and its transferees, successors and
assigns may rely on the representations set forth in
this Affidavit in connection with the consummation of
the Loan, all of which representations and statements
shall be deemed made and effective as of the date
hereof and as of each date the Loan or any amount
thereof is funded. (The Note, Deed of Trust,
Assignment, and all other documents executed by
Borrower and delivered to Lender in connection with the
Loan are hereinafter collectively referred to as the
"LOAN DOCUMENTS.")
3. Borrower is the fee simple owner of the tract
of land described in Exhibit A and the improvements
thereon (the "MORTGAGED PROPERTY"), free and clear of
any liens, easements, or other encumbrances except
those listed in that certain Preliminary Title Report
No. 62204760 (the "TITLE REPORT") from North American
Title Company (the "TITLE COMPANY").
4. To the best of Borrower's knowledge, there
are not any structural defects in any of the said
improvements or personalty, and the heating,
electrical, plumbing and drainage at or servicing the
Mortgaged Property are in good condition and working
order and adequate in quantity and quality for the
normal operation of the Mortgaged Property, except as
otherwise disclosed to Lender. To the best of
Borrower's knowledge after diligent inquiry, there is
no asbestos present in the Mortgaged Property and there
are no underground tanks on the Mortgaged Property. No
part of the Mortgaged Property has been destroyed or
damaged by fire or other casualty.
5. Borrower has delivered to Lender a true,
correct and complete copy of its By-Laws, Articles of
Incorporation and corporate resolutions authorizing the
execution by Borrower of the Loan Documents. Such
documents have not been modified, amended or otherwise
changed since the date thereof and all documents
required to be filed in connection with the conduct of
Borrower's business have been filed in the appropriate
offices.
6. Except for rights of tenants under the Leases
described in Exhibit B, Borrower is now in possession
of the Mortgaged Property and its possession of the
Mortgaged Property is peaceable and undisturbed.
Borrower's fee simple title to the Mortgaged Property
cannot in good faith be disrupted or questioned, and
Borrower does not know any facts by reason of which any
claim to the Mortgaged Property, or any part thereof,
might arise or be set up adverse to Borrower, except
for liens and encumbrances disclosed by the Title
Report. The Mortgaged Property is free and clear of
(a) any lien for taxes and any governmental charge or
assessment (except taxes not yet due and payable), and
(b) any easements, rights-of-way, restrictive
covenants, liens by contract, judgment, statute or
proceeding in any court or any encumbrances of any
nature whatsoever, except those set forth in the Title
Commitment.
7. All utilities required for the operation of
the Mortgaged Property (including, without limitation,
electric, gas, water and sewer) are available to and
enter the Mortgaged Property through adjoining public
streets or through adjoining private land in accordance
with valid public or private easements that will inure
to the benefit of Lender pursuant to the provisions of
the Deed of Trust.
8. All statements, representations and
warranties contained in the Loan Documents or in any
writing previously delivered by Borrower to Lender in
connection with the Loan are true and correct in all
material respects, and all obligations of Borrower to
be performed prior to making the Loan and all
conditions to the making of the Loan have been
performed and satisfied.
9. There have been no material adverse changes,
financial or otherwise, in the condition of Borrower or
in the actual or pro forma operating statements for the
Mortgaged Property from that disclosed to Lender in the
loan application submitted to Lender by Borrower, or in
any supporting data submitted therewith, and all of the
information contained therein is true and correct.
10. There is no material claim, investigation,
litigation or condemnation proceeding pending or
threatened against the Mortgaged Property or Borrower,
except as heretofore disclosed in writing to Lender.
11. There is no judgment, decree or order of any
court or governmental or administrative agency or
instrumentality which has been issued against Borrower
and which has or may have any material adverse effect
on the Mortgaged Property or on the business of
Borrower, except as have been heretofore disclosed to
Lender in writing.
12. The books and records of Borrower have been
maintained in the regular course of business and in
accordance with generally accepted accounting
principles consistently applied. Borrower is solvent
as reflected by the entries in said books and records
and as reflected by the actual facts, and Borrowers
know of no fact or pending or threatened claim or
litigation that might result in the insolvency or
bankruptcy of Borrower.
13. The Note and all other Loan Documents have
been duly authorized, executed and delivered and
constitute valid and binding obligations of Borrower
enforceable in accordance with their respective terms.
No approval, consent, order or authorization of any
governmental authority and no designation,
registration, declaration or filing with any
governmental entity is required in connection with the
execution and delivery of the Note or any other Loan
Document executed and delivered by Borrower to Lender
in connection with the Loan.
14. The execution and delivery of the Note and
all other Loan Documents will not violate or contravene
any agreement, indenture or instrument to which
Borrower is a party or by which it or the Mortgaged
Property may be bound, or be in conflict with, result
in a breach of, or constitute a default under any such
agreement, indenture or other instrument, or result in
the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the
property or assets of Borrower except as contemplated
by the provisions of the Loan Documents, and no action
or approval with respect thereto by any third person is
required.
15. Borrower has not entered into any contracts
or agreements (verbal or written) for the furnishing of
labor and materials (including fabricated materials)
for use in connection with the construction and/or
rehabilitation of improvements on the Mortgaged
Property except as heretofore disclosed in writing to
Lender and the Title Company.
16. To the best of Borrower's knowledge after
diligent inquiry,
(a) the Schedule of Leases attached hereto
as Exhibit B (the "Schedule of Leases") is true,
accurate and complete as of the date hereof;
(b) all obligations required to be
undertaken by the lessor to the date hereof under any
leases have been performed, including, but not limited
to, all required tenant improvements, alterations,
installations and construction, for which payment in
full has been made in all cases;
(c) no tenant has any offsets, defenses or
claims available against rent payable by it or other
performance or obligations otherwise due from it under
any lease;
(d) no tenant is in default under, or is in
arrears in the payment of any sums or in the
performance of any obligation required of it under, its
lease;
(e) no item payable by any tenant under any
lease has been heretofore prepaid, except for rent
currently due or as prorated, prepaid escalations and
security deposits;
(f) there are no brokers' commissions,
finders' fees or other charges payable or to become
payable by or to any third party as a result of or in
connection with any lease or any transaction related
thereto;
(g) no tenant or any other party has
asserted any claim (other than for customary refunds at
the expiration of a lease) to all or any part of any
security deposit; and
(h) no tenant or any other party has any
option to purchase the Mortgaged Property or any part
thereof or right of first refusal or first offer with
respect thereto.
17. Complete copies of any leases listed in the
Schedule of Leases, including all amendments and
modifications thereto, have been delivered to Lender.
18. Borrower is the absolute owner of the
personal property listed in Exhibit C attached hereto.
Said personal property is free and clear of all liens,
charges and encumbrances.
19. All labor and material, including all
appliances, heating and air conditioning equipment, and
other fixtures, that have been or are to be performed
or furnished to the Mortgaged Property have been paid
for in full to the date hereof. To Borrower's
knowledge, there are no mechanics' or materialmen's
liens, lienable bills, or other claims constituting or
that may constitute a lien on the Mortgaged Property
and the improvements, fixtures and equipment to be
constructed or installed thereon, or any part thereof,
that are or will become prior or superior to the lien
and security interest evidenced by the Deed of Trust or
any of the Loan Documents, of which Borrower has not
advised Lender and the Title Company in writing.
20. The improvements, fixtures and equipment now
or to be constructed and installed upon the Mortgaged
Property do or will comply in all material respects
with all applicable zoning ordinances, building codes
and other laws, rules and regulations, and any
restrictive covenants affecting the Mortgaged Property,
and the use which Borrower intends to make of such
improvements will comply in all material respects with
such zoning ordinances, building codes and other laws,
rules and regulations and restrictive covenants.
Borrower solemnly affirms under penalties of
perjury and upon personal knowledge that the contents
of the foregoing are true. Borrower makes this
Affidavit for the purpose of inducing Lender to make
the Loan.
BORROWER:
OPTICAL COATING
LABORATORY, INC.,
a Delaware corporation
By: __________________________
Name: _____________________
Title: ____________________
STATE OF )
) ss.
COUNTY OF )
On this ___ day of _________, 19__, before
me, the undersigned, a Notary Public in and for said
State, personally appeared _____________, personally
known to me (or proved to me on the basis of
satisfactory evidence) to be the person that executed
the within instrument, and acknowledged to me that __
executed the same.
WITNESS my hand and official seal.
_____________________________
Notary Public
Exhibit A
LEGAL DESCRIPTION
Exhibit B
RENT ROLL
Leases: None
Exhibit C
[To be provided by Borrower.]
AUTHORIZATION AGREEMENT FOR PREAUTHORIZED PAYMENTS
COMPANY NAME: OPITCAL COATING LABORATORY, INC. AAL
NUMBER: LOAN NO. 74750
THIS Agreement made November 8, 1995 by and
between OPTICAL COATING LABORATORY, INC., a Delaware
corporation (hereinafter "COMPANY"), and AID
ASSOCIATION FOR LUTHERANS, a Wisconsin corporation
(hereinafter "AAL").
WHEREAS, COMPANY agrees to have AAL originate
preauthorized payment entries ("DEBIT ENTRIES") on the
15th day of each month to COMPANY'S account ("ACCOUNT")
specified in Schedule A, attached hereto, in payment of
mortgage loan dated as of the date hereof
("OBLIGATION") owed by COMPANY to AAL pursuant to the
terms of this Agreement and the Rules relating to ACH
preauthorized payments and deposits ("RULES") of the
National Automated Clearing House Association and the
Wisconsin Automated Clearing House Association; and
WHEREAS, AAL is willing to initiate Debit Entries
on the terms set forth below;
NOW, THEREFORE, in consideration of the mutual
promises contained herein, AAL and COMPANY agree as
follows:
1. Authorization. Subject to the terms set forth
below, COMPANY authorizes AAL to initiate Debit Entries
to the Account in accordance with the agreement for
payments owing from time to time by COMPANY to AAL
resulting from Obligation.
2. Authorization Limitations: Procedures. No Debit
Entry shall be initiated under this Agreement except in
conformity with the authorization provided above. No
single Debit Entry initiated under this Agreement shall
be in excess of the Maximum Entry Amount defined in
Schedule A, attached to and made a part of this
Agreement. Such maximum amount may be changed by AAL
from time to time on 10 days prior written notice to
COMPANY. Credit Entries may be initiated only to
reverse a prior Debit Entry if done in error.
3. Originator's Failure to Originate. COMPANY shall
not be deemed to default on any obligation or suffer
any loss of discount or other penalty by reason of the
failure of AAL to initiate any Debit Entry in
accordance with the terms of this Agreement, or by
reason of any delay in receipt by COMPANY'S financial
institution, or the nonreceipt by such institution of
any Debit Entry initiated by AAL.
4. Compliance with Rules. COMPANY and AAL shall
comply with and be bound by the Rules as in effect from
time to time.
5. Acceptance and Return of Entries. COMPANY agrees
to accept any Debit Entry initiated in accordance with
this Agreement, and to maintain sufficient balances in
the Account to honor such Debit Entries. Any Debit
Entry initiated under this Agreement may be returned in
accordance with the Rules. COMPANY shall not be deemed
to have accepted any Debit Entry that is returned in
accordance with the Rules. Failure to accept any such
Debit Entry does not relieve the COMPANY of its
obligations under Obligation.
6. Debit Entry Information. Each Debit Entry
initiated under this Agreement shall be accompanied by
information required under the Rules. It shall be the
responsibility of the COMPANY'S financial institution
to provide notification of all Debit Entries to the
COMPANY.
7. COMPANY'S Account. The Account specifics are
provided in Schedule A, attached to and made a part of
this Agreement. The COMPANY Account may be changed by
COMPANY from time to time on 30 days prior written
notice to AAL. If COMPANY is a natural person, COMPANY
represents to AAL that the Account is, and during the
term of this agreement, will be, maintained primarily
for business, and not for personal, family, or
household purposes.
8. Bank Service Charges. COMPANY shall be
responsible for any charges assessed by its financial
institution for these Debit Entries.
9. Questions and Errors. In the event of any
question or error relating to Debit Entries initiated
pursuant to this Agreement, COMPANY should contact
Investment Accounting at AAL, (414/734-5721) and AAL
SHOULD CONTACT
(Contact person's name and phone number)
10. Liability of Parties. Neither AAL nor COMPANY
shall be liable for the act or omission of any
Automated Clearing House, financial institution, or
other person. However, the failure of an Automated
Clearing House, financial institution or other person
to accept a Debit Entry initiated by AAL because of
insufficient balances in the Account shall be deemed a
default of COMPANY under the Obligation unless COMPANY
causes AAL to receive payment in full in immediately
available funds of the amount of such Debit Entry on or
before the expiration of the grace period for the
payment of such amount (as such grace period is
specified in the note evidencing the Obligation).
11. Notices. Any written notice or other written
communication required or permitted to be given under
this Agreement shall be delivered, or sent by United
States registered mail, postage prepaid, and, if to
AAL, addressed to:
Assistant Treasurer
Aid Association for Lutherans
4321 North Ballard Road
Appleton, WI 54919
and, if to COMPANY, addressed to:
COMPANY Name OPTICAL COATING
LABORATORY, INC.
COMPANY Address 2789 North Point Parkway
Santa Rosa, California
95407-7397
Attention: Mr. Jeff Ryan,
Assistant Treasurer
unless another address is substituted by notice
delivered or sent as provided herein. Any such notice
shall be deemed given when so delivered or sent.
12. Termination. This Agreement may be terminated by
COMPANY or AAL at any time by giving 30 days prior
written notice thereof to the other party.
Notwithstanding such termination, this Agreement shall
remain in force and effect as to all transactions which
shall have occurred prior to the date of termination.
This Agreement shall terminate upon the satisfaction of
the Obligation. Termination of this Agreement does not
release AAL or COMPANY from the terms and liabilities
of the Obligation.
13. Law Governing. This Agreement shall be construed
in accordance with and governed by the laws of the
State of Wisconsin.
14. Entire Agreement, Etc. This Agreement embodies
the entire Agreement of the parties with respect to the
subject matter hereof, and supersedes all previous
negotiation, representations, and agreements with
respect thereto, and shall be binding upon the parties
hereto, and their respective successors and assigns.
This Agreement may be amended only by a writing signed
by both parties.
Signed:
"COMPANY"
OPTICAL COATING LABORATORY, INC.,
a Delaware corporation
By: ___________________________
Name: _____________________
Title: ____________________
"AAL"
Aid Association for Lutherans, a
Wisconsin corporation
By: ________________________
Wayne C. Streck
Vice President -
Mortgages and Real Estate
By: ________________________
Kenneth E. Podell
Assistant Secretary
SCHEDULE A
COMPANY Name: Optical Coating Laboratory, Inc.
AAL Number: LOAN NO. 74750
COMPANY Taxpayer Identification Number:
Maximum Entry Amount: $24,847
COMPANY Account: The Account is the following deposit
Account maintained by the COMPANY:
Financial Institution:
Street Address:
City, State, Zip Code:
ABA Number:
Bank's Telephone Number:
COMPANY Account Number:
Date of this Schedule:
ATTACH VOIDED CHECK HERE
BORROWER'S AFFIDAVIT AND SOLVENCY CERTIFICATE
On November 8, 1995, OPTICAL COATING LABORATORY,
INC., a Delaware corporation ("BORROWER"), being duly
sworn, deposes and says as follows:
1. The principal place of business of Borrower
is:
2. This Borrower's Affidavit and Solvency
Certificate ("AFFIDAVIT") is given to Aid Association
for Lutherans ("LENDER") to induce Lender to make a
loan to Borrower in the amount of Two Million Six
Hundred Thousand Dollars ($2,600,000.00) (the "LOAN")
as evidenced by a certain Secured Promissory Note (the
"NOTE") dated as of even date herewith, in the original
principal amount of Two Million Six Hundred Thousand
Dollars ($2,600,000.00) executed by Borrower and
payable to the order of Lender, said Note being secured
by, among other things, a Deed of Trust, Financing
Statement, Fixture Filing and Security Agreement (With
Assignment of Rents) (the "DEED OF TRUST") dated as of
even date herewith, from Borrower for the benefit of
Lender and an Assignment of Rents and Leases (the
"ASSIGNMENT") dated as of even date herewith. Borrower
intends that Lender and its transferees, successors and
assigns may rely on the representations set forth in
this Affidavit in connection with the consummation of
the Loan, all of which representations and statements
shall be deemed made and effective as of the date
hereof and as of each date the Loan or any amount
thereof is funded. (The Note, Deed of Trust,
Assignment, and all other documents executed by
Borrower and delivered to Lender in connection with the
Loan are hereinafter collectively referred to as the
"LOAN DOCUMENTS.")
3. Borrower is the fee simple owner of the tract
of land described in Exhibit A and the improvements
thereon (the "MORTGAGED PROPERTY"), free and clear of
any liens, easements, or other encumbrances except
those listed in that certain Preliminary Title Report
No. __________ (the "TITLE REPORT") from ____________
(the "TITLE COMPANY").
4. To the best of Borrower's knowledge, there
are not any structural defects in any of the said
improvements or personalty, and the heating,
electrical, plumbing and drainage at or servicing the
Mortgaged Property are in good condition and working
order and adequate in quantity and quality for the
normal operation of the Mortgaged Property, except as
otherwise disclosed to Lender. To the best of
Borrower's knowledge after diligent inquiry, there is
no asbestos present in the Mortgaged Property and there
are no underground tanks on the Mortgaged Property. No
part of the Mortgaged Property has been destroyed or
damaged by fire or other casualty.
5. Borrower has delivered to Lender a true,
correct and complete copy of its By-Laws, Articles of
Incorporation and corporate resolutions authorizing the
execution by Borrower of the Loan Documents. Such
documents have not been modified, amended or otherwise
changed since the date thereof and all documents
required to be filed in connection with the conduct of
Borrower's business have been filed in the appropriate
offices.
6. Except for rights of tenants under the Leases
described in Exhibit B, Borrower is now in possession
of the Mortgaged Property and its possession of the
Mortgaged Property is peaceable and undisturbed.
Borrower's fee simple title to the Mortgaged Property
cannot in good faith be disrupted or questioned, and
Borrower does not know any facts by reason of which any
claim to the Mortgaged Property, or any part thereof,
might arise or be set up adverse to Borrower, except
for liens and encumbrances disclosed by the Title
Report. The Mortgaged Property is free and clear of
(a) any lien for taxes and any governmental charge or
assessment (except taxes not yet due and payable), and
(b) any easements, rights-of-way, restrictive
covenants, liens by contract, judgment, statute or
proceeding in any court or any encumbrances of any
nature whatsoever, except those set forth in the Title
Commitment.
7. All utilities required for the operation of
the Mortgaged Property (including, without limitation,
electric, gas, water and sewer) are available to and
enter the Mortgaged Property through adjoining public
streets or through adjoining private land in accordance
with valid public or private easements that will inure
to the benefit of Lender pursuant to the provisions of
the Deed of Trust.
8. All statements, representations and
warranties contained in the Loan Documents or in any
writing previously delivered by Borrower to Lender in
connection with the Loan are true and correct in all
material respects, and all obligations of Borrower to
be performed prior to making the Loan and all
conditions to the making of the Loan have been
performed and satisfied.
9. There have been no material adverse changes,
financial or otherwise, in the condition of Borrower or
in the actual or pro forma operating statements for the
Mortgaged Property from that disclosed to Lender in the
loan application submitted to Lender by Borrower, or in
any supporting data submitted therewith, and all of the
information contained therein is true and correct.
10. There is no material claim, investigation,
litigation or condemnation proceeding pending or
threatened against the Mortgaged Property or Borrower,
except as heretofore disclosed in writing to Lender.
11. There is no judgment, decree or order of any
court or governmental or administrative agency or
instrumentality which has been issued against Borrower
and which has or may have any material adverse effect
on the Mortgaged Property or on the business of
Borrower, except as have been heretofore disclosed to
Lender in writing.
12. The books and records of Borrower have been
maintained in the regular course of business and in
accordance with generally accepted accounting
principles consistently applied. Borrower is solvent
as reflected by the entries in said books and records
and as reflected by the actual facts, and Borrowers
know of no fact or pending or threatened claim or
litigation that might result in the insolvency or
bankruptcy of Borrower.
13. The Note and all other Loan Documents have
been duly authorized, executed and delivered and
constitute valid and binding obligations of Borrower
enforceable in accordance with their respective terms.
No approval, consent, order or authorization of any
governmental authority and no designation,
registration, declaration or filing with any
governmental entity is required in connection with the
execution and delivery of the Note or any other Loan
Document executed and delivered by Borrower to Lender
in connection with the Loan.
14. The execution and delivery of the Note and
all other Loan Documents will not violate or contravene
any agreement, indenture or instrument to which
Borrower is a party or by which it or the Mortgaged
Property may be bound, or be in conflict with, result
in a breach of, or constitute a default under any such
agreement, indenture or other instrument, or result in
the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the
property or assets of Borrower except as contemplated
by the provisions of the Loan Documents, and no action
or approval with respect thereto by any third person is
required.
15. Borrower has not entered into any contracts
or agreements (verbal or written) for the furnishing of
labor and materials (including fabricated materials)
for use in connection with the construction and/or
rehabilitation of improvements on the Mortgaged
Property except as heretofore disclosed in writing to
Lender and the Title Company.
16. To the best of Borrower's knowledge after
diligent inquiry,
(a) the Schedule of Leases attached hereto
as Exhibit B (the "Schedule of Leases") is true,
accurate and complete as of the date hereof;
(b) all obligations required to be
undertaken by the lessor to the date hereof under any
leases have been performed, including, but not limited
to, all required tenant improvements, alterations,
installations and construction, for which payment in
full has been made in all cases;
(c) no tenant has any offsets, defenses or
claims available against rent payable by it or other
performance or obligations otherwise due from it under
any lease;
(d) no tenant is in default under, or is in
arrears in the payment of any sums or in the
performance of any obligation required of it under, its
lease;
(e) no item payable by any tenant under any
lease has been heretofore prepaid, except for rent
currently due or as prorated, prepaid escalations and
security deposits;
(f) there are no brokers' commissions,
finders' fees or other charges payable or to become
payable by or to any third party as a result of or in
connection with any lease or any transaction related
thereto;
(g) no tenant or any other party has
asserted any claim (other than for customary refunds at
the expiration of a lease) to all or any part of any
security deposit; and
(h) no tenant or any other party has any
option to purchase the Mortgaged Property or any part
thereof or right of first refusal or first offer with
respect thereto.
17. Complete copies of any leases listed in the
Schedule of Leases, including all amendments and
modifications thereto, have been delivered to Lender.
18. Borrower is the absolute owner of the
personal property listed in Exhibit C attached hereto.
Said personal property is free and clear of all liens,
charges and encumbrances.
19. All labor and material, including all
appliances, heating and air conditioning equipment, and
other fixtures, that have been or are to be performed
or furnished to the Mortgaged Property have been paid
for in full to the date hereof. To Borrower's
knowledge, there are no mechanics' or materialmen's
liens, lienable bills, or other claims constituting or
that may constitute a lien on the Mortgaged Property
and the improvements, fixtures and equipment to be
constructed or installed thereon, or any part thereof,
that are or will become prior or superior to the lien
and security interest evidenced by the Deed of Trust or
any of the Loan Documents, of which Borrower has not
advised Lender and the Title Company in writing.
20. The improvements, fixtures and equipment now
or to be constructed and installed upon the Mortgaged
Property do or will comply in all material respects
with all applicable zoning ordinances, building codes
and other laws, rules and regulations, and any
restrictive covenants affecting the Mortgaged Property,
and the use which Borrower intends to make of such
improvements will comply in all material respects with
such zoning ordinances, building codes and other laws,
rules and regulations and restrictive covenants.
Borrower solemnly affirms under penalties of
perjury and upon personal knowledge that the contents
of the foregoing are true. Borrower makes this
Affidavit for the purpose of inducing Lender to make
the Loan.
BORROWER:
OPTICAL COATING
LABORATORY, INC.,
a Delaware corporation
By:
__________________________
Name:
_____________________
Title:
____________________
STATE OF )
) ss.
COUNTY OF )
On this ___ day of _________, 19__, before
me, the undersigned, a Notary Public in and for said
State, personally appeared _____________, personally
known to me (or proved to me on the basis of
satisfactory evidence) to be the person that executed
the within instrument, and acknowledged to me that __
executed the same.
WITNESS my hand and official seal.
_____________________________
Notary Public
Exhibit A
LEGAL DESCRIPTION
November 8, 1995
Aid Association For Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Re:
Loan of $2,600,000 from
AID ASSOCIATION FOR
LUTHERANS, a Wisconsin
corporation ("LENDER") to
OPTICAL COATING
LABORATORY, INC., a
Delaware corporation
("BORROWER"); Waiver of
California Civil Code
Section
2954.10
Ladies and Gentlemen:
This letter is written to you in connection with
the funding by Lender of a loan to Borrower in the
principal amount of Two Million Six Hundred Thousand
Dollars ($2,600,000), which Loan is evidenced by a
Secured Promissory Note in the face amount of Two
Million Six Hundred Thousand Dollars ($2,600,000) of
even date herewith made by Borrower and payable to the
order of Lender ("NOTE"), which Note is secured, inter
alia, by a Deed of Trust, Financing Statement, Fixture
Filing and Security Agreement (With Assignment of
Rents) of even date herewith made by Borrower as
Trustor for the benefit of Lender as Beneficiary (the
"DEED OF TRUST").
The undersigned, having received the benefit of
advice of legal counsel of its own selection, hereby:
(1) acknowledges that the Note and Deed of Trust
contain provisions allowing Lender to charge prepayment
fees upon the acceleration of the maturity date of the
principal and accrued interest under the Note upon
certain direct or indirect conveyances of rights, title
or interests, including, without limitation,
"Prohibited Transfers" (as defined in the Deed of
Trust) and "Prohibited Encumbrances" (as defined in the
Deed of Trust) in the property (the "PROPERTY") subject
to the Deed of Trust;
(2) expressly waives the provisions of California
Civil Code Section 2954.10 (and any similar provision
of applicable law in any manner conditioning the
enforceability of any prepayment fees as set forth in
the Note and Deed of Trust) and expressly agrees to the
payment of any prepayment fees as set forth in the Note
and/or the Deed of Trust, including, without
limitation, prepayment fees charged upon the
acceleration of the maturity date of the principal and
accrued interest under the Note as a result of any
Prohibited Transfers or Prohibited Encumbrances;
(3) expressly acknowledges that (a) in
establishing the annual interest rate of 8%, Lender has
assumed and taken into account the fact that the loan
evidenced by the Note will not be prepaid and that
there will be no Prohibited Transfers or Prohibited
Encumbrances or any other event that would cause Lender
to accelerate the maturity date of the Note, and (b)
the provisions in the Note and/or Deed of Trust
relating to Borrower's payment of a premium in the
event of an acceleration are intended to compensate
Lender in the event that this assumption proves to be
incorrect;
(4) expressly acknowledges that Lender's
agreement to make the loan evidenced by the Note was
expressly conditioned on the waiver and agreement
contained herein and that Borrower bargained for and
received specific exceptions from Lender's normal and
usual terms and provisions (for example, (a) Borrower
bargained for and received a provision wherein Lender,
in reliance on Borrower's management of the Property
subject to the Deed of Trust, agreed that the Note
should be non-recourse; and (b) Borrower bargained for
and received specific exceptions from Lender's normal
and usual due on sale provisions (e.g., one-time
assumption upon satisfaction of certain conditions)],
and that the foregoing constitutes "evidence of a
course of conduct by the obligee of individual weight
to the consideration in that transaction for the waiver
or agreement," all within the meaning of California
Civil Code Section 2954.10.
Sincerely,
OPTICAL COATING LABORATORY, INC.,
a Delaware corporation
By: ___________________________
Name: _____________________
Title: ____________________
AUTHORIZATION AGREEMENT FOR PREAUTHORIZED PAYMENTS
COMPANY NAME: OPTICAL COATING LABORATORY, INC. AAL
NUMBER: LOAN NO. 74750
THIS Agreement made November 8, 1995 by and
between OPTICAL COATING LABORATORY, INC., a Delaware
corporation (hereinafter "COMPANY"), and AID
ASSOCIATION FOR LUTHERANS, a Wisconsin corporation
(hereinafter "AAL").
WHEREAS, COMPANY agrees to have AAL originate
preauthorized payment entries ("DEBIT ENTRIES") on the
15th day of each month to COMPANY'S account ("ACCOUNT")
specified in Schedule A, attached hereto, in payment of
mortgage loan dated as of the date hereof
("OBLIGATION") owed by COMPANY to AAL pursuant to the
terms of this Agreement and the Rules relating to ACH
preauthorized payments and deposits ("RULES") of the
National Automated Clearing House Association and the
Wisconsin Automated Clearing House Association; and
WHEREAS, AAL is willing to initiate Debit Entries
on the terms set forth below;
NOW, THEREFORE, in consideration of the mutual
promises contained herein, AAL and COMPANY agree as
follows:
1. Authorization. Subject to the terms set forth
below, COMPANY authorizes AAL to initiate Debit Entries
to the Account in accordance with the agreement for
payments owing from time to time by COMPANY to AAL
resulting from Obligation. AAL shall initiate Debit
Entries not earlier than the date payment is due under
the Note by Company in favor of AAL.
2. Authorization Limitations: Procedures. No Debit
Entry shall be initiated under this Agreement except in
conformity with the authorization provided above. No
single Debit Entry initiated under this Agreement shall
be in excess of the Maximum Entry Amount defined in
Schedule A, attached to and made a part of this
Agreement. Such maximum amount may be changed by AAL
from time to time on 10 days prior written notice to
COMPANY. Credit Entries may be initiated only to
reverse a prior Debit Entry if done in error.
3. Originator's Failure to Originate. COMPANY shall
not be deemed in breach or default on any obligation or
suffer any loss of discount or other penalty by reason
of the failure of AAL to initiate any Debit Entry in
accordance with (or as authorized by) the terms of this
Agreement, or by reason of any delay in receipt by
COMPANY'S financial institution, or the nonreceipt by
such institution of any Debit Entry initiated by AAL.
4. Compliance with Rules. COMPANY and AAL shall
comply with and be bound by the Rules as in effect from
time to time.
5. Acceptance and Return of Entries. COMPANY agrees
to accept any Debit Entry initiated in accordance with
this Agreement, and to maintain sufficient balances in
the Account to honor such Debit Entries. Any Debit
Entry initiated under this Agreement may be returned in
accordance with the Rules. COMPANY shall not be deemed
to have accepted any Debit Entry that is returned in
accordance with the Rules. Failure to accept any such
Debit Entry does not relieve the COMPANY of its
obligations under Obligation.
6. Debit Entry Information. Each Debit Entry
initiated under this Agreement shall be accompanied by
information required under the Rules. It shall be the
responsibility of the COMPANY'S financial institution
to provide notification of all Debit Entries to the
COMPANY.
7. COMPANY'S Account. The Account specifics are
provided in Schedule A, attached to and made a part of
this Agreement. The COMPANY Account may be changed by
COMPANY from time to time on 30 days prior written
notice to AAL. If COMPANY is a natural person, COMPANY
represents to AAL that the Account is, and during the
term of this agreement, will be, maintained primarily
for business, and not for personal, family, or
household purposes.
8. Bank Service Charges. COMPANY shall be
responsible for any charges assessed by its financial
institution for these Debit Entries.
9. Questions and Errors. In the event of any
question or error relating to Debit Entries initiated
pursuant to this Agreement, COMPANY should contact
Investment Accounting at AAL, (414/734-5721) and AAL
SHOULD CONTACT
________________________________________________________.
(Contact person's name and phone number)
10. Liability of Parties. Neither AAL nor COMPANY
shall be liable for the act or omission of any
Automated Clearing House, financial institution, or
other person. However, the failure of an Automated
Clearing House, financial institution or other person
to accept a Debit Entry initiated by AAL because of
insufficient balances in the Account shall be deemed a
default of COMPANY under the Obligation unless COMPANY
causes AAL to receive payment in full in immediately
available funds of the amount of such Debit Entry on or
before the expiration of the grace period for the
payment of such amount (as such grace period is
specified in the note evidencing the Obligation).
11. Notices. Any written notice or other written
communication required or permitted to be given under
this Agreement shall be delivered, or sent by United
States registered mail, postage prepaid, and, if to
AAL, addressed to:
Assistant Treasurer
Aid Association for Lutherans
4321 North Ballard Road
Appleton, WI 54919
and, if to COMPANY, addressed to:
COMPANY Name
OPTICAL COATING LABORATORY, INC.
COMPANY Address
2789 North Point Parkway
Santa Rosa, California 95407-7397
Attention: Mr. Jeff Ryan, Assistant Treasurer
unless another address is substituted by notice
delivered or sent as provided herein. Any such notice
shall be deemed given when so delivered or sent.
12. Termination. This Agreement may be terminated by
COMPANY or AAL at any time by giving 30 days prior
written notice thereof to the other party; provided,
that AAL shall not terminate this Agreement so long as
it requires COMPANY to make installment payments by
means of preauthorized automated clearinghouse
transactions. Notwithstanding such termination, this
Agreement shall remain in force and effect as to all
transactions which shall have occurred prior to the
date of termination. This Agreement shall terminate
upon the satisfaction of the Obligation. Termination
of this Agreement does not release AAL or COMPANY from
the terms and liabilities of the Obligation.
13. Law Governing. This Agreement shall be construed
in accordance with and governed by the laws of the
State of Wisconsin.
14. Entire Agreement, Etc. This Agreement embodies
the entire Agreement of the parties with respect to the
subject matter hereof, and supersedes all previous
negotiation, representations, and agreements with
respect thereto, and shall be binding upon the parties
hereto, and their respective successors and assigns.
This Agreement may be amended only by a writing signed
by both parties.
Signed:
"COMPANY"
OPTICAL COATING LABORATORY, INC.,
a Delaware corporation
By: ___________________________
Name: _____________________
Title: ____________________
"AAL"
Aid Association for Lutherans, a
Wisconsin corporation
By: ________________________
Wayne C. Streck
Vice President -
Mortgages and Real Estate
By: ________________________
Kenneth E. Podell
Assistant Secretary
SCHEDULE A
COMPANY Name: Optical Coating Laboratory, Inc.
AAL Number: LOAN NO. 74750
COMPANY Taxpayer Identification Number:
Maximum Entry Amount: $24,847
COMPANY Account: The Account is the following deposit
Account maintained by the COMPANY:
Financial Institution:
Street Address:
City, State, Zip Code:
ABA Number:
Bank's Telephone Number:
COMPANY Account Number:
Date of this Schedule:
ATTACH VOIDED CHECK HERE
November 8, 1995
North American Title Company
2755 Mendocino Avenue
Santa Rosa, California 95403
Attention: Ms. Leslie Hudson
Re: Loan by Aid Association for
Lutherans, a Wisconsin corporation
("LENDER"), to Optical Coating
Laboratory, Inc., a California
corporation ("BORROWER"); 1405
Thunderbolt Way, Santa Rosa, California
(the "PROPERTY"); AAL Loan No. 74750;
Title Order No. 62204760
Ladies and Gentlemen:
This letter authorizes North American Title
Company, Inc. (the "TITLE COMPANY") to act as escrow
holder in reference to the above transaction in
accordance with the instructions contained herein.
I. CLOSING DOCUMENTS. The following monies,
items or documents have been or will be delivered to
you for the purpose of closing the above-referenced
transaction:
1. Deed of Trust, Security Agreement and
Fixture Filing (with Assignment of Rents) (the "DEED OF
TRUST") dated as of November 8, 1995, by and among
Borrower as trustor, Title Company as trustee, and
Lender as beneficiary, properly executed by Borrower
and acknowledged by a licensed notary public;
2. Assignment of Rents and Leases (the
"ASSIGNMENT") dated as of November 8, 1995, made by
Borrower as assignor in favor of Lender as assignee,
properly executed by Borrower and acknowledged by a
licensed notary public;
3. Letter from David L. Packer, Esq., of
Pircher, Nichols & Meeks, on behalf of Lender to you
certifying that all preconditions to the funding of the
loan have been satisfied (the "AAL LETTER");
4. Statement of Mason-McDuffie Financial
Corp. ("BROKER") for services rendered;
5. Statements of Pircher, Nichols & Meeks
for (i) legal services rendered and (ii) for costs
incurred with respect to this transaction;
6. Funds from AAL in the amount of Two
Million Six Hundred Thousand Dollars ($2,600,000) (the
"LOAN PROCEEDS").
B. CONDITIONS OF CLOSING. You may close the
above-referenced transaction upon the fulfillment of
the conditions set forth below:
1. You hold the monies, documents and items
referred to in paragraphs A.1 through A.6 above, duly
executed and acknowledged where required.
2. Commonwealth Land Title Insurance
Company is prepared and unconditionally committed and
obligated to issue a 1970 Form ALTA Lender's Extended
Coverage Policy of Title Insurance (the "Title
Policy"), which shall (a) include C.L.T.A.
[Endorsements No. 100 (without deletions or
exceptions), No. 103.3 (as to items 7 and 8 of the
"PTR" (as defined below)), No. 103.7 (providing "That
said land has unencumbered pedestrian and vehicular
access to publicly dedicated streets known as
Thunderbolt Way and Northpoint Parkway" rather than
"That said land abuts upon physically open streets
known as Thunderbolt Way and Northpoint Parkway"), No.
104.6 (covering the Assignment), No. 116 (confirming
that there is located on said land a
warehouse/manufacturing plant known as 1405 Thunderbolt
Way, Santa Rosa, California), No. 116.1 (confirming
that the Property is the same as that delineated on a
survey prepared by Carlile Associates, designated as
Job No. 2342.3 AND WHICH SURVEY MUST BE ATTACHED TO
THE POLICY OF TITLE INSURANCE), and No. 116.4; and (b)
insure Lender that the Borrower is the fee owner of the
Property and insuring Lender in the amount of $2,600,00
as the holder of a valid and existing first deed of
trust lien with respect to the Deed of Trust
encumbering the Property, subject only to:
i. Taxes that are lien but are
not due and payable (taxes due but not delinquent,
delinquent taxes, penalties, and any interest to
have been paid); and
ii. Those exceptions disclosed as
items 7, 8, 9, 11, 12, 13, 14, and 16 on the
Preliminary Title Report of Title Company (the
"PTR"), Order No. 62204760 dated as of September
11, 1995 at 7:30 a.m. which Borrower represents
and warrants to Title Company and Lender are the
only leases of the Property and that such tenants
have no options to purchase, or rights of first
refusal in, the Property or any portion thereof.
3. You have executed and returned three (3)
copies of this letter to the undersigned.
4. You have telephoned and received oral
advice from David L. Packer, Esq. (310) 201-8973, or
any other attorney from the law firm of Pircher,
Nichols & Meeks, that all other conditions of closing
required by Lender to be fulfilled outside of the above-
referenced escrow have been fulfilled to the
satisfaction of Lender.
C. CLOSING PROCEDURES. In closing escrow, you
will strictly adhere to the procedures in the order set
forth below. All the requirements with respect to the
closing shall be considered as having taken place
simultaneously, and no delivery or payment shall be
considered as having been made until all deliveries,
payments and closing transactions have been
accomplished.
1. Record the Deed of Trust in the official
records of Sonoma County, California.
2. Record the Assignment in the official
records of Sonoma County, California.
3. WITHIN THREE (3) BUSINESS DAYS OF THE
RECORDING OF THE DEED OF TRUST, deliver to Lender in
care of David L. Packer, Esq. at Pircher, Nichols &
Meeks, 1999 Avenue of the Stars, Suite 2600, Los
Angeles, California 90067, the following items:
a. A conformed copy of the Deed of
Trust with recordation stamps thereon;
b. A conformed copy of the Assignment
with recordation stamps thereon; and
c. The original Title Policy and a
copy thereof.
4. Deliver to Lender a check made payable
jointly to First American Real Estate Tax Services,
Inc. and AAL in the amount of $276 for a type H Realty
Tax Service Contract (the "Tax Contract") for a period
of fifteen (15) years.
5. Disburse the loan funds as follows:
a. Pay the following fees and charges:
i. the demands of holders
thereof for release or reconveyance of all
encumbrances and/or mechanics liens of record
necessary to place title in the conditions called
for in paragraph B.2 above;
ii. your escrow fees and disbursements;
iii. the cost of the Title Policy;
iv. the cost of the Tax Contract;
v. the statement of Broker;
vi. the statements of Pircher, Nichols &
Meeks; and
vii. any and all other costs, fees, charges
and taxes with respect to closing
this transaction.
b. After payment of the above, disburse the
remaining funds to Borrower in accordance
with its instructions.
D. GENERAL INSTRUCTIONS.
1. All costs and expenses for the Title
Policy, endorsements, escrow fees, photocopying,
recording fees, mortgage taxes, Title Company's
services, and all other fees, charges and taxes with
respect to the closing of this transaction shall be
paid by Borrower, and Lender shall have no
responsibility or liability for any such costs or
expenses.
2. All supplemental instructions and/or
amendments hereto must be in a writing signed by both
Lender (or David L. Packer, Esq. as Lender's
representative) and Borrower.
3. At any time prior to the close of this
transaction, you shall, upon Lender's request,
immediately disburse to Lender the Loan Proceeds. If
this escrow shall fail to close by two (2) business
days after receipt by you of the Loan Proceeds, you
shall upon request of either party anytime thereafter
terminate this escrow and return to each party all
documents delivered by such party and held by you and
disburse to Lender the Loan Proceeds. In the absence
of such termination, this escrow shall continue and
shall be closed as soon as you are in a position to do
so.
4. Borrower shall be liable to Lender for
interest on the Loan Proceeds of eight percent (8%) per
annum for the period on and after the day upon which
Lender disburses the Loan Proceeds to the Title
Company, and if this escrow should fail to close for
any reason, then Borrower shall nonetheless be liable
for such interest from and including such date to and
including the day upon which the Lender receives back
from escrow all sums placed by Lender in the escrow.
5. Except as otherwise specifically
provided herein, all communications and documents shall
be furnished to Borrower and Lender at the following
addresses:
Lender:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
Suite 2600
Los Angeles, California 90067
Attention: David L. Packer, Esq.
Borrower:
Optical Coating Laboratory
2789 North Point Parkway
Santa Rosa, California 95407-7397
Attention: Mr. Jeffrey M. Ryan
6. This letter of instructions may be
executed in two or more counterparts, each of which
shall be an original, but all of which shall constitute
one and the same letter of instructions.
PLEASE IMMEDIATELY RETURN THREE EXECUTED COPIES OF
THESE INSTRUCTIONS TO LENDER IN CARE OF DAVID PACKER.
Very truly yours,
"Lender"
By:
David L. Packer
for Pircher, Nichols & Meeks
attorneys for Aid Association for Lutherans
"Borrower"
OPTICAL COATING LABORATORY, INC.,
A Delaware corporation
By:
Name:______________________________
Title:______________________________
The undersigned acknowledges receipt of
the within Escrow Instructions and agrees
to proceed in strict accordance therewith.
"Title Company"
NORTH AMERICAN TITLE COMPANY
By:
Name:
Title:
