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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1995.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to .
Commission File Number 1-10441
SILICON GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2789662
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2011 North Shoreline Boulevard, Mountain View, California 94043-1389
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 960-1980
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
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Common Stock, $0.001 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 ]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant, based upon the closing sale price of the Common
Stock on September 5, 1995 on the New York Stock Exchange as reported in The
Wall Street Journal, was approximately $5,805 million. Shares of voting stock
held by each executive officer and director and by each person who owns 5% or
more of any class of registrant's voting stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
AS OF SEPTEMBER 5, 1995, THE REGISTRANT HAD OUTSTANDING 161,129,805 SHARES OF
COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to this Form
10-K Report: (1) Proxy Statement for registrant's Annual Meeting of Stockholders
to be held November 1, 1995 (Part III), and (2) registrant's Annual Report to
Stockholders for the fiscal year ended June 30, 1995 (Parts I, II and IV).
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PART I
ITEM 1. BUSINESS
GENERAL
Silicon Graphics is the world's leading supplier of visual computing
solutions. The Company's systems enhance the productivity of organizations
engaged in technical, scientific, corporate and entertainment applications
across a wide range of industries. Silicon Graphics' core technologies -
including interactive three-dimensional graphics, digital media, RISC
microprocessors and symmetric multiprocessing - combine to provide customers
with an array of desktop graphics workstations, multiprocessing servers,
advanced computing platforms and application software.
Silicon Graphics' core computing systems are complemented by several wholly
and partially owned subsidiaries. MIPS Technologies, Inc. ("MTI") designs and
licenses the MIPS-Registered Trademark- RISC microprocessor family, used in
Silicon Graphics-Registered Trademark- products and those of other companies for
computer, consumer and embedded control applications. Silicon Studio, Inc.
provides software tools, support and training for application and content
developers in the film, video, publishing and interactive television markets.
Alias|Wavefront develops advanced tools for digital design and content creation.
Interactive Digital Solutions, a joint venture, provides interactive video
capabilities to telephone company networks and cable TV systems.
CORE TECHNOLOGIES
The Company's strategy has been to identify and to invest heavily in the
key technologies that will enable it to set the pace of innovation. With
respect to these core elements, the Company's objective is to have the world's
leading technology and to be the first to deliver that technology in new
products. This approach has given Silicon Graphics a clear strategic focus and
has allowed it to obtain high productivity from its research and development
investment. With respect to the other, non-core elements required to develop
its products, the Company seeks to form strategic relationships with leading
suppliers worldwide.
The Company's core technologies are:
GRAPHICS Leading graphics performance has been a distinguishing
characteristic of Silicon Graphics' products since its inception. The Company's
systems use its proprietary dedicated graphics subsystems, which not only
provide strong graphics capability but also improve overall system performance
by freeing up the central microprocessor for other tasks. These subsystems,
such as the XZ, Extreme-TM-, Reality Engine2-TM- and the recently-introduced
Impact-TM- family, perform complex graphics functions that allow the user to
render, display and manipulate realistic 3D objects and images in real time. In
addition, Silicon Graphics has developed the OpenGL-Registered Trademark-, an
application programming interface (API) that evolved from the Company's IRIS GL-
TM- API and has become an industry standard for developing 2D and 3D graphics
applications. The OpenGL API is controlled by an independent architecture
review board that governs its direction and is licensed to more than 30 leading
companies, including all of the principal UNIX-Registered Trademark- workstation
manufacturers.
RISC MICROPROCESSORS The acquisition of MIPS Computer Systems in 1992 gave
the Company ownership of what it believes to be the industry's leading reduced
instruction set computing (RISC) technology, and the Company continues to devote
substantial resources extending this technology. Since 1992, the Company and
its semiconductor partners have developed and introduced three new families of
MIPS RISC microprocessors optimized for use in products ranging from consumer
electronic products to high-performance supercomputers.
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SYMMETRIC MULTIPROCESSING The ability to build computer systems that use
more than one processor without major changes in applications software has been
an important factor in the performance of the Company's systems, particularly
for the technical and scientific markets. Silicon Graphics systems currently
range from one to thirty-six processors. This multiple CPU design optimizes the
performance of a single application or maximizes system throughput when handling
many applications or users at one time.
DIGITAL MEDIA The belief that digital media technology delivers a
fundamentally better way to work and communicate is at the heart of the
Company's systems. Digital media integrates 3D graphics, animation and text
with video, audio and video conferencing capabilities. The availability of
digital media in a networked computing environment enables cooperative work
in real-time. Examples include "collaborative engineering", where engineers
in different countries share visual information and work concurrently on 3D
models and designs.
COMPUTER SYSTEM PRODUCTS
The Company's computer systems range from desktop workstations to servers
and supercomputers. All of these systems are designed around MIPS RISC
microprocessors developed by MTI and the IRIX-TM- operating system, which is the
Company's enhanced version of the System V Release 4 (SVR4) UNIX operating
system. The Company's latest version, IRIX 5.3, includes the Indigo Magic-TM-
user environment, a complete family of tools including desktop utilities,
digital media applications and collaborative tools. Because of their common
microprocessor and operating system technology, the Company's systems generally
are binary-compatible, meaning that software applications run without
modification across the entire product line.
DESKTOP SYSTEMS
Silicon Graphics desktop workstations combine key elements of workgroup
collaboration, interactive media and computing at a range of prices and
performance. Systems in this family can be used for tasks as diverse as
manipulating 3D models for computer-aided design (CAD), crunching numbers for
chemistry and geographic information systems applications, or functioning as a
tool for video editing, animation rendering, technical publishing and software
development.
INDY The Indy-TM- family of desktop workstation features advanced 3D
graphics and imaging and the IndyCam-TM-, its own digital color video camera.
The Indy was developed as a low-price, high-performance workstation with real-
time video capability and interactive and professional quality graphics, audio
and imaging capabilities. The Indy has significant appeal in markets such as
mechanical CAD, chemistry, color publishing, film and video, software
development, education and media authoring. Indy systems range in list price
from approximately $6,500 to $22,000.*
INDIGO2 AND POWER INDIGO2 The Indigo2-TM- family of high-performance
desktop workstations is available with a range of graphics subsystems, including
the Impact graphics line introduced in July 1995, as well as with up to eight of
the Company's Geometry Engine-Registered Trademark- graphics coprocessors. The
Indigo2 family seeks to provide the strongest graphics and computational
capability available in the desktop
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* These and all other prices quoted are August 1995 list prices for standard
system configurations, which are subject to discount based on volume and other
factors.
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category, for applications such as 3D solids modeling, mechanical CAD, 3D
visualization, animation, architectural design and professional audio and video
production. Indigo2 and POWER Indigo2-TM- systems range in price from
approximately $21,000 to $63,500.
WEBFORCE The WebFORCE-TM- family of computer systems was introduced in
January 1995 as one of the first product lines for creating and serving media-
rich content for the World Wide Web. This product family integrates hardware
and software for professional Web content authoring and commercial Web serving,
and includes Indy and Indigo2 Impact-TM- desktop systems as well as Challenge-
Registered Trademark- servers. WebFORCE products range in price from
approximately $11,000 for a WebFORCE Indy to $36,000 for a WebFORCE Indigo2 High
Impact-TM- system.
HIGH END SYSTEMS
ONYX AND POWER ONYX This family of graphics supercomputers uses multiple
microprocessors and sophisticated graphics subsystems to handle the most
demanding visual computing tasks. Graphics subsystems available with the Onyx-
TM- systems include the Extreme, VTX-TM- and Reality Engine2 graphics
subsystems. The Onyx and POWER Onyx-TM- are well-suited for applications such
as computational chemistry, oil and gas research, molecular modeling, global
weather modeling, structural dynamics, fluid dynamics, image processing, visual
simulation, medical imaging and chemistry, interactive entertainment and digital
film and video production. The Onyx and POWER Onyx graphics supercomputers
range from single processor to 24-processor versions and are priced from
approximately $89,000 to $700,000.
CHALLENGE The Challenge family of network resource servers includes a
range of capabilities, from single processor deskside systems used by small to
mid-size workgroups up to 36-processor systems capable of supporting enterprise-
wide distributed computing environments. Challenge servers efficiently store,
manage and move large amounts of audio, video and graphics data as well as
traditional databases and textual data for a wide range of commercial and other
applications. Key uses include data mining (to analyze and organize database
information), product data management for manufacturing, and commercial
transaction processing. Challenge servers also are used as media servers, World
Wide Web site servers and file servers. The Challenge server family ranges from
the single processor desktop and web force servers (priced from $10,000) to the
mid-range deskside servers (at prices ranging from $35,000 to $238,000) to the
high end servers configurable with from two to thirty-six microprocessors (at
prices ranging from $129,000 to $1,000,000).
POWER CHALLENGE The POWER Challenge-TM- family of supercomputing servers
combines low-cost, high-performance CMOS RISC technology, advanced parallel
system architecture and a simple shared-memory programming model. As a result
the POWER Challenge family offers significant price-performance advantages
compared to traditional approaches to supercomputing. Key applications in the
technical and scientific markets include finite element analysis (to determine
the impact of elements like stress and temperature), quantum chemistry
calculation, seismic analysis and computational fluid dynamics. POWER
Challenge systems range from single processor to 24-processor versions and are
priced from approximately $40,000 to $1,000,000.
MIPS RISC MICROPROCESSORS
All of the Company's system products incorporate the MIPS RISC
microprocessor architecture. The designs of the Company's MIPS RISC
microprocessors incorporate a general purpose architecture and instruction set
designed for high performance over a wide range of computer applications. The
MIPS RISC microprocessor designs make efficient use of instruction "pipelining"
techniques and proprietary compilers, allowing significant performance gains to
be realized by optimizing the tradeoff between compiler and microprocessor
functions. The versatility of the MIPS RISC architecture makes it suitable for
computer applications from entry-level desktop systems up to supercomputers.
Computer systems companies that have adopted the MIPS architecture include
Siemens Nixdorf, Sony, Tandem Computers, NEC Technologies, NeTpower and
Tektronix.
MIPS RISC microprocessors are also used in a wide variety of noncomputer
applications, including disk drives, printers and copiers and, increasingly,
consumer electronics products. Silicon Graphics computers represent less than
10% of the worldwide consumption of MIPS RISC microprocessors.
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The following table outlines the product generations of MIPS RISC
microprocessors. Each family includes a number of separate processors that are
optimized for different applications based on requirements for speed, power
consumption, price and other factors.
FAMILY YEAR INTRODUCED REPRESENTATIVE APPLICATIONS
R3000-Registered Trademark- 1988 Printers, copiers, home video
game players, X-terminals,
networking equipment.
R4000-Registered Trademark- 1992 Computer systems, set-top
boxes for interactive
entertainment, network
servers.
R8000-Registered Trademark- 1994 Workstations and
supercomputers for the
technical and scientific
markets and other graphics-
intensive applications.
R10000-Registered Trademark- 1995 Supercomputers and high-
performance servers for
commercial applications
including database management
and transaction processing.
In May 1995, MTI and Silicon Graphics announced the MIPS Magic Carpet-TM-,
a new media architecture for interactive digital consumer products. The MIPS
Magic Carpet combines a digital media ASIC distilled from Silicon Graphics
technology with a MIPS RISC central processing unit to enable high-performance
local processing directly in consumer electronics products, such as set-top
boxes for interactive television applications. The ability to render graphical
images directly on the set-top at affordable prices will permit the development
of richer applications incorporating more interactive and realistic features
like the virtual reality "fly-through" of a house or travel destination.
The Company does not manufacture or sell MIPS RISC microprocessors and
related devices. It licenses its designs to "semiconductor partners" who
manufacture and sell the parts. The Company's current licensees partners are:
Integrated Device Technology, Inc.; LSI Logic Corporation; NEC Corporation; NKK
Corporation; Philips Semiconductor; Siemens AG and Toshiba Corporation. Each
semiconductor partner paid an initial license fee at the beginning of the
license period and pays unit royalties based upon sales.
APPLICATIONS SOFTWARE
Because the Company has historically developed only a very limited set of
applications software, its customers must either develop or license from a third
party the software necessary to address their needs. The Company maintains
active programs to encourage independent software development for its systems,
including training, technology support and cooperative marketing. The Company
believes that there currently are over 2,000 registered application software
programs offered for use on its systems.
In July 1994 the Company formed Silicon Studio, Inc., a wholly-owned
subsidiary created to capitalize on the Company's leadership position in the
entertainment market and to accelerate the transition from analog to digital
methods of creative expression. Silicon Studio is developing software-based
tools and standards aimed at simplifying the process of digital content
creation, including the FireWalker-TM- suite of authoring tools and the
Keystone-TM- software initiative. Silicon Studio operates training centers that
increase the number and improve the skills of creative professionals capable of
using Silicon Graphics hardware and key applications. Silicon Studio also works
with third-party developers, content creators and distributors to extend the
Company's already established role in media authoring markets, including film
and video, publishing and the expanding areas of interactive television, next-
generation video games and location-based entertainment.
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In June 1995 the Company acquired two independent software developers,
Alias Research Inc. and Wavefront Technologies, Inc. The purpose of the
acquisitions was, in partnership with Silicon Studio, to accelerate the growth
of the market for computer-generated modeling and animation, particularly for
the entertainment market. The two companies have been combined into a single
independent organization, developing 2D and 3D graphics software for creative
professionals in the entertainment, industrial design and visualization and
graphic design markets. Its industry-leading products include Power Animator-
TM-, Alias Studio-TM-, Explore-TM- and Wavefront Composer-TM-, and range in
price from $5,000 to $75,000. Alias|Wavefront is based in Toronto, Canada with
sales offices across North America, Europe and Asia and worldwide distribution.
NEW VENTURES
The Company has extended its reach into the developing markets for
interactive computing through new ventures, including alliances with companies
like Time Warner Cable, Nintendo, DreamWorks and AT&T. None of these
ventures accounted for significant product revenues in fiscal 1995, and each is
subject to a number of risks and uncertainties. See "Factors That May Affect
Future Results" below.
INTERACTIVE ENTERTAINMENT NETWORKS The Company and AT&T Corp. are equal
partners in Interactive Digital Solutions, a venture created in 1994 to develop
and deliver complete interactive video solutions, based on the Company's video
and graphics technology and AT&T's networking and integration expertise, to
telephone company networks and cable TV systems, and eventually to large private
networks. Time Warner Cable also has agreed to become a 10% owner of
Interactive Digital Solutions.
The Company has developed the core software technologies, including
operating system software and key applications such as video-on-demand software,
for Time Warner Cable's interactive digital cable television trial in Orlando,
Florida. The trial began late in 1994 and is planned to be deployed to 4,000
homes in the Orlando area. The technology will provide consumers with access to
such services as video-on-demand, educational resources, interactive video games
and home shopping. The "media servers" (computers from which movies and other
content may be retrieved) for the trial will be provided by the Company, and the
home communications devices will incorporate MIPS microprocessors. This
project, which is the most ambitious interactive television trial announced to
date, has helped to position the Company as a technology leader in this emerging
market.
The Company also is collaborating with Nippon Telegraph and Telephone
Corporation (NTT) on NTT's interactive television trial in Urayasu City, Japan.
The trial will use the Company's media servers as well as home communications
devices incorporating MIPS microprocessors. The arrangement gives the Company
the opportunity to play a key role in helping to establish the architecture for
the information superhighway in Japan.
NINTENDO ULTRA 64 The Company is developing for Nintendo Co., Ltd. the
core technological components of Ultra 64-TM-, the next generation 64-bit
Nintendo-Registered Trademark- video entertainment system. These components
include the central processing unit, a media co-processor, operating system
software and multimedia libraries. This arrangement should enable the Company
to extend its core technologies to a high volume consumer electronics market, to
benefit from Nintendo's strengths in low-cost, high-volume manufacturing and
mass consumer distribution and marketing, and to create additional high volume
markets for MIPS RISC microprocessors. Nintendo has funded the development of
the Ultra 64 system and will pay royalties to the Company. The Company has
completed the principal development work and Nintendo has announced that it
plans to market the Ultra 64 beginning in April 1996.
DREAMWORKS DIGITAL STUDIO The Company and DreamWorks SKG are collaborating
to develop the DreamWorks Digital Studio, a digital creative, production and
asset management system to include the creation of a state-of the art computer
animation production system. Development teams led by
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Silicon Studio and the DreamWorks technology group will build a system for
creating and managing creative content. The studio will incorporate Silicon
Graphics' workstations, servers and graphics supercomputers and is intended to
be used initially for DreamWorks' first full-length animation production and
later in aspects of feature films, television interactive products and music.
MARKETING, SALES AND DISTRIBUTION
The Company sells its products through its own direct sales force and
through several indirect channels. In fiscal 1995 direct sales accounted for
approximately 55% of the Company's product revenues, with indirect channels
supplying the balance. The direct sales and support organization operates in
over 69 locations throughout the United States and includes over 1,100 persons
involved in sales, support and ancillary activities. The Company also has over
25 direct sales subsidiaries located in major countries outside of the United
States. The Company generally offers its products through distributors in
countries in which it does not have a direct sales organization.
The principal indirect channels through which the Company operates are the
following:
- VARS, or value added resellers, are software companies that
develop or customize their proprietary software specifically for use
with the special graphics hardware of the Company's workstations.
VARs purchase workstations from the Company or its North American
distributor, incorporate their applications software and resell the
systems to end-users.
- VADS, or value added dealers, are typically direct sales
organizations that sell primarily into a single vertical market and
incorporate appropriate specialized third-party software with the
Company's hardware for sale to their customers.
- OEM ("original equipment manufacturer") customers generally are
computer systems vendors that customize applications software for use
on the Company's workstations and sell turnkey systems under the OEM's
product name. OEMs also provide independent marketing, service and
support programs to their customers. The Company's principal OEMs
include Tandem Computers Incorporated and Siemens Nixdorf AG.
- SYSTEMS INTEGRATORS include Silicon Graphics systems in much
larger systems customized for use by the federal government and large
commercial clients.
In July 1995 the Company announced an agreement with Access Graphics, Inc.
to implement a two-tiered distribution model in North America. Under this
arrangement Access will purchase products from the Company and resell them to
most of the VARs and VADs.
Information with respect to international operations and export sales may
be found on page 62 of the 1995 Annual Report to Stockholders, which is
incorporated herein by reference. See also "Factors That May Affect Future
Results" below. Although no customer accounted for 10% or more of the Company's
total revenues for fiscal 1995, 1994 or 1993, a significant reduction or delay
in sales to major customers could adversely affect the Company's operating
results.
CUSTOMER SERVICE AND SUPPORT
The Company believes that the quality and reliability of its system
products and the ongoing support of such products are important elements of its
competitive strategy. The Company's customer service organization includes
field service engineers, field product and applications specialists, product
support engineers, training specialists and administrative support personnel.
In addition, the Company provides customer education through regularly scheduled
courses in system software administration, applications programming and hardware
maintenance. The Company provides local customer support
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from its regional sales and service offices located in North America, Western
Europe and the Pacific Rim, with spare parts inventory stored at each location.
International distributors provide training and support for products sold by
them.
The Company typically provides a standard "return to factory" hardware
warranty against defects in materials and workmanship. The warranty period for
the Company's products generally is 90 days from the date of shipment, although
the Indy system has a one year warranty, and some international sales of other
products are made with warranties of up to one year.
RESEARCH AND DEVELOPMENT
The Company's research and development program is directed principally
toward maintaining and enhancing the Company's competitive position through
incorporating the latest advances in microprocessor, hardware, software and
networking technologies. This effort is focused specifically on developing and
enhancing its MIPS RISC microprocessors, graphics subsystems, VLSI technology,
compiler software, operating system, applications software and development
tools. Simultaneously, the Company seeks to develop new ways in which to
increase product reliability, reduce manufacturing costs and improve product
development lead times.
During fiscal 1995, 1994 and 1993, the Company spent approximately $248
million, $191 million, and $144 million, respectively, on research and
development. Those amounts represented 11.1%, 12.4% and 12.7% , respectively,
of revenues.
MANUFACTURING
The Company's manufacturing operations primarily involve assembling high
level subassemblies and systems and testing major purchased subassemblies. All
products are subjected to substantial environmental stress and electronic
testing prior to shipment to customers. The Company primarily manufactures and
ships its products from its main facility in Mountain View, California. The
Company also has a European manufacturing and support center near Neuchatel,
Switzerland and a manufacturing facility in Kawasaki, Japan.
The Company continually evaluates the allocation of manufacturing
activities among the Company's own operations and those of suppliers and
subcontractors. Such allocation may be affected by fluctuations in the volume
of business, geopolitical, economic and technological developments and other
factors.
The Company attempts to utilize standard parts and components available
from multiple vendors rather than to integrate its manufacturing operations
vertically. The Company believes that there are a number of competent vendors
for most of the parts and components used in its system products. In certain
circumstances, despite the availability of multiple sources, the Company may
select a single source in order to maintain quality or price control or to
develop a more strategic relationship with the supplier.
Reliance on single source vendors involves several risks, including the
possibility of a shortage of certain key components that meet the Company's
product specifications and reduced control over delivery schedules,
manufacturing yields, quality and costs. Components for which the Company
currently does not have multiple sources include certain application-specific
integrated circuits ("ASICs"). These are currently obtained from LSI Logic,
VLSI Technology and Toshiba. The Company also has single sources for certain
peripherals, communications controllers and power supplies, and the monitors and
plastic cabinets used across the Company's system products. The Company
believes that, in most of these cases, alternative sources of supply could be
developed over a period of time. However, a reduction or interruption in supply
or a significant increase in the price of one or more single or limited source
components would, at least in the short term, adversely affect the Company's
operating results.
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Certain components used in the Company's products, including the R4000,
R4400-TM-, R4600 and R8000 microprocessors, floating point coprocessors, and
certain memory circuits, are available only from limited sources. In
particular, the Company is dependent on a limited number of semiconductor
manufacturers with state of the art fabrication facilities. Additionally, the
Company purchases certain parts from foreign suppliers, principally Japanese.
The prices of parts have been and may be affected significantly by such factors
as protectionist measures and changes in currency exchange rates between the
United States and other countries. In addition, changes in the availability of
certain memory chips (DRAMs, SRAMs and VRAMs) have caused, and in the future may
cause, significant changes in their prices.
COMPETITION
The computer industry is highly competitive and is characterized by rapid
technological advances in both hardware and software development. These
advances result in frequent new product introductions, short product life cycles
and increased new product capabilities, typically representing significant
price/performance improvements. The principal competitive factors in the
Company's market are product features, price/performance, networking
capabilities, product quality and reliability, ease of use, capabilities of the
system software, availability of applications software, customer support,
product availability, corporate reputation and price. The strong competition
faced throughout the Company's product line can result in significant
discounting from list price.
The Company's principal competition is from other workstation and computer
system manufacturers and, to a lesser extent, from graphics subsystem and
terminal vendors and graphics integrated circuit manufacturers. The principal
workstation and computer manufacturers that compete in the Company's markets are
Digital Equipment, Hewlett Packard, IBM and Sun Microsystems. In the
supercomputer market, the Company faces competition from these companies as well
as Cray Research, Inc. In the applications software market and certain other
emerging markets the Company's principal competitor is Microsoft.
The Company's MIPS RISC microprocessor architecture and technology compete
directly with microprocessor products offered by manufacturers of other
microprocessor designs, in particular those offered by IBM, Digital, HP, Intel,
Motorola and Sun. Although the Company believes its RISC architecture offers
advantages over these other designs, some of these architectures have a larger
installed base and wider availability of application software, which may
adversely affect the adoption of the Company's RISC architecture.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Silicon Graphics operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
PERIOD TO PERIOD FLUCTUATIONS The Company's operating results may
fluctuate for a number of reasons. The Company has short delivery cycles and as
a result does not have a large order backlog, which makes the forecasting of
revenue inherently uncertain. This uncertainty is compounded because each
quarter's revenue results predominantly from orders booked and shipped during
the third month, and disproportionately in the latter half of that month.
Because the Company plans its operating expenses, many of which are relatively
fixed in the short term, on the basis that its revenues will continue to grow,
even a relatively small revenue shortfall may cause a period's results to be
substantially below expectations. Such a revenue shortfall could arise from any
number of factors, including lower than expected demand, supply constraints,
delays in the availability of new products, transit interruptions, overall
economic conditions or natural disasters. Margins are heavily influenced by mix
considerations,
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including geographical mix, the mix of service and non-recurring engineering
revenues, the mix of high-end and desktop products and application software and
the mix of configurations within these product categories.
The Company's results have followed a seasonal pattern, with stronger
sequential growth in the second and fourth fiscal quarters, reflecting the
buying patterns of the Company's customers.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the Company's stock price. The stock price may also be affected by
broader market trends unrelated to the Company's performance.
RAPID GROWTH The Company's annual revenue growth rate, which was 36% in
fiscal 1994, accelerated to 45% in fiscal 1995. In light of this acceleration
and management's views of the potential for future growth, the Company has
adopted an aggressive growth plan that includes substantial investments in its
sales and marketing organizations, the creation of new research and development
programs and increased funding of existing programs, and investments in
corporate infrastructure that will be required to support significant growth.
This plan, which was implemented during the latter half of fiscal 1995 and is
planned to continue in fiscal 1996, carries with it a number of risks, including
a higher level of operating expenses, the difficulty of attracting and
assimilating a large number of new employees, and the complexities associated
with managing a larger and faster growing organization.
PRODUCT DEVELOPMENT AND INTRODUCTION The Company has achieved revenue
growth and profitability that are well above average within the computer
industry because it has been able to develop and rapidly bring to volume
production highly differentiated, technologically complex and innovative
products. The Company's future results depend on its ability to sustain this
competitive advantage. The Company is planning significant new product
introductions in fiscal 1996, including products that will replace products in
the Company's current product offering. A number of risks are inherent in this
process.
The development of new technology and products is increasingly complex and
uncertain, which increases the risk of delays. The introduction of a new
computer system requires close collaboration and continued technological
advancement involving multiple hardware and software design and manufacturing
teams within the Company as well as teams at outside suppliers of key components
such as semiconductor and storage products. The failure of any one of these
elements could cause the Company's new products to fail to meet specifications
or to miss the aggressive timetables that the Company establishes. As the
variety and complexity of the Company's product families increase, the process
of planning production and inventory levels also becomes more difficult.
Short product life cycles place a premium on the Company's ability to
manage the transition from current products to new products. In order to
minimize product transition issues, the Company generally announces new products
in the early part of a quarter, while the product is in the final stages of
development, and seeks to manufacture and ship the product in volume in the same
quarter. The Company's results could be adversely affected by such factors as
development or manufacturing delays, variations in product costs, and delays in
customer purchases of existing products in anticipation of the introduction of
new products.
INTERNATIONAL OPERATIONS Because approximately half of the Company's
revenue is from sales outside the United States, and many key components are
produced outside the United States, the Company's results could be negatively
affected by such factors as changes in foreign currency exchange rates
(international sales are generally denominated in foreign currencies, while the
Company's accounts are in U.S. dollars), trade protection measures, longer
accounts receivable collection patterns, changes in regional or worldwide
economic or political conditions, or natural disasters. For example, a marked
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short-term appreciation in the value of the U.S. dollar relative to the Japanese
yen or German mark could adversely affect the Company's results. The Company's
sales to foreign customers also are subject to export regulations, with sales of
some of the Company's high-end products requiring clearance and export licenses
from the U.S. Department of Commerce. The Company's export sales would be
adversely affected if such regulations were tightened, or if they are not
modified over time to reflect the increasing performance of the Company's
products.
Sales in foreign countries are generally priced in local currencies and are
thus subject to the effects of currency exchange fluctuations. The Company
attempts to reduce the impact (positive or negative) of currency fluctuations on
net income primarily through the use of forward exchange contracts and foreign
currency options that hedge foreign currency denominated receivables between the
parent and its international subsidiaries. The Company has generally not hedged
capital expenditures, investments in subsidiaries, inventory purchases or the
anticipated sales of its international subsidiaries, although it periodically
evaluates its hedging practices. In conjunction with the Company's merger with
Alias, the Company inherited Canadian dollar put option contracts and Canadian
dollar call option contracts. These options were part of a put-call strategy
used to hedge a fixed monthly amount of Canadian dollar denominated expenses.
The positions have since been closed.
DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE All of the Company's
system products incorporate microprocessors based upon the Company's MIPS RISC
microprocessor architecture. The Company licenses the manufacturing and
distribution rights to these microprocessors to selected semiconductor
manufacturing companies, which in turn have assisted in funding the development
of new MIPS RISC microprocessors. Changes in the timing, level or availability
of such funding could adversely affect the continued development of the MIPS
RISC architecture or increase the portion of the development budget that is
borne by the Company. The Company believes that the continued development and
broad acceptance of the MIPS architecture are critical to its future success.
NEW VENTURES The Company has entered into several ventures with other
companies to address new and emerging markets, including ventures with Time
Warner Cable, Nintendo, DreamWorks and AT&T. While the Company believes that
these new ventures are strategically important, there are substantial
uncertainties associated with the development of new products and technologies
for evolving markets. The success of these ventures will be determined not only
by the Company's efforts, but also by those of its partners. Initial timetables
for the development and introduction of new technologies, products or services
may not be achieved, and price/performance targets may not prove feasible.
External factors, such as the development of competitive alternatives or
government regulation, may cause new markets to evolve in an unanticipated
direction.
MANAGEMENT INFORMATION SYSTEMS The Company is planning to replace its
current information management system with a comprehensive system that will be
used to manage the entire revenue cycle, including manufacturing, order
administration, billing and collection, and financial planning and reporting.
The Company expects that this system will allow it to realize significant
operational efficiencies and facilitate future growth, and it is devoting
significant resources to system design and testing. The Company's operations
could be disrupted, however, if the transition to the new system is not effected
smoothly or if the system does not perform as expected. Initial implementation
is currently scheduled for the second half of fiscal 1996.
INTELLECTUAL PROPERTY The Company routinely receives communications from
third parties asserting patent or other rights covering the Company's products
and technologies. Based upon the Company's evaluation, it may take no action or
it may seek to obtain a license. In any given case there is a risk that a
license will not be available on terms that the Company considers reasonable, or
that litigation will ensue. The Company expects that, as the number of hardware
and software patents issued
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continues to increase, and as the Company's business grows, the volume of these
third party communications will also increase.
COMPETITION The computer industry is highly competitive, with rapid
technological advances and constantly improving price/performance. As the
segments in which the Company operates continue to grow faster than the industry
as a whole, the Company is experiencing an increase in competition, and it
expects this trend to continue. This competition may in the future come not
only from the Company's traditional UNIX workstation rivals, but also from new
sources including the personal computer industry. Many of the Company's
competitors have substantially greater technical, marketing and financial
resources and, in some segments, a larger installed base of customers and a
wider range of available applications software. Competition can result in
significant discounting and lower gross margins.
BUSINESS DISRUPTION The Company's corporate headquarters, including its
research and development operations and most of its manufacturing facilities,
are located in the Silicon Valley area of Northern California, a region known
for seismic activity. Operating results could be materially affected by a
significant earthquake. The Company is predominantly self-insured for losses
and business interruptions of this kind.
PROPRIETARY RIGHTS AND LICENSES
The Company has been granted or has applications pending for a significant
number of U.S. patents, and will continue to seek patent coverage for its
inventions in both the United States and foreign countries. The Company also
has applied for and holds various trademark registrations in the United States
and in selected foreign countries. The Company will continue to seek protection
for its inventions, trademarks, maskworks and copyrights where appropriate.
As is customary in its industry, the Company licenses from third parties a
wide range of software for its internal use and for the use of its customers.
The Company licenses the UNIX operating system on a non-exclusive basis from
Novell, Inc., and sublicenses it to its customers.
The Company's ability to compete may be affected by its ability to protect
proprietary information and to obtain necessary licenses on commercially
reasonable terms. The extent to which U.S. and international intellectual
property laws protect the Company's products, and the enforceability of end-user
license agreements, have not been fully determined, and the computer industry
has seen a substantial increase in litigation with respect to intellectual
property matters. Such litigation or changes in the interpretation of
intellectual property laws could expand or reduce the extent to which the
Company or its competitors are able to protect their intellectual property or
require changes in the design of products which could have an adverse impact on
the Company. There can be no assurance that the Company will not be made a
party to litigation regarding intellectual property matters in the future. See
"Legal Proceedings."
EMPLOYEES
As of June 30, 1995, the Company had approximately 6,300 full-time
employees, of which approximately 4,500 were employed in North America. The
Company's future success will depend, in part, on its ability to continue to
attract, retain and motivate highly qualified technical, marketing and
management personnel, who are in great demand. The Company has never had a work
stoppage, and no employees are represented by a labor union. The Company
believes that its employee relations are good.
CORPORATE DATA
The Company was originally incorporated as a California corporation in
November 1981, and reincorporated as a Delaware corporation in January 1990.
The Company acquired MIPS Computer
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Systems, Inc. through a merger in June 1992 and acquired Alias Research Inc. and
Wavefront Technologies, Inc. through mergers in June 1995.
ITEM 2. PROPERTIES
The Company believes that, while it currently has or is developing
sufficient facilities to conduct its operations during fiscal 1996, it will
continue to acquire both leased and owned facilities throughout the world as its
business requires. The Company's corporate offices and its primary research and
development and manufacturing operations are located in Mountain View,
California. The Company leases eleven adjacent buildings comprising a total of
approximately 726,500 square feet under leases terminating during 2000 and 2001.
The Company owns 7.5 acres near its Mountain View headquarters, on which a
112,000 square foot headquarters building for its sales organization was
completed in fiscal 1995. The Company also leases nineteen other buildings near
its Mountain View headquarters, comprising approximately 822,400 square feet.
The Company also has leased 22 acres of land near its other facilities in
Mountain View on which a four-building, 500,000 square foot general office
complex is being constructed to be leased to the Company for occupancy in fiscal
1997.
The Company's European manufacturing and support center near Neuchatel,
Switzerland is located in a facility owned by the Company, consisting of
approximately 77,800 square feet. The Company's leased manufacturing facility
in Kawasaki, Japan consists of 9,500 square feet.
The Company also leases sales, service and administrative offices
worldwide.
ITEM 3. LEGAL PROCEEDINGS
The Company is defending securities class action lawsuits involving MIPS
Computer Systems, Inc., which the Company acquired in June 1992, and Alias
Research Inc., which the Company acquired in June 1995. The Company believes
that it has good defenses to the claims in both the MIPS and Alias suits, and it
is defending both suits vigorously.
The MIPS case, which was filed in the U.S. District Court for the Northern
District of California in 1992, alleges that MIPS and certain of its officers
and directors made material misrepresentations and omissions during the period
from January to October of 1991. In June 1994 summary judgment was granted in
the defendants' favor on all counts. Plaintiffs have given notice of an appeal
to the U.S. Court of Appeals for the Ninth Circuit.
The Alias case, which was filed in the U.S. District Court for the District
of Connecticut in 1991, alleges that Alias and certain of its officers and
directors made material misrepresentations and omissions during the period from
May 1991 to April 1992. Alias' motion to dismiss the amended complaint is
pending.
On September 21, 1995, Martin Marietta Corp. filed a lawsuit against the
Company in the United States District Court for the Middle District of Florida
(Orlando Division). The complaint alleges that certain of the Company's
products infringe a patent owned by the plaintiff and seeks injunctive relief
and damages. The Company believes it has good defenses to the claims alleged in
this lawsuit and intends to vigorously defend itself against this action.
The Company routinely receives communications from third parties asserting
patent or other rights covering the Company's products and technologies. Based
upon the Company's evaluation, it may take no action or it may seek to obtain a
license. There can be no assurance in any given case that a license will be
available on terms the Company considers reasonable, or that litigation will not
ensue. However, management is not aware of any pending disputes that would be
likely to have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of September 5,
1995, are as follows:
Executive
Officer
NAME Age Position and Principal Occupation Since
- ----- --- --------------------------------- -----
Edward R. McCracken 51 Chairman, Chief Executive 1984
Officer and Director
Thomas A. Jermoluk 39 President, Chief Operating 1988
Officer and Director
Robert R. Bishop 52 Chairman, Silicon Graphics 1991
World Trade Corporation and Director,
Silicon Graphics, Inc.
Gary L. Lauer 42 Executive Vice President, Worldwide Field 1988
Operations, Silicon Graphics, Inc. and
President, Silicon Graphics World Trade
Corporation
Javaid Aziz 43 Senior Vice President, Europe 1995
Forest Baskett 52 Senior Vice President, Research and 1986
Development and Chief Technology Officer
Robert K. Burgess 38 President, Alias|Wavefront and Senior 1995
Vice President, Silicon Graphics, Inc.
Kenneth L. Coleman 52 Senior Vice President, Administration 1987
Stephen Goggiano 42 Senior Vice President, Manufacturing 1989
and Customer Service
Stanley J. Meresman 48 Senior Vice President, Finance and 1989
Chief Financial Officer
Michael Ramsay 45 President, Silicon Studio, Inc. and 1987
Senior Vice President, Silicon
Graphics, Inc.
Teruyasu Sekimoto 56 Senior Vice President, East Asia 1995
Wei Yen 40 Senior Vice President, Products and 1990
Technology Group
William M. Kelly 42 Vice President, Business Development, 1994
General Counsel and Secretary
Dennis P. McBride 43 Vice President, Controller 1988
Thomas J. Oswold 43 Vice President, Finance and Treasurer 1988
Executive officers of the Company are elected annually by the Board of
Directors and serve at the Board's discretion. Except as set forth below, all
of the officers have been associated with the Company in their present positions
for more than five years. There are no family relationships among any
directors, nominee for director or executive officers of the Company.
Mr. McCracken became Chairman of the Company in 1994.
In 1988, Mr. Jermoluk became Vice President/General Manager, Advanced
Systems Division and, in 1991, he became Executive Vice President. He was named
Chief Operating Officer in 1992 and President in 1994.
Mr. Bishop, who has been an officer of the Company since 1991 and President
of Silicon Graphics World Trade Corporation since 1986, was named Chairman of
the Board of Silicon Graphics World Trade Corporation in July of 1995.
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Mr. Lauer joined the Company in 1988 as Vice President, North American
Marketing, became Vice President, North American Field Operations in 1989, was
named Senior Vice President, North American Field Operations in 1991 and became
Executive Vice President, Silicon Graphics, Inc. and President of Silicon
Graphics World Trade Corporation in 1995.
Mr. Aziz joined the Company in 1995 as Senior Vice President, Europe.
Prior to joining the Company, Mr. Aziz spent 20 years at IBM Corporation in
technical, marketing and management positions, most recently as chief executive
officer of the United Kingdom operations.
Mr. Burgess joined the Company in 1995 as Senior Vice President and
President of the Company's Alias|Wavefront subsidiary. Prior to joining the
Company, Mr. Burgess served as Alias Research Inc.'s President and Chief
Operating Officer since November 1991 and its Chief Executive Officer as well as
a Director since February 1992. Prior to his employment with Alias in 1991, Mr.
Burgess held senior positions with the Company, including Vice President,
Applications and Vice President, Marketing, Applications and Business
Development.
Mr. Goggiano joined the Company in 1989 as Director of Operations, Advanced
Systems Division. In 1990, Mr. Goggiano was named Vice President/General
Manager, Operations and, in 1993, he was named Senior Vice President. Prior to
joining the Company, Mr. Goggiano was Vice President, Manufacturing for Altos
Computer Systems.
Mr. Ramsay was named Vice President/General Manager, Entry Systems Division
in 1988, and became Senior Vice President/General Manager, Entry Systems
Division in 1991. In 1992, Mr. Ramsay was named Senior Vice President, Visual
Systems Group, and in 1994, became President of Silicon Studio, Inc.
Dr. Yen joined the Company in 1988 as Director of Engineering, Advanced
Systems Division. In 1990, Dr. Yen was named Vice President, Engineering,
Advanced Systems Division, and in 1992 he was named Senior Vice President.
Mr. Kelly joined the Company in 1994 as Vice President, Business
Development, General Counsel and Secretary. Prior to joining the Company, Mr.
Kelly had practiced law since 1978 with the firm of Shearman & Sterling, most
recently as co-managing partner of that firm's San Francisco office.
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PART II
With the exception of the information specifically incorporated by
reference from the Company's 1995 Annual Report to Stockholders (the "1995
Annual Report") in Parts I, II and IV of this Form 10-K, the 1995 Annual Report
is not to be deemed filed as part of this Report.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the
section entitled "Price Range of Common Stock" on page 64 of the Company's 1995
Annual Report, excluding the table captioned "Silicon Graphics, Inc. Common
Stock Prices."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
section entitled "Selected Consolidated Financial Data" on page 44 of the
Company's 1995 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis" on pages 37 through 43
of the Company's 1995 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
consolidated financial statements and notes thereto and to the section entitled
"Quarterly Data" on pages 45 through 63 of the Company's 1995 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
Certain information required by Part III is omitted from this Report in
that the Company has filed its definitive proxy statement pursuant to Regulation
14A (the "1995 Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to pages 3 and 4 of the 1995 Proxy Statement under the
heading "Proposal No. 1 -- Election of Directors-Directors and Nominees for
Director."
The information concerning executive officers and family relationships
required by this Item is incorporated by reference to the section in Part I
hereof entitled "Executive Officers of the Registrant."
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, required by this Item is incorporated by
reference to page 8 of the 1995 Proxy Statement under the heading "Executive
Officer Compensation - Compliance with Section 16(a) of the Exchange Act."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to pages
4 and 5 under the headings "Proposal No. 1 - Election of Directors-Compensation
Committee Interlocks and Insider Participation" and "-Director Compensation",
pages 6 and 7 under the headings "Executive Officer Compensation-Summary
Compensation Table", " - Option Grants in Fiscal 1995" and " - Option Exercises
in Fiscal Year 1995 and Fiscal Year-End Option Values", pages 9 through 11
under the heading "Report of the Compensation and Human Resources Committee of
the Board of Directors", and page 12 under the heading "Company Stock Price
Performance Graph" of the 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to pages
1 and 2 of the 1995 Proxy Statement under the headings "Information Concerning
Solicitation and Voting - Record Date and Principal Share Ownership" and
"-Voting and Solicitation" and page 5 of the 1995 Proxy Statement under the
heading "Other Information - Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to pages
8 and 9 of the 1995 Proxy Statement under the heading "Certain Transactions."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements and supplementary information of Silicon Graphics, Inc. and Report of
Independent Auditors are incorporated by reference to pages 45 through 63 and
page 66 of the Registrant's 1995 Annual Report:
Consolidated Statements of Operations - Years Ended June 30,
1995, 1994 and 1993
Consolidated Balance Sheets - June 30, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended June 30,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity - Three Years
Ended June 30, 1995
Notes to Consolidated Financial Statements
Report of Independent Auditors
Supplementary Information
Quarterly Data (Unaudited)
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of Silicon Graphics, Inc. is filed as part of this Report and should
be read in conjunction with the Consolidated Financial Statements of Silicon
Graphics, Inc.
Schedule Description Page
- -------- ----------- ----
II Valuation and Qualifying Accounts S-1
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
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3. EXHIBITS. The following Exhibits are filed as part of, or
incorporated by reference into, this Report:
2.1(14) Agreement and Plan of Merger and Reorganization,
dated as of February 6, 1995, among Silicon Graphics,
Inc., S Acquisition Corporation and Wavefront
Technologies, Inc.
2.2(14) Agreement and Plan of Acquisition and Arrangement
dated as of February 6, 1995 by and among Silicon
Graphics, Inc., 1103707 Ontario Inc., Silicon
Graphics Manufacturing S.A. and Alias Research Inc.
3.1.1(12) Restated Certificate of Incorporation of the Company.
3.1.2 Certificate of Designation of the Series E Preferred
Stock filed June 13, 1995.
3.2(12) Bylaws of the Company, as amended.
4.1(5) Silicon Graphics, Inc. $25,000,000 8.98% Senior Notes
Due February 1, 1996, Note Agreement and Note, dated
February 1, 1991.
4.2(7) Amended and Restated Preferred Shares Rights
Agreement, dated as of May 6, 1992 between the
Company and The First National Bank of Boston,
including the Certificate of Designation of Rights,
Preferences and Privileges of Series B Participating
Preferred Stock, the form of Rights Certificate and
the Summary of Rights attached thereto as Exhibits A,
B, and C respectively.
4.3(12) Indenture dated November 1, 1993 between the Company
and The First National Bank of Boston, as Trustee.
4.4(15) First Amendment to Rights Agreement dated as of May
2, 1995 between the Company and The First National
Bank of Boston.
9.1 Voting and Exchange Trust Agreement between the
Company and Montreal Trust Company of Canada dated
June 15, 1995.
10.1(6)* 1984 Incentive Stock Option Plan, as amended, and
amended form of Incentive Stock Option Agreement.
10.2(8)* 1986 Incentive Stock Option Plan, as amended, and
amended forms of Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement.
10.3(1) Software Agreement dated as of January 4, 1986, as
supplemented June 6, 1986, and Sublicensing Agreement
dated as of June 9, 1986 between the Company and AT&T
Information Systems Inc.
10.4(4)* 1987 Stock Option Plan and form of Stock Option
Agreement.
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10.5(2) Software License Agreement dated January 24, 1986,
between the Company and AT&T Information Systems Inc.
10.6(3) Stock Purchase Agreement dated March 2, 1990 among
the Company, NKK Corporation and NKK U.S.A.
Corporation.
10.7(12)* Directors' Stock Option Plan and form of Stock Option
Agreement as amended as of October 31, 1994.
10.8(8) Form of Indemnification Agreement entered into
between the Company and its directors, executive
officers and certain other agents.
10.9(8) Form of Indemnification Agreement entered into
between the Company and its directors, executive
officers and certain other agents. (Revised)
10.10(8)* 1985 Stock Incentive Program.
10.11(8) Exchange Agreement dated August 14, 1992 among the
Company, NKK Corporation and NKK U.S.A. Corporation.
10.12(13) Credit Agreement dated December 31, 1994 between the
Company and Bank of America, National Trust and
Savings Association.
10.13(9) Purchase and Sale Agreement, as amended, between
Richard T. Peery, John Arrillaga and Silicon
Graphics, Inc. executed on April 30, 1993.
10.14(9) Waiver and Release Agreement between Richard T.
Peery, John Arrillaga and Silicon Graphics Real
Estate, Inc. dated May 7, 1993.
10.15(10)* 1993 Long-Term Incentive Stock Plan and form of stock
option agreement.
10.16* Employee Stock Purchase Plan, as amended as of June
12, 1995.
10.17(10)* Form of Employment Continuation Agreement entered
into between the Company and its executive officers,
as amended as of October 21, 1993.
10.18(10)* Consulting Agreement dated as of October 25, 1993
between the Company and Mark W. Perry.
10.19(11)* Non-Qualified Deferred Compensation Plan dated as of
September 9, 1994.
10.20(13)* Employment Agreement dated February 1, 1995 between
the Company and Thomas A. Jermoluk.
10.21(15)* Employment Agreement dated as of February 13, 1995
between the Company and Javaid Aziz.
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10.22* Letter agreement dated as of July 6, 1995 between the
Company and Robert K. Burgess.
10.23* Convertible Debenture dated as of February 3, 1993
issued to Robert K. Burgess.
10.24 Ground Lease between Silicon Graphics Real Estate
Inc. and the City of Mountain View dated March 7,
1995.
10.25 Agreement for Lease between the Company and Virtual
Funding, Limited Partnership dated November 18, 1993.
10.26 Amendment No. 1 to Agreement for Lease between the
Company and Virtual Funding, Limited Partnership
dated March 15, 1995.
10.27 Lease Agreement between the Company and Virtual
Funding, Limited Partnership dated November 18, 1993.
10.28 Amendment No. 1 to Lease Agreement between the
Company and Virtual Funding, Limited Partnership
dated March 15, 1995.
10.29(16)* Alias Research Inc.'s 1988 Employee Share Ownership
Plan Option Agreement.
10.30(16)* Alias Research Inc.'s 1989 Employee Share Ownership
Plan Option Agreement.
10.31(16)* Alias Research Inc.'s 1990 Employee Share Ownership
Plan and standard forms of Option Agreements.
10.32(16)* Alias Research Inc.'s 1994 Stock Plan and standard
forms of Option Agreements.
10.33(17)* Wavefront Technologies, Inc. 1990 Stock Option Plan
with standard form of Option Agreement.
11.1 Statement of Computation of Common Shares and Common
Share Equivalents.
13.1 Excerpts from Annual Report for the year ended June
30, 1995.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors (see page 26).
27.1 Financial Data Schedule.
- ------------------------------
* This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
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(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (No. 33-8892), which became effective October 29,
1986.
(2) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (No. 33-12863), which became effective March 31,
1987.
(3) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K dated March 16, 1990.
(4) Incorporated by reference to exhibits to the Company's Post-Effective
Amendment to Registration Statement on Form S-8 (No. 33-16529), which
became effective June 18, 1990.
(5) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1990.
(6) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991.
(7) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1992.
(8) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1992.
(9) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1993.
(10) Incorporated by reference exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1993.
(11) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1994.
(12) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1994.
(13) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1994.
(14) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K dated February 13, 1995.
(15) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1995.
(16) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 33-60215), which became effective June 14, 1995.
(17) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 33-60213), which became effective June 14, 1995.
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(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed during the quarter ended June 30,
1995.
TRADEMARKS USED IN THIS FORM 10-K
Challenge, Geometry Engine, Indigo, IRIS, OpenGL, Silicon Graphics and the
Silicon Graphics logo are registered trademarks and FireWalker, Impact, Indigo
Magic, Indigo2, Indigo2 High Impact, Indigo2 Impact, IndyCam, IRIS GL, IRIX,
Keystone, Onyx, POWER Challenge, POWER Indigo2, POWER Onyx, Reality Engine2, VTX
and WebFORCE are trademarks of Silicon Graphics, Inc. Extreme is a trademark
used under license by Silicon Graphics, Inc. Indy is a trademark used under
license in the United States, and owned by Silicon Graphics, Inc. in other
countries worldwide. MIPS, R3000 and R4000 are registered trademarks and Magic
Carpet, R4400, R8000 and R10000 are trademarks of MIPS Technologies, Inc. Power
Animator, Alias Studio and Explore are trademarks of Alias|Wavefront, a division
of Silicon Graphics Canada Limited, and Wavefront Composer is a trademark of
Alias|Wavefront, Inc.
Nintendo is a registered trademark and Ultra64 is a trademark of Nintendo.
UNIX is a registered trademark of Novell, Inc. in the United States and other
countries, licensed exclusively through X/Open Company Ltd.
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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.
SILICON GRAPHICS, INC.
By: /s/ Edward R. McCracken
-------------------------
Edward R. McCracken
Chairman and Chief Executive
Officer
Dated: September 27, 1995
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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.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- -------------------------- -------------------------
<S> <C> <C>
/s/ Edward R. McCracken Chairman, Chief Executive September 27, 1995
- ------------------------- Officer and Director
Edward R. McCracken (Principal Executive Officer)
/s/ Thomas A. Jermoluk President, Chief Operating September 27, 1995
- ------------------------- Officer and Director
Thomas A. Jermoluk
/s/ Robert R. Bishop Chairman, Silicon Graphics September 27, 1995
- ------------------------- World Trade Corporation,
Robert R. Bishop and Director
/s/ Stanley J. Meresman Senior Vice President, Finance September 27, 1995
- ------------------------- and Chief Financial Officer
Stanley J. Meresman (Principal Financial Officer)
/s/ Thomas J. Oswold Vice President, Finance and September 27, 1995
- ------------------------- Treasurer
Thomas J. Oswold
/s/ Dennis P. McBride Vice President, Controller September 27, 1995
- ------------------------- (Principal Accounting Officer)
Dennis P. McBride
/s/ Allen F. Jacobson Director September 27, 1995
- -------------------------
Allen F. Jacobson
/s/ C. Richard Kramlich Director September 27, 1995
- -------------------------
C. Richard Kramlich
/s/ James A. McDivitt Director September 27, 1995
- -------------------------
James A. McDivitt
-24-
<PAGE>
Signature Title Date
- ------------------------- -------------------------- -------------------------
/s/ Mark W. Perry Director September 27, 1995
- -------------------------
Mark W. Perry
/s/ Lucille Shapiro Director September 27, 1995
- -------------------------
Lucille Shapiro
/s/ James G. Treybig Director September 27, 1995
- -------------------------
James G. Treybig
</TABLE>
-25-
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Silicon Graphics, Inc. of our report dated July 19, 1995, included in the
1995 Annual Report to Stockholders of Silicon Graphics, Inc.
Our audits also included the consolidated financial statement schedule of
Silicon Graphics, Inc. listed in item 14(a)2. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to incorporation by reference in the Registration Statements
(Form S-8 File Nos. 33-11703, 33-16529, 33-18717, 33-26003, 33-34919, 33-38536,
33-40879, 33-44305, 33-44333, 33-48890, 33-59098, 33-65190, 033-50999, 033-
51275, 33-58017, 33-60213, and 33-60215) pertaining to the Employee Stock
Purchase Plan, 1987 Stock Option Plan, 1986 Incentive Stock Option Plan, 1985
Stock Incentive Program, 1984 Incentive Stock Option Plan, 1982 Stock Option
Plan, Directors' Stock Option Plan and Subsidiary Stock Agreement, and the 1993
Long-Term Incentive Stock Plan of Silicon Graphics, Inc.; the 1990 Stock Option
Plan of Wavefront Technologies, Inc.; and the 1988 Employee Share Ownership
Plan, 1989 Employee Share Ownership Plan, 1990 Employee Share Ownership Plan,
and the 1994 Stock Plan of Alias Research Inc. of our report dated July 19, 1995
with respect to the consolidated financial statements and schedule of Silicon
Graphics, Inc., incorporated by reference and included in this Annual Report
(Form 10-K) for the year ended June 30, 1995.
/s/ Ernst & Young LLP
Palo Alto, California
September 26, 1995
-26-
<PAGE>
Schedule II
SILICON GRAPHICS, INC.
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance at
Beginning of Costs and Write-offs End of
Description Period Expenses Period
<S> <C> <C> <C> <C>
Year ended June
30, 1993
Accounts receivable
allowances $ 10,699 $ 3,873 $ 3,697 $ 10,875
Year ended June
30, 1994
Accounts receivable
allowances $ 10,875 $ 3,226 $ 4,609 $ 9,492
Year ended June 30,
1995
Accounts receivable
allowances $ 9,492 $11,534 $ 7,561 $ 13,465
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ---------------------------------------------------
3.1.2 Certificate of Designation of the Series E Preferred Stock
filed June 13, 1995
9.1 Voting and Exchange Trust Agreement between the Company and
Montreal Trust Company of Canada dated June 15, 1995
10.16 Employee Stock Purchases Plan, as amended as of June 12,
1995
10.22 Letter agreement dated as of July 6, 1995 between the
Company and Robert K. Burgess
10.23 Convertible Debenture dated as of February 3, 1993 to Robert
K. Burgess
10.24 Ground Lease between Silicon Graphics Real Estate Inc. and
the City of Mountain View dated March 7, 1995
10.25 Agreement for Lease between the Company and Virtual Funding,
Limited Partnership dated November 18, 1993
10.26 Amendment No. 1 to Agreement for Lease between the Company
and Virtual Funding, Limited Partnership dated March 15,
1995
10.27 Lease Agreement between the Company and Virtual Funding,
Limited Partnership dated November 18, 1993
10.28 Amendment No. 1 to Lease Agreement between the Company and
Virtual Funding, Limited Partnership dated March 15, 1995
11.1 Statement of Computation of Common Shares and Common Share
Equivalents
13.1 Excerpts from Annual Report for the year ended June 30, 1995
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors (see page 26)
27.1 Financial Data Schedule
<PAGE>
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES E PREFERRED STOCK
($.001 Par Value)
OF
SILICON GRAPHICS, INC.
------------
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
------------
THE UNDERSIGNED, being, respectively, the Vice President, Business
Development, General Counsel and Secretary and the Assistant Secretary of
Silicon Graphics, Inc. a Delaware corporation (the "Company"), DO HEREBY CERTIFY
that, pursuant to the provisions of Section 151(g) of the General Corporation
Law of the State of Delaware the following resolutions were duly adopted by the
Board of Directors of the Company and pursuant to authority conferred upon the
Board of Directors by the provisions of the Restated Certificate of
Incorporation of the Company (the "Certificate of Incorporation"), the Board of
Directors of the Company, by written consent on February 6, 1995, adopted
resolutions providing for the issuance of a series of its preferred stock and
fixing the relative powers, preferences, rights, qualifications, limitations and
restrictions of such stock. These resolutions are as follows:
"RESOLVED, that pursuant to authority expressly granted to and vested
in the Board of Directors of the Company by the provisions of the Certificate of
Incorporation, the issuance of a series of preferred stock, par value $.001 per
share, which shall consist of one of the 2,000,000 shares of preferred stock
which the Company now has authority to issue, be, and the same hereby is,
authorized, and the Board hereby fixes the powers, designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, of the share of such
series (in addition to the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the preferred stock of this series) as
follows:
<PAGE>
2
I. AUTHORIZED NUMBER AND DESIGNATION. One share of the preferred
stock, $.00l par value per share, of the Company is hereby constituted as a
series of the preferred stock designated Series E Preferred Stock, $0.001 par
value (the "Series E Preferred").
II. DIVIDENDS. The holder of Series E Preferred shall not be
entitled to receive any dividends declared and paid by the Company.
III. VOTING RIGHTS. Except as otherwise required by law or the
Certificate of Incorporation, (i) the holder of record of the share of Series E
Preferred shall have a number of votes equal to the number of votes that the
holders of the outstanding Exchangeable Non-Voting Shares ("Exchangeable
Shares") of Alias Research Inc. from time to time, which are not owned by the
Company, any of its subsidiaries or any person directly or indirectly controlled
by or under common control of the Company, would be entitled to if all such
Exchangeable Shares were exchanged by the holders thereof for shares of the
Common Stock of the Company pursuant to the terms of the Exchangeable Shares, in
each case for the election of directors and on all matters submitted to a vote
of the Stockholders of the Company, and (ii) in respect of all matters
concerning the voting of shares, the Series E Preferred and the common stock of
the Company shall vote as a single class.
IV. LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, and subject to any
prior rights of holders of shares of preferred stock ranking senior to the
Series E Preferred, the holder of the share of Series E Preferred shall be paid
an amount equal to $1.00, together with payment to any class of stock ranking
equally with the Series E Preferred, and before payment shall be made to holders
of any stock ranking on liquidation junior to the Series E Preferred (such
amount payable with respect to the Series E Preferred being referred to as the
"Series E Preferred Liquidation Preference Payment").
V. RANKING. The Series E Preferred shall rank junior to the Series
A Preferred Stock of the Company in all respects.
VI. OTHER PROVISIONS. (a) Pursuant to the terms of that certain
Agreement and Plan of Acquisition and Arrangement, dated as of February 6, 1995,
by and among the Company, Silicon Graphics Manufacturing S.A., a Swiss
corporation and subsidiary of the Company ("Swissco"), 1103707 Ontario Inc., an
Ontario corporation and a wholly owned subsidiary of Swissco, and Alias Research
Inc., an Ontario corporation, as amended, one share of Series E Preferred is
being issued to the trustee (the "Trustee") under the Voting and Exchange Trust
Agreement, dated as of June 15, 1995 by and between the Company, Swissco,
Silicon Graphics Canada Limited ("SGCL") and the Trustee.
(b) The holder of the share of Series E Preferred is entitled to
exercise the voting rights attendant thereto in such manner as such holder
desires.
<PAGE>
3
(c) At such time as the Series E Preferred has no votes attached to
it because there are no Exchangeable Shares of Alias outstanding which are not
owned by the Company, any of its subsidiaries or any person directly or
indirectly controlled by or under common control of the Company, and there are
no shares of stock, debt, options or other agreements of SGCL which could give
rise to the issuance of any Exchangeable Shares of SGCL to any person (other
than the Company, any of its subsidiaries or any person directly or indirectly
controlled by or under common control of the Company), the Series E Preferred
shall be cancelled."
IN WITNESS WHEREOF, this Certificate has been signed by William M.
Kelly, and attested to by Sandra M. Escher, of the Company, all as of the 15th
day of June, 1995.
SILICON GRAPHICS, INC.
By:
------------------------------
Name: William M. Kelly
Title: Vice President, Business Development,
General Counsel and Secretary
Attest:
By:
----------------------------
Name: Sandra M. Escher
Title: Assistant Secretary
<PAGE>
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of June, 1995.
BETWEEN:
SILICON GRAPHICS, INC.,
a corporation subsisting under the laws
of the State of Delaware,
(hereinafter referred to as the "Parent"),
OF THE FIRST PART,
-and-
SILICON GRAPHICS CANADA LIMITED,
a corporation subsisting under the laws
of the Province of Ontario,
(hereinafter referred to as the "Corporation"),
OF THE SECOND PART,
-and-
SILICON GRAPHICS MANUFACTURING S.A.
a corporation subsisting under the laws
of Switzerland,
(hereinafter referred to as "Swissco"),
OF THE THIRD PART,
-and-
MONTREAL TRUST COMPANY OF CANADA,
a trust company incorporated under the
laws of Canada,
(hereinafter referred to as the "Trustee"),
OF THE FOURTH PART.
WHEREAS pursuant to an agreement and plan of acquisition and arrangement
dated as of February 6, 1995, by and among the Parent, Alias Research Inc.
("Alias"), Swissco and 1103707 Ontario Inc. (such agreement, as amended, is
hereinafter referred to as the "Combination Agreement"), the parties agreed that
on the Effective Date (as such term is defined in the Combination Agreement),
the Parent, Swissco, the Corporation and a Canadian trust company would execute
and deliver a Voting and Exchange Trust Agreement containing the terms and
conditions set forth in Exhibit D to the Combination Agreement together with
such other terms and conditions as may be agreed to by the parties to the
Combination Agreement acting reasonably;
D-1
<PAGE>
AND WHEREAS pursuant to the arrangement effected by articles of arrangement
dated June 15, 1995 (the "Arrangement") filed pursuant to the BUSINESS
CORPORATIONS ACT (Ontario), Alias, Silicon Graphics Canada, Inc. and 1103707
Ontario Inc. amalgamated to continue as the Corporation;
AND WHEREAS pursuant to the Arrangement and immediately following the
above-mentioned amalgamation each issued and outstanding unit consisting of one
Class E voting preferred share of the Corporation and one Class F voting
preferred share of the Corporation, other than those held by the Parent, Swissco
and affiliates of the Parent, was exchanged by the holder thereof with Swissco
for 0.90 issued and outstanding shares of Common Stock of the Parent (the
"Parent Common Shares") and each issued and outstanding Class B non-voting
common share of the Corporation was converted into 0.90 issued and outstanding
Exchangeable Non-Voting Shares of the Corporation (the "Exchangeable Shares");
AND WHEREAS the above-mentioned articles of arrangement set forth the
rights, privileges, restrictions and conditions (collectively the "Exchangeable
Share Provisions") attaching to the Exchangeable Shares;
AND WHEREAS Swissco is the registered and beneficial owner of all of the
issued and outstanding Class A voting common shares of the Corporation, Class E
voting preferred shares of the Corporation and Class F voting preferred shares
of the Corporation, Swissco is a subsidiary of the Parent, and the Parent is the
registered and beneficial owner of all of the issued and outstanding Class C
voting preferred shares of the Corporation;
AND WHEREAS pursuant to the Arrangement and the terms and conditions of the
Exchangeable Shares the Parent is to provide voting rights in the Parent to each
holder (other than the Parent, its subsidiaries and Affiliates) from time to
time of Exchangeable Shares, such voting rights per Exchangeable Share to be
equivalent to the voting rights per Parent Common Share;
AND WHEREAS pursuant to the Arrangement and the terms and conditions of the
Exchangeable Shares Swissco is to grant to and in favour of the holders (other
than the Parent, its subsidiaries and Affiliates) from time to time of
Exchangeable Shares the right, in the circumstances set forth herein, to require
Swissco to purchase from each such holder all or any part of the Exchangeable
Shares held by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in the Parent shall be exercisable
by holders (other than the Parent, its subsidiaries and Affiliates) from time to
time of Exchangeable Shares by and through the Trustee, which will hold legal
title to one share of Parent Series E Preferred Stock to which voting rights
attach for the benefit of such holders, and whereby the right to require Swissco
to purchase Exchangeable Shares from the holders thereof (other than the Parent,
its subsidiaries and Affiliates) shall be exercisable by such holders from time
to time of Exchangeable Shares by and through the Trustee, which will hold legal
title to such right for the benefit of such holders;
AND WHEREAS these recitals and any statements of fact in this trust
agreement are made by the Parent, Swissco and the Corporation and not by the
Trustee;
Now THEREFORE in consideration of the respective covenants and agreements
provided in this trust agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this trust agreement, the following terms shall have the
following meanings:
"AFFILIATE" of any person means any other person directly or
indirectly controlled by, or under common control of, that person. For
the purposes of this definition, "control" (including, with correlative
D-2
<PAGE>
meanings, the terms "controlled by" and "under common control of"), as
applied to any person, means the possession by another person, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of that first mentioned person, whether through the ownership
of voting securities, by contract or otherwise.
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the obligation of
Swissco to effect the automatic exchange of Parent Common Shares for
Exchangeable Shares pursuant to section 5.12.
"BENEFICIARIES" means the registered holders from time to time of
Exchangeable Shares, other than the Parent, its subsidiaries and
Affiliates.
"BENEFICIARY VOTES" has the meaning ascribed thereto in section 4.2.
"BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
"BUSINESS DAY" means a day other than a Saturday, Sunday or a day
when banks are not open for business in either or both of San Francisco,
California or Toronto, Ontario.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (a) the Foreign Currency Amount by (b)
the noon spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as reported by the Bank of Canada or, in
the event such spot exchange rate is not available, such exchange rate on
such date for such foreign currency expressed in Canadian dollars as may
be deemed by the Board of Directors to be appropriate for such purpose.
"CURRENT MARKET PRICE" means, in respect of a Parent Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
prices of Parent Common Shares on the New York Stock Exchange on each of
the thirty (30) consecutive trading days ending not more than five
trading days before such date, or, if the Parent Common Shares are not
then quoted on the New York Stock Exchange, on such other stock exchange
or automated quotation system on which the Parent Common Shares are
listed or quoted, as the case may be, as may be selected by the Board of
Directors for such purpose; provided, however, that if there is no public
distribution or trading activity of Parent Common Shares during such
period then the Current Market Price of a Parent Common Share shall be
determined by the Board of Directors based upon the advice of such
qualified independent financial advisors as the Board of Directors may
deem to be appropriate, and provided further that any such selection,
opinion or determination by the Board of Directors shall be conclusive
and binding.
"EXCHANGE RIGHT" has the meaning ascribed thereto in Section 5.1.
"INSOLVENCY EVENT" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of the Corporation to the institution of
bankruptcy, insolvency, dissolution or winding up proceedings against it,
or the filing of a petition, answer or consent seeking dissolution or
winding up under any bankruptcy, insolvency or analogous laws, including
without limitation the Companies Creditors' Arrangement Act (Canada) and
the Bankruptcy and Insolvency Act (Canada), and the failure by the
Corporation to contest in good faith any such proceedings commenced in
respect of the Corporation within 15 days of becoming aware thereof, or
the consent by the Corporation to the filing of any such petition or to
the appointment of a receiver, or the making by the Corporation of a
general assignment for the benefit of creditors, or the admission in
writing by the Corporation of its inability to pay its debts generally as
they become due, or the Corporation not being permitted, pursuant to
solvency requirements of applicable law, to redeem any Retracted Shares
pursuant to Section 6.6 of the Exchangeable Share Provisions.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the
Plan of Arrangement.
D-3
<PAGE>
"LIQUIDATION EVENT" has the meaning ascribed thereto in section
5.13(b).
"LIQUIDATION EVENT EFFECTIVE DATE" has the meaning ascribed thereto
in section 5.13(c).
"LIST" has the meaning ascribed thereto in section 4.6.
"OFFICER'S CERTIFICATE" means, with respect to the Parent, Swissco
or the Corporation, as the case may be, a certificate signed by any one
of the Chairman of the Board, the Vice-Chairman of the Board, the
President, any Vice-President or any other senior officer of the Parent,
Swissco or the Corporation, as the case may be.
"PARENT CONSENT" has the meaning ascribed thereto in section 4.2.
"PARENT MEETING" has the meaning ascribed thereto in section 4.2.
"PARENT SUCCESSOR" has the meaning ascribed thereto in section
11.1(a).
"PERSON" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"PLAN OF ARRANGEMENT" means the plan of arrangement of Alias
Research Inc. providing for the Arrangement.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the Plan
of Arrangement.
"RETRACTED SHARES" has the meaning ascribed thereto in section 5.7.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in the
Exchangeable Share Provisions.
"SUPPORT AGREEMENT" means that certain support agreement made as of
even date hereof between the Corporation, Swissco and the Parent.
"TRUST" means the trust created by this agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the
Exchange Right, the Automatic Exchange Rights and any money or other
property which may be held by the Trustee from time to time pursuant to
this trust agreement.
"TRUSTEE" means Montreal Trust Company of Canada and, subject to the
provisions of Article 10, includes any successor trustee.
"VOTING RIGHTS" means the voting rights attached to the Voting
Share.
"VOTING SHARE" means the one share of Parent Series E Preferred
Stock, U.S.$0.001 par value, issued by the Parent to and deposited with
the Trustee, which entitles the holder of record to a number of votes at
meetings of holders of Parent Common Shares equal to that number of votes
that the holders of the Exchangeable Shares outstanding from time to time
other than Exchangeable Shares held by the Parent, its subsidiaries and
Affiliates would be entitled to if such Exchangeable Shares were
exchanged for Parent Common Shares.
D-4
<PAGE>
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
trust agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this trust agreement.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to
be taken under this trust agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
ARTICLE 2
PURPOSE OF AGREEMENT
2.1 ESTABLISHMENT OF TRUST. The purpose of this trust agreement is to
create the Trust for the benefit of the Beneficiaries, as herein provided. The
Trustee will hold the Voting Share in order to enable the Trustee to exercise
the Voting Rights and will hold the Exchange Right and the Automatic Exchange
Rights in order to enable the Trustee to exercise such rights, in each case as
trustee for and on behalf of the Beneficiaries as provided in this trust
agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUE AND OWNERSHIP OF THE VOTING SHARE. The Parent hereby issues to
and deposits with the Trustee the Voting Share to be hereafter held of record by
the Trustee as trustee for and on behalf of, and for the use and benefit of, the
Beneficiaries and in accordance with the provisions of this trust agreement.
During the term of the Trust and subject to the terms and conditions of this
trust agreement, the Trustee shall possess and be vested with full legal
ownership of the Voting Share and shall be entitled to exercise all of the
rights and powers of an owner with respect to the Voting Share, provided that
the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Beneficiaries in accordance with
the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have
no power or authority to sell, transfer, vote or otherwise deal in or
with the Voting Share and the Voting Share shall not be used or disposed
of by the Trustee for any purpose other than the purposes for which this
Trust is created pursuant to this trust agreement.
3.2 LEGENDED SHARE CERTIFICATES. The Corporation will cause each
certificate representing Exchangeable Shares to bear an appropriate legend
notifying the Beneficiaries of their right to instruct the Trustee with respect
to the exercise of the Beneficiary Votes.
3.3 SAFE KEEPING OF CERTIFICATE. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee.
D-5
<PAGE>
ARTICLE 4
EXERCISE OF VOTING SHARE
4.1 VOTING SHARE. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the right to
consent to or to vote in person or by proxy the Voting Share, on any matter,
question or proposition whatsoever that may properly come before the
shareholders of the Parent at a Parent Meeting or in connection with a Parent
Consent (in each case, as hereinafter defined). The Voting Rights shall be and
remain vested in and exercised by the Trustee. Subject to section 7.15 hereof,
the Trustee shall exercise the Voting Rights only:
(a) on the basis of instructions received pursuant to this Article 4
from Beneficiaries entitled to instruct the Trustee as to the voting
thereof at the time at which the Parent Consent is effective or the
Parent Meeting is held; or
(b) to the extent that no instructions are received from a
Beneficiary with respect to the Voting Rights to which such Beneficiary
is entitled, the Trustee shall not exercise or permit the exercise of
such Voting Rights.
4.2 NUMBER OF VOTES. With respect to all meetings of shareholders of the
Parent at which holders of Parent Common Shares are entitled to vote (a "Parent
Meeting") and with respect to all written consents sought by the Parent from its
shareholders including the holders of Parent Common Shares (a "Parent Consent"),
each Beneficiary shall be entitled to instruct the Trustee to cast and exercise
one of the votes comprised in the Voting Rights for each Exchangeable Share
owned of record by such Beneficiary on the record date established by the Parent
or by applicable law for such Parent Meeting or Parent Consent, as the case may
be (the "Beneficiary Votes") in respect of each matter, question or proposition
to be voted on at such Parent Meeting or to be consented to in connection with
such Parent Consent.
4.3 MAILINGS TO SHAREHOLDERS. With respect to each Parent Meeting and
Parent Consent, the Trustee will mail or cause to be mailed (or otherwise
communicate in the same manner as the Parent utilizes in communications to
holders of Parent Common Shares) to each of the Beneficiaries named in the List
on the same day as the initial mailing or notice (or other communication) with
respect thereto is given by the Parent to its shareholders:
(a) a copy of such notice, together with any related materials to be
provided to shareholders of the Parent;
(b) a statement that such Beneficiary is entitled to instruct the
Trustee as to the exercise of the Beneficiary Votes with respect to such
Parent Meeting or Parent Consent, as the case may be, or, pursuant to
section 4.7, to attend such Parent Meeting and to exercise personally the
Beneficiary Votes thereat;
(c) a statement as to the manner in which such instructions may be
given to the Trustee, including an express indication that instructions
may be given to the Trustee to give:
(i) a proxy to such Beneficiary or his designee to exercise
personally the Beneficiary Votes; or
(ii) a proxy to a designated agent or other representative of
the management of the Parent to exercise such Beneficiary Votes;
(d) a statement that if no such instructions are received from the
Beneficiary, the Beneficiary Votes to which such Beneficiary is entitled
will not be exercised;
D-6
<PAGE>
(e) a form of direction whereby the Beneficiary may so direct and
instruct the Trustee as contemplated herein; and
(f) a statement of the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in the
case of a Parent Meeting shall not be earlier than the close of business
on the second Business Day prior to such meeting, and of the method for
revoking or amending such instructions.
For the purpose of determining the Beneficiary Votes to which a Beneficiary
is entitled in respect of any such Parent Meeting or Parent Consent, the number
of Exchangeable Shares owned of record by the Beneficiary shall be determined at
the close of business on the record date established by the Parent or by
applicable law for purposes of determining shareholders entitled to vote at such
Parent Meeting or to give written consent in connection with such Parent
Consent. The Parent will notify the Trustee of any decision of the Board of
Directors of the Parent with respect to the calling of any such Parent Meeting
or the seeking of any such Parent Consent and shall provide all necessary
information and materials to the Trustee in each case promptly and in any event
in sufficient time to enable the Trustee to perform its obligations contemplated
by this section 4.3.
4.4 COPIES OF SHAREHOLDER INFORMATION. The Parent will deliver to the
Trustee copies of all proxy materials, (including notices of Parent Meetings but
excluding proxies to vote Parent Common Shares), information statements, reports
(including without limitation all interim and annual financial statements) and
other written communications that are to be distributed from time to time to
holders of Parent Common Shares in sufficient quantities and in sufficient time
so as to enable the Trustee to send or cause to be sent those materials to each
Beneficiary at the same time as such materials are first sent to holders of
Parent Common Shares. The Trustee will mail or otherwise send to each
Beneficiary, at the expense of the Parent, copies of all such materials (and all
materials specifically directed to the Beneficiaries or to the Trustee for the
benefit of the Beneficiaries by the Parent) received by the Trustee from the
Parent at the same time as such materials are first sent to holders of Parent
Common Shares. The Trustee will also make available for inspection by any
Beneficiary at the Trustee's principal corporate trust office in the city of
Toronto all proxy materials, information statements, reports and other written
communications that are:
(a) received by the Trustee as the registered holder of the Voting
Share and made available by the Parent to the holders of Parent Common
Shares; or
(b) specifically directed to the Beneficiaries or to the Trustee for
the benefit of the Beneficiaries by the Parent.
4.5 OTHER MATERIALS. Immediately after receipt by the Parent or any
shareholder of the Parent of any material sent or given to the holders of Parent
Common Shares by or on behalf of a third party, including without limitation
dissident proxy and information circulars (and related information and material)
and tender and exchange offer circulars (and related information and material),
the Parent shall use its best efforts to obtain and deliver to the Trustee
copies thereof in sufficient quantities so as to enable the Trustee to forward
such material (unless the same has been provided directly to Beneficiaries by
such third party) to each Beneficiary as soon as possible thereafter. As soon as
practicable after receipt thereof, the Trustee will mail or otherwise send to
each Beneficiary, at the expense of the Parent, copies of all such materials
received by theTrustee from the Parent. The Trustee will also make available for
inspection by any Beneficiary at the Trustee'sprincipal corporate trust office
in the city of Toronto copies of all such materials.
4.6 LIST OF PERSONS ENTITLED TO VOTE. The Corporation shall, (a) prior to
each annual, general and
special Parent Meeting or the seeking of any Parent Consent and (b) forthwith
upon each request made at any time by the Trustee in writing, prepare or cause
to be prepared a list (a "List") of the names and addresses of the Beneficiaries
arranged in alphabetical order and showing the number of Exchangeable Shares
held of record by each such Beneficiary, in each case at the close of business
on the date specified by the Trustee in such request or, in the case of a List
prepared in connection with a Parent Meeting or a Parent Consent, at the close
of business on the
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record date established by the Parent or pursuant to applicable law for
determining the holders of Parent Common Shares entitled to receive notice of
and/or to vote at such Parent Meeting or to give consent in connection with such
Parent Consent. Each such List shall be delivered to the Trustee promptly after
receipt by the Corporation of such request or the record date for such meeting
or seeking of consent, as the case may be, and in any event within sufficient
time as to enable the Trustee to perform its obligations under this Agreement.
The Parent agrees to give the Corporation notice (with a copy to the Trustee) of
the calling of any Parent Meeting or the seeking of any Parent Consent, together
with the record dates therefor, sufficiently prior to the date of the calling of
such meeting or seeking of such consent so as to enable the Corporation to
perform its obligations under this section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES. Any Beneficiary named in a List prepared
in connection with any Parent Meeting or any Parent Consent will be entitled (a)
to instruct the Trustee in the manner described in section 4.3 with respect to
the exercise of the Beneficiary Votes to which such Beneficiary is entitled or
(b) to attend such meeting and personally to exercise thereat (or to exercise
with respect to any written consent), as the proxy of the Trustee, the
Beneficiary Votes to which such Beneficiary is entitled except, in each case, to
the extent that such Beneficiary has transferred the ownership of any
Exchangeable Shares in respect of which such Beneficiary is entitled to
Beneficiary Votes after the close of business on the record date for such
meeting or seeking of consent.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT
MEETING.
(a) In connection with each Parent Meeting and Parent Consent, the
Trustee shall exercise, either in person or by proxy, in accordance with
the instructions received from a Beneficiary pursuant to section 4.3, the
Beneficiary Votes as to which such Beneficiary is entitled to direct the
vote (or any lesser number thereof as may be set forth in the
instructions); provided, however, that such written instructions are
received by the Trustee from the Beneficiary prior to the time and date
fixed by it for receipt of such instructions in the notice given by the
Trustee to the Beneficiary pursuant to section 4.3.
(b) The Trustee shall cause such representatives as are empowered by
it to sign and deliver, on behalf of the Trustee, proxies for Voting
Rights to attend each Parent Meeting. Upon submission by a Beneficiary
(or its designee) of identification satisfactory to the Trustee's
representatives, and at the Beneficiary's request, such representatives
shall sign and deliver to such Beneficiary (or its designee) a proxy to
exercise personally the Beneficiary Votes as to which such Beneficiary is
otherwise entitled hereunder to direct the vote, if such Beneficiary
either (i) has not previously given the Trustee instructions pursuant to
section 4.3 in respect of such meeting, or (ii) submits to the Trustee's
representatives written revocation of any such previous instructions. At
such meeting, the Beneficiary exercising such Beneficiary Votes shall
have the same rights as the Trustee to speak at the meeting in respect of
any matter, question or proposition, to vote by way of ballot at the
meeting in respect of any matter, question or proposition and to vote at
such meeting by way of a show of hands in respect of any matter, question
or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials distributed
by the Trustee pursuant to this trust agreement shall be delivered or sent by
mail (or otherwise communicated in the same manner as the Parent utilizes in
communications to holders of Parent Common Share) to each Beneficiary at its
address as shown on the books of the Corporation. The Corporation shall provide
or cause to be provided to the Trustee for this purpose, on a timely basis and
without charge or other expense:
(a) current lists of the Beneficiaries and the registered holders of
Exchangeable Shares; and
(b) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this trust agreement.
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4.10 TERMINATION OF VOTING RIGHTS. All of the rights of a Beneficiary with
respect to the Beneficiary Votes exercisable in respect of the Exchangeable
Shares held by such Beneficiary, including the right to instruct the Trustee as
to the voting of or to vote personally such Beneficiary Votes, shall be deemed
to be surrendered by the Beneficiary to the Parent and such Beneficiary Votes
and the Voting Rights represented thereby shall cease immediately upon the
delivery by such holder to the Trustee of the certificates representing such
Exchangeable Shares in connection with the exercise by the Beneficiary of the
Exchange Right or the occurrence of the automatic exchange of Exchangeable
Shares for Parent Common Shares, as specified in Article 5 hereof (unless in
either case Swissco shall not have delivered the requisite Parent Common Shares
issuable in exchange therefor to the Trustee for delivery to the Beneficiaries),
or upon the retraction or redemption of Exchangeable Shares pursuant to Article
6 or Article 7 of the Exchangeable Share Provisions, respectively, or upon the
effective date of the liquidation, dissolution or winding-up of the Corporation
pursuant to Article 5 of the Exchangeable Share Provisions, or upon the purchase
of Exchangeable Shares from the holder thereof by Swissco pursuant to the
exercise by Swissco of the Retraction Call Right, the Redemption Call Right or
the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. Swissco hereby grants to
the Trustee as trustee for and on behalf of, and for the use and benefit of, the
Beneficiaries the right (the "Exchange Right"), upon the occurrence and during
the continuance of an Insolvency Event, to require Swissco to purchase from each
or any Beneficiary all or any part of the Exchangeable Shares held by the
Beneficiary and the Automatic Exchange Rights, all in accordance with the
provisions of this agreement. During the term of the Trust and subject to the
terms and conditions of this trust agreement, the Trustee shall possess and be
vested with full legal ownership of the Exchange Right and the Automatic
Exchange Rights and shall be entitled to exercise all of the rights and powers
of an owner with respect to the Exchange Right and the Automatic Exchange
Rights, provided that the Trustee shall:
(a) hold the Exchange Right and the Automatic Exchange Rights and
the legal title thereto as trustee solely for the use and benefit of the
Beneficiaries in accordance with the provisions of this trust agreement;
and
(b) except as specifically authorized by this trust agreement, have
no power or authority to exercise or otherwise deal in or with the
Exchange Right or the Automatic Exchange Rights, and the Trustee shall
not exercise any such rights for any purpose other than the purposes for
which this Trust is created pursuant to this trust agreement.
5.2 LEGENDED SHARE CERTIFICATES. The Corporation will cause each
certificate representing Exchangeable Shares to bear an appropriate legend
notifying the Beneficiaries of:
(a) their right to instruct the Trustee with respect to the
exercise of the Exchange Right in respect of the Exchangeable Shares held
by a Beneficiary; and
(b) the Automatic Exchange Rights.
5.3 GENERAL EXERCISE OF EXCHANGE RIGHT. The Exchange Right shall be and
remain vested in and exercised by the Trustee. Subject to section 7.15, the
Trustee shall exercise the Exchange Right only:
(a) on the basis of instructions received pursuant to this Article
5 from Beneficiaries entitled to instruct the Trustee as to the exercise
thereof; or
(b) to the extent that no instructions are received from a
Beneficiary with respect to the Exchange Right, the Trustee shall not
exercise or permit the exercise of the Exchange Right.
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5.4 PURCHASE PRICE. The purchase price payable by Swissco for each
Exchangeable Share to be purchased by Swissco under the Exchange Right shall be
an amount per share equal to (a) the Current Market Price of a Parent Common
Share on the last Business Day prior to the day of closing of the purchase and
sale of such Exchangeable Share under the Exchange Right plus (b) an additional
amount equivalent to the full amount of all dividends declared and unpaid on
each such Exchangeable Share and all dividends declared on Parent Common Shares
which have not been declared on such Exchangeable Shares in accordance with
Section 3.1 of the Exchangeable Share Provisions (provided that if the record
date for any such declared and unpaid dividends occurs on or after the day of
closing of such purchase and sale the purchase price shall not include such
additional amount equivalent to such declared and unpaid dividends). In
connection with each exercise of the Exchange Right, Swissco will provide to the
Trustee an Officer's Certificate setting forth the calculation of the purchase
price for each Exchangeable Share. The purchase price for each such Exchangeable
Share so purchased may be satisfied only by Swissco delivering or causing to be
delivered to the Trustee, on behalf of the relevant Beneficiary, one Parent
Common Share and a cheque for the balance, if any, of the purchase price.
5.5 EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein set
forth, a Beneficiary shall be entitled, upon the occurrence and during the
continuance of an Insolvency Event, to instruct the Trustee to exercise the
Exchange Right with respect to all or any part of the Exchangeable Shares
registered in the name of such Beneficiary on the books of the Corporation. To
cause the exercise of the Exchange Right by the Trustee, the Beneficiary shall
deliver to the Trustee, in person or by certified or registered mail, at its
principal corporate trust office in Toronto, Ontario or at such other places in
Canada as the Trustee may from time to time designate by written notice to the
Beneficiaries, the certificates representing the Exchangeable Shares which such
Beneficiary desires Swissco to purchase, duly endorsed in blank, and accompanied
by such other documents and instruments as may be required to effect a transfer
of Exchangeable Shares under the OBCA and such additional documents and
instruments as the Trustee may reasonably require together with (a) a duly
completed form of notice of exercise of the Exchange Right, contained on the
reverse of or attached to the Exchangeable Share certificates, stating (i) that
the Beneficiary thereby instructs the Trustee to exercise the Exchange Right so
as to require Swissco to purchase from the Beneficiary the number of
Exchangeable Shares specified therein, (ii) that such Beneficiary has good title
to and owns all such Exchangeable Shares to be acquired by Swissco free and
clear of all liens, claims and encumbrances, (iii) the names and addresses in
which the certificates representing the Parent Common Shares deliverable in
connection with the exercise of the Exchange Right and cheques for the balance
of the purchase price, if any, are to be issued and (iv) the names and addresses
of the persons to whom such new certificates and cheques for the balance of the
purchase price, if any, should be delivered and (b) payment (or evidence
satisfactory to the Trustee, the Corporation and Swissco of payment) of the
taxes (if any) payable as contemplated by section 5.8 of this trust agreement.
If only a part of the Exchangeable Shares represented by any certificate or
certificates delivered to the Trustee are to be purchased by Swissco under the
Exchange Right, a new certificate for the balance of such Exchangeable Shares
shall be issued to the holder at the expense of the Corporation.
5.6 DELIVERY OF PARENT COMMON SHARES; EFFECT OF EXERCISE. Promptly after
receipt of the certificates representing the Exchangeable Shares which the
Beneficiary desires Swissco to purchase under the Exchange Right together with
such documents and instruments of transfer and a duly completed form of notice
of exercise of the Exchange Right (and payment of taxes, if any, or evidence
thereof), duly endorsed for transfer to Swissco, the Trustee shall notify the
Parent, Swissco and the Corporation of its receipt of the same, which notice to
the Parent, Swissco and the Corporation shall constitute exercise of the
Exchange Right by the Trustee on behalf of the holder of such Exchangeable
Shares, and Swissco shall immediately thereafter deliver or cause to be
delivered to the Trustee, for delivery to the Beneficiary of such Exchangeable
Shares (or to such other persons. if any, properly designated by such
Beneficiary), the certificates for the number of Parent Common Shares
deliverable in connection with the exercise of the Exchange Right, which shares
shall be duly issued as fully paid and non-assessable and shall be free and
clear of any lien, claim or encumbrance, and cheques for the balance, if any, of
the total purchase price therefor. Immediately upon the giving of notice by the
Trustee to the Parent, Swissco and the Corporation of the exercise of the
Exchange Right, as provided in this section 5.6, the closing of the transaction
of purchase and sale contemplated by the Exchange Right shall be deemed to have
occurred, and the Beneficiary of such Exchangeable Shares shall be deemed to
have transferred to Swissco all of its right, title and interest in and to such
Exchangeable Shares and in the related interest in the Trust Estate and shall
cease to be a holder of such Exchangeable Shares and shall not be
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entitled to exercise any of the rights of a holder in respect thereof, other
than the right to receive his proportionate part of the total purchase price
therefor, unless the requisite number of Parent Common Shares (together with a
cheque for the balance, if any, of the total purchase price therefor) is not
allotted, issued and delivered by Swissco to the Trustee, for delivery to such
Beneficiary (or to such other persons, if any, properly designated by such
Beneficiary), within five Business Days of the date of the giving of such notice
by the Trustee, in which case the rights of the Beneficiary shall remain
unaffected until such Parent Common Shares are so allotted, issued and delivered
by Swissco and any such cheque is so delivered and paid. Concurrently with such
Beneficiary ceasing to be a holder of Exchangeable Shares, the Beneficiary shall
be considered and deemed for all purposes to be the holder of the Parent Common
Shares delivered to it pursuant to the Exchange Right.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event
that a Beneficiary has exercised its right under Article 6 of the Exchangeable
Share Provisions to require the Corporation to redeem any or all of the
Exchangeable Shares held by the Beneficiary (the "Retracted Shares") and is
notified by the Corporation pursuant to Section 6.6 of the Exchangeable Shares
Provisions that the Corporation will not be permitted as a result of solvency
requirements of applicable law to redeem all such Retracted Shares, and provided
that Swissco shall not have exercised the Retraction Call Right with respect to
the Retracted Shares and that the Beneficiary has not revoked the retraction
request delivered by the Beneficiary to the Corporation pursuant to Section 6.7
of the Exchangeable Share Provisions, the retraction request will constitute and
will be deemed to constitute notice from the Beneficiary to the Trustee
instructing the Trustee to exercise the Exchange Right with respect to those
Retracted Shares which the Corporation is unable to redeem. In any such event,
the Corporation hereby agrees with the Trustee and in favour of the Beneficiary
immediately to notify the Trustee of such prohibition against the Corporation
redeeming all of the Retracted Shares and immediately to forward or cause to be
forwarded to the Trustee all relevant materials delivered by the Beneficiary to
the Corporation or to the transfer agent of the Exchangeable Shares (including
without limitation a copy of the retraction request delivered pursuant to
Section 6.1 of the Exchangeable Share Provisions) in connection with such
proposed redemption of the Retracted Shares and the Trustee will thereupon
exercise the Exchange Right with respect to the Retracted Shares that the
Corporation is not permitted to redeem and will require the Parent to purchase
such shares in accordance with the provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares
to Swissco pursuant to the Exchange Right or the Automatic Exchange Rights, the
share certificate or certificates representing the Parent Common Shares to be
delivered in connection with the payment of the total purchase price therefor
shall be issued in the name of the Beneficiary of the Exchangeable Shares so
sold or in such names as such Beneficiary may otherwise direct in writing
without charge to the holder of the Exchangeable Shares so sold; provided,
however, that such Beneficiary (a) shall pay (and neither the Parent, Swissco,
the Corporation nor the Trustee shall be required to pay) any documentary,
stamp, transfer or other taxes that may be payable in respect of any transfer
involved in the issuance or delivery of such shares to a person other than such
Beneficiary or (b) shall have established to the satisfaction of the Trustee,
the Parent, Swissco and the Corporation that such taxes, if any, have been paid.
5.9 NOTICE OF INSOLVENCY EVENT. Immediately upon the occurrence of an
Insolvency Event or any event which with the giving of notice or the passage of
time or both would be an Insolvency Event, the Corporation, Swissco and/or the
Parent, as the case may be, shall give written notice thereof to the Trustee.
As soon as practicable after receiving notice from the Corporation, Swissco
and/or the Parent, as the case may be, or from any other person of the
occurrence of an Insolvency Event, the Trustee will mail to each Beneficiary, at
the expense of Swissco, and/or the parent, a notice of such Insolvency Event,
which notice shall contain a brief statement of the right of the Beneficiaries
with respect to the Exchange Right.
5.10 QUALIFICATION OF PARENT COMMON SHARES. The Parent represents and
warrants that it has taken all actions and done all things as are necessary or
desirable to cause the Parent Common Shares to be issued and delivered pursuant
to the Exchangeable Share Provisions, Exchange Right or the Automatic Exchange
Rights to be freely tradeable thereafter (other than any restrictions on
transfers by reason of a holder being a "control person" of the Parent for
purposes of Canadian federal or provincial securities law or an "affiliate" of
the Parent or, prior to the Effective Date, Alias Research Inc. for purposes of
United States federal or state securities law). The Parent will in
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good faith expeditiously take all such actions and do all such things as are
necessary or desirable to cause all Parent Common Shares to be delivered
pursuant to the Exchangeable Share Provisions, Exchange Right or the Automatic
Exchange Rights to be listed, quoted or posted for trading on all stock
exchanges and quotation systems on which outstanding Parent Common Shares are
listed, quoted or posted for trading at such time.
5.11 RESERVATION OF PARENT COMMON SHARES.
The Parent hereby represents, warrants and covenants that it has
irrevocably reserved for issuance and will at all times keep available, free
from preemptive and other rights, out of its authorized and unissued capital
stock such number of Parent Common Shares (a) as is equal to the sum of (i) the
number of Exchangeable Shares issued and outstanding from time to time and (ii)
the number of Exchangeable Shares issuable upon the exercise of all rights to
acquire Exchangeable Shares outstanding from time to time and (b) as are now and
may hereafter be required to enable and permit the Corporation and Swissco to
meet their respective obligations hereunder, under the Support Agreement, under
the Exchangeable Share Provisions and under any other security or commitment
pursuant to which the Parent may now or hereafter be required to issue Parent
Common Shares.
5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF PARENT.
(a) The Parent will give the Trustee notice of each of the
following events at the time set forth below:
(i) in the event of any determination by the Board of
Directors of the Parent to institute voluntary liquidation,
dissolution or winding-up proceedings with respect to the Parent or
to effect any other distribution of assets of the Parent among its
shareholders for the purpose of winding up its affairs, at least 60
days prior to the proposed effective date of such liquidation,
dissolution, winding-up or other distribution; and
(ii) immediately, upon the earlier of (A) receipt by the
Parent of notice of and (B) the Parent otherwise becoming aware of
any threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation, dissolution
or winding-up of the Parent or to effect any other distribution of
assets of the Parent among its shareholders for the purpose of
winding up its affairs.
(b) immediately following receipt by the Trustee from the Parent of
notice of any event (a "Liquidation Event") contemplated by section
5.12(a)(i) or 5.12(a)(ii) above, the Trustee will give notice thereof to
the Beneficiaries. Such notice shall include a brief description of the
automatic exchange of Exchangeable Shares for Parent Common Shares
provided for in section 5.12(c).
(c) In order that the Beneficiaries will be able to participate on a
pro rata basis with the holders of Parent Common Shares in the
distribution of assets of the Parent in connection with a Liquidation
Event, on the fifth Business Day prior to the effective date (the
"Liquidation Event Effective Date") of a Liquidation Event all of the
then outstanding Exchangeable Shares shall be automatically exchanged for
Parent Common Shares. To effect such automatic exchange, Swissco shall
purchase each Exchangeable Share outstanding on the fifth Business Day
prior to the Liquidation Event Effective Date and held by Beneficiaries,
and each Beneficiary shall sell the Exchangeable Shares held by it at
such time, for a purchase price per share equal to (a) the Current Market
Price of a Parent Common Share on the fifth Business Day prior to the
Liquidation Event Effective Date, which shall be satisfied in full by
Swissco delivering or causing to be delivered to the Beneficiary one
Parent Common Share, plus (b) an additional amount equivalent to the full
amount of all dividends declared and unpaid on each such Exchangeable
Share and all dividends declared on Parent Common Shares which have not
been declared on such Exchangeable Shares in accordance with Section 3.1
of the Exchangeable Share Provisions (provided that if the record date
for any such declared and unpaid dividends occurs on or after the day of
closing of such purchase and sale the purchase price shall not include
such additional amount equivalent to such declared and unpaid
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dividends). In connection with such automatic exchange, the Parent will
provide to the Trustee an Officer's Certificate setting forth the
calculation of the purchase price for each Exchangeable Share.
(d) On the fifth Business Day prior to the Liquidation Event
Effective Date, the closing of the transaction of purchase and sale
contemplated by the automatic exchange of Exchangeable Shares for Parent
Common Shares shall be deemed to have occurred, and each Beneficiary
shall be deemed to have transferred to Swissco all of the Beneficiary's
right, title and interest in and to its Exchangeable Shares and the
related interest in the Trust Estate and shall cease to be a holder of
such Exchangeable Shares and Swissco shall deliver or cause to be
delivered to the Beneficiary the Parent Common Shares deliverable upon
the automatic exchange of Exchangeable Shares for Parent Common Shares
and shall deliver to the Trustee for delivery to the Beneficiary a cheque
for the balance, if any, of the total purchase price for such
Exchangeable Shares. Concurrently with such Beneficiary ceasing to be a
holder of Exchangeable Shares, the Beneficiary shall be considered and
deemed for all purposes to be the holder of the Parent Common Shares
issued to it pursuant to the automatic exchange of Exchangeable Shares
for Parent Common Shares and the certificates held by the Beneficiary
previously representing the Exchangeable Shares exchanged by the
Beneficiary with Swissco pursuant to such automatic exchange shall
thereafter be deemed to represent the Parent Common Shares delivered to
the Beneficiary by Swissco pursuant to such automatic exchange. Upon the
request of a Beneficiary and the surrender by the Beneficiary of
Exchangeable Share certificates deemed to represent Parent Common Shares,
duly endorsed in blank and accompanied by such instruments of transfer as
Swissco may reasonably require, Swissco shall deliver or cause to be
delivered to the Beneficiary certificates representing the Parent Common
Shares of which the Beneficiary is the holder.
5.13 WITHHOLDING RIGHTS. Parent, Swissco and the Trustee shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Exchangeable Shares such amounts as Parent, Swissco
or the Trustee is required or permitted to deduct and withhold with respect to
the making of such payment under the United States Internal Revenue Code of
1986, as amended (the "Code"), the Income Tax Act (Canada) (the "Canadian Code")
or any provision of state, local, provincial or foreign tax law. To the extent
that amounts are so withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares in
respect of which such deduction and withholding was made, provided that such
withheld amounts are actually remitted to the appropriate taxing authority. To
the extent that the amount so required or permitted to be deducted or withheld
from any payment to a holder exceeds the cash portion of the consideration
otherwise payable to the holder, the Parent, Swissco or the Trustee is hereby
authorized to sell or otherwise dispose of at fair market value such portion of
the consideration as is necessary to provide sufficient funds to the Parent,
Swissco or the Trustee, as the case may be, in order to enable it to comply with
such deduction or withholding requirement and shall account to the relevant
holder for any balance of such sale proceeds.
ARTICLE 6
RESTRICTIONS ON ISSUE OF PARENT SPECIAL VOTING STOCK
6.1 ISSUE OF ADDITIONAL SHARES. During the term of this trust agreement,
the Parent will not create, issue or allot (or make any agreement to so do) any
shares of Parent Series E Preferred Stock in addition to the Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities
of the Trustee under this trust agreement, in its capacity as trustee of the
Trust, shall include:
(a) purchasing the Voting Share from the Parent as trustee for and
on behalf of the Beneficiaries in accordance with the provisions of this
agreement;
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(b) granting proxies and distributing materials to Beneficiaries as
provided in this trust agreement;
(c) voting the Beneficiary Votes in accordance with the provisions
of this trust agreement;
(d) receiving the grant of the Exchange Right and the Automatic
Exchange Rights from Swissco as trustee for and on behalf of the
Beneficiaries in accordance with the provisions of this trust agreement;
(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the provisions
of this trust agreement, and in connection therewith receiving from
Beneficiaries Exchangeable Shares and other requisite documents and
distributing to such Beneficiaries the Parent Common Shares and cheques,
if any, to which such Beneficiaries are entitled upon the exercise of the
Exchange Right or pursuant to the Automatic Exchange Rights, as the case
may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the
Trust Estate as provided in this trust agreement;
(h) taking action on its own initiative or at the direction of a
Beneficiary or Beneficiaries to enforce the obligations of the Parent and
Swissco under this trust agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers and authorities the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this trust agreement as
the Trustee, acting in good faith and in the reasonable exercise of its
discretion, may deem necessary, appropriate or desirable to effect the purpose
of the Trust. Any exercise of such discretionary rights, powers and authorities
by the Trustee shall be final, conclusive and binding upon all persons affected
thereunder, including the Parties hereto and the Beneficiaries. For greater
certainty, the Trustee shall have only those duties as are set out specifically
in this trust agreement.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Beneficiaries and shall exercise the care, diligence and skill that a
reasonably prudent trustee would exercise in comparable circumstances.
7.2 NO CONFLICT OF INTEREST. The Trustee represents to the Corporation,
Swissco and the Parent that at the date of execution and delivery of this trust
agreement there exists no material conflict of interest in the role of the
Trustee as a fiduciary hereunder and the role of the Trustee in any other
capacity. The Trustee shall, within 90 days after it becomes aware that such a
material conflict of interest exists, either eliminate such material conflict of
interest or resign in the manner and with the effect specified in Article 10.
If, notwithstanding the foregoing provisions of this section 7.2, the Trustee
has such a material conflict of interest, the validity and enforceability of
this trust agreement shall not be affected in any manner whatsoever by reason
only of the existence of such material conflict of interest. If the Trustee
contravenes the foregoing provisions of this section 7.2, any interested party
may apply to the Ontario Court of Justice (General Division) for an order that
the Trustee be replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. The Corporation,
Swissco and the Parent irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent registrar or
transfer agent, of the Exchangeable Shares and the Parent Common Shares;
and
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(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the
discharge of its duties and responsibilities under this trust agreement
and (ii) from the registrar or transfer agent of the Parent Common
Shares, and any subsequent registrar or transfer agent of such shares,
the share certificates issuable upon the exercise from time to time of
the Exchange Right and pursuant to the automatic exchange of Exchangeable
Shares for Parent Common Shares in the manner specified in Article 5
hereof.
The Corporation, Swissco and the Parent irrevocably authorize their respective
registrars and transfer agents to comply with all such requests. The Parent and
Swissco covenant that they will supply the Parent's transfer agent with duly
executed share certificates for the purpose of completing the exercise from time
to time of the Exchange Right and the automatic exchange of Exchangeable Shares
for Parent Common Shares, in each case pursuant to Article 5 hereof.
7.4 BOOKS AND RECORDS. The Trustee shall keep available for inspection by
the Parent, Swissco and the Corporation, at the Trustee's principal corporate
trust office in Toronto, Ontario, correct and complete books and records of
account relating to the Trustee's actions under this trust agreement, including
without limitation all information relating to mailings and instructions to and
from Beneficiaries and all transactions pursuant to the Exchange Right and the
Automatic Exchange Rights. On or before March 31, 1996, and on or before March
31 in every year thereafter, so long as the Voting Share is on deposit with the
Trustee, the Trustee shall transmit to the Parent, Swissco and the Corporation a
brief report, dated as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that
date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on behalf
of Beneficiaries in consideration of delivery by Swissco of Parent Common
Shares and any other consideration in connection with the Exchange Right,
during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this trust agreement which it had not previously reported.
7.5 INCOME TAX RETURNS AND REPORTS. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust appropriate United States and
Canadian income tax returns and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities
exchange or trading system through which the Exchangeable Shares are traded and,
in connection therewith and without limiting the generality of section 7.10
hereof, may obtain the advice and assistance of such experts as the Trustee may
consider necessary or advisable.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee
shall exercise any or all of the rights, duties, powers or authorities vested in
it by this trust agreement at the request, order or direction of any Beneficiary
upon such Beneficiary furnishing to the Trustee reasonable funding, security and
indemnity against the costs, expenses and liabilities which may be incurred by
the Trustee therein or thereby, provided that no Beneficiary shall be obligated
to furnish to the Trustee any such funding, security or indemnity in connection
with the exercise by the Trustee of any of its rights, duties, powers and
authorities with respect to the Voting Share pursuant to Article 4 hereof,
subject to section 7. l 5, and with respect to the Exchange Right pursuant to
Article 5 hereof, subject to section 7.15, and with respect to the Automatic
Exchange Rights pursuant to Article 5 hereof.
None of the provisions contained in this trust agreement shall require the
Trustee to expend or risk its own funds or otherwise incur financial liability
in the exercise of any of its rights, powers, duties or authorities unless
funded, given security and indemnified as aforesaid.
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7.7 ACTIONS BY BENEFICIARIES. No Beneficiary shall have the right to
institute any action, suit or proceeding or to exercise any other remedy
authorized by this trust agreement for the purpose of enforcing any of its
rights or for the execution of any trust or power hereunder unless the
Beneficiary has requested the Trustee to take or institute such action, suit or
proceeding and furnished the Trustee with the funding, security and indemnity
referred to in section 7.6 and the Trustee shall have failed to act within a
reasonable time thereafter. In such case, but not otherwise, the Beneficiary
shall be entitled to take proceedings in any court of competent jurisdiction
such as the Trustee might have taken; it being understood and intended that no
one or more Beneficiaries shall have any right in any manner whatsoever to
affect, disturb or prejudice the rights hereby created by any such action, or to
enforce any right hereunder or under the Voting Rights, the Exchange Rights or
the Automatic Exchange Rights except subject to the conditions and in the manner
herein provided, and that all powers and trusts hereunder shall be exercised and
all proceedings at law shall be instituted, had and maintained by the Trustee,
except only as herein provided, and in any event for the equal benefit of all
Beneficiaries.
7.8 RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities hereunder
if, when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder if such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of section 7.9 hereof, if applicable, and with any
other applicable provisions of this trust agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE. The Corporation, Swissco and/or
the Parent shall furnish to the Trustee evidence of compliance with the
conditions provided for in this trust agreement relating to any action or step
required or permitted to be taken by the Corporation, Swissco and/or the Parent
or the Trustee under this trust agreement or as a result of any obligation
imposed under this trust agreement, including, without limitation, in respect of
the Voting Rights or the Exchange Right or the Automatic Exchange Rights and the
taking of any other action to be taken by the Trustee at the request of or on
the application of the Corporation, Swissco and/or the Parent forthwith if and
when:
(a) such evidence is required by any other section of this trust
agreement to be furnished to the Trustee in accordance with the terms of
this section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives the Corporation, Swissco
and/or the Parent written notice requiring it to furnish such evidence in
relation to any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Corporation,
Swissco and/or the Parent or a statutory declaration or a certificate made by
persons entitled to sign an Officer's Certificate stating that any such
condition has been complied with in accordance with the terms of this trust
agreement.
Whenever such evidence relates to a matter other than the Voting Rights or
the Exchange Right or the automatic exchange of Exchangeable Shares for Parent
Common Shares pursuant to section 5.12, and except as otherwise specifically
provided herein, such evidence may consist of a report or opinion of any
solicitor, auditor, accountant, appraiser, valuer, engineer or other expert or
any other person whose qualifications give authority to a statement made by him,
provided that if such report or opinion is furnished by a director, officer or
employee of the Corporation, Swissco and/or the Parent it shall be in the form
of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this trust
agreement shall include a statement by the person giving the evidence:
(a) declaring that he has read and understands the provisions of
this trust agreement relating to the condition in question;
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(b) describing the nature and scope of the examination or
investigation upon which he based the statutory declaration, certificate,
statement or opinion; and
(c) declaring that he has made such examination or investigation as
he believes is necessary to enable him to make the statements or give the
opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether retained
by the Trustee or by the Corporation, Swissco and/or the Parent or
otherwise, and may employ such assistants as may be necessary to the
proper discharge of its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for all such
legal and other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper discharge of its powers and duties hereunder, and
may pay reasonable remuneration for all services performed for it (and
shall be entitled to receive reasonable remuneration for all services
performed by it) in the discharge of the trusts hereof and compensation
for all disbursements, costs and expenses made or incurred by it in the
discharge of its duties hereunder and in the management of the Trust.
7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE. Unless otherwise provided in
this trust agreement, any moneys held by or on behalf of the Trustee which under
the terms of this trust agreement may or ought to be invested or which may be on
deposit with the Trustee or which may be in the hands of the Trustee may be
invested and reinvested in the name or under the control of the Trustee in
securities in which, under the laws of the Province of Ontario, trustees are
authorized to invest trust moneys, provided that such securities are stated to
mature within two years after their purchase by the Trustee, and the Trustee
shall so invest such moneys on the written direction of the Corporation. Pending
the investment of any moneys as hereinbefore provided, such moneys may be
deposited in the name of the Trustee in any chartered bank in Canada or, with
the consent of the Corporation, in the deposit department of the Trustee or any
other loan or trust company authorized to accept deposits under the laws of
Canada or any province thereof at the rate of interest then current on similar
deposits.
7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be
required to give any bond or security in respect of the execution of the trusts,
rights, duties, powers and authorities of this trust agreement or otherwise in
respect of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON CORPORATION'S REQUEST. Except as in this
trust agreement otherwise specifically provided, the Trustee shall not be bound
to act in accordance with any direction or request of the Corporation and/or the
Parent or of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act and rely
upon any such copy purporting to be authenticated and believed by the Trustee to
be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to the
Corporation, Swissco and the Parent that at the date of execution and delivery
by it of this trust agreement it is authorized to carry on the business of a
trust company in the Province of Ontario but if, notwithstanding the provisions
of this section 7.14, it ceases to be so authorized to carry on business, the
validly and enforceability of this trust agreement and the Voting Rights, the
Exchange Right and the Automatic Exchange Rights shall not be affected in any
manner whatsoever by reason only of such event but the Trustee shall, within 90
days after ceasing to be authorized to carry on the business of a trust company
in the Province of Ontario, either become so authorized or resign in the manner
and with the effect specified in Article 10.
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7.15 CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Beneficiary in any Exchangeable
Shares, including any disagreement between the heirs, representatives,
successors or assigns succeeding to all or any part of the interest of any
Beneficiary in any Exchangeable Shares resulting in conflicting claims or
demands being made in connection with such interest, then the Trustee shall be
entitled, at its sole discretion, to refuse to recognize or to comply with any
such claim or demand. In so refusing, the Trustee may elect not to exercise any
Voting Rights, Exchange Right or Automatic Exchange Rights subject to such
conflicting claims or demands and, in so doing, the Trustee shall not be or
become liable to any person on account of such election or its failure or
refusal to comply with any such conflicting claims or demands. The Trustee shall
be entitled to continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or Automatic Exchange Rights subject to such
conflicting claims or demands have been adjudicated by a final judgment
of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange
Right or Automatic Exchange Rights subject to such conflicting claims or
demands have been conclusively settled by a valid written agreement
binding on all such adverse claimants, and the Trustee shall have been
furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
7.16 ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created
and provided for by and in this trust agreement and agrees to perform the same
upon the terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law in trust for the various
persons who shall from time to time be Beneficiaries, subject to all the terms
and conditions herein set forth.
ARTICLE 8
COMPENSATION
8.1 FEES AND EXPENSES OF THE TRUSTEE. The Parent, Swissco and the
Corporation jointly and severally agree to pay to the Trustee reasonable
compensation for all of the services rendered by it under this trust agreement
and will reimburse the Trustee for all reasonable expenses (including taxes) and
disbursements, including the fees paid or to be paid by the Trustee in
connection with section 7.10 and including cost and expense of any suit or
litigation of any character and any proceedings before any governmental agency
reasonably incurred by the Trustee in connection with its rights and duties
under this trust agreement; provided that the Parent, Swissco and the
Corporation shall have no obligation to reimburse the Trustee for any expenses
or disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad faith or with
negligence or wilful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE. The Parent, Swissco and the
Corporation jointly and severally agree to indemnify and hold harmless the
Trustee and each of its directors, officers, employees and agents appointed and
acting in accordance with this trust agreement (collectively, the "Indemnified
Parties") against all claims, losses, damages, costs, penalties, fines and
reasonable expenses (including reasonable expenses of the Trustee's legal
counsel) which, without fraud, negligence, wilful misconduct or bad faith on the
part of such Indemnified Party, may be paid, incurred or suffered by the
Indemnified Party by reason of or as a result of the Trustee's acceptance or
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administration of the Trust, its compliance with its duties set forth in this
trust agreement, or any written or oral instructions delivered to the Trustee by
the Parent, Swissco or the Corporation pursuant hereto. In no case shall the
Parent, Swissco or the Corporation be liable under this indemnity for any claim
against any of the Indemnified Parties unless the Parent, Swissco and the
Corporation shall be notified by the Trustee of the written assertion of a claim
or of any action commenced against the Indemnified Parties, promptly after any
of the Indemnified Parties shall have received any such written assertion of a
claim or shall have been served with a summons or other first legal process
giving information as to the nature and basis of the claim. Subject to (ii),
below, the Parent, Swissco and the Corporation shall be entitled to participate
at their own expense in the defence and, if the Parent, Swissco or the
Corporation so elect at any time after receipt of such notice, either of them
may assume the defence of any suit brought to enforce any such claim. The
Trustee shall have the right to employ separate counsel in any such suit and
participate in the defence thereof but the fees and expenses of such counsel
shall be at the expense of the Trustee unless: (i) the employment of such
counsel has been authorized by the Parent, Swissco or the Corporation; or (ii)
the named parties to any such suit include both the Trustee and the Parent,
Swissco or the Corporation and the Trustee shall have been advised by counsel
acceptable to the Parent or the Corporation that there may be one or more legal
defenses available to the Trustee which are different from or in addition to
those available to the Parent or the Corporation (in which case the Parent,
Swissco and the Corporation shall not have the right to assume the defence of
such suit on behalf of the Trustee but shall be liable to pay the reasonable
fees and expenses of counsel for the Trustee).
9.2 LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
trust agreement, except to the extent that such loss is attributable to the
fraud, negligence, wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to the Parent,
Swissco and the Corporation specifying the date on which it desires to resign,
provided that such notice shall never be given less than 60 days before such
desired resignation date unless the Parent, Swissco and the Corporation
otherwise agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the acceptance of
such appointment by the successor trustee. Upon receiving such notice of
resignation, the Parent, Swissco and the Corporation shall promptly appoint a
successor trustee by written instrument in duplicate, one copy of which shall be
delivered to the resigning trustee and one copy to the successor trustee.
Failing acceptance by a successor trustee, a successor trustee may be appointed
by an order of the Ontario Court of Justice (General Division) upon application
of one or more of the parties hereto.
10.2 REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed at any time on 60 days' prior notice by written instrument executed by
the Parent, Swissco and the Corporation, in duplicate, one copy of which shall
be delivered to the trustee so removed and one copy to the successor trustee.
10.3 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this trust agreement shall execute, acknowledge and deliver to the Parent,
Swissco and the Corporation and to its predecessor trustee an instrument
accepting such appointment. Thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor under this trust agreement,
with like effect as if originally named as trustee in this trust agreement.
However, on the written request of the Parent, Swissco and the Corporation or of
the successor trustee, the trustee ceasing to act shall, upon payment of any
amounts then due it pursuant to the provisions of this trust agreement, execute
and deliver an instrument transferring to such successor trustee all the rights
and powers of the trustee so ceasing to act. Upon the request of any such
successor trustee, the
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Parent, Swissco, the Corporation and such predecessor trustee shall execute any
and all instruments in writing for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
10.4 NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, the Parent, Swissco and the Corporation
shall cause to be mailed notice of the succession of such trustee hereunder to
each Beneficiary specified in a List. If the Parent, Swissco or the Corporation
shall fail to cause such notice to be mailed within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Parent, Swissco and the Corporation.
ARTICLE 11
PARENT SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. The Parent shall
not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a merger, of the
continuing corporation resulting therefrom unless, but may do so if:
(a) such other person or continuing corporation is a corporation
(herein called the "Parent Successor") incorporated under the laws of any
state of the United States or the laws of Canada or any province thereof;
(b) the Parent Successor, by operation of law, becomes, without
more, bound by the terms and provisions of this trust agreement or, if
not so bound, executes, prior to or contemporaneously with the
consummation of such transaction a trust agreement supplemental hereto
and such other instruments (if any) as are satisfactory to the Trustee
and in the opinion of legal counsel to the Trustee are necessary or
advisable to evidence the assumption by the Parent Successor of liability
for all moneys payable and property deliverable hereunder and the
covenant of such Parent Successor to pay and deliver or cause to be
delivered the same and its agreement to observe and perform all the
covenants and obligations of the Parent under this trust agreement; and
(c) such transaction shall, to the satisfaction of the Trustee and
in the opinion of legal counsel to the Trustee, be upon such terms as
substantially to preserve and not to impair in any material respect any
of the rights, duties, powers and authorities of the Trustee or of the
Beneficiaries hereunder
11.2 VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of section
11.1 hereof have been duly observed and performed, the Trustee, if required, by
section 11.1 hereof, the Parent Successor, Swissco and the Corporation shall
execute and deliver the supplemental trust agreement provided for in Article 12
and thereupon the Parent Successor shall possess and from time to time may
exercise each and every right and power of the Parent under this trust agreement
in the name of the Parent or otherwise and any act or proceeding by any
provision of this trust agreement required to be done or performed by the Board
of Directors of the Parent or any officers of the Parent may be done and
performed with like force and effect by the directors or officers of such Parent
Successor
11.3. WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary of the
Parent with or into the Parent or the winding-up, liquidation or dissolution of
any wholly-owned subsidiary of the Parent provided that all of the assets of
such subsidiary are transferred to the Parent or another wholly-owned subsidiary
of the Parent and any such transactions are expressly permitted by this Article
11.
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ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC. This trust agreement may not be
amended or modified except by an agreement in writing executed by the
Corporation, the Parent, Swissco and the Trustee and approved by the
Beneficiaries in accordance with Section 10.2 of the Exchangeable Share
Provisions.
12.2 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section
12.1 hereof, the parties to this trust agreement may in writing, at any time and
from time to time, without the approval of the Beneficiaries, amend or modify
this trust agreement for the purposes of:
(a) adding to the covenants of either or both parties hereto for the
protection of the Beneficiaries hereunder;
(b) making such amendments or modifications not inconsistent with
this trust agreement as may be necessary or desirable with respect to
matters or questions which, in the opinion of the Board of Directors of
each of the Parent, Swissco and Corporation and in the opinion of the
Trustee and its counsel, having in mind the best interests of the
Beneficiaries as a whole, it may be expedient to make, provided that such
boards of directors and the Trustee and its counsel shall be of the
opinion that such amendments and modifications will not be prejudicial to
the interests of the Beneficiaries as a whole; or
(c) making such changes or corrections which, on the advice of
counsel to the Corporation, the Parent, Swissco and the Trustee, are
required for the purpose of curing or correcting any ambiguity or defect
or inconsistent provision or clerical omission or mistake or manifest
error, provided that the Trustee and its counsel and the Board of
Directors of each of the Corporation, Swissco and the Parent shall be of
the opinion that such changes or corrections will not be prejudicial to
the interests of the Beneficiaries as a whole.
12.3 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the request of
the Parent, shall call a meeting or meetings of the Beneficiaries for the
purpose of considering any proposed amendment or modification requiring approval
pursuant hereto. Any such meeting or meetings shall be called and held in
accordance with the by-laws of the Corporation, the Exchangeable Share
Provisions and all applicable laws.
12.4 CHANGES IN CAPITAL OF PARENT AND THE CORPORATION. At all times after
the occurrence of any event effected pursuant to section 2.7 or section 2.8 of
the Support Agreement, as a result of which either the Parent Common Shares or
the Exchangeable Shares or both are in any way changed, this trust agreement
shall forthwith be amended and modified as necessary in order that it shall
apply with full force and effect, mutatis mutandis, to all new securities into
which the Parent Common Shares or the Exchangeable Shares or both are so changed
and the parties hereto shall execute and deliver a supplemental trust agreement
giving effect to and evidencing such necessary amendments and modifications.
12.5 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this trust agreement
otherwise permitted hereunder shall be effective unless made in writing and
signed by all of the parties hereto. From time to time the Corporation (when
authorized by a resolution of the Board of Directors), Swissco (when authorized
by a resolution of its Board of Directors) the Parent (when authorized by a
resolution of its Board of Directors) and the Trustee may, subject to the
provisions of these presents, and they shall, when so directed by these
presents, execute and deliver by their proper officers, trust agreements or
other instruments supplemental hereto, which thereafter shall form part hereof,
for any one or more of the following purposes:
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(a) evidencing the succession of Parent Successors to the Parent and
the covenants of and obligations assumed by each such Parent Successor in
accordance with the provisions of Article 11 and the successor of any
successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this trust agreement or the Voting Rights, the Exchange
Right or the Automatic Exchange Rights which, in the opinion of the
Trustee and its counsel, will not be prejudicial to the interests of the
Beneficiaries as a whole or are in the opinion of counsel to the Trustee
necessary or advisable in order to incorporate, reflect or comply with
any legislation the provisions of which apply to the Parent, Swissco, the
Corporation, the Trustee or this trust agreement; and
(c) for any other purposes not inconsistent with the provisions of
this trust agreement, including without limitation to make or evidence
any amendment or modification to this agreement as contemplated hereby,
provided that, in the opinion of the Trustee and its counsel, the rights
of the Trustee and the Beneficiaries as a whole will not be prejudiced
thereby.
ARTICLE 13
TERMINATION
13.1 TERM. The Trust created by this trust agreement shall be effective
upon the issuance by the Corporation of Exchangeable Shares under the
Arrangement and shall continue until the earliest to occur of the following
events:
(a) no outstanding Exchangeable Shares are held by a Beneficiary;
(b) each of the Corporation, Swissco and the Parent elects in
writing to terminate the Trust and such termination is approved by the
Beneficiaries of the Exchangeable Shares in accordance with Section 10.2
of the Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the
descendants of His Majesty King George VI of the United Kingdom of Great
Britain and Northern Ireland living on the date of the creation of the
Trust.
13.2 SURVIVAL OF AGREEMENT. This trust agreement shall be effective upon
the issuance by the Corporation of Exchangeable Shares under the Arrangement and
shall survive any termination of the Trust and shall continue until there are no
Exchangeable Shares outstanding held by a Beneficiary; provided, however, that
the provisions of Articles 8 and 9 shall survive any such termination of this
trust agreement.
ARTICLE 14
GENERAL
14.1 SEVERABILITY. If any provision of this agreement is held invalid,
such invalidity shall not affect the other provisions hereof which can be given
effect without the invalid provision, and to this end the provisions of this
agreement are intended to be and shall be deemed severable; provided, however,
that if the provision or provisions so held to be invalid, in the reasonable
judgment of the parties hereto, is or are so fundamental to the intent of the
parties hereto and the operation of this agreement that the enforcement of the
other provisions hereof, in the absence of such invalid provision or provisions,
would damage irreparably the intent of the parties in entering into this
agreement, the parties hereto shall agree (I) to terminate this agreement, or
(ii) to amend or otherwise modify this agreement so as to carry out the intent
and purposes hereof and the transactions contemplated hereby.
14.2 ENUREMENT. This trust agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns and to the benefit of the Beneficiaries.
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14.3 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
(a) if to the Parent or Swissco at:
Silicon Graphics, Inc.
2011 North Shoreline Boulevard
Mail Stop 710
Mountain View, CA 94043-1389
Attention: Legal Services
Telecopy: (415) 965-1586
(b) if to the Corporation at:
Silicon Graphics Canada Limited
110 Richmond Street E.
Toronto, Ontario
Canada M5C 1P1
Attention: President
Telecopy: (416) 861-8805
(c) if to the Trustee at:
Montreal Trust Company of Canada
Corporate Trust Services
151 Front Street West
Suite 605
Toronto, Ontario M5J 2N1
Attention: Manager, Corporate Trust Department
Telecopy: (416) 981-9777
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
14.4 NOTICE OF BENEFICIARIES. Any and all notices to be given and any
documents to be sent to any Beneficiaries may be given or sent to the address of
such Beneficiary shown on the register of holders of Exchangeable Shares in any
manner permitted by the by-laws of the Corporation from time to time in force in
respect of notices to shareholders and the provisions of the then prevailing law
and shall be deemed to be received (if given or sent in such manner) at the time
specified in such by-laws and the provisions of the then prevailing law, the
provisions of which by-laws shall apply mutatis mutandis to notices or documents
as aforesaid sent to such holders.
14.5 RISK OF PAYMENTS BY POST. Whenever payments are to be made or
documents are to be sent to any Beneficiary by the Trustee or by the
Corporation, or by such Beneficiary to the Trustee or to the Parent, Swissco or
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the Corporation, the making of such payment or sending of such document sent
through the post shall be at the risk of the Corporation, in the case of
payments made or documents sent by the Trustee or the Corporation, and the
Beneficiary, in the case of payments made or documents sent by the Beneficiary.
14.6 COUNTERPARTS. This trust agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
14.7 JURISDICTION. This trust agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
14.8 ATTORNMENT. Each of the Parent and Swissco agree that any action or
proceeding arising out of or relating to this trust agreement may be instituted
in the courts of Ontario, waive any objection which it may have now or hereafter
to the venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding, agrees to be
bound by any judgment of the said courts and not to seek, and hereby waives, any
review of the merits of any such judgment by the courts of any other
jurisdiction and hereby appoints the Corporation at its registered office in the
Province of Ontario as the Parent's and Swissco's attorney for service of
process.
14.9 GUARANTY/ASSIGNMENT. Parent hereby unconditionally and irrevocably
guarantees the prompt and full performance by Swissco of its obligations
hereunder. Swissco, upon prior notice to the Trustee, may assign all or a
portion of its rights and obligations hereunder to Parent, which shall thereupon
assume such assigned rights and obligations, without the consent of the Trustee,
the Beneficiary, or the Corporation subject to the Trustee, the Corporation and
the Parent entering into a supplemental trust agreement pursuant to section
12.5(c) reflecting such assignment and assumption. This agreement may not be
assigned by the Parent without the prior written consent of Swissco, the Trustee
and the Corporation approved by the holders of the Exchangeable Shares in
accordance with section 10.2 of the Exchangeable Share Provision.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
D-24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this trust agreement to
be duly executed as of the date first above written.
SILICON GRAPHICS, INC.
By /s/ Thomas A. Jermoluk
------------------------------
Name: Thomas A. Jermoluk
Title: President and Chief Operating Officer
SILICON GRAPHICS MANUFACTURING S.A.
By /s/ Sandra M. Escher
------------------------------
Name: Sandra M. Escher
Title: Authorized Signatory
SILICON GRAPHICS CANADA LIMITED
By /s/ Alan F. Bown
------------------------------
Name: Alan F. Brown
Title: Director
MONTREAL TRUST COMPANY OF CANADA
By /s/ Shelley Bloomberg
------------------------------
Name: Shelley Bloomberg
Title: Senior Trust Officer
By /s/ Alexandra Vasil
------------------------------
Name: Alexandra Vasil
Title: Trust Officer
Corporate Trust Services
D-25
<PAGE>
<PAGE>
SILICON GRAPHICS, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated as of June 12, 1995)
The following constitutes the provisions of the Employee Stock Purchase
Plan (herein called the "Plan") of Silicon Graphics, Inc. (herein called the
"Company").
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through payroll deductions. It is the intention of the
Company that the Plan qualify as an "Employee Stock Purchase Plan" under Section
423 of the Internal Revenue Code of 1986. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock, $0.001 par value, of the
Company.
(d) "Compensation" means base pay, plus any amounts attributable to
overtime, shift premium, incentive compensation, bonuses and commissions
(exclusive of "spot bonuses" and any other such item specifically directed for
all Employees by the Board or its committee).
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.
(f) "Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" means any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(h) "Exercise Date" means the last business day of each Exercise
Period in an Offering Period.
<PAGE>
(i) "Exercise Period" means a six-month period commencing on an
Offering Date or on the first business day after any Exercise Date in an
Offering Period.
(j) "Offering Date" means the first day of each Offering Period of
the Plan.
(k) "Offering Period" means a period of twenty-four (24) months
consisting of four six-month Exercise Periods during which options granted
pursuant to the Plan may be exercised.
(l) "Subsidiary" means any corporation, domestic or foreign, in which
the Company owns, directly or indirectly, 50% or more of the voting shares.
(m) "Effective Date" means the Effective Date of the Alias Merger, as
defined in the Alias Merger Agreement.
(n) "Alias Merger Agreement" means the Amended and Restated Agreement
and Plan of Acquisition and Arrangement dated as of February 6, 1995 by and
among the Company, 1103707 Ontario Inc., Silicon Graphics Manufacturing S.A. and
Alias Research Inc.
(o) "Alias" means Alias Research Inc., an Ontario corporation, and
Silicon Graphics Canada Limited, the continuing corporation resulting from the
amalgamation contemplated by the Plan of Arrangement, as defined in the Alias
Merger Agreement.
(p) "Effective Time" means the Effective Time of the Wavefront
Merger, as defined in the Wavefront Merger Agreement.
(q) "Wavefront Merger Agreement" means the Agreement and Plan of
Merger and Reorganization dated as of February 6, 1995 by and among the Company,
S Acquisition Corporation and Wavefront Technologies, Inc., as amended.
(r) "Wavefront" means Wavefront Technologies, Inc., a California
corporation.
(s) "Special Exercise Date" means the last business day of each
Special Exercise Period in the Special Offering Period.
(t) "Special Exercise Period" means the period of approximately three
(3) months commencing on the Special Offering Date and, thereafter, the six-
month periods commencing on the first business day after a Special Exercise Date
in the Special Offering Period.
(u) "Special Offering Date" means August 1, 1995.
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<PAGE>
(v) "Special Offering Period" means a period of up to approximately
twenty-one (21) months that begins on the Special Offering Date and that
consists of up to four (4) Special Exercise Periods during which options granted
pursuant to the Plan may be exercised.
3. ELIGIBILITY.
(a) GENERAL RULE. Any person who is an Employee, as defined in
paragraph 2, on the Offering Date of a given Offering Period shall be eligible
to participate in such Offering Period under the Plan, subject to the
requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of
the Code.
(b) EXCEPTIONS. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan if (i)
immediately after the grant, such Employee (or any other person whose stock
ownership would be attributed to such Employee pursuant to Section 425(d) of the
Code) would own shares and/or hold outstanding options to purchase shares
possessing five percent (5%) or more of the total combined voting power or value
of all classes of shares of the Company or of any subsidiary of the Company, or
(ii) the rate of withholding under such option would permit the employee's
rights to purchase shares under all employee stock purchase plans (described in
Section 423 of the Code) of the Company and its subsidiaries to accrue (i.e.,
become exercisable) at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of fair market value of such shares (determined at the time such
option is granted) for each calendar year in which such option is outstanding at
any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on or about each May 1
and November 1. The Board of Directors of the Company shall have the power to
change the duration of Offering Periods with respect to future offerings without
stockholder approval, if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions on the form
provided by the Company and filing it with the Company's payroll office not less
than 15 days prior to the Offering Date of the first Offering Period with
respect to which it is to be effective, unless a later time for filing the
subscription agreement is set by the Board for all eligible Employees with
respect to such Offering Period. Once enrolled, the Employee remains enrolled
in each subsequent Offering Period of the Plan at the designated payroll
deduction unless the Employee withdraws by providing the Company with a written
Notice of Withdrawal or files a new subscription agreement prior to the
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<PAGE>
applicable Offering Date changing the Employee's designated payroll deduction.
An eligible Employee may participate in only one Offering Period at a time.
(b) Payroll deductions for a participant shall commence with the
first payroll following the Offering Date, or the first payroll following the
date of valid filing of the subscription agreement, whichever is later, and
shall end when terminated by the participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each payday
during all subsequent Offering Periods at a rate not exceeding ten percent
(10%), or such other rate as may be determined from time to time by the Board,
of the Compensation which he or she would otherwise receive on such payday,
provided that the aggregate of such payroll deductions during any Offering
Period shall not exceed ten percent (10%), or such other percentage as may be
determined from time to time by the Board, of the aggregate Compensation which
he or she would otherwise have received during said Offering Period.
(b) All payroll deductions authorized by a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in paragraph 10, or may change the rate of his or her payroll
deductions during an Offering Period by completing and filing with the Company a
new authorization for payroll deduction, provided that the Committee or Board
may, in its discretion, impose reasonable and uniform restrictions on
participants' ability to change the rate of payroll deductions. The change in
rate shall be effective no later than fifteen (15) days following the Company's
receipt of the new authorization. A participant may decrease or increase the
amount of his or her payroll deductions as of the beginning of an Offering
Period by completing and filing with the Company, at least fifteen (15) days
prior to the beginning of such Offering Period, a new payroll deduction
authorization.
(d) If a participant decreases his or her payroll deductions to 0%
during an Exercise Period, his or her participation in the Offering Period shall
continue and payroll deductions shall recommence at the rate provided in the
participant's previous subscription agreement at the beginning of the next
succeeding Exercise Period, unless otherwise directed by the participant on the
election form provided by the Company.
(e) Notwithstanding the foregoing, to the extent necessary, but only
to such extent, to comply with Section 423(b)(8) of the Code and paragraph 3(b)
herein, a participant's payroll deductions may be automatically decreased to 0%
at such time during any Exercise Period which is scheduled to end in the current
calendar year that the aggregate of all payroll deductions accumulated with
respect to the applicable Offering Period and any other Offering Period ending
within the same calendar year equals
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<PAGE>
$21,250. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the next succeeding
Exercise Period, unless terminated by the participant as provided in paragraph
10.
7. GRANT OF OPTION.
(a) On each Offering Date, each participant shall be granted an
option to purchase on each Exercise Date (at the per share option price) a
number of full shares of the Company's Common Stock arrived at by dividing such
participant's total payroll deductions to be accumulated prior to such Exercise
Date and retained in the participant's account as of the Exercise Date by the
lower of (i) eighty-five percent (85%) of the fair market value of a share of
the Company's Common Stock at the Offering Date, or (ii)eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock at the
Exercise Date; provided, however, that the maximum number of shares a
participant may purchase during each Offering Period shall be determined by
(i)dividing $50,000 by the fair market value of a share of the Company's Common
Stock on the Offering Date or (ii) if less, by the "Maximum Cap" set for such
Offering Period; and provided further that such purchase shall be subject to the
limitations set forth in Paragraphs 3(b) and 12 hereof. The "Maximum Cap" for
each Offering Period shall be the number of shares purchasable under the Plan
during that Offering Period with the maximum payroll deductions permitted by
paragraph 6(e) hereof, based upon the fair market value of the Common Stock at
the beginning of the Offering Period. The fair market value of a share of the
Company's Common Stock shall be determined as provided in paragraph 7(b) herein.
(b) The option price per share of such shares shall be the lower of:
(i)eighty-five percent (85%) of the fair market value of a share of the Common
Stock of the Company at the Offering Date; or (ii)eighty-five percent (85%) of
the fair market value of a share of the Common Stock of the Company at the
Exercise Date. The fair market value of the Company's Common Stock on said
dates shall be determined by the Company's Board of Directors, based upon such
factors as the Board determines relevant; provided, however, that if there is a
public market for the Common Stock, the fair market value of a share of Common
Stock on a given date shall be the reported bid price for the Common Stock as of
such date; or, in the event that the Common Stock is listed on a national
securities exchange, the fair market value of a share of Common Stock shall be
the closing price on the exchange as of such date.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Offering
Period as provided in paragraph 10, his or her option for the purchase of shares
will be exercised automatically at each Exercise Date, and the maximum number of
full shares subject to option will be purchased at the applicable option price
with the accumulated payroll deductions in his or her account. The shares
purchased upon exercise of an option hereunder shall be deemed to be transferred
to the participant on the Exercise Date. During his or her lifetime, a
participant's option to purchase shares hereunder is exercisable only the by
participant.
-5-
<PAGE>
9. DELIVERY. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange for the shares purchased upon
exercise of his or her option to be electronically credited to the participant's
designated brokerage account at one of the securities brokerage firms
participating in the Company's direct deposit program from time to time. Any
cash remaining to the credit of a participant's account under the Plan after a
purchase by him or her of shares at the Exercise Date of each Offering Period
which merely represents a fractional share shall be credited to the
participant's account for the next subsequent Offering Period; any additional
cash shall be returned to said participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the
payroll deductions credited to his or her account under the Plan at any time
prior to an Exercise Date by giving written notice to the Company on a form
provided for such purpose. If the participant withdraws from the Offering
Period, all of the participant's payroll deductions credited to his or her
account will be paid to the participant as soon as practicable after receipt of
the notice of withdrawal and his or her option for the current Offering Period
will be automatically canceled, and no further payroll deductions for the
purchase of shares will be made during such Offering Period or subsequent
Offering Periods, except pursuant to a new subscription agreement filed in
accordance with paragraph 6 hereof.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to an Exercise Date of an Offering Period for any reason,
including retirement or death, the payroll deductions accumulated in his or her
account will be returned to him or her as soon as practicable after such
termination or, in the case of death, to the person or persons entitled thereto
under paragraph 14, and his or her option will be automatically canceled.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during an
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan, and the payroll deductions credited
to his or her account will be returned to the participant and the option
canceled.
(d) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in a succeeding Offering
Period or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. In the event that
the fair market value of the Company's Common Stock is lower on the first day of
an Exercise Period (the "Subsequent Exercise Period") than it was on the first
Offering Date for that Offering Period (the "Initial Offering Period"), all
Employees participating in the Plan on the first day of the Subsequent Exercise
Period shall be deemed to have withdrawn from the Initial Offering Period on the
first day of the Subsequent Exercise
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<PAGE>
Period and to have enrolled as participants in a new Offering Period which
begins on or about that day. A participant may elect to remain in the Initial
Offering Period by filing a written statement declaring such election with the
Company prior to the time of the automatic change to the new Offering Period.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) The maximum number of shares of the Company's Common Stock which
shall be reserved for sale under the Plan shall be 12,960,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in
paragraph 19. The shares to be sold to participants in the Plan may be, at the
election of the Company, either treasury shares or shares authorized but
unissued. If the total number of shares which would otherwise be subject to
options granted pursuant to paragraph 7(a) hereof on the Offering Date of an
Offering Period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform and equitable a manner as is
practicable. In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each participant
affected thereby and shall return any excess funds accumulated in each
participant's account as soon as practicable after the affected Exercise Date of
such Offering Period.
(b) The participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
issued in the name of the participant or in the name of the participant and his
or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company or a committee (the "Committee") appointed by the
Board. The administration, interpretation or application of the Plan by the
Board or the Committee shall be final, conclusive and binding upon all
participants. Members of the Board or the Committee who are eligible employees
are permitted to participate in the Plan, provided that:
(a) Members of the Board who participate in the Plan may not vote on
any matter affecting the administration of the Plan or the grant of any option
pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member
of the Board who participates in the Plan may be a member of the Committee.
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<PAGE>
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive shares and/or cash, if any, from the participant's account under
the Plan in the event of such participant's death at a time when cash or shares
are held for his or her account.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant in
the absence of a valid designation of a beneficiary who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant; or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may reasonably designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees as
soon as practicable following each Exercise Date. Such statements will set
forth the amounts of payroll deductions, the per share purchase price, the
number of shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, stock dividend, combination or
reclassification of the Common Stock or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the
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<PAGE>
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable, and the option will terminate upon the expiration of
such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION. The Board of Directors of the Company may
at any time and for any reason terminate or amend the Plan. Except as provided
in paragraph 19, no such termination will affect options previously granted.
Except as provided in paragraph 19, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary, but only to such extent, to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
or with Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain stockholder approval of
an amendment in such a manner and to such a degree as so required.
21. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
22. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve months before or after
the
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<PAGE>
date the Plan is adopted. Such stockholder approval shall be obtained in the
manner and degree required under the Delaware General Corporate Law.
23. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
24. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in paragraph 22. It shall continue in
effect for a term of twenty (20) years unless sooner terminated under paragraph
20.
25. SPECIAL OFFERING PERIOD.
(a) Effective as of the Effective Date of the Alias Merger and the
Effective Time of the Wavefront Merger, Alias, Wavefront, each subsidiary of
Wavefront and Alias, and any other entity that would be considered a direct or
indirect subsidiary of the Company (regardless of whether formed before or after
the Effective Time and Effective Date) within the meaning of Section 424(f) of
the Code, is a Designated Subsidiary.
(b) Notwithstanding any other provision of the Plan, any person who
is an Employee on the Special Offering Date shall be eligible to participate in
the Special Offering Period under the Plan, subject to the requirements of
paragraph (c) of this paragraph 25, and the limitations imposed by Section
423(b) of the Code.
(c) An eligible Employee may participate in the Special Offering
Period by completing a subscription agreement authorizing payroll deductions in
the form provided by the Company and filing it with the Company's payroll office
prior to the Special Offering Date, unless a later time for filing such
agreement is set by the board or the committee for all eligible Employees with
respect to the Special Offering Period. If an eligible Employee is
participating in an Offering Period as of the Special Offering
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<PAGE>
Date and such Employee elects to participate in the Special Offering Period, he
or she shall be deemed to have withdrawn from the Offering Period as of the
Special Offering Date and such withdrawal shall be governed by the provisions of
paragraph 10 of the Plan. The provisions of the Plan shall apply to the Special
Offering
Period, except that if determinations under the Plan are required to be made
under the Plan as of an Exercise Date or an Offering Date, such determinations
shall be made as of the Special Exercise Date and the Special Offering Date with
respect to Employees who elect to participate in the Special Offering Period.
(d) The Committee or Board shall have authority to make all
determinations necessary to implement the changes to the Plan reflected in this
paragraph 25.
26. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. In the event that
the fair market value of the Company's Common Stock is lower on the first day of
a Special Exercise Period (the "Subsequent Special Exercise Period") than it was
on the Special Offering Date, all Employees participating in the Plan on the
first day of the Subsequent Special Exercise Period shall be deemed to have
withdrawn from the Special Exercise Period and to have enrolled as participants
in a new Offering Period which begins on or about that day. A participant may
elect to remain in the Special Exercise Period by filing a written statement
declaring such election with the Company prior to the time of the automatic
change to the new Offering Period.
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<PAGE>
July 6, 1995
Mr. Robert K. Burgess
Alias/Wavefront
110 Richmond Street East
Toronto, Ontario M5C 1P1
Dear Mr. Burgess:
I am pleased to confirm your employment with Silicon Graphics, Inc. as President
of our newly created software organization, Alias/Wavefront, on the terms and
conditions included in this letter and the accompanying offer letter.
We look forward to a mutually satisfactory relationship and would hold you to no
specific termination period if you wish to leave the Company's employ. However,
if Silicon Graphics terminates your employment prior to June 30, 1996, for any
reason other than for cause (as defined in the Continuation Agreement which is
forthcoming), then a severance payment of two (2) years of target compensation,
which would include base salary, your divisional variable component and the
corporate executive annual incentive plan, would be payable. After June 30,
1996, this severance payment would be reduced to one (1) year of target
compensation as defined above. The severance payments provided in this letter
will not be payable if you receive payments pursuant to the Continuation
Agreement between you and Silicon Graphics, or any successor to that agreement.
Please contact me if you have any questions. You may accept this offer by
signing the accompanying offer letter and returning the signed copy.
Sincerely,
Thomas A. Jermoluk
President and Chief Operating Officer
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SCHEDULE 5
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ALIAS RESEARCH INC.
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$400,000 (U.S.)
CONVERTIBLE DEBENTURE
Alias Research Inc. (hereinafter called the "Corporation"), for value received,
hereby promises to pay on demand, or failing demand on the 11th day of November,
1997, to the registered holder hereof subject to and in accordance with the
conditions as hereinafter provided, upon presentation and surrender of this
debenture, the sum of FOUR HUNDRED THOUSAND ($400,000) of lawful money of the
United States of America, with interest hereon at the rate of EIGHT PER CENT
(8%) per annum, calculated and payable semi-annually in arrears., both before
and after maturity and default or respectively up to and upon the Conversion
Date (as hereinafter defined) if this Debenture is converted.
The following conditions shall be applicable to this Debenture:
1. INTERPRETATION
DEFINITIONS
1.1 Where used in this Debenture, the following words and phrases shall, unless
there is something in the context otherwise inconsistent therewith, have
the following meanings, respectively:
1.1.1 "BUSINESS DAY" means a day other than Saturday, Sunday or any other
day on which the Main Branch of the Bank of Nova Scotia in Toronto
is closed;
1.1.2 "CHARGED ASSETS" means the assets particularized in Schedule "A"
hereto, subject such adjustments as may be agreed in writing from
time to time by the Corporation and the Holder.
1.1.3 "CLOSE OF BUSINESS" means 5:00 o'clock in the afternoon (Toronto
time);
1.1.4 "CONVERSION PRICE" means $7.25 (U.S.), subject to adjustment as
provided by and in accordance with section 3.3 (Adjustment of
Conversion Price);
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1.1.5 "CURRENT MARKET PRICE" of the Shares at any date means the weighted
average price per share at which the Shares have traded, on the
NASDAQ National Market System ("NASDAQ"), or if the Shares are not
traded on NASDAQ< on such stock exchange on which the Shares are
listed as may be selected by the directors of the Corporation,
during the 20 consecutive trading days ending not more than 5 days
immediately preceding such date. In the event the Shares are not
listed on any stock exchange, the Current Market Price of the
Shares shall be determined by the directors;
1.1.6 "DATE OF CONVERSION" has the meaning ascribed by clause 3.2.2.
1.1.7 "DEBENTURE" means this convertible secured debenture;
1.1.8 "DIRECTOR" means a director of the Corporation for the time being
and "directors" or "board of director" means the board of directors
of the Corporation or, if duly constituted and empowered, the
executive committee of the board of directors of the Corporation
for the time being, and reference, without further collaboration,
to action by the directors means action by the directors of the
Corporation as a board or action taken by the said executive
committee as such committee;
1.1.9 "HEREIN", "HERETO", "HEREUNDER", "HEREOF", "HEREBY" and similar
expressions mean or refer to these conditions of the Debenture and
not to any particular Section, clause, subclause, subdivision or
portion hereof, and the expressions "Section", "clause" and
"subclause" followed by a number of a letter mean and refer to the
specified Section, clause or subclause hereof;
1.1.10 "HOLDER, "REGISTERED HOLDER" or "DEBENTUREHOLDER" means initially
Robert K. Burgess or any other person or persons from time to time
being entered in the register or registers hereinafter mentioned as
holder of this Debenture;
1.1.11 "SHARES" means fully paid and non-assessable common shares without
par value in the capital of the Corporation as constituted on the
date hereof; provided that in the event of a change,
reclassification, subdivision, redivision, reduction, combination
or consolidation thereof, or successive such changes,
reclassifications, subdivisions, reductions, combinations or
consolidations, then, subject to adjustments, if
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any, having been made in accordance with the provisions of clause
3.4 "Shares" shall thereafter mean the shares resulting from such
change, reclassification, subdivision, reduction or combination;
GENDER, ETC.
1.2 Words importing the singular number only include the plural and vice versa
and words importing any gender include all genders.
CURRENCY
1.3 All dollar amounts referred to herein shall be in lawful money of the
United States of America.
HEADINGS
1.4 The division of this Debenture into Sections, clauses, subclauses or other
subdivisions and the insertion of headings are for convenience of reference
only and shall not affect the construction or interpretation hereof.
BUSINESS DAY
1.5 In the event that any date upon which any principal or interest is payable
by the Corporation, or upon or by which any other action is required to be
taken by the Corporation hereunder is not a business day, then such
principal or interest shall be payable or such other action shall be
required to be taken on or by the next succeeding day which is a business
day.
PREPAYMENT
1.6 The Corporation shall have no right to prepay this Debenture.
2. SECURITY
FIXED CHARGE
2.1 In consideration of the premises and as continuing security for the payment
of every indebtedness and the performance of the obligations hereunder of
the Corporation to the holder hereunder, the Corporation hereby grants a
security interest in and mortgages and charges as and by way of a fixed and
specific mortgage and charge, to and in favor of the
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Holder, its successors and assigns, all of its right, title and interest in
the Charged Assets.
HABENDUM
2.2 TO HAVE AND TO HOLD the property and assets hereby charged unto the holder
forever but subject to the terms and conditions herein set forth.
EFFECTIVE DATE
2.3 The security interests, mortgages and charges hereby made and created shall
be and be deemed to be effective and to have effect whether or not the
consideration hereby secured shall be received before or after or upon the
date of the execution of this Debenture.
3. CONVERSION
CONVERSION PRIVILEGE AND CONVERSION PRICE
3.1 Upon and subject to the provisions and conditions of this Section 3, the
holder of this Debenture shall have the right, at his option, upon not less
that 2 business days' prior written notice to the Corporation, to convert,
at any time prior to the close of business on November 11, 1997 (the
"Expiry Time"), the whole but not part of the principal amount of this
Debenture, into Shares of the Corporation at the Conversion Price in effect
on the Date of Conversion.
3.2 CONVERSION PROCEDURE
3.2.1 The holder of this Debenture desiring to convert such Debenture
shall surrender this Debenture to the Corporation at 110 Richmond
Street East, 4th Floor, Toronto, Ontario together with the
conversion form attached to this Debenture or any other written
notice in a form reasonably satisfactory to the Corporation, in
either case duly executed by the registered holder or his legal
representatives or his attorney duly appointed by an instrument in
writing in form and execution reasonably satisfactory to the
Corporation exercising his right to convert this Debenture in
accordance with the provisions of this Section. The holder of this
Debenture shall also specify the name or names, with addresses in
which the certificate or certificates representing the Shares
issuable upon conversion shall be registered. Thereupon the
debenture holder or, subject to payment of all applicable transfer
taxes and compliance with
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all reasonable requirements of any transfer agent, his nominee or
assignee, shall be entitled to be entered in the books of the
Corporation as at the Date of Conversion (as hereinafter defined)
as the holder of the number of Shares into which this Debenture is
convertible in accordance with the provisions of this Section.
3.2.2 For the purposes of this Section, this Debenture shall be deemed to
be surrendered for conversion on the date (herein called the "Date
of Conversion") on which it is so surrendered in accordance with
the provisions of this Section and, in case this Debenture is
surrendered by post or other means of transmission, on the date on
which it is received by the Corporation at its offices specified in
subclause 3.2.1 of this clause; provided that if this Debenture is
surrendered for conversion on a day on which the registers of
Shares is closed, the person or persons entitled to receive Shares
upon such conversion shall become the holder or holders of record
of such Shares as at the date on which such registers are reopened
and such date shall be deemed to be the date on which this
Debenture is surrendered for conversion.
ADJUSTMENT OF CONVERSION PRICE
3.3 The Conversion Price in effect at any date shall be subject to adjustment
from time to time as follows:
3.3.1 If and whenever prior to the Expiry Time, the Corporation shall:
3.3.1.1 subdivide or redivide the outstanding Shares or securities
convertible or exchangeable into Shares into a greater
number of Shares;
3.3.1.2 reduce, combine or consolidate the outstanding Shares or
securities convertible or exchangeable into Shares into a
lesser number of Shares; or
3.3.1.3 issue any Shares, or securities convertible into or
exchangeable for Shares, to the holders of all or
substantially all of the outstanding Shares by way of the
stock dividend (other than an issue of Shares, or securities
convertible into or exchangeable for Shares to holders of
Shares pursuant to their exercise of options to receive
dividends in the form of Shares, or
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securities convertible into or exchangeable for Shares, in
lieu of cash dividends paid in the ordinary course on the
Shares;
then the Conversion Price in effect on the effective date of such
subdivision, redivision, reduction, combination or consolidation or
on the record date for such issue of Shares, or securities
convertible into or exchangeable for Shares, by way of a stock
dividend, as the case may be shall, be proportionately adjusted so
that the holder of this Debenture exercising the conversion right
attaching hereto, after such subdivision, redivision, reduction,
combination, consolidation or issuance of securities, shall be
entitled to such greater or lesser number of Shares as he would
have been entitled to receive as a result of such change if on the
effective date thereof, he had been the holder of the number of
Shares to which he was theretofore entitled upon such exercise.
Such adjustments shall be made successively whenever any event
referred to herein shall occur and on such issue of securities by
way of a stock dividend shall be deemed to have been made on the
record date for the stock dividend for the purpose of calculating
the number of outstanding Shares under this clause 3.3.1.
3.3.2 If and whenever at any time prior to the Expiry Time, the
Corporation shall fix a record date for the issuance of rights,
options of warrants, to all or substantially all the holders of its
outstanding Shares entitling them to subscribe for, acquire or
purchase Shares or securities convertible into or exchangeable for
Shares at a price per share or having a conversion or exchange
price per share less than 95% of the Current Market Price of a
Share on such record date, the Conversion Price shall be adjusted
immediately after such record date so that it shall equal the price
determined by multiplying the Conversion Price in effect on such
record date by a fraction, of which the numerator shall be the
total number of Shares outstanding on such record date multiplied
by the Current Market Price per Share on such record date, less the
fair market value (as determined by the board of directors of the
Corporation, which determination, subject to subclause 3.3.8 of
this clause 3.3, shall be conclusive) of such rights, options or
warrants, and of which the denominator shall be the total number of
Shares outstanding on such record date multiplied by such Current
Market Price per Share; any Shares owned by or held for the account
of the Corporation (including those owned by any
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subsidiary of the Corporation) shall be deemed not to be
outstanding for the purpose of any such computation; such
adjustment shall be made successively whenever a record date is
fixed; to the extent that any such rights, options or warrants are
not so issued or any such rights, options or warrants are not
exercised prior to the expiration thereof, the Conversion Price
shall be readjusted to the Conversion Price which would then be in
effect if such record date had not been fixed or to the Conversion
Price which would then be in effect based upon the number of Shares
(or securities convertible into Share) actually issued upon the
exercise of such rights, options or warrants, as the case may be.
3.3.3 If and whenever at any time prior to the Expiry Time, the
Corporation shall fix a record date for the making of a
distribution to all or substantially all of the holders of its
outstanding Shares of:
3.3.3.1 Shares of any class other than Shares, or securities
convertible into or exchangeable for Shares;
or
3.3.3.2 rights, options or warrants (excluding those referred to in
subsection 3.3.2 of this clause 3.3); or
3.3.3.3 assets of the Corporation (excluding dividends paid in the
ordinary course);
then, in each such case, the Conversion Price shall be adjusted
immediately after such record date so that it shall equal the price
determined by multiplying the Conversion Price in effect on such
record date by a fraction, of which the numerator shall be the
total number of Shares outstanding on such record date multiplied
by the Current Market Price per Share on such record date, less the
fair market value (as determined by the board of directors of the
Corporation, which determination, subject to subclause 3.3.8 of
this clause 3.3 shall be conclusive) of such shares or rights,
options or warrants or evidences of indebtedness or assets so
distributed, and of which the denominator shall be the total number
of Shares outstanding on such record date multiplied by the Current
Market Price per Share; any Shares owned by or held for the account
of the Corporation (including those owned by any subsidiary of the
Corporation) shall be deemed not to be outstanding for the purpose
of any such computation; such adjustment shall be
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made successively whenever such a record date is fixed; to the
extent that such distribution is not so made, the Conversion Price
shall be readjusted to the Conversion Price which would then be in
effect if such record date had not been fixed or to the Conversion
Price which would then be in effect based upon such shares or
rights, options or warrants or evidences of indebtedness or assets
actually distributed, as the case may be; in this subclause 3.3.3
the term "dividends paid in the ordinary course" shall include the
value of any securities or other property or assets distributed in
lieu of cash dividends paid in the ordinary course at the option of
shareholders of the Corporation.
3.3.4 No adjustments of the Conversion Price shall be made pursuant to
clause 3.3 if the holder of this Debenture is permitted to
participate in such stock dividend or in the issue of such options,
rights or warrants or in such distribution, as the case may be, as
though and to the same effect as if he had converted this Debenture
into Shares prior to the applicable record date or effective date
for such stock dividend or the issue of such options, rights or
warrants or such distribution, as the case may be.
3.3.5 In the case of any reclassification of, or other change in, the
outstanding Shares or securities convertible or exchangeable into
Shares of the Corporation other than a subdivision, redivision,
reduction, combination or consolidation, the Conversion Price shall
be adjusted in such manner, if any, and at such time as the
directors, in their sole discretion, may determine to be equitable
in the circumstances. Failure of the directors to provide for an
adjustment on or prior to the effective date of any such
reclassification of, or change in, the outstanding Shares of the
Corporation shall be conclusive evidence that the directors have
determined that it is equitable to make no adjustment in the
circumstances.
3.3.6 In any case in which this clause 3.3 shall require that an
adjustment shall become effective immediately after a record date
for an event referred to herein, the Corporation may defer, until
the occurrence of such event, issuing to the holder of this
Debenture which is converted after such record date and before the
occurrence of such event the additional Shares issuable upon such
conversion by reason of the adjustment required by such event
before giving effect to such adjustment; provided,
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however, that the Corporation shall deliver to such holder an
appropriate instrument evidencing such holder's right to receive
such additional Shares upon the occurrence of the event requiring
such adjustment and the right to receive any distributions made on
such additional Shares declared in favor of holders of record of
Shares on and after the Date of Conversion or such later date as
such holder would, but for the provisions of this subclause 3.3.6,
have become the holder of record or such additional Shares pursuant
to clause 3.3.
3.3.7 The adjustments provided for in this clause 3.3 are cumulative and
shall apply to successive subdivisions, redivisions, reductions,
combinations, consolidations, distributions, issues or other events
resulting in any adjustment under the provisions of this clause
3.3; provided that, notwithstanding any other provision of this
clause 3.3, no adjustment of the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Conversion Price then in effect; provided however,
that any adjustments which by reason of this subclause 3.3.7 are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
3.3.8 When any action is taken which requires an adjustment of the
Conversion Price to be made under clause 3.3, the Corporation
shall forthwith prepare and deliver to the holder of this
Debenture, a Certificate signed by two senior officers of the
Corporation setting forth the details of the actions taken, the
Conversion Price before adjustment and the details of the
computation of the adjusted Conversion Price. The Corporation may
and, if required by the holder of this Debenture, shall retain a
firm of independent chartered accountants, who may be the auditors
of the Corporation, to make any computation required under clause
3.3 and any computation so made shall be final and binding on the
corporation and the holder. Such firm of independent accountants
may, as to questions of law, request and rely upon an opinion of
independent counsel, who may be counsel for the Corporation.
3.3.9 In case of any reclassification or change of Shares, other than a
change contemplated in clause 3.3 or in the case of a
reorganization, amalgamation, consolidation or merger of the
Corporation with or into any other corporation, or in the case of
any sale of the properties and assets of the Corporation as, or
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substantially as, an entirety to any other corporation, this
Debenture shall, after such reclassification, change,
reorganization, amalgamation, consolidation, merger or sale, be
convertible into the number of shares or other securities or
property of the Corporation, as the case may be, that such holder
would have been entitled to receive as a result thereof, if on the
effective date thereof, he had been the holder of the number of
Shares to which he was theretofore entitled upon conversion. The
board of directors may, and if required by the holder, shall retain
a firm of independent chartered accountants, who may be the
auditors of the Corporation, to make any computation required under
this clause 3.3.9 and the board of directors may determine such
entitlement on the basis of such certificate. Such firm of
independent chartered accountants may, as to questions of law,
request and rely upon an opinion of independent counsel, who may be
counsel to the Corporation. Any such determination shall be
conclusive and binding on the Corporation and the holder.
3.3.10 The Corporation shall give to the holder at least 10 days prior
notice of the effective date or record date for any event which
gives rise to an adjustment pursuant to this clause 3.3, including
the payment of any cash dividend, stock dividend or other
distribution on its Shares and the issuance to holders of Shares of
rights to subscribe for Shares or other securities, and shall give
at least 30 days prior notice before making any repayment of
capital on its Shares. Any such notice shall be sufficiently given
if given in accordance with clause 13.1.
3.3.11 If, in the opinion of the board of directors, the provisions of
this clause 3.3 are not strictly applicable, or if strictly
applicable would not fairly protect the rights of the holder in
accordance with the intent and purposes hereof, the board of
directors shall make any adjustment in such provisions for the
benefit of the holder as the board of directors seems appropriate.
RESERVATION OF SHARES
3.4 The Corporation covenants and agrees that, so long as this Debenture is
outstanding and entitled to the right of conversion herein provided, it
will at all times reserve and hold out of its unissued Shares a sufficient
number of unissued Shares to enable the outstanding principal amount hereof
to be converted upon the basis and upon the terms and conditions herein
provided in this Section 3.
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4. DEBENTURE REGISTER
A register shall be kept by the Corporation at its offices at 110 Richmond
Street East, 4th Floor, Toronto, Ontario and any other offices required by law
wherein shall be entered the name, address and description of the registered
holder or holder of this Debenture and particulars of the Debenture held by it.
5. EXCLUSIVE BENEFIT
The registered holder of this Debenture or his legal personal representative
will be regarded as exclusively entitled to the benefit of this Debenture and
all persons may act accordingly and the Corporation shall not be bound to enter
in the register notice of any trust or, except as by some court of competent
jurisdiction ordered, to recognize any trust or equity affecting the title to
this Debenture or the monies secured.
6. TRANSFER OF DEBENTURE
Every transfer of this Debenture must be in writing under the hand of the
registered holder or his legal personal representative or the attorney
authorized in writing of such registered holder or the legal personal
representative of such registered holder. Any such transfer accompanied by this
Debenture must be delivered at the offices of the Corporation as specified in
Section 4 together with such evidence of identity or title as the Corporation
may reasonably require, whereupon the transfer will be registered and duly noted
by endorsement hereon signed by the Secretary or Assistant Secretary of the
Corporation.
7. JOINT HOLDERS
In case of joint registered holders the principal monies and interest owing
hereunder shall be deemed to be owing to such holder upon a joint account.
9. RIGHT OF SET-OFF
The principal monies hereby secured will be paid with regard to any equities
between the Corporation and the original or any intermediary holder hereof and
any set-off or cross-claim. The receipt of the registered holder for the
payment of such monies will be a good discharge to the Corporation for same.
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10. ENFORCEMENT OF SECURITY
10.1 The security hereby constituted shall become enforceable and, at the option
of the holder hereof, all amounts hereby secured shall thereupon become due
and payable if:
(1) the Corporation defaults in its obligations hereunder to pay
interest or repay principal or issue and deliver Shares upon
conversion;
(2) any formal or informal proceeding for the dissolution, liquidation
or winding up of the affairs of the Corporation is instituted by or
against the Corporation, or where a resolution is passed or any
other act undertaken for the winding up of the Corporation;
(3) any proceedings are taken to enforce any other encumbrance on the
Charged Assets or any of them;
(4) the Corporation ceases or threatens to cease to carry on its
business, or where the Corporation makes or agrees to make a sale
in bulk of the Charged Assets;
(5) the Corporation creates, suffers or permits to be created or levied
upon the Charged Assets, or any part thereof, a charge, mortgage,
lien, encumbrance, execution, sequestration, extent or other
process of any court, or any distress or analogous process, or a
floating charge on any of the Charged Assets is about to become
fixed;
(6) the Corporation permits any sum, which has been admitted as due by
it or is not disputed to be due by it and which forms or is capable
of being made a charge upon any of the Charged Assets in priority
to the charge created by this Debenture, to remain unpaid after
proceedings have been taken to enforce the collection of that sum
as a prior charge;
(7) the Corporation sells, assigns, pledges or otherwise disposes of or
deals with the whole or any part of the Charged Assets other than
as permitted under this Debenture;
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(8) a receiver, manager of trustee is appointed in respect of the
Charged Assets, or any part of them, by a court of competent
jurisdiction, or under an agreement;
(9) on reasonable ground the holder hereof believes that any of the
Charged Assets are in danger of being damaged, sold or removed or
that any of the acts or events described in this clause 10.1 is
about to occur or is likely to occur;
(10) the Corporation defaults in payment of any indebtedness or
liability to a bank or other lending institution, whether secured
or not;
(11) the Corporation defaults in compliance with any provisions of a
lease or other document under which it claims title to or an
interest in any of the Charged Assets;
(12) the Corporation takes any action to bring about amalgamation,
consolidation or merger with or into another corporation;
(13) the Corporation is adjudged bankruptcy or becomes insolvent, or a
petition in bankruptcy is filed against the Corporation, or where
the Corporation makes an assignment for the general benefit of
creditors, or applies for relief under the Companies' Creditors
Arrangement Act (Canada), or makes a proposal under the Bankruptcy
and Insolvency Act (Canada), or where proceedings of any type are
instituted in any jurisdiction in respect of the alleged insolvency
or bankruptcy of the Corporation;
and so long as it remains enforceable, the holder may proceed to realize
upon the security and enforce its rights by the following remedies:
10.1.1 entering into possession of the Charged Assets and leasing, selling
or disposing thereof, either as a whole in part, at public action,
by public tender or by private sale, with or without tender, with
or without notice and with or without advertising, and without any
other formality, all of which are hereby waived by the Corporation,
either for cash or upon credit, at such time, and upon such terms
and conditions as the holder may determine, and such sale may take
place whether or not the holder has taken possession of the Charged
Assets; and the holder may execute and deliver to any purchase of
the Charged Assets or any part hereof, good and sufficient deeds,
documents
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and assurances for the same, the holder being irrevocably
constituted the attorney of the Corporation for the purpose of
making any such sale and executing such deeds, documents and
assurances;
10.1.2 proceedings in any court of competent jurisdiction the appointment
of a Receiver (which term as used in Debenture includes a Receiver
and Manager) of all or any part of the Charges Assets;
10.1.3 proceedings in any court of competent jurisdiction for sale or
foreclosure of all or any part of the Charged assets;
10.1.4 filing of proofs of claim and/or other documents establish its
claims in any proceedings relative to Corporation;
10.1.5 appointment by instrument in writing of a Receiver of or any part
of the Charged Assets and removal or replacement from time to time
of any such Receiver; and
10.1.6 any other remedy or proceeding authorized or permitted hereby or by
law or equity.
Such remedies may be executed from time to time separately or in
combination and are in addition to and not in substitution for any other
rights of the holder however created.
10.2 Any Receiver appointed shall have the power to:
10.2.1 take possession of, collect and get in all or any part of the
Charges Assets;
10.2.2 borrow money for the maintenance, preservation or protection of all
or any part of the Charged Assets and to further charge the Charged
Assets in priority to the of the Debenture as security for monies
so borrowed such purpose as may be approved by the holder; and
10.2.3 sell or concur in selling all or any part of the Charged Assets
without notice and in such manner as may seem advisable to the
Receiver, and to effect such sale by conveying in the name and on
behalf of the Corporation or otherwise.
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10.3 Any Receiver appointed shall be vested with such other discretions and
powers as are granted in the instrument of appointment and any supplement
thereto, and the Corporation shall be solely responsible for the Receiver's
remuneration. All monies from time to time received by the Receiver may be
applied as follows:
10.3.1 first, in payment of all costs, charges and expenses of incidental
to the appointment of the Receiver and the exercise by the Receiver
of all or any of the powers aforesaid, including the reasonable
remuneration of the Receiver, all outgoings properly paid by the
Receiver and the fees and disbursements of legal counsel to the
holder and the Receiver, on a solicitor and his own client basis;
10.3.2 secondly, in or towards payment to the Holder of all monies due
hereunder; and
10.3.3 thirdly, any surplus shall be paid to the Corporation or for the
benefit of the Corporation.
10.4 No persons dealing with the Receiver, the holder or their respective
agents, upon any sale or other dealing with the Charged Assets shall be
concerned to inquire as to their powers or as to the application of any
money paid to them, and in the absence of fraud on the part of such person,
such sale or dealing shall be deemed as regards such person to be within
the powers hereby conferred and to be valid and effectual.
11. EXPENSES OF ENFORCEMENT
The Corporation agrees to pay to the holder forthwith upon demand the amount of
all expenses incurred by the holder, including, without limiting the generality
of the foregoing, legal fees and disbursements as between a solicitor and his
own client, in recovering any monies owing hereunder and in enforcing the
security hereby constituted.
12. RECEIPT OF TRUE COPY
The Corporation hereby acknowledges having received a true copy of this
Debenture and acknowledges that a financing statement respecting it in which the
Corporation will be named as debtor may be registered under the Uniform
Commercial Code in any of the states of the United States or under the Personal
Property Security Act (Ontario) or any similar legislation in any Province of
Canada.
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13. NOTICES
13.1 Subject to clause 13.3, any notice to the Corporation under the provisions
of this Debenture shall be in writing and may be given by registered mail,
postage prepaid or delivering the same to the Corporation at:
110 Richmond Street East
4th Floor
Toronto, Ontario
M5C 1P1
Attention: Contracts Administrator
Facsimile No.: (416) 861-8805
Any notice to the holder of the Debenture under the provision of this
Debenture shall be in writing and may be given by registered mail, postage
prepaid or delivering the same to:
53 Parkside Drive
Toronto, Ontario
M6R 2Y7
with copy to: Rye and Partners
Barristers and Solicitors
65 Queen Street West
Suite 1200
Toronto, Ontario
M5H 2M5
Attention: Mr. Daniel J. King
or if the registered address of the holder is subsequently varied, then to
the registered address of the registered holder of this Debenture.
13.2 Any notice if delivered shall be deemed to have been given or made on the
date on which it was delivered or if given by registered mail shall be
deemed to have been given or made on the tenth business day following the
day on which it was mailed.
13.3 In the event of any disruption of mail service which may affect delivery of
any notice given pursuant to clause 13.1 by registered mail after the
mailing of such notice and before the date upon which such notice is deemed
to have been or made pursuant to clause 13.2, such notice shall be
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deemed not to have been given and must be given or made by delivering the
same. In the event of any disruption of mail service which may affect
delivery of any notice, Debenture, share certificate, cheque or other
writing by registered mail or ordinary mail before the mailing of any of
the foregoing, such notice, Debenture, share certificate, cheque or other
writing shall be delivered by hand in lieu of mailing the same.
14. AMENDMENT
This Debenture may be amended only by agreement in writing executed by the
Corporation and the holder of this Debenture at the date of such amendment.
15. GOVERNING LAW
This Debenture shall be governed by the laws of the Province of Ontario.
16. TIME OF THE ESSENCE
Time shall be of the essence.
17. BINDING EFFECT
The terms and provisions of this Debenture shall enure to the benefit of and be
binding upon the registered holder hereof, his heirs, executors, administrators,
successors and assigns to the extent provided herein and shall enure to the
benefit of and be binding upon the Corporation and its respective successors and
assigns.
IN WITNESS WHEREOF the Corporation has executed this Debenture under its
corporate seal the 15th day of April, 1993, but with effect as of the 2nd day of
February, 1993.
ALIAS RESEARCH INC.
per:_____________________________c/s
Ian Giffen, Vice-President, Finance
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TRANSFER FORM
FOR VALUE RECEIVED the undersigned sells, assigns and transfers unto
__________________________________________________________________
(name and address of assignee)
__________________________________________________________________
the within Debenture of Alias Research Inc. and hereby irrevocably constitutes
and appoints
__________________________________________________________________
Attorney to transfer the said Debenture on the register of the Convertible
Debenture due November 11, 1997 of the said Corporation, with full power of
substitution in the premises.
DATED the _____ day of _______________, 19____.
____________________________________
Signature of Transferor
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CONVERSION FORM
TO: Alias Research Inc.
The undersigned owner of the within Convertible Debenture hereby irrevocably
elects to convert said Debenture into Shares of Alias Research Inc. in
accordance with the terms of the said Debenture and directs that the
certificates representing the Shares issuable and deliverable upon the
conversion be issued and delivered to the person indicated below.
DATED the ______ day of __________________________, 19_____/
____________________________________
Signature of Owner
______________________________________
Name
______________________________________
Address
______________________________________
(PRINT NAME IN WHICH SHARES ISSUED ON CONVERSION ARE TO BE ISSUED, DELIVERED AND
REGISTERED)
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<PAGE>
GROUND LEASE
CITY OF MOUNTAIN VIEW
AND
SILICON GRAPHICS REAL ESTATE, INC.
NORTH CHARLESTON SITE
MARCH 7, 1995
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS......................................................2
ARTICLE 2 DEMISE, TERM AND SURRENDER.......................................20
2.1 Lease Of Property.....................................................20
2.2 Subdivision Of Property; Separate Ground Leases.......................21
2.3 Delivery Of Possession................................................22
2.4 Term And Possession...................................................22
2.4.1 Initial Term...................................................22
2.4.2 Option Terms...................................................23
2.5 Termination And Surrender.............................................24
2.6 Tenant's Right of Entry...............................................25
2.6.1 Notice.........................................................27
2.7 Landlord's Representations and Warranties.............................27
2.7.1 Zoning.........................................................27
2.7.2 Land Use.......................................................28
2.7.3 No Proceedings.................................................28
2.7.4 Compliance With Laws...........................................28
2.7.5 Title..........................................................28
2.7.6 Utilities......................................................28
2.7.7 CC&Rs..........................................................28
2.8 Condition of Property.................................................29
ARTICLE 3 RENT.............................................................30
3.1 Monthly Rent..........................................................30
3.1.1 Initial Monthly Rent...........................................30
3.1.2 Rent Escalation................................................30
3.1.3 Adjustment of Monthly Rent.....................................30
3.1.3.1 Guaranty In Effect...................................31
3.1.3.2 Other Cases..........................................31
3.1.3.3 Revaluation Procedure................................32
3.1.4 Continuing Escalation..........................................38
3.1.5 Proration......................................................39
3.2 Payment of Rent.......................................................39
3.3 Interest; Late Charge.................................................39
ARTICLE 4 USE..............................................................40
4.1 Permitted Uses........................................................40
4.2 Compliance with Law...................................................40
4.3 Waste.................................................................41
4.4 Leasehold Improvements................................................42
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4.5 Hazardous Materials...................................................42
4.5.1 Representations And Warranties.................................42
4.5.1.1 By Landlord..........................................42
4.5.1.2 By Tenant............................................44
4.5.2 Right Of Entry.................................................45
4.5.2.1 Notice...............................................46
4.5.2.2 Terms of Entry.......................................47
4.5.2.3 Environmental Construction Activities................47
4.5.2.3.1 Meet and Confer..........................47
4.5.2.3.2 Activities Reasonably Necessary..........47
4.5.2.3.3 Alternative Locations....................48
4.5.2.3.4 Tenant's Written Approval................48
4.5.2.3.5 Meetings with Governmental Authorities...49
4.5.2.3.6 Dispute Resolution.......................49
4.5.2.4 Existing Permittees..................................49
4.5.2.5 Third Parties........................................51
4.5.2.6 Information Sharing..................................52
4.5.2.7 Insurance Requirements...............................52
4.5.3 Landlord's Indemnification.....................................54
4.5.3.1 Landlord's Environmental Indemnity Obligations.......54
4.5.3.2 Limitations..........................................55
4.5.3.3 Procedure............................................56
4.5.3.4 Settlement by Landlord...............................57
4.5.4 Tenant's Indemnification.......................................58
4.5.4.1 Tenant's Environmental Indemnity Obligations.........58
4.5.4.2 Limitations..........................................59
4.5.4.3 Procedure............................................60
4.5.4.4 Settlement by Tenant.................................61
4.5.5 Tenant's Environmental Obligations.............................61
4.5.6 Waivers........................................................62
4.5.6.1 Landlord's Waiver....................................62
4.5.6.2 Tenant's Waiver......................................62
4.5.6.3 General Release......................................63
4.5.7 Reservation of Rights..........................................63
4.5.8 Survival.......................................................64
4.5.9 Abatement Of Rent or Termination Due To New Contamination......64
4.5.9.1 Rent Abatement During Construction of Initial
Project............................................64
4.5.9.2 Tenant's Right to Terminate During Construction
of Initial Project.................................65
4.5.9.3 City's Right to Terminate During Construction.......66
4.5.9.4 Rent Abatement Upon Completion of Initial Project...66
4.5.9.5 Lease Termination Upon Completion of Leasehold
Improvements.......................................67
4.5.9.6 Failure to Agree Upon Consultant or Findings........67
4.5.10 Utility Costs Related to Contaminated Groundwater..............68
4.5.11 Building Costs Related to Methane..............................68
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ARTICLE 5 PAYMENT OF REAL PROPERTY TAXES AND UTILITY CHARGES...............69
5.1 Notice of Possessory Interest: Payment of Taxes and
Assessments on Value of Entire Property..............................69
5.2 Utilities.............................................................69
5.3 Real Property Taxes...................................................69
5.4 Right to Contest......................................................70
ARTICLE 6 CONSTRUCTION OF IMPROVEMENTS AND MECHANIC'S LIENS................70
6.1 Construction Prior To Commencement Date...............................70
6.2 Construction of Initial Project.......................................71
6.3 Conditions Precedent to Construction of Initial Project and Other
Leasehold Improvements...............................................71
6.3.1 Insurance During the Course of Construction....................71
6.3.2 Permits........................................................74
6.4 Notice of Nonresponsibility...........................................75
6.5 Completion Requirements...............................................75
6.6 Landlord Free From Liability..........................................75
6.7 Mechanics' Liens......................................................76
6.8 Landlord's Right to Discharge Lien....................................77
6.9 Title to Leasehold Improvements.......................................78
6.10 Landlord's Cooperation................................................78
6.11 Tenant's Election to Redevelop........................................78
ARTICLE 7 INSURANCE AND INDEMNITY..........................................79
7.1 Required Insurance....................................................79
7.1.1 Liability Insurance............................................80
7.1.2 Property Insurance.............................................80
7.1.3 Insurance Coverage.............................................81
7.2 Required Terms........................................................81
7.3 Partial Release of Liability and Waiver of Subrogation................83
7.4 Indemnification of Landlord...........................................83
7.4.1 Limitation of Landlord's Liability.............................83
7.4.2 Tenant's Indemnity.............................................84
7.4.2.1 Scope of Tenant's Indemnity...........................84
7.4.2.2 Limitations on Tenant's Indemnity.....................85
7.5 Landlord's Indemnity..................................................86
7.5.1 Scope of Landlord's Indemnity..................................88
7.5.2 Limitations on Landlord's Indemnity............................88
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ARTICLE 8 MAINTENANCE, REPAIR AND RESTORATION OF DAMAGE....................89
8.1 Tenant's Duty to Maintain and Repair..................................89
8.2 Casualties............................................................90
8.2.1 Tenant's Duty To Restore.......................................90
8.2.2 Tenant's Termination Rights....................................91
8.2.2.1 Election Not to Reconstruct...........................91
8.2.2.2 Infeasibility.........................................92
8.2.3 General Provisions.............................................94
ARTICLE 9 CONDEMNATION.....................................................95
9.1 Definitions...........................................................95
9.1.1 Condemnation...................................................95
9.1.2 Total Taking...................................................95
9.1.3 Partial Taking.................................................95
9.1.4 Date of Taking.................................................96
9.1.5 Award..........................................................96
9.2 Total Taking..........................................................96
9.3 Partial Taking........................................................96
9.4 Temporary Taking......................................................97
9.5 Apportionment of Award................................................97
9.6 General...............................................................98
ARTICLE 10 DEFAULT AND REMEDIES.............................................99
10.1 Events of Tenant's Default............................................99
10.1.1 Monetary Default..............................................99
10.1.2 Nonmonetary Default...........................................99
10.2 Landlord's Remedies..................................................100
10.2.1 Termination of Lease.........................................100
10.2.2 Landlord's Election to Continue Lease........................103
10.2.3 Appointment of Receiver......................................104
10.2.4 Cure of Default by Landlord..................................104
10.3 No Waiver............................................................104
10.4 Remedies Cumulative..................................................105
10.5 Landlord's Default...................................................105
10.6 Tenant's Remedies....................................................105
ARTICLE 11 ASSIGNMENT AND SUBLETTING.......................................106
11.11 Assignment by Tenant.................................................106
11.1.1 Assignment to Virtual Funding, Inc...........................106
11.1.2 Automatic Assignment Right...................................106
11.1.3 Landlord's Right of Approval.................................108
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11.1.4 Processing Expenses..........................................111
11.1.5 Documentation................................................111
11.2 Subletting By Tenant.................................................112
11.3 Affiliate Transactions...............................................113
11.4 Waiver and Acknowledgment............................................113
ARTICLE 12 TRANSFER OF LEASED PREMISES BY LANDLORD.........................114
12.1 Transfer by Landlord.................................................114
12.2 Tenant's Rights of First Negotiation.................................115
12.2.1 Landlord's Duty To Notify....................................115
12.2.2 Exclusive Negotiation Period-Landlord-Initiated Transaction..116
12.2.2.1 Failure to Execute Agreement and Landlord's
Right to Transfer.................................116
12.2.3 Marketing Period.............................................116
12.2.3.1 Third-Party Offer Equal to or Less Than One Hundred
Six Percent of Final Offer........................117
12.2.3.2 Tenant's Right to Accept Reoffer...................117
12.2.3.3 Third-Party Offer Exceeding One Hundred Six
Percent of Final Offer............................118
12.2.3.4 New Tenant Offers..................................119
12.2.4 Third-Party Negotiations.....................................119
12.2.5 Third-Party Closing..........................................119
12.2.6 Reoffer to Tenant in Event Third Party Does Not Close........120
12.2.7 Tenant Renegotiations Following Unsuccessful Marketing.......122
12.2.8 Negotiation Period-Unsolicited Offer.........................123
12.2.9 Expiration of Right of First Negotiation.....................123
12.3 Indemnification From Taxes Due To Change in Ownership................124
ARTICLE 13 TENANT MORTGAGES................................................124
13.1 Tenant's Right to Encumber Tenant's Estate...........................124
13.1.1 No Modification Without Consent..............................125
13.1.2 No Termination...............................................125
13.1.3 Right to Cure................................................126
13.1.4 Rights Upon Default..........................................126
13.1.5 Rights Upon Default of Non-Monetary Obligations
Not Susceptible to Cure.....................................127
13.1.6 Rights Upon Bankruptcy, Insolvency...........................129
13.1.7 Notices......................................................129
13.1.8 Rights And Liability Upon Acquisition of Tenant's Estate.....130
13.1.9 Lease Upon Termination.......................................133
13.1.10 Estoppel Certificate.........................................134
13.1.11 No Merger....................................................134
13.1.12 Permitted Transfer...........................................135
13.1.13 Encumbrance on Fee...........................................136
13.1.14 Successors and Assigns.......................................140
13.1.15 Agreement to Amend...........................................140
13.1.16 Tenant Mortgages Subordinate to Lease........................141
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ARTICLE 14 GENERAL PROVISIONS..............................................141
14.1 Guaranty.............................................................141
14.2 Estoppel Certificates................................................141
14.3 Holding Over.........................................................142
14.4 Notices..............................................................143
14.5 Attorneys' Fees......................................................145
14.6 No Merger............................................................145
14.7 Arbitration of Disputes..............................................145
14.8 No Partnership.......................................................148
14.9 Captions.............................................................149
14.10 Duplicate Originals..................................................149
14.11 Time of the Essence..................................................149
14.12 Severability.........................................................149
14.13 Interpretation.......................................................149
14.14 Successors Bound.....................................................150
14.15 No Waiver............................................................150
14.16 Remedies Cumulative..................................................150
14.17 Covenant of Fair Dealing.............................................150
14.18 Force Majeure........................................................150
14.19 Memorandum of Lease..................................................151
14.20 Authority............................................................151
14.21 Nondiscrimination....................................................151
14.22 Lease Fee............................................................152
14.23 Landlord's Termination Right.........................................152
14.24 Integration..........................................................152
14.25 No Remedy Limitation.................................................153
14.26 Exhibits.............................................................153
14.27 Incorporation of Certain Terms.......................................153
14.28 Right of Entry.......................................................153
14.28.1 Notice......................................................154
14.28.2 Terms of Entry..............................................154
14.28.3 Insurance Requirements......................................155
14.29 No Waiver of Police Powers or Rights.................................157
14.30 Survival.............................................................157
EXHIBIT A LEGAL DESCRIPTION OF PROPERTY...................................159
EXHIBIT B PERMITTED TITLE EXCEPTIONS......................................160
EXHIBIT C ENVIRONMENTAL DOCUMENTS.........................................161
EXHIBIT D SETBACK AREA....................................................162
EXHIBIT E INTENTIONALLY OMITTED...........................................163
EXHIBIT F CITY UTILITIES..................................................164
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EXHIBIT G GUARANTY........................................................165
EXHIBIT H MEMORANDUM OF GROUND LEASE......................................166
EXHIBIT I MEMORANDUM OF DISPOSITION AND DEVELOPMENT AGREEMENT.............167
</TABLE>
<PAGE>
GROUND LEASE
THIS GROUND LEASE ("Lease") is made as of this ______ day of
_______________, 1995 (the "Effective Date"), by and between THE CITY OF
MOUNTAIN VIEW, a municipal corporation (hereinafter "Landlord") and SILICON
GRAPHICS REAL ESTATE, INC., a Delaware corporation (hereinafter "Tenant").
RECITALS
This Lease is made with reference to the following facts,
intentions, and understandings, which the parties hereto agree are relevant
to this transaction:
A. Landlord is the owner of that certain real property ("Property")
more particularly described in attached Exhibit A. The Property is located
within the Mountain View Shoreline Regional Park Community District, and is
subject to the Shoreline Regional Park Community District Act.
B. The Property is located within Area 1 of the North Bayshore
Precise Plan Area and is subject to the North Bayshore Precise Plan ("Precise
Plan"), adopted by the City Council of the City of Mountain View on April 12,
1994 pursuant to Resolution No. 15684.
C. The purpose of this Lease is to effectuate the leasing of the
Property to Tenant and to facilitate the construction of certain park and
creekside improve-
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<PAGE>
ments pursuant to that certain Disposition and Development Agreement of even
date herewith ("DDA").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 AGENTS, with respect to any person, means any other person for
whom such person is legally responsible (including, without limitation, the
officers, directors, employees, agents, consultants, personal
representatives, and independent contractors acting within the scope of their
relationship, subtenants, licensees and concessionaires, and invitees and
guests). In no event, however, shall Agents include any member of the public
entering any portion of the Project pursuant to a public right of access.
1.2 AFFILIATE TRANSACTIONS is defined in Section 11.3 of the Lease,
below.
1.3 AREA PLAN means the North Bayshore Area Plan, recorded in the
official Records of Santa Clara County on December 27, 1977 in Book D366,
Page 444.
1.4 ASSIGNMENT is defined in Section 11.1.3, below.
1.5 AWARD is defined in Section 9.1.5, below.
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<PAGE>
1.6 BUILDING(S) means one or more structures, to be constructed by
Tenant or its subtenant on the Property pursuant to the provisions of this
Lease and the DDA, and consistent with provisions of the DDA and the Planned
Community Permit (as defined in Section 1.53, below), but excluding any
common parking structure associated therewith.
1.7 CITY means The City of Mountain View, a municipal corporation.
1.8 CITY Council Approval is the approval by City of the Planned
Community Permit, as defined in Section 1.53, below.
1.9 CLAIMS is defined in Section 7.4.2, below.
1.10 COMMENCEMENT DATE is the later of (a) March 15, 1995 or (b)
the date upon which all of the following conditions have been satisfied by
City: (i) the City Council shall have approved the Planned Community Permit;
and (ii) all of the conditions contained in Sections 3.2(a) through (c) of
the DDA shall have been performed and satisfied.
1.11 CONDEMNATION is defined in Section 9.1.1, below.
1.12 CONTAMINATION means the presence at any time of any (i)
Hazardous Material(s) in, on or about the soil, ground water, surface water,
or air of the Project or any portion thereof in concentrations exceeding the
limits permitted by applicable Hazardous Materials Laws, including, without
limitation, any Hazardous Materials which are present in the soil, ground
water, surface water or air of the Project or any portion thereof as
described in the Environmental Documents, which have or which may hereafter
migrate to the Project from any source in concentrations exceeding the limits
permitted by applicable Hazardous Materials Laws; and (ii) methane gas in, on
or about the soil, ground water or air of the Project or any
-3-
<PAGE>
portion thereof from any source in concentrations exceeding the limits
permitted by applicable Hazardous Materials Laws or other applicable Laws,
including, without limitation, any methane gas which has or which may
hereafter migrate to any portion of the Project from any source in
concentrations exceeding the limits permitted by applicable Hazardous
Materials Laws or other applicable Laws.
1.13 DATE OF TAKING is defined in Section 9.1.4, below.
1.14 DDA means the Disposition and Development Agreement of even
date herewith by and between City and Tenant, as may be incorporated into any
Statutory Development Agreement for the Project.
1.15 ENVIRONMENTAL CLAIMS means any and all:
(i) Claims (as defined in Section 7.4.2 of this Lease)
arising out of or in connection with any actual or threatened bodily injury,
personal injury, emotional distress, or property damage resulting from the
presence of or exposure to any Contamination, which is asserted against or
issued to any Indemnitee;
(ii) Reasonable costs and expenses incurred or paid at any
time by an Indemnitee which arise out of or as a consequence of any cleanup,
investigation, removal, remediation, response to, abatement, containment,
closure, or monitoring
-4-
<PAGE>
of Contamination (including, without limitation, costs and expenses incurred
to fulfill any order of a Governmental Authority, and costs and expenses
incurred in the preparation of investigative studies, environmental reports,
laboratory testing, sampling, surveying, and posting of financial assurances
required by applicable Hazardous Materials Laws); and/or
(iii) Reasonable attorneys', consultants', accountants',
environ-mental consultants' and other professional fees and expenses paid or
incurred by an Indemnitee in connection with any of the foregoing,
without regard to whether any of the foregoing (i), (ii) and (iii) is
foreseeable or unforeseeable, suspected or unsuspected, conditional or
unconditional, known or unknown, as of the Effective Date.
1.16 ENVIRONMENTAL CONSTRUCTION ACTIVITY means any removal,
abandonment, construction or installation of equipment, monitoring wells,
extraction wells and related equipment and piping, or fixtures; remediation,
removal, extraction, treatment, well development; or any other physical
disturbance of the Project prior to the completion of Tenant's Off-Site
Improvements, and at all times on the Property and/or the Leasehold
Improvements, as a consequence of Contamination or to determine whether
Contamination may exist.
1.17 ENVIRONMENTAL DOCUMENTS means those written environmental
reports and assessments and the correspondence concerning Contamination of
the Project which are listed on EXHIBIT C.
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1.18 EVENT OF DEFAULT is defined in Section 10.1, below.
1.19 EXISTING PERMITTEE means Richard T. Peery, under trust
agreement dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended, and John Arrillaga, trustee, under trust agreement dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, pursuant to that
certain Encroachment Agreement dated January 6, 1993 with respect to
monitoring well PA3 only).
1.20 FAIR MARKET RATE OF RETURN is defined in Section 3.1.3.3.B,
below.
1.21 FAIR MARKET VALUE is defined in Section 3.1.3.3.A, below.
1.22 FAR means the floor area ratio obtained by dividing the Floor
Area of the Buildings existing on the Property on the date of the
determination (or which would be existing on the Property if Tenant had
performed any outstanding restoration obligation of Tenant under Article 8 or
Article 9 hereof following any casualty or condemnation) by the square
footage of the Property subject to the Lease on the date of determination.
1.23 FARMER'S FIELD is those parcels of real property bounded by
North Shoreline Boulevard, Charleston Road, Amphitheatre Parkway and
Permanente Creek.
1.24 FLOOR AREA shall mean the gross floor of a Building area as
defined in the Mountain View Zoning Ordinance, Section 36.3.32, in effect as
of the Effective Date,
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<PAGE>
to wit: "The floor area enclosed within the walls of a building and measured
from the outside perimeter of said walls expressed in square feet or
fractions thereof."
1.25 GOVERNMENTAL AUTHORITY means any legislative authority, court,
administrative agency, commission or other governmental authority or
instru-mentality of competent jurisdiction over the subject matter in
question.
1.26 GUARANTOR means Silicon Graphics, Inc., a Delaware corporation.
1.27 GUARANTY means that certain Guaranty executed concurrently
herewith by Guarantor, as attached as EXHIBIT G.
1.28 HAZARDOUS MATERIAL means any material or substance in a
concentra-tion or amount now or hereafter designated by any Governmental
Authority to be radioactive, toxic, hazardous or otherwise a danger to
health, reproduction or the environment, including, without limitation (i)
oil and petroleum products; (ii) radioactive substances and materials; (iii)
asbestos; (iv) urea formaldehyde; (v) radon gas; and (vi) chemicals,
materials or substance now or hereafter defined or included in the definition
of "hazardous substance," "hazardous waste," "hazardous material," or "toxic
substance," or words of similar import, under any Law, including, but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), the California Hazardous Substances Account
Act, the Resource Conservation and Recovery Act, the California Hazardous
Waste Control Law, the Federal Insecticide, Fungicide and Rodenticide Act,
the Federal Water Pollution Control Act, the California Porter-Cologne Act,
the Clean Air Act, the California Clean Air Act, the Occupational
-7-
<PAGE>
Safety and Health Act, the California Occupational Safety and Health Act, as
the foregoing shall be now or hereafter amended, and similar Laws now or
hereafter enacted.
1.29 HAZARDOUS MATERIALS ACTIVITIES means the transportation,
transfer, recycling, storage, use, treatment, investigation, removal,
remediation, sampling, monitoring, abatement, production, discharge,
emission, release, exposure of others to, manufacture, formulation, sale,
disposal or distribution of any Hazardous Materials or any equipment or
product containing a Hazardous Material, including, without limitation, any
Environmental Construction Activity.
1.30 HAZARDOUS MATERIALS LAWS means all Laws now or hereafter
enacted, issued or promulgated by any Governmental Authority which relate to
Contamination, any Hazardous Material, or any Hazardous Material Activity.
1.31 INDEMNITEE means any Tenant Indemnitee or Landlord Indemnitee.
1.32 INITIAL MONTHLY RENT is equal to one-twelfth (1/12) of One
Million Five Hundred Eighty Thousand Seven Hundred Five Dollars
($1,580,705.00) (i.e., One Hundred Thirty-One Thousand Seven Hundred
Twenty-Five and 41/100 Dollars ($131,725.41) per month); provided, however,
that, notwithstanding Tenant's good-faith efforts to satisfy the guidelines
set forth in the Precise Plan, if the Floor Area of the Buildings approved by
the City of Mountain View pursuant to the Planned Community Permit is not at
least equal to 500,000 square feet (excluding parking and garage areas), then
the Initial Monthly Rent shall be equal to one-twelfth (1/12) of One Million
Five Hundred Eighty Thousand Seven Hundred Five Dollars
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<PAGE>
($1,580,705.00) (i.e., One Hundred Thirty-One Thousand Seven Hundred
Twenty-Five and 41/100 Dollars ($131,725.41) per month), times a fraction,
the numerator of which is the approved Floor Area and the denominator of
which is 500,000 square feet.
1.33 INITIAL PROJECT means the Property, the parcels of land upon
which Tenant's Off-Site Improvements are to be constructed, and the Leasehold
Improvements and Tenant's Off-Site Improvements to be constructed pursuant to
the Planned Community Permit.
1.34 LANDLORD'S CONTAMINATION means any Contamination (i) which is
Pre-Existing Contamination; (ii) which is in the ground water (including any
attendant vadose zone) of the Project or migrating therefrom at any time
during the Lease Term (excluding Tenant's Contamination); (iii) which
migrates at any time during the Lease Term from the soil, surface water, or
air of any land owned or operated at any time by the City; (iv) which is
caused by the placement, discharge, emission or release of a Hazardous
Material by Landlord or Landlord's Agents; or (v) caused by the placement,
discharge, emission or release of a Hazardous Material directly onto the
surface of the Property or into the Leasehold Improvements by any member of
the public (except Tenant or Tenant's Agents), if such member of the public
is exercising any right of entry onto the Land during the hours of public
entry described in the DDA, except to the extent such placement, discharge,
emission or release could have been prevented by reasonable security
precautions commonly undertaken by owners of comparable projects with public
access, and such precautions were not undertaken by Tenant.
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1.35 LANDLORD'S ENVIRONMENTAL INDEMNITY OBLIGATION is defined in
Section 4.5.3, below.
1.36 LANDLORD'S ESTATE means all of Landlord's right, title and
interest in this Lease, the Property and the Leasehold Improvements.
1.37 LANDLORD INDEMNITEES means Landlord, any successor or assign
of Landlord's Estate (or any portion thereof or interest therein), and any
and all Agents, political subdivisions, affiliates, partners or subsidiaries
of Landlord or any successor or assign of Landlord's Estate (or any portion
thereof or interest therein).
1.38 INTENTIONALLY DELETED.
1.39 LATE TERM EXTENSIVE DAMAGE means any damage to the Leasehold
Improvements after the 30th Year Of The Lease Term, whether insured or
uninsured, if the reasonable cost to be incurred by Tenant to restore the
Leasehold Improvements to the condition required by Section 8.2.1 and 8.2.2
exceeds: (x) forty percent (40%) of the "replacement cost" (as defined
below) of the Leasehold Improvements, if such damage occurs during the
thirty-first (31st) Year Of The Lease Term through the end of the
thirty-fifth (35th) Year Of The Lease Term; (y) twenty percent (20%) of the
replacement cost for any such damage incurred during the thirty-sixth (36th)
Year Of The Lease Term, and (z) twenty percent (20%), less one percent (1%)
for each Year Of The Lease Term following the thirty-sixth (36th) Year Of The
Lease Term, of the replacement cost of the Leasehold Improvements, if the
damage occurs after the 36th Year Of The Lease Term until the end of the
Lease Term. For purposes of this Section 1.37, "replacement cost" shall mean
the actual
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cost of replacing the Leasehold Improvements as of the date of casualty in
accordance with applicable Law, including, without limitation, costs of
foundations and footings (excluding soils, excavation, grading and
compaction), if applicable, construction, architectural, engineering, legal
and administrative fees, inspection, supervision and landscape restoration.
1.40 LAW means any judicial decision, statute, constitution,
ordinance, resolution, treaty, protocol, regulation, rule, building code,
order, judgment, injunction, decree, permit, approval, or other requirement,
including, without limitation, Hazardous Materials Laws, of any Government
Authority having jurisdiction over the parties to this Lease, the Property,
the Leasehold Improvements or the Project, as appropriate.
1.41 LEASE EXPIRATION DATE is the last day of the fifty-fifth
(55th) Year Of The Lease Term, unless otherwise extended or terminated under
terms of this Lease.
1.42 LEASE FEE is the Two Hundred Fifty Thousand Dollars ($250,000)
paid by Tenant to Landlord upon execution and delivery of this Lease and the
DDA (and memorandums thereof in recordable form) pursuant to Section 14.22,
below.
1.43 LEASE MONTH is each complete calendar month following the
Commencement Date. If the Commencement Date does not occur on the first day
of a calendar month, then the partial month containing the Commencement Date
shall not be deemed a Lease Month and shall be added to the next calendar
month to become the first Lease Month of the Lease Term.
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1.44 LEASE RATE is the annual rate of interest equal to the
lesser of (i) two percent (2%) over the prevailing "reference rate" announced
from time to time by the Bank of America N.T.&S.A., or its successor, for
purposes of pricing loans; or (ii) the highest rate allowed by Law for
commercial obligations.
1.45 LEASE TERM is defined in Section 2.4.1, below, as it may be
extended pursuant to Section 2.4.2, below.
1.46 LEASEHOLD IMPROVEMENTS means the Buildings, any associated
parking structures and all improvements, structures, interior improvements,
landscaping, paving, building pipes, utility conduits, roads, walkways,
fencing, building service equipment, furniture, fixtures, equipment, and all
alterations and additions thereto and replacements thereof, which may be
erected on or installed on the Property after the Effective Date, regardless
of how the same may be affixed to the Property; provided, however, that
Leasehold Improvements shall not include Tenant's Off-Site Improvements or
Trade Fixtures.
1.47 MONTHLY RENT is defined in Section 3.1, below.
1.48 OPTION TERM is defined in Section 2.4.2, below.
1.49 PARCEL AND PARCEL LEASE are defined in Section 2.2, below.
1.50 PARTIAL TAKING is defined in Section 9.1.3, below.
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1.51 PERMITTED TITLE EXCEPTIONS means those title exceptions and
encumbrances more particularly described on EXHIBIT B, attached hereto, and
any other exceptions to title approved in writing by Landlord and Tenant.
1.52 PERMITTED USES means (i) corporate/professional,
administrative, office and research and development uses; (ii) light
assembly, manufacturing, warehousing and testing uses as approved by the
City's Zoning Administrator as provisional uses pursuant to the Precise Plan;
(iii) such other uses permitted by the Precise Plan; and (iv) any other
legally permitted uses.
1.53 PLANNED COMMUNITY PERMIT is the land use approval for the
Project to be issued by the City as contemplated by the DDA.
1.54 PREEXISTING CONTAMINATION means Contamination described in the
Environmental Documents or existing in the soil, ground water, surface water,
or air of the Project as of the Effective Date and/or Commencement Date.
1.55 PRECISE PLAN is that certain North Bayshore Precise Plan,
adopted by the City Council of the City of Mountain View on April 12, 1994
pursuant to Resolution No. 15684.
1.56 PROCESSING COST is defined in Section 11.1.4, below.
1.57 PROJECT means the Initial Project and any other Leasehold
Improvements, taking into consideration such construction, reconstruction,
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demolition and redevelopment of the Leasehold Improvements as may be
performed by Tenant from time to time in accordance with this Lease.
1.58 PROPERTY means that parcel of real property, containing
approximately 21.6 acres of land situated in the County of Santa Clara, City
of Mountain View, State of California, as more particularly described in
EXHIBIT A, together with any easements or other rights appurtenant to said
land (excluding any easements held by the City and shown as Permitted Title
Exceptions). The term "Property" shall not include the Leasehold
Improvements, the Trade Fixtures or Tenant's Off-Site Improvements.
1.59 REAL PROPERTY TAXES means all Federal, State, County,
municipal or other governmental real property taxes, assessments, all taxes
in lieu of real property taxes, personal property taxes, possessory interest
taxes, excise taxes, license and permit fees, assessments for public
improvements or benefits, special or general assessments, and other or
similar taxes, assessments and/or fees (whether general, special, ordinary or
extraordinary) of any kind and nature whatsoever, imposed by any Governmental
Authority:
(i) Upon the Property or Leasehold Improvements, or any
part thereof or interest therein;
(ii) Upon any Trade Fixtures or other personal property of
Tenant located in, at or on the Property or Leasehold Improvements, or any
part thereof or interest therein;
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(iii) Upon the rent or income received by Tenant from
subtenants or licensees thereof;
(iv) Upon, measured by or reasonably attributable to the
cost or value of the Trade Fixtures, equipment, furniture and other personal
property located on the Property or Leasehold Improvements, or by the cost or
value of any alterations or additions made to the Property or Leasehold
Improvements by Tenant, or its sublessees and/or assignees, regardless of
whether title to such improvements shall be in Tenant, Landlord, or others;
(v) Upon or measured by the rent payable hereunder,
including, without limitation, any business, income or profits taxes assessed
against Landlord;
(vi) Upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Property or Leasehold Improvements, Trade Fixtures or other
improvements or property located therein or any portion thereof;
(vii) Upon this transaction; and/or
(viii) Upon all or any portion of the Tenant's Estate.
Notwithstanding the foregoing, the term "Real Property Taxes" shall
not include any of the foregoing which are (i) estate, inheritance, transfer,
gift or franchise taxes; and (ii) levied on Landlord's net income from all
sources; and (iii) a lien, charge or levy under any Hazardous Materials Law
or to address any
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Contamination for which Landlord is responsible under this
Lease pursuant to Section 4.5 below; and (iv) increases in the foregoing Real
Property Taxes assessed against the Property which arise because of a change
in ownership of the Property (other than a transfer of the Property to SGREI
or any SGREI Related Party or Parties).
1.60 RENT ADJUSTMENT DATE is defined in Section 3.1.3, below.
1.61 RESTORATION AMOUNT is One Million Dollars ($1,000,000), which
amount shall be proportionally increased as of the date of casualty by
multiplying the Restoration Amount by a factor, the numerator of which shall
be the replacement cost of the Leasehold Improvements immediately prior to
the casualty and the denominator of which shall be the replacement cost of
the Leasehold Improvements on the date that such Leasehold Improvements were
originally completed. If the parties are unable to agree upon an appropriate
adjustment to the Restoration Amount, then the matter shall be resolved by
arbitration pursuant to Section 14.7. If the Property and this Lease is
parcelized pursuant to Section 2.2, below, then the Restoration Amount shall
be allocated among the Parcel Leases created pursuant to Section 2.2 hereof,
in the same proportion that Monthly Rent is apportioned to each Lease on the
date of the parcelization. For purposes of this Section 1.62, "replacement
cost" shall mean the actual cost of replacing the Leasehold Improvements in
accordance with applicable Law, including, without limitation, costs of
foundations and footings (excluding soils, excavation, grading and
compaction), construction, architectural, engineering, legal and
administrative fees, inspection, supervision and landscaping.
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1.62 SGREI means Silicon Graphics Real Estate, Inc., a Delaware
corporation.
1.63 SGREI RELATED PARTIES are (i) SGREI, so long as Guarantor
owns, directly or indirectly, the voting and ownership interest of SGREI;
(ii) any corporation, joint venture, partnership, limited liability company
or other person which controls, is under common control with, or is
controlled by Guarantor, whether directly or indirectly; (iii) any
corporation, joint venture, partnership, limited-liability company or other
person which controls, is under common control with or is controlled by
SGREI, whether directly or indirectly, so long as Guarantors owns, directly
or indirectly, the voting and ownership interest of SGREI; and (iv) a
transferee of Tenant's Estate or any portion thereof or interest therein
pursuant to a transaction permitted by Section 11.3 (entitled "Affiliate
Transactions"). For the purpose of subparts (ii) and (iii) of the foregoing
sentence, "control," owns, or ownership means the direct or indirect holding
of a voting interest in the entity sufficient to affect or direct the affairs
of the entity and/or equal to fifty percent (50%) of all outstanding voting
interests.
1.64 TENANT'S CONTAMINATION means any Contamination caused by the
placement, discharge, emission or release of a Hazardous Material (i) into
the soils, surface water or air of the Property during the Lease Term
(excluding Landlord's Contamination); (ii) into the Leasehold Improvements or
on or about the Property, or the soil, ground water, surface water, or air
thereof, by Tenant or Tenant's Agents during the Lease Term; or (iii)
directly onto the surface of the Property or into the Leasehold Improvements
during the Lease Term by any member of the public, if such member of the
public is exercising any right of entry onto the Property during such hours
permitted under the DDA, and if such act by a member of the public
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could have been prevented by reasonable security precautions commonly
undertaken by owners of comparable projects with public access, and such
precautions were not taken by Tenant.
1.65 TENANT'S ENVIRONMENTAL INDEMNITY OBLIGATIONS is defined in
Section 4.5.4, below.
1.66 TENANT'S ESTATE means all of Tenant's right, title and
interest in this Lease, the Property and the Leasehold Improvements.
1.67 INTENTIONALLY DELETED.
1.68 TENANT INDEMNITEES means Tenant, any Tenant Mortgagee, any
Tenant Mortgagee Related Party, any successor or assign of Tenant's Estate
(or any portion thereof or interest therein), and any and all Agents,
affiliates, partners or subsidiaries of Tenant, a Tenant Mortgagee or any
successor or assign of a Tenant's Estate (or any portion thereof or interest
therein).
1.69 TENANT MORTGAGE and TENANT MORTGAGEE are defined in Section
13.1, below.
1.70 TENANT MORTGAGEE RELATED PARTIES means any Tenant Mortgagee,
any successor or assign of a Tenant Mortgagee in the Tenant Mortgage and the
officers, directors, affiliates, constituent partners or subsidiaries of any
Tenant Mortgagee.
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1.71 TENANT'S OFF-SITE IMPROVEMENTS means (i) all sidewalks, curbs,
curb cuts, trees, landscaping to the curb, including frontage on-site buffer
landscaping along Amphitheatre Parkway and Charleston Road, and gutters for
the Project; (ii) the Permanente Creek Trail Improvements (as defined in the
DDA); and (iii) the Park Improvements (as defined in the DDA), all to be
provided by Tenant, or its subtenant, and subject to certain reimbursement
obligations of City, pursuant to the provisions hereof and of the DDA.
1.72 THIRD PARTY means any party other than Landlord or an Existing
Permittee or the respective employees, contractors or consultants of Landlord
or any Existing Permittee who has been granted a right of entry to the
Property and Leasehold Improvements in accordance with Section 4.5.2, below.
1.73 TOTAL TAKING is defined in Section 9.1.2, below.
1.74 TRADE FIXTURES are anything (including, without limitation,
furniture, fixtures, equipment, vessels, piping, electrical panels, conduit
and demountable partitions) brought onto or affixed to the Leasehold
Improvements for purposes of trade, manufacture, ornament or domestic use,
other than the building service equipment, if the removal thereof can be
effected without permanent injury to the Leasehold Improvements.
1.75 UNINSURABLE LOSS means the cost to restore the Leasehold
Improvements to the condition required by and in accordance with Section 8.2,
below, which is caused by (i) earthquake; (ii) pollution liability; (iii)
flood; or (iv) any other casualty which Tenant is not otherwise required to
obtain and maintain insurance coverage
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pursuant to Sections 6.3.1 or 7.1, below, as the same may be altered from
time to time in accordance with Section 7.1.3, below. Notwithstanding the
preceding, Uninsurable Loss shall not include (a) loss caused by flood, if
flood insurance can be obtained at commercially reasonable rates, nor (b)
loss caused by Tenant's Contamination.
1.76 YEAR OF THE LEASE TERM is a twelve (12) Lease Month period.
The first Year Of The Lease Term commences on the Commencement Date and ends
on the last day of the twelfth (12th) Lease Month. Each succeeding Year Of
The Lease Term is the next twelve (12) Lease Months, except that the last
Year Of The Lease Term will end on the last day of the Lease Term.
ARTICLE 2
DEMISE, TERM AND SURRENDER
2.1 LEASE OF PROPERTY. Landlord hereby leases and demises to
Tenant, and Tenant hereby leases and takes from Landlord, the Property. Each
party, upon the reasonable request of the other party or a public utility,
shall execute any and all documents reasonably necessary for the creation of
utility easements and rights-of-way to service the Property and/or which are
required by Law. Tenant reserves the right to request variances, zoning
amendments, approvals and/or permits in connection with Tenant's use and
enjoyment of the Property, and Landlord, as fee owner of the Property, agrees
to execute any such application or request and not object to the filing
thereof. Without limiting the generality of Section 14.29 below, the
foregoing shall not limit in any way the City's rights, powers and authority
under its police powers. Subject to the terms of this Lease and the DDA,
Tenant
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covenants to keep and perform each and all of the terms, covenants and
conditions to be kept and performed by Tenant hereunder. Subject to the
terms of this Lease and the DDA, Landlord covenants that Tenant shall at all
times during the term of this Lease peaceably and quietly have, hold and
enjoy the Tenant's Estate and all rights attendant thereto without
interference by Landlord or any person claiming the same by, through or under
Landlord.
2.2 SUBDIVISION OF PROPERTY; SEPARATE GROUND LEASES. Landlord and
Tenant acknowledge and agree that Tenant may seek, at its sole option, to
subdivide the Property from time to time into one or more legal parcels (each
a "Parcel") and, subject to Landlord's approval rights as set forth in this
Section 2.2, Landlord, as fee owner of the Property, agrees to execute any
such application or request and not object to the filing thereof. Without
limiting the generality of Section 14.29 below, the foregoing shall not limit
in any way the City's rights, powers and authority under its police powers.
Tenant, at its cost, shall comply with the provisions of the Subdivision Map
Act (California Government Code Sections 66410, ET SEQ.) and the Subdivision
Ordinance of the City of Mountain View in creating the additional Parcels.
If the City is the Landlord, Landlord shall consider and process Tenant's
parcelization plan in accordance with this Lease, the DDA and/or Development
Agreement and applicable Law. Additionally, if City is the Landlord, it
shall have the power to evaluate and reasonably approve or disapprove any
proposed subdivision (including, without limitation, Tenant's request or
application therefor) based on its interest as a property owner. No
subdivision plan may permit any Building to be located on more than one (1)
Parcel. As soon as reasonably possible, but in any event within thirty (30)
days after creation of each Parcel, Landlord and Tenant shall restate this
Lease ("Parcel Lease") for each Parcel upon the same terms
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and conditions as this Lease, except that Monthly Rent shall be equitably
apportioned between the Parcels based on the Floor Area of the Buildings to
be constructed thereon, as mutually agreed upon by Landlord and Tenant, and
set forth in the separate Parcel Lease for each Parcel to be prepared
pursuant to this Section 2.2 (or, if the parties cannot agree upon the
allocation within the time period set for above, then by an arbitration
pursuant to Section 14.7).
Landlord shall execute such documents, including, without
limitation, any required easements, conditions, covenants and restrictions,
maintenance agreements or reciprocal easement agreements as are consistent
with both the subdivision approval(s) and Landlord's interest as property
owner and reasonably requested by Tenant to implement the Parcel Leases and
to incorporate therein all applicable terms of this Lease so that the
provisions of this Lease are given their full force and effect. A memorandum
of ground lease for each Parcel Lease created shall be executed by Landlord
and Tenant and recorded by Tenant. The Parcel Leases shall constitute
separate ground leases and shall not be cross-defaulted.
2.3 DELIVERY OF POSSESSION. Possession of the Property shall be
delivered by Landlord to Tenant upon the Commencement Date, free and clear of
all tenants and occupants, and Tenant shall accept possession of the Property
in the condition required by the DDA.
2.4 TERM AND POSSESSION.
2.4.1 INITIAL TERM. The initial term of this Lease ("Lease
Term") shall be for a period of approximately fifty-five (55) years, unless
sooner terminated as
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herein provided, commencing on the Commencement Date and terminating at the
end of the fifty-fifth (55th) Year Of The Lease Term.
2.4.2 OPTION TERMS. Tenant shall have four (4) options to
extend the Lease Term, for a period of ten (10) calendar years for each such
option (an "Option Term"). In order to exercise any such option to extend
granted by this section, Tenant must notify Landlord in writing of its
election to exercise such option to extend not later than one hundred eighty
(180) days prior to the expiration of the Lease Term, or, as the case may be,
the Lease Term as extended by the prior exercise of any option to extend
granted by this section. The options may be exercised individually or
together with any other option so long as the remaining Lease Term, including
the term of the exercised options, does not exceed fifty-five (55) calendar
years. If any options are exercised together, Monthly Rent revaluation
pursuant to Section 3.1.3 hereof shall nevertheless occur at the time and as
if the renewal options were exercised serially. If Tenant fails to timely
exercise any renewal option, then all subsequent renewal options shall be
null and void and Tenant shall have no right to renew this Lease.
Notwithstanding the foregoing, Tenant shall have no right to renew this Lease
(i) if on the date Tenant exercises the renewal options, or (ii) if Tenant
exercises only one option, on the date immediately preceding the commencement
date of the applicable Option Term, or (iii) if Tenant exercises more than
one option simultaneously, on the commencement date of the first such Option
Term, there exists an uncured Event of Default under this Lease. Tenant's
lease of the Property for each such Option Term shall be upon all of the same
terms, covenants and conditions contained in this Lease. After the exercise
of any option to extend, all references in this Lease to the Lease Term shall
be considered to mean the Lease Term as extended, and all references to
termination or
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to the end of the Lease Term shall be considered to mean the termination or
end of the Lease Term as extended. If Tenant exercises any such option, then
each party shall, at the request of the other, execute a memorandum, in
recordable form, acknowledging the fact that the option has been exercised
and otherwise complying with the requirements of Law for an effective
memorandum of lease.
2.5 TERMINATION AND SURRENDER. Upon expiration of the Lease Term,
or any earlier termination of this Lease, Tenant shall remove all Trade
Fixtures and quit and surrender the Property and the Leasehold Improvements
to Landlord, free and clear of all liens, encumbrances or title exceptions
other than the Permitted Title Exceptions and exceptions to title not
otherwise created by or through Tenant, in a good, clean and sanitary
condition, excepting ordinary wear and tear, damage and destruction which
Tenant is not required to restore pursuant to Article 8, condemnation which
Tenant is not required to restore pursuant to Article 9, and Contamination
(other than Tenant's Contamination). Notwithstanding the preceding sentence
to the contrary, if this Lease is terminated prior to the natural expiration
of the Lease Term, then Tenant shall have a period of ninety (90) days
thereafter, or such longer period as reasonably may be necessary (not to
exceed one hundred eighty (180) days) to remove its Trade Fixtures and
personal property, provided that Tenant pays Monthly Rent for each month of
the removal period and, during the removal period, pays any and all other
rent or charges and amounts and complies with all covenants and obligations
of Tenant under this Lease, except for those payments and covenants which
were to be performed prior to the termination date of this Lease (and during
such removal period Tenant shall not be liable for holdover rent pursuant to
Section 14.3 below). Upon such termination, title to the Leasehold
Improvements then existing on the Property automatically
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shall vest in Landlord. In no event shall the provisions hereof impose any
obligation upon Tenant to restore and/or reconstruct Leasehold Improvements
that are demolished or removed or to restore and/or reconstruct Leasehold
Improvements following any damage, casualty loss, or condemnation, unless
Tenant is required to do so by Article 8 or Article 9 hereof. On the date
Tenant is required by this section to surrender possession, Tenant shall
deliver to Landlord such proper and executed instruments in recordable form,
releasing, quitclaiming and conveying to Landlord all right, title and
interest of Tenant and any other party claiming by or through Tenant or
Tenant's Estate in and to the Property and/or the Leasehold Improvements,
including, without limitation, such documents necessary for Landlord to
demonstrate to a title company that this Lease no longer encumbers the
Property and Leasehold Improvements, and that title to the Leasehold
Improvements shall have vested in Landlord, free and clear of all liens,
encumbrances or title exceptions, other than the Permitted Title Exceptions
and exceptions to title not otherwise created by or through Tenant. All
provisions of this Section 2.5 shall survive any termination of this Lease.
2.6 TENANT'S RIGHT OF ENTRY. Subject to the requirements of this
Section 2.6, Tenant and Tenant's agents, employees, contractors, consultants
and authorized representatives shall have the right to enter upon the Project
at all reasonable times after the Effective Date and before the Commencement
Date in order to conduct such surveys, examinations and tests as Tenant deems
necessary or desirable in connection with development of the Project. Tenant
shall keep the Project free and clear of any mechanic's liens, materialmen's
liens or other liens or claims arising out of any of Tenant's activities, or
those of its agents, employees, contractors, consultants or representatives.
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All activities of Tenant, its agents, employees, contractors,
consultants and representatives during, before or after any such entry onto
the Project shall be at Tenant's sole cost and expense. Any and all
inspections and examinations of the Project shall be done in a good and
workmanlike manner in accordance with all applicable Laws, and shall not
unreasonably disturb the quiet occupancy or enjoyment of any occupants or
owners of any adjoining land. Prior to the Commencement Date, Tenant may not
perform any test or inspection or carry out any construction activity on the
Project which damages the Project in any way or which is physically intrusive
into the ground, without the prior written consent of Landlord, which
Landlord shall not unreasonably withhold or delay. Prior to any entry
pursuant to this Section 2.6, at Landlord's request, Tenant shall provide
Landlord with evidence of commercial liability coverage as described in
Section 7.1.1, below. After each entry onto any part of the Project prior to
the Commencement Date, Tenant, at its sole cost and expense, shall repair all
damage to the Project caused by the entry.
Tenant shall obtain Landlord's written approval prior to performing
any such tests and inspections (which approval shall not be unreasonably
withheld or delayed) and, upon completion thereof, furnish copies of such
tests and inspections to Landlord. In no event, however, shall Tenant be
required to disclose any communication that is privileged under applicable
Laws. Except to the extent that a claim is made which would be covered by
Landlord's Environmental Indemnity Obligations pursuant to Section 4.5.4 or
Landlord's other indemnity obligations under Section 7.4.2, Tenant shall
indemnify, defend with competent counsel, protect and hold harmless Landlord
and Landlord's Agents, from and against any and all
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Claims for damages to persons or property to the extent arising from (i) the
acts or omissions of Tenant or its Agents on the Project pursuant to this
section; provided, however, that the foregoing shall not apply to liability
resulting from the findings and conclusions of any tests, inspections,
investigations or studies, or (ii) any breach of any of Tenant's covenants or
obligations under this Paragraph 2.6. The provisions of the preceding
sentence shall survive any termination of this Lease.
2.6.1 NOTICE. Prior to any entry contemplated in Section
2.6, above, Tenant shall provide Landlord with reasonable written notice of
Tenant's intention to enter the Project. Except in the case of an entry
limited to a "walk-through" inspection for which twenty-four (24) hour notice
to Landlord via delivery of written, facsimile or telephonic notice will
suffice, said notice shall be delivered at least three (3) business days
prior to the date of entry and shall identify the work to be conducted, the
portions of the Project that will be affected by the entry and the parties
who will enter. Notice of repetitive entries may be given in a consolidated
notice delivered prior to the first such entry.
2.7 LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents
and warrants as of the Effective Date that, to the best of Landlord's
knowledge:
2.7.1 ZONING. The Property and the Park Site (as defined
in the DDA) is zoned to permit the construction of the Initial Project
consistent with the terms and conditions of the General Plan and Precise Plan.
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2.7.2 LAND USE. The City Council Approval of the Planned
Community Permit will complete City requirements for the issuance of building
permits pursuant thereto upon proper and complete application therefor by
Tenant.
2.7.3 NO PROCEEDINGS. Landlord has received no written
notice that the Property or the Park Site (as defined in the DDA) is in
violation of any order or decree of any court of competent jurisdiction or
any Governmental Authority.
2.7.4 COMPLIANCE WITH LAWS. Landlord has received no
written notice of any legal challenge to the Precise Plan (including, without
limitation, any CEQA challenge). No approval of this Lease or the Project by
the Mountain View Shoreline Regional Community Board is required by the Area
Plan or applicable Law.
2.7.5 TITLE. Landlord has not received any notice, written
or oral, challenging its status as record owner of fee title to the Property
or the Park Site (as defined in the DDA).
2.7.6 UTILITIES. The Property or the Park Site (as defined
in the DDA) is currently served by the City-provided utilities as described
in Exhibit F of the DDA, in the capacities listed on said exhibit, in the
general locations described on said exhibit.
2.7.7 CC&Rs. Landlord has not placed any covenants or
restrictions, or granted any easements, affecting the Property or the Park
Site (as defined in the DDA) other than those consented to by Tenant pursuant
to this Lease or the DDA,
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those consented to in writing by Tenant, or those shown in the Precise Plan or
on EXHIBIT B.
If a change of circumstances occurs on or before the Commencement
Date which causes Landlord's representations or warranties above to become
untrue, Landlord shall immediately inform Tenant of the same, and Tenant
shall have the right to terminate this Lease pursuant to Section 9.1(a) of
the DDA. If Landlord does not provide Tenant with written notice of any
change of circumstances, then Landlord shall be deemed to have remade the
foregoing representations and warranties as of the Commencement Date.
2.8 CONDITION OF PROPERTY. Tenant acknowledges that it is a
resident of the Shoreline Community District and is generally aware of
surrounding properties, uses and impacts associated therewith, including but
not limited to the Shoreline Amphitheatre, golf course, Vista Slope and
landfill locations. The foregoing shall not affect the City's obligations
under this Lease or the DDA nor waive any rights Tenant may have as a
corporate resident and/or citizen pursuant to Section 14.29, below.
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ARTICLE 3
RENT
3.1 MONTHLY RENT. For each Lease Month of the Lease Term
(including the Lease Months of any Option Term), Tenant shall pay to Landlord
"Monthly Rent" in advance as follows:
3.1.1 INITIAL MONTHLY RENT. For the first Year Of The
Lease Term, Tenant shall pay to Landlord Initial Monthly Rent, as provided in
Section 1.32 hereof. If the parties enter into Parcel Leases pursuant to
Section 2.2, the Initial Monthly Rent will be apportioned between the Parcel
Leases in accordance with Section 2.2 hereof.
3.1.2 RENT ESCALATION. For each of the second through
tenth Years Of The Lease Term, the Initial Monthly Rent provided for in
Subsection 3.1.1 shall be increased, effective on the first day of the second
Year Of The Lease Term and on the first day of each Year Of The Lease Term
thereafter through the end of the tenth (10th) Year Of The Lease Term, to an
amount equal to one hundred four percent (104%) of the Monthly Rent payable
for the immediately preceding Year Of The Lease Term.
3.1.3 ADJUSTMENT OF MONTHLY RENT. Effective as of the
first day of the eleventh (11th), twenty-first (21st), thirty-first (31st),
forty-first (41st) and fifty-first (51st) Years of the Lease Term and, if the
Lease Term is extended pursuant to Section 2.4.2, as of the commencement of
each Option Term (the "Rent Adjustment
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Dates"), the Monthly Rent shall be adjusted in accordance with Sections
3.1.3.1 through 3.1.3.3, below.
3.1.3.1 GUARANTY IN EFFECT. If, as of a given Rent
Adjustment Date, (a) the Guaranty has not been terminated pursuant to Section
11.1 of this Lease or Section 20 of the Guaranty or, (b) if so terminated,
the Guaranty has been reinstated by Guarantor, in accordance with Paragraph
22 of the Guaranty and Tenant has delivered to Landlord a re-executed
Guaranty in the form of Exhibit G prior to the applicable Rent Adjustment
Date, then Section 3.1.3.2 will not apply for that Rent Adjustment Date and
the Monthly Rent shall be adjusted and reset on that Rent Adjustment Date to
equal the greater of: (i) one-twelfth (1/12th) of seven percent (7%) of the
then Fair Market Value of the Property (determined in accordance with the
assumptions and procedures set forth in Section 3.1.3.3.A, below); or (ii)
the Initial Monthly Rent in effect as of the Commencement Date, as determined
in accordance with Section 3.1.1; provided, however, that if there has been
any adjustment to Monthly Rent pursuant to Sections 8.2.2.2 or 9.3(B) below,
the Initial Monthly Rent for purposes of this item shall be equitably reduced
to reflect such rent adjustments.
3.1.3.2 OTHER CASES. If, as of a given Rent
Adjustment Date, the Guaranty has been terminated pursuant to Section 11.1 of
this Lease or Section 20 of the Guaranty, and Guarantor has not elected to
reinstate the Guaranty prior to the applicable Rent Adjustment Date, then
Section 3.1.3.1 will not apply for that Rent Adjustment Date, and the Monthly
Rent shall be adjusted and reset on that Rent Adjustment Date to the greater
of: (i) one-twelfth (1/12) of the Fair Market Rate of Return (determined in
accordance with the assumptions and procedures set forth in
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Section 3.1.3.3.B, below) times the Fair Market Value of the Property
(determined in accordance with the assumptions and procedures set forth in
Section 3.1.3.3.A, below); or (ii) the Initial Monthly Rent in effect as of
the Commencement Date as determined in accordance with Section 3.1.1;
provided, however, that if there has been any adjustment to Monthly Rent,
pursuant to Sections 8.2.2.2 or 9.3(B) below, the Initial Monthly Rent for
purposes of this item (ii) shall be equitably reduced to reflect such rent
adjustments.
3.1.3.3 REVALUATION PROCEDURE.
A. FAIR MARKET VALUE OF PROPERTY.
Landlord and Tenant agree that for purposes of establishing Initial Monthly
Rent the fair market value of the Property has been deemed by the parties to
be Twenty-Four Dollars ($24.00) per square foot. On each Rent Adjustment
Date under Section 3.1.3.1 or 3.1.3.2, the "Fair Market Value" of the
Property shall be determined based upon the following assumptions:
(1) Fair Market Value shall be
based on the value of the entire original Property, without regard to whether
this Lease has been parcelized pursuant to Section 2.2, above, unencumbered
by this Ground Lease, except insofar as the Property have been reduced by
eminent domain or condemnation by any Governmental Authority.
(2) Fair Market Value shall not be
determined based on a theoretical highest and best use of the Property and/or
the Leasehold Improvements, but instead Fair Market Value shall be determined
based on the use
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then being made by Tenant of the Property and the Leasehold Improvements and
the FAR based on the Floor Area of all of the then-existing Buildings on the
date of the determination (or which would be applicable on such date if
Tenant had performed its obligations under Articles 8 and 9 of this Lease
following any casualty or condemnation). However, the value of the Leasehold
Improvements themselves shall not increase or decrease the Fair Market Value
of the Property.
(3) Fair Market Value shall be
based on the value of the Property to a third party and shall not be
increased because of any possible premium associated with the special needs
of Tenant or uses of the Leasehold Improvements by Tenant, or the proximity
of the Property to other buildings occupied by Tenant.
(4) Fair Market Value shall not be
reduced by demolition costs or other costs necessary to return the Property
to an unimproved buildable parcel.
(5) Fair Market Value shall not
consider the Monthly Rent prior to the Rent Adjustment Date, the Rent
Escalations pursuant to Sections 3.1.2 and 3.1.4, the Fair Market Rate of
Return to be applied to the Fair Market Value of the Property pursuant to
Subsection B, below, or the frequency of any future Rent Adjustment Dates.
(6) If Parcel Leases have been
created pursuant to Section 2.2, the Fair Market Value of the Property
determined in accordance with the foregoing shall be allocated between the
Parcels created pursuant to Section 2.2
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in the same proportion as the Monthly Rent was allocated between said Parcels
on the date of such parcelization.
B. FAIR MARKET RATE OF RETURN. Landlord
and Tenant agree that for purposes of establishing Initial Monthly Rent the
fair market rate of return to Landlord for this Lease has been deemed by the
parties to be seven percent (7%). On each Rent Adjustment Date requiring
redetermination of the Fair Market Rate of Return under Section 3.1.3.2, the
"Fair Market Rate Of Return" shall be determined based upon the following
assumptions:
(1) Fair Market Rate Of Return
shall be based on the rate of return a private third party ground lessor
typically would expect to receive for property comparable to the Property,
unencumbered by this Lease;
(2) Fair Market Rate Of Return
shall not be determined based on a theoretical highest and best use of the
Property and/or the Leasehold Improvements, but instead Fair Market Rate Of
Return shall be determined based on the use then being made by Tenant of the
Property and the Leasehold Improvements and the FAR based upon the Building
Square Footage of all of the then-existing Buildings and all of the Property
on the date of the determination (or which would be applicable on such date
if Tenant had performed its obligations under Articles 8 and 9 of this Lease
following any casualty or condemnation). However, the value of the Leasehold
Improvements shall not increase or decrease the Fair Market Rate Of Return.
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(3) Fair Market Rate Of Return
shall not exceed nine and one-half percent (9.5%) nor be less than four and
one-half percent (4.5%) per annum.
C. GENERAL PROCEDURE. The Fair Market
Value and, if required by Section 3.1.3.2, the Fair Market Rate Of Return,
shall be determined by agreement between Landlord and Tenant. Negotiations
for redetermination shall begin one (1) year before each Rent Adjustment
Date. If the parties are unable to reach an agreement on the Fair Market
Value and Fair Market Rate Of Return within two hundred forty (240) days
before the Rent Adjustment Date, Landlord and Tenant each, at its cost and by
giving notice to the other party, shall appoint a competent M.A.I. real
estate appraiser, unlikely to be unduly influenced by either party, with at
least ten (10) years' commercial/ground lease appraisal experience in San
Francisco, San Mateo and Santa Clara Counties, to appraise and set the Fair
Market Value, and, if required, the Fair Market Rate Of Return.
If either Landlord or Tenant does not appoint an appraiser within
ten (10) days after the other party has given written notice of the name of
its appraiser, the single appraiser appointed shall be the sole appraiser and
shall set the Fair Market Value and, if required, the Fair Market Rate Of
Return. If two (2) appraisers are appointed by Landlord and Tenant as stated
in this subsection, they shall meet promptly and attempt to set the Fair
Market Value and, if required, the Fair Market Rate of Return. If the two
(2) appraisers are unable to agree within thirty (30) days after the second
appraiser has been appointed, they shall attempt to select a third appraiser
meeting the qualifications stated in this subsection within ten (10) days
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after the last day the two (2) appraisers are given to set Fair Market Value
and, if required, Fair Market Rate Of Return.
If they are unable to agree on the third appraiser, either Landlord
or Tenant, by giving ten (10) days' prior written notice to the other party,
may apply to the then president of the Real Estate Board of Santa Clara
County, or to the Presiding Judge of the Superior Court of Santa Clara
County, as the applying party may elect, for the selection of a third
appraiser who meets the qualifications stated in this subsection (provided
that if both parties make such application for appointment of a third
appraiser, the appointment pursuant to the application which is first in time
shall determine the third appraiser). Landlord and Tenant each shall bear
one-half (1/2) of the cost of appointing the third appraiser and of paying
the third appraiser's fee. The third appraiser, however selected, shall be a
person who is unlikely to be unduly influenced by either party. Within
thirty (30) days after the selection of the third appraiser, a majority of
the appraisers shall set the Fair Market Value and, if required, the Fair
Market Rate Of Return for the ten (10) Years Of The Lease Term at issue.
If a majority of the appraisers is unable to set the Fair Market
Value or, if required, the Fair Market Rate Of Return, within the stipulated
period of time, Landlord or Tenant's appraiser shall arrange for simultaneous
exchange of written appraisals of the Fair Market Value or, if required, the
Fair Market Rate Of Return, as appropriate, from each of the appraisers and
the three (3) appraisals shall be added together and their total divided by
three (3); the resulting quotient shall be the Fair Market Value or, if
required, the Fair Market Rate Of Return for the ten (10) Years Of The Lease
Term at issue. If, however, the low appraisal and/or the high appraisal
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are/is more than ten percent (10%) lower and/or higher than the middle
appraisal, the low appraisal and/or the high appraisal of the Fair Market
Value or, if required, the Fair Market Rate Of Return, as appropriate, shall
be disregarded.
If only one (1) appraisal is disregarded, the remaining two (2)
shall be added together and their total divided by two (2); the resulting
quotient shall be the Fair Market Value or, if required, the Fair Market Rate
Of Return, as appropriate. If both the low appraisal and the high appraisal
are disregarded as stated in this subsection, the middle appraisal shall be
the Fair Market Value or, if required, the Fair Market Rate Of Return, as
appropriate. After the Fair Market Value and, if required, the Fair Market
Rate Of Return, for the ten (10) Years Of The Lease Term at issue has been
set, the appraisers shall immediately notify Landlord and Tenant, and
Landlord and Tenant promptly shall execute an amendment to this Lease stating
the Fair Market Value, and, if required, the Fair Market Rate Of Return, and
resulting Monthly Rent. The Monthly Rent at each redetermination may be
either increased or decreased to reflect the Fair Market Value and, if
appropriate pursuant to Section 3.1.3.2, the Fair Market Rate Of Return as of
the redetermination date, subject only to the restrictions on reduction
contained in Sections 3.1.3.1 and 3.1.3.2, above.
If the Rent Adjustment Date occurs prior to determination of the
readjusted rent under the within appraisal procedure, the Monthly Rent as of
the Rent Adjustment Date shall be one hundred four percent (104%) of the
Monthly Rental as of the Lease Month immediately preceding the Rent
Adjustment Date, and shall be increased by four percent (4%) on each
anniversary of the Rental Adjustment Date until the readjusted rent is
determined. When the readjusted rent is
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determined, it shall be retroactively effective from the Rental Adjustment
Date. Within ten (10) days of the determination of the adjusted rent, Tenant
shall pay to Landlord the amount, if any, which the adjusted rent for the
period after the Rental Adjustment Date exceeds the amounts paid by Tenant
after the Rental Adjustment Date, and Landlord shall pay to Tenant, the
amount, if any, by which said adjusted rent is less than the amounts so paid
by Tenant. In either event, the amount paid to either Landlord or Tenant
shall include interest on the over or underpayment at the Lease Rate from the
date the payment was first due until reimbursed.
3.1.4 CONTINUING ESCALATION. Commencing with the first day
of each Year Of The Lease Term immediately following the Year Of The Lease
Term which contains a Rental Adjustment Date, and continuing on the first day
of each of the nine ensuing Years Of The Lease Term until the next succeeding
Rental Adjustment Date, Monthly Rent in the amount established by
redetermination for such ten (10) Years Of The Lease Term (as described in
Section 3.1.3) shall be increased to an amount equal to one hundred four
percent (104%) of the Monthly Rent due for the immediately preceding Year Of
The Lease Term. (For example, Monthly Rent determined for the twelfth (12th)
Year Of The Lease Term shall be equal to one hundred four percent (104%) of
the Monthly Rent determined on the first Rental Adjustment Date (i.e., the
first day of the eleventh (11th) Year Of The Lease Term) and shall be further
increased by four percent (4%) over the Monthly Rent due for the immediately
preceding Year Of The Lease Term at the beginning of the thirteenth (13th)
through twentieth (20th) Years Of The Lease Term. On the second Rent
Adjustment Date (i.e., the first day of the twenty-first (21st) Year Of The
Lease Term), Monthly Rent will again be revalued in accordance with Section
3.1.3.3, and said Monthly Rent shall be increased by four percent (4%) over
the Monthly Rent
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due for the immediately preceding Year Of The Lease Term at the beginning of
each of the ensuing Years Of The Lease Term until the next Rental Adjustment
Date, when the Monthly Rent shall again be restated in accordance with
Section 3.1.3, above, and so on throughout the Lease Term.)
3.1.5 PRORATION. If the Commencement Date occurs on a day
other than the first day of a calendar month, or if this Lease terminates on
a day other than the last day of a calendar month, the Monthly Rent shall be
prorated based on the actual number of days of the calendar month at issue.
3.2 PAYMENT OF RENT. The Monthly Rent shall be paid in advance in
monthly installments due on the Commencement Date and on the first day of
each calendar month thereafter during the Lease Term. All rent shall be paid
in lawful money of the United States to Landlord at its address set forth in
Section 14.4, or to such other place as Landlord may designate from time to
time in writing, without abatement, deduction or offset. All monetary
obligations of Tenant under this Lease (including, without limitation,
interest and late charges payable pursuant to Section 3.3, below) shall be
deemed additional rent.
3.3 INTEREST; LATE CHARGE. If Tenant fails to pay Landlord Monthly
Rent on or before the fifth (5th) day after receipt of written notice from
Landlord that such sum is due, Tenant shall pay to Landlord a late charge
equal to five percent (5%) of the delinquent amount to compensate Landlord
for Landlord's administrative and other costs and efforts in connection
therewith. Landlord and Tenant agree that the foregoing late charge
represents a reasonable estimate of the cost and expense that Landlord will
incur in processing each delinquent payment. In addition, all
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Monthly Rent not paid on or before the fifteenth (15th) day following the due
date thereof shall bear interest from and after the due date until paid at
the Lease Rate, which interest shall be payable forthwith upon demand.
ARTICLE 4
USE
4.1 PERMITTED USES. The parties hereto acknowledge that Tenant
intends to, and may, use the Property and the Leasehold Improvements for the
Permitted Uses. Tenant shall not allow the Property or any Leasehold
Improvements to be used for any unlawful purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Property or any Leasehold
Improvements located thereon. Tenant shall not commit or suffer to be
committed any waste in or upon the Property or the Leasehold Improvements
thereon.
4.2 COMPLIANCE WITH LAW. Tenant shall not do anything in or upon
the Project, or suffer or permit anything to be done in or upon the Leasehold
Improvements, the Property and, until the Tenant's Off-Site Improvements are
accepted as complete by the City, the Park Site (as defined in the DDA) which
will in any way conflict with any Law now in force or which may be
hereinafter enacted or promulgated. Tenant, at its sole cost and expense,
shall comply with the restrictions and covenants of the Permitted Title
Exceptions and with all federal, state, county or municipal Laws (including,
without limitation, the Americans With Disabilities Act of 1990 and so-called
California "Title 24" requirements) as the same shall be applicable to the
Property and Leasehold Improvements from time to time. The judgment of any
court of competent jurisdiction or the admission of Tenant in an
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action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any covenant, restriction or Law shall be conclusive of
that fact as between Landlord and Tenant; provided, however, that Tenant
shall have the right, at its own cost and expense, to contest or review by
legal and/or administrative proceeding the validity or legality of any such
Law, restriction or covenant. During any such contest or review by Tenant of
a Law enacted by the City when the City is the Landlord hereunder, Tenant
shall not be in breach or default under this Lease for its failure to comply
with such Law, provided that Tenant commences such contest or review in good
faith and, if such Law is found to be valid, Tenant indemnifies, defends and
holds Landlord harmless from all Claims in connection with Tenant's failure
to comply with such Law. During the contest or review of any other Law,
restriction or covenant, or any, Tenant may refrain from complying therewith
and shall not be in breach or default under this Lease for failure to comply
with such Law, restriction or covenants provided that compliance therewith
may legally be so held in abeyance without subjecting Landlord or the
Property to any (i) civil liability, cost, lien or expense (except to the
extent such civil liability, cost, lien or expense is reasonably likely to be
less than Five Million Dollars ($5,000,000) and Tenant indemnifies, defends
and holds Landlord harmless from all Claims in connection therewith pursuant
to Section 7.4.2, below), or (ii) any criminal liability, which may result
from Tenant's failure to so comply therewith or from Tenant's contest
regarding compliance.
4.3 WASTE. Tenant shall not commit or permit waste of the
Property, or any Leasehold Improvements thereon, nor shall Tenant remove any
earth, rocks, gravel, minerals, or the like from the Property, except to the
extent reasonably necessary for the construction or reconstruction of the
Leasehold Improvements or
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Tenant's permitted use of the Property, or as otherwise required or permitted
by Law and by this Lease or the DDA. Nothing in this Lease or the DDA shall
prohibit Tenant from otherwise redeveloping the Property in the future,
including the demolition of existing Leasehold Improvements and the
construction of new Leasehold Improvements, provided that such redevelopment
is performed in accordance with Article 6 below.
4.4 LEASEHOLD IMPROVEMENTS. Tenant agrees that either Tenant or
its subtenant, at its respective sole cost and expense, shall cause
construction of the Initial Project in accordance with Article 6 hereof and
the DDA.
4.5 HAZARDOUS MATERIALS.
4.5.1 REPRESENTATIONS AND WARRANTIES.
4.5.1.1 BY LANDLORD. On the Effective Date,
Landlord represents and warrants to Tenant that each of the following is in
all material respects true, correct and complete so as to not be misleading:
A. Landlord has delivered to Tenant true
and correct copies of the Environmental Documents. The reports and documents
relating to the environmental condition of the Project are voluminous and are
not located in one place, and no individual employed or retained by Landlord
knows the full extent of the environmental condition concerning the Project.
Landlord has inquired of its departments and has received no response
indicating that there are any environmental reports, assessments or
correspondence that materially change
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the information concerning Contamination of the Project contained in the
Environmental Documents which have been delivered to Tenant.
B. Except as disclosed in the
Environmental Documents, Landlord has no reasonable cause to believe that:
(i) Any underground storage tanks
or asbestos-containing building materials are present on the Project; nor
(ii) Any Claim or request for
investigation by Landlord of the Project is pending which asserts that
Landlord is liable for Contamination of the Project; nor
(iii) Any Contamination is present
on the Project.
However, none of the foregoing representations by Landlord shall in
any way modify any of the rights and remedies of the parties under this Lease
or the DDA, including, without limitation, those covenants and indemnities of
the parties relating to Contamination and Environmental Claims.
If a change of circumstances occurs on or before the Commencement
Date which causes Landlord's representations or warranties above to become
untrue, Landlord shall immediately inform Tenant of the same, and Tenant
shall have the right to terminate this Lease pursuant to Section 9.1(a) of
the DDA. If Landlord does not provide Tenant with written notice of any
change of circumstances, then
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Landlord shall be deemed to have remade the foregoing representations and
warranties as of the Commencement Date.
4.5.1.2 BY TENANT. On the Effective Date, Tenant
represents and warrants to Landlord that each of the following is in all
material respects true, correct and complete so as to not be misleading:
A. Tenant has had the opportunity to
review the Environmental Documents provided by Landlord. Based upon
Landlord's representation, Tenant acknowledges that the reports and documents
relating to the environmental condition of the Project are voluminous and are
not located in one place, and that no individual employed by Landlord knows
the full extent of environmental documentation concerning the Project.
B. Tenant has performed its own
environmental studies and health risk assessments concerning the
Contamination of the Project.
C. By executing this Lease, Tenant
indicates to Landlord that it has determined, to its satisfaction and to the
best of Tenant's knowledge, that Tenant's use and occupancy of the Leasehold
Improvements on the Property in accordance with this Lease presents no
unacceptable risk to human health.
None of the foregoing representations by Tenant shall in any way
modify any of the rights and remedies of the parties under this Lease or the
DDA, including, without limitation, those covenants and indemnities of the
parties relating to Contamination and Environmental Claims.
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4.5.2 RIGHT OF ENTRY. Subject to the requirements and
conditions of this Section 4.5.2, below, Landlord and its employees,
consultants and contractors are hereby granted a reasonable right of entry
onto the Property and the Leasehold Improvements for the following purposes:
(i) conducting environmental tests, monitoring, inspections, investigations
and studies (other than Environmental Construction Activities); (ii)
discharging Landlord's obligations under Section 4.5.3 (other than
Environmental Construction Activities); (iii) confirming Tenant's compliance
with the provisions of this Lease concerning the Hazardous Materials
Activities of Tenant and Tenant's Agents (other than Environmental
Construction Activities); and (iv) subject to 4.5.2.3 and other Lease
sections, performing Environmental Construction Activities to the extent
required by any Hazardous Materials Law or otherwise necessary to
investigate, clean up, remediate or prevent Contamination of the Project or
to prevent the assertion of an Environmental Claim against Landlord. Any such
entry by Landlord shall not be deemed an admission by Landlord of any
responsibility for any Contamination of the Property and shall not release
Landlord or Tenant from their respective Environmental Indemnity Obligations
under this Lease.
4.5.2.1 NOTICE. Landlord and its employees,
contractors and consultants shall provide Tenant with reasonable notice of
its intention to enter the Property, the Leasehold Improvements or, prior to
acceptance of the Tenant's Off-Site Improvements by the City, the Park Site
(as defined in the DDA). With respect to any "walk-through" inspection for
purposes of confirming Tenant's compliance with the provisions of this Lease
regarding Tenant's Hazardous Materials Activities, Landlord shall provide
Tenant with at least twenty-four (24) hours prior notice of
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each such entry, which notice may be either written or by telephone.
With respect to any other entry of Landlord permitted under this Section
4.5.2, Landlord shall provide Tenant with at least seven (7) days prior
written notice, which notice shall identify the work to be conducted, the
portions of the Property, the Park Site and the Leasehold Improvements that
will be affected by the entry, and the names and addresses of any contractors
and consultants who will enter the Premises. Notice of repetitive entries
may be given in a consolidated notice delivered in accordance with this
Subsection 4.5.2.1 prior to the first such entry.
In the event of an emergency related to Landlord's Contamination,
Landlord shall provide prior notice to Tenant of such entry to the extent
reasonably possible under the circumstances.
4.5.2.2 TERMS OF ENTRY. In connection with any
entry, Landlord shall avoid, to the extent reasonably possible, any
disturbance to or interference with Tenant's use, occupancy and quiet
enjoyment of the Property and Leasehold Improvements, the construction of the
Initial Project, the conduct of Tenant's business thereon, and damage to the
Tenant's Off-Site Improvements, before acceptance thereof by the City,
Leasehold Improvements or Trade Fixtures. Tenant may exclude from the
Initial Project, the Property and Leasehold Improvements any person who, in
Tenant's reasonable business judgment, is causing a safety hazard or
unreasonably interfering with Tenant's quiet enjoyment of the Property or
Leasehold Improvements or Tenant's business conducted thereon. Landlord
shall keep the Landlord's Estate and the Tenant's Estate free and clear of
any mechanic's liens, materialmen's liens or other liens or claims arising of
Landlord or its employees, consultants or contractors during such entry.
Landlord shall conduct all
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activities during such entry in a good and workmanlike manner in accordance
with all applicable Laws. Landlord shall repair, at no cost to Tenant, all
damage to the Property , Leasehold Improvements or Trade Fixtures caused by
any such entry. Upon at least ten (10) business days' written notice from
Tenant, Landlord shall make available to Tenant, for Tenant's review and/or
duplication, any and all notices, correspondence, information, reports and
studies in Landlord's possession or control with regard to environmental
matters pertaining to such entry. With respect to any Environmental
Construction Activity, Landlord shall provide Tenant with copies of all
studies, investigations and reports pertaining to such entry promptly
following Landlord's receipt thereof. Landlord shall indemnify, defend and
hold Tenant and Tenant Indemnitees harmless from and against any and all
Claims arising from or in connection with the activities of any Existing
Permittee or Third Party (which Third Party desires to conduct any activities
in connection with Landlord's Contamination) hereinafter granted entry to the
Project pursuant to this Section 4.5.2
4.5.2.3 ENVIRONMENTAL CONSTRUCTION ACTIVITIES. The
following conditions shall apply to any entry which involves an Environmental
Construction Activity:
4.5.2.3.1 MEET AND CONFER. At least
thirty (30) days prior to any entry involving an Environmental Construction
Activity, Landlord shall meet and confer with Tenant to discuss the proposed
Environmental Construction Activity, including, without limitation, the
necessity thereof and alternative locations and/or procedures in connection
therewith.
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4.5.2.3.2 ACTIVITIES REASONABLY NECESSARY.
Landlord shall demonstrate to Tenant that such Environmental Construction
Activity is required by Hazardous Materials Laws or reasonably necessary to
investigate, clean up, remediate or prevent Contamination or to prevent the
assertion of an Environmental Claim against Landlord.
4.5.2.3.3 ALTERNATIVE LOCATIONS. Subject
to approval of applicable Governmental Authorities, all ground water
monitoring wells, extraction wells, and attendant facilities shall be placed
in mutually acceptable locations within the setback areas shown on Exhibit D.
Landlord shall consider alternative locations suggested by Tenant if Tenant
reasonably demonstrates that such locations are feasible and will achieve
substantially the same results as the proposed Environmental Construction
Activity.
4.5.2.3.4 TENANT'S WRITTEN APPROVAL.
Landlord shall obtain Tenant's prior written approval of a scope of work for
the Environmental Construction Activity, which approval shall not be withheld
if the Environmental Construction Activity is required by any Governmental
Authority and which approval shall not otherwise be unreasonably withheld or
delayed. Landlord shall submit the scope of work to Tenant following
satisfaction of the other provisions of this Section 4.5.2.3. Tenant shall
have fifteen (15) days to review the scope of work and provide Landlord with
Tenant's written approval or disapproval of the same (which disapproval shall
set forth the specific objections of Tenant thereto). Notwithstanding the
foregoing, Tenant shall have the right to protest the requirements of a
Governmental Authority provided that Tenant indemnifies, defends and holds
Landlord harmless as provided in Section 4.5.4.1, below (as
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limited by Subsection (D) thereof). It shall be deemed reasonable for Tenant
to object to the work on aesthetic grounds if more aesthetically appropriate
solutions are feasible at reasonable cost.
4.5.2.3.5 MEETINGS WITH GOVERNMENTAL
AUTHORITIES. At Tenant's request, Landlord shall cooperate with Tenant in
scheduling and attending a reasonable number of meetings with the applicable
Governmental Authority regarding the proposed Environmental Construction
Activity.
4.5.2.3.6 DISPUTE RESOLUTION. If the
parties are unable to resolve any dispute concerning any matter requiring the
consent of a party or the agreement of the parties to this Section 4.5.2.3
with respect to an Environmental Construction Activity within thirty (30)
days of delivery of a written demand by one party to the other, then the
matter shall be submitted to arbitration in accordance with the procedures
set forth in Section 14.7, below.
In no event shall the foregoing conditions require Landlord to
violate or incur any order or directive to Landlord from a Governmental
Authority regarding any Environmental Construction Activity required by such
Governmental Authority to be performed by Landlord.
4.5.2.4 EXISTING PERMITTEES. Landlord and Tenant
acknowledge and agree that (i) Landlord has previously granted or will grant
limited rights of access to the Existing Permittees pursuant to the terms and
conditions of their respective Existing Encroachment Permits (as defined
under the definition for
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Existing Permittees), and (ii) such Existing Encroachment Permits shall
govern the Existing Permittees' rights to enter the Land for the purposes
stated therein.
If any Existing Permittee desires to relocate its well(s) to another
location on the Property or otherwise amend its Existing Encroachment Permit,
the Existing Permittee shall be deemed a "Third Party" hereunder and shall be
subject to the provisions of Section 4.5.2.5, below. Landlord agrees that it
will not invoke any right to require or otherwise permit any Existing
Permittee to relocate any well or attendant facilities located on the
Property without first obtaining Tenant's prior written consent, which
consent shall not be unreasonably withheld.
Landlord shall, at Tenant's request, reasonably cooperate with
Tenant in relocating or removing any such wells and facilities, provided that
such relocation and/or removal can be effected in a manner that does not
violate the applicable Existing Encroachment Permits and is otherwise in
compliance with all applicable Hazardous Materials Laws and the requirements
of applicable Governmental Authorities, and provided, further, that Landlord
has determined, in its reasonable discretion, that such relocation and/or
removal will not conflict with the protection of human health and the
environment. In addition, Landlord shall reasonably cooperate with Tenant in
enforcing such other rights and remedies of Landlord under any Existing
Encroachment Permit. In no event shall the foregoing require Landlord to
violate or incur any order or directive to Landlord from a Governmental
Authority regarding any Environmental Construction Activity required by such
Governmental Authority to be performed by Existing Permittees on the Property.
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4.5.2.5 THIRD PARTIES. No Third Party will be
permitted to enter the Property or the Leasehold Improvements for the
purposes of performing any activities involving an Environmental
Construction Activity or any other environmental matter, unless Tenant and
such Third Party shall have entered into a written right of entry agreement
upon the terms and conditions substantially similar to this Section 4.5.2 and
upon such other terms and conditions as may be reasonably required by Tenant,
and Landlord shall have approved such agreement in writing, which approval
shall not be withheld if such activity is required by applicable Hazardous
Materials Laws, and which approval shall not be otherwise unreasonably
withheld or delayed.
In addition, as a condition to such entry, such Third Party shall
(i) submit to Landlord and Tenant appropriate characterization and/or
remediation plans approved by applicable Governmental Authorities; (ii)
reasonably demonstrate to Tenant that such entry is required by Hazardous
Materials Laws and/or Governmental Authorities, that such entry is reasonably
necessary to investigate, remediate, clean up or prevent Contamination of the
Property, and that alternative locations suggested by Tenant are not
reasonably feasible; and (iii) indemnify, defend and protect Tenant and
Landlord from any Claims arising in connection with such entry.
If Landlord and Tenant are unable to resolve any dispute concerning
a matter to be agreed upon or consented to by a party pursuant to this
Section 4.5.2.5 within thirty (30) days after delivery of a written demand
for resolution by one party to the other, then the matter shall be submitted
to arbitration in accordance with the procedures set forth in Section 14.7,
below.
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In no event shall the foregoing conditions require Landlord to
violate or incur any order or directive to Landlord from a Governmental
Authority regarding any Environmental Construction Activity on the Property
required by such Governmental Authority to be performed by a Third Party.
4.5.2.6 INFORMATION SHARING. Landlord and Tenant
agree that each party shall cooperate with the other in sharing information
pertinent to environmental matters affecting the Project, and all portions
thereof. Cooperation shall include making available for review and/or
inspection, within a reasonable period of time following a request by one
party, reports, studies, and communications from Governmental Authorities and
other information within the possession or control of the other party
concerning such environmental matters pertaining to the Project. In no event
shall the foregoing require Landlord or Tenant to disclose any communication
that is privileged under applicable Laws.
4.5.2.7 INSURANCE REQUIREMENTS. Prior to any such
entry by Landlord or its employees, contractors or consultants, Tenant shall
have received certificates of insurance evidencing the following insurance
coverages maintained by Landlord and its contractors and consultants issued
by carriers of recognized responsibility with a financial rating of at least
B+:IX when admitted in California or A:X if not admitted in California as
rated in the latest BEST'S INSURANCE GUIDE (or, if discontinued, a
comparable rating from a generally recognized standard for rating insurance
companies).
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(i) If any construction activities will be
undertaken, "builder's risk" insurance (as defined in Section 6.3.1),
including coverage for all material and equipment in place or delivered to
the Premises.
(ii) Statutory Workers Compensation and
employer's liability coverage for injury, disease and death as required by
law, covering all persons employed in connection with such entry.
(iii) Commercial general liability and
auto insurance with combined single limit coverage or equivalent in the
amount of One Million Dollars ($1,000,000) per occurrence. Such policy shall
provide coverage for premises and operations, completed operations (for at
least one (1) year following completion of the work) and broad form property
damage and blanket contractual liability coverage. If Landlord will be
performing excavation, trenching or other underground work, commercial
liability insurance shall be provided by Landlord and its contractors and
consultants, including coverage for explosion, collapse and underground
hazards. The minimum limits of such policies of liability insurance shall be
reasonably adjusted from time to time. All policies shall contain coverage
for automobile and general liability and shall be noncontributing with any
other insurance of Tenant. All commercial general liability and auto
liability policies shall name Landlord and Tenant as additional insureds. So
long as Landlord is the City, the foregoing shall not require Landlord to
obtain and maintain the above insurance coverages to the extent that Landlord
is self-insured, although Landlord shall cause its contractors and
consultants to provide certificates of insurance evidencing the coverages
required above.
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4.5.3 LANDLORD'S INDEMNIFICATION.
4.5.3.1 LANDLORD'S ENVIRONMENTAL INDEMNITY
OBLIGATIONS. Notwithstanding anything to the contrary in this Lease and the
DDA, Landlord shall indemnify, protect, defend with counsel reasonably
acceptable to Tenant and hold harmless Tenant and each of the other Tenant
Indemnitees from and against any and all Environmental Claims arising from or
in connection with:
A. Any entry onto the Property by Landlord
or its Agents or an Existing Permittee or Third Party pursuant to Section
4.5.2, above, or any breach of Landlord's obligations under that Section;
B. Any Hazardous Material Activity
conducted by Landlord or Landlord's Agents; or
C. To the extent that the amount of the
Environmental Claim is increased as a consequence of Landlord's unreasonable
denial of its approval of entry to the Property by Third Parties in violation
of Section 4.5.2.5;
D. To the extent that the amount of the
Environmental Claim is increased as a consequence of Landlord's unsuccessful
opposition or challenge to the policy, directive, requirements of a
Governmental Authority concerning Hazardous Materials in and around the soil,
groundwater, surface water or air of the Property or Leasehold Improvements;
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E. To the extent that the amount of the
Environmental Claim is increased as a consequence of Landlord's unreasonable
denial of its approval to enter any groundwater aquifer pursuant to Section
4.5.5.
F. Any Landlord's Contamination
(including, without limitation, any Landlord's Contamination migrating from
the Land).
As used herein, the term "Landlord's Environmental Indemnity
Obligations" shall mean and be limited to the obligations of Landlord under
this section, subject to Section 4.5.3.2, below.
4.5.3.2 LIMITATIONS. Notwithstanding the
foregoing, in no event shall Landlord's duty to indemnify, defend, protect
and hold harmless Tenant or any other Tenant Indemnitee from Environmental
Claims apply:
A. To the extent caused by Tenant's
Contamination;
B. To the extent that an Environmental
Claim is asserted by a Tenant Indemnitee for its own loss of profit, revenue
or business reputation as a consequence of Contamination;
C. Subject to Section 4.5.9., below, to
the extent the Environmental Claim is for loss of use by the Tenant
Indemnitee of the Property or the Leasehold Improvements as a consequence of
Contamination;
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D. To the extent that the amount of the
Environmental Claim is increased as a consequence of Tenant's breach of its
obligations under Section 4.5.5, below;
E. To the extent the Environmental Claim
is based upon the inability of the Tenant Indemnitee asserting the
Environmental Claim to sell, lease or obtain financing for Tenant's Estate,
the Leasehold Improvements, the Trade Fixtures or any other property of the
Tenant Indemnitee (whether real or personal) located on the Property or in
the Leasehold Improvements as a consequence of Contamination;
F. To the extent that any Environmental
Claim is for diminution of the value of the Property, this Lease, the
Leasehold Improvements, Trade Fixtures or any other property of the Tenant
Indemnitee (whether real or personal) as a consequence of Contamination;
G. Subject to Section 4.5.10, below, to
the extent the Environmental Claim is for excess costs incurred by the Tenant
Indemnitee to construct Leasehold Improvements on the Property as a
consequence of Contamination.
4.5.3.3 PROCEDURE. Each Tenant Indemnitee shall
tender to Landlord any matter covered by the Landlord's Environmental
Indemnity Obligations promptly upon learning of the existence of such matter
and shall reasonably cooperate to permit the Landlord to discharge Landlord's
Environmental Indemnity Obligations; provided, however, that a Tenant
Indemnitee's failure to
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promptly tender such matter to Landlord shall relieve Landlord of its
responsibilities under this Section only to the extent of the prejudice
caused thereby.
Landlord's Environmental Indemnity Obligations with respect to any
Environmental Claim shall be conditioned upon a reasonable demonstration by
Tenant or Tenant Indemnitee that the Environmental Claim arises from or in
connection with the matters identified in Subparts (A) through (F) of Section
4.5.3.1. If Landlord disagrees with such demonstration and the parties are
unable to resolve such dispute within thirty (30) days following Tenant's
submission to Landlord of the information supporting such demonstration, then
the matter shall be submitted to arbitration pursuant to Section 14.7 below.
Each Tenant Indemnitee shall cooperate in good faith to defend any
Environmental Claim asserted against the Tenant Indemnitee at no additional
cost or liability to the Tenant Indemnitee.
4.5.3.4 SETTLEMENT BY LANDLORD. No Environmental
Claim that is the subject of Landlord's Environmental Indemnity Obligations
shall be settled by Landlord without the prior written consent of the Tenant
Indemnitee who tendered the Environmental Claim if the settlement includes
any promise or stipulation which will be binding upon the Tenant Indemnitee
after the settlement. A Tenant Indemnitee's consent to any such settlement
shall not be unreasonably withheld or delayed.
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4.5.4 TENANT'S INDEMNIFICATION.
4.5.4.1 TENANT'S ENVIRONMENTAL INDEMNITY OBLIGATIONS.
Notwithstanding anything to the contrary in this Lease and the DDA, Tenant
shall indemnify, protect, defend with counsel reasonably acceptable to
Landlord, and hold harmless Landlord and each of the other Landlord
Indemnitees from and against any and all Environmental Claims which arise out
of or in connection with:
A. Any Hazardous Material Activity conducted
by Tenant or Tenant's Agents;
B. To the extent that the amount of the
Environmental Claim is increased as a consequence of the failure of Tenant to
perform Tenant's environmental obligations under Section 4.5.5, below;
C. To the extent that the amount of the
Environmental Claim is increased as a consequence of Tenant's unreasonable
denial of entry to the Property and the Leasehold Improvements in violation
of Section 4.5.2;
D. To the extent that the amount of the
Environmental Claim is increased as a consequence of Tenant's unsuccessful
opposition or challenge to the policy, directive or requirements of a
Governmental Authority concerning Hazardous Materials in and around the soil,
groundwater, surface water or air of the Property or Leasehold Improvements;
or
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E. Any Tenant's Contamination (including,
without limitation, Tenant's Contamination migrating from the Land).
As used herein, the term "Tenant's
Environmental Indemnity Obligations" shall mean and be limited to the
obligations of Tenant under this section, subject to Section 4.5.4.2, below.
4.5.4.2 LIMITATIONS. Notwithstanding the
foregoing, in no event shall Tenant's duty to indemnify, defend, protect and
hold harmless Landlord or any other Landlord Indemnitees from Environmental
Claims apply:
A. To the extent caused by Landlord's
Contamination;
B. To the extent the Environmental Claim
is asserted by a Landlord Indemnitee for its own loss of profit, revenue,
business or municipal reputation as a consequence of Contamination;
C. To the extent the Environmental Claim
is for loss of use by the Landlord Indemnitee of any real or personal
property located within the defined area of the Farmer's Field as a
consequence of Contamination;
D. To the extent that the Environmental
Claim is based on the inability of the Landlord Indemnitee asserting the
Environmental Claim to sell, lease, or obtain financing for Landlord's Estate
or any other real or personal property of the Landlord Indemnitee (whether
real or personal) located within the defined area of the Farmer's Field as a
consequence of Contamination;
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E. To the extent the Environmental Claim
is for diminution of the value of the Project, this Lease, or any other real
or personal property of the Landlord Indemnitee (whether real or personal)
located within the defined area of the Farmer's Field, as a consequence of
Contamination;
F. To the extent the Environmental Claim
is for excess costs incurred by a Landlord Indemnitee to construct
improvements on the Land as a consequence of Contamination.
4.5.4.3 PROCEDURE. Each Landlord Indemnitee shall
tender to Tenant any matter covered by the Tenant's Environmental Indemnity
Obligations promptly upon learning of the existence of such matter and shall
reasonably cooperate to permit the Tenant to discharge the Tenant's
Environmental Indemnity Obligations; provided, however, that a Landlord
Indemnitee's failure to promptly tender such matter to Tenant shall relieve
Tenant of its responsibilities under this section only to the extent of the
prejudice caused thereby.
Tenant's Environmental Indemnity Obligations with respect to such
Environmental Claim shall be conditioned upon a reasonable demonstration by
Landlord or Landlord Indemnitee that the Environmental Claim arises from or
in connection with the matters identified in Subparts (A) through (E) of
Section 4.5.4.1. If Tenant disputes Landlord's satisfaction of the foregoing
condition to Tenant's Environmental Indemnity Obligation, the matter shall be
submitted to arbitration pursuant to Section 14.7, below.
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Each Landlord Indemnitee shall cooperate in good faith to defend any
Environmental Claim asserted against the Landlord Indemnitee at no additional
cost or liability to the Landlord Indemnitee.
4.5.4.4 SETTLEMENT BY TENANT. No Environmental
Claim that is the subject of Tenant's Environmental Indemnity Obligations
shall be settled by Tenant without the prior written consent of the Landlord
Indemnitee who tendered the Environmental Claim if the settlement includes
any promise or stipulation which will be binding upon the Landlord Indemnitee
after the consummation of the settlement. A Landlord Indemnitee's consent to
any such settlement shall not be unreasonably withheld or delayed.
4.5.5 TENANT'S ENVIRONMENTAL OBLIGATIONS. Tenant shall not
perform, and shall not permit, any Third Party to perform any activity on or
about the soil, groundwater, surface water, air or improvements of the
Property that is reasonably likely to enter any groundwater aquifer or
otherwise disturb Contaminated groundwater, including, but not limited to,
subsurface construction, excavation, dewatering and pile driving, without the
prior written approval of Landlord, which approval shall not be withheld if
such activity is required by applicable Hazardous Materials Laws and/or any
Governmental Authority, and which approval shall not be otherwise
unreasonably withheld or delayed. If Tenant breaches its obligations under
this section, Landlord's Environmental Indemnity Obligations shall be reduced
to the extent, but only to the extent, that Tenant's breach of this section
increases the cost incurred by Landlord to discharge Landlord's Environmental
Indemnity Obligations. In no event shall Tenant be required to violate or
incur any order or directive to Tenant from a Governmental Authority
respecting any
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Environmental Construction Activity required by such Governmental Authority
to be performed by Tenant or any Third Party.
4.5.6 WAIVERS.
4.5.6.1 LANDLORD'S WAIVER. Landlord, for itself
and all other Landlord Indemnitees, hereby waives and releases Tenant and the
other Tenant Indemnitees from:
A. All Environmental Claims covered by
Landlord's Environmental Indemnity Obligations;
B. Other Environmental Claims, to the
extent said Environmental Claims arise out of or in connection with the
matters described in Subsection 4.5.4.2; and
C. All rights to join Tenant or any other
Tenant Indemnitee in any litigation or proceeding concerning any
Environmental Claims described in subparts (A) and (B) above.
4.5.6.2 TENANT'S WAIVER. Tenant, for itself and
all other Tenant Indemnitees, hereby waives and releases Landlord and the
other Landlord Indemnitees from:
A. All Environmental Claims covered by
Tenant's Environmental Indemnity Obligations;
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B. Other Environmental Claims, to the
extent said Environmental Claims arise out of or in connection with the
matters described in Subsection 4.5.3.2; and
C. All rights to join Tenant or any other
Tenant Indemnitee in any litigation or proceeding concerning any
Environmental Claims described in subparts (A) and (B) above.
4.5.6.3 GENERAL RELEASE. Landlord, being familiar
with the provisions of Civil Code Section 1542, for itself and all other
Landlord Indemnitees, hereby waives, and Tenant, being familiar with the
provisions of Civil Code Section 1542, for itself and all other Tenant
Indemnitees hereby waives, the provisions of Civil Code Section 1542 and any
other provision of Law which would limit the waivers or releases set forth in
this Section 4.5.6. Said Section 1542 reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor."
4.5.7 RESERVATION OF RIGHTS. The parties each maintain
that they are innocent parties with regard to certain Contamination,
including, without limitation, the Teledyne/Spectra-Physics, Montwood and
Peery/Arrillaga contaminated groundwater plumes currently affecting the
Property and the Park Site (as determined in the DDA). Although the parties
have agreed to certain
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Environmental Indemnity Obligations with regard to Contamination, neither
party admits any responsibility whatsoever to any third party or Governmental
Authority under any applicable Law for such Contamination and reserves its
rights to pursue any and all Claims and to raise any and all defenses against
any third party or Governmental Authority in connection therewith. In
addition, to the extent that the Environmental Indemnity Obligations do not
allocate responsibility between the Landlord and Tenant for Contamination,
then no provision of this Agreement shall be read to modify, amend, or
supplement nor, except to the extent expressly set forth in Section 4.5.6, to
waive or release any right either party may have against the other under
applicable Law with respect to such Contamination.
4.5.8 SURVIVAL. Landlord's Environmental Indemnity
Obligations, Tenant's Environmental Indemnity Obligations, and the provisions
set forth in Sections 4.5.3 through 4.5.7, above, shall survive the
expiration or earlier termination of this Lease; and are independent of any
other obligation of the parties under this Lease.
4.5.9 ABATEMENT OF RENT OR TERMINATION DUE TO NEW
CONTAMINATION.
4.5.9.1 RENT ABATEMENT DURING CONSTRUCTION OF
INITIAL PROJECT. If, during the course of construction of the Initial
Project, any Contamination (other than Tenant's Contamination) causes Tenant
to cease construction of any material portion of the initial Leasehold
Improvements on the Property, then Tenant's obligation to pay Monthly Rent
shall be abated for each day construction of the Leasehold Improvements is
actually delayed.
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4.5.9.2 TENANT'S RIGHT TO TERMINATE DURING
CONSTRUCTION OF INITIAL PROJECT. If, during the course of construction of
the Initial Project, any Contamination (other than Tenant's Contamination) is
discovered on the Property and such Contamination (i) would render the
Leasehold Improvements which are part of the Initial Project uninhabitable or
unusable for their intended purposes, or (ii) otherwise causes Tenant to
cease construction of the Initial Project for more than one hundred eighty
(180) days, as determined by (i) a Governmental Authority; or (ii) a health
risk assessment prepared by a reputable environmental consultant of Tenant
(provided Tenant ceases construction and vacates the Property), then at its
election and in addition to its other rights and remedies, Tenant shall have
the right to terminate this Lease by delivery of written notice to Landlord
specifying the date of such termination (which date shall not be later than
one (1) year after the date of the notice). Tenant shall notify Landlord
within fifteen (15) days of the date that Tenant reasonably determines that
such Contamination will render the Property uninhabitable or unusable for its
intended purpose or causes Tenant to cease construction of the Project.
Landlord shall have the right to have a reputable environmental
consultant review the findings and conclusions of Tenant's health risk
assessment within thirty (30) days following Landlord's receipt thereof. If
Landlord's environmental consultant objects to any matter set forth in
Tenant's health risk assessment, Landlord's consultant and Tenant's
consultant shall meet and confer in order to resolve such objection within
fifteen (15) days following the aforementioned thirty- (30) day period. If
the consultants are unable to resolve such objection within said fifteen-
(15) day period, the dispute shall be submitted to arbitration by an
independent environmental consultant in accordance with Section 14.7, below.
In
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no event shall the provisions of this section limit or otherwise affect in
any manner Landlord's Environmental Indemnity Obligations under the Ground
Lease.
4.5.9.3 CITY'S RIGHT TO TERMINATE DURING
CONSTRUCTION. If Landlord is required to remediate Contamination discovered
during the course of constructing the Initial Project, and estimates for
costs to be incurred by Landlord for cleanup and related activities exceed
Five Million Dollars ($5,000,000), Landlord may elect to terminate the Ground
Lease or negotiate a mutually acceptable alternative with Tenant. If
Landlord elects termination, Landlord shall so notify Tenant in writing
within thirty (30) days of discovery and shall refund all rent paid by Tenant
and the Lease Fee, and shall reimburse Tenant for all costs and expenses
incurred by Tenant in connection with the Initial Project, the DDA, the
Development Agreement and this Lease (as evidenced by written documentation)
in an amount not to exceed One Million Dollars ($1,000,000) within thirty
(30) days after receipt of Tenant's written notice of acceptance of the
termination and documentation of the costs and expenses. Landlord shall not
be obligated for any costs or expenses for termination pursuant to this
section, except as provided herein.
4.5.9.4 RENT ABATEMENT UPON COMPLETION OF INITIAL
PROJECT. If Contamination (other than Tenant's Contamination) renders any
portion of the Leasehold Improvements uninhabitable or unusable for the
then-existing use thereof, as determined by (i) an appropriate Governmental
Authority; or (ii) a health risk assessment undertaken by a mutually
agreed-upon third party consultant using mutually agreed-upon assumptions and
procedures demonstrates that the space is not reasonably suited for existing
uses and Tenant vacates the affected space, rent will be equitably abated
based upon the extent and duration of
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such interference. If the consultant's findings are unable to resolve a
dispute between the Landlord and Tenant, the dispute shall be submitted
to arbitration by an independent environmental consultant in accordance with
Section 14.7, below. In no event shall the provisions of this section limit
or otherwise affect in any manner Landlord's Environmental Indemnity
Obligations under this Lease.
4.5.9.5 LEASE TERMINATION UPON COMPLETION OF
LEASEHOLD IMPROVEMENTS. If Contamination (other than Tenant's Contamination)
renders more than one-half of the Floor Area of a Building (on a
Parcel-by-Parcel basis) uninhabitable or unusable for a period of one hundred
eighty (180) days or more, the Tenant may terminate the Lease for the
unusable Parcel. If Contamination (other than Tenant's Contamination)
renders more than one-half of the parking structure and/or more than one-half
of the total Floor Area of all Buildings subject to Parcel Leases
uninhabitable or unusable for a period of one hundred eighty (180) days or
more, Tenant may terminate this Lease as to all Parcels, or if the Property
has been parcelized pursuant to Section 2.2, all Parcel Leases (i.e., as to
the entire Property), subject to Section 14.30 below. The determination that
the Contamination constitutes a health risk that causes the space to be
unusable for a period of one hundred eighty (180) days must be: (a) made by
an appropriate Government Authority; or (b) based on a health risk assessment
by a mutually agreed-upon consultant using mutually agreed-upon assumptions
and procedures.
4.5.9.6 FAILURE TO AGREE UPON CONSULTANT OR
FINDINGS. In the event that (a) Landlord and Tenant cannot agree upon the
health risk consultant or the assumptions and procedures to perform a health
risk assessment pursuant to Section 4.5.9.4 or 4.5.9.5 within thirty (30)
days following delivery of Tenant's
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written request for assessment to Landlord, or (b) following the completion
of such assessment Landlord and Tenant cannot agree upon the results and
findings of the assessment within a thirty (30) days following the parties'
receipt thereof, the dispute shall be submitted to arbitration by an
independent environmental consultant in accordance with Section 14.5.9,
above. In no event shall the provisions of this section limit or otherwise
affect in any manner Landlord's Environmental Indemnity Obligations under
this Lease.
4.5.10 UTILITY COSTS RELATED TO CONTAMINATED GROUNDWATER.
Landlord shall reimburse Tenant for reasonable costs and expenses incurred by
Tenant to install utilities for the Initial Project, or for any utilities now
or hereafter installed by Tenant during the Lease Term solely to fulfill the
requirements of a public utility or Governmental Authority and unrelated to
utility installations made at Tenant's discretion, but only to the extent
that such installation costs are increased by the presence of groundwater
Contamination. Notwithstanding the foregoing, Tenant shall be responsible for
all costs and expenses related to installation of utilities made at Tenant's
election following completion of the Initial Project, including, but not
limited to, utilities needed to expand or upgrade the Leasehold Improvements
(except to the extent required solely by a public utility or Governmental
Authority as described above). In no event shall the provisions of this
section limit or otherwise affect in any manner Landlord's Environmental
Indemnity Obligations under this Lease.
4.5.11 BUILDING COSTS RELATED TO METHANE. Landlord shall
reimburse Tenant for reasonable costs and expenses incurred by Tenant to
construct and install required building improvements, fixtures and equipment
related to methane
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("Methane Improvements") that are now or hereafter required solely to fulfill
the requirements of Governmental Authority and are not made at Tenant's
discretion. Tenant shall be responsible for all costs and expense related to
any improvements, fixtures and equipment related to methane, that Tenant
elects to construct but which are not Methane Improvements required to be
installed by a Governmental Authority.
ARTICLE 5
PAYMENT OF REAL PROPERTY TAXES AND UTILITY CHARGES
5.1 NOTICE OF POSSESSORY INTEREST: PAYMENT OF TAXES AND
ASSESSMENTS ON VALUE OF ENTIRE PROPERTY. In accordance with California
Revenue and Taxation Code Section 107.6(a), Lessor states that by entering
into this Lease, a possessory interest subject to property taxes may be
created. Tenant or other party in whom the possessory interest is vested may
be subject to the payment of property taxes levied on such interest.
5.2 UTILITIES. Tenant agrees that Landlord shall not be liable for
any charges for water, sewage, gas light, heat, telephone, electricity and
other utility and communication services rendered or used on the Property
and/or Leasehold Improvements at all times during the term of this Lease,
except as otherwise expressly provided in the Lease or the DDA.
5.3 REAL PROPERTY TAXES. Commencing as of the Effective Date,
Tenant shall pay and discharge or cause to be paid and discharged before
delinquency all Real Property Taxes accruing during and applicable to the
Lease Term, regardless of when
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due or when billed. Any Real Property Taxes required to be paid by Tenant
which relate to a tax year during which the Commencement Date or the
termination date of the Lease occurs shall be prorated between Landlord and
Tenant based on the actual days of said period within the Lease Term. If the
Law permits payment of any Real Property Tax in installments, Tenant may
utilize the permitted installment method over the maximum period of time
allowed by Law. If Tenant shall fail to pay any Real Property Tax prior to
the delinquency thereof, Tenant shall be required to pay all penalties
imposed by the taxing authority as a result of such delinquency, but shall
have no additional liability to Landlord for such failure.
5. 4 RIGHT TO CONTEST. Tenant shall have the right to pay any Real
Property Tax under protest and Tenant shall not be required to pay, discharge
or remove any Real Property Taxes, so long as Tenant shall (i) in good faith
contest the same or the validity thereof by appropriate legal proceedings in
such a manner as to prevent the tax sale of any portion of the Property, the
Leasehold Improvements and/or Tenant's Estate and the imposition of any lien
upon any portion of the Property or the Leasehold Improvements; and (ii) give
Landlord prompt written notice of its intention to do so at least thirty (30)
days before Tenant would have been obligated to pay such Real Property Taxes
pursuant to this Lease, but for such contest. In the event of any such
contest, within twenty (20) days after the final determination thereof
adversely to Tenant, Tenant shall pay and discharge the amounts determined to
be due from Tenant in accordance therewith and with Section 5.1, together
with any penalties, fines, interest, costs and expenses resulting from such
contest or other proceeding. During any such contest, Tenant shall pay the
uncontested amount of such Real Property Taxes and, to the extent required by
Law, the
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contested amount of such Real Property Taxes. Landlord shall not interfere
with Tenant's right to so initiate and prosecute a contest of Real Property
Taxes.
ARTICLE 6
CONSTRUCTION OF IMPROVEMENTS AND MECHANIC'S LIENS
6.1 CONSTRUCTION PRIOR TO COMMENCEMENT DATE. Prior to the
Commencement Date, Tenant shall not make or construct, or permit its
subtenant to make or construct, any improvements to the Property without the
written consent of Landlord, which consent shall not be unreasonably withheld
or delayed.
6.2 CONSTRUCTION OF INITIAL PROJECT. After the Commencement Date
and subject to the provisions of this Lease and the DDA, Tenant or its
subtenant, at its respective sole cost and expense, shall construct or cause
others to construct the Initial Project.
6.3 CONDITIONS PRECEDENT TO CONSTRUCTION OF INITIAL PROJECT AND
OTHER LEASEHOLD IMPROVEMENTS. Before any construction or work of improvement
(including, without limitation, the Initial Project) is commenced on the
Property and before any building materials have been delivered to the
Property by or at the direction of Tenant, Tenant shall complete each of the
following conditions precedent, or procure Landlord's written waiver thereof:
6.3.1 INSURANCE DURING THE COURSE OF CONSTRUCTION. At all
times during the course of any construction or work of improvement by Tenant
on the Property or in connection with Tenant's Off-Site Improvements, Tenant
shall procure and
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maintain or cause its general contractor to procure and maintain (i)
Builder's Risk Insurance (as defined below) or substantially similar property
insurance coverage; (ii) workers compensation and employers liability
insurance as required by law covering all persons employed in connection with
the work of improvement; and (iii) $5,000,000 per occurrence comprehensive
general liability and automobile liability insurance, including owned, hired
and non-owned autos. All such policies shall be "occurrence-based" policies
except to the extent that "claims-made" policies are generally acceptable
under reasonable risk management practices for similar ground lease projects
in Santa Clara County, California. Tenant shall pay, or cause its
contractors and subcontractors to pay, all premiums required to maintain such
insurance at all times during which work is in progress. Tenant shall also
procure and maintain, at its sole cost and expense, all insurance required by
any lender financing Tenant's construction of the Leasehold Improvements.
All insurance provided pursuant to this section shall be from
insurance companies which are rated at least B+:IX in the latest Best's
Insurance Guide when admitted in California or, if not admitted in
California, from companies rated at least A:X in the latest Best's Insurance
Guide; or equivalent self-insurance that is acceptable to Landlord at its
sole discretion. If Best's Insurance Guide shall be discontinued, then the
parties shall establish comparable ratings from a similar, generally
recognized standard regarding insurance companies. The liability policies
described above shall name Landlord as an additional insured at no cost to
Landlord. Such policies may not be canceled, amended or changed without
thirty (30) days advance written notice to Landlord, and coverage shall be
unqualified as to the acceptance of liability for failure to notify;
provided, however, if any insurance company of Tenant agrees only to
"endeavor" to notify Landlord of cancellation or
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change in any insurance coverage required under this Section 6.3.1, then it
shall be the responsibility of Tenant to notify Landlord within twenty (20)
days prior to such cancellation or change of insurance coverage. The
foregoing insurance coverages shall be primary; any insurance of Landlord
shall be noncontributory and only for the benefit of Landlord. Tenant shall
immediately cease all work on the Project upon the absence of in-force
insurance for the coverages required under, or the reduction of limits below
the minimum policy limits specified in, this Section 6.3.1. If cancellation
of insurance occurs during the course of construction, Landlord, at its
option, may procure the same for Tenant's account, and the cost thereof shall
be paid to Landlord by Tenant upon demand.
For purposes of this Lease, "Builder's Risk Insurance" is insurance
written on a completed value basis policy form, insuring against loss to the
extent of at least ninety percent (90%) of the replacement cost of that which
is being covered.
Prior to commencing the construction of any improvement with a cost
in excess of Two Hundred Thousand Dollars ($200,000) (subject to adjustment
as provided hereinbelow) on the Property, Tenant shall deliver to Landlord
original certificates of insurance evidencing the insurance coverages
required under this Section 6.3.1. At the time Tenant desires to commence
the construction of any improvement, the foregoing Two Hundred Thousand
Dollars ($200,000) amount shall be adjusted by a factor, the numerator of
which shall be the replacement cost of the Leasehold Improvements as of the
date Tenant desires to commence construction, and the denominator of which
shall be the original cost of the Leasehold Improvements of the Initial
Project. The certificates of insurance shall provide the following:
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1. Policy number; name of insurance company; name,
address and telephone number of the agent or authorized representative; name,
address and telephone number of insured; project name and number or name of
corporation or agency; policy expiration date; and specific coverage amount;
2. That the policy will not be canceled, amended or
changed without thirty (30) days advance written notice to Landlord;
provided, however, if any insurance company of Tenant agrees only to
"endeavor" to notify Landlord of cancellation or change in any insurance
coverage required under this Section 6.3.1, then it shall be the
responsibility of Tenant to notify Landlord within twenty (20) days prior to
such cancellation or change of insurance coverage.
3. Deductibles and self-insured retentions not
exceeding those allowed in Section 7.2, below;
4. Name of Landlord contact;
5. Identification of endorsements required under
this Lease.
6. Copy of endorsement naming Landlord as an
additional insured on the liability insurance policy required of Tenant under
this section.
6.3.2 PERMITS. Tenant shall procure, at Tenant's sole cost
and expense, a demolition permit, grading permit, building permit and all
other governmental and quasi-governmental permits and approvals required by
Law for construction of
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any improvements undertaken by Tenant. No application for demolition,
grading, building or use permit may contain any knowing misstatement or
intentional concealment of material fact. Tenant shall obtain all permits
required for the construction to be undertaken by Tenant. All Leasehold
Improvements and Tenant's Off-Site Improvements shall be in conformity with
said permits.
6.4 NOTICE OF NONRESPONSIBILITY. Landlord shall record, or, at
Landlord's request, Tenant shall record on Landlord's behalf, all appropriate
notices of nonresponsibility in connection with a work of improvement to be
undertaken by Tenant. Tenant shall provide Landlord with at least ten (10)
calendar days' advance written notice of the proposed commencement of any
work of improvement costing in excess of Two Hundred Thousand Dollars
($200,000) on the Property and/or the initial delivery to the Property of
materials for work costing in excess of Two Hundred Thousand Dollars
($200,000) so that Landlord may record or require Tenant to record on its
behalf the required notices of nonresponsibility.
6.5 COMPLETION REQUIREMENTS. The Leasehold Improvements and
Tenant's Off-Site Improvements shall be constructed in a good and workmanlike
manner in accordance with all Laws and the building permits therefor. Tenant
shall obtain all temporary and final certificates of occupancy required by
Law.
6.6 LANDLORD FREE FROM LIABILITY. Landlord shall not be liable for
any labor or materials furnished or to be furnished to Tenant, and no
mechanic's lien or other lien shall attach to or affect the Landlord's Estate
as a result of Tenant's construction of a work of improvement, except to the
extent caused by Landlord's failure to reimburse Tenant for certain costs as
set forth in the DDA. Nothing in this Lease
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shall be deemed or construed in any way as constituting the request of or by
Landlord to any contractor, subcontractor, laborer, supplier or materialman
for the performance of any work or as giving Tenant, or its affiliates or
permitted sublessees, any right, power or authority to contract for or permit,
as to Landlord's Estate, the rendering of any services or the furnishing of
any materials for any work of improvement at the Property which would
subject Landlord's Estate to a lien. Tenant shall pay or cause to be paid
the total cost and expense of all works of improvement, as that phrase is
defined in the mechanics' lien law for the State of California in effect when
the work commences, undertaken at the direction of Tenant and in any way
associated with the Project, subject to Landlord's reimbursement obligations
under the DDA. No such payment for any work of improvement shall be
construed as a payment of Rent or as a payment in lieu of Rent under this
Lease.
6.7 MECHANICS' LIENS. Subject to Landlord's reimbursement
obligations under the DDA, Tenant shall not suffer or permit to be enforced
against the Project or any portion thereof, any mechanics', materialmen's,
contractors', or subcontractors' lien or liens arising from any work of
improvement by or at the direction of Tenant, however it or they may arise.
Tenant may, however, in good faith and at Tenant's sole cost and expense,
contest the validity of any such asserted lien, claim or demand provided that
Tenant has furnished Landlord with the bond required under California Civil
Code Section 3143 or any comparable statute hereafter enacted for providing a
bond freeing the Landlord's Estate from the effect of such a lien, claim or
demand. In the event no such statute should exist, Tenant shall supply
Landlord with cash security or other security reasonably acceptable to
Landlord in an amount of no less than one hundred fifty percent (150%) of any
lien,
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claim or demand. Tenant shall indemnify, protect, defend and hold Landlord
and Landlord's successors and assigns, the Property, the Leasehold
Improvements and the Project free and harmless from and against all Claims
arising out of any mechanics' liens for works of improvement performed on or
at the Project by or at the direction of Tenant or its affiliates,
subtenants, concessionaires, licensees or Agents, together with reasonable
attorneys' and experts' fees and all costs and expenses reasonably incurred
in defending or otherwise protecting against such claims.
6.8 LANDLORD'S RIGHT TO DISCHARGE LIEN. If Tenant does not cause
to be recorded the bond described in California Civil Code Section 3143 (or
any comparable statute hereafter enacted for providing a bond freeing the
Property, the Leasehold Improvements and the Project from the effect of such
a lien, claim or demand) or otherwise protect the same under any alternative
or successor statute or other security arrangement acceptable to Landlord in
the manner described in Section 6.7, above, and a final judgment has been
rendered by a court of competent jurisdiction for the foreclosure of a
mechanics', materialmen's, contractors' or subcontractors' lien, claim or
demand, and if Tenant fails to stay the execution of the judgment by lawful
means or to pay the judgment, Landlord shall have the right, but not the
duty, to pay or otherwise discharge, stay, or prevent the execution of any
such judgment or lien or both. Upon demand therefor by Landlord, Tenant shall
reimburse Landlord for all sums paid by Landlord under this Section 6.8,
together with all Landlord's reasonable attorneys' fees and costs, plus
interest on those sums, fees and costs at the Lease Rate from the date of
payment until the date of full reimbursement.
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6.9 TITLE TO LEASEHOLD IMPROVEMENTS. During the term of this
Lease, title to the Leasehold Improvements shall be in Tenant or its
subtenants, as applicable, and in no event shall Landlord have any interest
or claim upon the Trade Fixtures or any additions, alterations and
improvements thereto or replacements thereof. At the expiration or earlier
termination of this Lease, all right, title and interest of Tenant and any
other party in the Leasehold Improvements and all additions, alterations and
improvements thereto or replacements thereof shall automatically pass to and
vest in Landlord without the necessity of notice or documentation.
Notwithstanding the foregoing, in no event shall Landlord have any interest
whatsoever in Tenant's Trade Fixtures or those of its permitted subtenants,
and Landlord shall execute any document reasonably necessary to facilitate
the collateralization of equipment leases or other financing for the benefit
of Tenant or subtenants, and acknowledge its waiver of any lien or interest
in the Trade Fixtures.
6.10 LANDLORD'S COOPERATION. At any time that Tenant undertakes a
work of improvement pursuant to the provisions of this Article 6, Landlord
shall use good faith efforts to cooperate with Tenant in applying for
(including execution thereof) all necessary governmental and
quasi-governmental permits and approvals required for such construction and
all inspections, certificates of occupancy and other certificates evidencing
completion of the work in accordance with applicable Law. Without limiting
the generality of Section 14.29 below, the foregoing shall not limit in any
manner the City's rights, powers and authority under its police powers.
6.11 TENANT'S ELECTION TO REDEVELOP. Following completion of the
Initial Project, Tenant shall have the right, but not the obligation (except
as otherwise required in connection with damage or destruction of the
Leasehold Improvements
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under Article 8 or condemnation under Article 9), to demolish, remove,
replace, relocate, reconstruct and/or redevelop the Leasehold Improvements,
provided that, as of the commencement of such work, (i) no Event of Default
exists under the Lease; (ii) at least fifteen (15) years of the Lease Term
(including any option periods exercised by Tenant) are remaining under the
Lease; (iii) Tenant agrees to construct new Leasehold Improvements promptly
following the demolition, removal, replacement and/or relocation of the then
existing Leasehold Improvements, all in accordance with the terms and
conditions of this Article 6; (iv) the Leasehold Improvements after the
reconstruction will have an estimated fair market value equal to or greater
than the fair market value of the Leasehold Improvements existing prior to
such demolition, removal, replacements, relocation, reconstruction and/or
redevelopment, and (v) any one of the following exists: (A) the Guaranty has
not been terminated pursuant to Section 20 of the Guaranty, (B) the Lease has
been assigned to an assignee (or is otherwise guaranteed by any entity)
meeting the financial criteria set forth in Section 11.1.2 above at either
the time of assignment or the commencement of such work, or (C) Tenant has
provided Landlord with reasonable assurances that Tenant has the financial
capability and/or financing commitment to perform the construction of the new
Leasehold Improvements.
ARTICLE 7
INSURANCE AND INDEMNITY
7.1 REQUIRED INSURANCE. Tenant, at its sole cost and expense,
shall procure the following insurance on or before the Commencement Date and
shall maintain the same at all times during the Lease Term:
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7.1.1 LIABILITY INSURANCE. Tenant shall obtain and
maintain a policy or policies of comprehensive general and automobile
liability insurance in an amount of not less than $5,000,000 per occurrence,
including bodily injury, death, personal injury, contractual liability,
including, without limitation, performance by Tenant of the indemnity
provisions contained in Section 7.4.2 of this Lease to the extent it is
insurable, and property damage as a combined single limit or equivalent.
Such insurance shall name Landlord as an additional insured. No such
insurance shall be deemed to limit the parties' respective indemnity
obligations or such other obligations of the parties under this Lease. The
limits of the liability coverage and, if necessary, the terms and conditions
of insurance, shall be reasonably adjusted from time to time (not less than
every five years after the Commencement Date nor more than once in every
three-year period) to meet any change of circumstance, including, but not
limited to, changes in the purchasing power of the dollar and the litigation
climate in California. If the parties are unable to agree on the amount by
which the minimum coverage required of Tenant is to be adjusted, the
controversy shall be resolved by arbitration according to the procedure set
forth in Section 14.7 below.
7.1.2 PROPERTY INSURANCE. Tenant shall maintain all risk
property damage insurance (without deduction for depreciation) in an amount
equal to not less than 90 percent of the full cost of rebuilding and
replacing the Leasehold Improvements, including increased costs due to
changes in building codes, regulations and similar laws. In addition, Tenant
shall carry a standard boiler and machinery all-risk policy covering the
Leasehold Improvements (if the Leasehold Improvements contain a boiler), and
such other insurance as may be requested by
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Landlord pursuant to Section 7.1.3 below. Landlord shall be named as a loss
payee for proceeds in excess of One Million Dollars ($1,000,000).
7.1.3 INSURANCE COVERAGE. Notwithstanding anything to the
contrary contained herein, Tenant shall not be required to carry (i)
earthquake insurance; (ii) pollution liability insurance; (iii) flood
insurance; or (iv) any other insurance that cannot be procured or maintained
by Tenant at commercially reasonable rates (other than the commercial
liability and property insurance coverages described in Sections 6.3.1, 7.1.1
and 7.1.2, above). Except as provided in the preceding sentence, Tenant,
within thirty (30) days after Landlord's written request therefor (which
request may not be made more than once in every three-year period), shall
obtain and thereafter maintain property insurance against such additional
casualties not otherwise described in Section 7.1 as Landlord may reasonably
request, provided that such coverage is generally maintained by owners of
similar projects in Santa Clara County, California.
7.2 REQUIRED TERMS. All policies provided for under this Article 7
must be from insurance companies which are rated at least B+:IX in the latest
BEST'S INSURANCE GUIDE when admitted in California or, if not admitted in
California, from companies rated at least A:X in the latest BEST'S INSURANCE
GUIDE, or equivalent self-insurance that is acceptable to Landlord at its
sole discretion. If BEST'S INSURANCE GUIDE shall be discontinued, then the
parties shall establish comparable ratings from a similar, generally
recognized standard regarding insurance companies. The liability insurance
described in 7.1.1 above shall name Landlord as an additional insured at no
cost to Landlord. Such policies may not be canceled, amended or changed
without thirty (30) days advance written notice to Landlord, and coverage
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shall be unqualified as to the acceptance of liability for failure to notify;
provided, however, if any insurance company of Tenant agrees only to
"endeavor" to notify Landlord of cancellation or change in any insurance
coverage required under Section 7.1, then it shall be the responsibility of
Tenant to notify Landlord within twenty (20) days prior to such cancellation
or change of insurance coverage. All such policies shall be
"occurrence-based" policies except to the extent that "claims-made" policies
are generally acceptable under reasonable risk management practices for
similar ground lease projects in Santa Clara County, California. The
foregoing insurance coverages shall be primary; any insurance of Landlord
shall be noncontributory and only for the benefit of Landlord. All
deductibles and self-insured retentions shall be in amounts generally
maintained by owners of similar projects in Santa Clara County, California.
Prior to the Commencement Date, Tenant shall deliver to Landlord
original certificates of insurance evidencing the insurance coverages
required under this Section 7.1 and otherwise containing the information
required under Section 6.3.1 above. At least thirty (30) days prior to the
expiration of such policies, Tenant shall furnish Landlord with evidence of
renewal or binders showing no lapse in coverage and, as soon as practicable
thereafter, certificates of renewal setting forth the information required
under Section 6.3.1 above, as applicable. If Tenant fails to procure any
insurance required by this Lease, or to deliver to Landlord such policies or
certificates as required by this Lease, Landlord at its option may procure
the same for Tenant's account, and the cost thereof shall be paid to Landlord
by Tenant upon demand.
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7.3 PARTIAL RELEASE OF LIABILITY AND WAIVER OF SUBROGATION.
Landlord and Tenant release each other and their respective employees,
officers and directors from any Claims such releasing party may have for
damage to the Leasehold Improvements, the Project or any of the releasing
party's fixtures, personal property, improvements and alterations in or about
the Project that is caused by or results from risks insured against under any
fire and extended coverage insurance policies actually carried by such
releasing party, without regard to the fault of the party released, provided
that such waiver shall be limited to the extent of the net insurance proceeds
paid by the relevant insurance company with respect to such loss or damage.
This release shall be in effect with respect to any loss only so long as the
applicable insurance policy(s) contain a clause to the effect that this
release shall not affect the right of the named insured to recover under such
policies. Tenant and Landlord shall cause each insurance policy obtained by
it to provide that the insurance company waives all rights of recovery by way
of subrogation against either or both Landlord and Tenant in connection with
any damage covered by such policy so long as such a waiver of subrogation is
available and can be obtained without unreasonable additional cost.
7.4 INDEMNIFICATION OF LANDLORD.
7.4.1 LIMITATION OF LANDLORD'S LIABILITY. Except as
otherwise expressly provided in this Lease or the DDA (including, without
limitation, Landlord's indemnity obligations under Sections 4.5.3 and 7.5
hereof), Landlord shall not be liable to Tenant, and Tenant hereby waives all
Claims against Landlord for any loss, injury or other damage to person or
property in or about the Project from any cause whatsoever, including,
without limitation, water leakage of any character from the
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roof, walls, basement or other portion of the Property, the Leasehold
Improvements or the Project, or gas, fire, explosion or other electricity
within the Property, the Leasehold Improvements or the Project.
7.4.2 TENANT'S INDEMNITY.
7.4.2.1 SCOPE OF TENANT'S INDEMNITY. Subject to
the limitations contained in Section 7.4.2.1 below, Tenant shall defend with
competent counsel, indemnify, protect and hold harmless Landlord and each of
the Landlord Indemnitees from any and all demands, suits, governmental
orders, writs, injunctions, claims, actions, proceedings, causes of action,
liabilities, obligations, losses, damages, costs or expenses, including
reasonable attorneys' fees and costs incurred in defending against the same
(collectively, "Claims"), to the extent arising from:
(i) The negligent act or omission or
willful misconduct of Tenant or Tenant's Agents (a) in or on the Property or
the Leasehold Improvements at any time during the Lease Term or (b) on or
about the Permanente Creek Trail or the Park Site (as defined in the DDA)
after acceptance of the Tenant's Off-Site Improvements; or
(ii) Any construction or other work
undertaken by Tenant on the Project, whether prior to or during the Lease
Term; or
(iii) Any Event of Default under this
Lease by Tenant; or
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(iv) Any accident, injury or damage,
howsoever and by whomsoever caused, to any person or property, occurring on
the Property or in the Leasehold Improvements during the Lease Term; or
(v) Tenant's violation of Law.
7.4.2.2 LIMITATIONS ON TENANT'S INDEMNITY.
Notwithstanding anything to the contrary in this Section 7.4.2, in no event
shall Tenant have any obligation under this Section 7.4.2 to indemnify,
defend or hold harmless Landlord or any other Landlord Indemnitee from any
Claim, nor to waive any Claim which Tenant may have against Landlord or
another Landlord Indemnitee, to the extent the Claim arises from:
(i) The negligent act or omission or
willful misconduct of Landlord or Landlord's Agents in or on the Project
during the Lease Term;
(ii) A breach of the obligations of
Landlord set forth in this Lease;
(iii) Landlord's violation of Law;
(iv) The ownership, use or operation of
the Tenant's Off-Site Improvements after acceptance of the Tenant's Off-Site
Improvements by Landlord, Landlord's governmental subdivisions, their
respective Agents or the general public and, except as provided in Section
8.6 of the DDA, any design or construction defects in the Tenant's Off-Site
Improvements;
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(v) Bodily injury, property damage or
personal injury suffered or caused by the use by the general public (other
than Tenant's Agents, invitees, customers, and guests) of those portions of
the Leasehold Improvements on the Property made available pursuant to Section
8.7 of the DDA for the use of the general public, except to the extent that
such bodily injury or property damage could have been prevented by reasonable
safety and security precautions commonly undertaken by owners of comparable
projects in Santa Clara County, California, and such precautions were not
undertaken by Tenant; and
(vi) Any Environmental Claim,
Environmental Construction Activity, Contamination, Hazardous Materials
Activity or Hazardous Materials Law (which shall be governed solely by the
provisions of Section 4.5 above);
The foregoing indemnities are intended to be "occurrence-based"
indemnities rather than "claims-made" indemnities. Accordingly, the
provisions of this section shall survive the expiration or earlier
termination of this Lease to the extent that the injury or damage giving rise
to the Claim occurs prior to such expiration or termination.
7.5 LANDLORD'S INDEMNITY.
7.5.1 SCOPE OF LANDLORD'S INDEMNITY. Subject to the
limitations contained in Section 7.5.2, Landlord shall defend with competent
counsel,
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indemnify, protect and hold harmless Tenant and each Tenant Indemnitee from
any and all Claims to the extent arising from:
(i) The negligent act or omission or willful
misconduct of Landlord, a governmental unit thereof, or any of their Agents
in or on the Project during the Lease Term;
(ii) A breach of the obligations of Landlord set
forth in this Lease; and
(iii) Landlord's violation of Law.
(iv) The ownership, use or operation of the
Tenant's Off-Site Improvements after acceptance of the Tenant's Off-Site
Improvements by Landlord, Landlord's governmental subdivisions, their
respective Agents or the general public and, except as provided in Section
8.6 of the DDA, any design or construction defects in the Tenant's Off-Site
Improvements;
(v) Bodily injury, property damage or personal
injury suffered or caused by the use by the general public (other than
Tenant's Agents, invitees, customers, and guests) of those portions of the
Leasehold Improvements on the Property made available pursuant to Section 8.7
of the DDA for the use of the general public, except to the extent that such
bodily injury or property damage could have been prevented by reasonable
safety and security precautions commonly undertaken by owners of comparable
projects in Santa Clara County, California, and such precautions were not
undertaken by Tenant.
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7.5.2 LIMITATIONS ON LANDLORD'S INDEMNITY. Notwithstanding
anything to the contrary in this Section 7.5, in no event shall Landlord have
any obligation under this Section 7.5 to indemnify, defend or hold harmless
Tenant or any other Tenant Indemnitee from any Claim, nor to waive any Claim
which Landlord may have against Tenant or another Tenant Indemnitee, to the
extent the Claim arises from:
(i) The negligent act or omission or willful
misconduct of Tenant or Tenant's Agents (a) in or on the Property or the
Leasehold Improvements at any time during the Lease Term or (b) on or about
the Permanente Creek Trail or the Park Site (as defined in the DDA) after
acceptance of the Tenant's Off-Site Improvements; or
(ii) Any Event of Default under this Lease by
Tenant;
(iii) Any Environmental Claim, Environmental
Construction Activity, Contamination, Hazardous Materials Activity or
Hazardous Materials Law (which shall be governed solely by the provisions of
Section 4.5 above); or
(iv) Tenant's violation of Law.
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ARTICLE 8
MAINTENANCE, REPAIR AND RESTORATION OF DAMAGE
8.1 TENANT'S DUTY TO MAINTAIN AND REPAIR. Subject to this Article
8, Article 9, Section 4.5, and Section 7.5 hereof, during the Lease Term,
Tenant, at its sole cost and expense, shall keep and maintain the Leasehold
Improvements, and every part thereof, including, without limitation, any
appurtenances and fixtures, the structural elements of the Buildings, all
parking structures and facilities, the roofs, walls, plumbing, heating,
ventilation, air conditioning, plazas, and landscaping on the Property, in
such condition as may be required by Law. Other than Landlord's
environmental obligations set forth in Article 4 hereof, Landlord shall have
no maintenance responsibility whatsoever in connection with the Property, the
Leasehold Improvements or Trade Fixtures.
Notwithstanding the preceding to the contrary, in the event of an
assignment of Tenant's Estate to any party other than an assignee (or any
guarantor thereof) meeting the financial criteria set forth in Section 11.1.2
below, an assignee in an Affiliate Transaction, a Tenant Mortgagee or any
successor or assign of such Tenant Mortgagee in the Tenant Mortgage, Tenant
shall deliver the Leasehold Improvements to such assignee in good, clean and
sanitary condition, excepting ordinary wear and tear, damage or destruction
which Tenant is not required to restore pursuant to this Article 8,
condemnation which Tenant is not required to restore pursuant to Article 9,
and Contamination (other than Tenant's Contamination).
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Nothing herein shall prohibit Tenant from otherwise redeveloping the
Property in the future, including the demolition of existing Leasehold
Improvements and reconstruction of new Leasehold Improvements, provided that
such redevelopment is performed in accordance with Article 6 above.
8.2 CASUALTIES.
8.2.1 TENANT'S DUTY TO RESTORE. Subject to Section 8.2.2,
below, if any Leasehold Improvements are damaged by fire, other peril or any
other cause during the initial fifty-five (55) years of the Lease Term, then
Tenant, at its sole cost and expense, shall, within four (4) years after the
date of casualty (subject to force majeure delays described in Section 14.18,
below), restore the Leasehold Improvements in compliance with and to the
extent permitted by all then applicable Laws, and this Lease shall remain in
full force and effect, without abatement of Monthly Rent or other charges.
All insurance proceeds payable as a result of such casualty shall be applied
in the following order of priority:
A. First, as provided by any Tenant Mortgage, to
the satisfaction and payment of the Tenant Mortgagee;
B. Second, to Tenant for the payment of all costs
and expenses to complete the restoration of the Leasehold Improvements
required of Tenant pursuant to this subsection; and
C. Third, the remainder of insurance proceeds, if
any, shall be paid to Tenant.
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The proceeds paid to Tenant pursuant to Subsection (B) above shall
be deemed to be held in trust for the benefit of Landlord and Tenant by the
recipient for the purpose of restoration of the Leasehold Improvements.
8.2.2 TENANT'S TERMINATION RIGHTS. Notwithstanding
anything to the contrary in this Lease:
8.2.2.1 ELECTION NOT TO RECONSTRUCT. If an
Uninsurable Loss in excess of the Restoration Amount or any Late Term
Extensive Damage occurs, then Tenant, by delivery of written notice to
Landlord within six (6) months after the occurrence of the damage, may elect
not to reconstruct the Leasehold Improvements, in which case Tenant, at its
sole cost, shall (i) demolish the damaged Leasehold Improvements; (ii) remove
all debris from the Property; (iii) erect necessary structures to preclude
unauthorized access to the Property and otherwise remove all safety hazards
from the Property; (iv) clear the Property of the damaged Leasehold
Improvements and return that portion of the Property to a level grade, to the
extent reasonably practicable; and (v) maintain such Leasehold Improvements
on the Property which are not damaged in the condition required by this
Lease. Following such election, this Lease shall continue to remain in full
force and effect, without abatement of Monthly Rent or other charges.
Tenant's failure to make an election in writing within six (6) months after
the date of the occurrence of the damage shall constitute Tenant's
affirmative election to restore the damaged Leasehold Improvements pursuant
to Section 8.2.1, above. All insurance proceeds payable as a result of such
casualty with regard to Late Term Extensive Damage
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which Tenant elects not to reconstruct as provided hereinabove shall be applied
in the following order of priority:
A. First, as provided in any Tenant
Mortgage, to the satisfaction and payment of the Tenant Mortgagee;
B. Second, to Tenant for the payment of
all costs and expenses to complete the demolitions and/or restorations
required of Tenant pursuant to this subsection; and
C. Third, the remainder of insurance
proceeds, if any, shall be paid to Landlord and Tenant as their interest may
appear; provided, however, that the portion of such proceeds otherwise
payable to Tenant under this Subsection (C) shall be reduced by the amount
paid to Tenant Mortgagee pursuant to Subsection (A) above.
The proceeds paid to Tenant pursuant to Subsection (B), above, shall
be deemed to be held in trust for the purposes and uses described therein.
Notwithstanding the foregoing, Tenant shall be responsible for
repairing any injury or damage to Leasehold Improvements caused by an
Uninsurable Loss if the Uninsurable Loss is less than the Restoration Amount.
8.2.2.2 INFEASIBILITY. Notwithstanding Section
8.2.1, if reconstruction of the Leasehold Improvements following any casualty
is physically infeasible because of physical conditions of the Property, or
if the City or any other
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Governmental Authority cannot legally grant the permits and approvals for
repair or restoration of the Leasehold Improvements so that the total Floor
Area of all Buildings after the restoration will be at least two hundred fifty
thousand (250,000) square feet, then Tenant may terminate this Lease as of the
date set forth in its written notice to Landlord so stating. If the City or
any Government Authority can legally grant permits and approvals for repair and
restoration of the Leasehold Improvements so that the total Floor Area of all
Buildings will be greater than two hundred fifty thousand (250,000) but less
than five hundred thousand (500,000) square feet, the Monthly Rent shall
thereafter be proportionately reduced in the same manner as described under
Section 1.3.2. If Tenant elects to terminate this Lease pursuant to this
section, Tenant, at its sole cost, shall (i) demolish the damaged Leasehold
Improvements; (ii) remove all debris from the Property; (iii) erect necessary
structures to preclude unauthorized access to the Property and otherwise remove
all safety hazards from the Property; and (iv) clear the Property of the
damaged improvements and return that portion of the Property to a level grade.
Upon the termination date set forth in Tenant's written notice to Landlord of
its election to terminate: (i) all Monthly Rent and other sums due pursuant to
this Lease shall be prorated as of the date of termination and paid by Tenant;
(ii) this Lease shall expire and terminate; (iii) neither Landlord nor Tenant
shall have any further obligations hereunder except for those obligations which
are intended to survive termination of this Lease; and (iv) Guarantor shall be
released from all obligations under the Guaranty, except for those obligations
which have accrued prior to the date of termination or which are intended to
survive termination of the Lease. All insurance proceeds payable as a result
of such damage and Tenant's election to terminate shall be applied in the
following order of priority:
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A. First, as provided in any Tenant
Mortgage, to the satisfaction and payment of the Tenant Mortgagee;
B. Second, to the payment of all expenses
incurred by Tenant in completing the demolition and/or restoration required
of Tenant pursuant to this Subsection; and
C. Third, the remainder of insurance
proceeds, if any, shall be paid to Landlord and Tenant, as their interests
may appear; provided, however, that the portion of such proceeds otherwise
payable to Tenant under this Subsection (C) shall be reduced by the amount
paid to a Tenant Mortgagee pursuant to Subsection (A) above.
8.2.3 GENERAL PROVISIONS. Landlord shall not be required
to repair any injury or damage to the Leasehold Improvements or the Property,
except to the extent of Landlord's obligations in Article 4 hereof. Landlord
and Tenant hereby waive the provisions of (i) Sections 1932(2) and 1933(4) of
the Civil Code of California and any other provisions of Law from time to
time in effect during the term of this Lease and relating to the effect on
leases of partial or total destruction of leased premises; and (ii) Sections
1941 and 1942 of the Civil Code, providing for repairs to and of premises.
Landlord and Tenant agree that their respective rights upon any damage or
destruction of the Leasehold Improvements and the Property shall be those
specifically set forth in this Article 8.
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ARTICLE 9
CONDEMNATION
9.1 DEFINITIONS. As used in this Article 9, the following terms
shall have the following meanings:
9.1.1 CONDEMNATION shall mean (i) any permanent taking by
the exercise of the power of eminent domain, whether by legal proceedings or
otherwise, by any person or entity having the legal power to do so; (ii) a
voluntary sale or transfer by Landlord to any condemnor, either under threat
of condemnation or while legal proceedings for condemnation are pending; or
(iii) any permanent taking by inverse condemnation.
9.1.2 TOTAL TAKING shall mean a Condemnation of (i) all or
substantially all of the Leasehold Improvements and/or the Property; or (ii)
any portion of the Leasehold Improvements and/or the Property which leaves
remaining a balance which, in Tenant's reasonable judgment, even after a
reasonable amount of reconstruction, may not be restored so as to permit the
balance to be economically operated for Tenant's intended purpose or which
materially reduces Tenant's actual occupancy of the Leasehold Improvements
(by reduction of parking or otherwise) so that it cannot be economically
operated for Tenant's intended purpose.
9.1.3 PARTIAL TAKING shall mean a Condemnation of a portion
of the Leasehold Improvements and/or the Property which does not constitute a
"Total Taking."
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9.1.4 DATE OF TAKING shall mean the date that the condemnor
takes possession of the property being condemned; and
9.1.5 AWARD shall mean the net amount of all compensation,
sums or anything of value awarded, paid or received on or because of a Total
Taking, a Partial Taking, or a temporary Condemnation, after deduction of
attorneys' fees and court costs awarded to Landlord and/or Tenant in the
Condemnation proceeding.
9.2 TOTAL TAKING. If, during the Lease Term, there occurs a Total
Taking, this Lease shall terminate on the Date of Taking, and all obligations
hereunder shall be prorated to that date.
9.3 PARTIAL TAKING. If, during the Lease Term, there occurs a
Partial Taking, the following shall apply:
A. This Lease shall terminate as to the portion so taken
and shall remain in full force and effect as to the portion remaining.
B. Effective as of the Date of Taking, the Monthly Rent
shall be equitably reduced based upon the reduced fair market value of the
Property as a consequence of the Taking (and the Initial Monthly Rent used in
the formula for calculating adjustments to Monthly Rent as set forth in
Section 3.1.3.1 and 3.1.3.2 shall be equitably reduced), as determined by the
mutual agreement of the parties, or if they cannot agree within sixty (60)
days following the Date of the Taking, then by arbitration pursuant to
Section 14.7 hereof.
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C. Tenant shall, at its sole cost and with reasonable
diligence, to the extent reasonably practicable, commence and complete the
restoration of the portion of any affected Leasehold Improvements and the
Property not taken to a condition which is economically viable,
architecturally complete and suitable for the uses being made of the
Leasehold Improvements and the Property immediately prior to the Date of
Taking, in accordance with the terms of Article 6 of this Lease.
9.4 TEMPORARY TAKING. If there occurs a Temporary Taking of all or
any part of the Leasehold Improvements or the Property during the Lease Term
(i) this Lease shall not be affected in any way; (ii) Tenant shall continue
to pay and perform all of its obligations hereunder; and (iii) any Award made
as a result of said Temporary Taking shall be paid solely to Tenant.
9.5 APPORTIONMENT OF AWARD. Any Award made as a result of a Total
Taking shall be deposited, in trust, with Landlord, and any Award made as a
result of a Partial Taking shall be deposited in trust with Tenant, and shall
be paid as follows:
A. First, as provided in a Tenant Mortgage, to the
satisfaction and payment of the Tenant Mortgage, to the extent of the value
of Tenant's Estate in the Property and in the Leasehold Improvements so taken;
B. Second, in the event of a Partial Taking, Tenant shall
receive any portion of the Award payable for restoration of the remaining
Leasehold Improvements not taken or, in the event of a Total Taking, Landlord
shall receive any portion of the Award payable for restoration of any
remaining Leasehold Improvements not taken;
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C. The remainder, if any, shall be paid to Landlord and
Tenant, as their interests may appear for the taking of Landlord's Estate and
Tenant's Estate, respectively; provided, however, that for the purpose of
this subject, the value of Tenant's Estate shall be reduced by any amount
paid to a Tenant Mortgagee pursuant to Subsection (A) above.
Tenant shall receive any Award payable for (i) a taking of Tenant's
Trade Fixtures and other personal property, Tenant's relocation costs and/or
Tenant's loss of goodwill, and (ii) with respect to a Partial Taking, any
severance damages attributable to the impairment of Tenant's use of the
remaining portion of the Property and Leasehold Improvements during the
remaining Lease Term.
9.6 GENERAL. Each party hereto shall be responsible for
representing its own interest (at its own cost) in any proceeding or
negotiation regarding any Condemnation or any Award, and shall cooperate to
maximize the total amount of the Award. Issues between Landlord and Tenant
which must be resolved to implement the provisions of this Article shall be
joined in any pending Condemnation proceeding, to the extent permissible under
then applicable Law, to the end that multiplicity of actions shall be avoided.
Any dispute between Landlord and Tenant arising under this Article which is not
so joined in a Condemnation proceeding shall be determined by arbitration
pursuant to Section 14.7 hereof.
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ARTICLE 10
DEFAULT AND REMEDIES
10.1 EVENTS OF TENANT'S DEFAULT. An "Event of Default" by Tenant
shall occur if:
10.1.1 MONETARY DEFAULT. Tenant shall fail to pay the
Monthly Rent or any other monetary sum owing to Landlord or any other party
(including without limitation, the payment of Real Property Taxes) under the
terms of this Lease on or before the tenth (10th) day after receipt of
written notice from Landlord that such obligation is due and unpaid; or
10.1.2 NONMONETARY DEFAULT. Tenant shall fail to perform
any term, covenant or condition of this Lease to be performed by Tenant,
except those requiring the payment of money, and Tenant shall have failed to
cure the same on or before the thirtieth (30th) day after written notice from
Landlord, delivered in accordance with the provisions of this Lease, where
such failure could reasonably be cured within said thirty (30) day period or
shall fail to commence to cure any such failure which could not reasonably be
cured within said thirty (30) day period on or before the thirtieth (30th)
day after written notice of the default or to thereafter continue to make
diligent and reasonable efforts to cure such failure as soon as practicable.
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10.2 LANDLORD'S REMEDIES. Subject to the provisions of Article 13
hereof regarding Tenant Mortgages, upon an Event of Default, Landlord shall
have all of the following remedies:
10.2.1 TERMINATION OF LEASE. Landlord, at its election,
may terminate this Lease and be entitled to the remedies described below.
Landlord shall effect the termination of this Lease by delivery of written
notice to Tenant, which notice shall be delivered to Tenant in the manner
described in Section 14.4, below. Termination of this Lease shall be
effective as of the later of (a) the date set forth in Landlord's notice
which date shall not be earlier than ninety (90) days after the date of the
notice or, (b) such longer period (not to exceed one hundred eighty (180)
days) after delivery of Landlord's termination notice to Tenant as may be
necessary for Tenant to complete its surrender of the Property and the
Leasehold Improvements, if Tenant pays to Landlord the Monthly Rent for each
month of the extended surrender period and during such period pays any and
all other rent, charges and amounts, and complies with all other covenants
and obligations of Tenant under this Lease (but during such surrender period
Tenant shall not be liable for holdover rent pursuant to Section 14.3 below)
as provided in Section 2.5 above. Upon termination of this Lease by Landlord
under and in accordance with the provisions of this Section 10.2.1, Landlord
shall be entitled to recover from Tenant the following:
A. The worth, at the time of the award, of the
unpaid rent that had been earned at the time of termination of this Lease;
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B. The worth, at the time of the award, of the
amount by which the unpaid rent which would have been earned after the date
of termination of this Lease until the time of award exceeds the amount of
the loss of rent that Tenant proves could have been reasonably avoided. In
no event, however, shall the amount described in this subparagraph (B)
include any damages which are not recognized under California landlord/tenant
law as recoverable damages on account of Tenant's default.
C. The worth, at the time of the award, of the
amount by which the unpaid rent for the balance of the term of this Lease
after the time of award exceeds the amount of the loss of rent that Tenant
proves could have been reasonably avoided; and
D. Any other amount, including court costs,
necessary to compensate Landlord for all detriment proximately caused by
Tenant's default, or which in the ordinary course of events would be likely
to result therefrom, including, without limitation, brokerage fees,
advertising costs and other costs reasonably necessary to relet the Property
and relet or demolish the Leasehold Improvements, operating and maintenance
costs for the Property and the Leasehold Improvements and such other costs
recoverable by Landlord under California Civil Code Section 1951.2 which are
proximately caused by the Event of Default and termination of this Lease. In
no event, however, shall the amount described in this subparagraph (D)
include (i) any lost profits or revenue or loss of reputation; (ii) so long
as City is Landlord, any loss of real property taxes and assessments, use
taxes and/or sales taxes, which result or are likely to result from the
termination of this Lease; and (iii) any of the aforesaid damages under this
subparagraph (D) (a) which
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will be incurred more than five (5) years after the termination of this Lease
and Tenant's surrender of the Property and the legal vesting of title to the
Leasehold Improvements in Landlord free and clear of this Lease, (b) which will
be incurred after more than seventy-five percent (75%) of the Floor Area of the
Buildings have been relet or reoccupied following surrender of the Buildings by
Tenant, or (c) which are not recognized under California landlord/tenant law as
recoverable damages under this subparagraph (D) on account of Tenant's default,
because of rents received by Landlord as a consequence of the surrender of the
Leasehold Improvements to Landlord, Landlord's failure to mitigate damages or
otherwise.
The worth, at the time of the award, as used in Subparts (A) and
(B), above, shall include interest at the Lease Rate. The worth, at the time
of award, as referred to in Subpart (C) above, shall be computed by
discounting such amount at the discount rate as set forth in California Civil
Code Section 1951.2, or, if no provision for discounting is then set forth
therein, at the discount rate of the Federal Reserve Bank of San Francisco at
the time of the award plus one percent (1%).
Notwithstanding the foregoing, the amount of any damages payable by
Tenant to Landlord pursuant to Section 10.2.1 (C) shall be further reduced
(but not below zero) by the amount, if any, by which the fair market value of
the Leasehold Improvements exceeds any deductions for the benefit of Tenant
pursuant to Subpart 10.2.1(C), above. For purposes of the preceding
sentence, the "value" of the Leasehold Improvements shall be determined as of
the date of the termination of this Lease on account of an Event of Default
equal to (i) the price at which a willing buyer and a willing seller would
agree to a sale of a fee interest in the Property and
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Leasehold Improvements, as if unencumbered by this Lease; less (ii) the Fair
Market Value of the Property, as if unimproved and unencumbered by this Lease.
10.2.2 LANDLORD'S ELECTION TO CONTINUE LEASE. Even though
Tenant has breached this Lease, this Lease shall remain in full force and
effect for so long as Landlord does not terminate this Lease on account of an
Event of Default in accordance with applicable Law and this Lease by delivery
of written notice of termination to Tenant, Landlord may enforce all of its
rights and remedies hereunder, including, without limitation, the right to
recover the rent as it becomes due. Tenant acknowledges that in the event
Landlord should elect to continue this Lease after an Event of Default,
Tenant has the obligation to mitigate its damages and obtain a sublessee or
assignee subject to the terms and conditions of Section 11, below. The
parties hereto agree that Landlord has the remedy described in California
Civil Code Section 1951.4 (Landlord may continue this Lease in effect after
Tenant's default and recover rent as it becomes due, if Tenant has the right
to sublet or assign, subject to the limitations set forth in Section 11,
below). The parties further agree that no election by Landlord to continue
this Lease in accordance with this Section shall diminish in any way the
Landlord's right to later terminate this Lease on account of an continuing
Event of Default as permitted by, and in accordance with, Section 10.2.1,
above, or to pursue any other remedy. In this regard, without written notice
of termination, this Lease shall not be terminated by Landlord' s acts of
maintenance or preservation of the Property or the Leasehold Improvements, or
by Landlord's efforts to relet any of the foregoing, or by Landlord's acts to
have a receiver appointed pursuant to Section 10.2.3, below. The failure or
refusal of Landlord to relet the Property, the Leasehold Improvements or any
part thereof shall not release or affect Tenant's liability hereunder.
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10.2.3 APPOINTMENT OF RECEIVER. In addition to all other
remedies provided herein, if an Event of Default is continuing, Landlord
shall have the absolute right to have a receiver appointed to collect Monthly
Rental and any rentals payable by any subtenant to Tenant with respect to the
Property and the Leasehold Improvements. Neither the filing of a petition
for the appointment of a receiver nor the appointment itself shall constitute
an election by Landlord to terminate this Lease.
10.2.4 CURE OF DEFAULT BY LANDLORD. Landlord, at any time
during an Event of Default, may cure the default at Tenant's cost. Landlord
shall provide Tenant with ten (10) days' advance written notice prior to
entering the Property and/or Leasehold Improvements or expending any sums on
Tenant's account, except in cases of emergency. If Landlord, by reason of an
Event of Default, pays any sum or does any act that requires the payment of
any sum, the reasonable sum paid by Landlord shall be due immediately from
Tenant upon Landlord's written demand therefor and shall bear interest at the
Lease Rate from the date the sum is paid by Landlord to the date Landlord is
reimbursed.
10.3 NO WAIVER. The waiver by Landlord of any agreement, condition
or provision in this Lease shall not be a waiver of any subsequent breach of
the same or any other agreement, condition, covenant or provision, nor shall
any custom or practice which may develop between the parties in the
administration of the terms of this Lease be construed to waive or to lessen
the right of Landlord to insist upon the performance by Tenant in strict
accordance with all such terms. The subsequent acceptance of rental under
this Lease by Landlord shall not be a waiver of any
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preceding breach by Tenant of any agreement, condition, covenant or provision
of this Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rental.
10.4 REMEDIES CUMULATIVE. The remedies conferred by this Lease
upon Landlord are not intended to be exclusive, but are cumulative and in
addition to all other remedies provided at law or in equity.
10.5 LANDLORD'S DEFAULT. Landlord shall not be in default under
this Lease unless Landlord fails to perform obligations required of Landlord
within a reasonable time, but in no event later than thirty (30) days after
written notice by Tenant to Landlord specifying wherein Landlord has failed
to perform such obligation; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required
for performance, then Landlord shall not be in default if Landlord commences
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
10.6 TENANT'S REMEDIES. Exclusive of environmental obligations, if
Landlord is in default for failure to perform any of its obligations required
under this Lease, then Tenant shall have the right, after thirty (30) days'
written notice to Landlord of its intent to do so, to perform any obligation
of Landlord and to obtain immediate reimbursement of all reasonable costs of
performing such obligation plus interest at the Lease Rate from the date any
sum is expended until Landlord reimburses Tenant. The remedies conferred by
this Lease upon Tenant are not intended to be exclusive, but are cumulative
and in addition to all other remedies provided at law
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or in equity, except for those remedies expressly prohibited by this Lease,
including, without limitation, the prohibition of the remedy of offset set
forth in Section 3.2.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 ASSIGNMENT BY TENANT. Tenant shall have the following rights
to assign or otherwise transfer Tenant's Estate:
11.1.1 ASSIGNMENT TO VIRTUAL FUNDING, INC. Tenant shall
have the right to assign, sublease or otherwise transfer Tenant's Estate to
Virtual Funding Limited Partnership, a Delaware limited partnership, at any
time after the Effective Date, and Landlord hereby consents to such
assignment, sublease or other transfer, provided neither Tenant nor Guarantor
shall be released from their respective obligations under this Lease and the
Guaranty.
11.1.2 AUTOMATIC ASSIGNMENT RIGHT. After completion of the
Initial Project, Tenant shall have the right to assign all of Tenant's
Estate, in whole, as to the entirety of the Property or in part, but only in
part as to the entirety of Tenant's Estate in any Parcel Lease created
pursuant to Section 2.2, above (but not as to any part of any legal Parcel
nor as to any part of any Building), without the consent of Landlord, whether
by written assignment or operation of law, and upon assumption in writing of
each and every term, condition and obligation of this Lease by the assignee,
thereby be released and discharged from (and the Guarantor likewise released
and discharged from) all liability for the performance of the obligations of
the Tenant under this Lease to be performed from and after the effective date
of
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such Assignment which are assumed by the assignee (other than its obligations
under those Lease provisions which are intended to survive a termination of
this Lease and which have been incurred prior to the date of the Assignment);
so long as each and every one of the following conditions is satisfied as of
the date of the Assignment:
A. Tenant provides Landlord with at least fifteen
(15) days' prior written notice of the identity of the assignee the form of
the documentation that will be used to satisfy Section 11.1.5 and all items
required under Section 11.1.2(B).
B. Tenant provides Landlord with the proposed
assignee's financial statements for its two (2) most recent fiscal year(s),
the most recent of which will either be audited by a certified public
accountant or certified as true and correct by an officer or general partner
of the proposed assignee, showing each of the following:
(i) The ratio of the proposed assignee's
cash, cash equivalents, and accounts receivable to current liabilities is not
less than 0.75 to 1; and
(ii) The ratio of the proposed assignee's
debt to net worth is no greater than 2 to 1; and
(iii) The proposed assignee's average net
profit over each of the preceding two (2) fiscal years (excluding
extraordinary income and expense) is
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no less than sixty (60) times the Monthly Rent payable for the Lease Month
during which the Assignment occurs; and
(iv) The proposed assignee's net worth is
not less than three hundred (300) times the Monthly Rent payable for the
Lease Month during which the Assignment occurs.
(v) Upon Tenant's request and within
fifteen (15) days after Landlord's receipt of the materials required to be
delivered to Landlord in this Section 11.1.2 and payment of the amounts
payable to Landlord under Section 11.1.4, Landlord shall acknowledge in
writing that a proposed assignment meeting the criteria set forth above is
permitted under this Section 11.1.2 and , if so permitted, that the same is
not a breach of this Lease and that Landlord's consent to the proposed
assignment is not required. Any permitted assignee shall further assign this
Lease only in compliance with the provisions of this Article 11.
11.1.3 LANDLORD'S RIGHT OF APPROVAL. Subject to Sections
11.1.1, 11.1.2, 11.2, 11.3 and Article 13, after completion of the Initial
Project, neither the Tenant's Estate nor any part thereof or interest therein
shall, directly or indirectly, voluntarily or involuntarily, by operation of
Law or otherwise, be assigned, mortgaged, pledged, encumbered or otherwise
transferred by Tenant or Tenant's legal representatives or successors in
interest (collectively, an "Assignment") except upon Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed.
Assignments shall be limited to the entire Tenant's Estate, or if the Lease
is parcelized pursuant to Section 2.2, the entire Tenant's Estate in a Parcel
Lease created pursuant to Section 2.2, above, and no Assignment may encompass
a portion of a
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Parcel or a portion of a Building. Any Assignment requiring Landlord's consent
undertaken without Landlord's prior written consent shall, at Landlord's
option, be void and unenforceable.
In determining whether to approve a proposed Assignment under this
Section 11.1.3, Landlord shall place its sole decision-making criteria on the
creditworthiness of the proposed assignee, and such decision shall be made in
good faith and in Landlord's reasonable business judgment. Upon request by
the assignor Tenant and/or Guarantor, Landlord shall also determine whether
or not it is appropriate for Landlord to release the assignor Tenant and/or
Guarantor, as may be requested, in connection with the obligations under this
Lease to be performed after the Assignment by the proposed assignee.
Landlord's determination to release Tenant and/or the Guarantor shall not be
unreasonably withheld and shall be based solely on the financial security for
performance of all obligations under this Lease. Landlord shall not be
deemed to have acted unreasonably for declining to release the Tenant and/or
the Guarantor, if the proposed assignee's creditworthiness (when taken
together with any new guarantor of the new assignee Tenant's obligations)
under this Lease is not sufficient to perform the Tenant's obligations under
this Lease, including, without limitation, the payment of Rent and the
performance of Tenant's Environmental Indemnity Obligations under this Lease.
The consent by Landlord to an Assignment shall not relieve the
assignor Tenant or any assignee Tenant from obtaining Landlord's express
prior written consent to any other or further Assignment, which consent shall
not be unreasonably withheld or delayed. Neither an Assignment nor the
collection of rent by Landlord from any person other than Tenant, nor the
application of any
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such rent as provided in this Section shall be deemed a waiver of any of the
provisions of this Section or release Tenant from its obligation to comply with
the provisions of this Lease.
Notwithstanding the foregoing, if Landlord approves an Assignment,
and if the assignee either: (i) pays to Tenant all cash consideration for
the Assignment; or (ii) obtains third-party financing in order to pay all
cash for the Assignment; or (iii) obtains financing from any lender of
Silicon Graphics Real Estate, Inc. (in an arm's-length market transaction) to
pay all cash for the Assignment, then Landlord shall release Tenant and
Guarantor from liability for performance of the obligations of the Tenant
under this Lease to be performed from and after the effective date of such
Assignment by the assignee (other than the obligations under this Lease which
are to survive a termination of this Lease and which have been incurred prior
to the date of the Assignment).
In order to obtain Landlord's decision regarding a proposed
Assignment under this Section 11.1.3, Tenant shall submit to Landlord the
proposed assignee's financial statements, either audited by a public
accountant or certified as true and correct by an officer or general partner
of the proposed assignee, for its most recent fiscal year. Landlord shall
have forty-five (45) days after the date of Tenant's submittal to Landlord of
such financial statements and payment of these sums due Landlord under
Section 11.1.4 to approve or disapprove, in writing, the proposed Assignment,
and if requested, the proposed release of the assignor Tenant and/or
Guarantor. If Landlord's decision is not received by Tenant within said
forty-five (45) day period, Landlord shall be deemed to have disapproved such
Assignment and to have refused to release the assignor Tenant and the
Guarantor. Immediately
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following approval of the proposed Assignment and Landlord's receipt of the
documentation to be delivered to Landlord pursuant to Section 11.1.5, below,
Landlord shall execute, acknowledge and deliver to Tenant, Landlord's written
consent to said Assignment and the release of the assignor Tenant and/or the
Guarantor, as appropriate, in such form as may be reasonably requested by the
parties.
11.1.4 PROCESSING COSTS. Tenant shall pay to Landlord the
amount of Landlord's reasonable costs of processing each proposed Assignment,
including, without limitation, attorneys' fees and other professional fees as
reasonably required, and the amount of all reasonable expenses incurred by
Landlord arising from the assignee taking occupancy of the subject space
(collectively, "Processing Costs"). Notwithstanding anything to the contrary
herein, Landlord shall not be required to process any request for Landlord's
consent to an Assignment until Tenant has paid to Landlord the amount of
Landlord's reasonable estimate of the Processing Costs. Once Landlord's
final Processing Costs have been determined, Landlord shall provide Tenant
with written itemization of such costs, and if an additional sum is required
to be paid by Tenant, or if Landlord is required to reimburse the excess over
such costs to Tenant, such sums will be paid or reimbursed, respectively,
within ten (10) days after receipt by Tenant of Landlord's written
itemization. In the case of an automatic assignment pursuant to Section
11.1.2, the Processing Cost shall be paid within five (5) days following
delivery of Landlord's written demand therefore.
11.1.5 DOCUMENTATION. No permitted Assignment shall be
effective unless and until there has been delivered to Landlord a counterpart
of the
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Assignment in which the assignee Tenant shall have, by written agreement,
agreed to: (1) recognize Landlord under this Lease; (2) assume the obligation
of the Tenant imposed by this Lease to be performed after the date of the
Assignment; and (3) be bound by the terms of this Lease. Tenant agrees that
any instrument that is an Assignment of all or any portion of this Lease shall
expressly provide that the assignee may only enter into a further Assignment of
this Lease pursuant to the provisions hereof, and that the assignee will comply
with all of the provisions of this Lease and that Landlord may enforce the
Lease provisions assumed by the assignee directly against such assignee.
11.2 SUBLETTING BY TENANT. Without the necessity of obtaining
Landlord's consent thereto, Tenant may sublease the Tenant's Estate or any
portion thereof at any time during the Lease Term for use by any subtenant.
All such subleases shall be subordinate to this Lease, and all subtenants
must agree to abide by all of the terms and covenants of this Lease except
for the payment of rent. Within fifteen (15) days after Tenant's request,
Landlord shall state in writing that a sublease pursuant to this section is
not a breach of this Lease, and that Landlord's consent is not required for
such sublease.
In the event that this Lease is terminated prior to the natural
expiration of the Lease Term, all of the subleases shall, at Landlord's
option, automatically terminate, and be null and void. Notwithstanding the
foregoing, Landlord shall, promptly following Tenant's request, enter into a
nondisturbance, recognition and attornment agreement ("Nondisturbance
Agreement") in recordable form with any subtenant of Tenant leasing space in
the Leasehold Improvements, provided that the sublease provides that (i) rent
substantially equivalent to fair market rent for the
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subleased premises; (ii) the sublease is subject to the provisions of this
Lease; (iii) the only consideration for possession of the subleased Leasehold
Improvements is in the form of rent and no rent is paid more than two (2)
months in advance; (iv) the rent payable by the sublessee shall not be
front-end loaded; (v) Landlord shall have no liability for prior acts, omission
or defaults of Tenant under the sublease nor any obligation to make any payment
or take any action for the benefit of the sublessee upon recognition of the
sublease beyond Landlord's obligations as set forth in this Lease; and (vi) the
remaining provisions of the sublease are approved by Landlord, which approval
shall not be unreasonably withheld nor delayed beyond fifteen (15) days
following delivery to Landlord of a copy of the final form of the sublease and
a request for the nondisturbance agreement. In no event shall such
Nondisturbance Agreement or any sublease impose any obligation upon Landlord
not set forth in this Lease or the DDA (as said agreements may be amended from
time to time).
11.3 AFFILIATE TRANSACTIONS. Notwithstanding the provisions of
this Article 11, Tenant may enter into any Assignment of this Lease or sublet
all or a portion of the Tenant's Estate without Landlord's consent (i) to an
entity "controlled by" or "under common control" (as defined below) with
Tenant or Guarantor or to an entity "controlling" Tenant, so long as Tenant
is owned, controlled by or under the common control of Guarantor; (ii) in
connection with the transfer of stock of Tenant through a public exchange;
(iii) so long as Tenant is owned, controlled by or under the common control
of Guarantor, a transfer of stock of Tenant in connection with the merger,
consolidation or nonbankruptcy reorganization of Guarantor; or (iv) in
connection with a merger, consolidation, or nonbankruptcy reorganization of
Tenant through a public exchange; or (v) to the holder of a Tenant Mortgage,
a
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Tenant Mortgagee Related Party or the purchaser of all or any portion of
the Tenant's Estate at a foreclosure sale of a Tenant Mortgage (collectively,
"Affiliate Transactions"). For the purpose of the foregoing, "control" will
be the ownership of more than fifty percent (50%) of the voting and ownership
interest of the controlled entity.
11.4 WAIVER AND ACKNOWLEDGMENT. Consent by Landlord to one or more
Assignments of this Lease, or to one or more sublettings of the Tenant's
Estate, or Tenant Mortgages shall not be deemed to be a consent to any
subsequent assignment. However, upon written request by Tenant, Landlord
shall execute such documents as Tenant shall reasonably request acknowledging
that an Assignment, subletting or other transfer of the Tenant's Estate, or
any portion thereof or interest therein, complies with the provisions of this
Article.
ARTICLE 12
TRANSFER OF LEASED PREMISES BY LANDLORD
12.1 TRANSFER BY LANDLORD. Subject to Section 12.2, below,
Landlord may assign and transfer Landlord's Estate or any portion thereof or
interest therein at any time during the Lease Term, but only if such
transferee shall have, by written agreement, agreed to:
(i) Recognize Tenant under this Lease;
(ii) Assume the obligations of Landlord imposed herein to
be performed after the date of the transfer; and
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(iii) Be bound by the terms of this Lease. In no event
shall such transfer affect a release of Landlord of its obligations under
this Lease.
12.2 TENANT'S RIGHTS OF FIRST NEGOTIATION.
12.2.1 LANDLORD'S DUTY TO NOTIFY. If, at any time during
the Lease Term (but subject to Landlord's obligation, if any, to comply with
applicable Laws regarding the transfer of an interest in City-owned real
property, if City is then Landlord hereunder), Landlord shall desire to sell
or otherwise transfer, directly or indirectly, Landlord's Estate, or any
portion thereof or interest therein, to a person or entity (other than a
"City Affiliate," as defined below, if the City is then Landlord under this
Lease), whether by way of a Landlord-initiated transaction or by way of an
unsolicited offer, then Landlord shall first offer to Tenant the opportunity
to negotiate its acquisition of such portion of Landlord's Estate by giving
Tenant written notice by Certified U.S. Mail of its intention. For purposes
of this Lease, a "City Affiliate" shall mean the City of Mountain View and
related agencies and, upon acquisition of Landlord's Estate or any portion
thereof, the City Affiliate shall be bound to the terms of this Section 12.2
with respect to any subsequent transfer of such interest by the City
Affiliate.
12.2.2 EXCLUSIVE NEGOTIATION PERIOD--LANDLORD-INITIATED
TRANSACTION. If Landlord desires to sell or otherwise transfer all or any
portion of Landlord's Estate ("Subject Landlord's Estate), Tenant and
Landlord shall meet and attempt to mutually agree upon the price and general
terms and conditions for acquisition by Tenant of the Subject Landlord's
Estate. Tenant and Landlord shall use good-faith efforts in exclusive
negotiations to attempt to reach such an agreement during the
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forty-five (45) day period commencing upon Tenant's receipt of Landlord's
notice of its intention to transfer the Subject Landlord's Estate ("Negotiation
Period"). The exclusive negotiations shall be commenced by Landlord delivering
to Tenant by Certified U.S. Mail written notice of its willingness to sell the
Subject Landlord's Estate. During the Negotiation Period, Landlord shall
negotiate exclusively with Tenant regarding the sale of the Subject Landlord's
Estate. The Negotiation Period may be extended for such time as may be
mutually agreed upon by Landlord and Tenant.
12.2.2.1 FAILURE TO EXECUTE AGREEMENT AND
LANDLORD'S RIGHT TO TRANSFER. If Landlord and Tenant do not develop mutually
acceptable terms and conditions for the transfer of the Subject Landlord's
Estate during the Negotiation Period, then, no later than three (3) business
days following expiration of the Negotiation Period, Tenant shall deliver to
Landlord written notice of the last purchase price actually offered by Tenant
during the Negotiation Period ("Benchmark Price"). This Benchmark Price
shall be the benchmark price for calculations required under this right of
first negotiation, but shall not constitute an actual offer by Tenant to
purchase the Subject Landlord's Estate. If Tenant does not deliver the
Benchmark Price within this time frame, then it shall be deemed that Tenant
has no interest in purchasing the Subject Landlord's Estate, and Landlord
shall have no obligation to reoffer the Subject Landlord's Estate to Tenant
during the period that Landlord continues to market the Subject Landlord's
Estate.
12.2.3 MARKETING PERIOD. Landlord may proceed with the
disposition of Landlord's Estate for a period of one hundred eighty (180)
days following submission by Tenant of the Benchmark Price ("Marketing
Period").
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12.2.3.1 THIRD PARTY OFFER EQUAL TO OR LESS THAN
ONE HUNDRED SIX PERCENT OF FINAL OFFER. If, during the Marketing Period,
Landlord receives a written bona fide offer from a third party for the
acquisition of all or any portion of Subject Landlord's Estate for a price
which is less than or equal to one hundred six percent (106%) of Tenant's
Benchmark Price, and Landlord desires to accept such offer, then Landlord
shall give written notice to Tenant by Certified Mail setting forth the terms
of such offer and the fact that Landlord is willing to accept such offer.
12.2.3.2 TENANT'S RIGHT TO ACCEPT REOFFER. Tenant
shall have the right to acquire the Subject Landlord's Estate at the price
and upon the terms and conditions stated in Landlord's written notice of such
third-party offer only if Tenant exercises such right by delivery to Landlord
of written notice of Tenant's election on or before the:
(i) Fifth (5th) business day following
Tenant's receipt of Landlord's written notice of such third-party offer if
the price is greater than the Benchmark Price but is less than or equal to
one hundred six percent (106%) of the Benchmark Price; or
(ii) Fifteen (15) days following Tenant's
receipt of Landlord's written notice of such third-party offer if the price
is equal to or less than the Benchmark Price.
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In the event that Tenant shall elect to acquire the Subject
Landlord's Estate, then it shall do so upon the terms and conditions
contained in Landlord's written notice of such third-party offer.
If Tenant does not deliver written notice to Landlord of its
agreement to acquire the Subject Landlord's Estate upon the terms set forth
in Landlord's notice within the applicable period set forth in (i) and (ii)
above, or declines to accept the terms and conditions stated in Landlord's
notice, then Landlord may transfer the Subject Landlord's Estate to any third
party on the terms stated in Landlord's notice of such third-party offer
during such period that Landlord thereafter continuously markets the Subject
Landlord's Estate. Any other attempt by Landlord to transfer the Subject
Landlord's Estate or any portion thereof or interest therein shall be deemed
to be a new election by Landlord to transfer and will be subject to all of
the provisions of this Section 12.2.
12.2.3.3 THIRD-PARTY OFFER EXCEEDING ONE HUNDRED
SIX PERCENT OF FINAL OFFER. If, during the Marketing Period, Landlord
receives a bona fide written offer from a third party which exceeds one
hundred six percent (106%) of the Benchmark Price and Landlord initiates
exclusive negotiations for the sale of the Subject Landlord's Estate to said
party, Landlord shall, no later than five (5) business days after Landlord
and such third party have entered into an agreement regarding such exclusive
negotiations (but in any event prior to the expiration of the Marketing
Period), deliver written notice to Tenant by Certified Mail setting forth the
terms of such offer and Landlord's intent to negotiate exclusively with said
party, in which event the Benchmark Price will automatically be extended for
purposes of this Section 12.2 and Landlord may proceed with its negotiations
with
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such third party for a period of one hundred eighty (180) days following
delivery of such written notice to Tenant ("Preauthorization Period").
12.2.3.4 NEW TENANT OFFERS. Tenant may submit a
new offer, either higher or lower than the Benchmark Price, to Landlord at
any time during the Marketing Period, the Preauthorization Period, or at any
other time during the marketing of the Subject Landlord's Estate. Landlord
will consider any such new offer from Tenant as it would any others
presented. Subject to Sections 12.2.4 through 12.2.6, below, Landlord will
not consider any new offer from Tenant during the period of exclusive
negotiations with a third party as described in Section 12.2.3.3, above, and
12.2.4, below.
Any offer made by Tenant as provided in this Section 12.2.3.4 above
shall replace the Benchmark Price and become the New Benchmark Price for
calculations required under this right of first negotiation.
12.2.4 THIRD-PARTY NEGOTIATIONS. Landlord may proceed with
its negotiations with such third party during the Preauthorization Period.
Landlord must receive appropriate authorization from the City Council, if
Landlord is the City, or the requisite number of its general partners or
board of directors, if Landlord is a partnership or corporation,
respectively, or the requisite member of trustees, if Landlord is a trust,
("Authorization") to accept the offer within said one hundred eighty (180)
day period.
12.2.5 THIRD-PARTY CLOSING. If, during the
Preauthorization Period, Landlord receives Authorization to accept the
third-party offer (which offer shall
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have a price exceeding one hundred six percent (106%) of the Benchmark Price),
Landlord shall, within fifteen (15) business days following receipt of such
Authorization (but in any event prior to the expiration of the Preauthorization
Period), deliver written notice regarding such authorization to Tenant, in
which the Benchmark Price will be automatically extended for purposes of this
Section 12.2, and Landlord may proceed with its negotiations with such third
party, for a period of one hundred eighty (180) days following Landlord's
receipt of Authorization ("Closing Period"). The transaction with such third
party must then close (i.e., the recordation of a deed conveying Landlord's
Estate to such third party) within the Closing Period (which closing shall
require the payment of a purchase price in excess of one hundred six percent
(106%) of the Benchmark Price).
12.2.6 REOFFER TO TENANT IN EVENT THIRD PARTY DOES NOT
CLOSE.
If one of the following occurs:
(i) Landlord has not received Authorization to
accept such third-party offer within the Preauthorization Period;
(ii) The sale of the Subject Landlord's Estate to
such third party fails to close within the Closing Period; or
(iii) The negotiations with such third party
otherwise fails or the agreement with such third party otherwise terminates.
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then, Landlord shall promptly provide Tenant with written notice thereof, and
Landlord and Tenant shall thereafter negotiate in good faith for a period of
thirty (30) days following Tenant's receipt of such notice to develop
mutually acceptable terms and conditions for the acquisition by Tenant of the
Subject Landlord's Estate (which period may be extended by mutual agreement
of Landlord and Tenant). During such negotiation period, Landlord shall
negotiate exclusively with Tenant regarding the transfer of the Subject
Landlord's Estate; provided, however, that if Tenant does not provide
Landlord with written notice of its desire to acquire the Subject Landlord's
Estate within five (5) business days following Tenant's receipt of Landlord's
notice as provided in this Section 12.2.6 above, said negotiations shall be
on a non-exclusive basis during the remaining portion of the thirty (30) day
negotiation period; and provided, further, that if Tenant does not submit a
written offer to Landlord to acquire the Subject Landlord's Estate within
fifteen (15) calendar days following receipt of Landlord's notice pursuant to
this Section 12.2.6, said negotiations shall thereafter be on a non-exclusive
basis during the remaining portion of the thirty (30) day negotiation period.
If the parties are unable to agree upon such terms and conditions
within said thirty (30) day period, Tenant shall deliver to Landlord written
notice of the Benchmark Price no later than three (3) business days following
said thirty (30) day period, and any transfer of the Subject Landlord's
Estate shall again be subject to Sections 12.2.3 through 12.2.6 above. This
Benchmark Price shall be the benchmark price for calculations required under
this first right of negotiation as described in Sections 12.2.3 through
12.2.5 above.
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12.2.7 TENANT RENEGOTIATIONS FOLLOWING UNSUCCESSFUL
MARKETING. If Landlord has not provided Tenant with written notice of a third
party offer within the Marketing Period, Landlord shall promptly provide
written notice of the same to Tenant, and Landlord and Tenant shall
thereafter negotiate in good faith for a period of fifteen (15) days to
develop mutually acceptable terms and conditions for the acquisition of the
Subject Landlord's Estate (which period may be extended by mutual agreement
of Landlord and Tenant). During such negotiation period, Landlord shall
negotiate exclusively with the Tenant regarding the transfer of the Subject
Landlord's Estate; provided, however, that if Tenant does not provide
Landlord with written notice of its desire to acquire the Subject Landlord's
Estate within five (5) business days following Tenant's receipt of Landlord's
notice as provided in this Section 12.2.7 above, said negotiations shall
thereafter be on a non-exclusive basis during the remaining portion of the
fifteen (15) day negotiation period; and provided, further, that if Tenant
does not submit a written offer to Landlord within ten (10) calendar days
following receipt of Landlord's notice, said negotiations shall thereafter be
on a non-exclusive basis during the remaining portion of the fifteen (15) day
negotiation period.
If the parties are unable to agree upon such terms and conditions,
Tenant shall deliver to Landlord written notice of the Benchmark Price no
later than three (3) business days following expiration of such negotiation
period and otherwise pursuant to this Section 12.2, in which event Landlord
shall have a new one hundred eighty (180) day Marketing Period, and any
transfer of the Subject Landlord's Estate shall again be subject to Sections
12.2.3 through 12.2.6 above. The new Benchmark Price shall become the
benchmark price for calculations required under this right of first
negotiations as described in Sections 12.2.2 through
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12.2.4 above. This process may continue for as long as Landlord continues to
market Landlord's Estate.
12.2.8 Negotiation Period--Unsolicited Offer. If Landlord
receives an unsolicited offer from a third party to purchase or otherwise
acquire all or any portion of Landlord's Estate, and Landlord desires to
accept such offer, Landlord shall give written notice to Tenant by Certified
Mail setting forth the true and complete terms and conditions of such offer
and the fact that Landlord is willing to accept the offer. Within fifteen
(15) business days after receipt by Tenant of Landlord's notice of such
unsolicited offer, Tenant shall notify Landlord in writing that Tenant
desires to acquire the subject Landlord's Estate upon the terms and
conditions contained in Landlord's notice. If Tenant agrees to acquire the
subject Landlord's Estate on the terms set forth in Landlord's notice, Tenant
shall acquire the subject Landlord's Estate on the terms set forth in
Landlord's notice within a reasonable time or at such time and such other
terms as the parties may mutually agree in writing.
If Tenant does not elect to acquire the subject Landlord's Estate on
the terms set forth in Landlord's notice of the unsolicited offer, but does
wish to acquire the subject Landlord's Estate on terms and conditions
comparable to those contained in Landlord's notice, the parties shall
continue to negotiate the terms and conditions of the sale of the subject
Landlord's Estate until the expiration of the forty-five (45) day period
following Tenant's receipt of Landlord's notice of such unsolicited offer.
12.2.9 EXPIRATION OF RIGHT OF FIRST NEGOTIATION. This
Article 12 shall be in effect only so long as the sole Tenant(s) under this
Lease and all of any Parcel
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Leases created pursuant to Section 2.2 are SGREI Related Parties and only so
long as no portion of this Lease or any Parcel Lease is transferred or assigned
except to a SGREI Related Party. This Article 12 shall be deemed null, void
and deleted from this Lease and automatically extinguished as to the original
Tenant hereunder and any and all successor tenants upon assignment of all or
any portion of Tenant's interest in this Lease or any Parcel, except to a SGREI
Related Party, and no rights under this Article 12 shall be assignable to any
third party who is not a SGREI Related Party.
12.3 INDEMNIFICATION FROM TAXES DUE TO CHANGE IN OWNERSHIP.
Landlord shall indemnify Tenant from any and all increases in Real Property
Taxes or related Proposition 13 impacts to the extent caused by a transfer of
Landlord's Estate or any portion thereof or interest therein pursuant to this
Article 12, other than to Tenant or a SGREI Related Party.
ARTICLE 13
TENANT MORTGAGES
13.1 TENANT'S RIGHT TO ENCUMBER TENANT'S ESTATE. Tenant may from
time to time during the Lease Term encumber Tenant's Estate by one or more
mortgages, deeds of trust, assignment of rents, issues and profits or other
proper instruments (including, without limitation, those instruments and
estates created by sublease or assignment), as security for the repayment of
loan(s) or financing(s) as Tenant may desire, provided that such encumbrance
shall be subject to the provisions of this Article 13. Tenant shall deliver
to Landlord in writing the name of each Tenant Mortgagee, the address for
notice of the Tenant Mortgagee, and true copies of each
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mortgage, deed of trust or other security instrument encumbering Tenant's
Estate. Any such encumbrance shall be referred to herein as a "Tenant
Mortgage." The holder of any Tenant Mortgage, and any entity owned or
controlled by a holder of a Tenant Mortgage, shall be referred to herein as a
"Tenant Mortgagee." Any Tenant Mortgage shall be subject to the conditions set
forth below.
13.1.1 NO MODIFICATION WITHOUT CONSENT. Landlord and/or
Tenant shall have no right to modify, amend, alter, terminate (except
pursuant to Article 10), surrender this Lease or the Property, and Tenant
shall have no right to otherwise acquire any right, title or interest in and
to Landlord's Estate, without the prior written consent of Tenant Mortgagee,
which consent shall not be unreasonably withheld. Tenant Mortgagee will
endeavor to provide written notice regarding the granting or withholding of
such consent within thirty (30) days following Tenant Mortgagee's receipt of
Tenant's written request therefor and such information and documentation as
may be reasonably requested by Tenant Mortgagee. No modification, amendment,
termination (except pursuant to Article 10), alteration or surrender of this
Lease by Landlord and/or Tenant shall be effective as to any Tenant
Mortgagee, unless consented to in writing by such Tenant Mortgagee.
13.1.2 NO TERMINATION. Landlord shall have the right to
terminate this Lease by reason of the occurrence of any Event of Default by
Tenant hereunder only when all of the following shall have occurred:
(i) Landlord shall have given written notice to
Tenant Mortgagee setting forth the nature of such default as provided in
Section 13.1.7
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below, provided that Tenant or Tenant Mortgagee has provided written notice to
Landlord of the name and address of Tenant Mortgagee;
(ii) Tenant Mortgagee shall have failed to cure or
commence to cure the Event of Default to the extent and within the time
periods prescribed in Sections 13.1.4 and 13.1.5 below, as applicable; and
(iii) Tenant Mortgagee shall have failed to
commence to acquire Tenant's Estate or to commence foreclosure or other
appropriate proceedings under the Tenant Mortgage to the extent and within
the time periods prescribed in Sections 13.1.4 and 13.1.5 below, as
applicable.
13.1.3 RIGHT TO CURE. Tenant Mortgagee shall have the
right, but not the obligation, to do any act or thing required to cure any
default by Tenant under this Lease, and Landlord shall accept such
performance by or at the instance of Tenant Mortgagee as if the same had been
made by Tenant instead of by Tenant Mortgagee. The foregoing is provided to
Tenant Mortgagee in addition to, and not in derogation of, any other rights
Tenant Mortgagee may have under the Tenant Mortgage or this Lease, including,
without limitation, Tenant Mortgagee's right to a new lease pursuant to
Section 13.1.9 below.
13.1.4 RIGHTS UPON DEFAULT. Upon an Event of Default by
Tenant under this Lease, Tenant Mortgagee shall have a period of sixty (60)
days after the Event of Default to cure the same; provided, however, that if
the Event of Default is such that it cannot be reasonably cured by Tenant
Mortgagee within said sixty (60) day period and/or possession of the Property
and/or the Leasehold Improvements is
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necessary to cure such Event of Default, Tenant Mortgagee shall have a
reasonable period of time after the expiration of said sixty (60) day period to
obtain possession of the Property and the Leasehold Improvements and cure the
Event of Default, provided that: (i) Tenant Mortgagee shall have cured the
initial Event of Default in the payment of monetary obligations of Tenant under
the Lease (and any subsequent Event of Default in the payment of monetary
obligations) within sixty (60) days after delivery of written notice of said
Event of Default to the Tenant Mortgagee; and (ii) Tenant Mortgagee shall have
commenced to acquire Tenant's Estate or to commence foreclosure or other
appropriate proceedings under the Tenant Mortgage within said sixty (60) day
period and, thereafter, shall continue to prosecute the same to completion.
13.1.5 RIGHTS UPON DEFAULT OF NON-MONETARY OBLIGATIONS NOT
SUSCEPTIBLE TO CURE. If any Event of Default in the performance of a
non-monetary obligation of Tenant under this Lease is not reasonably
susceptible to being cured by Tenant Mortgagee, Landlord shall have no right
to terminate this Lease with respect to such Event of Default and such Event
of Default shall be deemed waived for the benefit of Tenant Mortgagee only,
provided that:
(i) Tenant Mortgagee shall have cured the initial
Event(s) of Default in the payment of monetary obligations of Tenant (and any
subsequent Event(s) of Default in the payment of monetary obligations of
Tenant) within the time periods prescribed under Section 13.1.4, above;
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(ii) Tenant Mortgagee shall have commenced to
acquire Tenant's Estate or to commence foreclosure or other appropriate
proceedings under the Tenant Mortgage within the time periods prescribed
under Section 13.1.4 above;
(iii) if Tenant Mortgagee shall acquire Tenant's
Estate in and/or obtain possession of the Property, then, during the period
of such ownership and/or possession of the Property, Tenant Mortgagee shall,
subject to Section 13.1.8 below;
(A) cure or commence to cure all
non-monetary Events of Default that are reasonably susceptible to being cured
by Tenant Mortgagee; and
(B) perform and observe all other
agreements, covenants and conditions which are to be performed or observed by
Tenant under the Lease after the date of such acquisition.
(iv) if any third party shall, by foreclosure or
deed-in-lieu of foreclosure under the Tenant Mortgage or by assignment or
other transfer from Tenant Mortgagee, acquire Tenant's Estate under this
Lease, such third party shall, subject to Section 13.1.8 below:
(A) cure or commence to cure all
non-monetary Events of Default that are reasonably susceptible to being cured
by such third-party; and
(B) perform and observe all other
agreements, covenants and conditions which are to be performed and observed
by Tenant under this Lease after the date of such acquisition.
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13.1.6 RIGHTS UPON BANKRUPTCY, INSOLVENCY. If Tenant
Mortgagee is prohibited by any order, stay or injunction issued by any court
or by reason of any action of any court having jurisdiction of any bankruptcy
or insolvency proceedings involving Tenant from commencing or prosecuting
foreclosure or other appropriate proceedings to acquire or foreclose upon
Tenant's Estate in and/or obtain possession of the Property, the time periods
specified in Sections 13.1.4 and 13.1.5 shall be extended for the period of
such prohibition, provided that Tenant Mortgagee shall have cured any Event
of Default in the payment of any monetary obligations of Tenant and shall
have cured any subsequent Event(s) of Default in the payment of monetary
obligations of Tenant under this Lease within sixty (60) days following
delivery to the Tenant Mortgagee of a written notice of the Event of Default
in question.
13.1.7 NOTICES. Landlord shall deliver to Tenant
Mortgagee, by personal delivery or by certified mail, postage prepaid, a
duplicate copy of any notice of (i) any default by Tenant under this Lease,
or (ii) a termination of this Lease. The copy of any such notice shall be
delivered to Tenant Mortgagee concurrently with the delivery of such notice
to Tenant, provided that Tenant or Tenant Mortgagee has provided written
notice to Landlord of the name and address of Tenant Mortgagee. No such
notice by Landlord to Tenant shall be effective against Tenant or be deemed
to have been duly given to Tenant unless and until a copy of such notice
shall have been delivered to Tenant Mortgagee as required by this Section
13.1.7. Landlord expressly agrees that it shall have no right to effect a
termination of this Lease in the case of an Event of Default by Tenant unless
it has provided a copy of the foregoing notice(s) to Tenant Mortgagee as and
when required by this Section
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13.1.7 and provided the Tenant Mortgagee with the opportunity to exercise the
rights of Tenant Mortgagee under Sections 13.1.4 and 13.1.5 above.
13.1.8 RIGHTS AND LIABILITY UPON ACQUISITION OF TENANT'S
ESTATE. If Tenant Mortgagee or any third party shall acquire Tenant's Estate
through foreclosure of the Tenant Mortgage or any sale thereunder, whether by
judicial proceedings or by virtue of any power reserved in the Tenant
Mortgage, transfer or other conveyance of Tenant's Estate to Tenant Mortgagee
(including, without limitation, a sale or an assignment in lieu of
foreclosure) or the exercise by Tenant Mortgagee of any right, power or
privilege reserved in the Tenant Mortgage, or if any third party shall
acquire Tenant's Estate from Tenant Mortgagee (by purchase and sale or
otherwise) following Tenant Mortgagee's acquisition of Tenant's Estate as
described hereinabove, Landlord shall recognize Tenant Mortgagee or any such
third party, as the case may be, as the successor-in-interest to Tenant under
this Lease and DDA. Such third party shall promptly execute a written
assumption agreement in which such third party assumes the obligations of
Tenant in this Lease, in a form reasonably acceptable to Landlord.
Notwithstanding any provision of this Lease to the contrary, in no
event shall any act or omission of Tenant Mortgagee (including, without
limitation, the acquisition of Tenant's Estate in a transaction described in
this Section 13.1.8 or the taking of possession of the Property or Leasehold
Improvements through a receiver or other means) require Tenant Mortgagee to
assume, or cause Tenant Mortgagee to be deemed to have assumed, any
obligation or liability of Tenant under this Lease, and Tenant Mortgagee
shall have no personal liability to Landlord for Tenant Mortgagee's failure
to so perform and observe any agreement, covenant or
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conditions of Tenant under this Lease, it being expressly understood and
agreed that, in the event of any such failure, Landlord's sole and exclusive
remedy shall be to terminate this Lease, without any recourse or claim for
damages against Tenant Mortgagee.
Notwithstanding any provision of this Lease to the contrary, in the
event of any transfer of Tenant's Estate to Tenant Mortgagee or any third
party by or through foreclosure of the Tenant Mortgage or any sale
thereunder, whether by judicial proceedings or by virtue of any power
reserved in the Tenant Mortgage, transfer or other conveyance of Tenant's
Estate to Tenant Mortgagee (including, without limitation, a sale or an
assignment in lieu of foreclosure) or the exercise by Tenant Mortgagee of any
right, power or privilege reserved in the Tenant Mortgage:
(i) except as expressly provided in subpart (iii)
below, any third party acquiring Tenant's Estate shall perform the
obligations imposed upon Tenant under this Lease commencing from the date
that such transferee obtains possession of the Property or is entitled to
possession thereof following such party's acquisition of Tenant's Estate
("Acquisition Date");
(ii) the acquisition by Tenant Mortgagee or any
third-party of Tenant's Estate through the aforesaid mechanisms shall not
release Guarantor or Tenant from their respective obligations under this
Lease;
(iii) as of the Acquisition Date, this Lease shall
be deemed amended to provide as follows:
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(A) the obligations of Tenant under this
Lease to construct the Initial Project and/or to restore any Leasehold
Improvements following any casualty or condemnation, including, without
limitation, the obligations of Tenant set forth in Sections 6.2, 6.5, 8.2.1
and 9.3.(C) above, shall not be binding upon Tenant Mortgagee or its
successors and assigns in the Tenant Mortgage;
(B) the obligations of Tenant to
indemnify, defend, protect and/or hold Landlord harmless with respect to any
Environmental Claim or other Claim arising (on an "occurrence" basis) prior
to the Acquisition Date (including, without limitation, any Environmental
Claim or Claim arising under Section 4.5.4 or 7.4 of this Lease) shall not be
binding upon Tenant Mortgagee or any such third-party acquiring Tenant's
Estate or their respective successors and assigns;
(C) the obligations of Tenant to conduct
Environmental Construction Activities or to otherwise indemnify, defend,
protect or hold Landlord harmless with respect to (1) any Tenant
Environmental Indemnity Obligation accruing (on an "occurrence" basis) prior
to the Acquisition Date, (2) any Contamination existing on the Acquisition
Date, and (iii) any Hazardous Material Activity conducted prior to such
Acquisition Date, shall not be binding upon Tenant Mortgagee or any such
third-party acquiring Tenant's Estate or their successors and assigns; and
(D) the representations and warranties of
Tenant under this Lease shall not be binding upon Tenant Mortgagee or any
such third-party acquiring Tenant's Estate or their successors and assigns.
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(iv) if a third party shall acquire Tenant's Estate
in the manner described in this Section 13.1.8 above and, as of the
Acquisition Date, such third party (or any guarantor of the third party's
obligations under this Lease) does not satisfy the financial criteria set
forth in Section 11.1.2(B) above, and the Guaranty has been or is thereafter
terminated pursuant to Section 20 of the Guaranty, then Section 4.5.8 of this
Lease shall be deemed amended to provide Landlord with such common law,
statutory or other rights of set-off against Landlord's Environmental
Indemnity Obligations to the extent of any Claim(s) held by Landlord arising
from such third-party's failure to perform any of its obligations under this
Lease (including, without limitation, Tenant's Environmental Indemnity
Obligations accruing from and after the Acquisition Date). In no event shall
this subparagraph (iv) apply to a Tenant Mortgagee during the Tenant
Mortgagee's ownership of Tenant's Estate or affect in any manner the
provisions of Article 10 hereof.
At the request of Tenant Mortgagee or such third-party, Landlord
shall execute, acknowledge and deliver such documents and instruments as may
be reasonably requested for purposes of confirming the amendments to this
Lease under Subpart (iii) above, including, without limitation, a written
amendment to this Lease (in recordable form) in form and substance
satisfactory to Tenant Mortgagee or such third-party.
13.1.9 LEASE UPON TERMINATION. In the event of the
termination of this Lease, whether by reason of the bankruptcy of Tenant and
rejection of this Lease by the trustee in bankruptcy or Tenant as
debtor-in-possession, an Event of Default by Tenant under this Lease,
operation of law or any other reason, Landlord agrees
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that this Lease shall not terminate as to Tenant Mortgagee and that this
Lease shall, without any further act or action, automatically continue upon
the same terms and conditions, provided that Tenant Mortgagee complies with
Sections 13.1.4 through 13.1.6 above as appropriate. Without limiting the
effect of the preceding sentences of this Section 13.1.9, Landlord agrees to
execute such additional documents as may be requested by Tenant Mortgagee
from time to time to confirm or carry out the intent of this Section 13.1.9,
including entering a new lease if Tenant Mortgagee so elects upon the same
terms and conditions as set forth in this Lease for the remainder of the
Lease Term. Such new lease shall be of the same priority as this Lease.
13.1.10 ESTOPPEL CERTIFICATE. Upon Tenant Mortgagee's
written request, Landlord shall, without charge, provide Tenant Mortgagee
with an estoppel certificate which shall certify to Tenant Mortgagee, to the
best of Landlord's knowledge, (i) as to the full satisfaction and compliance
by Tenant of any payments, covenants or conditions required to be paid and/or
performed by Tenant under this Lease; (ii) that Tenant is not in default in
the payment, performance or observance of any condition or covenant to be
performed or observed by Tenant under this Lease, or if any such default
exists, specifying such default; (iii) that there are no offsets or
counterclaims on the part of Landlord with respect to this Lease, or setting
forth such offsets or counterclaims; and (iv) as to such other matters
related to this Lease as Tenant Mortgagee may reasonably request.
13.1.11 NO MERGER. So long as any of the obligations
secured by the Tenant Mortgage remain unsatisfied and the Tenant Mortgage
remains of record,
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there shall be no merger of this Lease or Tenant's Estate created thereby
with the fee estate in the Land.
13.1.12 PERMITTED TRANSFER. For the benefit of Tenant
Mortgagee, Landlord and Tenant hereby agree that, notwithstanding anything
contained in this Lease to the contrary,
(i) the foreclosure of the Tenant Mortgage or any
sale thereunder, whether by judicial proceedings or by virtue of any power
reserved in the Tenant Mortgage, the transfer or other conveyance of Tenant's
Estate to Tenant Mortgagee (including, without limitation, a sale or
assignment in lieu of foreclosure) or the exercise by Tenant Mortgagee of any
right, power or privilege reserved in the Tenant Mortgage, shall not be held
in violation of any of the terms and/or restrictions of this Lease;
(ii) a transfer of Tenant's Estate to Tenant
Mortgagee or any third party by or through foreclosure of the Tenant Mortgage
or any sale thereunder, whether by judicial proceedings or by virtue of any
power reserved in the Tenant Mortgage, the transfer or other conveyance of
Tenant's Estate to Tenant Mortgagee (including, without limitation, a sale or
an assignment in lieu of foreclosure) or the exercise by Tenant Mortgagee of
any right, power or privilege reserved in the Tenant Mortgage, shall be a
permitted transfer for purposes of this Lease and shall not require
Landlord's consent; and
(iii) If Tenant Mortgagee shall acquire Tenant's
Estate as a result of a sale under the Tenant Mortgage pursuant to a judgment
of foreclosure and sale,
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or through any transfer or assignment in lieu of foreclosure or through
settlement or arising out of any pending or contemplated foreclosure action,
or otherwise, Tenant Mortgagee shall have the right to transfer its interest
in this Lease to any other person, firm or corporation without the consent of
Landlord, such transfer shall be a permitted transfer for purposes of this
Lease and to the extent Tenant Mortgagee shall have assumed liability under
this Lease, Tenant Mortgagee shall thereafter be released from all such
liability. At the request of Tenant Mortgagee, Landlord shall execute,
acknowledge and deliver to Tenant Mortgagee a written release evidencing the
foregoing.
13.1.13 ENCUMBRANCE ON FEE. Landlord may not encumber the
Landlord's Estate, or any portion thereof or interest therein with any
mortgage, deed of trust, or similar security instrument, except in accordance
with this Section 13.1.13. Landlord may from time to time place any
mortgage, deed of trust or similar security instrument upon all or any
portion of Landlord's Estate, as security for such loans(s) (a "Landlord's
Lien") as Landlord may desire, provided that such encumbrance shall be
subject to the provisions of this Section 13.1.13. Such Landlord's Lien on
the fee estate in the Property shall be expressly subordinate to and subject
in all respects to Tenant's Estate in this Lease (including any extension
hereof in accordance with the terms of this Lease and any lease entered into
pursuant to Section 13.1.9 above). Neither the creation, enforcement or
modification of a Landlord's Lien on Landlord's Estate or any sale
thereunder, whether by judicial proceedings or by virtue of any power
reserved therein, or the transfer or other conveyance of Landlord's Estate to
the holder thereof (including, without limitation, any deed-in-lieu of
foreclosure), shall terminate, extinguish or otherwise affect in any manner
the Lease, Tenant's Estate or any Tenant Mortgage,
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or any amendments, modifications, extensions, substitutions or replacements
of the Tenant Mortgage, whether then existing or thereafter created, nor
release Landlord or Tenant from any of their respective obligations and
liabilities under this Lease.
Notwithstanding the preceding paragraph, Tenant's right of first
negotiation contained in Article 12 hereof shall not apply to (i) any
transfer of Landlord's Estate pursuant to a foreclosure sale or trustee's
sale under a Landlord's Lien encumbering Landlord's Estate, or (ii) any
transfer of Landlord's Estate by the holder of such Landlord's Lien following
the holder's acquisition of Landlord's Estate by foreclosure sale or
trustee's sale. Tenant's right of first negotiation, however, shall apply to
any transfer of Landlord's Estate or any portion thereof or interest therein
by a third party (other than to the holder of a Landlord's Lien) acquiring
Landlord's Estate through foreclosure, trustee's sale, or deed-in-lieu of
foreclosure. Tenant agrees to execute such documents and instruments, in
recordable form, as may be reasonably requested by the holder of such
mortgage, deed of trust or similar security instrument for purposes of
evidencing and/or confirming the foregoing.
Notwithstanding the preceding paragraph to the contrary, if Landlord
desires to transfer Landlord's Estate by deed-in-lieu of foreclosure or
similar conveyance to the holder of any Landlord's Lien, Landlord shall give
written notice to Tenant by Certified Mail setting forth the amount of all
principal, interest and other charges then outstanding under the loan secured
by such Landlord's Lien, together with such other terms and conditions as are
applicable to the proposed transfer. Tenant shall have a period of fifteen
(15) days to notify Landlord in writing of Tenant's desire to acquire
Landlord's Estate which is security for Landlord's Lien for a purchase price
equal to the then outstanding balance of principal, interest and other
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charges secured by the Landlord's Lien and upon such other terms and
conditions as are contained in Landlord's notice. The Landlord's Estate will
be transferred free of the Landlord's Lien and the close of escrow shall
occur on a date that the parties mutually agree. If Tenant so notifies
Landlord that it will acquire such Landlord's Estate, the parties shall be
deemed to have entered into a binding contract on the terms and conditions
stated in Landlord's Notice. If Tenant fails to so notify Landlord, Landlord
may transfer the encumbered Landlord's Estate to the holder of the Landlord's
Lien on terms no more favorable to the holder of the Landlord's Lien than
those stated in the Landlord's Notice.
Landlord and any holder of a Landlord's Lien on Landlord's Estate
shall execute, acknowledge and deliver any instruments and documents
reasonably requested from time to time by Tenant or Tenant Mortgagee to
confirm the foregoing, including, without limitation, a written agreement (in
recordable form) in form and substance satisfactory to Tenant and Tenant
Mortgagee, acknowledging, for the benefit of Tenant and Tenant Mortgagee and
their respective successors and assigns, that:
(i) such Landlord's Lien shall be expressly
subordinate and subject in all respects to the Lease (including any extension
hereof in accordance with the terms of this Lease and any new lease entered
into pursuant to Section 13.1.9, above), and Tenant's Estate in all respects;
(ii) the holder of such Landlord's Lien shall have
no rights in and to any proceeds arising from casualty to or condemnation of
the Property
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and/or Leasehold Improvements except to the extent payable to Landlord under
the Lease;
(iii) neither the creation, enforcement or
modification of Landlord's Lien nor the foreclosure of any such mortgage,
deed of trust or other encumbrance on Landlord's Estate or any sale
thereunder, whether by judicial proceedings or by virtue of any power
reserved therein, or the transfer or other conveyance of Landlord's Estate to
the holder thereof (including, without limitation, any deed-in-lieu of
foreclosure), shall terminate, extinguish or otherwise affect in any manner
the Lease, Tenant's Estate or any Tenant Mortgage, or any amendments,
modifications, extensions of the Tenant Mortgage, or substitutions or
replacements thereof, whether then existing or thereafter created, and shall
not release Landlord or Tenant from any of their respective obligations and
liabilities under this Lease;
(iv) that any transferee acquiring Landlord's
Estate by reason of foreclosure of any Landlord's Lien on Landlord's Estate
or any sale thereunder, whether by judicial proceedings or by virtue of any
power reserved therein, or the transfer or other conveyance of Landlord's
Estate to the holder thereof (including, without limitation, any deed-in-lieu
of foreclosure), shall be deemed to have assumed all of the obligations and
liabilities of Landlord under this Lease except to the extent the same have
accrued prior to the date of transfer, and such transferee shall promptly
execute a written assumption agreement in form reasonably acceptable to
Tenant and Tenant Mortgagee; and
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(v) such other matters as may be reasonably
requested by Tenant and/or Tenant Mortgagee.
13.1.14 SUCCESSORS AND ASSIGNS. The terms of this Article
13 shall (i) inure to the benefit of each Tenant Mortgagee and its successors
and assigns in the Tenant Mortgage, or any portion thereof or interest
therein (and, to the extent applicable), any transferee or purchaser at a
foreclosure sale (whether by judicial proceedings or by virtue of any power
reserved in the Tenant Mortgagee, transfer or other conveyance of Tenant's
Estate to Tenant Mortgagee or the exercise by Tenant Mortgagee of any right,
power or privilege reserved in the Tenant Mortgagee), any transferee by sale
or assignment-in-lieu of foreclosure, and any transferee of Tenant Mortgagee
(by purchase and sale or otherwise) if Tenant Mortgagee shall acquire
Tenant's Estate through foreclosure, trustee's sale, assignment-in-lieu of
foreclosure or otherwise under the Tenant Mortgage; and (ii) survive any
foreclosure (whether by judicial foreclosure, trustee's sale or otherwise) or
acceptance of an assignment-in-lieu of foreclosure or any other exercise of
Tenant Mortgagee's rights under the Tenant Mortgage or any other documents
evidencing, securing or pertaining to the Tenant Mortgage.
13.1.15 AGREEMENT TO AMEND. Landlord recognizes the
importance of Tenant's ability to obtain Tenant Mortgages, and that the
provisions of this Lease may be subject to the approval of Tenant Mortgagees.
If Tenant Mortgagee should require, as a condition to such financing, any
modifications of this Lease, whether for purposes of clarifying the
provisions of this Lease or to include provisions then customary for
leasehold financing transactions, Landlord agrees to execute the appropriate
amendments to this Lease; provided, however, that no such
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modification shall, to the detriment of Landlord, impair any of Landlord's
rights, or increase or change any of Landlord's obligations, under this Lease.
13.1.16 TENANT MORTGAGES SUBORDINATE TO LEASE. In no event
shall a Tenant Mortgage encumber Landlord's Estate in the Land. If this
Lease is terminated in accordance with this Article 13 and Tenant Mortgagee
does not elect to enter a new lease as provided in Section 13.1.9 above,
title to the Leasehold Improvements shall automatically vest in Landlord free
and clear of all rights and interests of the Tenant Mortgagee therein. In
such event, Tenant Mortgagee shall promptly provide Landlord with such
quitclaim deeds and/or assignments reasonably necessary to evidence the
foregoing.
ARTICLE 14
GENERAL PROVISIONS
14.1 GUARANTY. Tenant's performance under this Lease is guaranteed
by Guarantor under a separate Guaranty, which is attached hereto as EXHIBIT G
and is incorporated herein, and which shall be executed by Guarantor and
delivered to Landlord concurrently with the execution of this Lease. The
Guaranty will remain in full force and effect unless terminated pursuant to
Section 11.1 above or Section 20 of the Guaranty. Notwithstanding the early
termination of the Guaranty, Guarantor shall have the right to reinstate the
Guaranty in accordance with Section 22 of the Guaranty by executing and
delivering a guaranty in the same form as attached hereto as EXHIBIT G, and
Landlord shall be deemed to have accepted such guaranty. In no event shall
Landlord have any right to take any action to reject or
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otherwise terminate the Guaranty other than at Tenant's request pursuant to
Section 11.1.3, above.
14.2 ESTOPPEL CERTIFICATES. Each party agrees, within twenty (20)
days following request by the other, to execute and deliver to the other an
estoppel certificate (i) certifying that this Lease is unmodified and has not
been terminated, or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect and
the date to which the Monthly Rent and other charges are paid in advance, if
any; and (ii) acknowledging that, to the responding party's knowledge, there
are not any uncured defaults on the part of either party hereunder, or, if
there exist any such uncured defaults, stating the nature of such uncured
defaults; and (iii) evidencing the status of the Lease as may be reasonably
required either by a lender making a loan to be secured by all or any portion
of the Project or by a purchaser of all or any portion of the Project. A
party's failure to deliver an estoppel certificate as required herein within
twenty (20) days following receipt of written request therefor shall be
conclusive upon such party that, as of the date of said request (x) this
Lease has not been terminated and is without modification; (y) there are to
the responding party's knowledge no uncured defaults under this Lease on the
part of either party; and (z) no Monthly Rent or other charges have been paid
in advance, except as may otherwise be set forth in such request.
14.3 HOLDING OVER. Unless extended pursuant to Section 2.4.2
hereof, this Lease shall terminate without further notice on the Lease
Expiration Date. Any holding over by Tenant after the Lease expiration date
shall not constitute a renewal or extension of this Lease, or give Tenant any
rights in or to the Project except as
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expressly provided herein. Subject to Section 2.5 above, any holding over
after the Lease Expiration Date with the written consent of Landlord shall be
construed to be a tenancy from month to month, 125 percent of the rental due
as of the last month of the term hereof, and shall otherwise be on the terms
and conditions herein specified insofar as applicable. Any holding over
after the Lease Expiration Date without the written consent of Landlord shall
be a tenancy at sufferance.
14.4 NOTICES. Any notice required or desired to be given pursuant
to this Lease shall be in writing with copies directed as indicated below
indicated and shall be personally delivered, or in lieu of personal delivery,
by depositing same with a prepaid commercial overnight courier for next day
delivery, in which event such notice shall be deemed delivered on the next
business day after deposit with the courier, or by United States registered
or certified mail, return receipt requested, postage prepaid, with a signed
receipt, in which event such notice shall be deemed delivered upon receipt.
If such notice shall be addressed to Landlord, the address of Landlord is:
CITY OF MOUNTAIN VIEW
500 Castro Street
P.O. Box 7540
Mountain View, CA 94039-7540
Attention: City Manager
With a copy to:
CITY OF MOUNTAIN VIEW
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500 Castro Street
P.O. Box 7540
Mountain View, CA 94039-7540
Attention: City Attorney
And if addressed to Tenant, the address of Tenant is:
SILICON GRAPHICS REAL ESTATE INC.
2011 North Shoreline Boulevard
P.O. Box 7311
Mountain View, CA 94039-7311
Mail Stop 720
Attention: Facilities Department
With a copy to:
SILICON GRAPHICS, INC.
2011 North Shoreline Boulevard
P.O. Box 7311
Mountain View, CA 94039-7311
Mail Stop 710
Attention: Legal Services
Either Landlord or Tenant may change its respective address by
giving written notice to the other in accordance with the provisions of this
paragraph.
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14.5 ATTORNEYS' FEES. In the event either party shall bring any
action, arbitration, or legal proceeding for an alleged breach of any
provision of this Lease, to recover rent, to terminate this Lease, or to
enforce, protect, determine or establish any term or covenant of this Lease
or the rights hereunder of either party, the prevailing party, in addition to
whatever other relief it may be entitled, shall be entitled to recover from
the nonprevailing party, as a part of such action or proceedings or in a
separate action brought for that purpose, reasonable attorneys' fees,
expenses and court costs.
14.6 NO MERGER. The voluntary termination or other expiration of
this Lease shall not work a merger except as so elected by Landlord and
shall, at the option of Landlord, operate as an assignment to Landlord of any
and/or all subleases of subtenants.
14.7 ARBITRATION OF DISPUTES. ANY QUESTION, DISPUTE OR CONTROVERSY
SPECIFICALLY REQUIRED BY THE TERMS OF THIS LEASE TO BE DETERMINED BY
ARBITRATION UNDER ANY TERM OR PROVISION OF THIS LEASE (AND ONLY SUCH
QUESTIONS, DISPUTES OR CONTROVERSIES) SHALL BE DETERMINED PURSUANT TO THE
PROVISIONS OF THIS SECTION. EITHER LANDLORD OR TENANT MAY INITIATE SUCH
PROCEEDINGS BY GIVING WRITTEN NOTICE TO THE OTHER STATING AN INTENTION TO
ARBITRATE, THE ISSUE TO BE ARBITRATED, AND THE RELIEF SOUGHT. SUCH
ARBITRATION SHALL BE CONDUCTED PURSUANT TO THE PROVISIONS OF THE LAWS OF THE
STATE OF CALIFORNIA THEN IN FORCE, WITH THE THEN-EXISTING RULES OF PROCEDURE
TO BE THOSE OF THE AMERICAN ARBITRATION ASSOCIATION OR ITS SUCCESSOR INSOFAR AS
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SAID RULES OF PROCEDURE DO NOT CONFLICT WITH THE LAWS OF THE STATE OF
CALIFORNIA THEN IN FORCE; EXCEPT THAT THE CALIFORNIA CODE OF CIVIL PROCEDURE
WITH RESPECT TO THE RULES OF DISCOVERY SHALL APPLY TO ANY ARBITRATION
UNDERTAKEN PURSUANT TO THIS SECTION. ONCE NOTICE TO ARBITRATE HAS BEEN
GIVEN, LANDLORD AND TENANT SHALL JOINTLY, WITHIN FIFTEEN (15) DAYS AFTER SUCH
NOTICE, SELECT ONE (1) ARBITRATOR, OR IF THEY CANNOT AGREE ON ONE (1)
ARBITRATOR THEN EACH SHALL SELECT AN ARBITRATOR WITHIN TWENTY (20) DAYS AFTER
DELIVERY OF SAID NOTICE, AND THE TWO (2) ARBITRATORS SELECTED SHALL DESIGNATE
THE THIRD ARBITRATOR WITHIN TWENTY-FIVE (25) DAYS AFTER DELIVERY OF SAID
NOTICE. THE THREE (3) ARBITRATORS SHALL CONVENE AS SOON AS PRACTICABLE AND
OFFER LANDLORD AND TENANT THE OPPORTUNITY TO PRESENT THEIR CASES. IF ANY
PARTY TO THE ARBITRATION, AFTER BEING DULY NOTIFIED, FAILS TO APPEAR,
PARTICIPATE OR PRODUCE EVIDENCE AT AN ARBITRATION HEARING, THE ARBITRATOR(S)
MAY MAKE AN AWARD BASED SOLELY ON THE EVIDENCE ACTUALLY PRESENTED. THE
ARBITRATORS SHALL, BY MAJORITY VOTE, MAKE SUCH AWARD AND DECISION AS IS
APPROPRIATE, AND IN ACCORD WITH THE TERMS OF THIS LEASE AND APPLICABLE LAW,
AND SUCH AWARD SHALL BE BINDING UPON LANDLORD AND TENANT AND ENFORCEABLE IN A
COURT OF LAW. THE COST OF ARBITRATION SHALL BE BORNE BY LANDLORD AND TENANT
AS DETERMINED BY THE ARBITRATORS. IN THE EVENT EITHER PARTY FAILS TO APPOINT
AN ARBITRATOR OR THE TWO (2) ARBITRATORS FAIL TO SELECT A THIRD ARBITRATOR
WITHIN THE TIME REQUIRED BY THIS SECTION, THEN UPON APPLICATION OF EITHER
PARTY, THE ARBITRATOR
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<PAGE>
SHALL BE APPOINTED BY THE, AMERICAN ARBITRATION ASSOCIATION, OR IF THERE BE
NO AMERICAN ARBITRATION ASSOCIATION OR IT SHALL REFUSE TO PERFORM THIS
FUNCTION, THEN, AT THE REQUEST OF EITHER LANDLORD OR TENANT, SUCH ARBITRATOR
SHALL BE APPOINTED BY THE THEN PRESIDING JUDGE OF THE SUPERIOR COURT OF THE
STATE OF CALIFORNIA FOR THE COUNTY OF SANTA CLARA.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS SECTION,
IF THE MATTER TO BE ARBITRATED INVOLVES A DETERMINATION OF WHETHER TENANT HAS
COMMITTED A BREACH OR DEFAULT OF ITS NONMONETARY OBLIGATIONS UNDER THIS
LEASE, AND TENANT IS FOUND IN BREACH OR DEFAULT THEREOF PURSUANT TO THE
ARBITRATION DECISION, TENANT SHALL HAVE THE RIGHT TO CURE SUCH BREACH OR
DEFAULT WITHIN A PERIOD OF THIRTY (30) DAYS FROM THE DATE THAT TENANT
RECEIVES WRITTEN NOTICE OF THE ARBITRATION DECISION (OR, IF SUCH BREACH OR
DEFAULT CANNOT BE REASONABLY CURED WITHIN SAID THIRTY (30) DAY PERIOD, WITHIN
A REASONABLE PERIOD OF TIME PROVIDED THAT TENANT COMMENCES SUCH CURE WITHIN
SAID THIRTY (30) DAY PERIOD AND THEREAFTER DILIGENTLY PROSECUTES THE SAME TO
COMPLETION). IF TENANT CURES THE EVENT OF DEFAULT AND PAYS ALL DAMAGES AND
OTHER SUMS AWARDED IN THE ARBITRATION WITHIN THE CURE PERIOD PROVIDED
HEREINABOVE, THE AWARD SHALL BE DEEMED SATISFIED AND THE EVENT OF DEFAULT
CURED
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<PAGE>
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION OF
DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA
LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE
GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
ARE ,SPECIFICALLY INCLUDED IN THIS 'ARBITRATION OF DISPUTES' PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY
BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE
HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
- ---------------------------------- -----------------------------------
LANDLORD TENANT
14.8 NO PARTNERSHIP. It is agreed that nothing contained in this
Lease or the DDA shall be deemed or construed as creating a partnership,
joint venture, unincorporated association or other similar relationship
between Landlord and Tenant, or cause Landlord to be responsible in any way
for the debts or obligations of Tenant. Neither the method of computing rent
nor any other provision contained in this Lease, nor any acts of the parties
hereto, shall be deemed to create any
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<PAGE>
relationship between Landlord and Tenant other than the relationship of
landlord and tenant.
14.9 CAPTIONS. The captions used in this Lease are for the purpose
of convenience only and shall not be construed to limit or extend the meaning
of any part of this Lease.
14.10 DUPLICATE ORIGINALS. Any executed copy of this Lease shall
be deemed an original for all purposes.
14.11 TIME OF THE ESSENCE. Time is of the essence for the
performance of each covenant and term of this Agreement.
14.12 SEVERABILITY. In the event any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, every other provision of this Lease shall
remain and subsist in full force and effect, and this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
14.13 INTERPRETATION. The language in all parts of this Lease
shall in all cases be construed as a whole according to its fair meaning, and
not strictly for or against either Landlord or Tenant. When the context of
this Lease requires, a reference to one gender includes the other genders, a
partnership, a corporation, and a joint venture, and the singular includes
the plural. This Lease shall be construed and enforced in accordance with
the laws of the State of California.
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<PAGE>
14.14 SUCCESSORS BOUND. The covenants and agreements contained in
this Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successors, and permitted assigns,
all subject to the rights and limitations contained in this Lease, including,
without limitation, Articles 11 and 13.
14.15 NO WAIVER. The waiver by Landlord or Tenant of any breach of
any term, covenant or condition herein contained shall not be deemed to be a
waiver of such term, covenant or condition or any subsequent breach of the
same or any other term, covenant or condition herein contained.
14.16 REMEDIES CUMULATIVE. Subject to the provisions of Section
10.2 hereof, all remedies herein conferred upon Landlord or Tenant shall be
deemed cumulative, and no one remedy shall be exclusive of any other remedy
herein conferred or created by law or in equity.
14.17 COVENANT OF FAIR DEALING. Each party hereto agrees to act
reasonably and in good faith with respect to the performance and fulfillment
of the terms of each and every covenant and condition contained in this Lease.
14.18 FORCE MAJEURE. Shall mean prevention, delay, or stoppage due
to strikes, lockouts, inclement weather, labor disputes, acts of God,
inability to obtain labor, materials, or fuels or reasonable substitute
therefor, governmental restrictions, regulations, controls, action or
inaction, civil commotion, fire or other casualty, governmental moratoriums
and other causes beyond the reasonable control of the party obligated to
perform shall excuse the performance (other than
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<PAGE>
an obligation for the payment of money), for a period equal to the period of
any said prevention, delay, or stoppage, of the obligation hereunder.
14.19 MEMORANDUM OF LEASE. Landlord and Tenant shall execute, and
Tenant shall record, a Memorandum of Lease in substantially the form of
EXHIBIT F. The cost of such recording shall be borne by Tenant.
14.20 AUTHORITY. Each party hereto represents and warrants to the
other that it has the legal power, right and authority to enter this Lease,
and that all requisite action has been taken or obtained by said party in
connection therewith. Each signatory of a party hereto represents and
warrants to the other that he or she is duly authorized to execute this Lease
on behalf of said party and binds said party to the terms and conditions
hereof.
14.21 NONDISCRIMINATION. Tenant covenants by and for itself, its
heirs, executors, administrators and assigns and all persons claiming under
or through it, and this Lease is made and accepted upon and subject to the
condition, that there shall be no discrimination against or segregation of
any person or group of persons on account of sex, marital status, race,
color, religion, creed, national origin or ancestry in the leasing,
subleasing, transferring, use or enjoyment of the Property and/or Leasehold
Improvements, nor shall Tenant, or any person claiming under or through it,
establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use or
occupancy of tenants, subtenants, licensees, concessionaires, vendees,
invitees or customers with respect to the Property and/or Leasehold
Improvements or the operation of the Project.
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<PAGE>
14.22 LEASE FEE. Following execution and delivery of this Lease
and the DDA (including memorandums thereof in recordable form), Tenant shall
pay to Landlord a lease consideration fee ("Lease Fee") equal to Two Hundred
Fifty Thousand Dollars ($250,000), which Fee shall be in addition to the
Monthly Rent payable during the Lease Term. The Lease Fee shall be
nonrefundable to Tenant, except as otherwise provided in this Lease or the
DDA.
14.23 LANDLORD'S TERMINATION RIGHT. If, following the Commencement
Date, the construction of the Initial Project does not commence within one
(1) year after the issuance of the initial grading and building permits for
the Initial Project, Landlord, at any time prior to commencement of building
shell construction for the initial Building or the garage, may, in its sole
discretion and as its sole and exclusive remedy, elect to terminate this
Lease by delivery of a written notice of termination to Tenant. If this
Lease is so terminated by Landlord, then the Lease Fee shall be retained by
Landlord, and the parties shall have no further rights or obligations to the
other except for those obligations that survive termination of this Lease,
including, without limitation, any payment obligations of either party then
outstanding (including any obligation of Tenant to refund all or a portion of
the Fill Material Allowance pursuant to Section 2.7 (b) of the DDA) and the
respective objectives of each party under the indemnity provisions of this
Lease and the DDA.
14.24 INTEGRATION. This Lease, the Exhibits hereto, the Guaranty
and the DDA and the Exhibits thereto constitute the entire agreement between
the parties with respect to the subject matter hereof, and there are no such
agreements or representations between the parties except as expressed herein.
Except as otherwise provided
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<PAGE>
herein, no subsequent change or addition to this Lease shall be binding
unless in writing and signed by both Landlord and Tenant. This Lease and the
DDA shall be construed harmoniously so as to give effect to all of the terms,
covenants and conditions of both documents to the greatest extent permitted.
14.25 NO REMEDY LIMITATION. No security or guaranty which may now
or hereafter be furnished Landlord for the payment of any amounts under this
Lease, or for performance by Tenant of the other covenants or conditions of
this Lease shall in any way be a bar or defense to any action in unlawful
detainer, or for the recovery of the Property or the Leasehold Improvements,
or to any action which Landlord may be legally entitled to commence for a
breach of any of the covenants or conditions of this Lease.
14.26 EXHIBITS. Exhibits A through G are attached hereto and
incorporated by reference herein.
14.27 INCORPORATION OF CERTAIN TERMS. Notwithstanding anything to
the contrary in this Lease or the DDA, the terms and conditions of Sections
8.4 and 8.5 of the DDA regarding Landlord's obligations to operate, maintain,
repair and replace the Tenant's Off-Site Improvements are incorporated herein
by reference.
14.28 RIGHT OF ENTRY. Subject to the requirements and conditions
of this section 14.28 below, Tenant shall permit Landlord and its Agents to
enter the Property and/or the Leasehold Improvements at any reasonable time
for the purpose of: (i) inspecting the Property and Leasehold Improvements
(with no obligation to do so) to verify Tenant's compliance with the terms of
this Lease;
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<PAGE>
(ii) curing Tenant's failure to perform any of its maintenance, replacement
or repair obligations under this Lease, as provided in section 10.2.4, above,
and (iii) posting notices of nonresponsibility for alterations, additions or
repairs to be made by or on behalf of Tenant;
14.28.1 NOTICE. Landlord and its employees, contractors
and consultants shall provide Tenant with reasonable notice of its intention
to enter the Property and/or Leasehold Improvements. With respect to any
"walk-through" inspection for purposes of confirming Tenant's compliance with
the provisions of this Lease, Landlord shall provide Tenant with at least
three (3) business days prior written notice of each such entry. With
respect to any other entry of Landlord permitted under this Section 14.28,
Landlord shall provide Tenant with at least seven (7) days prior written
notice, which notice shall identify any work to be conducted, the portions of
the Property and Leasehold Improvements that will be affected by the entry,
and the names and addresses of any contractors and consultants who will enter
the Property. Notice of repetitive entries may be given in a consolidated
notice delivered in accordance with this Subsection 14.28.1 prior to the
first such entry. In the event of an emergency, Landlord shall provide prior
notice to Tenant of such entry to the extent reasonably possible under the
circumstances.
14.28.2 TERMS OF ENTRY. In connection with any entry,
Landlord shall avoid, to the extent reasonably possible, any disturbance to
or interference with Tenant's use, occupancy and quiet enjoyment of the
Property and Leasehold Improvements, the conduct of Tenant's business
thereon, and damage to the Leasehold Improvements or Trade Fixtures. Tenant
may exclude from the Property
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<PAGE>
and Leasehold Improvements any person who, in Tenant's reasonable business
judgment, is causing a safety hazard or unreasonably interfering with
Tenant's quiet enjoyment of the Property or Leasehold Improvements or
Tenant's business conducted thereon. Landlord shall keep the Landlord's
Estate and the Tenant's Estate free and clear of any mechanic's liens,
materialmen's liens or other liens or Claims arising out of any activities of
Landlord and its employees, consultants or contractors. Landlord shall
conduct all activities during such entry in a good and workmanlike manner in
accordance with all applicable Laws. Landlord shall repair, at no cost to
Tenant, all damage to the Property, Leasehold Improvements or Trade Fixtures
caused by any such entry. Upon at least ten (10) business days' written
notice from Tenant, Landlord shall make available to Tenant, for Tenant's
review and/or duplication, any and all notices, correspondence, information,
reports and studies in Landlord's possession or control with regard to such
entry. Landlord shall indemnify, defend and hold Tenant and Tenant
Indemnitees harmless from and against any and all Claims arising from or in
connection with any such entry.
14.28.3 INSURANCE REQUIREMENTS. Prior to any such entry,
Tenant shall have received certificates of insurance evidencing the following
insurance coverages maintained by Landlord and its contractors and
consultants issued by carriers of recognized responsibility with a financial
rating of at least B+:IX when admitted in California or A:X if not admitted
in California as rated in the latest BEST'S INSURANCE GUIDE (or, if
discontinued, a comparable rating from a generally recognized standard for
rating insurance companies).
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<PAGE>
(i) If any construction activities will be
undertaken, "Builder's Risk" insurance, including coverage for all material
and equipment in place or delivered to the Property.
(ii) Statutory Workers Compensation and employer's
liability coverage as required by law for injury, disease and death.
(iii) Commercial general liability and auto
insurance with combined single limit coverage or equivalent in the amount of
One Million Dollars ($1,000,000) per occurrence. Such policy shall provide
coverage for premises and operations, completed operations (for at least one
(1) year following completion of the work) and broad form property damage and
blanket contractual liability coverage. The minimum limits of such policies
of liability insurance and, if necessary, the terms and conditions of
insurance, shall be reasonably adjusted from time to time. All policies
shall contain coverage for automobile and general liability and shall be
noncontributing with any other insurance of Tenant and shall be
"occurrence-based," except to the extent that "claims-made" policies are
generally acceptable under reasonable risk management practices for similar
projects in Santa Clara County, California. All commercial general liability
and auto liability policies shall name Landlord and Tenant as additional
insureds. So long as Landlord is City, then the foregoing shall not require
Landlord to obtain and maintain the above coverages to the extent that it is
self-insured, although Landlord shall cause its contractors and consultants
to provide certificates of insurance evidencing the coverages required above.
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<PAGE>
14.29 NO WAIVER OF POLICE POWERS OR RIGHTS. In no event shall this
Lease or DDA be construed to limit in any way (i) City's rights, powers or
authority under the police power and other powers of the City to regulate or
take any action in the interest of the health, safety and welfare of its
citizens or (ii) Tenant's rights and privileges as a corporate resident
and/or citizen of the City of Mountain View, State of California and/or the
United States of America as provided under applicable Laws, except as
expressly waived or limited by this Lease.
14.30 SURVIVAL. All obligations of Landlord and Tenant which,
under the terms of this Lease, are reasonably to be expected to be performed
after any termination of this Lease shall survive said termination.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
effective date specified above.
"LANDLORD": "TENANT":
CITY OF MOUNTAIN VIEW, SILICON GRAPHICS REAL ESTATE, INC.,
a municipal corporation a Delaware corporation
By:__________________________ By: ________________________
Its:__________________________ Its: ________________________
ATTEST: APPROVED AS TO FORM:
By: __________________________ By: _______________________
Katherine Koliopoulos Commercial Counsel
City Clerk
APPROVED AS TO FORM
By:_______________________________
City Attorney
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<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
================================================================================
AGREEMENT FOR LEASE
between
Virtual Funding, Limited Partnership
and
Silicon Graphics Real Estate, Inc.
Dated as of November 18, 1993
================================================================================
THIS AGREEMENT HAS BEEN ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF THE OWNER. SEE SECTION 17.
This Agreement has been manually executed in 8 counterparts, numbered
consecutively from 1 through 8, of which this is No. ____. To the extent, if
any, that this Agreement constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any jurisdiction), no security
interest in this Agreement may be created or perfected through the transfer or
possession of any counterpart other than the original counterpart which shall
be the counterpart identified as counterpart No. 1.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
AGREEMENT FOR LEASE
Agreement for Lease dated as of November 18, 1993 (as the same may
be amended, restated, modified or supplemented from time to time, this
"Agreement"), between Virtual Funding, Limited Partnership, a Delaware limited
partnership ("Owner") and Silicon Graphics Real Estate, Inc., a Delaware
corporation ("Agent").
WHEREAS, Owner may from time to time acquire either (i) a fee
interest or (ii) a leasehold interest pursuant to a Ground Lease (hereinafter
defined) in certain Unit Premises (hereinafter defined); and
WHEREAS, Agent is an Affiliate (hereinafter defined) of the
Guarantor (hereinafter defined); and
WHEREAS, on or about the date of this Agreement Owner and Agent
propose to enter into a Lease (hereinafter defined), providing for the lease or
sublease by Agent of certain Unit Improvements (hereinafter defined) which will
be constructed and furnished on such Unit Premises pursuant to the terms of
this Agreement; and
WHEREAS, Owner desires to appoint Agent to act as agent for Owner in
connection with the selection of Owner's fee and/or leasehold interests in Unit
Premises from time to time, and with the construction of Unit Improvements and
the installation of Unit FF&E thereon, if any, and in connection with all
matters related to such construction, and Agent wishes to accept such
appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Owner and Agent hereby agree as follows:
1. DEFINITIONS
1 DEFINED TERMS. For the purposes of this Agreement each of the
following terms shall have the meaning specified with respect thereto:
ACCRUED DEFAULT OBLIGATIONS: Defined pursuant to subsection 11.2
hereof.
ACQUISITION CERTIFICATE: The written certification of Agent to be
delivered to Owner in connection with the making of the Initial Advance
hereunder, which contains the information and representations of Agent as
required by Section 4 of this Agreement, and which is substantially in the form
of Exhibit C hereto.
AFFILIATE: Defined pursuant to subsection 1.2 hereof.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-2-
AFL UNIT LEASING RECORD: An instrument, substantially in the form
of Exhibit B hereto, evidencing the sublease of a Unit under the Lease, which
Unit is subject to a Ground Lease, or an instrument evidencing the lease of a
Unit under the Lease.
AGREEMENT: This Agreement for Lease, as the same may be amended,
restated, modified or supplemented from time to time.
ASSIGNEE: Defined pursuant to subsection 1.2 hereof.
ASSIGNMENT AND ASSUMPTION AGREEMENT: An agreement in the form
attached as Exhibit D to the Lease.
AVAILABLE COMMITMENT: At a particular time, an amount equal to the
excess of (a) the sum of (i) the aggregate commitment to lend under a Credit
Agreement or Credit Agreements and (ii) Owner's existing equity capital and
additional equity capital contributions which are in Owner's sole judgment then
available to Owner over (b) the sum of (i) the aggregate amount of all advances
theretofore made pursuant to Section 3 hereof with respect to Units subject to
this Agreement at such time, (ii) Financing Costs theretofore incurred by Owner
and not reimbursed by Agent with respect to Units subject to this Agreement at
such time, (iii) the aggregate Adjusted Acquisition Cost (as defined in the
Lease) of all Property and Equipment (as said terms are defined in the Lease)
leased under the Lease at such time and (iv) if Owner is financing any portion
of its debt capitalization with Commercial Paper, such amount as Owner and
Agent may agree to from time to time. For purposes of this definition of
Available Commitment, when a Unit is made subject to the Lease pursuant to the
terms of subsection 2.3 hereof, such Unit shall cease to be "subject to this
Agreement".
BUSINESS DAY: Defined pursuant to subsection 1.2 hereof.
CERTIFICATE OF INCREASED COST: The certificate delivered by Agent
to Owner pursuant to Section 7 hereof in connection with a request for a
Completion Advance, and which is substantially in the form of Exhibit F hereto.
CERTIFICATE OF SUBSTANTIAL COMPLETION: The certificate or
certificates delivered by Agent to Owner pursuant to Section 6 hereof in
connection with a request for a Final Advance, and which is substantially in
the form of Exhibit E hereto.
COMMERCIAL PAPER: Defined pursuant to subsection 1.2 hereof.
COMPLETION ADVANCE: Any advance made by Owner upon satisfaction of
the conditions set forth in Section 7 hereof.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-3-
CONSTRUCTION AGREEMENT: Each agreement between Agent, acting on
behalf of Owner, and a General Contractor, providing for the construction of
Unit Improvements, as the same may be amended, restated, modified or
supplemented from time to time in accordance with this Agreement.
CONSTRUCTION DOCUMENTS: The collective reference to the
Construction Agreement(s), the Unit Plans, the Permits and all other agreements
entered into by Agent with respect to constructing, equipping, furnishing and
decorating the Unit.
CONSENT: Defined pursuant to subsection 1.2 hereof.
CONSOLIDATED TANGIBLE NET WORTH: The total shareholder equity of
Guarantor, less goodwill and any intangible assets (other than intangibles for
capitalized software, prepaid royalties, patents and other intellectual
property), all as determined on a consolidated basis in accordance with
generally accepted accounting principles.
CONTRACTUAL REQUIREMENTS: Defined pursuant to subsection 1.2 hereof.
CUSTOMARY GOVERNMENTAL ACTIONS: As defined in subsection 8.5 hereof.
CREDIT AGREEMENT: Defined pursuant to subsection 1.2 hereof.
DESIGN DEVELOPMENT DRAWINGS: Design development drawings with
respect to any Unit Improvements in such detail as is sufficient to (i)
establish the size, scope, character, use and nature of the proposed Unit
Improvements, (ii) reasonably enable Owner and any Assignee to formulate a
preliminary estimate of the fair market value of the proposed Unit Improvements
and (iii) obtain required planning and zoning approvals of the proposed Unit
Improvements for all applicable Governmental Authorities. Design Development
Drawings shall mean with respect to the North Shoreline Unit the design
development drawings approved in writing by Owner and any Assignee at the date
hereof.
DUFF & PHELPS: Defined pursuant to subsection 1.2 hereof.
EFFECTIVE DATE: Defined pursuant to subsection 1.2 hereof.
EVENT OF DEFAULT: Any of the events specified in subsection 11.1
hereof; provided, that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
EVENT OF UNIT TERMINATION: Any of the events specified in
subsection 11.3 hereof.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-4-
FF&E SPECIFICATIONS: The master list, if any, of furniture,
fixtures and equipment which may be acquired by Agent on behalf of Owner for
use in connection with the Unit Improvements (which list shall be specific with
respect to the kind, quality and quantities) appended hereto as Exhibit G, as
the same may be amended, modified, or supplemented from time to time with
Owner's prior written consent, which consent shall not be unreasonably withheld
or delayed.
FINAL ADVANCE: Any advance made by Owner upon satisfaction of the
conditions of Section 6 hereof.
FINANCING COSTS: All interest costs, other costs, fees and expenses
incurred by Owner under a Credit Agreement (including, without limitation,
interest at a default rate) and all costs incurred (i) in connection with
obtaining and maintaining equity financing, including, without limitation,
return on equity capital, (ii) in connection with the issuance of Commercial
Paper, including, without limitation, discount on Commercial Paper and (iii) in
connection with any other financing arrangement of Owner approved by Agent.
FORCE MAJEURE DELAY: Any delay caused by conditions beyond the
control of Agent, including, without limitation, acts of God or the elements,
fire, strikes, labor disputes, delays in delivery of material and disruption of
shipping, which does not have the effect of extending the Unit Completion Date
beyond one hundred and eighty (180) days in the aggregate.
GENERAL CONTRACTOR: Any contractor or contractors as may be engaged
by Agent from time to time as general contractor or construction manager in
connection with the construction of Unit Improvements.
GOVERNMENTAL ACTION: As defined in subsection 8.5 hereof.
GOVERNMENTAL AUTHORITY: Any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
GROUND LEASE: Each ground lease (which must be a Mortgageable
Ground Lease) pursuant to which a leasehold interest in a Unit Premises is
being leased to Owner.
GUARANTEE: The Guarantee, dated as of the date hereof, by and
between Guarantor and Owner, as it may be amended, restated, modified or
supplemented, from time to time.
GUARANTOR: Silicon Graphics, Inc., a Delaware corporation (an
Affiliate of Agent), and its successors.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-5-
IMPLIED SENIOR DEBT RATING: Defined in subsection 1.2 hereof.
INDEMNIFIED PERSON: Any Person as defined in Section 12 hereof.
INITIAL ADVANCE: Any advance made by Owner upon satisfaction of the
conditions set forth in Section 4 hereof.
INSURANCE REQUIREMENTS: Defined pursuant to subsection 1.2 hereof.
INTERIM ADVANCE: Any advance made by Owner upon satisfaction of the
conditions set forth in Section 5 hereof.
INTERIM ADVANCE CERTIFICATE: The certificate delivered by Agent to
Owner pursuant to Section 5 hereof in connection with a request for an Interim
Advance, and which is substantially in the form of Exhibit D hereto.
LEASE: The Lease Agreement, dated as of the date hereof, by and
between Owner, as lessor or sublessor, and Agent, as lessee or sublessee, as
the case may be, as it may be amended, restated, modified or supplemented from
time to time, a copy of which is attached as Exhibit A hereto.
LEASE TERM: Defined pursuant to subsection 1.2 hereof.
LEGAL REQUIREMENTS: The term "Legal Requirements" shall have the
meaning set forth opposite such term in the Lease, except that the phrase "from
the date hereof through the term of this Agreement" shall substitute for the
phrase "from the date hereof through the Lease Term and any Renewal Term".
LIEN: Defined pursuant to subsection 1.2 hereof.
MERRILL: Merrill Lynch Money Markets Inc., a Delaware corporation.
MERRILL LEASING: ML Leasing Equipment Corp., a Delaware corporation.
MERRILL LYNCH: Merrill Lynch & Co., Inc., a Delaware corporation.
MOODY'S: Defined pursuant to subsection 1.2 hereof.
MORTGAGEABLE GROUND LEASE: Defined pursuant to subsection 1.2
hereof.
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THIS AGREEMENT FOR
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NAIC: Defined pursuant to subsection 1.2 hereof.
NORTH SHORELINE UNIT: The Unit located at 1401-1499 North Shoreline
Boulevard, Mountain View, California.
OWNER: Virtual Funding, Limited Partnership or any successor or
successors to all of its rights and obligations as Owner hereunder and, for
purposes of Section 12 hereof, shall include any Person or entity which
computes its liability for income or other taxes on a consolidated basis with
Virtual Funding, Limited Partnership or the income of which for purposes of
such taxes is, or may be, determined or affected directly or indirectly by the
income of Owner or its successor or successors.
PERMITS: All consents, licenses, building and operating permits
required for construction, completion, and operation of any Unit in accordance
with all Legal Requirements affecting such Unit.
PERMITTED CONTEST: Defined pursuant to paragraph (a) of Section 16
hereof.
PERMITTED LIENS: Defined pursuant to subsection 1.2 hereof.
PERSON: Defined pursuant to subsection 1.2 hereof.
POTENTIAL DEFAULT: Any event which, but for the lapse of time, or
giving of notice, or both, would constitute an Event of Default.
POTENTIAL EVENT OF UNIT TERMINATION: Any event which, but for the
lapse of time, or giving of notice, or both, would constitute an Event of Unit
Termination.
RESPONSIBLE OFFICER: The President, Vice President, Secretary or
Treasurer of the particular entity referenced, or any other officer or
similarly authorized person responsible for the administration of the
obligations of Agent, in the case of the Agent, or Guarantor, in the case of
Guarantor, with respect to this Agreement or the Guarantee, respectively.
S&P: Defined pursuant to subsection 1.2 hereof.
SUBSTANTIAL COMPLETION: With respect to any Unit, the satisfaction
of all requirements of Section 6 hereof.
TAKING: Any event which is described in paragraph (j) of subsection
11.3 hereof.
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TITLE COMPANY: Chicago Title Insurance Company, or such other title
insurance company as may be specifically approved by Owner in writing, together
with such reinsurers or coinsurers of such title company as may be approved by
Owner in writing.
UNIT: Any Unit Premises together with any Unit Improvements
constructed thereon and related Unit FF&E.
UNIT ACQUISITION COST: With respect to any Unit the sum of (a) the
aggregate amount of advances made pursuant to this Agreement with respect to
such Unit and (b) all other costs of Owner (including costs incurred by Agent
but reimbursed by Owner) with respect to the Unit (except costs which are not
properly capitalizable under generally accepted accounting practices, and
except costs which Owner is unable to finance under a Credit Agreement, all of
which will be reimbursed by Agent pursuant to the provisions of subsection 9.5
or Section 12 hereof) arising from the acquisition, construction, equipping,
and financing (including, without limitation, Financing Costs and Owner's
out-of-pocket expenses and fee obligations in connection therewith) prior to
the lease or sublease of the Unit under the Lease. All costs of Owner related
to this Agreement incurred during a calendar year which were not previously
allocated to a Unit and not reimbursed by Agent shall be allocated among Units
and Parcels of Property (as defined in the Lease) by Owner on or prior to
January 10th of the next succeeding year on a pro rata basis based upon the
Unit Acquisition Cost for all Units or Acquisition Cost (as defined in the
Lease) for all Parcels of Property with respect to which an Initial Advance was
made during such previous calendar year, and such allocation by Owner shall be
in Owner's sole judgment and shall be conclusive. Owner and Agent agree to
amend the AFL Unit Leasing Record for any Unit with respect to which a Final
Advance has been made to the extent required to reflect such allocation. Unit
Acquisition Cost shall not include Owner's rating agency fees, issuing and
paying agency fees and audit fees, which expenses shall be reimbursed by Agent
pursuant to subsection 9.5 hereof.
UNIT BUDGET: The budget to be prepared by Agent and delivered to
Owner prior to the Initial Advance with respect to any Unit, as the same may be
amended or modified from time to time (any such amendment which would result in
an increase in the aggregate Unit Budget being made only with the Owner and
Assignee's prior written consent), which budget may include costs relating to
such of the following as Agent deems to be appropriate: (a) the installation
of Unit FF&E, if any, thereon; (b) all costs, including, without limitation,
the purchase price, survey and survey inspection charges, appraisal,
architectural, engineering, environmental analysis, soil analysis and market
analysis fees, title insurance premiums, brokerage commissions, transfer fees
and taxes that are customarily the responsibility of the purchaser, closing
adjustments for taxes, utilities and the like, escrow and closing fees,
recording and filing fees, the legal fees of Owner and Agent, and all related
costs and expenses incurred in acquiring and maintaining marketable fee or
leasehold title to such Unit and in leasing or subleasing such Unit to Agent;
(c) the costs of completion of the Unit Improvements in
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conformity with the Unit Plans, the Construction Agreement or any contracts in
replacement thereof, including without limitation, costs of site preparation,
acquiring or granting easements necessary for completion of the Unit
Improvements, making utility connections, demolition, streets, parking areas,
landscaping, development, off-site improvements, design and related
construction of the Unit Improvements and related facilities and the costs of
necessary studies, surveys, plans and permits, insurance and examination and
incidental costs and expenses related thereto incurred in acquiring and
maintaining marketable fee or leasehold title to such Unit and in leasing or
subleasing such Unit and Unit FF&E to Agent; (d) the costs of architects',
attorneys', engineers' and other professionals' fees and disbursements, in
connection with the development, planning, renovation, construction, and
construction financing of the Unit Improvements, including, without limitation,
the fees and disbursements of Owner's counsel in connection with this Agreement
and the duties of Owner hereunder, the Construction Agreement, and in all other
matters involving or reasonably related to this transaction; (e) costs of all
charges and assessments for the construction, improvement, maintenance, repair
and restoration of streets, roads, walks, sewer, gas, electrical, telephone and
water lines and other improvements levied upon the Unit until the Effective
Date; (f) the costs of all insurance, real estate, property and excise tax
assessments, sales and use taxes on materials used in construction, and other
operating and carrying costs paid, accrued, or levied upon the Unit or Owner in
connection with the Unit during the period from acquisition of the Unit
Premises until the Effective Date for such Unit; (g) costs of Agent's project
representatives (inspectors, consultants, etc.) incurred in its capacity as
agent for Owner; and (h) any and all other costs arising from or in connection
with the construction period for such Unit Improvements and until the Effective
Date for such Unit.
UNIT COMPLETION DATE: With respect to the North Shoreline Unit,
thirty (30) months from the date on which the Initial Advance is made by Owner
to Agent pursuant to Section 4 hereof and with respect to any other Unit, such
period as is agreed to in writing between Agent and Owner.
UNIT FF&E: The specific items, if any, from the FF&E Specifications
which are installed or (if such FF&E Specifications have been acquired by Owner
for installation) to be installed in a particular Unit Improvement and for
which advances are made by Owner hereunder.
UNIT FF&E SPECIFICATIONS: The list of specific items chosen from
FF&E Specifications to be installed with the proceeds of advances hereunder in
a particular Unit Improvement.
UNIT IMPROVEMENTS: The improvements to be constructed on a
particular Unit Premises in accordance with the Unit Plans for the Unit
Improvements to be built on such Unit Premises.
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UNIT PLANS: With respect to a particular Unit Premises, the plans
and specifications for the construction of any Unit Improvements to be
constructed thereon, including, without limitation, installation of curbs,
sidewalks, gutters, landscaping, utility connections (whether on or off the
Unit Premises) and all fixtures necessary for construction, operation and
occupancy of the Unit and certain equipment to be used in connection therewith,
prepared or to be prepared by an architect and Agent and approved by Owner and
any Assignee, including such amendments, modifications and supplements thereto
as may from time to time be made by Agent; provided, that any subsequent
material deviation from the Unit Plans selected for the Unit shall be made only
with Owner's and any Assignee's prior written consent, which consent shall not
be unreasonably withheld. Owner's and any Assignee's failure to disapprove any
proposed material deviation from the then-approved Unit Plans within five (5)
Business Days after delivery by Agent to Owner and any Assignee of the proposed
revised Unit Plans shall be deemed consent by Owner and any Assignee to such
proposed material deviation. Anything to the contrary provided herein
notwithstanding, (i) for any Unit Improvements with respect to which the Owner
and any Assignee has approved Design Development Drawings, Unit Plans may be
submitted by the Agent on a phased basis (E.G., site improvement plans, core
and shell plans and tenant improvement or fit-out plans) and the Owner and any
Assignee shall grant or withhold their approval of the plans and specifications
for each such phase in accordance with the preceding sentence and (ii) Owner
shall not require any changes or modifications to the proposed Unit Plans for
any Unit as to which it has approved Design Development Drawings, other than
(A) changes required to correct technical deficiencies in such proposed Unit
Plans, and (B) changes designed to ensure that the Unit Plans are consistent in
all material respects with such approved Design Development Drawings. The Unit
Plans applicable to the North Shoreline Unit will provide for Unit Improvements
suitable for use and occupancy for general, executive and administrative
offices, operation of training facilities, light manufacturing and for research
and development and similar uses (and uses ancillary or accessory to the
foregoing), in all cases in compliance with all Legal Requirements and zoning
and land use restrictions applicable to the Unit Premises.
UNIT PREMISES: Each individual parcel of land, in which either a
fee interest or a leasehold interest has been acquired by Owner for the
construction of Unit Improvements thereon.
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2 OTHER DEFINITIONAL PROVISIONS.
(a) For purposes of this Agreement, the terms "Affiliate",
"Assignee", "Business Day", "Commercial Paper", "Consent", "Contractual
Requirements", "Credit Agreement", "Duff & Phelps", "Effective Date", "Implied
Senior Debt Rating", "Insurance Requirements", "Lease Term", "Lien", "Moody's",
"Mortgageable Ground Lease", "NAIC", "Permitted Liens", "Person", and "S&P"
shall have the meanings set forth opposite those terms in the Lease, except
that, for purposes of this Agreement, the terms "the Lessor", "the Lessee" and
"this Lease" if used in those definitions in the Lease shall be deemed to be
the terms "Owner", "Agent" and "this Agreement", respectively, and if used in
those definitions in the Lease, each of the terms "Parcel", "Parcel of
Property" and "Property" shall be deemed to be the phrase "Unit Premises and
related Unit Improvements" and each of the terms "Unit of Equipment" and
"Unit", shall be deemed to be an item of "Unit FF&E".
(b) All terms defined in this Agreement shall have their defined
meanings when used in any certificate or other document made or delivered
pursuant hereto.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, paragraph, schedule and exhibit references are to this Agreement
unless otherwise specified.
2. APPOINTMENT OF AGENT
2 APPOINTMENT AND DUTIES OF AGENT. Subject to the terms hereof,
including, without limitation, the requirements of Section 4 hereof, Owner
hereby appoints Agent as its agent for selection of Unit Premises for
acquisition, as well as for the design, construction, equipping, and
installation on each Unit Premises of the Unit Improvements, and, if and to the
extent identified in Exhibit G hereto, Unit FF&E and Agent hereby accepts such
appointment. Unit Improvements must be of a type permitted to be leased under
the Lease, as set forth in Exhibit A to the Lease. Agent agrees all in
accordance with its best business judgment and this Agreement to select Unit
Premises for acquisition by Owner and to contract for and supervise the good
and workmanlike completion of the Unit Improvements and installation of the
Unit FF&E on each Unit Premises, suitable for its intended use.
3 COST AND COMPLETION OF A UNIT. Owner and Agent agree that (a)
the maximum cost to the Owner for the acquisition of any individual Unit
Premises and the construction of Unit Improvements thereon and the installation
of all Unit FF&E therein shall be no more than $20,000,000 with respect to the
North Shoreline Unit, and such amount as is agreed in writing between Agent,
Owner and any Assignee with regard to any other Unit, and (b) the
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cost to the Owner of the Unit FF&E constituting personal property and not
fixtures with respect thereto shall be no more than $1,000,000 with respect to
the North Shoreline Unit, and such amount as is agreed in writing between
Agent, Owner and any Assignee with regard to any other Unit. Agent agrees to
effect Substantial Completion of any Unit Improvements on or before the
applicable Unit Completion Date. After receiving the Initial Advance with
respect to a Unit, Agent may from time to time to the extent permitted hereby
amend, modify or supplement the Unit Plans, Unit Budget or Unit FF&E
Specifications relating thereto; provided, that no such amendment, modification
or supplement shall result in a material diminution of the value or usefulness
for its intended purpose of such Unit or result in a breach under subsection
9.17 of this Agreement. Agent shall promptly deliver to Owner and any Assignee
any such amended, modified or supplemented Unit Plans, Unit Budget or Unit FF&E
Specifications.
4 LEASE OF A UNIT.
(a) Upon Substantial Completion of any Unit Improvements, Agent
will deliver to Owner of the Certificate of Substantial Completion with respect
to such Unit Improvements and the AFL Unit Leasing Record in the form of
Exhibit E hereto, and Agent shall request the Final Advance with respect to
such Unit Improvements. If the conditions set forth in Section 6 hereof have
been satisfied, Owner, within five (5) Business Days of receipt of the
Certificate of Substantial Completion, a fully completed AFL Unit Leasing
Record executed by Agent and the other documents required in Section 6 hereof,
shall execute and deliver to Agent such AFL Unit Leasing Record. Such AFL Unit
Leasing Record shall have an Effective Date as of the date of execution by
Owner of the AFL Unit Leasing Record. The Final Advance shall be made by Owner
on the date of execution by Owner of the AFL Unit Leasing Record. Execution
and delivery by Agent of the AFL Unit Leasing Record shall constitute (i)
acknowledgment by Agent that the Unit is in good condition and has been
accepted for lease or sublease by Agent as of the Effective Date of the AFL
Unit Leasing Record, (ii) acknowledgment by Agent that the Unit is subject to
all of the covenants, terms and conditions of the Lease, and (iii)
certification by Agent that the representations and warranties contained in
Section 2 of the Lease are true and correct in all material respects on and as
of the Effective Date of the AFL Unit Leasing Record as though made on and as
of such date and that there exists on such date no (1) Event of Default or,
with respect to such Unit, Event of Unit Termination under this Agreement or
Event of Default (as defined in the Lease) or (2) to the best of Agent's
knowledge, after due investigation, Potential Default or, with respect to such
Unit, Potential Event of Unit Termination under this Agreement or Potential
Default (as defined in the Lease).
(b) Notwithstanding the foregoing, but subject to the terms of
subsection 3.1 hereof, Agent may, by delivering to Owner a Certificate of
Increased Cost, at any time up to six (6) months after the Effective Date with
respect to a Unit, request a Completion Advance in order to pay to Agent
construction costs that were not the subject of any previous advance. Owner,
within five (5) Business Days of receipt and upon Owner's approval of a request
for the
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Completion Advance and the Certificate of Increased Cost, shall execute
and deliver to Agent a revised AFL Unit Leasing Record for such Unit reflecting
such increased cost, and Agent, within five (5) Business Days of receipt of
such revised AFL Unit Leasing Record, shall sign the revised AFL Unit Leasing
Record and return it to Owner. The Completion Advance shall be made by Owner
upon receipt of the revised AFL Unit Leasing Record signed by Agent.
5 POWERS OF AGENT. Agent shall have the right to act for and on
behalf of Owner with full and complete authority to appear before each
applicable Governmental Authority to resolve issues related to the platting,
zoning and use of the Unit Premises, to obtain all Permits including zoning,
planning and land use approvals, to grant and obtain minor easements for the
benefit of any Unit Premises or which are deemed reasonably necessary by Agent
for the intended use of such Unit Premises, voluntarily to dedicate or convey
portions of any Unit Premises for road, highway and other public purposes as
required in the good faith judgment of Agent in order to obtain the use of all
or part of such Unit Premises for the purposes intended (provided that no such
action shall materially adversely affect either the market value of such Unit
Premises or the use of such Unit Premises for its intended purpose), appoint,
employ and deal with the architects, engineers, consultants and contractors,
purchase and arrange for delivery of all materials, supplies, furniture,
fixtures, and equipment, and to approve all related vouchers, invoices and
statements and, so long as no Event of Default shall exist hereunder, to
perform all obligations and exercise all rights of Owner and enforce all
obligations of the lessor under any Ground Lease. No payment shall be made for
any property or services of such architects, engineers, consultants, or
contractors relating to the acquisition, construction and equipping of any Unit
without the prior approval of Agent, and each amount so approved and paid shall
be in accordance with the Unit Budget, and shall be part of the Unit
Acquisition Cost of such Unit. Upon the occurrence of an Event of Default,
Owner may make payments to any architects, engineers, consultants, contractors,
vendors or suppliers which are properly due and payable in accordance with the
contracts with said parties, and any such payment so made shall be and become a
part of the Unit Acquisition Cost of the Unit.
Anything to the contrary provided herein notwithstanding, Agent
shall have the right on behalf of Owner, in connection with the development and
occupancy of the North Shoreline Unit, to convey a portion of the North
Shoreline Unit Premises to the appropriate Governmental Authority in connection
with the relocation of the direct off-ramp to northbound North Shoreline
Boulevard from Route 101. Owner shall cooperate, without unreasonable delay
and at Agent's expense, in connection with such conveyance and shall join in
the execution of any appropriate instruments or shall execute any separate
instruments as necessary.
3. ADVANCES
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2 AGREEMENT TO MAKE ADVANCES. Subject to the conditions and
upon the terms herein provided, including, without limitation, that the
Available Commitment not be exceeded, Owner agrees to make available to Agent
advances from time to time for each Unit up to an aggregate principal amount
for such Unit determined in accordance with the Unit Budget for such Unit and
not in excess of the maximum amount per Unit set forth in subsection 2.2
hereof. Subject to the terms of this Agreement, Owner agrees to make (a) an
Initial Advance with respect to a Unit in accordance with Section 4 of this
Agreement, (b) Interim Advances from time to time in accordance with Section 5
of this Agreement, (c) a Final Advance in accordance with Section 6 of this
Agreement and (d) a Completion Advance in accordance with Section 7 of this
Agreement.
3 PROCEDURE FOR ADVANCES. Agent shall give Owner notice in
accordance with Sections 4, 5, 6 and 7 hereof of its irrevocable request for an
advance pursuant to this Agreement, specifying a Business Day on which such
advance is to be made and the amount of the advance. Not later than 2:00 P.M.
New York time on the date for the advance specified in such notice, provided
all conditions to that advance have been satisfied, Owner shall provide to
Agent, in immediately available funds, the amount of the advance then
requested. Owner shall have no obligation to make advances with respect to a
Unit more often than once a week.
4 DETERMINATION OF AMOUNTS OF ADVANCES.
(a) INITIAL ADVANCE. The amount of an Initial Advance with
respect to a Unit shall be made within the limits of the Unit Budget and in
accordance with the Acquisition Certificate, and shall be utilized to pay all
acquisition and closing costs of the respective Unit Premises known at the time
of the Initial Advance, including, without limitation, the purchase price,
survey and survey inspection charges, recording and filing fees, brokerage
commissions, appraisal, architectural, engineering, environmental analysis,
soil analysis and market analysis fees, transfer fees and taxes that are
customarily the responsibility of the purchaser, title insurance premiums,
closing adjustments for taxes, utilities, and the like, escrow fees, if any,
construction materials and existing structures, and the legal fees of Owner and
Agent. All such costs for which the Initial Advance is requested shall be
specifically set forth in the Unit Budget attached to the Acquisition
Certificate, and in the request for the Initial Advance, and Owner shall have
no obligation to advance any funds in the Initial Advance which are not so
specifically set forth in such documents.
(b) INTERIM ADVANCES. Disbursements for costs of constructing and
equipping a Unit as well as additional acquisition and closing costs not
invoiced at the time of the Initial Advance shall be made as the same are
incurred within the limits of the Unit Budget, based upon the certifications of
the Agent contained in an Interim Advance Certificate.
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(c) FINAL ADVANCE. The amount of the Final Advance shall be made
within the limits of the Unit Budget and in accordance with the Certificate of
Substantial Completion, and shall be sufficient, subject to the provisions of
paragraph (d) of this subsection 3.3, for payment in full of all costs of
designing, furnishing, constructing and equipping the Unit in connection with
Substantial Completion of the Unit, free of all Liens other than Permitted
Liens. Owner shall have no obligation to make the Final Advance unless all
such costs set forth in the Unit Budget, the Certificate of Substantial
Completion, and the request for the Final Advance have been actually incurred,
or in the case of punch list items Owner is satisfied such costs will be
incurred, in construction and equipping of the Unit, free of all Liens, except
for Permitted Liens and shall not cause the Unit Acquisition Cost of the Unit
to exceed the Unit Budget.
(d) COMPLETION ADVANCE. The amount of the Completion Advance
shall be made in accordance with and shall not exceed the amount set forth in
the Certificate of Increased Cost, shall not cause the Unit Acquisition Cost of
the Unit to exceed the Unit Budget, and shall be sufficient for payment in full
of all costs that were not the subject of any previous advance with respect to
such Unit. Owner shall have no obligation to make the Completion Advance
unless all such costs were reasonably estimated in the Unit Budget and are
adequately set forth in the Certificate of Increased Cost and will be
sufficient for payment in full of all costs with respect to such Unit.
5 PARTIAL ADVANCES. If any or all conditions precedent to any
advance have not been satisfied on the applicable date for a requested advance,
Owner, in its sole discretion, and with the consent of Assignee may, but shall
have no obligation to, disburse a part of the requested advance.
4. CONDITIONS PRECEDENT TO
THE INITIAL ADVANCE WITH RESPECT TO A
UNIT
Owner's acquisition of any Unit Premises and Owner's obligation to
make the Initial Advance with respect to a Unit shall both be subject to the
satisfaction of the conditions set forth in this Section 4 and to the receipt
by Owner and any Assignee of the documents set forth in this Section 4, in each
case in form and substance reasonably satisfactory to Owner and any Assignee.
Owner shall determine whether the foregoing conditions are met within seven (7)
Business Days after receipt of the Acquisition Certificate and its attachments.
The following are the documents to be received by Owner and any
Assignee and the conditions to be satisfied:
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(a) LEASE AND GUARANTEE. With respect to the first advance only
under this Agreement, a fully executed copy of the Lease and a fully executed
copy of the Guarantee.
(b) ACQUISITION CERTIFICATE. A duly executed copy of the Acquisition
Certificate.
(c) WARRANTY DEED. Where fee title is being acquired by Owner, a
photocopy of the executed purchase and sale agreement and the warranty deed or
special warranty to be executed and delivered at the closing of the acquisition
of Owner's fee interest in such Unit Premises, conveying marketable title to
Owner, free of all Liens other than Permitted Liens, or such other form of Deed
(but not a quitclaim deed) as is customary in the area in which the Unit
Premises are located or as agreed to in writing by Owner and any Assignee. For
purposes of the Initial Advance, Permitted Liens shall NOT include any
mechanics' liens or materialmen's liens, or any taxes, assessments, governmental
charges or levies, except to the extent that such taxes, assessments,
governmental charges or levies are due and payable but not yet delinquent, and
have been properly apportioned with the seller at closing.
(d) MEMORANDUM OF LEASE AGREEMENT. Two original counterparts of a
memorandum of lease agreement in the appropriate form for recording in the
jurisdiction in which the Unit Premises are located, executed by Agent, as
lessee, and otherwise reasonably acceptable to Owner and Assignee.
(e) GROUND LEASE. Where a leasehold interest is being acquired by
Owner, an original of each Ground Lease, including a true and complete copy
of the metes and bounds legal description of the Unit Premises, intended to
be executed and delivered at the closing of the acquisition of Owner's
leasehold interest, in a form approved by Owner, and complying and
certified by Agent as complying in all respects with this Agreement and
with Section 29 of the Lease, and not subject to any Liens other than
Permitted Liens, along with a memorandum of ground lease in statutory
recordable form and any necessary estoppel certificates, recognition and
attornment agreements, confirmations, and subordinations required by
Owner's and any Assignee's counsel regarding the Ground Lease. For
purposes of the Initial Advance, Permitted Liens shall NOT include any
taxes, assessments, governmental charges or levies, except to the extent
that such taxes, assessments, governmental charges or levies are due and
payable but not yet delinquent.
(f) TITLE INSURANCE POLICY. As evidenced by written agreement of
Agent, Owner and any Assignee at the time of an Initial Advance with
respect to a Unit; satisfactory evidence that Owner shall receive at
closing either (i) an ALTA owner's policy (which, if available in the state
in which the Unit Premises are located, may be
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issued as a joint protection policy simultaneously insuring both Owner's
interest and Agent's interest in such Unit Premises, provided that Agent shall
deliver to Owner in connection with the Acquisition Certificate for such Unit
Premises a letter executed by Agent in which Agent explicitly agrees to the
conditions set forth on Exhibit K of this Agreement) with a pending improvements
clause, or (ii) a construction binder marked at closing for the benefit of Owner
and Assignee, constituting the irrevocable commitment of the Title Company to
issue a joint protection policy simultaneously, insuring both Owner's and
Agent's interests in such Unit Premises in accordance with the conditions of (i)
above and upon completion of the Unit Improvements, in each case issued by the
Title Company with respect to the Unit Premises in the amount of the total Unit
Acquisition Cost, as set forth in the applicable Unit Budget, acceptable to
Owner and Assignee in all respects (including such additional endorsements as
may be reasonably requested by Owner or Assignee), together with legible
photocopies of all underlying documents of record affecting the Unit Premises.
Owner shall have received evidence satisfactory to it that all premiums in
respect of such policies have been paid at the closing of title, which policy or
binder shall provide the substantive coverage contemplated to be provided above.
(g) SURVEY. A current survey of the Unit Premises certified to
Owner, any Assignee and the Title Company by an independent registered
civil engineer or licensed land surveyor, and dated a date within ninety
(90) days prior to the date of the Initial Advance. Such survey shall show
the following: (i) lot lines of the Unit Premises shown in metes and
bounds, and the lines of streets abutting the Unit Premises and the width
thereof; (ii) all access and other easements appurtenant to or used in
connection with the Unit Premises; (iii) all roadways, paths, driveways,
easements, set-backs, encroachments and overhanging projections and similar
encumbrances affecting the Unit Premises, whether recorded, apparent from a
physical inspection of the Unit Premises, or otherwise known to the
surveyor; (iv) any encroachments on any adjoining property by the building
structures and improvements on the Unit Premises; and (v) if the Unit
Premises are described by reference to a filed map, a legend relating the
survey to said map.
(h) SITE PLAN. A site plan prepared by Agent showing the proposed
location of the Unit Improvements to be constructed on the Unit Premises.
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(i) AVAILABILITY OF UTILITIES. Certification by Agent that all
utility services and facilities (including, without limitation, gas,
electrical, water and sewage services and facilities) (i) which are
necessary and required during the construction period have been completed
or will be available in such a manner as to assure Owner that the ability
of Agent to complete construction on or before the Unit Completion Date
will not be impeded by a lack thereof and (ii) which are necessary for
operation and occupancy of the Unit are or will be completed in such a
manner and at such a time as will assure the opening and operation of the
Unit on or before the Unit Completion Date.
(j) FLOOD ZONE. A certification by the surveyor or an official of an
appropriate Governmental Authority as to whether the Unit Premises are
located in a flood plain.
(k) PERMITS. A certificate of Agent certifying that all Permits and
governmental approvals required for the construction of the Unit
Improvements have been or will be issued or obtained in such a manner as to
assure Owner that the ability of Agent to complete construction of the Unit
Improvements on or before the Unit Completion Date will not be impeded by a
lack thereof and all Permits and governmental approvals required therefor
which have been issued or obtained are in full force and effect.
(l) OPINION OF COUNSEL FOR AGENT. With respect to the first advance
only under this Agreement, an opinion of Shearman & Sterling, counsel for
Agent, in form and substance reasonably satisfactory to Owner and Assignee
and, with respect to an Initial Advance with respect to a Unit Premises in
a state in which no Unit Premises has previously been acquired under this
Agreement, an opinion of local counsel for Agent, in form and substance
reasonably satisfactory to Owner and Assignee. With respect to an Initial
Advance for a Unit Premises in a state in which such opinion of local
counsel for Agent has previously been delivered, if Owner and Assignee have
reason to believe that the laws of such state have changed since the date
of the previous local counsel opinion for Agent in such state, then an
opinion of local counsel for Agent shall be delivered, in form and
substance reasonably satisfactory to Owner and Assignee.
(m) OPINION OF COUNSEL FOR GUARANTOR. With respect to the first
advance only under this Agreement, an opinion of Shearman & Sterling,
counsel for Guarantor, in form and substance satisfactory to Owner and
Assignee.
(n) CONSTRUCTION AGREEMENT. A fully executed and complete copy of
the Construction Agreement, if entered into at the time of the Initial
Advance.
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
- 18 -
(o) DESIGN DEVELOPMENT DRAWINGS AND UNIT PLANS. A copy of the Design
Development Drawings and all then-completed portions of Unit Plans, each as
approved by Owner and Assignee.
(p) UNIT BUDGET. A copy of the Unit Budget and certification by
Agent that such Unit Budget is (i) true, complete (taking into account the
state of completion of the Unit Plans and the status of the bidding process
with respect to the Construction Documents) and correct, (ii) a reasonable
estimate of all expected costs of the Unit and (iii) within the dollar
limits set forth in the first sentence of subsection 2.2 hereof.
(q) CERTIFICATES OF INSURANCE. Certificates of insurance or other
evidence reasonably acceptable to Owner certifying that the insurance then
carried or maintained on the Unit complies with subsection 9.3 hereof.
(r) REQUEST FOR ADVANCE. A duly executed AIA Document G722 (or
substantially similar document), stating the total amount of the Initial
Advance requested, the date on which the advance is to be made, the name,
address and, if applicable, the escrow reference number of the escrow or
closing agent or party to whom the Initial Advance is to be tendered,
wiring instructions and an itemization of the various costs constituting
the amount of the Initial Advance in such detail as will be necessary to
provide disbursement instructions to the escrow or closing agent,
including, specifically, an accounting of all expenditures for costs shown
on the Unit Budget for which payment or reimbursement is being requested
with respect to the Unit.
(s) CERTIFICATE OF GUARANTOR. A duly executed Certificate of
Guarantor certifying that all representations and warranties made in the
Guarantee are and remain true and correct on and as of the date of the
Initial Advance as if made on and as of the date of the Initial Advance
(except to the extent such representations and warranties expressly relate
specifically to an earlier date) and no default under the Guarantee has
occurred and is continuing on the date such Initial Advance is to be made
or by reason of giving effect to such Initial Advance.
(t) UNIT FF&E SPECIFICATIONS. If applicable, a true and complete
copy of the Unit FF&E Specifications with respect to the Unit.
(u) ENVIRONMENTAL CERTIFICATE AND REPORT. An environmental
certificate in the form of Exhibit H hereto, duly executed by Agent, and an
environmental report certified to Owner and any Assignee and satisfactory
to Owner and any Assignee in all respects, prepared by a reputable
environmental consulting or environmental engineering firm acceptable to
Owner and any Assignee which addresses the matters set forth on Exhibit I
hereto; provided that with respect to the North Shoreline Unit the Owner
acknowledges
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
- 19 -
receipt of an environmental report satisfying such requirement and agrees that
the foregoing requirement for an environmental certificate shall be met by a
certificate dated as of the date of the Acquisition Certificate to the effect
set forth in the certificate provided previously with respect to such location,
dated July 1, 1993, attached hereto as Exhibit J. If Owner or any Assignee
shall reasonably require additional assurance as to any matter or matters
contained or not adequately addressed in such environmental report in respect of
Unit Premises other than the North Shoreline Unit, or if the certificate
delivered pursuant to this Section 4(u) shall raise issues not raised in, or
shall identify changed circumstances in respect of matters contained in the
certificate attached hereto as Exhibit J, with respect to the North Shoreline
Unit, Owner or any Assignee may require that a supplemental or additional
environmental report with respect to such matter or matters, satisfactory to
Owner and any Assignee in all respects, be delivered.
(v) USE OF PROCEEDS, NO LIENS AND REPRESENTATIONS OF AGENT. (i) All
costs and expenses which are the subject of the Initial Advance requested
have been paid in full or will be paid in full out of the proceeds of the
Initial Advance, (ii) there are no Liens on the Unit Premises of which
Agent has knowledge that are not Permitted Liens, (iii) all representations
and warranties made in this Agreement, in the Lease, and in connection with
the Initial Advance, are and remain true and correct on and as of the date
of the Initial Advance and (iv) no Event of Default, Potential Default or,
with respect to the Unit for which the Initial Advance is requested, Event
of Unit Termination or Potential Event of Unit Termination, under this
Agreement has occurred and is continuing on the date such Initial Advance
is to be made or by reason of giving effect to such Initial Advance.
(w) ADDITIONAL MATTERS. Such other documents and legal matters in
connection with a request for an Initial Advance as are reasonably
requested by Owner and Assignee.
5. CONDITIONS PRECEDENT TO OWNER'S
OBLIGATION TO MAKE INTERIM ADVANCES AFTER
THE INITIAL ADVANCE WITH RESPECT TO A UNIT
Owner's obligation to make any Interim Advance with respect to a Unit
after the Initial Advance with respect to such Unit shall be subject to the
satisfaction of the conditions set forth in this Section 5 and to the receipt by
Owner and any Assignee of the documents set forth in this Section 5, in each
case in form and substance reasonably satisfactory to Owner and any Assignee.
Owner shall determine whether the foregoing conditions are met within seven (7)
Business Days after receipt of the Interim Advance Certificate and its
attachments.
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
- 20 -
The following are the documents to be received by Owner and any
Assignee and the conditions to be satisfied:
(a) INTERIM ADVANCE CERTIFICATE. A duly executed Interim Advance
Certificate.
(b) CONTINUING REPRESENTATIONS OF AGENT. All representations and
warranties made in this Agreement, in the Lease, and in connection with the
Interim Advance, are and remain true and correct on and as of the date of
the Interim Advance as if made on and as of the date of the Interim Advance
(except to the extent such representations and warranties expressly relate
specifically to an earlier date) and no Event of Default, Potential Default
or, with respect to the Unit for which such Interim Advance is requested,
Event of Unit Termination or Potential Event of Unit Termination, under
this Agreement has occurred and is continuing on the date such Interim
Advance is to be made or by reason of giving effect to such Interim
Advance; provided that, the foregoing condition that no Potential Default
shall have occurred and be continuing shall be deemed met for purposes of
obtaining an Interim Advance pursuant to this Section 5 notwithstanding the
occurrence of an event which would be a Potential Default under Section
11.1(e) of this Agreement if the following conditions shall have been and
continue to be met: (a) the Agent shall have advised the Owner of such
event promptly after a Responsible Officer obtains knowledge, or would have
obtained knowledge but for negligence of such Responsible Officer in
performing the customary duties of his office, thereof and, (b) at all
times during the first thirty (30) days following notice with respect to
such event to Agent pursuant to Section 11.1(e) hereof, Agent shall have
diligently and in good faith attempted to cure such Potential Default, and
at all times thereafter the conditions set forth in the portions of Section
11.1(e) hereof enumerated (i), (ii) and (iii) shall be continuously met in
Owner and any Assignee's reasonable judgment, (c) Guarantor's senior debt
rating or, if Guarantor has no senior debt rating, Implied Senior Debt
Rating shall continue to be BB+ or better by Duff & Phelps, BB+ or better
by S&P, Ba1 or better by Moody's or, if the Guarantor has no senior debt
rating or Implied Senior Debt Rating from any of Duff & Phelps, S&P or
Moody's, NAIC 2 or better by the NAIC; provided, however, that if the
Guarantor's private debt rating has not been reviewed by the NAIC within
the prior 15 months, then when Merrill Lynch Fixed Income Research Rating
is 5.5 or higher, and (d) Agent shall provide all information and reports
reasonably requested by Owner and Assignee in order to monitor the
satisfaction of such conditions.
(c) CERTIFICATE OF GUARANTOR. A duly executed certificate of
Guarantor certifying that all representations and warranties in the
Guarantee are and remain true and correct on and as of the date of the
Interim Advance as if made on and as of the date of such Interim Advance
(except to the extent such representations and warranties expressly
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THIS AGREEMENT FOR
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AND PROPRIETARY
-21-
relate specifically to an earlier date) and no default under the Guarantee
has occurred and is continuing on the date such Interim Advance is to be
made or by reason of giving effect to such Interim Advance.
(d) SATISFACTORY TITLE. A certificate of Agent certifying that since
the last disbursement, there have been no changes in the state of title and
no additional survey exceptions not theretofore specifically approved by
Owner and, if such Unit Premises are subject to a Ground Lease, confirming
that there are no defaults under the Ground Lease.
(e) REQUEST FOR ADVANCE. A duly executed AIA Document G722 (or a
substantially similar document), stating the total amount of the Interim
Advance requested, the date on which such Interim Advance is to be made,
and a specific breakdown of items and costs for which the Interim Advance
is being made.
(f) NO OTHER SECURITY INTERESTS. All materials and fixtures
incorporated in the construction of the Unit Improvements have been
purchased so that title thereto or a leasehold interest therein, as the
case may be, shall have vested in Owner immediately upon delivery thereof
to the Unit Premises, except for Permitted Liens.
(g) UNIT PLANS. Unit Plans with respect to each phase or portion of
the Unit Improvements any portion of the cost of which will be funded by
the requested Interim Advance.
(h) PROGRESS OF CONSTRUCTION. For any Interim Advance the proceeds
of which will be used to fund all or a portion of the costs of shell and
core completion, building systems or tenant improvements with respect to
applicable Unit Improvements, a copy of the applicable requisition of the
General Contractor pursuant to the Construction Contract (with attachments)
certified by the Unit architect with respect to completion of the work set
forth in such requisition.
(i) CONSTRUCTION AGREEMENT. A fully executed and complete copy of
any Construction Agreement, if entered into at the time of the particular
Interim Advance and not previously provided.
6. CONDITIONS PRECEDENT TO THE FINAL
ADVANCE WITH RESPECT TO A UNIT
Owner's obligation to make the Final Advance with respect to a Unit
shall be subject to the satisfaction of the conditions set forth in this Section
6 and to the receipt by Owner and any Assignee of the documents set forth in
this Section 6, in each case in form and substance
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-22-
reasonably satisfactory to Owner and any Assignee. When all of the conditions
set forth in this Section 6 shall have been satisfied, Substantial Completion of
a Unit shall be deemed to occur. Owner shall determine whether the foregoing
conditions are met within seven (7) Business Days after receipt of the
Certificate of Substantial Completion and its attachments.
The following are the documents to be received by Owner and any
Assignee and the conditions to be satisfied:
(a) CERTIFICATE OF SUBSTANTIAL COMPLETION. A duly executed
Certificate of Substantial Completion.
(b) SATISFACTORY TITLE. A certificate of Agent certifying that since
the Initial Advance for such Unit Premises, there have been no changes in
the state of title, except for Permitted Liens, and no additional survey
exceptions not theretofore specifically approved in writing by Owner and,
if such Unit Premises are subject to a Ground Lease, there are no defaults
under the Ground Lease.
(c) CONSTRUCTION AND EQUIPPING OF THE UNIT. A certificate of an
architect certifying that the Unit Improvements (including all interior
finish work, but exclusive of punch list items) have been completed within
the Unit Budget and in all material respects in accordance with the Unit
Plans and are accepted by Agent and all Unit FF&E for that Unit has been
installed and conforms in all material respects to the Unit FF&E
Specifications and are accepted by Agent. Agent shall deliver to Owner and
any Assignee a specific itemization of all items of Unit FF&E installed in
such Unit.
(d) PERMITS. All Permits and governmental approvals necessary for
the occupancy and primary use and operation of the Unit have been issued or
obtained.
(e) LIENS. The Unit, including interior finish work, has been
completed as contemplated in paragraph (c) above, free of all Liens, except
for Permitted Liens (all of which are to be itemized as to the nature,
amount, claimant and status), and there are no current Permitted Contests
with respect to the Unit (or, if any, the nature, amount, claimant and
status thereof).
(f) FINAL SURVEY. Except in the circumstance that Agent, Owner and
any Assignee have agreed in writing that an as-built survey may be
subsequently provided as of a time expressed in such agreement, a final as-
built survey, certified to Owner, any Assignee and the Title Company by an
independent registered civil engineer or licensed land surveyor, with a
metes and bounds description of the perimeter of the Unit Premises, and
showing the completed Unit Improvements, all easements on the Unit
Premises, and indicating the location of access to the Unit Premises and
all utility and water easements
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-23-
directly affecting the Unit Premises. No encroachments are to exist by the
Unit Improvements or on the Unit Premises other than those that are
Permitted Liens or that may have been consented to by Owner and all
set-back requirements have been complied with. If any discrepancies exist
between the legal description set forth on the survey delivered pursuant to
paragraph (h) of Section 4 hereof and the legal description set forth on
the final as-built survey, Owner and Agent shall cooperate in amending the
legal descriptions in all recorded documents creating or affecting the Unit
Premises, including, without limitation, any easements, to reflect the
correct as-built description.
(g) UTILITIES. Direct connection has been made to all appropriate
utility facilities and the Unit Improvements are ready for occupancy and
operation.
(h) FLOOD ZONE. If the Unit Premises are located in a flood plain, a
policy of flood insurance in an amount equal to the lesser of (A) the
maximum limit of coverage available under the National Flood Insurance Act
of 1968, as amended, or (B) the amount of the Unit Acquisition Cost for the
Unit, unless Agent is self-insured for such risks as permitted in the
Lease.
(i) CONTINUING REPRESENTATIONS OF AGENT. All representations and
warranties made in this Agreement, in the Lease, and in connection with the
Final Advance are to remain true and correct on and as of the date of the
Final Advance as if made on and as of the date of the Final Advance (except
to the extent such representations and warranties expressly relate
specifically to an earlier date) and no Event of Default, Potential Default
or, with respect to the Unit for which the Final Advance is requested,
Event of Unit Termination or Potential Event of Unit Termination, under
this Agreement has occurred and is continuing on the date such Final
Advance is to be made or by reason of giving effect to such Final Advance;
provided that, the foregoing condition that no Potential Default shall have
occurred and be continuing shall be deemed met for purposes of obtaining
the Final Advance pursuant to this Section 6 notwithstanding the occurrence
of an event which would be a Potential Default under Section 11.1(e) of
this Agreement if the following conditions shall have been and continue to
be met: (a) the Agent shall have advised the Owner of such event promptly
after a Responsible Officer obtains knowledge, or would have obtained
knowledge but for negligence of such Responsible Officer in performing the
customary duties of his office, thereof and, (b) at all times during the
first thirty (30) days following notice with respect to such event to Agent
pursuant to Section 11.1(e) hereof, Agent shall have diligently and in good
faith attempted to cure such Potential Default, and at all times thereafter
the conditions set forth in the portions of Section 11.1(e) hereof
enumerated (i), (ii) and (iii) shall be continuously met in Owner and any
Assignee's reasonable judgment, (c) Guarantor's senior debt rating or, if
the Guarantor has no senior debt rating, Implied Senior Debt Rating shall
continue to be BB+ or better by Duff & Phelps, BB+ or better by S&P, Ba1 or
better by Moody's or, if the
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-24-
Guarantor has no senior debt rating or Implied Senior Debt Rating from any
of Duff & Phelps, S&P or Moody's, NAIC 2 or better by the NAIC; provided,
however, that if the Guarantor's private debt rating has not been reviewed
by the NAIC within the prior 15 months, then when Merrill Lynch Fixed
Income Research Rating is 5.5 or higher, and (d) Agent shall provide all
information and reports reasonably requested by Owner and Assignee in order
to monitor the satisfaction of such conditions.
(j) CERTIFICATE OF GUARANTOR. A duly executed Certificate of
Guarantor certifying that all representations and warranties made in the
Guarantee are and remain true and correct on and as of the date of the
Final Advance as if made on and as of the date of the Final Advance (except
to the extent such representations and warranties expressly relate
specifically to an earlier date) and no default under the Guarantee has
occurred and is continuing on the date such Final Advance is to be made or
by reason of giving effect to such Final Advance.
(k) AFL UNIT LEASING RECORD. An AFL Unit Leasing Record prepared and
duly executed by Agent.
(l) REQUEST FOR ADVANCE. A duly executed AIA Document G722 (or a
substantially similar document), stating the total amount of the Final
Advance requested, the date on which such advance is to be made, wiring
instructions and a specific breakdown of items and costs for which the
Final Advance is to be made.
7. CONDITIONS PRECEDENT TO THE COMPLETION ADVANCE
WITH RESPECT TO A UNIT
Owner's obligation to make the Completion Advance with respect to a
Unit shall be subject to the satisfaction of the conditions set forth in this
Section 7 and to the receipt by Owner and any Assignee of the documents set
forth in this Section 7, in each case in form and substance reasonably
satisfactory to Owner and Assignee. The proceeds of the Completion Advance
shall be used to pay in full all costs relating to completion of such Unit for
which Agent has not been reimbursed prior to the Effective Date for the Unit.
Owner shall determine whether the foregoing conditions are met within seven (7)
Business Days after its receipt of the Certificate of Increased Cost and its
attachments.
The following are the documents to be received by Owner and any
Assignee and the conditions to be satisfied:
(a) CERTIFICATE OF INCREASED COST. A duly executed Certificate of
Increased Cost.
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-25-
(b) CONTINUING REPRESENTATIONS OF AGENT. All representations and
warranties made in this Agreement, in the Lease, and in connection with the
Completion Advance are and remain true and correct on and as of the date of
the Completion Advance as if made on and as of the date of the Completion
Advance (except to the extent such representations and warranties expressly
relate specifically to an earlier date) and no Event of Default, Potential
Default or, with respect to the Unit for which the Completion Advance is
requested, Event of Unit Termination or Potential Event of Unit Termination
under this Agreement has occurred and is continuing on the date such
Completion Advance is to be made or by reason of giving effect to such
Completion Advance; provided that, the foregoing condition that no
Potential Default shall have occurred and be continuing shall be deemed met
for purposes of obtaining the Completion Advance pursuant to this Section 7
notwithstanding the occurrence of an event which would be a Potential
Default under Section 11.1(e) of this Agreement if the following conditions
shall have been and continue to be met: (a) the Agent shall have advised
the Owner of such event promptly after a Responsible Officer obtains
knowledge, or would have obtained knowledge but for negligence of such
Responsible Officer in performing the customary duties of his office,
thereof and, (b) at all times during the first thirty (30) days following
notice with respect to such event to Agent pursuant to Section 11.1(e)
hereof, Agent shall have diligently and in good faith attempted to cure
such Potential Default, and at all times thereafter the conditions set
forth in the portions of Section 11.1(e) hereof enumerated (i), (ii) and
(iii) shall be continuously met in Owner and any Assignee's reasonable
judgment, (c) Guarantor's senior debt rating or, if Guarantor has no senior
debt rating, Implied Senior Debt Rating shall continue to be BB+ or better
by Duff & Phelps, BB+ or better by S&P, Ba1 or better by Moody's or, if the
Guarantor has no senior debt rating or Implied Senior Debt Rating from any
of Duff & Phelps, S&P or Moody's, NAIC 2 or better by the NAIC; provided,
however, that if the Guarantor's private debt rating has not been reviewed
by the NAIC within the prior 15 months, then when Merrill Lynch Fixed
Income Research Rating is 5.5 or higher, and (d) Agent shall provide all
information and reports reasonably requested by Owner and Assignee in order
to monitor the satisfaction of such conditions.
(c) CERTIFICATE OF GUARANTOR. A duly executed certificate of
Guarantor certifying that all representations and warranties made in the
Guarantee are and remain true and correct on and as of the date of the
Completion Advance as if made on and as of the date of the Completion
Advance (except to the extent such representations and warranties expressly
relate specifically to an earlier date) and no default under the Guarantee
has occurred and is continuing on the date such Completion Advance is to be
made or by reason of giving effect to such Completion Advance.
(d) REQUEST FOR ADVANCE. A duly executed AIA Document G722 (or a
substantially similar document), stating the total amount of the Completion
Advance
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-26-
requested, the date on which such advance is to be made, wiring
instructions and a specific breakdown of items and costs for which the
Completion Advance is to be made.
(e) REVISED AFL UNIT LEASING RECORD. A revised AFL Unit Leasing
Record prepared by Agent pursuant to subsection 2.3(b) hereof.
(f) FINAL SURVEY. If not previously provided, a final as-built
survey, as described in Section 6(f) hereof.
8. REPRESENTATIONS AND
WARRANTIES OF AGENT
Agent represents and warrants to Owner now and on the date of each
advance that:
2 CORPORATE MATTERS. Agent (i) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, (ii) has full power, authority and legal right to own and operate
its properties and to conduct its business as presently conducted and to
execute, deliver and perform its obligations under the Lease, this Agreement,
any Consent (as defined in the Lease) and the Construction Documents and (iii)
is duly qualified to do business as a foreign corporation in good standing in
each jurisdiction in which its ownership or leasing of properties or the conduct
of its business requires such qualification. Silicon Graphics Real Estate,
Inc., a California corporation ("SGREI-CA") was organized on May 6, 1993, for
purposes unrelated to this transaction. Agent was organized on November 12,
1993 to effect a reincorporation of SGREI-CA as a Delaware corporation. SGREI-
CA will be merged into Agent no later than March 31, 1994, whereupon Agent will,
by operation of law succeed to all of SGREI-CA's rights and obligations.
3 POWER AND AUTHORITY. The consummation of the transactions herein
contemplated and the performance and observance of Agent's obligations under
this Agreement have been, and the Construction Documents have been or will be,
duly authorized by all necessary corporate action on the part of Agent. The
execution, delivery and performance by Agent of this Agreement, any Consent (as
defined in the Lease) and the Construction Documents will not result in any
violation of any term of the articles of incorporation or the by-laws of Agent,
do not require stockholder approval or the approval or consent of any trustee or
holders of indebtedness of Agent except such as have been obtained prior to the
date hereof and will not conflict with or result in a breach of any terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien (other than a Permitted Lien) upon any property or assets
of Agent under, any indenture, mortgage or other agreement or instrument to
which Agent is a party or by which it or any of its property is bound, or any
existing applicable law,
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-27-
rule, regulation, license, judgment, order or decree of any Governmental
Authority or court having jurisdiction over Agent or any of its activities or
properties.
4 BINDING AGREEMENT. This Agreement and any Consent have been, and
each of the Construction Documents will be, duly authorized, executed and
delivered by Agent and, assuming the due authorization, execution and delivery
of this Agreement and any Consent by Owner and the Construction Documents by the
parties thereto other than Agent, this Agreement and any Consent are, and each
of the Construction Documents when executed and delivered will be, a legal,
valid and binding obligation of Agent, enforceable according to its terms.
5 NO LITIGATION. There is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental body,
agency, commission or other tribunal now pending or, to the best knowledge of
the Agent threatened against or affecting Agent or Guarantor or any property or
rights of Agent or Guarantor which questions the enforceability of this
Agreement or which, if adversely determined, would (i) affect Owner's title to
any Unit Premises, Unit Improvements, Unit FF&E or Unit, (ii) have a material
adverse impact on the value or use of any Unit, or (iii) have a material adverse
impact on the financial condition or business of Agent and Guarantor, taken as a
whole, or, which if adversely determined, would materially impair the ability of
Agent to perform its obligations hereunder or of Guarantor to perform its
obligations under the Guarantee.
6 CONSENTS, APPROVALS, AUTHORIZATIONS, ETC. There are no consents,
permits, licenses, orders, authorizations, approvals, waivers, extensions or
variances of, or notices to or registrations or filings with (each a
"Governmental Action"), any Governmental Authority or public body or authority
which are or will be required in connection with the valid execution, delivery
and performance of this Agreement and the Construction Documents, except for
customary Governmental Actions required for the construction of any improvements
to any Unit Premises, or the occupancy, use or placement in service of such
improvements or any Unit of Equipment, which in all cases have been or will be
obtained prior to the time required ("Customary Governmental Actions"), or any
Governmental Action (i) which is or will be required in connection with any
participation by Owner in the transaction contemplated by any bill of sale,
deed, assignment, assumption, ownership agreement, or operating agreement
relating to any Unit Premises, Unit Improvements, Unit FF&E or Unit, except for
any Customary Governmental Actions which will, if any, be obtained by Agent on
behalf of Owner, or (ii) which is or will be required to be obtained by Owner,
except for any Customary Governmental Actions which will, if any, be obtained by
Agent on behalf of Owner, Agent, Merrill, Merrill Leasing, any Assignee or an
Affiliate of the foregoing, during the term of this Agreement, with respect to
any Unit Premises, Unit Improvements, Unit FF&E or Unit, except in all cases for
such Governmental Actions, (A) as have been duly obtained, given or
accomplished, with true copies thereof delivered to Owner, and (B) as may be
required by applicable law not now in effect.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-28-
7 COMPLIANCE WITH CONTRACTUAL REQUIREMENTS, LEGAL REQUIREMENTS AND
INSURANCE REQUIREMENTS. The construction, operation, use, and physical
condition of each Unit Premises, the Unit Improvements, Unit, and item of Unit
FF&E comply with all Contractual Requirements, Legal Requirements and Insurance
Requirements, except any Contractual Requirements or Legal Requirements, the
non-compliance with which, individually or in the aggregate, (i) will not place
either Owner or any Assignee in any danger of civil liability for which Owner or
any Assignee is not adequately indemnified (Agent's obligations under Section 12
of this Agreement shall be deemed to be adequate indemnification if no Event of
Default exists and if such civil liability is reasonably likely to be less than
$5,000,000) or subject Owner or any Assignee to any criminal liability as a
result of failure to comply therewith, (ii) will not result in a material
diminution in the value of any Property or Equipment, and (iii) is consistent
with prudent business practices.
8 NO DEFAULT. Neither Agent nor Guarantor is in violation of or in
default under or with respect to any Contractual Requirement or Legal
Requirement in any respect which could be materially adverse to the business,
operations, properties or financial or other condition of Agent or Guarantor, or
which could materially adversely affect the ability of Agent to perform its
obligations under this Agreement or any of the Construction Documents or of the
Guarantor to perform its obligations under the Guarantee.
9 OWNERSHIP; LIENS. No Unit Premises, Unit Improvements, Unit
FF&E, or Unit is subject to any Lien, except for Permitted Liens.
10 FINANCIAL STATEMENTS. Agent has caused to be furnished to Owner
Guarantor's Annual Report on Form 10-K for the year ended June 30, 1993 and
Guarantor's Quarterly Report on Form 10-Q for the quarter ended September 30,
1993. The financial statements contained in such documents fairly present the
financial position, results of operations and statements of cash flow of
Guarantor as of the dates and for the periods indicated therein and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis.
11 CHANGES. Since September 30, 1993, there has been no material
adverse change in the financial condition or business of Guarantor, nor any
change which would materially impair the ability of Agent to perform its
obligations under this Agreement or any of the Construction Documents or which
would materially impair the ability of Guarantor to perform its obligations
under the Guarantee.
12 SUITABILITY OF EACH UNIT PREMISES. Each Unit Premises is or will
be made suitable in all material respects (including, without limitation, ground
conditions, utilities, and condition of title) for the construction of the
related Unit Improvements.
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
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13 ERISA. Agent has not established and does not maintain or
contribute to any employee benefit plan that is covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended from time to time.
14 GROUND LEASE. Each Ground Lease is a Mortgageable Ground Lease
except to the extent agreed to in writing by Owner and Assignee, and is in full
force and effect and has not been modified, amended or changed in any manner
that has not been disclosed in writing to Owner, nor is there any material
default under any Ground Lease nor event which, with the giving of notice or the
passage of time or both, would constitute a default under such Ground Lease, nor
to the best knowledge of Agent has any party under any Ground Lease commenced
any action or given or received any notice for the purpose of terminating any
Ground Lease, and all rents, additional rents and other sums due and payable
under the Ground Lease have been paid in full.
15 STATUS OF AGENT. Not less than 90% of Agent's common stock is
owned directly or indirectly by Guarantor.
9. AFFIRMATIVE COVENANTS
Agent hereby agrees that, so long as this Agreement remains in effect,
Agent shall keep and perform fully each and all of the following covenants:
2 PERFORMANCE UNDER OTHER AGREEMENTS. Agent shall duly perform and
observe all of the covenants, agreements and conditions on its part to be
performed and observed hereunder and shall duly perform and observe, in all
material respects, all of the covenants, agreements and conditions on its part
which it is obligated to perform or observe under the Construction Documents.
3 NO ENCROACHMENTS. The Unit Improvements shall be constructed
entirely on the related Unit Premises and shall not encroach upon or overhang
(unless consented to by the affected property owner) any easement or right-of-
way on land of others in any manner that would materially impair the value or
utility of the Unit Premises. Upon request of Owner, Agent shall furnish from
time to time satisfactory evidence, other than, unless otherwise required by
this Agreement, an as-built survey, of compliance with the foregoing covenants.
If any discrepancies exist between the legal description set forth on the survey
described in Section 4(h) hereof and the final as-built survey provided pursuant
to Section 6 or 7 hereof, Owner and Agent shall cooperate, at Agent's expense,
in amending the legal descriptions in all recorded documents creating or
affecting the Unit Premises, including, without limitation, any easements, to
reflect the correct as-built description.
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THIS AGREEMENT FOR
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-30-
4 INSURANCE.
(a) INSURANCE WITH RESPECT TO EACH UNIT PREMISES, THE UNIT
IMPROVEMENTS, UNIT FF&E AND UNIT. Agent will maintain or cause to be maintained
on each Unit Premises, the Unit Improvements, Unit FF&E and Unit insurance of
the same types, in the same amounts and on the same terms and conditions as the
insurance required by paragraph (c) and paragraphs (f) through (1) of Section 10
of the Lease, except that the terms "Owner", "Agent" and "this Agreement" shall
substitute for the terms "the Lessor", "the Lessee" and "this Lease",
respectively, the phrase "Unit Premises, Unit Improvements, Unit FF&E and Unit"
shall substitute for the phrase "Parcel of Property", and references to
"Equipment" or "Unit of Equipment" shall be deemed deleted; provided, that in
lieu of the insurance required by paragraph (c)(i) of Section 10 of the Lease,
Agent shall maintain or cause to be maintained All Risk Builders' Risk Completed
Value Non-Reporting Form Insurance, including collapse coverage and fire
insurance with extended coverage, in an amount not less than one hundred percent
(100%) of the completed insurable value of the respective Unit Improvements and
Unit FF&E. The term "completed insurable value" as used herein means the actual
replacement cost, including the cost of debris removal, but excluding the cost
of constructing foundation and footings.
(b) Agent covenants that it will not use, carry on construction with
respect to, or occupy any Unit or permit the use, construction, or occupancy of
any Unit Premises, Unit Improvements, Unit FF&E or Unit at any time when the
insurance required by paragraph (a) of this subsection is not in force with
respect to such Unit Premises, Unit Improvements, Unit FF&E or Unit.
5 INSPECTION OF BOOKS AND RECORDS. Upon reasonable notice, Owner
or Assignee or designated representatives of either of them, shall have the
right of entry and free access to each Unit Premises, the Unit Improvements,
Unit FF&E and each Unit and the right to inspect all work done, labor performed
and materials furnished in and about each Unit Premises, the Unit Improvements,
Unit FF&E and each Unit and at reasonable times the right to inspect all books,
contracts and records of Agent relating to each Unit Premises, the Unit
Improvements, Unit FF&E and each Unit.
6 EXPENSES. Agent shall pay upon demand all obligations, costs and
expenses incurred by Owner with respect to any and all transactions contemplated
herein and the preparation of any document reasonably required hereunder and the
prosecution or defense of any action or proceeding or other litigation affecting
Agent or any Unit Premises, Unit Improvements, Unit FF&E or Unit, including
(without limiting the generality of the foregoing) all Financing Costs not
capitalizable by Owner in Unit Acquisition Cost and amounts required to
reimburse Owner for its obligations, costs and expenses arising in connection
with the termination of any Credit Agreement (whether as a result of a default
thereunder or otherwise), costs incurred in connection with terminating and
obtaining Owner's equity financing, title and
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THIS AGREEMENT FOR
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conveyancing charges, recording and filing fees and taxes, title search fees,
rent under the Ground Leases, mortgage taxes, intangible personal property
taxes, escrow fees, revenue and tax stamp expenses, insurance premiums
(including title insurance premiums), brokerage commissions, finders' fees,
placement fees, court costs, surveyors', photographers', appraisers',
architects', engineers', rating agencies', accountants' and reasonable
attorneys' fees and disbursements, and will reimburse to Owner all expenses paid
by Owner of the nature described in this subsection 9.5 which have been or may
be incurred by Owner with respect to any and all of the transactions
contemplated herein. In the event Agent shall fail to reimburse Owner within
ten (10) Business Days after presentation of a bill and demand for payment
therefor, Owner may pay or deduct from the advances to be made any of such
expenses and any proceeds so applied shall be deemed advances under this
Agreement, and deducted from the total funds available to Agent under
this Agreement. Notwithstanding anything to the contrary contained in the
foregoing, Agent shall not be required to reimburse Owner for any of the
foregoing obligations, costs and expenses which constitute properly
capitalizable costs under generally accepted accounting practices and which
Owner is able to finance under a Credit Agreement, which obligations, costs and
expenses shall, subject to the terms and conditions hereof, be capitalized by
Owner and included in Unit Acquisition Cost. Expenses incurred by Owner
(including, without limitation, Financing Costs) in financing obligations, costs
and expenses pending such allocation as a capitalizable cost to a Unit shall be
payable by Agent hereunder, if not capitalizable by Owner as set forth in the
prior sentence.
7 CERTIFICATES; OTHER INFORMATION. Agent shall furnish to Owner:
(a) concurrently with the delivery of the financial statements
referred to in subsection 9.6(b) hereof, a certificate of a Responsible
Officer stating that, to the best of such Responsible Officer's knowledge,
Agent during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition contained in this Agreement
and in all material respects in the Construction Documents to be observed,
performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Event of Default or Potential Default except
as specified in such certificate;
(b) from time to time, (i) promptly, and in any event not more than
100 days after the end of the fiscal year of Guarantor, copies of
Guarantor's Annual Reports on Form 10-K, and promptly, and in any event not
more than 60 days after the end of each fiscal quarter of Guarantor, copies
of Guarantor's Quarterly Reports on Form 10-Q, in each case accompanied by
a certificate of a Responsible Officer of Guarantor setting forth a
calculation of the Guarantor's Consolidated Tangible Net Worth, and
promptly, any report Guarantor files on Form 8-K with the SEC, (ii)
promptly upon request, such other information with respect to the
operations, business, property, assets, financial condition or litigation
of Agent and Guarantor, taken as a whole, as Owner or any Assignee shall
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reasonably request, (iii) promptly after a Responsible Officer of Agent or
Guarantor obtains knowledge of any Event of Default or Potential Default or
Event of Unit Termination or Potential Event of Unit Termination, a
certificate of a Responsible Officer of Agent or Guarantor specifying the
nature and period of existence of such Event of Default or Potential
Default or Event of Unit Termination or Potential Event of Unit
Termination, and what action, if any, Agent or Guarantor has taken, is
taking, or proposes to take with respect thereto, (iv) promptly after a
Responsible Officer of Agent or Guarantor obtains knowledge of any material
adverse change in the financial condition or business of Agent and
Guarantor, taken as a whole, or of any litigation of the type described in
subsection 8.4 hereof, a certificate of a Responsible Officer of Agent or
Guarantor describing such change or litigation as the case may be, and (v)
promptly after Agent obtains knowledge of any and all Liens other than
Permitted Liens on any Unit Premises, Unit Improvements, Unit FF&E, or
Unit, a detailed statement describing each such Lien.
8 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Agent shall
preserve, renew and keep in full force and effect its corporate existence
(except as otherwise permitted herein), and take all reasonable action to
maintain all rights, privileges and franchises material to the conduct of its
business, and comply with all Legal Requirements with respect thereto; provided,
however, that nothing contained in this subsection 9.7 shall prevent Agent from
ceasing or omitting to exercise any rights, privileges or franchises which in
the reasonable judgment of Agent can no longer be profitably exercised or
prevent Agent from selling, abandoning or otherwise disposing of any property,
the retention of which in the reasonable judgment of Agent is inadvisable to the
business of Agent, or prevent any liquidation of any subsidiary of Agent, or any
merger, consolidation or sale, permitted by the provisions of subsection 10.2
hereof.
9 NOTICES. Agent shall give notice to Owner promptly upon the
occurrence of:
(a) any litigation or proceeding of the nature described in Section
8.4 hereof or otherwise affecting any Unit Premises, Unit Improvements,
Unit FF&E or Unit;
(b) any notice given pursuant to any of the Construction Documents
that a material default by Agent has occurred thereunder, if the
termination of such Construction Document could reasonably be expected to
result in an inability to complete the Unit Improvements by the applicable
Unit Completion Date;
(c) any notice given by Agent alleging that a material default has
occurred pursuant to any of the Construction Documents, if the termination
of such Construction Document could reasonably be expected to result in an
inability to complete the Unit Improvements by the applicable Unit
Completion Date;
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(d) any condition which results or is reasonably likely to result in
a Force Majeure Delay in completion of the Unit Improvements;
(e) notices received from the lessor under any Ground Lease affecting
or purporting to affect the rights, interest or obligations of the ground
lessee or of actual or alleged default thereunder; and
(f) the imposition of any Lien, other than Permitted Liens.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action, if any, Agent proposes to take with respect thereto.
10 CONTRACTUAL REQUIREMENTS, LEGAL REQUIREMENTS AND INSURANCE
REQUIREMENTS. Agent shall comply with:
(a) all Contractual Requirements;
(b) every Insurance Requirement the failure to comply with which
could affect the coverage of the insurance; and
(c) Legal Requirements affecting (i) the execution, delivery and
performance of this Agreement and the Construction Documents and (ii) any
Unit Premises, Unit Improvements, item of Unit FF&E or Unit;
except any Contractual Requirements or Legal Requirements, the non-compliance
with which, individually or in the aggregate, (x) will not place either the
Owner or any Assignee in any danger of civil liability for which the Owner or
any Assignee is not adequately indemnified (the Agent's obligations under
Section 12 of this Agreement shall be deemed to be adequate indemnification if
no Event of Default exists and if such civil liability is reasonably likely to
be less than $5,000,000) or subject the Owner or any Assignee to any criminal
liability as a result of failure to comply therewith, (y) will not result in a
material diminution in the value of any Unit Premises, Unit Improvements, item
of Unit FF&E or Unit, and (z) is consistent with prudent business practices.
11 PAYMENT OF TAXES. With respect to any Unit Premises, Unit
Improvements, Unit FF&E, or Unit, Agent shall make all required reports to the
appropriate taxing authorities and shall pay during the term of this Agreement
the taxes that Agent would be required to pay if such Unit Premises, Unit
Improvements or Unit was a Parcel of Property under paragraph (c) of Section 9
of the Lease, subject, however, to the rights of Agent with respect to
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Permitted Contests. Payment of such taxes shall be on the terms set forth in
paragraph (c) of Section 9 of the Lease.
12 FILINGS, ETC. Agent shall promptly and duly execute, deliver,
file, and record, at Agent's expense, all such documents, statements, filings,
and registrations, and take such further action as Owner shall from time to time
reasonably request in order to establish, perfect and maintain Owner's title to
and interest in any Unit Premises, Unit Improvements, Unit FF&E and any Unit and
any Assignee's interest in this Agreement, any Unit Premises, Unit Improvements,
Unit FF&E or any Unit as against Agent or any third party in any applicable
jurisdiction.
13 USE OF PROCEEDS. The proceeds of each advance shall be used by
Agent for payment of costs specified in the applicable request for the advance
and in accordance with the respective Unit Budget.
14 COMPLIANCE WITH OTHER REQUIREMENTS. Agent shall use commercially
reasonable precautions to prevent loss or damage to any Unit Premises, Unit
Improvements, Unit FF&E, or any Unit and to prevent injury to third Persons or
property of third Persons. Agent shall cooperate fully with Owner and all
insurance companies providing insurance pursuant to subsection 9.3 hereof in the
investigation and defense of any claims or suits arising from the ownership or
operation of equipment or ownership, use, or occupancy of any Unit Premises,
Unit Improvements, Unit FF&E, or any Unit; provided, that nothing contained in
this subsection shall be construed as imposing on Owner any duty to investigate
or defend any such claims or suits. Agent shall comply and shall use all
reasonable efforts to cause all Persons operating equipment on, using or
occupying any Unit Premises, Unit Improvements, Unit FF&E, or any Unit to comply
with every Insurance Requirement and Legal Requirement regarding acquiring,
titling, registering, leasing, subleasing, insuring, using, occupying, operating
and disposing of any Unit Premises, Unit Improvements, Unit FF&E, or any Unit,
and, if applicable, the licensing of operators thereof.
15 EVIDENCE OF COMPLIANCE. Agent shall furnish Owner and any
Assignee with such additional or updated documents, reports, certificates,
affidavits and other information, in form and substance satisfactory to Owner
and any Assignee in their reasonable judgment, as Owner and any Assignee may
reasonably require to evidence compliance by Agent with all of the provisions of
this Agreement.
16 STATEMENT OF EXPENDITURES. At Owner's request, Agent shall
supply Owner and any General Contractor with a statement setting forth the
names, addresses and amounts due or to become due as well as the amounts
previously paid to every contractor, subcontractor or Person furnishing
materials, performing labor or entering into the construction of any part of the
Unit Improvements.
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
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17 CERTAIN DOCUMENTS. Agent shall furnish to Owner, if requested by
Owner, the contracts, bills of sale, statements, receipted vouchers, or other
documents under which title to the Unit Premises or Unit Improvements, or a
leasehold interest therein is claimed.
18 CHANGE UNIT BUDGET OR PLANS. Agent will obtain the prior written
consent of all Governmental Authorities the approval of which is required by
applicable Legal Requirements for modification or supplementation of any Unit
Plans or Unit Budget.
10 NEGATIVE COVENANTS
Agent hereby agrees that, so long as this Agreement remains in effect,
Agent shall not directly or indirectly:
2 RECEIVE CERTAIN ADVANCES. Receive advances with respect to a
Unit which exceed the Unit Budget for such Unit.
3 PROHIBITION OF FUNDAMENTAL CHANGES. Consolidate with or merge
into any other Person as such prohibition is set forth in Section 26 of the
Lease, except that the term "Owner" shall substitute for the term "the Lessor"
and the term "Agent" shall substitute for the term "the Lessee".
4 NOTIFICATION OF OPENING OF A UNIT. Open or operate a Unit prior
to the delivery to Owner of the Certificate of Substantial Completion and the
AFL Unit Leasing Record for the Unit.
5 ACQUIRE FEE OR LEASEHOLD INTEREST. Acquire a fee or leasehold
interest on behalf of Owner in any Unit Premises until Agent has delivered all
documents required by Section 4 hereof and in the reasonable judgment of Owner
satisfied the conditions set forth in such Section 4.
6 ASSIGNMENT OF OBLIGATIONS. Assign its obligations hereunder to
any other party except in accordance with Section 19 of this Agreement.
11. EVENTS OF DEFAULT AND EVENTS
OF UNIT TERMINATION
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THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
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2 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:
(a) FAILURE TO MAKE PAYMENTS. Failure to pay the purchase price of a
Unit when due in the event of a required purchase by Agent hereunder; or
failure by Agent to pay any other amount hereunder and the continuance of
such failure to pay such other amount for ten (10) days after written
notice of such failure by Owner to Agent.
(b) UNAUTHORIZED ASSIGNMENTS, ETC. Assignment by Agent of any
interest in this Agreement or any advance to be made hereunder or any
interest in either.
(c) MISREPRESENTATIONS. Any representation or warranty made herein
or which is contained in any certificate, document or financial or other
statement furnished under or in connection with this Agreement shall prove
to have been incorrect in any material respect on or as of the date made or
deemed made.
(d) BANKRUPTCY, ETC. The entry of a decree or order for relief in
respect of Agent or Guarantor by a court having jurisdiction in the
premises in an involuntary case under the Federal bankruptcy laws, as now
or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Agent or Guarantor or of any substantial part of Agent's or
Guarantor's property, or ordering the winding up or liquidation of Agent's
or Guarantor's affairs, or the commencement against Agent or Guarantor of
any involuntary case under any such law and the continuance of any such
case unstayed and in effect for a period of sixty (60) consecutive days.
Also, the discontinuance of Agent's or Guarantor's business operations,
Agent's or Guarantor's general inability to pay their debts as they become
due or Agent or Guarantor's admission, each as to itself, of a general
inability to pay its debts as they come due or of bankruptcy, or the
commencement by Agent or Guarantor of a voluntary case under the Federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal or state bankruptcy, insolvency or other similar law, or the
consent by Agent or Guarantor to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
other similar official) of Agent or Guarantor or of any substantial part of
Agent's or Guarantor's property, or the making by Agent or Guarantor of an
assignment for the benefit of creditors, or the failure of Agent or
Guarantor generally to pay their debts as such debts become due, or the
taking of corporate action by Agent or Guarantor in furtherance of any such
action.
(e) OTHER DEFAULTS. Agent shall default in the performance or
observance of any other term, covenant, condition or obligation contained
in this Agreement and, in the case of such default other than a default
arising under subsection 9.3 hereof, such default
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shall continue for thirty (30) days after written notice shall have been
given to Agent by Owner specifying such default and requiring such default
to be remedied; provided that such event shall not be an Event of Default
if (i) such default is of a nature that it cannot be completely remedied
with reasonable and diligent efforts within such thirty (30) day period,
but is capable of being remedied within an additional ninety (90) days and
(ii) Agent shall have instituted and thereafter diligently and continuously
prosecuted to completion all steps necessary to remedy such default and
such default is in fact remedied within an additional 90 days and (iii) the
continuance of such default will not place the Owner or any Assignee in any
danger of civil liability for which the Owner or any Assignee is not
adequately indemnified (the Agent's obligations under Section 12 of this
Agreement shall be deemed to be adequate indemnification if no other Event
of Default exists hereunder or if such civil liability is reasonably likely
to be less then $5,000,000) or subject the Owner or any Assignee to any
criminal liability as a result of such default; and further provided, that
an Event of Unit Termination shall not constitute an Event of Default
hereunder.
(f) GUARANTOR. Any representation or warranty made by Guarantor in
the Guarantee proves to be false or inaccurate in any material respect when
made or deemed made or the Guarantor defaults in the performance of any
obligation or covenant contained in the Guarantee.
(g) GUARANTEE. Guarantor defaults in any obligation under the
Guarantee which default continues after the period of any grace period
granted to the Agent hereunder in respect of such guaranteed obligation, or
Guarantor defaults in its obligations set forth in Section 11 of the
Guarantee and such default continues for twenty (20) Business Days after
notice thereof by Owner to Guarantor.
(h) DEFAULT UNDER LEASE. An Event of Default (as defined in the
Lease) shall occur under the Lease.
(i) PAYMENT OF OBLIGATIONS. A default or event of default, the
effect of which is to permit the holder or holders of any indebtedness
(including, without limitation, lease obligations which are shown on the
balance sheet of Agent or Guarantor or which relate to sale-leaseback
transactions), or a trustee or agent on behalf of such holder or holders,
to cause such indebtedness to become due prior to its stated maturity,
shall occur under the provisions of any agreement pursuant to which such
indebtedness was created or any instrument evidencing such indebtedness of
Agent or Guarantor in excess of $20,000,000 in the aggregate or any
obligation of Agent or Guarantor for the payment of such indebtedness shall
(A) become or be declared to be due and payable prior to its stated
maturity and shall not be paid when due, or (B) not be paid when due.
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(j) NEGATIVE COVENANTS. Agent shall default in the performance or
observance of any agreement, covenant or condition contained in Section 10
hereof.
(k) JUDGMENT DEFAULTS. Final judgment or judgments for the payment
of money in excess of $10,000,000 in the aggregate shall be rendered
against Agent or Guarantor by any U.S. Federal or state court and the same
shall remain undischarged for a period of thirty (30) days during which
execution of such judgments shall not be effectively stayed.
3 OWNER'S RIGHTS UPON AN EVENT OF DEFAULT. Upon the occurrence
and continuation of any Event of Default Owner may do any one or more of the
following:
(a) Terminate this Agreement and/or Owner's obligations to make any
further advances hereunder;
(b) To the extent permitted by applicable law, take immediate
possession of any Unit Premises, Unit Improvements, Unit FF&E, and Unit
with respect to which Owner has made an Initial Advance and remove any
equipment or property of Owner in the possession of Agent, wherever
situated, and for such purpose, enter upon any such Unit Premises, Unit
Improvements or Unit without liability to Agent for so doing;
(c) Whether or not any action has been taken under (a) above, sell
any Unit Premises, Unit Improvements, Unit FF&E, or Unit (with or without
the concurrence or request of Agent) at public or private sale (judicially
or non-judicially), pursuant to such notices and procedures as may be
required by law, to the extent such requirements are not effectively waived
by Agent hereunder; provided that the disposition of any Unit Premises,
Unit Improvements, Unit FF&E, or Unit shall take place in a commercially
reasonable manner;
(d) Hold, use, occupy, operate, remove, lease, sublease or keep idle
any Unit Premises, Unit Improvements, Unit FF&E, or Unit as Owner in its
sole discretion may determine, without any duty to account to Agent with
respect to any such action or inaction or for any proceeds thereof, except
as may be expressly set forth herein; and
(e) Exercise any other right or remedy which may be available under
applicable law and in general proceed by appropriate judicial proceedings,
either at law or in equity, to enforce the terms hereof or to recover
damages for the breach hereof.
Suit or suits for the recovery of any default in the payment of any
sum due hereunder or for damages may be brought by Owner from time to time at
Owner's election, and nothing herein contained shall be deemed to require Owner
to await the date whereon this
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Agreement or the term hereof would have expired by limitation had there been no
such default by Agent or no such termination or cancellation.
The receipt of any payments under this Agreement by Owner with
knowledge of any breach of this Agreement by Agent or of any default by Agent in
the performance of any of the terms, covenants or conditions of this Agreement,
shall not be deemed to be a waiver of any provision of this Agreement.
No receipt of moneys by Owner from Agent after the termination or
cancellation hereof in any lawful manner shall reinstate or continue this
Agreement, or operate as a waiver of the right of Owner to recover possession of
any Unit Premises, Unit Improvements, Unit FF&E, or Unit by proper suit, action,
proceedings or remedy or operate as a waiver of the right to receive any and all
amounts owing by Agent to or on behalf of Owner hereunder; it being agreed that,
after the service of notice to terminate or cancel this Agreement, and the
expiration of the time therein specified, if the default has not been cured in
the meantime, or after the commencement of suit, action or summary proceedings
or of any other remedy, or after a final order, warrant or judgment for the
possession of any Unit Premises, Unit Improvements, Unit FF&E, or Unit, Owner
may demand, receive and collect any moneys payable hereunder, without in any
manner affecting such notice, proceedings, suit, action, order, warrant or
judgment; and any and all such moneys so collected shall be deemed to be
payments on account for the use, operation and occupation of the Unit Premises,
Unit Improvements, Unit FF&E, or Unit, or at the election of Owner, on account
of Agent's liability hereunder.
After any Event of Default, Agent shall be liable for, and Owner may
recover from Agent, (i) all of Owner's obligations, costs and expenses incurred
in connection with its obligations under this Agreement and for which Owner may
demand reimbursement pursuant to subsection 9.5 hereof, (ii) all amounts payable
pursuant to subsection 11.4 and Section 12 hereof and (iii) all losses, damages,
costs and expenses (including, without limitation, attorneys' fees and expenses,
commissions, filing fees and sales or transfer taxes) sustained by Owner by
reason of such Event of Default and the exercise of Owner's remedies with
respect thereto, including, in the event of a sale by Owner of any Unit
Premises, Unit Improvements, Unit FF&E or Unit pursuant to this subsection 11.2,
all costs and expenses associated with such sale. The amounts payable in
clauses (i) through (iii) above are hereinafter sometimes referred to as the
"Accrued Default Obligations". Accrued Default Obligations, as used in this
paragraph, shall not include any damages for loss of opportunity or profits
arising from the prospective use, operation and occupancy by parties other than
Agent of any Unit or from alternate investments foregone by Owner in acquiring
the Unit or the anticipated receipt of income therefrom, in each case,
subsequent to Agent's possession of such Unit after the Lease Term.
After an Event of Default, Owner may sell its interest in any Unit
Premises, Unit Improvements, Unit FF&E, and Unit to any non-affiliate of Owner
upon any terms that Owner
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THIS AGREEMENT FOR
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deems satisfactory, free of any rights of Agent or any Person claiming through
or under Agent. In the event of any such sale, in addition to the Accrued
Default Obligations, Owner shall be entitled to recover from Agent, as
liquidated damages, and not as a penalty, an amount equal to the Unit
Acquisition Cost of any Unit Premises, Unit Improvements, Unit FF&E or Unit so
sold, minus the proceeds of such sale received by Owner. Proceeds of sale
received by Owner in excess of the Unit Acquisition Cost of such Unit Premises,
Unit Improvements, Unit FF&E or Unit sold shall be credited against the Accrued
Default Obligations Agent is required to pay under this subsection 11.2. If such
proceeds exceed the Accrued Default Obligations, or, if Agent has paid all
amounts required to be paid under this subsection 11.2, such excess shall be
paid by Owner to Agent. As an alternative to any such sale, or if Agent converts
any Unit Premises, Unit Improvements, Unit FF&E or Unit after an Event of
Default, or if such Unit Premises, Unit Improvements, Unit FF&E or Unit is lost
or destroyed, in addition to the Accrued Default Obligations, Owner may cause
such Agent to pay to Owner, and Agent shall pay to Owner, as liquidated damages
and not as a penalty, and as consideration for the transfer of Owner's interest
in the applicable Unit Premises, Unit Improvements, Unit FF&E or Unit, an amount
equal to the Unit Acquisition Cost of such Unit Premises, Unit Improvements,
Unit FF&E or Unit. In the event Owner receives payment pursuant to the previous
sentence of this paragraph, Owner shall transfer all of Owner's right, title and
interest in and to the Unit Premises, Unit Improvements, Unit FF&E and Unit to
Agent.
In the event of a sale pursuant to this subsection 11.2, upon receipt
by Owner of the amounts payable hereunder, Owner shall transfer all of Owner's
right, title and interest in and to the Unit Premises, Unit Improvements, Unit
FF&E and Unit to Agent or a purchaser other than Agent, as the case may be.
No remedy referred to in this subsection 11.2 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Owner at law or in equity, and the
exercise in whole or in part by Owner of any one or more of such remedies shall
not preclude the simultaneous or later exercise by Owner of any or all such
other remedies. No waiver by Owner of any Event of Default hereunder shall in
any way be, or be construed to be, a waiver of any future or subsequent Event of
Default.
With respect to the termination of this Agreement as to any Unit
Premises, Unit Improvements, Unit FF&E, or Unit as a result of an Event of
Default, Agent hereby waives service of any notice of intention to re-enter.
Agent hereby waives any and all rights to recover or regain possession of any
Unit Premises, Unit Improvements, Unit FF&E, or Unit or to reinstate this
Agreement as permitted or provided by or under any statute, law or decision now
or hereafter in force and effect.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-41-
4 EVENTS OF UNIT TERMINATION. The occurrence of any of the
following shall constitute an Event of Unit Termination with respect to a Unit:
(a) UNSATISFACTORY TITLE. If at any time title to any Unit Premises,
Unit Improvements or Unit is not reasonably satisfactory to Owner by reason
of any Lien, encumbrance, or other environmental defect (even though the
same may have existed at the time of any prior advance), except for
Permitted Liens, and such Lien, encumbrance or other defect is not
corrected by bonding, deposit or payment within thirty (30) days after
notice to Agent.
(b) DAMAGE OR DESTRUCTION. If any Unit Improvements are partially or
totally damaged or destroyed by fire or any other cause and the restoration
thereof cannot reasonably be expected to be completed so that the Unit
Improvements will be completed on or before the applicable Unit Completion
Date. Agent hereby expressly waives the benefits of Sections 1932 and 1933
of the California Civil Code.
(c) CESSATION OF CONSTRUCTION. If there is any cessation of
construction of the Unit Improvements for any period after the date
construction shall commence in excess of sixty (60) successive calendar
days, unless the conditions of each of subparagraphs (1) and (2) hereof
shall have been satisfied:
(1) the cessation of construction shall have been caused by
Force Majeure Delay; or
(2) from time to time upon Owner's reasonable request therefor
during any such cessation of construction, Agent shall furnish to
Owner reasonably satisfactory evidence that (notwithstanding such
cessation of construction) the completion of the Unit Improvements can
be accomplished on or before the respective Unit Completion Date
(subject to extension permitted in the case of Force Majeure Delay)
and within the Unit Budget.
(d) NONCONFORMING WORK. If the construction of the Unit
Improvements, or any part thereof, is made in a manner other than as herein
provided or any materials, fixtures or articles are not in accordance with
the Unit Plans and Agent fails to proceed diligently to correct such
nonconforming work in a reasonably prompt and satisfactory fashion after
notice and demand by Owner, or if Agent shall fail to proceed diligently to
correct any structural defect in the Unit Improvements in a reasonably
prompt and satisfactory fashion after notice and demand by Owner.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-42-
(e) NON-COMPLIANCE WITH CERTAIN LEGAL REQUIREMENTS. If Agent fails
to comply with any Legal Requirement relating solely to such Unit Premises,
Unit Improvements, Unit FF&E or Unit, the non-compliance with which,
individually or in the aggregate would subject the Owner or any Assignee to
any criminal liability as a result of failure to comply therewith.
(f) FAILURE TO COMPLETE. If as of the close of business on a Unit
Completion Date, the related Unit Improvements have not been completed as
herein provided, or if the Certificate of Substantial Completion and AFL
Unit Leasing Record have not been executed and delivered by the respective
Unit Completion Date, or if Owner shall reasonably determine during the
course of construction that the Unit Improvements cannot be completed by
the Unit Completion Date, in either case subject to Force Majeure Delay.
(g) PERMITS. If Agent shall fail to obtain or be unable to obtain
any Permit, or if any Permit shall be revoked or otherwise cease to be in
full force and effect unless, Agent shall have obtained reinstatement or
reissuance of such Permit within thirty (30) days after the revocation or
expiration thereof, or if such reinstatement or reissuance is of a nature
that it cannot be completely effected within thirty (30) days, Agent shall
have diligently commenced application for such reinstatement or reissuance
and shall thereafter be diligently proceeding to complete said
reinstatement or reissuance.
(h) DEFAULT UNDER GROUND LEASE. Agent shall default in the
observance or performance of any material term, covenant or condition of
the Ground Lease relating to such Unit Premises on the part of Owner, as
tenant thereunder, to be observed or performed, unless any such observance
or performance shall have been waived or not required by the landlord under
such Ground Lease or is within a grace period provided for in such Ground
Lease, or if any one or more of the events referred to in such Ground Lease
shall occur which would cause such Ground Lease to terminate without notice
or action by the landlord thereunder or which would entitle the landlord
under such Ground Lease to terminate such Ground Lease and the term thereof
by the giving of notice to Owner without opportunity to cure, as tenant
thereunder, or if any Ground Lease shall be terminated or canceled for any
reason or under any circumstance whatsoever (other than action by Owner,
but not other than action by Agent on behalf of Owner).
(i) MATERIAL ADVERSE CHANGE. A material adverse change in the
financial condition or business of Agent and Guarantor, taken as a whole,
shall occur prior to the making of the Final Advance.
(j) TAKINGS. If the use, occupancy or title to any Unit is taken,
requisitioned or sold in, by or on account of actual or threatened eminent
domain proceedings or other
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-43-
action by any Person or authority having the power of eminent domain (such
events collectively referred to as a "Taking") and such Taking relates to
all or a substantial portion of a Unit. Upon receipt of proceeds from any
award or sale made in connection with such Taking, so long as no Event of
Default or Potential Default has occurred and is continuing, and so long as
Agent has made all payments to Owner required under subsection 11.4 hereof,
Owner shall remit to Agent the net amount of such proceeds remaining after
reimbursement for all costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by Owner in connection with the
negotiation and settlement of any proceedings related to such Taking;
provided that, if such net proceeds shall exceed $2,000,000 the proceeds
shall be retained by Owner and utilized to reduce the amount of its
financing. If such proceeds are received prior to Agent making the
payments required under subsection 11.4 hereof, or if such net proceeds
shall exceed $2,000,000, the net proceeds shall be applied to the amount
payable thereunder. A Taking shall be deemed of "all or a substantial
portion" of a Unit if after such Taking a Unit is, or will be, unusable for
Agent's ordinary business purposes. Provided that no Event of Default
shall have occurred and be continuing, Agent may conclusively establish
that a Taking is of "all or a substantial portion" of a Unit by so
notifying the Owner and any Assignee in writing. Agent hereby expressly
waives the benefits of Section 1265.130 of the California Code of Civil
Procedure.
(k) INSUFFICIENT AVAILABLE COMMITMENT. If Owner shall reasonably
determine that the Available Commitment is not, or will not be, sufficient
to allow Owner to make advances for completion of the Unit Improvements and
acquisition and installation of Unit FF&E in accordance with the Unit
Budget; provided that if Owner shall make such determination it shall give
Agent written notice thereof and such event shall not be an Event of Unit
Termination if the amount of such insufficiency shall be equal to or less
than the amount of incomplete leasehold improvements and if Agent shall
within ten (10) days of such notice enter into a written agreement with
Owner in form reasonably acceptable to the Owner and any Assignee to pay
for the completion of such portion of the incomplete leasehold
improvements, in accordance with the Unit Plans and without seeking
advances hereunder to reimburse such payments and acknowledging that,
notwithstanding such payments, such leasehold improvements would be owned
by Owner.
5 OWNER'S RIGHTS UPON EVENT OF UNIT TERMINATION. If any Event of
Unit Termination with respect to a Unit shall occur, Owner shall have no further
obligation to make advances to Agent with respect to such Unit, and Owner may,
as liquidated damages and not as a penalty and as consideration for the transfer
of the applicable Unit, require Agent to purchase, such Unit within fifteen (15)
days after notice by Owner, and if Agent has notified Owner of a Taking in
respect of a Unit as permitted by the last sentence of paragraph (j) of Section
11.3, Agent shall have the right and obligation to purchase such Unit within
thirty (30) days of such
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-44-
notice by Agent, in any such case at a price equal to the Unit Acquisition Cost
for such Unit. At the time of such sale, Agent shall be required to pay to
Owner Owner's obligations, costs, losses, damages, and expenses (including,
without limitation, reasonable attorneys' fees and expenses) sustained by Owner
by reason of such Event of Unit Termination and exercise of Owner's rights under
this subsection 11.4.
12. INDEMNITIES
(a) Agent shall indemnify and hold harmless Owner, Merrill, Merrill
Lynch, Merrill Leasing, any Assignee, any successor or successors and any
Affiliate of each of them, and their respective officers, directors,
incorporators, shareholders, partners (general and limited, including, without
limitation, the general and limited partners of Owner), employees, agents and
servants (each of the foregoing an "Indemnified Person") from and against all
liabilities (including, without limitation, strict liability in tort and
environmental law), taxes (to the extent provided in subparagraph (ii) below),
losses, obligations, claims (including, without limitation, strict liability in
tort), damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses) or judgments of any nature relating to or in any way arising out of:
(i) The ordering, delivery, acquisition, construction, title on
acquisition, rejection, installation, possession, titling, retitling,
registration, reregistration, custody by Agent of title and
registration documents, ownership, use, non-use, misuse, financing,
lease, sublease, operation, transportation, repair, control or
disposition of any Unit Premises, Unit Improvements, item of Unit
FF&E, or Unit, or the past, present or future presence or release of
hazardous substances on, under, to or from, or the generation on or
transportation of hazardous substances to or from, any Unit Premises
or the failure to report, disclose or remediate the same; and
(ii) Any of the claims, demands, fees, taxes, violations of
contract, or any other matter or situation described in or
contemplated by the indemnification provisions of subparagraphs (b),
(c) and (d) of Section 11 of the Lease and subject to the same
exclusions set forth therein or elsewhere in Section 11 of the Lease,
except that this Agreement shall substitute the terms "Owner" for "the
Lessor", "Agent" for "the Lessee", "this Agreement" for "this Lease",
and shall substitute the phrase "Unit Premises, Unit Improvements,
Unit FF&E or Unit" for the phrase "Property or Equipment" and for the
word "Property".
(b) The indemnification required under this Section 12 shall be upon
the terms provided in the paragraphs of Section 11 of the Lease following
paragraph (d) thereof, except
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-45-
that this Agreement shall substitute the terms in the same manner as described
in subparagraph (a)(ii) above.
13. LEASEHOLD INTERESTS
The provisions of Section 29 of the Lease shall govern each Ground
Lease hereunder, except this Agreement shall substitute the terms "Owner" for
"the Lessor", "Agent" for "the Lessee", "Unit Premises, Unit Improvements, Unit
FF&E and Unit" for "Parcel of Property" and "Section 13" for "Section 29".
14. PURCHASES
In connection with, and as a condition to, the purchase of any Unit
Premises, Unit Improvements, Unit FF&E, or Unit pursuant hereto, (i) Agent shall
pay at the time of purchase, in addition to the Unit Acquisition Cost and all
other amounts payable by Agent under this Agreement, all transfer taxes,
transfer gains taxes, mortgage recording tax, if any, recording and filing fees
and all other similar taxes, fees, expenses and closing costs (including
reasonable attorneys' fees) in connection with the conveyance of such Unit
Premises, Unit Improvements, Unit FF&E, or Unit to Agent and all other amounts
owing hereunder, and (ii) when Owner transfers title, such transfer shall be on
an as-is, non-installment sale basis, without warranty by, or recourse to,
Owner, but free of the Lien created pursuant to a Credit Agreement.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-46-
15. OWNER'S RIGHT TO TERMINATE
(a) Owner shall have the right, upon written notice to Agent, to
terminate this Agreement with respect to each and every Unit Premises, Unit
Improvements, Unit FF&E, or Unit for which an AFL Unit Leasing Record has not
been executed by Owner and the Effective Date occurred as of the date stipulated
in such notice if, (i) at any time, for any reason (other than an Event of
Default by the Lessor under a Credit Agreement (as therein defined), which has
not been caused by or resulted from an Event of Default under this Agreement or
an Event of Default (as defined in the Lease) under the Lease or by a breach by
Agent of its obligations under any agreement or document executed and delivered
in connection with this Agreement or the Lease), Commercial Paper (as defined in
the Lease) cannot be issued by Owner upon terms reasonably acceptable to Owner,
Owner cannot arrange for bank borrowings to finance or refinance its obligations
hereunder with respect to such Unit Premises, Unit Improvements, Unit FF&E or
Unit upon terms reasonably acceptable to Owner, and Owner may no longer make or
continue borrowings under a Credit Agreement sufficient to finance or refinance
such obligations, (ii) at any time, for any reason (other than an Event of
Default by Owner under a Credit Agreement (as therein defined) which has not
been caused by or resulted from an Event of Default under this Agreement or from
a breach by Agent of its obligations under any agreement or document executed
and delivered in connection with this Agreement), a limited partner or partners
of Owner cannot arrange for borrowings from the bank or banks acting as lender
under a Credit Agreement in an amount equal to such limited partners' limited
partnership interest or interests in Owner or (iii) such bank or banks which
shall act as lender to a limited partner or partners of the Owner shall make a
material change in the terms of any such lending arrangement a condition
precedent to the extension of such lending arrangement without a corresponding
change being effected under the Credit Agreement to which such lender is a
party.
(b) In the event of a termination with respect to any Unit Premises,
Unit Improvements, Unit FF&E, or Unit pursuant to paragraph (a) of this Section
15, Agent shall be required to purchase, on the date stipulated in the written
notice contemplated by paragraph (a) of this Section 15, such Unit or any Unit
Premises, Unit Improvements or Unit FF&E constituting a part of such Unit as
identified by Owner in such notice, for cash at its or their Unit Acquisition
Cost.
16. PERMITTED CONTESTS
(a) Agent shall not be required, nor shall Owner have the right, to
pay, discharge or remove any tax, assessment, levy, fee, rent, charge, Lien or
encumbrance, or to comply or cause any Unit Premises, Unit Improvements, item of
Unit FF&E, or Unit to comply with any Legal Requirement applicable to any Unit
Premises, Unit Improvements, item of Unit FF&E, or Unit or the occupancy, use or
operation thereof, so long as no Event of Default exists
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-47-
under this Agreement, and, in the opinion of Agent's counsel, Agent shall have
reasonable grounds to contest the existence, amount, applicability or validity
thereof by appropriate proceedings, which proceedings in the reasonable judgment
of Owner, (i) shall not involve any material danger that any Unit Premises, Unit
Improvements, item of Unit FF&E, or Unit would be subject to sale, forfeiture or
loss, as a result of failure to comply therewith, (ii) shall not affect the
payment of any sums due and payable hereunder or result in any such sums being
payable to any Person other than Owner or any Assignee, (iii) will not place
Owner or any Assignee in any danger of civil liability which is not adequately
indemnified (Agent's obligations under Section 12 of this Agreement shall be
deemed to be adequate indemnification if no Event of Default exists) or to any
criminal liability, (iv) if involving taxes, shall suspend the collection of the
taxes, and (v) shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Agent or any Unit Premises, Unit
Improvements, item of Unit FF&E, or Unit is subject and shall not constitute a
default thereunder (the "Permitted Contest"). Agent shall conduct all Permitted
Contests in good faith and with due diligence and shall promptly after the final
determination (including appeals) of any Permitted Contest, pay and discharge
all amounts which shall be determined to be payable therein. Owner shall
cooperate in good faith with Agent with respect to all Permitted Contests
conducted by Agent pursuant to this Section 16.
(b) In the event Owner deems, in its sole discretion, that its
interests under this Agreement or in any Unit Premises, Unit Improvements, item
of Unit FF&E or Unit are not adequately protected in connection with a Permitted
Contest brought by Agent under this Section 16 as a result of concerns related
to the financial condition of the Guarantor, Agent shall give such reasonable
security, as may be demanded by Owner to insure payment of such tax, assessment,
levy, fee, rent, charge or Lien and compliance with any Legal Requirement and to
prevent any sale or forfeiture of any Unit Premises, Unit Improvements, item of
Unit FF&E, or Unit or any other amount due by reason of such nonpayment or
noncompliance. Agent hereby agrees that Owner may assign such security provided
by Agent to any Assignee.
(c) At least ten (10) days prior to the commencement of any Permitted
Contest, Agent shall notify Owner in writing thereof if the amount in contest
exceeds $100,000, and shall describe such proceeding in reasonable detail. In
the event that a taxing authority or subdivision thereof proposes an additional
assessment or levy of any tax for which Agent is obligated to reimburse Owner
under this Agreement, or in the event that Owner is notified of the commencement
of an audit or similar proceeding which could result in such an additional
assessment, then Owner shall in a timely manner notify Agent in writing of such
proposed levy or proceeding.
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
-48-
17. SALE OR ASSIGNMENT BY OWNER
(a) Except as otherwise expressly provided in this Section, Owner
shall not assign, convey or otherwise transfer any of its right, title and
interest in, to and under this Agreement. Owner shall have the right to obtain
equity and debt financing for the acquisition and ownership of any Unit
Premises, Unit Improvements, Unit FF&E, and Unit by mortgaging or assigning or
granting a lien on or security interest in its right, title and interest in any
or all amounts due from Agent or any third Person under this Agreement or in the
foregoing assets; provided, that any such mortgage, assignment or grant shall be
subject to the rights and interests of Agent under this Agreement.
(b) Any Assignee shall, except as otherwise agreed by Owner and
Assignee, have all the rights, powers, privileges and remedies of Owner
hereunder, and Agent's obligations as between itself and such Assignee hereunder
shall not be subject to any claims or defense that Agent may have against Owner.
Upon written notice to Agent of any such assignment, Agent shall thereafter make
payments of any and all sums due hereunder to Assignee, to the extent specified
in such notice, and such payments shall discharge the obligation of Agent to
Owner hereunder to the extent of such payments. Anything contained herein to
the contrary notwithstanding, no Assignee shall be obligated to perform any
duty, covenant or condition required to be performed by Owner hereunder, and any
such duty, covenant or condition shall be and remain the sole obligation of
Owner.
18. GENERAL CONDITIONS
The following conditions shall be applicable throughout the term of
this Agreement:
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
2 SURVIVAL. All indemnities, representations and warranties, and the
obligation to pay Additional Rent (as defined in the Lease) shall survive the
expiration or other termination hereof.
3 NO WAIVERS. No advance hereunder shall constitute a waiver of
any provision hereof, including, without limitation, of any of the conditions of
Owner's obligation to make further advances nor, in the event Agent is unable to
satisfy any such condition, shall any waiver of such condition have the effect
of precluding Owner from thereafter declaring such inability to be an Event of
Default as herein provided. Any advance made by Owner and any sums expended by
Owner pursuant to this Agreement shall be deemed to have been made pursuant to
this Agreement, notwithstanding the existence of an uncured Event of Default.
No advance at a time when an Event of Default exists shall constitute a waiver
of any right or remedy of Owner existing by reason of such Event of Default,
including, without limitation, the right to refuse to make further advances.
4 OWNER AND ASSIGNEE SOLE BENEFICIARIES. All conditions of the
obligation of Owner to make advances hereunder are imposed solely and
exclusively for the benefit of Owner and Assignee and their assigns and no other
Person shall have standing to require satisfaction of such conditions in
accordance with their terms or be entitled to assume that Owner will refuse to
make advances in the absence of strict compliance with any or all thereof and no
other Person shall, under any circumstances, be deemed to be a beneficiary of
such conditions, any or all of which may be freely waived in whole or in part by
Owner, with the consent of Assignee, at any time if in its sole discretion, it
deems it advisable to do so. Inspections and approvals of any Unit Plans, Unit
Premises, Unit Improvements, Unit FF&E, and Unit and the workmanship and
materials used therein impose no responsibility or liability of any nature
whatsoever on Owner, and no Person shall, under any circumstances, be entitled
to rely upon such inspections and approvals by Owner for any reason. Owner's
sole obligation hereunder is to make the advances if and to the extent required
by this Agreement.
5 NO OFFSETS, ETC. The obligations of Agent to pay all amounts
payable pursuant to this Agreement and to purchase a Unit hereunder shall be
absolute and unconditional under any and all circumstances of any character, and
such amounts shall be paid without notice, demand, defense, setoff, deduction or
counterclaim and without abatement, suspension, deferment, diminution or
reduction of any kind whatsoever, except as herein expressly otherwise provided.
The obligation of Agent to lease or sublease and pay Basic Rent (as defined in
the Lease) for a Unit upon Substantial Completion is without any warranty or
representation, express or implied, as to any matter whatsoever on the part of
Owner or any Assignee or any Affiliate of either, or anyone acting on behalf of
any of them.
AGENT HAS SELECTED AND SHALL SELECT ALL UNIT PREMISES, UNIT
IMPROVEMENTS, UNITS AND ITEMS OF UNIT FF&E CONSTRUCTED, ACQUIRED OR ORDERED ON
THE BASIS OF ITS OWN JUDGMENT. NEITHER OWNER NOR ANY ASSIGNEE NOR ANY AFFILIATE
OF EITHER, NOR ANYONE ACTING ON BEHALF OF ANY OF THEM, MAKES ANY REPRESENTATION
OR
(i)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, AS TO THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR
USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER CHARACTERISTIC,
OF ANY UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR ITEM OF UNIT FF&E, OR AS TO
WHETHER ANY UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR ITEM OF UNIT FF&E, OR THE
OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH ANY LAWS, RULES,
REGULATIONS OR REQUIREMENTS OF ANY KIND.
AS BETWEEN OWNER AND AGENT, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON,
AGENT ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS, DEDUCTIONS,
COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, TO ITS OBLIGATION TO PAY
ALL AMOUNTS PAYABLE HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:
(A) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF ANY UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR ITEM OF UNIT
FF&E, LATENT OR NOT;
(B) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH AGENT MAY HAVE AGAINST OWNER, ANY ASSIGNEE, OR ANY INDEMNIFIED
PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER TRANSACTION OR
MATTER;
(C) ANY DEFECT IN TITLE OR OWNERSHIP OF ANY UNIT PREMISES, UNIT
IMPROVEMENTS, OR UNIT OR ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH
RESPECT TO THE UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR ITEMS OF UNIT FF&E;
(D) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR
DESTRUCTION OF, OR DAMAGE TO, ANY UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR
ITEM OF UNIT FF&E IN WHOLE OR IN PART, OR CESSATION OF THE USE OR POSSESSION OF
ANY UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR ITEM OF UNIT FF&E BY AGENT FOR
ANY REASON WHATSOEVER AND OF WHATEVER DURATION, OR ANY CONDEMNATION,
CONFISCATION, REQUISITION, SEIZURE, PURCHASE, TAKING OR FORFEITURE OF ANY UNIT
PREMISES, UNIT IMPROVEMENTS, ITEM OF UNIT FF&E OR UNIT, IN WHOLE OR IN PART;
(E) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP,
OCCUPANCY OR POSSESSION OF THE UNIT PREMISES, UNIT IMPROVEMENTS, UNIT, OR ITEMS
OF UNIT FF&E BY AGENT;
(ii)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
(F) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING
BY OR AGAINST AGENT OR OWNER OR ANY ASSIGNEE;
(G) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS; OR
(H) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT
SIMILAR TO ANY OF THE FOREGOING.
AGENT HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE
CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND
OR SURRENDER THIS AGREEMENT EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF.
The making of payments under this Agreement by Agent shall not be deemed a
waiver of any claim or claims that Agent may assert against Owner or any other
person. Owner agrees to repay Agent amounts paid to Owner to the extent such
payments were made in error and were not required by any of the terms or
provisions hereof.
6 NO RECOURSE. Owner's obligations hereunder are intended to be
the obligations of the limited partnership and of the corporation which is the
general partner thereof only and no recourse for the payment of any amount due
under this Agreement or the Construction Documents, or for any claim based
thereon or otherwise in respect thereof, shall be had against any limited
partner of Owner or any incorporator, shareholder, officer, director or
Affiliate, as such, past, present or future, of such corporate general partner
or of any corporate limited partner or of any successor corporation to such
corporate general partner or any corporate limited partner of Owner, or against
any direct or indirect parent corporation of such corporate general partner or
of any limited partner of Owner or any other subsidiary or Affiliate or any such
direct or indirect parent corporation or any incorporator, shareholder, officer
or director, as such, past, present or future, of any such parent or other
subsidiary or Affiliate, it being understood that Owner is a limited partnership
formed for the purpose of the transactions involved in and relating to this
Agreement, the Lease and the Construction Documents on the express understanding
aforesaid. Nothing contained in this subsection 18.5 shall be construed to
limit the exercise or enforcement, in accordance with the terms of this
Agreement, the Lease and the Construction Documents and any other documents
referred to herein, of rights and remedies against the limited partnership or
the corporate general partner of Owner or the assets of the limited partnership
or the corporate general partner of Owner.
7 NOTICES.
(iii)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
(a) All notices, offers, acceptances, approvals, waivers, requests,
demands and other communications hereunder or under any other instrument,
certificate or other document delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below and
shall be considered as properly given (i) if delivered in person, (ii) if sent
by express courier service (including, without limitation, Federal Express,
Emery, DHL, Airborne Express, and other similar express delivery services),
(iii) in the event overnight delivery services are not readily available, if
mailed by international airmail, postage prepaid, registered or certified with
return receipt requested, or (iv) if sent by telecopy and confirmed; provided,
that in the case of a notice by telecopy, the sender shall in addition confirm
such notice by writing sent in the manner specified in clauses (i), (ii) or
(iii) of paragraph (a) of this subsection 18.6. All notices shall be effective
upon receipt by the addressee; provided, however, that if any notice is tendered
to an addressee and the delivery thereof is refused by such addressee, such
notice shall be effective upon such tender. For the purposes of notice, the
addresses of the parties shall be as set forth below; provided, however, that
any party shall have the right to change its address for notice hereunder to any
other location by giving written notice to the other party in the manner set
forth herein. The initial addresses of the parties hereto are as follows:
If to Owner:
Virtual Funding, Limited Partnership
c/o ML Leasing Equipment Corp.
Project and Lease Finance Group
North Tower - 27th Floor
World Financial Center
250 Vesey Street
New York, New York 10281-1327
Attention: Jean M. Tomaselli
Telephone: (212) 449-7925
Telecopy: (212) 449-2854
With a copy of all notices under this subsection 18.6 to be simultaneously
given, delivered, or served to Gary Carlin at the following address:
ML Leasing Equipment Corp.
Controller's Office
World Financial Center
South Tower - 8th Floor
225 Liberty Street
New York, New York 10080-6108
(iv)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
If to Agent:
Silicon Graphics Real Estate, Inc.
2011 North Shoreline Blvd.
Mountain View, CA 94043-1389
Attention: Treasury
Telephone: (415) 960-1980
Telecopy: (415) 964-5215
With a copy to:
Silicon Graphics Real Estate, Inc.
2011 North Shoreline Blvd.
Mountain View, CA 94043-1389
Attention: Legal Services
Telephone: (415) 960-1980
Telecopy: (415) 965-1586
With a copy of all notices under this subsection 18.6 to any Assignee at such
address as such Assignee may specify by written notice to Owner and Agent.
(b) Owner shall within five (5) Business Days give to Agent a copy of
all notices received by Owner pursuant to any Credit Agreement and any other
notices received with respect to any Unit Premises, Unit Improvements, item of
Unit FF&E, or Unit.
8 MODIFICATIONS. Neither this Agreement nor any provision hereof
may be changed, waived or terminated, orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver or
termination is sought.
9 RIGHTS CUMULATIVE. All rights, powers and remedies herein given
to Owner are cumulative and not alternative, and are in addition to all statutes
or rules of law; any forbearance or delay by Owner in exercising the same shall
not be deemed to be a waiver thereof, and the exercise of any right or partial
exercise thereof shall not preclude the further exercise thereof, and the same
shall continue in full force and effect until specifically waived by an
instrument in writing executed by Owner. All representations and covenants by
Agent shall survive the making of the advances, and the provisions hereof shall
be binding upon and inure to the benefit of the respective successors and
permitted assigns, if any, of the parties hereto. Agent may not, however,
assign its rights or obligations as agent hereunder except in accordance with
Section 19 of this Agreement.
10 GOVERNING LAW AND WAIVER OF JURY TRIAL. THIS AGREEMENT HAS BEEN
EXECUTED AND DELIVERED IN THE STATE OF NEW YORK. AGENT AND OWNER AGREE THAT, TO
THE MAXIMUM EXTENT PERMITTED BY THE LAWS
(v)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
OF THE STATE OF NEW YORK, THIS AGREEMENT, AND THE RIGHTS AND DUTIES OF AGENT AND
OWNER HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTIONS
5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) IN ALL RESPECTS,
INCLUDING WITHOUT LIMITATION IN RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE. AGENT HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND ITS
PROPERTIES, TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND THE SUPREME COURT OF THE STATE OF NEW YORK IN
THE COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND
RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, AGENT HEREBY WAIVES AND
AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO
HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURT.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, AGENT AGREES NOT TO SEEK AND HEREBY
WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF
ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN
ENFORCEMENT OF SUCH JUDGMENT. AGENT AGREES THAT SERVICE OF PROCESS MAY BE MADE
UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN
THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. OWNER AND
AGENT EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
OWNER AND AGENT ACKNOWLEDGE THAT THE PROVISIONS OF THIS SUBSECTION 18.9 HAVE
BEEN BARGAINED FOR AND THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION
THEREWITH.
11 CAPTIONS. The captions in this Agreement are for convenience of
reference only, and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.
(vi)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
19. ASSIGNMENT BY AGENT.
(a) So long as no Event of Default has occurred and is continuing,
Agent may, upon thirty (30) days' prior written notice to Owner and any Assignee
and subject to the terms and conditions of this Agreement, assign all of its
rights and the performance of obligations hereunder to any Affiliate of
Guarantor (but not the Guarantor) (provided that Guarantor shall own directly or
indirectly not less than 90% of the outstanding shares of common stock of such
Affiliate) and upon such assignment be released from any liability or obligation
hereunder; provided that such assignment shall be subject to the satisfaction of
the following conditions:
(i) Owner and any Assignee shall have received a certificate of a
Responsible Officer of Guarantor certifying that Guarantor owns,
directly or indirectly, not less than 90% of the outstanding
shares of the common stock of such Affiliate.
(ii) Owner and any Assignee shall have received a Reaffirmation of
Guarantee in the form of Schedule A to the Assignment and
Assumption Agreement, together with an opinion of counsel in form
and substance reasonably satisfactory to Owner and any Assignee,
which opinion shall state, in addition to addressing matters in
respect of the Guaranty and the Guarantor, that such Affiliate's
obligations under the Lease and this Agreement are valid, binding
and enforceable according to their terms, subject to customary
exceptions.
(iii)Such Affiliate shall have executed and delivered a Consent
in form and substance reasonably satisfactory to Owner and any
Assignee.
(iv) Owner and any Assignee shall have received a certificate of a
Responsible Officer of such Affiliate to the effect set forth in
Section III of the Assignment and Assumption Agreement.
(v) Such Affiliate and Agent shall execute an Assignment and
Assumption Agreement.
(vii)
<PAGE>
THIS AGREEMENT FOR
LEASE IS CONFIDENTIAL
AND PROPRIETARY
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Virtual Funding, Limited Partnership by
Virtual Capital, Inc., its
General Partner
By _________________________
Name:
Title:
Silicon Graphics Real Estate, Inc.
By _________________________
Name:
Title:
(viii)
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT FOR LEASE
THIS AMENDMENT NO. 1 TO AGREEMENT FOR LEASE (this "Amendment") is made
as of March 15, 1995 by and between Virtual Funding, Limited Partnership, a
Delaware limited partnership ("Owner") and Silicon Graphics Real Estate, Inc., a
Delaware corporation ("Agent").
W I T N E S S E T H :
WHEREAS, Owner and Agent entered into that certain Agreement for
Lease, dated as of November 18, 1993, (the "Agreement for Lease"; capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in the Agreement for Lease) pursuant to which Owner appointed Agent to act
as agent for Owner in connection with the selection of Owner's fee and/or
leasehold interests in Unit Premises from time to time, and with the
construction of Unit Improvements and the installation of Unit FF&E thereon, if
any, and in connection with all matters related to such construction, all as
more particularly described in the Agreement for Lease;
WHEREAS, Owner, as lessor, and Agent, as lessee, entered into that
certain Lease Agreement, dated as of November 18, 1993, as amended by Amendment
No. 1 to Lease Agreement, dated as of the date hereof (collectively, and as the
same may hereafter be further amended, modified, supplemented or restated, being
the "Lease"), pursuant to which Owner agreed to lease or sublease to Agent, from
time to time, Property and Equipment (as such terms are defined in the Lease),
all as more particularly described in the Lease; and
WHEREAS, Owner and Agent desire to amend the Agreement for Lease in
connection with the acquisition by Owner of a leasehold interest in the North
Charleston Unit (as hereinafter defined), the construction by Owner of certain
Unit Improvements and the installation by Owner of certain Unit FF&E thereon.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Owner and Agent hereby agree as follows:
Section 1. AMENDMENTS TO AGREEMENT FOR LEASE. From and after the
Amendment Effective Date (as hereinafter defined), the Agreement for Lease shall
be and hereby is amended as follows:
(a) AMENDED DEFINITIONS. (i) The definition of "Assignee" in
Section 1.1 of the Agreement for Lease is hereby deleted in its entirety and the
following substituted therefor:
<PAGE>
2
"ASSIGNEE: Each Person to which any part of Owner's interest under
this Agreement or in the Unit Premises and related Unit Improvements or any
item of Unit FF&E shall at the time have been assigned, conditionally or
otherwise, by Owner in accordance with Section 17 of this Agreement. For
purposes of subsection 8.5, subsection 9.6, Section 12 and clause (iii) of
paragraph (a) of Section 16 hereof, the term "Assignee" shall include each
lender to Owner or each Person providing credit support to Owner pursuant
to a Credit Agreement."
(ii) The definition of "Design Development Drawings" in Section 1.1.
of the Agreement for Lease is hereby amended by adding the following language to
the end thereof:
"Design Development Drawings shall mean with respect to the North
Charleston Unit the design development drawings approved in writing by
Owner and any Assignee at the date of the initial Acquisition Certificate
relating to the North Charleston Unit."
(iii) The definition of "Ground Lease" in Section 1.1. of the
Agreement for Lease is hereby amended by adding the following language to the
end thereof:
"With respect to the Unit Premises for the North Charleston Unit,
Owner acknowledges and agrees that for purposes of this Agreement and the
Lease the Ground Lease for such Unit Premises shall consist of the Ground
Sublease Agreement, dated as of March 15, 1995, between Agent and Owner, a
copy of which is attached hereto as Exhibit L, and Owner further
acknowledges and agrees that such Ground Sublease Agreement, subject to
Agent's compliance with the covenants set forth in Section 2(b) thereof,
shall be deemed to be a Mortgageable Ground Lease for purposes of this
Agreement and the Lease."
(iv) The definition of "Unit Completion Date" in Section 1.1 of the
Agreement for Lease is hereby amended by adding the following language to the
end thereof:
"With respect to the North Charleston Unit and all NC Sub-Units,
thirty-six (36) months from the date on which the Initial Advance for the
North Charleston Unit is made by Owner to Agent pursuant to Section 4
hereof."
(b) NEW DEFINITIONS. The following definitions are hereby added to
Section 1.1 of the Agreement for Lease:
"NORTH CHARLESTON UNIT: The Unit located on North Charleston Road,
Mountain View, California; provided, however, that upon the designation of
a portion or portions of the North Charleston Unit as NC Sub-Units in
accordance with Section 20 hereof, references in this Agreement to the
North Charleston Unit shall be deemed to refer to the North Charleston Unit
and the applicable NC Sub-Units, as the context so indicates.
<PAGE>
3
NC SUB-UNIT: Defined pursuant to Section 20 hereof.
SUB-UNIT CERTIFICATE: The written certification of Agent to be
delivered to Owner in connection with the creation of an NC Sub-Unit
pursuant to Section 20 hereof, and which is substantially in the form of
Exhibit M hereto."
(c) AMENDMENT TO SECTION 1.2 OF THE AGREEMENT FOR LEASE.
Subsection 1.2(a) of the Agreement for Lease is hereby amended by the deletion
of the term "Assignee" from the list set forth therein.
(d) AMENDMENT TO SECTION 2 OF THE AGREEMENT FOR LEASE. The
following sentence is hereby added as a new second sentence to Section 2.2 of
the Agreement for Lease:
"Owner and Agent agree that with respect to the North Charleston Unit and
all NC Sub-Units (x) the maximum aggregate cost to Owner for the
acquisition of such Unit Premises and the construction of Unit Improvements
thereon and the installation of all Unit FF&E therein shall be no more
than $110,000,000 and (y) the cost to Owner of the Unit FF&E constituting
personal property and not fixtures shall be no more than $1,000,000."
(e) AMENDMENT TO SECTION 4 OF THE AGREEMENT FOR LEASE. Paragraph
(u) of Section 4 of the Agreement for Lease is hereby deleted in its entirety
and the following paragraph substituted therefor:
"(u) ENVIRONMENTAL CERTIFICATE AND REPORT. An environmental
certificate in the form of Exhibit H hereto, duly executed by Agent, and an
environmental report certified to Owner and any Assignee and satisfactory
to Owner and any Assignee in all respects, prepared by a reputable
environmental consulting or environmental engineering firm acceptable to
Owner and any Assignee which addresses the matters set forth on Exhibit I
hereto; provided that with respect to the North Shoreline Unit the Owner
acknowledges receipt of an environmental report satisfying such requirement
and agrees that the foregoing requirement for an environmental certificate
shall be met by a certificate dated as of the date of the Acquisition
Certificate pertaining to such Unit to the effect set forth in the
certificate provided previously with respect to such location, dated July
1, 1993, attached hereto as Exhibit J; provided, further, that with respect
to the North Charleston Unit, the Owner acknowledges receipt of an
environmental report satisfying such requirement and agrees that the
foregoing requirement for an environmental certificate shall be met by a
certificate dated as of the date of the initial Acquisition Certificate
pertaining to the North Charleston Unit in the form attached hereto as
Exhibit N. If Owner or any Assignee shall reasonably require additional
assurance in connection with any Initial Advance as to any matter or
matters contained or not adequately addressed in such environmental report
in respect of Unit Premises other than the North
<PAGE>
4
Shoreline Unit, the North Charleston Unit or any NC Sub-Unit, Owner or any
Assignee may require that a supplemental or additional environmental report
with respect to such matter or matters, satisfactory to Owner and any
Assignee in all respects, be delivered."
(f) AMENDMENT TO SECTION 8 OF THE AGREEMENT FOR LEASE. The last
sentence of Section 8.1 of the Agreement for Lease is hereby deleted in its
entirety and the following substituted therefor:
"SGREI-CA was merged into Agent on March 31, 1994, whereupon Agent by
operation of law succeeded to all of SGREI-CA's rights and obligations."
(g) AMENDMENTS TO SECTION 11.1 OF THE AGREEMENT FOR LEASE. (i)
Paragraph (g) of Section 11.1 of the Agreement for Lease is hereby deleted in
its entirety and the following substituted therefor:
"(g) GUARANTEE. Guarantor defaults in any obligation under the
Guarantee which default continues after the period of any grace period
granted to the Agent hereunder in respect of such guaranteed obligation; or
Guarantor defaults in its obligations set forth in paragraph (a), (b) or
(c) of Section 11 of the Guarantee and such default continues for twenty
(20) Business Days after notice thereof by Owner to Guarantor; or Guarantor
defaults in its obligations set forth in paragraph (d), (e) or (f) of
Section 11 of the Guarantee and such default continues for ten (10)
Business Days after notice thereof by Owner to Guarantor."
(ii) Paragraph (i) of Section 11.1 of the Agreement for Lease is
hereby deleted in its entirety and the following substituted therefor:
"(i) PAYMENT OF OBLIGATIONS. Any indebtedness (including, without
limitation, lease obligations which are shown on the balance sheet of Agent
or Guarantor or which relate to sale-leaseback transactions) of Agent or
Guarantor in excess of $15,000,000 in the aggregate under an instrument or
agreement evidencing indebtedness in excess of $15,000,000 in the aggregate
(A) shall become or be declared to be due and payable prior to its stated
maturity and shall not be paid when due or (B) shall not be paid when due."
(h) AMENDMENT TO SECTION 11.3 OF THE AGREEMENT FOR LEASE. The
preamble of the first sentence of Section 11.3(c) of the Agreement for Lease is
hereby deleted in its entirety and the following substituted therefor :
"If there is any cessation of construction of the Unit Improvements for any
period after the date construction shall commence in excess of sixty (60)
successive calendar days (or, with respect to the North Charleston Unit or
any NC Sub-Unit, in excess of ninety (90)
<PAGE>
5
successive calendar days), unless the conditions of each of subparagraphs
(1) and (2) hereof shall have been satisfied:"
(i) NEW SECTION 20 OF THE AGREEMENT FOR LEASE. The following
Section 20 is hereby added to the Agreement for Lease following Section 19
thereof:
"SECTION 20. SPLITTING OF THE NORTH CHARLESTON UNIT. (a) Agent
may, subject to the satisfaction of the conditions set forth in this
Section 20, elect, from time to time, to redesignate a portion or portions
of the North Charleston Unit as one or more separate and distinct Units
(each an "NC Sub-Unit").
The following are the documents to be received by Owner and any
Assignee and the conditions to be satisfied in connection with the creation
of any NC Sub-Unit:
(i) SUB-UNIT CERTIFICATE(S). With respect to each NC Sub-
Unit so designated, Agent shall deliver a duly executed Sub-Unit
Certificate pertaining to such NC Sub-Unit, including all attachments
to such Sub-Unit Certificate.
(ii) COST ALLOCATION. The total Unit Acquisition Cost for
any NC Sub-Unit (as set forth in the Unit Budget attached to the
applicable Sub-Unit Certificate) shall not exceed forty percent (40%)
of the total Unit Acquisition Cost for the North Charleston Unit (as
set forth in the Unit Budget for the North Charleston Unit prior to
the creation of any NC Sub-Units).
(iii) RESTATED ACQUISITION CERTIFICATE. Agent shall deliver
a duly executed restated Acquisition Certificate for the North
Charleston Unit modified to reflect the creation of such NC Sub-Unit
or NC Sub-Units and setting forth the information required by Section
4 hereof with respect to that portion of the North Charleston Unit
which has not been designated as NC Sub-Units.
(iv) EVIDENCE OF COMPLIANCE. Agent shall deliver such
other documents, reports, certificates or information to evidence
compliance with the provisions of this Agreement in connection with
the designation of such NC Sub-Unit as Owner or any Assignee shall,
within five (5) days of Agent's delivery of the Sub-Unit Certificate
for such NC Sub-Unit, have reasonably requested.
(b) In connection with the designation of any NC Sub-Unit, Agent
shall have the right to reallocate costs among such NC Sub-Unit, any then-
existing NC Sub-Units and the North Charleston Unit and to revise the
respective Unit Budgets for such Units to reflect such reallocation. In
such event, Agent shall deliver modified Sub-Unit Certificates with respect
to all then-existing NC Sub-Units to the extent necessary to reflect such
revision of the Unit Budgets. If an AFL Unit Leasing Record shall have
been
<PAGE>
6
entered into with respect to any then-existing NC Sub-Unit at the time of
such reallocation, Agent shall deliver either (i) a retroactive revised
Unit Budget for such NC Sub-Unit, or (ii) a written statement that the Unit
Budget attached to the Sub-Unit Certificate for such NC Sub-Unit most
recently submitted to Owner in connection with the creation of an NC Sub-
Unit remains unmodified.
(c) From and after the date on which the conditions for designating
an NC Sub-Unit have been satisfied, each such NC Sub-Unit shall constitute
a Unit for all purposes under this Agreement, including, without
limitation, with respect to the determination of the existence of an Event
of Unit Termination or Potential Event of Unit Termination; provided,
however, that, anything to the contrary provided in this Agreement
notwithstanding, Agent's rights to request and receive a Completion Advance
with respect to any NC Sub-Unit pursuant to Section 3.1 and 7 hereof and
the right to reallocate costs among NC Sub-Units pursuant to Section 20(b)
hereof shall continue until the date that is six months after the latest
occurring Effective Date among the North Charleston Unit and the NC Sub-
Units designated in accordance with this Section 20."
(j) AMENDMENT TO AND ADDITION OF EXHIBITS. The Agreement for Lease
is hereby amended by (i) amending Exhibit A so as to reflect the amendments
provided for in Amendment No. 1 to Lease Agreement dated as of the date hereof
between Owner and Agent and (ii) the addition of new Exhibits L, M and N
thereto, to be comprised of Annex 1, Annex 2 and Annex 3, respectively, to this
Amendment.
(k) RATIFICATION AND REAFFIRMATION. Except as amended hereby, the
terms and provisions of the Agreement for Lease shall, in all other respects,
remain unmodified, are hereby ratified and reaffirmed and shall remain in full
force and effect.
Section 2. AMENDMENT EFFECTIVE DATE. This Amendment shall be
effective on the date (the "Amendment Effective Date") on which each of the
following conditions precedent have been satisfied:
(a) Owner, The Dai-Ichi Kangyo Bank, Ltd., New York Branch, as L/C
Bank and as Agent and the banks party thereto, shall have entered into that
certain Amendment No. 1 to Credit Agreement, dated as of March 15, 1995, and the
same shall have become effective.
(b) Guarantor shall have entered into that certain Amendment No. 1
to Guaranty, dated as of March 15, 1995, for the benefit of Owner.
(c) Owner and Agent shall have entered into that certain Amendment
No. 1 to Lease Agreement, dated of even date herewith.
<PAGE>
7
Section 3. REPRESENTATIONS AND WARRANTIES. Agent represents and
warrants to Owner as of the Amendment Effective Date that:
(a) FINANCIAL STATEMENTS. Agent has caused to be furnished to
Owner Guarantor's Annual Report on Form 10-K for the year ended June 30, 1994
and Guarantor's Quarterly Reports on Form 10-Q for the quarters ended September
30, 1994 and December 31, 1994, respectively. The financial statements
contained in such documents fairly present the financial position, results of
operations and statements of cash flow of Guarantor as of the dates and for the
periods indicated therein and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
(b) CONTINUING REPRESENTATIONS. All representations and
warranties made by Agent in the Agreement for Lease and in the Lease are and
remain true and correct on and as of the Amendment Effective Date as if made on
and as of the Amendment Effective Date, except to the extent such
representations and warranties expressly relate specifically to an earlier date.
Section 4. NO RECOURSE. The provisions of Section 18.5 of the
Agreement for Lease are applicable to this Amendment.
Section 5. GENERAL CONDITIONS.
(a) GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and intended to be wholly performed within the State of York.
(b) CAPTIONS. The captions in this Amendment are for convenience
of reference only, and shall not be deemed to affect the meaning or construction
of any of the provisions hereof.
(c) SEVERABILITY. In the event any one or more of the provisions
contained in this Amendment shall for any reason be held to be invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Amendment and this Amendment shall be
construed as if such invalid, illegal or unenforceable provisions had never been
contained herein.
<PAGE>
8
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.
Virtual Funding, Limited Partnership by
Virtual Capital, Inc., its
General Partner
By /s/ Teresa A. Miles
-------------------------------------
Name: Teresa A. Miles
Title: President and Assistant Secretary
Silicon Graphics Real Estate, Inc.
By /s/ Tom Oswold
------------------------------------
Name: Tom Oswold
Title: Vice President, Finance
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Document 10
Exhibit 10.27
CONFIDENTIAL AND PROPRIETARY
LEASE AGREEMENT
Dated as of November 18, 1993
BETWEEN
Virtual Funding, Limited Partnership
as Lessor
AND
Silicon Graphics Real Estate, Inc.
as Lessee
THIS LEASE HAS BEEN ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF THE LESSOR. SEE SECTION 21.
This Lease has been manually executed in 8 counterparts, numbered
consecutively from 1 through 8, of which this is No. . To the extent, if
any, that this Lease constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction) no
security interest in this Lease may be created or perfected through the
transfer or possession of any counterpart other than the original executed
counterpart which shall be the counterpart identified as counterpart No. 1.
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
CONFIDENTIAL
LEASE AGREEMENT
Lease Agreement, dated as of November 18, 1993 (as the same may be
amended, restated, modified or supplemented from time to time, "this Lease"),
between Virtual Funding, Limited Partnership, a Delaware limited partnership,
Lessor (the "Lessor"), and Silicon Graphics Real Estate, Inc., a Delaware
corporation, Lessee (the "Lessee").
1. Defined Terms.
Unless the context otherwise requires, each term defined in this
Section 1 shall, when used in this Lease, have the meaning indicated:
"ACCRUED DEFAULT OBLIGATIONS" has the meaning set forth in Section
19 hereof.
"ACQUISITION COST" means, (i) in the case of a Parcel of Property
acquired and built pursuant to the Agreement for Lease, an amount equal to
Unit Acquisition Cost of such Parcel as defined in the Agreement for Lease;
(ii) with respect to any Unit of Equipment, an amount equal to the sum of (a)
the vendor's invoice price therefor, including any progress payments, costs
of labor, delivery or installation, sales, use, excise or similar taxes and
any other charges included in such invoice, after deduction for any
refundable fleet or other discounts or credits actually used by the Lessor,
(b) similar amounts paid or payable with respect to such Unit to parties
other than the vendor of such Unit, (c) similar costs incurred with respect
to such Unit by the Lessee, and (d) legal, printing, reproduction, closing
and other normally capitalizable administrative fees and epenses paid by the
Lessee and approved by the Lessor; and (iii) with respect to any Parcel of
Property not acquired and built pursuant to the Agreement for Lease, an
amount equal to the amounts included in (ii)(d) above which are applicable to
such Parcel plus (a) the vendor's contract price therefor or, if an appraisal
shall have been provided in accordance herewith, the appraised value thereof,
(b) vendee's closing costs, including, without limitation, title insurance
premiums, survey and survey inspection charges, recording and filing fees,
title closer fees, vendee's attorneys' fees and brokerage commissions, (c)
other costs related to the acquisition, including, without limitation,
appraisal, architectural, engineering, soil analysis, environmental analysis
and market analysis fees, and (d) any amounts paid by vendee on behalf of
vendor in addition to, and not as a credit against the contract price,
including, without limitation, payments made in satisfaction of prior liens,
and payment of any transfer, transfer gains or similar taxes imposed in
respect of the conveyance of such Property.
"ADDITIONAL RENT" has the meaning set forth in paragraph (d) of
Section 7 hereof.
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THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-2-
"ADJUSTED ACQUISITION COST" means, at any time, with respect to
any Parcel of Property or Unit of Equipment, its Acquisition Cost less the
aggregate amount of all Monthly Rent Components paid as portions of Basic
Rent for such Parcel of Property or Unit of Equipment as of the time of
determination.
"AFFILIATE" of any Person means any other Person controlling,
controlled by or under direct or indirect common control with such Person.
For the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AFL UNIT LEASING RECORD" means an instrument, substantially in
the form of Exhibit C hereto, evidencing the lease or sublease under this
Lease of a Parcel of Property (and related Equipment, if any, included
therein) acquired and built pursuant to the Agreement for Lease. The terms
"lease" or "leased" when used in this Lease shall be deemed to mean
"sublease" or "subleased" when referenced to the Property subleased pursuant
to the AFL Unit Leasing Record.
"AGREEMENT FOR LEASE" means the Agreement for Lease, dated as of
the date hereof, between the Lessor, as owner, and the Lessee, as agent,
providing for the acquisition of a fee or leasehold interest in certain
parcels of real property and the construction of improvements on such parcels
of real property, as the same may be amended, restated, modified or
supplemented from time to time.
"APPRAISAL PROCEDURE" means the following procedure whereby an
independent appraiser shall be appointed by the Lessor and the Lessee, with
the consent of the Assignee, to determine (i) the amount of wear and tear in
excess of that attributable to normal use of any Property or Equipment to
which the provisions of Section 12(b)(iii), Section 12(c)(iii) or Section
12(d)(iii) apply or (ii) the fair market value of any Property or Equipment
to be purchased, if such determination is required under paragraph (c) of
Section 13 of this Lease. If no such appraiser is appointed by the Lessor and
the Lessee within ten (10) days of the written request of either the Lessor
or the Lessee that an appraiser be appointed, the Lessor and the Lessee shall
each appoint an independent appraiser within fifteen (15) days thereafter,
and the two appraisers so appointed shall appoint a third independent
appraiser. Each appraiser appointed pursuant to the foregoing procedure
shall, within ten (10) days after appointment of the last appraiser,
independently determine the amount of wear and tear in excess of that
attributable to normal use or the fair market value, as the case may be.
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-3-
If the Lessor or the Lessee shall fail to appoint an independent appraiser
within the above-mentioned fifteen (15) day period, the appraiser appointed
by the other party shall determine such amount or value. If a single
appraiser is appointed, such appraiser's determination shall be final. If
three appraisers are appointed, the amounts or values determined by the three
appraisers shall be averaged, the amount or value which differs the most from
such average shall be excluded, the remaining two amounts or values shall be
averaged and such average shall be final. The expenses of all appraisers
shall be paid by the Lessee.
"ASSIGNEE" means each Person to which any part of the Lessor's
interest under this Lease or in any Parcel of Property or Unit of Equipment
shall at the time have been assigned, conditionally or otherwise, by the
Lessor in accordance with Section 21 of this Lease. For purposes of
paragraph (h) of Section 2, clauses (i), (iv) and (v) of paragraph (f) of
Section 10, Section 11, and Section 33 hereof, the term "Assignee" shall
include any lender to the lessor or other Person providing credit support to
the Lessor pursuant to the Credit Agreement.
"ASSIGNMENT" means each assignment agreement referred to in
Section 21 hereof, between the Lessor and a third party, pursuant to which
the Lessor assigns certain of its rights under this Lease to such third
party, as the same may be amended, restated, modified or supplemented from
time to time.
"BASIC RENT" means, with respect to any Parcel of Property or Unit
of Equipment:
(a) for each calendar month during the Lease Term of such Parcel
or Unit, the sum of the Monthly Rent Component for such Parcel or Unit plus
an amount (the "Variable Component of Basic Rent") computed by multiplying
the following:
(i) the Adjusted Acquisition Cost of such Parcel or Unit
before payment of Basic Rent for such month, by
(ii) a fraction having a numerator equal to the number of
days in such month and a denominator of 365, or in a leap
year, 366, by
(iii) the decimal equivalent of a percentage (which
percentage will be based upon the Guarantor's senior debt
rating or, if the Guarantor has no senior debt rating,
Implied Senior Debt Rating levels (as defined herein) as
follows: if the Guarantor's senior debt rating or Implied
Senior Debt Rating is Level 1, the percentage shall be 0.63%
during the Initial Term and 0.625% during the Extended Term;
if the Guarantor's senior debt rating or Implied Senior Debt
Rating is Level 2, the percentage shall be 0.68% during the
Initial Term and 0.675% during the Extended Term; if the
Guarantor's senior debt rating or Implied Senior Debt Rating
is Level 3, the percentage shall be 0.785% during the Initial
Term and 0.775% during the Extended Term; if the Guarantor's
senior debt rating or Implied Senior Debt Rating is Level 4,
the percentage shall be 0.992% during the Initial Term and
0.975%
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-4-
during the Extended Term; if the Guarantor's senior debt
rating or Implied Senior Debt Rating is Level 5, the
percentage shall be 1.412% during the Initial Term and
1.375% during the Extended Term), plus (A) the weighted
average bond yield equivalent percentage cost per annum
(including as part of such cost any fees for a letter or
letters of credit, any facility, commitment or other fees
under a revolving credit agreement and any dealer discount
or placement agency commission payable by the Lessor in
respect of its Commercial Paper) on all Commercial Paper of
the Lessor issued to finance or refinance the acquisition
and ownership of Property and Equipment outstanding at any
time during the period from and including the 16th day of
the preceding calendar month to and including the 15th day of
the calendar month for which Basic Rent is being computed
(the "Computation Period"), or (B) if no such Commercial
Paper of the Lessor is outstanding during the Computation
Period, the Lessor's weighted average percentage cost per
annum (including, without duplication, any interest accruing
at a default rate, any facility, commitment or other fees
under a revolving credit agreement) of other borrowings
outstanding at any time during the Computation Period for
which Basic Rent is being computed to finance or refinance
the acquisition and ownership of Property or Equipment or
(C) if both Commercial Paper and other borrowings are
outstanding at any time during the Computation Period for
which Basic Rent is being computed, a weighted average
blended rate based on the calculations referred to in
clauses (A) and (B) above;
(b) for any partial first calendar month during the Lease Term
of such Parcel or Unit, an amount computed by multiplying the following:
(i) the Acquisition Cost of such Parcel or Unit, by
(ii) a fraction having a numerator equal to the number of
days such Parcel or Unit is under lease during such partial
first month and a denominator of 365, or in a leap year,
366, by
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-5-
(iii) the decimal referred to in paragraph (a)(iii) above;
provided, that if the Effective Date for such Parcel or Unit
falls on or after the Lease Rate Date during such partial
first calendar month such decimal shall be the decimal
determined as of the next succeeding Lease Rate Date; and
(c) for each calendar month during the Renewal Term, if any, of
such Parcel or Unit, an amount equal to the fair market value rental thereof,
determined as provided in paragraph (c) of Section 13 hereof.
"BASIC RENT PAYMENT DATE" means the 25th day of any calendar month
during the Lease Term or Renewal Term of any Property or Equipment or, if
such day is not a Business Day, the next succeeding Business Day.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which banking institutions in the City of New York or San Francisco,
California are authorized by law to close.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMERCIAL PAPER" means all promissory notes of the Lessor issued
pursuant to a Credit Agreement maturing not more than ninety (90) days from
the date of issuance thereof.
"COMPUTATION PERIOD" has the meaning set forth in subclause
(a)(iii)(A) of the definition of Basic Rent in Section 1 hereof.
"CONSENT" means each consent of the Lessee to an Assignment,
pursuant to which the Lessee consents to the terms of such Assignment insofar
as they relate to this Lease, as the same may be amended, restated, modified
or supplemented from time to time.
CONSOLIDATED TANGIBLE NET WORTH means the total shareholder equity
for the Guarantor, less goodwill and any intangible assets (other than
intangibles for capitalized software, prepaid royalties, patents and other
intellectual property), all as determined on a consolidated basis in
accordance with generally accepted accounting principles.
"CONTRACTUAL REQUIREMENTS" means all material agreements,
covenants, conditions and restrictions applicable to each Parcel or Unit
and/or the construction, ownership, operation or use thereof.
"CREDIT AGREEMENT" means each credit or loan agreement which has
been entered into between the Lessor and a lender or lenders and approved by
the Lessee related
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-6-
to the financing of Property or Equipment, as the same may be amended,
restated, modified or supplemented from time to time with the approval of the
Lessee.
"DUFF & PHELPS" has the meaning set forth in the definition of
"Level 1" in this Section 1.
"EFFECTIVE DATE" means, with respect to any Parcel of Property or
Unit of Equipment, the date on which such Parcel or Unit becomes subject to
this Lease, as evidenced by execution by the Lessee and the Lessor of an AFL
Unit Leasing Record or a Unit Leasing Record, as the case may be, or a Unit
Leasing Record with respect to such Unit.
"EQUIPMENT" means personal property of any type, leased or to be
leased hereunder and, when leased, evidenced by Unit Leasing Records or AFL
Unit Leasing Records, and all related appliances, appurtenances, accessions,
furnishings, materials and parts leased or to be leased by the Lessor to the
Lessee as provided herein and including all replacements and subsequent
replacements of such related appliances, appurtenances, accessions,
furnishings, materials and parts. "UNIT", when referring to the personal
property leased under this Lease, means a particular item of Equipment, as
the context may require.
"EVENT OF DEFAULT" has the meaning set forth in Section 18 hereof.
"EXTENDED TERM" has the meaning set forth in paragraph (b) of
Section 6 hereof.
"GOVERNMENTAL ACTION" has the meaning set forth in paragraph (d)
of Section 2 hereof.
"GROUND LEASE" has the meaning set forth in Section 29 hereof.
"GUARANTEE" means the guarantee agreement, dated as of the date
hereof, by and between the Guarantor and the Lessor, as the same may be
amended, restated, modified or supplemented from time to time.
"GUARANTOR" means Silicon Graphics, Inc., a Delaware corporation
(the parent of Lessee), and its successors.
"IMPLIED SENIOR DEBT RATING" means with respect to any debt
ratings, if in existence, of the Guarantor's subordinated debt from any or
all of Duff & Phelps, S&P and Moody's, two rating notches higher than such
subordinated debt rating.
"INDEMNIFIED PERSON" has the meaning set forth in Section 11
hereof.
"INITIAL TERM" has the meaning set forth in paragraph (a) of
Section 6 hereof.
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-7-
"INSURANCE REQUIREMENTS" means all terms of any insurance policy
required by this Lease covering or applicable to any Property or Equipment,
all requirements of the issuer of any such policy, all statutory requirements
and all orders, rules, regulations and other requirements of any governmental
body related to insurance applicable to any Property or Equipment.
"LEASE RATE DATE" has the meaning set forth in paragraph (b) of
Section 7 hereof.
"LEASE TERM" means, with respect to any Parcel of Property or Unit
of Equipment, the Initial Term plus the Extended Term thereof.
"LEGAL REQUIREMENTS" means all laws, judgments, decrees,
ordinances and regulations and any other governmental rules, orders and
determinations and all requirements having the force of law, now or
hereinafter enacted, made or issued, whether or not presently contemplated,
including, without limitation, all requirements of labor laws and
environmental statutes, compliance with which is required at any time from
the date hereof through the Lease Term and any Renewal Term, whether or not
such compliance shall require structural, unforeseen or extraordinary changes
to any Property or Equipment or the operation, occupancy or use thereof.
"LESSEE" has the meaning set forth in the first paragraph of this
Lease.
"LESSOR" means Virtual Funding, Limited Partnership or any
successor or successors to all of its rights and obligations as the Lessor
hereunder and, for purposes of Section 11 hereof, shall include any
partnership (general or limited), corporation, trust, in-dividual or other
entity which computes its liability for income or other taxes on a
consolidated basis with Virtual Funding, Limited Partnership or the income of
which for purposes of such taxes is, or may be, determined or affected
directly or indirectly by the income of the Lessor or its successor or
successors.
"LEVEL 1" means when the Guarantor's senior debt rating or, if the
Guarantor has no senior debt rating, when the Guarantor's Implied Senior Debt
Rating is AAA by Duff & Phelps Ratings Corporation, or any successor
corporation thereto ("Duff & Phelps") or if the Guarantor has no senior debt
rating or Implied Senior Debt Rating from Duff & Phelps, AAA by Standard &
Poor's Corporation, or any successor corporation thereto ("S&P"), or if the
Guarantor has no senior debt rating or Implied Senior Debt Rating from either
Duff & Phelps or S&P, Aaa by Moody's Investors Service, Inc. or any successor
corporation thereto ("Moody's").
"LEVEL 2" means when the Guarantor's senior debt rating or, if the
Guarantor has no senior debt rating, when the Guarantor's Implied Senior Debt
Rating is not Level 1 and when the Guarantor's senior debt rating, or if the
Guarantor has no senior debt rating, when the Guarantor's Implied Senior Debt
Rating is AA+, AA, AA-, A+, A or A- by Duff & Phelps, and if
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-8-
the Guarantor has no senior debt rating or Implied Senior Debt Rating from
Duff & Phelps, AA+, AA, AA-, A+, A or A- by S&P or if the Guarantor has no
senior debt rating or Implied Senior Debt Rating from either Duff & Phelps or
S&P, Aa1, Aa2, Aa3, A1, A2 or A3 by Moody's and if the Guarantor's senior
debt or subordinated debt is not rated by any of Duff & Phelps, S&P or
Moody's, when the Guarantor's private debt is rated NAIC 1 by the National
Association of Insurance Commissioners ("NAIC"), provided, however, that if
the Guarantor's private debt rating has not been reviewed and affirmed by the
NAIC within the previous 15 month period, then when Merrill Lynch Fixed
Income Research Rating is 7.0 or higher.
"LEVEL 3" means when the Guarantor's senior debt rating or, if the
Guarantor has no senior debt rating, when the Guarantor's Implied Senior Debt
Rating is not Level 1 or Level 2 and when the Guarantor's senior debt rating,
or if the Guarantor has no senior debt rating, when the Guarantor's Implied
Senior Debt Rating is BBB+, BBB or BBB- by Duff & Phelps, and if the
Guarantor has no senior debt rating or Implied Senior Debt Rating from Duff &
Phelps, BBB+, BBB, or BBB- by S&P or if the Guarantor has no senior debt
rating or Implied Senior Debt Rating from either Duff & Phelps or S&P, Baa1,
Baa2 or Baa3 by Moody's and if the Guarantor's senior debt or subordinated
debt is not rated by any of Duff & Phelps, S&P or Moody's, when the
Guarantor's private debt is rated NAIC 2 by the NAIC, provided, however, that
if the Guarantor's private debt rating has not been reviewed and affirmed by
the NAIC within the previous 15 month period, then when Merrill Lynch Fixed
Income Research Rating is 6.0 or higher but less than 7.0.
"LEVEL 4" means when the Guarantor's senior debt rating or, if the
Guarantor has no senior debt rating, when the Guarantor's Implied Senior Debt
Rating is not Level 1, Level 2, Level 3 or Level 4 and when the Guarantor's
senior debt rating, or if the Guarantor has no senior debt rating, when the
Guarantor's Implied Senior Debt Rating is BB+, BB or BB- by Duff & Phelps,
and if the Guarantor has no senior debt rating or Implied Senior Debt Rating
from Duff & Phelps, BB+, BB or BB- by S&P, or if the Guarantor has no senior
debt rating or Implied Senior Debt Rating from either Duff & Phelps or S&P,
Ba1, Ba2 or Ba3 by Moody's and if the Guarantor's senior debt or subordinated
debt is not rated by any of Duff & Phelps, S&P or Moody's, when the
Guarantor's private debt is rated NAIC 3 by the NAIC provided, however, that
if the Guarantor's private debt rating has not been reviewed and affirmed by
the NAIC within the previous 15 month period, then when Merrill Lynch Fixed
Income Research Rating is 5.0 or higher but less than 6.0.
"LEVEL 5" means when the Guarantor's senior debt rating or if the
Guarantor has no senior debt rating, when the Guarantor's Implied Senior Debt
Rating is not Level 1, Level 2, Level 3 or Level 4 and when the Guarantor's
senior debt rating, or if the Guarantor has no senior debt rating, when the
Guarantor's Implied Senior Debt Rating is B+ or below by Duff & Phelps, and
if the Guarantor has no senior debt rating or Implied Senior Debt Rating from
Duff & Phelps, B+ or below by S&P or if the Guarantor has no senior debt
rating or Implied Senior Debt Rating from either Duff & Phelps or S&P, B1 or
below by Moody's and if the Guarantor's senior
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
-9-
debt or subordinated debt is not rated by any of Duff & Phelps, S&P or
Moody's when the Guarantor's private debt is rated NAIC 4 by the NAIC,
provided, however, that if the Guarantor's private debt rating has not been
reviewed and affirmed by the NAIC within the previous 15 month period, then
when Merrill Lynch Fixed Income Research Rating is below 5.0.
"LIEN" means any security interest, mortgage, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other), or other
security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing).
"MERRILL" means Merrill Lynch Money Markets Inc., a Delaware
corporation.
"Merrill Leasing" means ML Leasing Equipment Corp., a Delaware
corporation.
"Merrill Lynch" means Merrill Lynch & Co., Inc., a Delaware
corporation.
"MONTHLY RENT COMPONENT" means, (i) with respect to each Parcel of
Property (other than a Parcel acquired and built pursuant to the Agreement
for Lease) or Unit of Equipment, for each calendar month during the Lease
Term of such Parcel or Unit, the amount determined in accordance with
Schedule B, if any, to the Unit Leasing Record relating to such Parcel or
Unit, (ii) with respect to a Parcel of Property or Unit of Equipment acquired
and/or built pursuant to the Agreement for Lease, the amount determined in
accordance with Schedule B, if any, to the AFL Unit Leasing Record relating
to such Parcel of Property or Unit of Equipment. With respect to each Unit
of Equipment, if no amount for such Unit of Equipment shall be provided in
Schedule B to such Unit Leasing Record or AFL Unit Leasing Record, as the
case may be, the Acquisition Cost of such Unit of Equipment divided by the
number of calendar months in the Lease Term with respect to such Unit.
Schedule B to the Unit Leasing Record or AFL Unit Leasing Record shall be
completed as to the Acquisition Cost of the Parcel and the amortization
schedule for such Parcel, which schedule shall, unless otherwise agreed to in
writing by Lessor and Lessee, reflect mortgage amortization over the Lease
Term of the Acquisition Cost, as agreed upon by the Lessee and the Lessor,
provided that the Lessee shall not be required to amortize the Acquisition
Cost of the underlying land.
"MOODY'S" has the meaning set forth in the definition of "Level
1" in this Section 1.
"MORTGAGEABLE GROUND LEASE" means a Ground Lease for a Parcel of
Property to be subleased to the Lessee which is delivered to the Lessor for
execution by the Lessor, or assigned to the Lessor by an assignment in form
and substance satisfactory to the Lessor, and having such terms and
characteristics as may be required by the Lessor and any Assignee, which
terms and characteristics shall include, without limitation, the following:
(a) free assignability of the ground lessee's interest to (i) any lender as
security for a borrowed money obligation of the
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Lessor and, upon foreclosure of such security, freely assignable by such
lender to any third party, and (ii) any purchaser in connection with a sale
of such Parcel of Property pursuant to the provisions of this Lease or the
Agreement for Lease (the Lessor and any Assignee being released from
liability upon such assignment); (b) a term (including renewals) of at least
ten (10) years in excess of the Lease Term of the Parcel of Property to which
such Ground Lease relates; (c) no provisions for percentage or variable rent;
(d) permit any lawful use; (e) no provision for a security deposit; (f) a
requirement that any Assignee or any lender will receive copies of all
notices of default delivered under or pursuant to such Ground Lease; (g) a
provision that any Assignee or any lender shall have the right to cure any
defaults thereunder (whether monetary or nonmonetary in nature), and in the
event of such cure to receive a new ground lease on the same terms as the
original Ground Lease; (h) a recourse limitation section in accordance with
the language set forth in Section 31 hereof; (i) a prohibition of any
mortgages or other Liens on the underlying fee, except Permitted Liens; and
(j) no provision requiring the Lessor to indemnify any Person. A
Mortgageable Ground Lease shall be delivered with such estoppel certificates,
recognition and attornment agreements, or confirmation of customary mortgagee
protection as are reasonably acceptable to the Lessor and any Assignee.
"NAIC" has the meaning set forth in the definition of "Level 1" of
this Section 1.
"NORTH SHORELINE PROPERTY" means the Parcel of Property located
at 1401-1499 North Shoreline Boulevard, Mountain View, California.
"PERMITTED CONTEST" has the meaning set forth in paragraph (a) of
Section 28 hereof.
"PERMITTED LIENS" means the following Liens and other matters
affecting the title of any Parcel of Property or Unit of Equipment: (a)
Liens securing the payment of taxes, assessments and other governmental
charges or levies which are either not delinquent or, if delinquent, are
being contested by the Lessee in good faith as a Permitted Contest; (b)
zoning and planning restrictions, subdivision and platting restrictions,
easements, rights-of-way, licenses, reservations, covenants, conditions,
waivers, restrictions on the use of any Parcel of Property, now or
hereinafter enacted, minor encroachments or minor irregularities of title,
none of which materially impairs the intended use or value of such Parcel of
Property by the Lessee; (c) reservations of mineral interests; (d) the Lien
created pursuant to a Credit Agreement; (e) leases and licenses in effect
with respect to any Parcel of Property which are permitted by this Lease or
which are delivered to and accepted by the Lessor prior to such Parcel's
Effective Date; and (f) such other or additional matters as may be approved
in writing by the Lessor and any applicable Assignee.
(x)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
"PERSON" means any individual, corporation, partnership, joint
venture, association joint-stock company, trust, unincorporated organization
of government or any agency or political subdivision thereof.
"POTENTIAL DEFAULT" means any event which, but for the lapse of
time, or giving of notice, or both, would constitute an Event of Default.
"PROPERTY" means any and all parcels of land together with all
buildings and other improvements (including, without limitation, the
attachments, appliances, equipment, machinery and other affixed property
which, in each case, would constitute "fixtures" under Section 9-313(1)(a) of
the Uniform Commercial Code) now or hereafter located on such parcels of
land, leased or to be leased hereunder and when leased, evidenced by Unit
Leasing Records or AFL Unit Leasing Records, and the respective easements,
rights and appurten-ances relating to such parcels of land, buildings and
improvements. "PARCEL" or "PARCEL OF PROPERTY" means a specific parcel or
parcels of Property.
"RECONCILIATION AMOUNT" has the meaning set forth in paragraph (f)
of Section 7 hereof.
"REMOVABLE PROPERTY" has the meaning set forth in paragraph (e) of
Section 9 hereof.
"RENEWAL TERM" has the meaning set forth in paragraph (b) of
Section 13 hereof.
"RESPONSIBLE OFFICER" shall mean the President, Vice President,
Secretary or Treasurer of the particular entity referenced, or any other
officer or similarly authorized person responsible for the administration of
the obligations of the Lessee, in the case of the Lessee, or the Guarantor,
in the case of the Guarantor, with respect to this Lease or the Guarantee,
respectively.
"S&P" has the meaning set forth in the definition of "Level 1" in
this Section 1.
"TAKING" has the meaning set forth in paragraph (a) of Section 16
hereof.
"UNIT LEASING RECORD" means an instrument, substantially in the
form of Exhibit C hereto, evidencing, except in the case of any Parcel or
Parcels of Property acquired and built pursuant to the Agreement for Lease,
the lease of any Parcel or Parcels of Property or Unit or Units of Equipment
under this Lease.
(xi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
"VARIABLE COMPONENT OF BASIC RENT" has the meaning set forth in
the definition of Basic Rent in Section 1 hereof.
2. Representations, Warranties and Agreements of Lessee.
The Lessee represents, warrants and covenants to the Lessor:
(a) Corporate Matters. The Lessee (i) has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Delaware, (ii) has full power, authority and legal
right to own and operate its properties and to conduct its business as
presently conducted and to execute, deliver and perform its obligations under
this Lease and any Consent, and (iii) is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction in which its
ownership or leasing of properties or the conduct of its business requires
such qualification.
(b) Binding Agreement. This Lease has been duly authorized,
executed and delivered by the Lessee and, assuming the due authorization,
execution and delivery of this Lease by the Lessor, this Lease is a legal,
valid and binding obligation of the Lessee, enforceable according to its
terms.
(c) Compliance with Other Instruments. The execution,
delivery and performance by the Lessee of this Lease and any Consent will not
result in any violation of any term of the articles of incorporation or the
by-laws of the Lessee, do not require stockholder approval or the approval or
consent of any trustee or holders of indebtedness of the Lessee except such
as have been obtained prior to the date hereof and will not conflict with or
result in a breach of any terms or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien (other than a
Permitted Lien) upon any property or assets of the Lessee under, any
indenture, mortgage or other agreement or instrument to which the Lessee is a
party or by which it or any of its property is bound, or any existing
ap-plicable law, rule, regulation, license, judgment, order or decree of any
government, governmental body or court having jurisdiction over the Lessee or
any of its activities or properties.
(d) Governmental Consents. There are no consents, licenses,
orders, authorizations, approvals, waivers, extensions or variances of, or
notices to or registrations or filings with (each a "Governmental Action"),
any governmental or public body or authority which are or will be required in
connection with the valid execution, delivery and performance of this Lease,
except for customary governmental licenses, permits and approvals in
connection with the use and occupancy of any Parcel of Property or the use of
any Unit of Equipment by Lessee in the conduct of its business each of which
will be timely obtained by the Lessee, or any Governmental Action (i) which
is or will be required in connection with any participation by the Lessor in
the transaction contemplated by any bill of sale, deed, assignment,
assumption,
(xii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
ownership agreement, operating agreement, or other agreement relating to any
Property or Equipment or (ii) which is or will be required to be obtained by
the Lessor, the Lessee, Merrill, Merrill Leasing, any Assignee or any
Affiliate of the fore-going, during the term of this Lease, with respect to
any Property or Equipment except such Governmental Actions, (A) as have been
duly obtained, given or accomplished, with true copies thereof delivered to
the Lessor, and (B) as may be required by applicable law not now in effect.
(e) Financial Statements. The Lessee has furnished to the
Lessor copies of the Guarantor's Annual Report on Form 10-K for the year
ended June 30, 1993 and its Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993. The financial statements contained in such
documents fairly present the financial position, results of operations and
statements of cash flow of the Guarantor as of the dates and for the periods
indicated therein and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
(f) Changes. Since September 30, 1993, there has been no
material adverse change in the financial condition or business of the
Guarantor nor any change which would materially impair the ability of the
Lessee to perform its obligations under this Lease or materially impair the
ability of the Guarantor to perform its obligations under the Guarantee.
(g) Litigation. There is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental body,
agency, commission or other tribunal now pending or, to the best knowledge of
Lessee threatened, against or affecting the Lessee or the Guarantor or any
property or rights of the Lessee or the Guarantor which questions the
enforceability of this Lease, which affects any Parcel of Property or Unit of
Equipment which had not been subject to the Agreement for Lease or which, if
adversely determined, would (i) affect the Lessor's title to any Parcel of
Property or Unit of Equipment, (ii) have a material adverse impact on the
value or use of any Parcel of Property or Unit of Equipment, or (iii) have a
material adverse impact on the financial condition or business of the Lessee
and the Guarantor, taken as a whole, or, which if adversely determined, would
materially impair the ability of the Lessee to perform its obligations
hereunder or of the Guarantor to perform its obligations under the Guarantee.
(h) Delivery of Information. The Lessee shall deliver to the
Lessor from time to time, (i) promptly, and in any event not more than 100
days after the end of the fiscal year of the Guarantor, copies of the
Guarantor's Annual Reports on Form 10-K, and promptly, and in any event not
more than 60 days after the end of each fiscal quarter of the Guarantor,
copies of the Guarantor's Quarterly Reports on Form 10-Q, in each case
accompanied by a certificate of a Responsible Officer of the Guarantor
setting forth a calculation of the Guarantor's Consolidated Tangible Net
Worth and promptly, any reports on Form 8-K the Guarantor files with the
Securities and Exchange Commission, (ii) promptly upon request, such other
information with
(xiii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
respect to the Lessee's and Guarantor's operations, business, properties,
assets, financial condition or litigation as the Lessor shall reasonably
request, (iii) promptly after a Responsible Officer of the Lessee obtains
knowledge of any Event of Default or any Potential Default hereunder, a
certificate of a Responsible Officer of the Lessee specifying the nature and
period of existence of such Event of Default or Potential Default, and what
action, if any, the Lessee has taken, is taking, or proposes to take with
respect thereto and (iv) promptly after a Responsible Officer of the Lessee
obtains knowledge of any litigation of the type described in paragraph (g) of
this Section 2, a certificate of a Responsible Officer of the Lessee
describing such change or litigation as the case may be.
(i) Organization. Silicon Graphics Real Estate, Inc., a
California corporation ("SGREI-CA") was organized on May 6, 1993, for
purposes unrelated to this transaction. The Lessee was organized on November
12, 1993 to effect a reincorporation of SGREI-CA as a Delaware corporation.
SGREI-CA will be merged into the Lessee no later than March 31, 1994,
whereupon the Lessee will, by operation of law succeed to all of SGREI-CA's
rights and obligations.
(j) Accuracy of Appraisal. The information furnished by the
Lessee to any appraiser in connection with any appraisal report, if any,
furnished by the Lessee to the Lessor with respect to any Parcel of Property
or Unit of Equipment is accurate and complete in all material respects.
(k) Compliance with Contractual Requirements, Legal
Requirements and In-surance Requirements. The operation, use and physical
condition of the Property and Equipment are in compliance with all
Contractual Requirements, Legal Requirements and Insurance Requirements,
except any Contractual Requirements and Legal Requirements, the noncompliance
with which, individually or in the aggregate, (i) will not place either the
Lessor or any Assignee in any danger of civil liability which the Lessor or
any Assignee is not adequately indemnified for (the Lessee's obligations
under Section 11 of this lease shall be deemed to be adequate indemnification
if no Event of Default exists and if such civil liability is reasonably
likely to be less than $5,000,000) or subject the Lessor or any Assignee to
any criminal liability as a result of failure to comply therewith, (ii) will
not result in a material diminution in the value of any Property or
Equipment, and (iii) is consistent with prudent business practices.
(l) Liens. No Property or Equipment is subject to any Lien,
except Permitted Liens.
(m) Agreement for Lease. The Property acquired and built
pursuant to the Agreement for Lease was acquired in accordance with the terms
of the Agreement for Lease and built in all material respects in accordance
with Unit Plans (as defined in the Agreement for
(xiv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Lease) relating to such Property. The representations and warranties of the
Lessee, as agent, in the Agreement for Lease are true and correct in all
material respects.
(n) ERISA. The Lessee has not established and does not
maintain or contribute to any employee benefit plan that is covered by Title
IV of the Employee Retirement Income Security Act of 1974, as amended, from
time to time.
(o) Status of Lessee. Not less than 90% of the Lessee's common
stock is owned directly or indirectly by the Guarantor.
3. Lease of Property or Equipment.
(a) Subject to the terms and conditions hereof, the Lessor
shall lease to the Lessee, and the Lessee may lease from the Lessor pursuant
to this Lease, any Property or Equipment, when and as the Lessee has need of
such Property or Equipment; provided, that:
(i) such Property or Equipment is available for purchase
or, in the case of Property only, lease pursuant to a
Mortgageable Ground Lease;
(ii) except with respect to any Parcel of Property
acquired and built pursuant to the Agreement for Lease, the
Lessor has approved the purchase order or acquisition with
respect to such Equipment or the acquisition or ground
leasing with respect to such Property (which approval shall
be in the sole discretion of the Lessor);
(iii) at the time any such Property or Equipment is to be
ordered or leased hereunder there exists no Event of Default
or Potential Default;
(iv) with respect to any Property acquired and built
pursuant to the Agreement for Lease, Substantial Completion
(as defined in the Agreement for Lease) shall have occurred;
and
(v) the sum of (A) the Acquisition Cost of such Property
or Equipment and (B) the aggregate Adjusted Acquisition Cost
of all other Property or Equipment leased hereunder would
not, at the time any such Property or Equipment is to be
leased hereunder, exceed such amount as the Lessor and the
Lessee may from time to time agree.
(b) The lease hereunder of a Parcel of Property acquired and
built pursuant to the Agreement for Lease shall be evidenced by an AFL Unit
Leasing Record. Subject to the terms of paragraph (a) of Section 3 hereof,
upon Substantial Completion (as defined in the
(xv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Agreement for Lease) of a Parcel of Property acquired and built pursuant to
the Agreement for Lease, the Lessee shall prepare an AFL Unit Leasing Record.
The AFL Unit Leasing Record shall give a full description of the Property,
its Acquisition Cost, its Initial Term, Extended Term and Renewal Term, the
Monthly Rent Component with respect to such Property, and such other details
as the Lessor and the Lessee may from time to time agree. Within seven (7)
Business Days of the Lessor's receipt of the Certificate of Substantial
Completion relating to a Parcel of Property to be leased hereunder,
satisfaction of the other requirements of the Agreement for Lease and receipt
of a completed and executed AFL Unit Leasing Record, the Lessor shall execute
the AFL Unit Leasing Record and deliver it to the Lessee. The AFL Unit
Leasing Record shall have an Effective Date of the date of execution by the
Lessor of the AFL Unit Leasing Record. Execution and delivery by the Lessee
of an AFL Unit Leasing Record shall constitute (i) acknowledgment by the
Lessee that the Property specified in such AFL Unit Leasing Record has been
delivered to the Lessee in good condition and has been accepted for lease
hereunder by the Lessee as of the Effective Date of such AFL Unit Leasing
Record, (ii) acknowledgment by the Lessee that the Property specified in such
AFL Unit Leasing Record is subject to all of the covenants, terms and
conditions of this Lease, and (iii) certification by the Lessee that the
representations and warranties contained in Section 2 of this Lease are true
and correct in all material respects on and as of the Effective Date of such
AFL Unit Leasing Record as though made on and as of such date and that there
exists on such date no Event of Default or Potential Default. Execution and
delivery by the Lessor of an AFL Unit Leasing Record shall constitute
acknowledgment by the Lessor that the Property specified in such AFL Unit
Leasing record is subject to all of the covenants, terms and conditions of
this Lease.
(c) The lease of each Parcel of Property, other than a Parcel
of Property acquired and built pursuant to the Agreement for Lease, or Unit
of Equipment to the Lessee under this Lease shall be evidenced by a Unit
Leasing Record. The Lessee shall prepare and execute a Unit Leasing Record
with respect to each Parcel of Property or Unit of Equipment (which Unit
Leasing Record may relate to more than one Unit of Equipment) and deliver it
promptly to the Lessor. Contemporaneously with the payment required by
paragraph (b) of Section 5 hereof, the Lessor shall execute the acceptance of
such Unit Leasing Record and promptly return one copy of such Unit Leasing
Record to the Lessee. Execution and delivery by the Lessor of a Unit Leasing
Record shall constitute an acknowledgment by the Lessor that the Property or
Unit specified in such Unit Leasing Record is subject to all of the
covenants, terms and conditions of this Lease.
(d) The Lessee shall prepare each Unit Leasing Record pursuant
to the procedures provided by the Lessor. Each Unit Leasing Record shall
give a full description of the Parcel or Parcels of Property or Unit or Units
of Equipment covered thereby, the Acquisition Cost of each such Parcel or
Unit, the Initial Term, Extended Term and Renewal Term for each such Parcel
or Unit, the Monthly Rent Component with respect to each such Parcel or Unit,
its location and such other details as the Lessor and the Lessee may from
time to time agree.
(xvi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(e) Execution by the Lessee of a Unit Leasing Record shall
constitute (i) acknowledgment by the Lessee that the Property or
Equipment specified in such Unit Leasing Record has been delivered to the
Lessee in good condition and has been accepted for lease hereunder by the
Lessee as of the Effective Date, (ii) acknowledgment by the Lessee that the
Property or Equipment specified in such Unit Leasing Record is subject to all
of the covenants, terms and conditions of this Lease, and (iii) certification
by the Lessee that the representations and warranties contained in Section 2
of this Lease are true and correct on and as of the Effective Date as though
made on and as of the Effective Date and that there exists on the Effective
Date no Event of Default or Potential Default.
(f) In connection with any Parcel of Property acquired and
built pursuant to the Agreement for Lease, within six (6) months of the
Effective Date of such Parcel, the Lessee may deliver to the Lessor a
Certificate of Increased Cost (as defined in the Agreement for Lease)
pursuant to the Agreement for Lease setting forth the actual amount expended
by the Lessee for items included in the Unit Budget (as defined in the
Agreement for Lease) with respect to such Parcel while it was subject to the
Agreement for Lease. If, based upon such Certificate of Increased Cost, a
Completion Advance (as defined in the Agreement for Lease) is to be made, the
Lessor shall execute within seven (7) Business Days of receipt of such
Certificate of Increased Cost from the Lessee a revised AFL Unit Leasing
Record to amend the Adjusted Acquisition Cost for such Parcel to reflect the
increase in the Acquisition Cost.
4. Operating Lease.
Without limiting the application of Section 22 hereof, the Lessor
and the Lessee hereby declare that it is their mutual intent that for
accounting and regulatory purposes this Lease be treated as an operating
lease and not an instrument or evidence of indebtedness, and that the
relationship between the Lessor and the Lessee under this Lease shall be that
of lessor and lessee only. Title to and ownership of any Property or
Equipment shall at all times remain in the Lessor and at no time become
vested in the Lessee except in accordance with an express provision of this
Lease. The Lessee does not hereby acquire any right, equity, title or
interest in or to any Property or Equipment except pursuant to the terms
hereof.
5. Delivery.
(a) The Lessee shall acquire or order and accept Property,
other than Property acquired and built pursuant to the Agreement for Lease,
or Equipment pursuant to the procedures provided by the Lessor. The Lessor
shall not be liable to the Lessee for any failure to obtain, or delay in
obtaining, any Property or Equipment or any delay in the delivery of title to
the Lessor or possession of the Property or Equipment to the Lessee.
(xvii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(b) Upon acceptance for lease of a Parcel of Property, other
than Property acquired and built pursuant to the Agreement for Lease, or Unit
of Equipment by the Lessee and the Lessor and receipt by the Lessor of (i)
the vendor's invoice or invoices for such Unit of Equipment and a contract of
sale and deed with respect to each Parcel of Property, (ii) invoices or
other evidence satisfactory to the Lessor for any amounts included in the
Acquisition Cost of such Parcel or Unit payable to parties other than the
vendor, (iii) invoices or other evidence satisfactory to the Lessor
(including an appraisal with respect to a Parcel of Property or Unit of
Equipment) for any amounts included in the Acquisition Cost of such Parcel
or Unit that have been paid to the vendor or other parties by the Lessee and
for any costs included in the Acquisition Cost of such Parcel or Unit
incurred by the Lessee, (iv) with respect to each Parcel of Property,
an ALTA form title insurance commitment from a title insurance company
satisfactory to the Lessor, subject to no title exceptions other than those
approved by the Lessor, and (v) such other documentation as the Lessor may
reasonably require, the Lessor shall (A) pay to such vendor the amount of the
vendor's invoice or invoices and/or contract of sale for such Parcel or Unit
except to the extent previously paid by the Lessee, (B) pay to such other
parties such amounts payable, except to the extent previously paid by the
Lessee and (C) reimburse or pay to the Lessee for such amounts paid to the
vendor or other parties by the Lessee, for such costs incurred by the Lessee
and, if agreed between the Lessor and the Lessee, for the appraised value of
the Property or Equipment; provided, however, that in no event shall the sum
of all payments made pursuant to clauses (A), (B) and (C) above exceed the
Acquisition Cost of such Property or Equipment.
(c) The requirements for acceptance for lease hereunder of the
Property acquired and built pursuant to the Agreement for Lease shall be the
requirements set forth in the Agreement for Lease.
(d) The Lessee shall ensure that the installation or erection
of any Equipment is in all material respects in accordance with the
specifications and requirements of the vendor thereof.
(e) The obligations of the Lessee to pay all amounts payable
pursuant to this Lease (including specifically and without limitation amounts
payable under Sections 7 and 11 hereof) shall be absolute and unconditional
under any and all circumstances of any character, and such amounts shall be
paid without notice (other than notice specifically required by this Lease),
demand (other than demand specifically required by this Lease), defense,
setoff, deduction or counterclaim and without abatement, suspension,
deferment, diminution or reduction of any kind whatsoever, except as herein
expressly otherwise provided. The obligation of the Lessee to lease and pay
Basic Rent for any and all Property or Equipment accepted for use pursuant to
this Lease is without any warranty or representation, express or implied, as
to any matter whatsoever on the part of the Lessor or any Assignee or any
Affiliate of either, or anyone acting on behalf of any of them.
(xviii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
THE LESSEE HAS SELECTED AND SHALL SELECT ALL PROPERTY OR EQUIPMENT
ACQUIRED OR ORDERED ON THE BASIS OF ITS OWN JUDGMENT. NEITHER THE LESSOR NOR
ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE ACTING ON BEHALF OF ANY
OF THEM MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY, TITLE,
CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO
SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF ANY PROPERTY OR EQUIPMENT, OR
AS TO WHETHER ANY PROPERTY OR EQUIPMENT OR THE OWNERSHIP, USE, OCCUPANCY OR
POSSESSION THEREOF COMPLIES WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS
OF ANY KIND.
AS BETWEEN THE LESSEE AND THE LESSOR, ANY ASSIGNEE OR ANY
INDEMNIFIED PERSON, THE LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL
DEFENSES, SET-OFFS, DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR
FUTURE, AS TO THE LESSEE'S OBLIGATION TO PAY BASIC RENT AND ALL OTHER AMOUNTS
PAYABLE HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:
(A) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR
USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF ANY PROPERTY OR EQUIPMENT, LATENT OR NOT;
(B) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH THE LESSEE MAY HAVE AGAINST THE LESSOR, ANY ASSIGNEE OR ANY
INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER
TRANSACTION OR MATTER;
(C) ANY DEFECT IN TITLE OR OWNERSHIP OF PROPERTY OR EQUIPMENT OR
ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROPERTY
OR EQUIPMENT;
(D) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR
DESTRUCTION OF, OR DAMAGE TO, ANY PROPERTY OR EQUIPMENT, IN WHOLE OR IN PART,
OR CESSATION OF THE USE OR POSSESSION OF ANY PROPERTY OR EQUIPMENT BY THE
LESSEE FOR ANY REASON WHATSOEVER AND OF WHATEVER DURATION, OR ANY
CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE, TAKING OR
FORFEITURE OF ANY PROPERTY OR EQUIPMENT, IN WHOLE OR IN PART;
(xix)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(E) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE,
OWNERSHIP, OCCUPANCY OR POSSESSION OF THE PROPERTY OR EQUIPMENT BY THE LESSEE;
(F) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR
PROCEEDING BY OR AGAINST THE LESSEE OR THE LESSOR OR ANY ASSIGNEE;
(G) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(H) THE INVALIDITY OR UNENFORCEABILITY OF ANY BILL OF SALE OF
ANY PROPERTY OR EQUIPMENT EXECUTED IN CONNECTION WITH THIS LEASE OR ANY OTHER
INFIRMITY THEREIN OR LACK OF POWER OR AUTHORITY OF ANY PARTY THERETO TO ENTER
INTO SUCH BILL OF SALE; OR
(I) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR
NOT SIMILAR TO ANY OF THE FOREGOING.
THE LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER
MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL,
QUIT, RESCIND OR SURRENDER THIS LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS
TERMS HEREOF. Each payment of Basic Rent, Additional Rent and any other
amount due hereunder made by the Lessee shall be final, and the Lessee,
without waiving any other remedies it may have, will not seek or have any
right to recover all or any part of such payment from the Lessor or any
Assignee for any reason whatsoever. The making of payments under this Lease
by the Lessee shall not be deemed a waiver of any claim or claims that the
Lessee may assert against the Lessor or any other Person. The Lessor agrees
to repay the Lessee amounts paid to the Lessor to the extent such payments
were made in error and were not required by any of the terms or provisions
hereof.
(f) Notwithstanding any other provision contained in this
Lease, it is specifically understood and agreed that neither the Lessor nor
any Assignee nor any Affiliate of either, nor anyone acting on behalf of any
of them makes any warranties or representations or has any responsibility to
disclose any relevant information, or has any other responsibility or duty,
nor, except as set forth in Section 22 of this Lease, has the Lessor or any
Assignee or any Affiliate of either, or anyone acting on behalf of any of
them made any covenants or
(xx)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
undertakings, as to the accounting treatment to be accorded the Lessee or as
to the U.S. Federal or any state income or any other tax consequences, if
any, to the Lessee as a result of or by virtue of the transactions
contemplated by this Lease.
(g) In the event the title insurance policy insuring the
Lessor's interest in any Parcel of Property would not, in the absence of
special insurance by the Lessee, become effective until the date of
recordation of the deed, then the Lessee shall furnish such indemnity to the
title insurance company as it shall require in order to insure the Lessor's
interest in such Parcel of Property, effective as of the date of the
Effective Date.
6. Initial Term; Extended Term.
(a) The "Initial Term" with respect to any Parcel of Property
or Unit of Equipment leased hereunder shall commence on the Effective Date
set forth in the Unit Leasing Record or the AFL Unit Leasing Record for such
Parcel of Property or Unit of Equipment and shall continue for any partial
first calendar month plus the number of calendar months set forth opposite
such Parcel of Property or type of Equipment under the heading "Initial Term"
in Exhibit A hereto, unless terminated earlier pursuant to Section 12, 13,
14, 15, 16, 19 or 20 hereof. Notwithstanding the preceding sentence, if any
Ground Lease is terminated prior to the expiration of the then current term
of such Ground Lease, then, as provided in paragraph (d) of Section 29
hereof, the lease of any Parcel of Property subject to such Ground Lease
shall terminate on the date of termination of such Ground Lease and all of
the other terms and provisions of paragraph (d) of Section 29 hereof shall
apply to such termination.
(b) The "Extended Term" with respect to any Parcel of Property
or Unit of Equipment shall commence on the first day of the calendar month
following the last day of the Initial Term of such Parcel or Unit and shall
continue for the number of calendar months set forth opposite such Parcel of
Property or type of Equipment under the heading "Extended Term" in Exhibit A
hereto and specified in the Unit Leasing Record or the AFL Unit Leasing
Record for such Parcel of Property or Unit of Equipment, unless terminated
earlier pursuant to Section 12, 13, 14, 15, 16, 19 or 20 hereof.
Notwithstanding the preceding sentence, if any Ground Lease is terminated
prior to the expiration of the then current term of such Ground Lease, then,
as provided in paragraph (d) of Section 29 hereof, the lease of any Parcel of
Property subject to such Ground Lease shall terminate on the date of
termination of such Ground Lease and all of the other terms and provisions of
paragraph (d) of Section 29 hereof shall apply to such termination.
(c) With respect to each Unit of Equipment or Parcel of
Property, it is understood and agreed that the Initial Term of each Parcel of
Property or Unit of Equipment shall in no event exceed 75% of its economic
useful life.
(xxi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(d) Notwithstanding anything contained in this Section 6, the
provisions of Sections 10 and 11 hereof and paragraph (a) of Section 15
hereof shall apply with respect to any Property or Equipment from the time
such Property or Equipment is ordered by the Lessee, with the approval of the
Lessor, pursuant to procedures supplied by the Lessor.
7. Rent and Other Payments.
(a) The Lessee hereby agrees to pay the Lessor (i) on each
Basic Rent Payment Date, Basic Rent for the calendar month (or part thereof)
in which such Basic Rent Payment Date falls, with respect to each Parcel of
Property or Unit of Equipment leased during any part of such calendar month
hereunder for which the Effective Date is before the Lease Rate Date for such
calendar month, and (ii) on the Basic Rent Payment Date in the next
succeeding calendar month, Basic Rent for any partial first calendar month,
with respect to each Parcel of Property or Unit of Equipment for which the
Effective Date is on or after the Lease Rate Date for such calendar month.
(b) The Lessor shall furnish to the Lessee on the 16th day of
each calendar month (i) the percentage referred to in paragraph (a)(iii) of
the definition of "Basic Rent" in Section 1 hereof for such calendar month,
(ii) a summary of the calculations of Basic Rent and (iii) an invoice for
Basic Rent payable on such Basic Rent Payment Date or, if such day is not a
Business Day, on the next succeeding Business Day (the "Lease Rate Date").
(c) The Lessee hereby agrees to pay within five (5) Business
Days after demand all amounts (other than Basic Rent) payable hereunder,
including, without limitation, all amounts payable to any Indemnified Person
pursuant to Section 11 hereof.
(d) Without prejudice to the full exercise by the Lessor of
its rights under Sections 18 and 19 hereof, the Lessee shall pay to the
Lessor from time to time, on demand, as additional rent ("Additional Rent")
(i) amounts required to reimburse the Lessor for its obligations, costs and
expenses (not previously included in Basic Rent) incurred in acquiring,
financing (including equity financing) and leasing the Property or Equipment,
and (ii) under circumstances where any portion of an amount payable by the
Lessee to the Lessor hereunder is required to be paid to a lender under a
Credit Agreement and a "default rate" or interest factor would be applied to
the amount owed under the Credit Agreement in respect of any such amounts,
and to the extent legally enforceable, an amount computed by multiplying (A)
all sums not paid by the Lessee to the Lessor as provided in this Lease on or
before the date such payments are due by (B) the decimal equivalent of the
percentage referred to in paragraph (a)(iii) of the definition of "Basic
Rent" as most recently furnished by the Lessor, and by (C) a fraction having
a numerator equal to the number of days in the period from and including the
date such default rate became applicable under such Credit Agreement, to but
excluding the date of payment thereof and a denominator of 365, or in a leap
year, 366. The Lessee shall also pay to
(xxii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
the Lessor on demand an amount equal to any expenses incurred by the Lessor
in collecting such unpaid sums.
(e) Basic Rent and Additional Rent and any other amount
payable by the Lessee to the Lessor shall be paid such that immediately
available funds in the full amount due are available on the date due, to the
account of the Lessor at such bank, or to such account of such other Person
at such bank, or otherwise as the Lessor may from time to time designate in
writing to the Lessee.
(xxiii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(f) During the Lease Term of any Parcel of Property or Unit of
Equipment, the Lessor shall calculate, on each Lease Rate Date (except the
first Lease Rate Date hereunder), the difference, if any, between (i) the
Variable Component of Basic Rent paid by the Lessee for the previous calendar
month and (ii) an amount equal to what the Variable Component of Basic Rent
would have been for such calendar month had the Variable Component of Basic
Rent been calculated using the weighted average bond yield equivalent
percentage cost per annum on all Commercial Paper of the Lessor outstanding
at any time or the weighted average percentage cost per annum of other
borrowings outstanding at any time or a blended rate if both Commercial Paper
and other borrowings are outstanding at any time (as specified in clauses
(A), (B) and (C), respectively, in subparagraph (a)(iii) of the definition of
Basic Rent) during the previous calendar month (rather than during the
applicable Computation Period); provided, that with respect to the Variable
Component of Basic Rent for the last month of the Lease Term, such
calculation shall occur on the last day of the Lease Term. On or about
August 16, 1994 (or such other date that the Lessor so chooses), and
thereafter on or about August 16 of each year, and on the last day of the
Lease Term, the Lessor shall furnish to the Lessee a calculation of the
aggregate difference between the amounts determined under clause (i) above
and the correlating amounts determined under clause (ii) above (the
"Reconciliation Amount") for each calendar month since the date of this Lease
or each calendar month since the last time the Reconciliation Amount was
calculated, whichever is later. The Lessor and the Lessee agree that if the
Reconciliation Amount is a positive number, then such amount shall be
credited against the amount of Basic Rent that the Lessee is required to pay
on the next Basic Rent Payment Date (or Basic Rent Payment Dates, if such
amount shall exceed the amount of Basic Rent payable in the next succeeding
month), and if the Reconciliation Amount is a negative number, then such
amount shall be payable by the Lessee on the next Basic Rent Payment Date in
addition to the amount of Basic Rent due and payable on such Basic Rent
Payment Date, except that with respect to the Reconciliation Amount computed
on the last day of the Lease Term, such amount shall be paid by the Lessor to
the Lessee (in the case of a positive number) or by the Lessee to the Lessor
(in the case of a negative number) on the last day of the Lease Term. Any
notices required by this paragraph (f) which are furnished to the Lessee by
the Lessor shall be conclusive, absent manifest error, as to the contents
thereof.
8. Restricted Use; Compliance with Laws.
(a) The Lessee may, subject to the terms of this Lease, use
the Property or Equipment in the regular course of its business for any
lawful purpose.
(b) The Lessee shall promptly and duly execute, deliver, file
and record, at the Lessee's expense, all such documents, statements, filings
and registrations, and take such further action, as the Lessor shall from
time to time reasonably request in order to establish, perfect and maintain
the Lessor's title to and interest in the Property or Equipment and any
Assignee's interest in this Lease or any Property or Equipment as against the
Lessee or any third party in any
(xxiv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
applicable jurisdiction. The Lessee may, at the Lessee's own cost and
expense, change the place of principal location of any Equipment.
Notwithstanding the foregoing, no change of location shall be undertaken
unless and until all Legal Requirements shall have been met. At least once
each year prior to the anniversary of the date of this Lease, and upon
request after the occurrence of a Potential Default, the Lessee shall advise
the Lessor in writing where all Equipment leased hereunder as of such date is
principally located.
(c) The Lessee shall use commercially reasonable precautions
to prevent loss or damage to Property or Equipment and to prevent injury to
third persons or property of third persons. The Lessee shall cooperate fully
with the Lessor and all insurance companies providing insurance pursuant to
Section 10 hereof in the investigation and defense of any claims or suits
arising from the ownership, operation or use of any Equipment or ownership,
use, or occupancy of the Property; provided, that nothing contained in this
paragraph (c) shall be construed as imposing on the Lessor any duty to
investigate or defend any such claims or suits. The Lessee shall comply and
shall cause all Persons using or operating Equipment or using or occupying
Property to comply with all Contractual Requirements, Insurance Requirements
and Legal Requirements applicable to such Property or Equipment and to the
acquiring, titling, registering, leasing, insuring, using, occupying,
operating and disposing of Property or Equipment, and the licensing of
operators thereof, except any Contractual Requirements and Legal
Requirements, the noncompliance with which, individually or in the aggregate,
(i) will not place either the Lessor or any Assignee in any danger of civil
liability which the Lessor or any Assignee is not adequately indemnified for
(the Lessee's obligations under Section 11 of this Lease shall be deemed to
be adequate indemnification if no Event of Default exists and if such civil
liability is reasonably likely to be less than $5,000,000) or subject the
Lessor or any Assignee to any criminal liability as a result of failure to
comply therewith, (ii) will not result in a material diminution in the value
of any Property or Equipment, and (iii) is consistent with prudent business
practices.
(d) Upon reasonable prior notice and upon compliance with such
procedures as the Lessee may reasonably request to assure confidentiality and
security, the Lessor or any Assignee or any authorized representative of
either may during reasonable business hours from time to time inspect
Property or Equipment and deeds, registration certificates, certificates of
title and related documents covering Property or Equipment wherever the same
may be located, but neither the Lessor nor any Assignee shall have any duty
to make any such inspection.
(e) The Lessee shall not, without the prior written consent of
the Lessor, permit, or suffer to exist, any Lien, including mechanics' liens,
in respect of any Property or Equipment or this Lease or which might
interfere with the due and timely payment of any sum payable, or the exercise
of any rights, or the performance of any obligations hereunder, other than
Permitted Liens or those Liens placed thereon by, or arising from, the
Lessor's own actions or which are subject to a Permitted Contest, and shall
take such action, by bonding, deposit or payment, to remove or satisfy of
record within sixty (60) days of the placing thereof, any such
(xxv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Lien, nor may it assign any right or interest herein or in any Property or
Equipment unless such assignment is made in accordance with Section 33 of
this Lease. The Lessee shall not, without the prior written consent of the
Lessor, sublease or otherwise relinquish possession of any Property or
Equipment, except that (i) the Lessee may relinquish possession of Property
or Equipment to any contractor for use in performing work for the Lessee on
such Property or Equipment; provided, that such relinquishment of possession
shall in no way affect the obligations of the Lessee or the rights of the
Lessor hereunder and with respect to the Property or Equipment and (ii) the
Lessee may sublease any Parcel of Property or Unit of Equipment; provided,
that (A) (unless the sublease is to the Guarantor or an Affiliate of the
Guarantor) the terms of the instrument of sublease and the identity of the
sublessee shall be subject to the prior written approval of the Lessor and
any Assignee, which approval shall not be unreasonably withheld or delayed,
(B) each such sublease shall expressly be made subject and subordinate to the
provisions hereof and shall, at the sole option of the Lessor, by its terms
be subject to termination upon the termination for any reason of this Lease,
(C) no such sublease shall modify or limit any right or power of the Lessor
hereunder or affect or reduce any obligation of the Lessee hereunder, and all
such obligations shall continue in full force and effect as obligations of a
principal and not of a guarantor or surety, as though no such subletting had
been made, and (D) any such sublease made otherwise than as expressly
permitted by this paragraph (e) shall be void and of no force and effect. As
additional security to the Lessor for the performance of the Lessee's
obligations under this Lease, the Lessee hereby assigns to the Lessor all of
its right, title and interest in and to all subleases permitted hereby. The
Lessor shall have the present and continuing right to collect and enjoy all
rents and other sums of money payable under any such sublease, and the Lessee
hereby irrevocably assigns such rents and other sums to the Lessor for the
benefit and protection of the Lessor; provided, that unless an Event of
Default shall have occurred and be continuing hereunder, the Lessee shall be
entitled to collect and enjoy such rents and other sums. The Lessee shall,
within thirty (30) days after the execution of any such sublease, deliver a
conformed copy thereof to the Lessor. Nothing contained in this Lease shall
be construed as constituting the consent or request of the Lessor, express or
implied, to or for the performance by any contractor, laborer, materialman or
vendor of any labor or services or for the furnishing of any materials for
any construction, alteration, addition, repair or demolition of or to any
Property or Equipment or any part thereof. Notice is hereby given that the
Lessor will not be liable for any labor, services or materials furnished or
to be furnished to the Lessee, or to anyone holding any Property or Equipment
or any part thereof through or under the Lessee, and that no mechanics' or
other liens for any such labor, services or materials shall attach to or
affect the interest of the Lessor in and to the Property or Equipment.
(f) The Lessee shall register and title all automotive
Equipment in the name of the Lessor except that, where required or permitted
by law or regulation, Equipment may, with the written approval of the Lessor
be registered (but not titled) in the name of the Lessee. If requested by
the Lessor, the Lessee shall cause one of its officers to hold in his custody
and control all registration certificates and certificates of title covering
automotive Equipment, as
(xxvi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
custodian for the Lessor. The Lessee agrees to cause such officer to furnish
to the Lessor, upon reasonable request, a certificate to the effect that all
registration certificates and certificates of title pursuant to any Legal
Requirement have been obtained and are being held on behalf of the Lessor.
(g) On or prior to the pertinent Effective Date, the Lessee
shall affix or cause to be affixed to each Unit of Equipment, except for
motor vehicles in states with documents of title, in the place designated by
the Lessor (or, if no such place shall have been designated, in a prominent
place), labels, plates or other markings stating that such Unit of Equipment
is owned by the Lessor. The Lessee shall not without the prior permission of
the Lessor change or remove (or permit to be changed or removed or otherwise
permit a decrease in the visibility of) any insignia or lettering which is on
any Equipment at the time of delivery thereof or which is thereafter placed
thereon indicating the Lessor's ownership thereof.
9. Maintenance, Improvement and Repair
of Property or Equipment.
(a) Upon request of the Lessee, the Lessor will, so long as no
Event of Default shall have occurred and be continuing, assign or otherwise
make available to the Lessee any and all rights or claims the Lessor may have
under any vendor's or manufacturer's warranties or undertakings with respect
to any Property or Equipment.
(b) The Lessee shall pay all costs, expenses, fees and charges
incurred in connection with the ownership, use or occupancy of any Parcel of
Property or ownership, use and operation of any Unit of Equipment. Except as
otherwise provided in Section 15 hereof, the Lessee shall at all times, at
its own expense, and subject to reasonable wear and tear, keep Property or
Equipment in good operating order, repair, condition and appearance. The
foregoing undertaking to maintain Property or Equipment in good repair shall
apply regardless of the cause necessitating repair, and as between the Lessor
and the Lessee all risks of damage to Property or Equipment are assumed by
the Lessee. With respect to any Parcel of Property, the undertaking to
maintain in good repair shall include, without limitation, all interior and
exterior repairs, whether structural or nonstructural, foreseen or
unforeseen, ordinary or extraordinary and all common area maintenance
including, without limitation, removal of dirt, snow, ice, rubbish and other
obstructions and maintenance of sidewalks and landscaping.
(c) With respect to any Parcel of Property, the Lessee shall
pay: (i) all taxes, assessments, levies, fees, water and sewer rents and
charges, and all other governmental charges, general and special, ordinary
and extraordinary, foreseen and unforeseen, which are, at any time, imposed
or levied upon or assessed against (A) the Parcel, (B) any Basic Rent, any
Additional Rent or other sum payable hereunder or (C) this Lease, the
leasehold estate hereby created, or which arises in respect of the ownership,
operation, occupancy, possession or use of the Parcel;
(xxvii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(ii) all gross receipts or similar taxes (i.e., taxes based upon gross income
which fail to take into account all customary deductions (e.g., ordinary
operating expenses and interest) relating to the Parcel) imposed or levied
upon, assessed against or measured by any Basic Rent, or any Additional Rent
or other sum payable hereunder; (iii) all sales, value added, use and similar
taxes at any time levied, assessed or payable on account of the acquisition,
leasing or use of the Parcel; and (iv) all charges of utilities and
communications services serving the Parcel. The Lessee shall not be required
to pay any franchise, unincorporated business, estate, inheritance, transfer,
income or similar tax of the Lessor (other than any tax referred to in clause
(ii) above) unless the Lessee receives written notice from the Lessor that
such tax is imposed, levied or assessed in substitution for any other tax,
assessment, charge or levy which the Lessee is required to pay pursuant to
this paragraph (c); provided, however, that if at any time during the term of
this Lease, the method of taxation shall be such that there shall be levied,
assessed or imposed on the Lessor a capital levy or other tax directly on the
rents received therefrom, or upon the value of any Parcel or any present or
any future improvement or improvements on any Parcel, then all such taxes,
assessments, levies or charges or the part thereof so measured or based,
shall be payable by the Lessee, but only to the extent that such taxes would
be payable if the Property affected were the only property of the Lessor, and
the Lessee shall pay and discharge the same as herein provided. The Lessee
will furnish to the Lessor, promptly after demand therefor, proof of payment
of all items referred to above which are payable by the Lessee. If any such
assessments may legally be paid in installments, the Lessee may pay such
assessment in installments.
(d) The Lessee shall not make any material alterations to any
Equipment without the prior written consent of the Lessor, which consent
shall not be withheld or delayed, unless such alteration would materially
adversely affect the value of the applicable Equipment, in which case the
Lessor may withhold consent to such alteration. Any improvements or
additions to any Equipment shall become and remain the property of the
Lessor, except that any addition to Equipment made by the Lessee shall remain
the property of the Lessee if it can be removed from such Equipment without
impairing the functioning of such Equipment or its resale value, excluding
such addition. Any improvements or additions which do not remain property of
the Lessee shall be evidenced by a revised Unit Leasing Record.
(e) So long as no Event of Default shall have occurred and be
continuing, the Lessee may, at its expense, make additions to and alterations
to any Parcel of Property; provided, that upon completion of such additions
or alterations (i) neither the fair market value of the Parcel of Property
shall be materially reduced thereby nor the condition of such Parcel of
Property materially impaired, below the value, utility or condition thereof
immediately prior to such action (assuming such Parcel of Property was then
of a condition and repair required to be maintained pursuant to paragraph (b)
of Section 9 hereof, (ii) such additions or alterations shall not result in a
change of use of such Parcel of Property, which change shall, in the
reasonable judgment of the Lessor, materially increase the risk of liability
to third parties, (iii) such work shall be completed in a good and
workmanlike manner and in compliance with all applicable
(xxviii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Contractual Requirements, Legal Requirements and Insurance Requirements and
(iv) no exterior walls of any building or other improvement constituting a
part of a Parcel of Property shall be demolished unless the Lessee has made
adequate provision according to nationally recognized sound and prudent
engineering and architectural standards to preserve and maintain the
structural integrity of the Parcel of Property and for the restoration of
such Parcel of Property to a structurally sound architectural whole and,
except with respect to the North Shoreline Property, if such addition or
alteration costs more than five (5%) of Acquisition Cost, the obligations of
the Lessee to preserve, maintain and restore are reasonably assured to the
Lessor's satisfaction. With respect to the North Shoreline Property, the
Lessee presently intends to use and occupy such Unit for general, executive
and administrative offices, light manufacturing, operation of training
facilities, research and development and similar uses (and uses ancillary or
accessory to the foregoing), in all cases in compliance with all applicable
zoning and land use restrictions applicable to the Unit Premises. The Lessee
will not undertake any additional uses of any portion of the North Shoreline
Property without the prior written consent of the Lessor, which consent shall
not be withheld unless the proposed additional use, in the reasonable
judgment of the Lessor, will (i) be reasonably likely to result in a material
diminution of the value of the North Shoreline Property or (ii) entail
greater risks of civil or criminal liability to the Lessor, as owner of the
Unit. Any and all such additions and alterations shall be and remain part of
the Parcel of Property and shall be subject to this Lease, excluding,
however, additions and alterations comprised of partitions, floor covering,
moveable furniture and equipment, trade fixtures or other personal property
(other than the Equipment) which (A) were not installed at the expense of the
Lessor, (B) are not necessary for the operation of the applicable Parcel of
Property for its intended use and (C) can be removed without causing damage
to the remaining portion of the Property or, although their removal would
cause damage to the remaining portion of the Property, are removed only upon
the Lessee's repairing such damage with no resulting reduction in the fair
market value of the Property (collectively, "Removable property").
(f) Equipment, if any, included under an AFL Unit Leasing
Record shall be maintained, repaired, refurbished or replaced by the Lessee
when necessary in order to ensure that the Equipment located at the Parcel of
Property included in such AFL Unit Leasing Record will include the Equipment
listed on such AFL Unit Leasing Record or replacements for such Equipment of
the kind, quality and in the quantities included in such AFL Unit Leasing
Record and shall be maintained in good operating order, repair, condition and
appearance (provided that the Lessee may replace such Equipment with
equipment of different kind, quality and in different quantities if such
replacement equipment is of equal or greater value in the Lessor's good faith
judgment and is included in the FF&E Specifications, as defined in the
Agreement for Lease, which relate to such Parcel of Property). As equipment
is substituted for Equipment subject to the Lease, title to such substitute
equipment shall automatically be transferred to the Lessor and such equipment
shall be subject to this Lease and title to the existing Equipment for which
such equipment is being substituted shall be released by the Lessor.
(xxix)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
10. Insurance.
(a) Public Liability Insurance with Respect to Equipment. The
Lessee will carry at its own expense public liability insurance and property
damage insurance with respect to all Equipment (i) in amounts which are not
less than the public liability and property damage insurance applicable to
similar equipment owned, leased or held by the Lessee; provided, that in no
event shall such amounts be less than $5,000,000 per occurrence, (ii) of the
types usually carried by corporations engaged in the same or a similar
business, similarly situated with the Lessee, and owning or operating similar
equipment and which cover risk of the kind customarily insured against by
such corporations, and (iii) which are maintained in effect with insurers of
recognized responsibility rated "Very Good" or better by Best's Key Rating
Guide. The insurance required by this paragraph (a) may be subject to such
deductibles and the Lessee may self-insure with respect to the required
coverage only to the extent approved in writing by the Lessor. Except to the
extent otherwise so approved, self-insurance and deductibles aggregating not
more than $5,000,000 are hereby approved so long as the Guarantor's senior
debt rating or, if the Guarantor has no senior debt rating, Implied Senior
Debt Rating is BB+ or better by Duff & Phelps, BB+ or better by S&P, Ba1 or
better by Moody's or, if the Guarantor has no senior debt rating or Implied
Senior Debt Rating from any of Duff & Phelps, S&P or Moody's, NAIC 2 or
better by the NAIC; provided, however, that if the Guarantor's private debt
rating has not been reviewed by the NAIC within the prior 15 months, than
when Merrill Lynch Fixed Income Research Rating is 5.5 or higher; in all
other cases self-insurance and deductibles aggregating not more than
$1,000,000 are approved.
(b) Insurance Against Loss or Damage to Equipment. The Lessee
will maintain in effect with insurers of recognized responsibility rated
"Good" or better by Best's Key Rating Guide, at its own expense, physical
damage insurance with respect to all Equipment, which is of the type,
including with respect to deductibles and limits of self-insurance usually
carried by corporations engaged in the same or similar business, similarly
situated with the Lessee, and owning or operating similar equipment and which
cover risk of the kind customarily insured against by such corporations, and
in substantially the amount applicable to similar equipment owned, leased or
held by the Lessee; provided, that such insurance shall at all times be in an
amount not less than the replacement cost of all Equipment. The insurance
required by this paragraph (b) may be subject to such deductibles and the
Lessee may self-insure with respect to the required coverage only to the
extent approved in writing by the Lessor. Except to the extent otherwise so
approved, self-insurance and deductibles aggregating not more than $5,000,000
are hereby approved so long as the Guarantor's senior debt rating or, if the
Guarantor has no senior debt rating, Implied Senior Debt Rating is BB+ or
better by Duff & Phelps, BB+ or better by S&P, Ba1 or better by Moody's or,
if the Guarantor has no senior debt rating or Implied Senior Debt Rating from
any of Duff & Phelps, S&P or Moody's, NAIC 2 or better by the NAIC; provided,
however, that if the Guarantor's private debt rating has not been reviewed by
the NAIC within the prior 15 months, than when Merrill Lynch Fixed Income
Research Rating is 5.5 or
(xxx)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
higher; in all other cases self-insurance and deductibles aggregating not
more than $1,000,000 are approved.
(c) Insurance with respect to Property. The Lessee will
maintain or cause to be maintained insurance of the following character, on
each Parcel of Property:
(i) All risk insurance coverage against losses by fire
and lightning and other risks for the full insurable
replacement value of each Parcel of Property, with agreed
amount endorsement or endorsements providing equivalent
protection, including loss by windstorm, hail, explosion,
riot (including riot attending a strike), civil commotion,
aircraft, vehicles, smoke damage, and vandalism and malicious
mischief, in amounts not less than the full insurable
replacement value of all buildings and other improvements
on each Parcel of Property, but in no event less than the
replacement cost of each Parcel of Property. The term "full
insurable replacement value" as used herein means the
actual replacement cost, including the costs of debris
removal, but excluding the cost of constructing foundation
and footings.
(ii) Comprehensive general public liability insurance
covering the legal liability of the Lessor and the Lessee
against claims for bodily injury, death or property damage,
occurring on, in or about each Parcel of Property or
occurring as a result of ownership of facilities located on
each Parcel of Property or as a result of the use of products
or materials manufactured, stored, processed, constructed or
sold, or services rendered, on each Parcel of Property, in
the minimum amount of $5,000,000 with respect to any one
occurrence, accident or disaster or incidence of negligence.
(iii) The Lessee shall comply with applicable workers'
compensation laws of the states where each Parcel of
Property is located, and shall maintain such insurance if
and to the extent necessary for such compliance.
(iv) Explosion insurance in respect of any boilers and
similar apparatus located on each Parcel in the minimum
amount of $250,000 or in such greater amounts as are then
customary for property similar in use to each Parcel.
(v) Such other insurance, in such amounts and against
such risks, as is customarily maintained by operators of
similar properties; provided,
(xxxi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
however, that in no event shall the Lessee be requested to
maintain earthquake, errors and omissions, pollution or
professional liability insurance.
The insurance required under this paragraph (c) shall be maintained in effect
with insurers of recognized responsibility rated "Very Good" or better by
Best's Key Rating Guide in the case of subsection (ii) and "Good" or better
by such Guide in the case of the other subsections. Such insurance may
provide for such deductibles and the Lessee may self-insure with respect to
the required coverage only to the extent approved in writing by the Lessor.
Except to the extent otherwise so approved, self-insurance and deductibles
aggregating not more than $5,000,000 are hereby approved so long as the
Guarantor's senior debt rating or, if Guarantor has no senior debt rating,
Implied Senior Debt Rating is BB+ or better by Duff & Phelps, BB+ or better
by S&P, Ba1 or better by Moody's or, if the Guarantor has no senior debt
rating or Implied Senior Debt Rating from any of Duff & Phelps, S&P or
Moody's, NAIC 2 or better by the NAIC; provided, however, that if the
Guarantor's private debt rating has not been reviewed by the NAIC within the
prior 15 months, than when Merrill Lynch Fixed Income Research Rating is 5.5
or higher; in all other cases self-insurance and deductibles aggregating not
more than $1,000,000 are approved.
Insurance claims by reason of damage or destruction to any Parcel
of Property shall be adjusted by the Lessee, subject to the approval of the
Lessor if the amount claimed exceeds $1,000,000, which approval the Lessor
agrees not to unreasonably withhold or delay; provided, that the Lessor may
participate at the Lessee's cost in the adjustment of any insurance claim in
connection with a casualty to a Parcel of Property resulting in a termination
of this Lease with respect to such Parcel.
(d) The insurance required by this Section 10 may be provided
by means of a so-called "blanket" or "umbrella" policy, provided that if such
a blanket or umbrella policy is utilized by the Lessee to provide the
insurance coverage required by subsections (a) or (c)(ii) hereof, such policy
shall be issued by an insurer of recognized responsibility rated "Very Good"
or better by Best's Key Rating Guide.
(e) No separate insurance not otherwise required by this
Section 10 shall be deemed required as a result of Lessee's obligations under
Section 11.
(f) Additional Insureds; Notice. Any policies of insurance
carried in accordance with this Section 10 and any policies taken out in
substitution or replacement for any such policies (i) shall name the Lessor,
Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor
and its shareholders, officers and directors, the limited partners of the
Lessor, and each Assignee as additional insureds, as their respective
interests may appear (but without imposing upon any such Person any
obligation imposed on the insured, including, without limitation, the
liability to pay the premium for any such policy), (ii) with respect to
(xxxii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
insurance carried in accordance with the preceding paragraphs (b), (c)(i),
(c)(iv), (c)(v) and (e) shall name the Assignee, if any, or the Lessor, if no
Assignment has been made, as loss payee, (iii) with respect to insurance
carried in accordance with the preceding paragraphs (b), (c) and (e), shall
provide that as against the Lessor the insurers shall waive any rights of
subrogation, (iv) shall provide that if the insurers cancel such insurance
for any reason whatsoever, or any substantial change is made in the coverage
or the same is allowed to lapse for nonpayment of premium or such insurance
coverage is reduced, such cancellation, change, lapse or reduction shall not
be effective as to the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the
general partner of the Lessor and its shareholders, officers and directors,
the limited partners of the Lessor, or any Assignee for thirty (30) days
after receipt by the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the
general partner of the Lessor and its shareholders, officers and directors,
the limited partners of the Lessor, or such Assignee, as the case may be, of
written notice by such insurers of such cancellation, change, lapse or
re-duction, and (v) shall provide that in respect of the interest of the
Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general partner of the
Lessor and its shareholders, officers and directors, the limited partners of
the Lessor, and each Assignee in such policies the insurance shall not be
invalidated by any action or inaction of the Lessee or any other Person
(other than of the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the
general partner of the Lessor and its shareholders, officers and directors,
the limited partners of the Lessor, or any such Assignee in respect of its
own interest) and shall insure the interests of the Lessor, Merrill, Merrill
Lynch, Merrill Leasing, the general partner of the Lessor and its
shareholders, officers and directors, the limited partners of the Lessor, and
each such Assignee, as they appear, regardless of any breach or violation of
any warranties, declarations or conditions contained in such policies by the
Lessee or any other Person. Each liability policy (A) shall be primary
without right of contribution from any other insurance which is carried by
the Lessor with respect to its interest as such in the Property or Equipment
and (B) shall expressly provide that all of the provisions thereof, except
the limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured.
(g) Application of Insurance Proceeds for Loss or Taking. As
between the Lessor and the Lessee it is agreed that any insurance payments
received as the result of the occurrence of (i) any event of loss described
in paragraph (c) of Section 15 hereof with respect to any Parcel of Property
or Unit of Equipment, or (ii) any event of Taking described in Section 16
hereof shall be paid to an account of the Lessor and paid out, as set forth
in paragraph (c) of Section 15 hereof.
(h) Application of Insurance Proceeds for Other than Loss or
Taking. As between the Lessor and the Lessee, the insurance proceeds of any
property damage loss to any Property or Equipment, but, in the case of
Property, only if in excess of $1,000,000 will be held in an account of the
Lessor and applied in payment (or to reimburse the Lessee) for repairs or
replacement in accordance with the terms of paragraph (b) of Section 15
hereof. The Lessee shall be entitled (i) to receive the amounts so deposited
against certificates, invoices or bills
(xxxiii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
reasonably satisfactory to the Lessor, delivered to the Lessor from time to
time as such work or repair progresses, and (ii) to direct the investment of
the amounts so deposited as provided in paragraph (i) of this Section 10. To
the extent that the Lessor estimates that the cost of such work or repair
shall exceed the amount of proceeds, the Lessee shall make adequate
provisions for the payment thereof, which provisions shall be reasonably
acceptable to the Lessor. Any moneys remaining in the aforesaid account
after final payment for repairs has been made shall be paid to the Lessee.
To the extent that the insurance proceeds with respect to any property damage
loss to any Property are less than $1,000,000, such proceeds shall be paid
over to the Lessee by the Lessor for application to the cost of repairing or
replacing the Property.
(i) Investment. The Lessor, at the Lessee's instruction, may
invest the amounts deposited with the Lessor pursuant to paragraph (h) of
this Section 10 in any investments permitted under a Credit Agreement. Such
investments shall mature in such amounts and on such dates so as to provide
that amounts shall be available on the draw dates sufficient to pay the
amounts requested by and due to the Lessee. Any interest earned on
investments of such funds shall be paid to the Lessee. The Lessor shall not
be liable for any loss resulting from the liquidation of each and every such
investment and the Lessee shall bear the risk of such loss, if any.
(j) Application in Default. Any amount referred to in
paragraphs (f), (g) or (h) of this Section 10 which is payable to the Lessee
shall not be paid to the Lessee or, if it has been previously paid to the
Lessee, shall not be retained by the Lessee, if at the time of such payment
an Event of Default shall have occurred and be continuing. In such event,
all such amounts shall be paid to and held by the Lessor as security for the
obligations of the Lessee hereunder or, at the Lessor's option, applied by
the Lessor toward payment of any of such obligations of the Lessee at the
time due hereunder as the Lessor may elect. At such time as there shall not
be continuing any Event of Default, all such amounts at the time held by the
Lessor in excess of the amount, if any, which the Lessor shall have elected
to apply as above provided shall be paid to the Lessee.
(k) Certificates. On or before the execution of this Lease,
on the Effective Date with respect to any Parcel of Property or Unit of
Equipment, and annually on or within 15 days after the anniversary of the
date of this Lease, the Lessee will furnish to the Lessor certificates or
other evidence reasonably acceptable to the Lessor certifying that the
insurance then carried and maintained on each Parcel of Property or Unit of
Equipment complies with the terms hereof.
(xxxiv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(l) Use or Operation of Property and Equipment. The Lessee
covenants that it will not use or operate any Equipment or use or occupy any
Property or permit the use or occupancy of any Property or the use or
operation of any Equipment at a time when the insurance required by this
Section 10 is not in force with respect to such Property or Equipment.
(m) Prosecution of Claims. The Lessee may, at its cost and
expense, prosecute any claim against any insurer or contest any settlement
proposed by any insurer, and the Lessee may bring any such prosecution or
contest in the name of the Lessor, the Lessee, or both, and the Lessor will
join therein at the Lessee's request; provided, that the Lessee shall
indemnify the Lessor against any losses, costs or expenses (including
reasonable attorneys' fees) which the Lessor may incur in connection with
such prosecution or contest.
11. Indemnities.
The Lessee shall indemnify and hold harmless the Lessor, Merrill,
Merrill Lynch, Merrill Leasing, any Assignee, any successor or successors,
and any Affiliate of each of them, and their respective officers, directors,
incorporators, shareholders, partners (general and limited, including,
without limitation, the general and limited partners of the Lessor),
employees, agents and servants (each of the foregoing an "Indemnified
Person") from and against all liabilities (including, without limitation,
strict liability in tort), taxes (to the extent provided in paragraph (c) of
this Section 11), losses, obligations, claims (including, without limitation,
strict liability in tort), damages, penalties, causes of action, suits, costs
and expenses (including, without limitation, attorneys' and accountants' fees
and expenses) or judgments of any nature relating to or in any way arising
out of:
(a) The ordering, delivery, acquisition, construction, title
on acquisition, rejection, installation, possession, titling, retitling,
registration, reregistration, custody by the Lessee of title and registration
documents, ownership, use, non-use, misuse, financing, operation,
transportation, repair, control or disposition, including, without
limitation, disposition at the end of any Extended or Renewal Term, of any
Property or Equipment, or the past, present or future presence or the release
of hazardous substances on, under, to or from, or the generation on or
transportation of hazardous substances to or from, or the failure to report,
disclose or remediate the foregoing with respect to, any Property, leased or
to be leased hereunder, (i) except to the extent that such costs are included
in the Acquisition Cost of such Property or Equipment within the limitations
provided in paragraph (a)(v) of Section 3 hereof (or within any change of
such limitations agreed to in writing by the Lessor and the Lessee), (ii)
except for any general administrative expenses of the Lessor, and (iii)
except that this indemnity shall not increase any payment required to be made
by the Lessee pursuant to paragraphs (b)(iii)(A), (c)(iii)(A) or (d)(iii)(A)
of Section 12 of this Lease;
(xxxv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(b) The assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of any Property or Equipment; provided, however, that upon request of
the Lessee, the Lessor will make available to the Lessee the Lessor's rights
under any similar indemnification arising from any manufacturer's or vendor's
warranties or undertakings with respect to any Property or Equipment;
(c) All U.S. Federal, state, county, municipal, foreign or
other fees and taxes of whatsoever nature, including but not limited to
license, qualification, franchise, sales, use, gross income, gross receipts,
ad valorem, business, personal property, real estate, value added, excise,
motor vehicle, occupation fees and stamp or other taxes or tolls of any
nature whatsoever, and penalties and interest thereon, whether assessed,
levied against or payable by the Lessor or otherwise, with respect to any
Property or Equipment or the acquisition, pur-chase, sale, rental, use,
operation, control, ownership or disposition of any Property or Equipment
(including, without limitation, any claim by any Governmental Authority for
transfer tax, transfer gains tax, mortgage recording tax, filing or other
similar taxes or fees in connection with the acquisition of any Property by
the Lessor or otherwise in connection with this Lease) or measured in any way
by the value thereof or by the business of, investment in, or ownership by
the Lessor with respect thereto; provided, that this indemnity shall not
apply to (i) Federal net income taxes, (ii) to state and local taxes based on
or measured by net income or imposed in lieu of a net income tax, including,
without limitation, any such franchise tax, minimum and alternative minimum
tax measured by items of tax preference, and any such similar tax based on
doing business, capital, receipts, or net worth (hereinafter an "Income
Tax"), except that such indemnity shall apply to Income Taxes (A) to the
extent imposed by reason in whole or in part of (1) a relation or asserted
relation of any such taxing jurisdiction to the Property or Equipment or to
the transactions contemplated herein or (2) the actual or deemed use by any
Person of the Property or Equipment in such taxing jurisdiction, other than
in the case of both clauses (1) and (2), taxes to the extent such taxes would
have been imposed by a taxing jurisdiction because of a relationship between
the Lessor and such taxing jurisdiction without regard to the circumstances
described in clauses (1) and (2), and (B) to the extent imposed by Delaware,
New York or any State in which Property or Equipment is located as a result
of the inability to claim, disallowance or other loss by Virtual Funding,
Limited Partnership of deductions customarily allowed in computing net income
(e.g., interest expense, financing, administrative, ordinary operating
expenses and other fees and expenses, but not depreciation as the tax owner
of the Property or Equipment), (iii) taxes imposed because the Indemnified
Person is not a United States person within the meaning of section 7701(a)
(30) of the Code, and (iv) taxes arising upon a disposition by the Lessor in
violation of its obligations set forth in the first sentence of Section 21(a)
hereof or upon any assignment of the type set forth in the second sentence of
Section 21(a) hereof except for any such assignment contemplated by a Credit
Agreement; or
(d) Any violation, or alleged violation by the Lessee, of this
Lease or of any contracts or agreements to which the Lessee is a party or by
which it is bound or of any laws,
(xxxvi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
rules, regulations, orders, writs, injunctions, decrees, consents, approvals,
exemptions, authorizations, licenses and withholdings of objection, of any
governmental or public body or authority and all other Legal Requirements.
The indemnification obligations set forth in this Section with
respect to the parties herein named shall include, without limitation, all
liabilities, taxes, losses, obligations, claims, damages, penalties, causes
of action, suits, and to the extent reasonably incurred, costs and expenses
(including, without limitation, attorneys', environmental consultants, and
accountants' fees and expenses) or judgments of any nature relating to or in
any way arising out of Hazardous Substances (as defined in Exhibit J to the
Agreement for Lease) at, on, under, and/or migrating from or toward the North
Shoreline Property or affecting the North Shoreline Property in any way or
manner whatsoever and/or the noncompliance with or investigation or other
action pursuant to any applicable Environmental Regulations (as defined in
Exhibit J to the Agreement for Lease) by the Lessee or any other Person or
with respect to the North Shoreline Property, whether or not disclosed in the
Environmental Reports (as defined in Exhibit J to the Agreement for Lease).
The Lessee shall forthwith upon demand reimburse any Indemnified
Person for any sum or sums expended with respect to any of the foregoing or,
upon request from any Indemnified Person, shall pay such amounts directly;
provided, however, the foregoing obligations shall not qualify the Lessee's
rights under Section 28 with respect to the payment of taxes. Any payment
made to or on behalf of any Indemnified Person pursuant to this Section 11
shall be increased to such amount as will, after taking into account all
taxes im-posed with respect to the accrual or receipt of such payment (as the
same may be increased pursuant to this sentence), equal the amount of the
payment, reduced by the amount of any savings in such taxes actually realized
by the Indemnified Person as a result of the payment or accrual of the
amounts in respect of which the payment to or on behalf of the Indemnified
Person hereunder is made. To the extent that the Lessee in fact indemnifies
any Indemnified Person under the indemnity provisions of this Lease, the
Lessee shall be subrogated to such Indemnified Person's rights in the
affected transaction and shall have a right to determine the settlement of
claims therein.
The indemnities contained in this Section 11 shall not be affected
by any termination of this Lease as a whole or in respect of any Parcel of
Property or Unit of Equipment leased hereunder or any failure or refusal of
the Lessee to accept any Property or Equipment acquired or ordered pursuant
to the terms hereof.
Notwithstanding any provisions of this Section 11 to the contrary,
the Lessee shall not indemnify and hold harmless any Indemnified Person
against any claims and liabilities, including, without limitation, claims for
taxes described in paragraph (c), arising from the gross negligence or
willful misconduct of such Indemnified Person.
(xxxvii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
In the event the Lessor shall be a party defendant to any
litigation arising out of this Lease and the transactions related thereto for
which the Lessee has given indemnification under this Section 11, the Lessor
shall give prompt notice thereof to the Lessee by telephone and in writing.
No failure or delay of the Lessor to give the notice required by this Section
11 shall excuse the obligation of the Lessee to indemnify the Lessor with
respect to such litigation except to the extent that any increase in
liability is a direct result of such failure or delay.
In the event any claim, action, proceeding or suit is brought
against an Indemnified Person with respect to which the Lessee would be
required to indemnify such Indemnified Person, the Lessee shall have the
right to assume the defense thereof, including the employment at its expense
of counsel; provided that the Lessee shall not have such right, to the extent
that such Indemnified Person shall deliver to the Lessee a written notice
waiving the benefits of the indemnification of such Indemnified Person
provided by this Section 11 in connection with such claim, action, proceeding
or suit. Notwithstanding the foregoing, if (i) any criminal proceeding is
brought against an Indemnified Person who is an individual, (ii) the action
threatens to restrain or adversely affect the conduct of the business of the
Indemnified Person, but not the business of the Lessor's ownership of the
Property or Equipment under this Lease, (iii) the claim, action, proceeding
or suit seeks damages of more than $5,000,000, or (iv) independent counsel to
an Indemnified Person shall conclude that there may be defenses available to
the Indemnified Person which are different from, or additional to, and may
conflict with those available to the Lessee, the Lessee shall not have the
right to assume the defense of any such action on behalf of the Indemnified
Person if such Indemnified Person chooses to defend such action, and all
reasonable costs, expenses and attorney's fees incurred by the Indemnified
Person in defending such action shall be borne by the Lessee.
Notwithstanding the assumption of its defense by the Lessee pursuant to this
paragraph, any Indemnified Person shall have the right to employ separate
counsel and to participate in its defense, but the fees and expenses of such
counsel shall be borne by the Indemnified Person. In addition, the Lessee
will not be liable for any settlement of any claim, action, proceeding or
suit unless the Lessee has consented thereto in writing. Any decision by an
Indemnified Person to employ its own counsel rather than counsel selected by
the Lessee (whether or not at the Lessee's expense) shall in no way affect
any rights of such Indemnified Person otherwise arising under this Section 11.
(xxxviii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
12. Lessee's Right to Terminate.
(a) So long as no Event of Default has occurred and is
continuing and with respect to any Parcel of Property, the Lessee shall have
the right, upon twenty (20) days' notice to the Lessor during the first three
months of the Initial Term, and upon ninety (90) days' notice to the Lessor
thereafter, to terminate the lease of any Parcel of Property or any or all
Units of Equipment on any Basic Rent Payment Date, by arranging, at its own
cost and expense, for the sale of such Property or Equipment in an arms'
length transaction on the date of termination and the receipt by the Lessor
of the proceeds of such sale; provided that if such sale does not occur, this
Lease shall not terminate with respect to such Property or Equipment. At the
time a Parcel of Property or Unit of Equipment is sold pursuant to this
Section 12, such Parcel or Unit shall not be undergoing any additions or
alterations, shall be in compliance with all Contractual Requirements and
Legal Requirements and shall not be subject to any Permitted Contest or any
Lien, unless the proceeds of such sale will be equal to or greater than the
Adjusted Acquisition Cost of such Parcel of Property or Unit of Equipment
notwithstanding such ongoing additions or alterations, lack of compliance
with Contractual Requirements and Legal Requirements, Permitted Contest or
Lien, or unless otherwise agreed to in writing by the Lessor with respect to
the sale of such Property or Equipment. As a condition to the sale under
this Section of any Parcel of Property subject to a Ground Lease, the
Lessor's rights under such Ground Lease shall be assigned to the purchaser.
The sale of a Parcel of Property shall include all Equipment included in the
Unit Leasing Record or AFL Unit Leasing Record relating to such Parcel. For
purposes of this Section 12 the proceeds of sale in such case shall mean the
aggregate proceeds from the sale of such Parcel and Equipment and the
"Adjusted Acquisition Cost" shall mean the aggregate of the Adjusted
Acquisition Costs of such Parcel and Equipment. For purposes of paragraphs
(b) (c) and (d) of this Section 12, Property shall include the aforementioned
Equipment included in the same Unit Leasing Record or AFL Unit Leasing Record.
(b) In the event the Lessee exercises its right to terminate
the lease of any Equipment pursuant to this Section 12 on any Basic Rent
Payment Date of the Initial Term with respect to such Equipment or in the
event a termination of the lease of any Equipment occurs pursuant to Section
14 hereof and the Basic Rent Payment Date on which such termination occurs is
on or before the last month of the Initial Term of such Equipment and the
Lessee chooses to effect a sale pursuant to this Section:
(i) if the proceeds of sale are greater than the Adjusted
Acquisition Cost of the Equipment sold, the Lessor shall pay
to the Lessee the amount by which such proceeds exceed such
Adjusted Acquisition Cost;
(ii) if the proceeds of sale are equal to or less than
the Adjusted Acquisition Cost of the Equipment sold, but
greater than or equal to 15%
(xxxix)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
of the Adjusted Acquisition Cost of such Equipment, the
Lessee shall pay to the Lessor an amount equal to (A) such
Adjusted Acquisition Cost less (B) the proceeds of such
sale; and
(iii) if the proceeds of sale are less than 15% of the
Adjusted Acquisition Cost of the Equipment sold, the Lessee
shall pay to the Lessor an amount equal to the sum of (A)
85% of such Adjusted Acquisition Cost and (B) the amount by
which the residual value of such Equipment has been reduced
by wear and tear in excess of that attributable to normal
use (the amount of such excess wear and tear to be such
amount as the Lessor and the Lessee agree, or if no agreement
is reached, the amount determined pursuant to the Appraisal
Procedure).
(c) In the event the Lessee exercises its right to terminate
the lease of any Property pursuant to this Section 12 on any Basic Rent
Payment Date of the Initial Term with respect to such Property or in the
event a termination of the lease of any Property occurs pursuant to Section
14 hereof and the Basic Rent Payment Date on which such termination occurs is
on or before the last month of the Initial Term of such Property and the
Lessee chooses to effect a sale pursuant to this Section:
(i) If the proceeds of sale are greater than the Adjusted
Acquisition Cost of the Property sold, the Lessor shall pay
to the Lessee the amount by which such proceeds exceed such
Adjusted Acquisition Cost;
(ii) if the proceeds of sale are equal to or less than the
Adjusted Acquisition Cost of the Property sold, but greater
than or equal to 20% of the Adjusted Acquisition Cost of
such Property, the Lessee shall pay to the Lessor an amount
equal to (A) such Adjusted Acquisition Cost less (B) the
proceeds of such sale; and
(iii) if the proceeds of sale are less than 20% of the
Adjusted Acquisition Cost of the Property sold, the Lessee
shall pay to the Lessor an amount equal to the sum of (A)
80% of such Adjusted Acquisition Cost and (B) the amount by
which the residual value of such Property has been reduced
by wear and tear in excess of that attributable to normal
use (the amount of such excess wear and tear to be such
amount as the Lessor and the Lessee agree, or if no agreement
is reached, the amount determined pursuant to the Appraisal
Procedure).
(d) In the event the Lessee exercises its right to terminate the
lease of any Property or Equipment pursuant to this Section 12 on any Basic
Rent Payment Date during the
(xli)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Extended Term or Renewal Term with respect to such Property or Equipment or a
sale of Property or Equipment occurs during the Extended Term or Renewal Term
as the result of the Lessee's election under paragraph (b)(i) of Section 14
hereof:
(i) if the proceeds of sale are greater than the Adjusted
Acquisition Cost of the Property or Equipment sold, the
Lessor shall pay to the Lessee the amount by which such
proceeds exceed such Adjusted Acquisition Cost;
(ii) if the proceeds of sale are equal to or less than
the Adjusted Acquisition Cost of the Property or Equipment
sold, but greater than or equal to 13% of such Adjusted
Acquisition Cost, the Lessee shall pay to the Lessor an
amount equal to (A) such Adjusted Acquisition Cost less (B)
the proceeds of such sale; and
(iii) if the proceeds of sale are less than 13% of the
Adjusted Acquisition Cost, the Lessee shall pay to the
Lessor an amount equal to the sum of (A) 87% of such
Adjusted Acquisition Cost and (B) the amount by which the
residual value of such Property or Equipment has been
reduced by wear and tear in excess of that attributable
to normal use (the amount of such excess wear and tear
to be such amount as the Lessor and the Lessee agree, or
if no agreement is reached, the amount determined pursuant
to the Appraisal Procedure).
(e) All payments and credits referred to in paragraphs (b),
(c) and (d) above shall be made on the termination date of any Property or
Equipment pursuant to this Section 12, and the parties shall account to each
other for such payments and credits, and the Lessee shall pay to the Lessor
all Basic Rent payable, the Variable Component of Basic Rent accrued with
respect to such Property or Equipment and any Additional Rent and other
amounts owing hereunder. Upon receipt by the Lessor of the proceeds of sale
and all other amounts then due and owing hereunder, the Lessor shall transfer
title to such Property or Equipment to the purchaser at the sale designated
by the Lessee. The "proceeds of sale" referred to in paragraphs (b), (c) and
(d) shall mean the proceeds of sale without reduction for any amounts paid by
the Lessee. In the event of a sale pursuant to this Section 12, neither the
Lessee or any Affiliate of the Lessee shall purchase the Property or
Equipment sold.
(f) In its notice given pursuant to paragraph (a) of this
Section 12, the Lessee shall advise the Lessor if the sale provided for in
such notice will result in the applicability of paragraph (b)(iii) of Section
12, paragraph (c)(iii) of Section 12 or paragraph (d)(iii) of Section 12
hereof. If the Lessee advises the Lessor that any such Section will be
applicable, the Lessor may arrange for such sale to be made to a purchaser
designated by the Lessor, if such purchaser
(xli)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
will pay an amount sufficient to render paragraph (b)(iii) of Section 12,
paragraph (c)(iii) of Section 12 or paragraph (d)(iii) of Section 12 hereof
inapplicable. Unless the Lessor shall arrange for such sale and shall give
the Lessee notice thereof within thirty (30) days of the Lessee's notice
during the first three months of the Initial Term or within thirty (30) days
of the Lessor's receipt of the Lessee's notice at any other time, the Lessee
may proceed with the sale to a purchaser designated by it. Within thirty
(30) days of the Lessee's receipt of the Lessor's notice provided for in the
preceding sentence, the Lessee may arrange for such sale to be made to
another purchaser designated by it, if such purchaser shall pay an amount
sufficient to render paragraph (b)(iii) of Section 12, paragraph (c)(iii) of
Section 12 or paragraph (d)(iii) of Section 12 hereof inapplicable.
(g) If the Lessor and the Lessee shall not agree on the amount
of "wear and tear in excess of that attributable to normal use", the
Appraisal Procedure shall include as "wear and tear in excess of that
attributable to normal use", among other things, all reductions in the value
of the Property or the Equipment which result from actions of the Lessee,
whether or not permitted by the terms of the Agreement for Lease or this
Lease, in amending, modifying or supplementing the Design Development
Drawings (as defined in the Agreement for Lease), the Unit Plans (as defined
in the Agreement for Lease), the Unit Budget (as defined in the Agreement for
Lease) or the Unit FF&E Specifications (as defined in the Agreement for
Lease); which result from any encroachment by the Property or overhang of the
Property on any easement or right-of-way on the land of others and any
similar actions by Lessee as described in Section 16(c) during the period the
Property was subject to the Agreement for Lease or this Lease; which result
from any improvement, addition or alteration to the Property or Equipment, or
because Equipment has not been installed in accordance with the
specifications and requirements of the vendor thereof; or which result from
the Unit Improvements (as defined in the Agreement for Lease) not being built
in accordance with the Unit Plans (as defined in the Agreement for Lease) or
the Design Development Drawings (as defined in the Agreement for Lease); or,
with respect to the North Shoreline Property, which result from a change of
use thereof.
13. Lessee's Rights of Purchase and Renewal.
(a) So long as no Event of Default has occurred and is
continuing, the Lessee shall have the right, upon twenty (20) days' written
notice to the Lessor during the first three months of the Initial Term and
upon ninety (90) days' written notice to the Lessor at any other time, to
purchase any Parcel of Property or Unit of Equipment on any Basic Rent
Payment Date for an amount equal to its Adjusted Acquisition Cost. In
connection with any purchase under this paragraph (a), on the Basic Rent
Payment Date upon which such purchase occurs, the Lessee shall pay to the
Lessor the purchase price, all Basic Rent payable, the Variable Component of
Basic Rent accrued with respect to such Property or Equipment and any
Additional Rent and other amounts owing hereunder. Upon payment of such
amounts, the Lessor shall transfer the Parcel of Property to the Lessee or
any Person designated by the Lessee.
(xlii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(b) So long as no Event of Default has occurred and is
continuing, the Lessee shall have the right, upon ninety (90) days' written
notice to the Lessor, to renew the lease of any Parcel of Property or Unit of
Equipment for a term (the "Renewal Term") equal to the number of calendar
months set forth opposite such Parcel of Property or type of Equipment under
the heading "Renewal Term" in Exhibit A hereto, commencing on the first day
of the calendar month following the last day of the Lease Term thereof at the
fair market rental, except that, in the case of the North Shoreline Property,
the fair market rental shall be an amount equal to 0.125% per month of the
Acquisition Cost of such Property.
(c) Except to the extent noted above, the fair market rental
value of any Parcel of Property or Unit of Equipment for purposes of
paragraph (b) of this Section 13 shall be as agreed by the Lessor and the
Lessee or, if they are unable to agree, pursuant to the Appraisal Procedure.
14. Lessor's Right to Terminate.
(a) The Lessor shall have the right upon written notice to the
Lessee to terminate the lease of any or all Property or Equipment as of a
Basic Rent Payment Date stipulated in such notice if (i) at any time, for any
reason (other than an Event of Default by the Lessor under a Credit Agreement
(as therein defined) which has not been caused by or resulted from an Event
of Default under this Lease or from a breach by the Lessee of its obligations
under any agreement or document executed and delivered in connection with
this Lease), Commercial Paper cannot be issued by the Lessor upon terms
reasonably acceptable to the Lessor, the Lessor cannot arrange for bank
borrowings to finance or refinance the purchase of such Property or Equipment
upon terms reasonably acceptable to the Lessor, and the Lessor may no longer
make or continue borrowings under a Credit Agreement sufficient to finance or
refinance such purchase, (ii) at any time, for any reason (other than an
Event of Default by the Lessor under a Credit Agreement (as therein defined)
which has not been caused by or resulted from an Event of Default under this
Lease or from a breach by the Lessee of its obligations under any agreement
or document executed and delivered in connection with this Lease), a limited
partner or partners of the Lessor cannot arrange for borrowings from the bank
or banks acting as lender under a Credit Agreement in an amount equal to such
limited partners' limited partnership interest or interests in the Lessor or
(iii) such bank or banks which shall act as lender to a limited partner or
partners of the Lessor shall make a material change in the terms of any such
lending arrangement a condition precedent to the extension of such lending
arrangement without a corresponding change being effected under the Credit
Agreement to which such lender is a party.
(xliii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(b) In the event of a termination with respect to any or all
Property or Equipment pursuant to paragraph (a) of this Section 14, the
Lessee shall be required, at its option, either (i) to arrange for such
Property or Equipment to be sold under the terms and subject to the
conditions of Section 12 above and with the consequences therein provided,
except that such sale must occur on the Basic Rent Payment Date stipulated in
the written notice contemplated in paragraph (a) of this Section 14, or (ii)
to purchase, on the Basic Rent Payment Date stipulated in the written notice
contemplated by paragraph (a) of this Section 14, such Property or Equipment
for cash at its Adjusted Acquisition Cost. In connection with any purchase
or sale under this paragraph, on the Basic Rent Payment Date upon which such
purchase or sale occurs, the Lessee shall pay to the Lessor, in addition to
any purchase price payable, all Basic Rent payable, the Variable Component of
Basic Rent accrued with respect to such Property or Equipment and any
Additional Rent and other amounts owing hereunder.
15. Loss of or Damage to Property or Equipment.
(a) The Lessee hereby assumes all risk of loss of or damage to
Property or Equipment, however caused. No loss of or damage to any Property
or Equipment shall im-pair any obligation of the Lessee under this Lease,
which shall continue in full force and effect with respect to any lost or
damaged Property or Equipment. The Lessee hereby expressly waives the
benefits of Sections 1932 and 1933 of the California Civil Code.
(b) In the event of damage of any kind whatsoever to any
Property or Equipment (unless paragraph (c) of this Section shall be
applicable thereto) the Lessee, at its own cost and expense, shall place the
same in good operating order, repair, condition and appearance. The Lessee's
right to any proceeds paid under any insurance policy or policies required
under Section 10 of this Lease with respect to any such damage to any
Property or Equipment which has been so placed by the Lessee in good
operating order, repair, condition and appearance is governed by paragraph
(h) of Section 10 hereof.
(xliv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(c) If any Property or Equipment is lost, stolen, destroyed,
seized, confiscated, rendered unfit for use or damaged to such an extent (in
the reasonable judgment of the Lessee) that it is not practical for the
Lessee to repair and restore such Property or Equipment, or if the use
thereof by the Lessee in the ordinary course of business is prevented by the
act of any third Person or Persons or governmental instrumentality for a
period exceeding ninety (90) days, or if such Property or Equipment is
attached (other than on a claim against the Lessor as to which the Lessee is
not obligated to indemnify the Lessor) and the attachment is not removed
within ninety (90) days, or if a Taking as described in Section 16 shall
occur, then in any such event, (i) the Lessee shall promptly notify the
Lessor in writing of such event, (ii) on the Basic Rent Payment Date
following such event the Lessee shall pay to the Lessor an amount equal to
the Adjusted Acquisition Cost of such Property or Equipment, (iii) the Lease
Term or Renewal Term of such Property or Equipment shall con-tinue until the
Basic Rent Payment Date on which the Lessor receives payment from the Lessee
of the amount payable pursuant to this paragraph (c) and of Basic Rent
payable, the Variable Component of Basic Rent accrued with respect to such
Property or Equipment and any Additional Rent and other amounts owing
hereunder, and shall thereupon terminate and (iv) the Lessor shall on such
Basic Rent Payment Date transfer title to such Property or Equipment to the
Lessee, and the Lessee shall be subrogated to the Lessor's rights resulting
from such event. Insurance and condemnation proceeds, if any, received by
the Lessor in excess of the Adjusted Acquisition Cost of the affected
Property or Equipment, so long as no Event of Default has occurred and is
continuing, shall be paid by the Lessor to the Lessee upon the payment by the
Lessee of all amounts referred to in the preceding sentence or, if an Event
of Default has occurred and is continuing, shall be applied to amounts owing
by the Lessee under this Lease, and any excess shall be paid to the Lessee.
16. Condemnation and Dedication of Property; Easements.
(xlv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(a) If the use, occupancy or title to all or a substantial
portion of a Parcel of Property is taken, requisitioned or sold in, by or on
account of actual or threatened eminent domain proceedings or other action by
any person or authority having the power of eminent domain (such events
collectively referred to as a "Taking"), then the Lease Term or Renewal Term
of such Parcel of Property shall terminate as provided in paragraph (c) of
Section 15 hereof. Upon receipt of proceeds from any award or sale made in
connection with such Taking, if the Lessee has paid all amounts owing under
paragraph (c) of Section 15 hereof, so long as no Event of Default has
occurred and is continuing, the Lessor shall remit to the Lessee the net
amount of such proceeds remaining after reimbursement for all costs and
expenses (including, without limitation, reasonable attorneys' fees) incurred
by the Lessor in connection with the negotiation and settlement of any
proceedings related to such Taking, or if an Event of Default has occurred
and is continuing, such proceeds shall be applied to amounts owing by the
Lessee under this Lease, and any excess shall be paid to the Lessee. A
Taking shall be deemed substantial if the remainder of the Parcel of Property
is unusable for the Lessee's ordinary business purposes. Lessee may
conclusively establish that a Taking is "substantial" by so notifying the
Lessor and any Assignee. The Lessee hereby expressly waives the benefits of
Section 1265.130 of the California Code of Civil Procedure.
(b) If less than a substantial portion of a Parcel of Property
is subject to a Taking, then this Lease shall continue in effect as to the
portion of the Parcel not taken and any net proceeds, so long as no Event of
Default has occurred and is continuing, shall be paid to the Lessee; provided
that if as a result of all such partial Takings the aggregate proceeds
received are greater than $2,000,000, then the proceeds shall be paid to, or
retained by, the Lessor and any portion of such proceeds remaining after
application to amounts then due and owing to the Lessor shall be applied to
reduce the Adjusted Acquisition Cost of the affected Parcel or Parcels. Such
reduction shall be evidenced by a revised Unit Leasing Record or AFL Unit
Leasing Record, as the case may be.
(c) So long as no Event of Default hereunder has occurred and
is continuing, the Lessee shall have the right (i) to grant minor easements
for the benefit of any Parcel of Property, (ii) to voluntarily dedicate or
convey, as required, portions of any Parcel of Property for road, highway and
other public purposes and (iii) to voluntarily execute petitions to have any
Parcel of Property or a portion thereof annexed to any municipality or
included within any utility, highway or other improvement or service
district, provided that the Lessee promptly and diligently performs, at its
sole cost and expense, restoration repairs, or other work required. If any
monetary consideration is paid for any such easement or dedication, the
Lessee shall be entitled to receive or retain such consideration; provided
that if the aggregate consideration received for all such easements or
dedications is greater than $2,000,000, then such consideration shall be paid
to the Lessor and any portion of such consideration remaining after
application to amounts then due and owing to Lessor shall be applied to
reduce the Adjusted Acquisition Cost
(xlvi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
of the affected Parcel or Parcels. Such reduction shall be evidenced by a
revised Unit Leasing Record or AFL Unit Leasing Record, as the case may be.
The Lessee shall exercise the above power to grant without the
joinder of the Lessor, except that the Lessor will cooperate, without
unreasonable delay and at the Lessee's expense, as necessary and join in the
execution of any appropriate instrument or shall execute any separate
instrument as necessary. As a condition precedent to the Lessee's exercise
of any of the Lessee's powers under this Section 16, the Lessee shall provide
to the Lessor a certificate of the Lessee stating that such action will not
materially adversely affect either the fair market value of such Property or
the use of such Property for its intended purpose, will not affect the
Lessor's ability to exercise its rights and remedies under this Lease and
that the Lessee undertakes to remain obligated under this Lease to the same
extent as if the Lessee had not exercised its powers under this Section 16
and the Lessee will perform all obligations under such instrument and shall
prepare all required documents and provide all other instruments and
certificates as the Lessor may reasonably request.
Anything to the contrary provided herein notwithstanding, the
Lessee shall have the right on behalf of the Lessor, in connection with the
development and occupancy of the North Shoreline Property, to convey a
portion of the North Shoreline Property to the appropriate Governmental
Authority in connection with the relocation of the direct off-ramp to
northbound North Shoreline Boulevard from Route 101. The Lessor shall
cooperate, without unreasonable delay and at the Lessee's expense, in
connection with such conveyance and shall join in the execution of any
appropriate instruments or shall execute any separate instruments as
necessary.
17. Surrender of Property or Equipment.
Subject to the provisions of Sections 12, 13, 14, 15, 19, 20 and
29 hereof, upon termination of the lease of any Property or Equipment
hereunder, the Lessee shall surrender such Property or Equipment to the
Lessor, except for such Removable property as the Lessee shall elect to
remove or retain. Equipment shall be surrendered by delivering the same to
the Lessor at such location as the Lessor and the Lessee may agree and, if
they are unable to agree, at such location as the Lessor may reasonably
direct. Such Property or Equipment shall be surrendered in the condition
required by paragraph (b) of Section 9 of this Lease. Any cost of removal and
delivery of Equipment to the Lessor shall be paid by the Lessee.
(xlvii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
18. Events of Default.
Any of the following events of default shall constitute an "Event
of Default" and shall give rise to the rights on the part of the Lessor
described in Section 19 hereof:
(a) Failure of the Lessee to pay amounts due to the Lessor at
the time of any scheduled sale of any Parcel of Property or Unit of Equipment
hereunder, failure of the Lessee to pay Basic Rent for more than five (5)
days after such payment is due pursuant to Section 7 hereof, or failure of
the Lessee to pay any other amount payable by the Lessee hereunder and the
continuance of such failure for more than ten (10) days after written notice
of said failure by the Lessor to Lessee; or
(b) Failure to comply with Section 14(b) hereof or to maintain
the insurance required by Section 10 hereof, or default in the performance of
the covenant contained in paragraph (l) of Section 10 hereof; or
(c) Default in the performance of any other obligation or
covenant of the Lessee pursuant to this Lease or any Consent and the
continuance of such default for thirty (30) days after written notice to the
Lessee by the Lessor or any Assignee; provided that such event shall not be
an Event of Default if (i) such default is of a nature that it cannot be
completely remedied with reasonable and diligent efforts within such thirty
(30) day period, but is capable of being remedied within an additional ninety
(90) days and (ii) the Lessee shall have instituted and thereafter diligently
and continuously prosecuted to completion all steps necessary to remedy such
default and such default is in fact remedied within an additional ninety (90)
days and (iii) the continuance of such default will not place the Lessor in
any danger of civil liability for which the Lessor is not adequately
indemnified (the Lessee's obligations under Section 11 of this Lease shall be
deemed to be adequate indemnification if no other Event of Default exists
hereunder and if such civil liability is reasonably likely to be less then
$5,000,000) or subject the Lessor to any criminal liability as a result of
such default; or
(d) The entry of a decree or order for relief in respect of
the Lessee or the Guarantor by a court having jurisdiction in the premises in
an involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency
or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Lessee or the
Guarantor or of any substantial part of the Lessee's or the Guarantor's
property, or ordering the winding up or liquidation of the Lessee's or the
Guarantor's affairs, and the continuance of any such decree or order unstayed
and in effect for a period of sixty (60) consecutive days; or
(xlviii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(e) The discontinuance of the Lessee's or the Guarantor's
business operations, the Lessee's or the Guarantor's general inability to pay
their debts as they become due or the Lessee's or the Guarantor's admission,
each as to itself, of a general inability to pay its debts as they come due
or of bankruptcy, or the commencement by the Lessee or the Guarantor of a
voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency
or other similar law, or the consent by the Lessee or the Guarantor to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Lessee or
the Guarantor or of any substantial part of the Lessee's or the Guarantor's
property, or the making by the Lessee or the Guarantor of an assignment for
the benefit of creditors, or the failure of the Lessee or the Guarantor
generally to pay their debts as such debts become due, or the taking of
corporate action by the Lessee or the Guarantor in furtherance of any such
action; or
(f) A default or event of default, the effect of which is to
permit the holder or holders of any instrument evidencing indebtedness
(including, without limitation, lease obligations which are shown on the
balance sheet of the Lessee or the Guarantor or which relate to
sale-leaseback transactions), or a trustee or agent on behalf of such holder
or holders, to cause the indebtedness evidenced by such instrument to become
due prior to its stated maturity shall occur under the provisions of any
instrument evidencing indebtedness in excess of $20,000,000 of the Lessee or
the Guarantor (or under the provisions of any agreement pursuant to which
such instrument was issued) or any obligation of the Lessee or the Guarantor
for the payment of such indebtedness shall become or be declared to be due
and payable prior to its stated maturity and shall not be paid when due; or
(g) Any representation or warranty made by the Lessee in this
Lease, any Consent or any document contemplated hereby or thereby proves to
be false or inaccurate in any material respect; or
(h) Final judgment for the payment of money in excess of
$10,000,000 shall be rendered against the Lessee or the Guarantor by any U.S.
Federal or state court and the same shall remain undischarged for a period of
thirty (30) days during which execution of such judgment shall not be
effectively stayed; or
(i) Any representation or warranty made by the Guarantor in
the Guarantee, any Consent or any document contemplated hereby or thereby
proves to be false or inaccurate in any material respect; or
(j) The Guarantor defaults in any obligation under the
Guarantee which default continues after the period of any grace period
granted to the Lessee hereunder in respect of such guaranteed obligation, or
the Guarantor defaults in its obligations set forth in Section 11
(xlix)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
of the Guarantee and such default continues for twenty (20) Business Days
after notice thereof by Owner to Guarantor; or
(k) An Event of Default (as defined in the Agreement for Lease)
shall occur under the Agreement for Lease.
19. Rights upon Default.
Upon the occurrence and continuation of any Event of Default the
Lessor may do any one or more of the following:
(a) Terminate the lease of any or all Property or Equipment
leased hereunder;
(b) To the extent permitted by applicable law, whether or not
the lease of any Property or Equipment is terminated, take immediate
possession of and remove any or all Equipment and other equipment or property
of the Lessor in the possession of the Lessee, wherever situated, and for
such purpose, enter upon any premises without liability to the Lessee for so
doing;
(c) Whether or not any action has been taken under paragraph
(a) or (b) above, sell the Lessor's and/or Lessee's interest in any Property
or Equipment (with or without the concurrence or request of the Lessee) at
public or private sale (judicially or non-judicially), pursuant to such
notices and procedures as may be required by law, to the extent such
requirements are not effectively waived by the Lessee hereunder;
(d) Hold, use, occupy, operate, remove, lease or keep idle any
or all Property or Equipment as the Lessor in its sole discretion may
determine, without any duty to account to the Lessee with respect to any such
action or inaction or for any proceeds thereof except as expressly set forth
herein;
(e) Exercise any other right or remedy which may be available
under applicable law and in general proceed by appropriate judicial
proceedings, either at law or in equity, to enforce the terms hereof or to
recover damages for the breach hereof; and
(f) Continue this Lease in full force and effect and collect
rent when due, and/or enter the Property and assemble the Equipment and relet
for the Lessee's account, with the Lessee liable for all costs incurred by
the Lessor in reletting the same.
Suit or suits for the recovery of any default in the payment of
any sum due hereunder or for damages may be brought by the Lessor from time
to time at the Lessor's election, and nothing herein contained shall be
deemed to require the Lessor to await the date
(l)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
whereon this Lease or the term hereof would have expired by limitation had
there been no such default by the Lessee or no such termination or
cancellation.
The receipt of any payments under this Lease by the Lessor with
knowledge of any breach of this Lease by the Lessee or of any default by the
Lessee in the performance of any of the terms, covenants or conditions of
this Lease, shall not be deemed to be a waiver of any provision of this Lease.
No receipt of moneys by the Lessor from the Lessee after the
termination or cancellation hereof in any lawful manner shall reinstate,
continue or extend the Lease Term or any Renewal Term, or affect any notice
theretofore given to the Lessee, or operate as a waiver of the right of the
Lessor to enforce the payment of Basic Rent or Additional Rent or other
charges payable hereunder, or operate as a waiver of the right of the Lessor
to recover possession of any Unit of Equipment or Parcel of Property by
proper suit, action, proceedings or remedy; it being agreed that, after the
service of notice to terminate or cancel this Lease, and the expiration of
the time therein specified, if the default has not been cured in the
meantime, or after the commencement of any suit, action or summary
proceedings or of any other remedy, or after a final order, warrant or
judgment for the possession of any Unit of Equipment or Parcel of Property,
the Lessor may demand, receive and collect any moneys payable hereunder,
without in any manner affecting such notice, proceedings, suit, action,
order, warrant or judgment; and any and all such moneys so collected shall be
deemed to be payments on account for the use and operation of any Unit of
Equipment or the use, operation and occupation of any Parcel of Property, or
at the election of the Lessor, on account of the Lessee's liability
hereunder. Acceptance of the keys to any Parcel of Property, or any similar
act, by the Lessor, or any agent or employee of the Lessor, during the term
hereof, shall not be deemed to be an acceptance of a surrender of any Parcel
of Property unless the Lessor shall consent thereto in writing.
After any Event of Default, the Lessee shall be liable for, and
the Lessor may recover from the Lessee, (i) all Basic Rent accrued to the
date of payment, (ii) any Additional Rent owing with respect to all Property
or Equipment leased by the Lessee, (iii) all amounts payable
pursuant to Sections 11, 25 and 27 hereof and (iv) all losses, damages, costs
and expenses (including, without limitation, attorneys' fees and expenses,
commissions, filing fees and sales or transfer taxes) sustained by the Lessor
by reason of such Event of Default and the exercise of the Lessor's remedies
with respect thereto, including, in the event of a sale by the Lessor of any
Property or Equipment pursuant to this Section 19, all costs and expenses
associated with such sale. The amounts payable in clauses (i) through (iv)
above are hereinafter sometimes referred to as the "Accrued Default
Obligations". Accrued Default Obligations, as used in this paragraph, shall
not include any damages for loss of opportunity or profits arising from the
prospective use, operation and occupancy by parties other than the Lessee of
any Property or from alternative investments foregone by the Lessor in
acquiring the Property or the
(li)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
anticipated receipt of income therefrom, in each case, subsequent to the
Lessee's possession of such Property after the Lease Term.
After an Event of Default, the Lessor may sell its interest in any
Property and Equipment to any non-Affiliate of the Lessor upon any terms that
the Lessor deems satisfactory, free of any rights of the Lessee or any Person
claiming through or under the Lessee. In the event of any such sale, in
addition to the Accrued Default Obligations, the Lessor shall be entitled to
recover from the Lessee, as liquidated damages, and not as a penalty, an
amount equal to the Adjusted Acquisition Cost of any Property or Equipment so
sold, minus the proceeds of such sale received by the Lessor. Proceeds of
sale received by the Lessor in excess of the Adjusted Acquisition Cost of
such Property or Equipment sold shall be credited against the Accrued Default
Obligations the Lessee is required to pay under this Section 19. If such
proceeds exceed the Accrued Default Obligations, or, if the Lessee has paid
all amounts required to be paid under this Section 19, such excess shall be
paid by the Lessor to the Lessee. As an alternative to any such sale, or if
the Lessee converts any Property or Equipment after an Event of Default, or
if such Property or Equipment is lost or destroyed, in addition to the
Accrued Default Obligations, the Lessor may cause the Lessee to pay to the
Lessor, and the Lessee shall pay to the Lessor, as liquidated damages and not
as a penalty, an amount equal to the Adjusted Acquisition Cost of such
Property or Equipment. In the event the Lessor receives payment pursuant to
the previous sentence of this paragraph, the Lessor shall transfer all of the
Lessor's right, title and interest in and to the Property and Equipment to
the Lessee.
In addition to any other remedies available under this Lease to
the Lessor, the Lessor may choose, in its sole discretion, upon termination
of this Lease pursuant to this Section 19, to recover the maximum amount
(including interest) to which the Lessor is entitled under applicable law
with respect to rent accrued, or which would have accrued, under this Lease
as of the time of any award, and, with respect to the loss of future rents,
to recover from the Lessee the worth, at the time of the award, of the amount
by which the unpaid rent for the balance of the term after the time of award
exceeds the amount of the loss of rent that the Lessee proves could have been
reasonably avoided. "The worth at the time of award", as used herein, is to
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award, plus one percent, or
if less, the minimum discount rate permitted by law.
In the event of a sale pursuant to this Section 19, upon receipt
by the Lessor of the amounts payable hereunder, the Lessor shall transfer all
of the Lessor's right, title and interest in and to the Property and
Equipment to the Lessee or purchaser other than the Lessee, as the case may
be.
No remedy referred to in this Section 19 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to the
(lii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
Lessor at law or in equity, and the exercise in whole or in part by the
Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by the Lessor of any or all such other
remedies. No waiver by the Lessor of any Event of Default hereunder shall in
any way be, or be construed to be, a waiver of any future or subsequent Event
of Default.
With respect to the termination of this Lease as to any Parcel of
Property as a result of an Event of Default, the Lessee hereby waives service
of any notice of intention to re-enter. The Lessee hereby waives any and all
rights to recover or regain possession of any Parcel of Property or to
reinstate this Lease as permitted or provided by or under any statute, law or
decision now or hereafter in force and effect.
20. Equipment to be Personal Property.
It is the intention and understanding of the Lessor and the Lessee
that all Equipment shall be and at all times remain personal property. The
Lessee shall obtain and record such instruments and take such steps as may be
necessary to prevent any Person from acquiring any rights in Equipment
paramount to the rights of the Lessor by reason of such Equipment being
deemed to be real property. If, notwithstanding the intention of the parties
and the provisions of this Section 20, any Person acquires or claims to have
acquired any rights in any Equipment superior to the rights of the Lessor, by
reason of such Equipment being deemed to be real property, the Lessee shall
promptly notify the Lessor in writing of such fact and (unless the basis for
such claim is waived or eliminated to the satisfaction of the Lessor within a
period of thirty (30) days from the date it is asserted) the Lessee shall on
the Basic Rent Payment Date following the expiration of the thirty (30) day
period referred to above in this sentence pay to the Lessor an amount equal
to the Adjusted Acquisition Cost of such Equipment at the time of payment.
On such Basic Rent Payment Date, in addition to the payment of the Adjusted
Acquisition Cost, the Lessee shall pay to the Lessor Basic Rent payable, the
Variable Component of Basic Rent accrued with respect to such Equipment and
any Additional Rent and other amounts owing hereunder and the lease of such
Equipment shall thereupon terminate. The Lessor shall on such Basic Rent
Payment Date transfer title to such Equipment to the Lessee, and the Lessee
shall be subrogated to the Lessor's rights in the affected transaction.
21. Sale or Assignment by Lessor.
(a) Except as otherwise expressly provided in this Section,
the Lessor shall not assign, convey or otherwise transfer any of its right,
title and interest in, to and under this Lease. The Lessor shall have the
right to obtain equity and debt financing for the acquisition and ownership
of the Property or Equipment by mortgaging, assigning or granting a security
interest in its right, title and interest in any or all amounts due from the
Lessee or any third party under this Lease or in such Property or Equipment;
provided, that any such sale or assign-ment shall be subject to the rights
and interests of the Lessee under this Lease.
(liii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(b) Any Assignee shall, except as otherwise agreed by the
Lessor and such Assignee, have all the rights, powers, privileges and
remedies of the Lessor hereunder, and the Lessee's obligations as between
itself and such Assignee hereunder shall not be subject to any claims or
defense that the Lessee may have against the Lessor. Upon written notice to
the Lessee of any such assignment, the Lessee shall thereafter make payments
of Basic Rent, Additional Rent and other sums due hereunder to the Assignee,
to the extent specified in such notice, and such payments shall discharge the
obligation of the Lessee to the Lessor hereunder to the extent of such
payments. Anything contained herein to the contrary notwithstanding, no
Assignee shall be obligated to perform any duty, covenant or condition
required to be performed by the Lessor hereunder, and any such duty, covenant
or condition shall be and remain the sole obligation of the Lessor.
22. Income Taxes.
(a) The Lessor agrees that it will not file any Federal, state
or local income tax (or franchise tax computed by reference to net income)
returns during the Lease Term or Renewal Term, if any, with respect to any
Property or Equipment that are inconsistent with the treatment of the Lessee
as owner of such Property or Equipment for Federal, state and local income
tax (or franchise tax computed by reference to net income) purposes.
(liv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(b) Paragraph (a) of Section 22 above notwithstanding, the
Lessor agrees that, at the written request of the Lessee, it will take all
such action as may be required to be taken by a lessor to elect under any
provision of the Code or state law substantially similar to section 48(d) of
the Internal Revenue Code of 1954, as amended prior to the enactment of the
Tax Reform Act of 1986, permitting a pass-through of an investment tax credit
to a lessee, to treat the Lessee as having acquired any Unit of Equipment or
any qualifying appliances, equip-ment and machinery attached to any Parcel of
Property acquired by the Lessor that would qualify for such a credit (within
the meaning of section 48(b) of the Code); provided, that such request is
received by the Lessor reasonably in advance of the date on which the Lessor
is required to take such action, and the Lessee provides the Lessor in a
timely fashion with all information (other than identifying information
pertaining to the Lessor) required to take such action. The Lessor does not
represent or warrant to the Lessee that credits will be allowable with
respect to any Unit of Equipment or other property under the Code or that any
election will be effective to transfer any such credits that are allowable to
the Lessee. The Lessor, Merrill, Merrill Lynch and Merrill Leasing shall
have no liability to the Lessee resulting from the disallowance to the Lessee
of credits under the Code with respect to any Unit of Equipment or other
property unless such disallowance is directly and primarily attributable to
the failure of the Lessor to comply with its obligations under the first
sentence of this paragraph (b).
23. Notices and Requests.
All notices, offers, acceptances, approvals, waivers, requests,
demands and other communications hereunder or under any other instrument,
certificate or other document delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below
and shall be considered as properly given (a) if delivered in person, (b) if
sent by express courier service (including, without limitation, Federal
Express, Emery, DHL, Airborne Express, and other similar express delivery
services), (c) in the event overnight delivery services are not readily
available, if mailed by international airmail, postage prepaid, registered or
certified with return receipt requested, or (d) if sent by telecopy and
confirmed; provided, that in the case of a notice by telecopy, the sender
shall in addition confirm such notice by writing sent in the manner specified
in clauses (a), (b) or (c) of this Section 23. All notices shall be
effective upon receipt by the addressee; provided, however, that if any
notice is tendered to an addressee and the delivery thereof is refused by
such addressee, such notice shall be effective upon such tender. For the
purposes of notice, the addresses of the parties shall be as set forth below;
provided, however, that any party shall have the right to change its address
for notice hereunder to any other location by giving written notice to the
other party in the manner set forth herein. The initial addresses of the
parties hereto are as follows:
If to the Lessor:
Virtual Funding, Limited Partnership
(lv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
c/o ML Leasing Equipment Corp.
Project and Lease Finance Group
North Tower - 27th Floor
World Financial Center
250 Vesey Street
New York, New York 10281-1327
Attention: Jean M. Tomaselli
Telephone: (212) 449-7925
Telecopy: (212) 449-2854
With a copy of all notices under this Section 23 to be simultaneously given,
delivered or served to Gary Carlin at the following address:
ML Leasing Equipment Corp.
Controller's Office
World Financial Center
South Tower - 8th Floor
225 Liberty Street
New York, New York 10080-6108
(lvi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
If to the Lessee:
Silicon Graphics Real Estate, Inc.
2011 North Shoreline Blvd.
Mountain View, California 94043-1389
Attention: Treasury
Telephone: (415) 960-1980
Telecopy: (415) 964-5215
With a copy to:
Silicon Graphics Real Estate, Inc.
2011 North Shoreline Blvd.
Mountain View, California 94043-1389
Attention: Legal Services
Telephone: (415) 960-1980
Telecopy: (415) 965-1586
With a copy of all notices under this Section 23 to any Assignee at such
address as such As-signee may specify by written notice to the Lessor and the
Lessee.
24. Covenant of Quiet Enjoyment.
During the Lease Term or Renewal Term, if any, of any Property or
Equipment hereunder and so long as no Event of Default shall have occurred
and be continuing, the Lessee shall be entitled to quiet enjoyment of the
Property or Equipment on the terms and conditions provided in this Lease
without any interference from the Lessor or anyone claim-ing through or under
the Lessor.
25. Right to Perform for Lessee.
If the Lessee fails to perform or comply with any of its covenants
or agreements contained in this Lease beyond any applicable notice or grace
period, the Lessor may, upon notice to the Lessee but without waiving or
releasing any obligations or default, it-self perform or comply with such
covenant or agreement, and the amount of the reasonable expenses of the
Lessor incurred in connection with such performance or compliance, shall be
payable by the Lessee, not later than ten (10) days after written notice by
the Lessor.
(lvii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
26. Merger, Consolidation or Sale of Assets.
The Lessee may not consolidate with or merge into any other
corporation or sell all or substantially all of its assets to any Person,
except that the Lessee may consolidate with or merge into any other
corporation other than the Guarantor which is an Affiliate of the Lessee, or
sell all or substantially all of its assets to any Person other than the
Guarantor which is an Affiliate of the Lessee; provided, that the surviving
corporation or transferee Person shall assume, by execution and delivery of
instruments satisfactory to the Lessor, the obligations of the Lessee
hereunder and become successor to the Lessee, but the Lessee shall not
thereby be released, without the consent of the Lessor, from its obligations
hereunder and; provided, further, that such surviving corporation or
transferee Person will, on a pro forma basis, immediately after such
consolidation, merger or sale, possess a consolidated net worth and credit
rating substantially equivalent to or greater than that of the Lessee
immediately prior to such consolidation, merger or sale. The terms and
provisions of this Lease shall be binding upon and inure to the benefit of
the Lessee and its respective successors and assigns.
27. Expenses.
The Lessee shall pay all of the out-of-pocket costs and expenses
incurred by the Lessor, and any Assignee in connection with this Lease
including, without limitation, the reasonable fees and disbursements of
counsel to the Lessor and counsel to any Assignee.
28. Permitted Contests.
(lviii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(a) The Lessee shall not be required, nor shall the Lessor
have the right, to pay, discharge or remove any tax, assessment, levy, fee,
rent, charge, Lien or encumbrance, or to comply or cause any Parcel of
Property or Unit of Equipment to comply with any Legal Requirements
applicable to any Parcel of Property or Unit of Equipment or the occupancy,
use or operation thereof, so long as no Event of Default exists under this
Lease, and, in the opinion of the Lessee's counsel, the Lessee shall have
reasonable grounds to contest the existence, amount, applicability or
validity thereof by appropriate proceedings, which proceed-ings in the
reasonable judgment of the Lessor, (i) shall not involve any material danger
that any Parcel of Property or Unit of Equipment or any Basic Rent or any
Additional Rent would be subject to sale, forfeiture or loss, as a result of
failure to comply therewith, (ii) shall not affect the payment of any Basic
Rent or any Additional Rent or other sums due and payable hereunder, (iii)
will not place the Lessor in any danger of civil liability for which the
Lessor is not adequately indemnified (the Lessee's obligations under Section
11 of this Lease shall be deemed to be adequate indemnification if no Event
of Default exists) or to any criminal liability, (iv) if involving taxes,
shall suspend the collection of taxes, and (v) shall be permitted under and
be conducted in accordance with the provisions of any other instrument to
which the Lessee or the Parcel of Property or Unit of Equipment is subject
and shall not constitute a default thereunder (the "Permitted Contest"). The
Lessee shall conduct all Per-mitted Contests in good faith and with due
diligence and shall promptly after the final determination (including
appeals) of any Permitted Contest, pay and discharge all amounts which shall
be determined to be payable therein. The Lessor shall cooperate in good
faith with the Lessee with respect to all Permitted Contests conducted by the
Lessee pursuant to this Section 28.
(b) In the event the Lessor deems, in its sole discretion,
that its interests under this Lease or in any Parcel of Property or Unit of
Equipment are not adequately protected in connection with a Permitted Contest
brought by the Lessee under this Section 28 as a result of concerns related
to the financial condition of the Guarantor, the Lessee shall give such
reasonable security, as may be demanded by the Lessor to insure payment of
such tax, assessment, levy, fee, rent, charge or Lien and compliance with any
Legal Requirement and to prevent any sale or forfeiture of any Parcel of
Property or Unit of Equipment, any Basic Rent or any Additional Rent by
reason of such nonpayment or noncompliance. The Lessee hereby agrees that
the Lessor may assign such security provided by the Lessee to any Assignee.
(lix)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(c) At least ten (10) days prior to the commencement of any
Permitted Contest, the Lessee shall notify the Lessor in writing thereof if
the amount in contest exceeds $100,000, and shall describe such proceeding in
reasonable detail. In the event that a taxing authority or subdivision thereof
proposes an additional assessment or levy of any tax for which the Lessee is
obligated to reimburse the Lessor under this Lease, or in the event that the
Lessor is notified of the commencement of an audit or similar proceeding which
could result in such an additional assessment, then the Lessor shall in a
timely manner notify the Lessee in writing of such proposed levy or proceeding.
29. Leasehold Interests.
The following provisions relate to each lease (a "Ground Lease")
under which a leasehold interest in a Parcel of Property is subleased to the
Lessee hereunder:
(a) The Lessee hereunder covenants and agrees to perform and
to observe all of the terms, covenants, provisions, conditions and agreements
of the underlying Ground Leases on the Lessor's part as lessee thereunder to
be performed and observed (including, without limitation, payment of all
rent, additional rent and other amounts payable by the Lessor as lessee under
any Ground Lease) to the end that all things shall be done which are
neces-sary to keep unimpaired the rights of the Lessor as lessee under any
Ground Lease. The Lessee further covenants that it shall cause to be
exercised any renewal option contained in the Ground Lease which relates to
renewal occurring in whole or in part during the term of this Lease.
(b) The Lessee covenants and agrees pursuant to Section 11
hereof to indemnify and hold harmless the Lessor and any Assignee from and
against any and all lia-bility, loss, damage, suits, penalties, claims and
demands of every kind and nature (including, without limitation, reasonable
attorneys' fees and expenses) by reason of the Lessee's failure to comply
with any Ground Lease or the provisions of this Section 29.
(c) The Lessor and the Lessee agree that the Lessor shall have
no obligation or responsibility to provide services or equipment required to
be provided or repairs or restorations required to be made in accordance with
the provisions of any Ground Lease by the lessor thereunder. The Lessor
shall in no event be liable to the Lessee nor shall the obligations of the
Lessee hereunder be impaired or the performance thereof excused because of
any failure or delay on the part of the lessor under any Ground Lease in
providing such services or equipment or making such restorations or repairs
and such failure or delay shall not constitute a basis for any claim against
the Lessor or any offset against any amount payable to the Lessor under this
Lease.
(d) If the Lessor's interest under any Ground Lease shall
expire, terminate or otherwise be extinguished, the Lease of the Parcel of
Property to which such Ground Lease relates shall thereupon terminate as
provided in this paragraph (d). Upon such expiration, termi-
(lx)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
nation or extinguishment, the Lessee shall be required to purchase the
Lessor's interest in such Parcel of Property at its Adjusted Acquisition
Cost. If the Lessee shall be required to purchase the Lessor's interest in
such affected Parcel, then (i) on the Basic Rent Payment Date next succeeding
such event, the Lessee shall pay to the Lessor an amount equal to the
Adjusted Acquisition Cost of such Property, (ii) the Lease Term or Renewal
Term of such Property shall continue until the date on which the Lessor
receives payment from the Lessee of the amount payable pursuant to this
paragraph (d) and of all Basic Rent payable, the Variable Component of Basic
Rent accrued with respect to such Parcel of Property and any Additional Rent
and other amounts owing hereunder, and shall then terminate upon the payment
of such amounts and (iii) the Lessor shall on such date transfer title to the
Lessor's interest in such Parcel to the Lessee.
(c) The Lessee shall ensure that each Ground Lease shall be a
Mortgageable Ground Lease.
30. Miscellaneous.
(a) All indemnities, representations and warranties, and the
obligation to pay Additional Rent contained in this Lease shall survive the
expiration or other termination hereof.
(b) This Lease, the Unit Leasing Records, the AFL Unit Leasing
Records covering Property or Equipment leased pursuant hereto, the Agreement
for Lease, and the instruments, documents or agreements referred to herein
and therein constitute the entire agreement between the parties and no
representations, warranties, promises, guarantees or agreements, oral or
written, express or implied, have been made by any party hereto with respect
to this Lease or the Property or Equipment, except as provided herein or
therein.
(c) This Lease may not be amended, modified or terminated, nor
may any obligation hereunder be waived orally, and no such amendment,
modification, termination or waiver shall be effective for any purpose unless
it is in writing, signed by the party against whom enforcement thereof is
sought. A waiver on one occasion shall not be construed to be a waiver with
respect to any other occasion.
(d) The captions in this Lease are for convenience of
reference only and shall not be deemed to affect the meaning or construction
of any of the provisions hereof. Any provision of this Lease which is
prohibited by law or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceabil-ity without invalidating the remaining provisions hereof, and
the parties hereto shall negotiate in good faith appropriate modifications to
reflect such changes as may be required by law, and, as nearly as possible,
to produce the same economic, financial and tax effects as the provision
which is prohibited or unenforceable; and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
(lxi)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
permitted by applicable law, the Lessee and the Lessor hereby waive any
provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
(e) In connection with any sale of Property or Equipment
pursuant to Section 12, 13, 14, 15, 19, 20 or 29 of this Lease, when the
Lessor transfers title, such transfer shall be on an as-is, non-installment
sale basis, without warranty by, or recourse to, the Lessor. The purchase
price for any such sale shall be paid entirely in cash and in immediately
available funds.
(f) In connection with the sale or purchase of Property or
Equipment pursuant to Section 12, 13, 14, 15, 19, 20 or 29, the Lessee shall
pay or shall cause the pur-chaser of such Property or Equipment to pay in
addition to the purchase price, all transfer taxes, transfer gains taxes,
mortgage recording tax, if any, recording and filing fees and all other
similar taxes, fees, expenses and closing costs (including reasonable
attorneys' fees) in connection with the conveyance of such Property or
Equipment to the Lessee or any purchaser.
(g) When used in Section 12, 13, 14, 15, 20 or 29 of this
Lease, the phrase "the Variable Component of Basic Rent accrued" means the
Variable Component of Basic Rent accrued through the date of termination of
this Lease pursuant to such Section which has not been included in Basic Rent
then payable or previously paid.
(h) If any costs of the Lessor related to the Agreement for Lease
which were not included in the Acquisition Cost of a Parcel of Property are
allocated to such Parcel of Property pursuant to the definition of Unit
Acquisition Cost in the Agreement for Lease, the Lessee and the Lessor shall
execute a revised AFL Unit Leasing Record to amend the Adjusted Acquisition
Cost for such Parcel to reflect the increase in the Acquisition Cost.
(lxii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
(i) THIS LEASE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF
NEW YORK. THE LESSEE AND THE LESSOR AGREE THAT, TO THE MAXIMUM EXTENT
PERMITTED BY THE LAWS OF THE STATE OF NEW YORK, THIS LEASE, AND THE RIGHTS
AND DUTIES OF THE LESSEE AND THE LESSOR HEREUNDER, SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW) IN ALL RESPECTS, INCLUDING WITHOUT LIMITATION IN
RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. THE LESSEE
HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTIES, TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND THE SUPREME COURT OF THE STATE OF NEW YORK IN THE COUNTY OF NEW
YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR
IN CONNECTION WITH THIS LEASE OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO
THE EXTENT PERMITTED BY APPLICABLE LAW, THE LESSEE HEREBY WAIVES AND AGREES
NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER, OR THAT THIS LEASE OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO
HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURT.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE LESSEE AGREES NOT TO SEEK AND
HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY
ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO
GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE LESSEE AGREES THAT SERVICE OF
PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS
FOR NOTICES SET FORTH IN THIS LEASE OR ANY METHOD AUTHORIZED BY THE LAWS OF
NEW YORK. THE LESSOR AND THE LESSEE EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY. THE LESSOR AND THE LESSEE ACKNOWLEDGE
THAT THE PROVISIONS OF THIS SECTION 30 HAVE BEEN BARGAINED FOR AND THAT THEY
HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.
(lxiii)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
31. No Recourse.
The Lessor's obligations hereunder are intended to be the
obligations of the limited partnership and of the corporation which is the
general partner thereof only and no recourse for the payment of any amount
due under this Lease or for any claim based thereon or otherwise in respect
thereof, shall be had against any limited partner of the Lessor or any
incorporator, shareholder, officer, director or Affiliate, as such, past,
present or future of such corporate general partner or of any corporate
limited partner or of any successor corporation to such corporate general
partner or any corporate limited partner of the Lessor, or against any direct
or indirect parent corporation of such corporate general partner or of any
limited partner of the Lessor or any other subsidiary or Affiliate of any
such direct or indirect parent corporation or any incorporator, shareholder,
officer or director, as such, past, present or future, of any such parent or
other subsidiary or Affiliate, it being understood that the Lessor is a
limited partnership formed for the purpose of the transactions involved in
and relating to this Lease on the express understanding aforesaid. Nothing
contained in this Section 31 shall be construed to limit the exercise or
enforcement, in accordance with the terms of this Lease and any other
documents referred to herein, of rights and remedies against the limited
partnership or the corporate general partner of the Lessor or the assets of
the limited partnership or the corporate general partner of the Lessor.
32. No Merger.
There shall be no merger of this Lease or of the leasehold estate
hereby created with the fee estate in any Parcel of Property by reason of the
fact that the same person acquires or holds, directly or indirectly, this
Lease or the leasehold estate hereby created or any interest herein or in
such leasehold estate as well as the fee estate in any Parcel of Property or
any interest in such fee estate.
33. Assignment by the Lessee.
(a) So long as no Event of Default has occurred and is continuing,
the Lessee may, upon thirty (30) days prior written notice to the Lessor and
any Assignee and subject to the terms and conditions of this Lease, assign
all of its rights and the performance of its obligations hereunder to any
Affiliate of the Guarantor (but not the Guarantor) (provided that the
Guarantor shall own directly or indirectly not less than 90% of the
outstanding shares of common stock of such Affiliate) and upon such
assignment be released from any liability or obligation hereunder; provided
that such assignment shall be subject to the satisfaction of the following
conditions:
(i) The Lessor and any Assignee shall have received a
certificate of a Responsible Officer of the Guarantor
certifying that the Guarantor
(lxiv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
owns, directly or indirectly, not less than 90% of the
outstanding shares of the common stock of such Affiliate.
(ii) The Lessor and any Assignee shall have received a
Reaffirmation of Guarantee in the form of Schedule A to
the Assignment and Assumption Agreement attached hereto as
Exhibit D, together with an opinion of counsel in form and
substance reasonably satisfactory to the Lessor and any
Assignee which opinion shall state, in addition to
addressing matters in respect of the Guaranty and the
Guarantor, that such Affiliate's obligations under the Lease
and the Agreement for Lease are valid, binding and enforceable
according to their terms, subject to customary exceptions.
(iii) Such Affiliate shall have executed and delivered a Consent
in form and substance reasonably satisfactory to the
Lessor and any Assignee.
(iv) The Lessor and any Assignee shall have received a
certificate of such Affiliate to the effect set forth in
Section III of the Assignment and Assumption Agreement
attached hereto as Exhibit D.
(v) Such Affiliate and the Lessee shall execute an Assignment
and Assumption Agreement in the form of Exhibit D hereto.
(lxv)
<PAGE>
THIS LEASE AGREEMENT
IS CONFIDENTIAL
AND PROPRIETARY
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease to ____________________ be executed and delivered by their duly
authorized officers as of the day and year first above
written.
Virtual Funding, Limited Partnership by
Virtual Capital, Inc., its General Partner
By ________________________
Name:
Title:
Silicon Graphics Real Estate, Inc.
By _________________________
Name:
Title:
(lxvi)
<PAGE>
AMENDMENT NO. 1 TO LEASE AGREEMENT
THIS AMENDMENT NO. 1 TO LEASE AGREEMENT (this "Amendment") is made as
of March 15, 1995 by and between Virtual Funding, Limited Partnership, a
Delaware limited partnership (the "Lessor") and Silicon Graphics Real Estate,
Inc., a Delaware corporation (the "Lessee").
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee entered into that certain Agreement
for Lease, dated as of November 18, 1993 (the "Agreement for Lease"), pursuant
to which the Lessor appointed the Lessee to act as agent for the Lessor in
connection with the selection of the Lessor's fee and/or leasehold interests in
Unit Premises (as defined in the Agreement for Lease) from time to time, and
with the construction of Unit Improvements (as defined in the Agreement for
Lease) and the installation of Unit FF&E (as defined in the Agreement for Lease)
thereon, if any, and in connection with all matters related to such
construction, all as more particularly described in the Agreement for Lease;
WHEREAS, contemporaneously herewith, the Lessor and the Lessee are
entering into Amendment No. 1 to the Agreement for Lease, of even date herewith,
which amends the Agreement for Lease in connection with the acquisition by the
Lessor and the development and equipping thereof in accordance with the
Agreement for Lease, as so amended, of a leasehold interest in the North
Charleston Unit (as defined in the Agreement for Lease).
WHEREAS, the Lessor, as lessor, and the Lessee, as lessee, entered
into that certain Lease Agreement (the "Lease"; capitalized terms used herein
without definition shall have the meanings ascribed to such terms in the Lease),
dated as of November 18, 1993, pursuant to which the Lessor agreed to lease or
sublease to the Lessee, from time to time, Property and Equipment, all as more
particularly described in the Lease; and
WHEREAS, the Lessor and the Lessee desire to amend the Lease (i) to
modify the formula for the calculation of Basic Rent and (ii) in connection with
the acquisition by the Lessor of a leasehold interest in the North Charleston
Unit.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Lessor and the Lessee hereby agree as follows:
Section 1. AMENDMENTS TO LEASE. From and after the Effective Date
(as hereinafter defined), the Lease shall be and hereby is amended as follows:
<PAGE>
2
(a) NEW DEFINITIONS. The following definitions are hereby added to
Section 1 of the Lease:
" 'EBITDA/INTEREST RATIO' means, on any date of determination,
the ratio, determined as of the end of the Guarantor's most recently ended
fiscal quarter on a consolidated basis in accordance with generally
accepted accounting principles, of (i) the sum of the Guarantor's earnings
before interest expense, depreciation, amortization, rent expense, income
taxes and nonrecurring restructuring and merger-related charges for the
period of four fiscal quarters ending at the end of such most recently
ended fiscal quarter TO (ii) all obligations of the Guarantor paid in such
period of four fiscal quarters in respect of interest expense and the
Variable Component of Basic Rent.
'NC SUB-UNIT PARCEL' means a Parcel of Property that has been
designated through redesignation of a portion of the North Charleston
Property into an NC Sub-Unit (as defined in the Agreement for Lease) in
accordance with Section 20 of the Agreement for Lease.
'NORTH CHARLESTON PROPERTY' means the Parcel of Property located
on North Charleston Road, Mountain View, California.
'REALLOCATION PARCELS' has the meaning set forth in Section 3(h)
hereof.
'TANGIBLE NET WORTH/ADJUSTED ACQUISITION COST RATIO' means, on
any date of determination, the ratio of (i) VCF Consolidated Tangible Net
Worth on such date to (ii) the aggregate amount on such date of the
Adjusted Acquisition Cost of all Property and Equipment.
'VARIABLE COMPONENT FACTOR' means Level 1, Level 2, Level 3,
Level 4 or Level 5, as the case may be.
'VCF CONSOLIDATED TANGIBLE NET WORTH' means, on any date of
determination, a sum equal to (i) the amount of Consolidated Tangible Net
Worth on such date PLUS (ii) an amount equal to the aggregate amount of
consideration paid by the Guarantor on or before such date for repurchases
of the Guarantor's capital stock; provided, however, that such amount
referred to in this clause (ii) shall not include any amount in excess of
$250 million for such repurchases in any fiscal year of the Guarantor."
(b) AMENDMENTS TO DEFINED TERMS. (i) The second sentence of the
definition of "Assignee" set forth in Section 1 of the Lease is hereby deleted
in its entirety and the following substituted therefor:
<PAGE>
3
"For purposes of paragraph (k) of Section 2, clauses (i), (iv) and (v)
of paragraph (f) of Section 10, Section 11, and Section 33 hereof, the term
"Assignee" shall include any lender to the Lessor or other Person providing
credit support to the Lessor pursuant to the Credit Agreement."
(ii) Clause (iii) of paragraph (a) of the definition of "Basic Rent"
set forth in Section 1 of the Lease Agreement is hereby deleted in its entirety
and the following substituted therefor:
"(iii) the decimal equivalent of a percentage (which percentage will
be based upon the Variable Component Factor) as follows: if
the Variable Component Factor is Level 1, the percentage shall
be 0.455% during the Initial Term and 0.45% during the
Extended Term; if the Variable Component Factor is Level 2,
the percentage shall be 0.505% during the Initial Term and
0.50% during the Extended Term; if the Variable Component
Factor is Level 3, the percentage shall be 0.61% during the
Initial Term and 0.60% during the Extended Term; if the
Variable Component Factor is Level 4, the percentage shall be
0.817% during the Initial Term and 0.80% during the Extended
Term; if the Variable Component Factor is Level 5, the
percentage shall be 1.237% during the Initial Term and 1.20%
during the Extended Term), plus (A) the weighted average bond
yield equivalent percentage cost per annum (including as part
of such cost any fees for a letter or letters of credit, any
facility, commitment or other fees under a revolving credit
agreement and any dealer discount or placement agency
commission payable by the Lessor in respect of its Commercial
Paper) on all Commercial Paper of the Lessor issued to finance
or refinance the acquisition and ownership of Property and
Equipment outstanding at any time during the period from and
including the 16th day of the preceding calendar month to and
including the 15th day of the calendar month for which Basic
Rent is being computed (the "Computation Period"), or (B) if
no such Commercial Paper of the Lessor is outstanding during
the Computation Period, the Lessor's weighted average
percentage cost per annum (including, without duplication, any
interest accruing at a default rate, any facility, commitment
or other fees under a revolving credit agreement) of other
borrowings outstanding at any time during the Computation
Period for which Basic Rent is being computed to finance or
refinance the acquisition and ownership of Property or
Equipment or (C) if both Commercial Paper and other borrowings
are outstanding at any time during the Computation Period for
which Basic Rent is being computed, a weighted average blended
rate based on the calculations referred to in clauses (A) and
(B) above;"
<PAGE>
4
(iii) The definition of "Level 2" set forth in Section 1 of the
Lease Agreement is hereby deleted in its entirety and the following substituted
therefor:
" 'LEVEL 2' means when all of following conditions are met:
(i) the conditions for Level 1 are not met;
(ii) VCF Consolidated Tangible Net Worth is $950 million or
greater;
(iii) the Tangible Net Worth/Adjusted Acquisition Cost Ratio is 5.0
or greater TO 1.0; and
(iv) the EBITDA/Interest Ratio is 13.0 or greater TO 1.0."
(iv) The definition of "Level 3" set forth in Section 1 of the
Lease Agreement is hereby deleted in its entirety and the following substituted
therefor:
" 'LEVEL 3' means when all of the following conditions are met:
(i) the conditions for Level 1 are not met and the conditions for
Level 2 are not met;
(ii) VCF Consolidated Tangible Net Worth is $800 million or
greater;
(iii) the Tangible Net Worth/Adjusted Acquisition Cost Ratio is 4.0
or greater TO 1.0; and
(iv) the EBITDA/Interest Ratio is 10.0 or greater TO 1.0."
(v) The definition of "Level 4" set forth in Section 1 of the
Lease Agreement is hereby deleted in its entirety and the following substituted
therefor:
" 'LEVEL 4' means when all of the following conditions are met:
(i) the conditions for Level 1 are not met, the conditions for
Level 2 are not met and the conditions for Level 3 are not met;
(ii) VCF Consolidated Tangible Net Worth is $650 million or
greater;
(iii) the Tangible Net Worth/Adjusted Acquisition Cost Ratio is 3.0
or greater TO 1.0; and
<PAGE>
5
(iv) the EBITDA/Interest Ratio is 7.5 or greater TO 1.0."
(vi) The definition of "Level 5" set forth in Section 1 of the
Lease Agreement is hereby deleted in its entirety and the following substituted
therefor:
" 'LEVEL 5' means when the conditions for Level 1 are not met, the
conditions for Level 2 are not met, the conditions for Level 3 are not met
and the conditions for Level 4 are not met."
(c) AMENDMENTS TO SECTION 2 OF THE LEASE. (i) Clause (i) of
paragraph (h) of Section 2 of the Lease Agreement is hereby deleted in its
entirety and the following substituted therefor:
"(i) promptly, and in any event not more than 100 days after the
end of the fiscal year of the Guarantor, copies of the Guarantor's Annual
Reports on Form 10-K and promptly, and in any event not more than 60 days
after the end of each fiscal quarter of the Guarantor, copies of the
Guarantor's Quarterly Reports on Form 10-Q (in each case accompanied by a
certificate of a Responsible Officer of the Guarantor setting forth
calculations of (x) the Guarantor's Consolidated Tangible Net Worth and VCF
Consolidated Tangible Net Worth, (y) the Tangible Net Worth/Adjusted
Acquisition Cost Ratio and (z) the EBITDA/Interest Ratio, in each case as
of the end of the fiscal year or fiscal quarter, as the case may be, to
which such Report pertains) and promptly, any reports on Form 8-K the
Guarantor files with the Securities and Exchange Commission,"
(ii) Paragraph (i) of Section 2 of the Lease Agreement is hereby
deleted in its entirety and the following substituted therefor:
"(i) Organization. Silicon Graphics Real Estate, Inc., a
California corporation ("SGREI-CA") was organized on May 6, 1993, for
purposes unrelated to this transaction. The Lessee was organized on
November 12, 1993 to effect a reincorporation of SGREI-CA as a Delaware
corporation. SGREI-CA was merged into the Lessee on March 31, 1994,
whereupon the Lessee by operation of law succeeded to all of SGREI-CA's
rights and obligations."
(d) AMENDMENTS TO SECTION 3 OF THE LEASE. The following
paragraphs are hereby added as new paragraphs at the end of Section 3 of the
Lease:
"(g) With respect to any Parcel of Property acquired and built
pursuant to the Agreement for Lease which is an NC Sub-Unit Parcel, at such
time as the North Charleston Property is further split into one or more NC
Sub-Unit Parcels pursuant to Section 20 of the Agreement for Lease, the
Lessee shall deliver to the Lessor either (i) a
<PAGE>
6
restated AFL Unit Leasing Record for such NC Sub-Unit Parcel, reflecting
the restated Unit Acquisition Cost therefor, or (ii) a written statement
that the Unit Acquisition Cost set forth in the AFL Unit Leasing Record for
such NC Sub-Unit Parcel remains unmodified.
(h) In the event that under and pursuant to the Section 20 of the
Agreement for Lease, the North Charleston Property was split into one or
more NC Sub-Unit Parcels (such NC Sub-Unit Parcels, together with the
remaining portion of the North Charleston Property, are referred to herein,
collectively, as the "Reallocation Parcels"), the Lessee may deliver to the
Lessor, within six (6) months of the Effective Date of the last
Reallocation Parcel, a revised AFL Unit Leasing Record for one or more
Reallocation Parcels setting forth for each respective Reallocation Parcel
the actual amounts expended by the Lessee with respect to such Reallocation
Parcel while it was subject to the Agreement for Lease for items included
in the aggregate Unit Budgets (as defined in the Agreement for Lease), as
the same may have been previously adjusted pursuant to Section 3(f) hereof,
for the Reallocation Parcels. The Lessor shall execute the revised AFL
Unit Leasing Record to reflect the increase or decrease, as the case may
be, in the Acquisition Cost of the respective Reallocation Parcels within
seven (7) Business Days of its receipt thereof from the Lessee."
(e) AMENDMENTS TO SECTION 18 OF THE LEASE. (i) Paragraph (f)
of Section 18 of the Lease is hereby deleted in its entirety and the following
substituted therefor:
"(f) Any indebtedness (including, without limitation, lease
obligations which are shown on the balance sheet of the Lessee or Guarantor
or which relate to sale-leaseback transactions) of the Lessee or Guarantor
in excess of $15,000,000 in the aggregate under an instrument or agreement
evidencing indebtedness in excess of $15,000,000 in the aggregate (A) shall
become or be declared to be due and payable prior to its stated maturity
and shall not be paid when due or (B) shall not be paid when due; or"
(ii) Paragraph (j) of Section 18 of the Lease is hereby amended in
its entirety and the following substituted therefor:
"(j) The Guarantor defaults in any obligation under the Guarantee
which default continues after the period of any grace period granted to the
Lessee hereunder in respect of such guaranteed obligation; the Guarantor
defaults in its obligations set forth in paragraph (a), (b) or (c) of
Section 11 of the Guarantee and such default continues for twenty (20)
Business Days after notice thereof by the Lessor to the Guarantor; or the
Guarantor defaults in its obligations set forth in paragraph (d), (e) or
(f) of Section 11 of the Guarantee and such default continues for ten (10)
Business Days after notice thereof by the Lessor to the Guarantor; or"
<PAGE>
7
(f) AMENDMENT TO SECTION 29 OF THE LEASE. Section 29 of the
Lease is hereby amended by adding the following paragraph (f) to the end
thereof:
"(f) With respect to the North Charleston Property, the Lessor
acknowledges and agrees that for purposes of this Lease and the Agreement
for Lease the Ground Lease for such Property shall consist of the Ground
Sublease Agreement, dated as of March 15, 1995, between the Lessee and the
Lessor, a copy of which is attached as Exhibit L to the Agreement for
Lease, and the Lessor further acknowledges and agrees that such Ground
Sublease Agreement, subject to the Lessee's compliance with the covenants
set forth in Section 2(b) thereof, shall be deemed to be a Mortgageable
Ground Lease for purposes of this Lease and the Agreement for Lease."
Section 2. EFFECTIVE DATE. This Amendment shall be effective on
the date (the "Effective Date") on which each of the following conditions
precedent have been satisfied:
(a) The Lessor, The Dai-Ichi Kangyo Bank, Ltd., New York Branch,
as L/C Bank and as Agent and the banks party thereto, shall have entered into
that certain Amendment No. 1 to Credit Agreement, dated as of March 15, 1995,
and the same shall have become effective.
(b) The Guarantor shall have entered into that certain Amendment
No. 1 to Guaranty, dated as March 15, 1995, for the benefit of the Lessor.
(c) The Lessor and the Lessee shall have entered into that certain
Amendment No. 1 to Agreement for Lease, dated of even date herewith.
Section 3. REPRESENTATIONS AND WARRANTIES. The Lessee represents
and warrants to the Lessor as of the Effective Date that:
(a) FINANCIAL STATEMENTS. The Lessee has caused to be furnished
to the Lessor Guarantor's Annual Report on Form 10-K for the year ended June 30,
1994 and Guarantor's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1994 and December 31, 1994, respectively. The financial
statements contained in such documents fairly present the financial position,
results of operations and statements of cash flow of Guarantor as of the dates
and for the periods indicated therein and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
(b) CONTINUING REPRESENTATIONS. All representations and
warranties made in the Agreement for Lease and in the Lease are and remain true
and correct on and as of the Effective Date as if made on and as of the
Effective Date, except to the extent such representations and warranties
expressly relate specifically to an earlier date.
<PAGE>
8
Section 4. NO RECOURSE. The provisions of Section 31 of the
Lease are applicable to this Amendment.
Section 5. GENERAL CONDITIONS.
(a) GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and intended to be wholly performed within the State of York.
(b) CAPTIONS. The captions in this Amendment are for convenience
of reference only, and shall not be deemed to affect the meaning or construction
of any of the provisions hereof.
(c) SEVERABILITY. In the event any one or more of the
provisions contained in this Amendment shall for any reason be held to be
invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Amendment and
this Amendment shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein.
<PAGE>
9
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.
Virtual Funding, Limited Partnership by
Virtual Capital, Inc., its
General Partner
By /s/ Teresa A. Miles
--------------------------
Name: Teresa Miles
Title: Vice President and
Assistant Secretary
Silicon Graphics Real Estate, Inc.
By /s/ Tom Oswold
--------------------------
Name: Tom Oswold
Title: Vice President, Finance
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS
WEIGHTED AVERAGE SHARES OUTSTANDING:
(THOUSANDS OF SHARES)
CONSOLIDATED
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
June 30, June 30,
-------- --------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common shares 159,818 147,813 156,437 144,301
Convertible preferred shares 496 2,378 1,610 3,048
Stock options 17,613 18,202 17,388 17,800
-------- -------- -------- ---------
Total weighted average shares outstanding 177,927 168,493 175,435 165,149
-------- -------- -------- --------
Income from continuing operations $52,745 $46,319 $224,856 $141,414
-------- -------- -------- --------
Discontinued operations - - - $400
Preferred stock dividend requirement - $61 $54 $244
--- --- ----
Net income available to
common stockholders $52,745 $46,258 $224,802 $141,570
-------- -------- -------- --------
Income Per Share:
Income from continuing operations $ 0.30 $ 0.27 $ 1.28 $ .86
-------- -------- -------- ------
Net income per share $ 0.30 $ 0.27 $ 1.28 $ .86
-------- -------- -------- ------
</TABLE>
All share and per share data have been restated for all periods presented to
reflect the two-for-one stock split payable in the form of a stock dividend
which was distributed on December 15, 1993 to holders of record on
November 30, 1993.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS [LOGO]
FINANCIAL CONTENTS
On June 15, 1995 Silicon Graphics, Inc. merged with Alias Research Inc. and
Wavefront Technologies, Inc. The mergers have been accounted for as a pooling of
interests, and accordingly, the financial results for fiscal 1995 include those
of Alias and Wavefront. The year ending June 30, 1994 is the fiscal period
ending June 30, 1994 for Silicon Graphics, January 31, 1994 for Alias and
December 31, 1993 for Wavefront. The year-ending June 30, 1993 is the fiscal
period ending June 30, 1993 for Silicon Graphics, January 31, 1993 for Alias and
December 31, 1992 for Wavefront.
RESULTS OF OPERATIONS Silicon Graphics uses a financial target model to develop
its annual operating plans and to evaluate investment alternatives, business
proposals and operations throughout the fiscal year. This model expresses the
Company's current objectives for gross margins, spending, and operating profit
as a percentage of net revenues. The model also incorporates target ranges for
the allocation of spending between research and development, and selling,
general and administrative expenses.
Beginning July 1, 1995 the Company modified its model to reflect the merger with
Alias and Wavefront. The changes (0.5% increases in the gross margin and
operating margin ranges) reflect the typically higher margins available on
software products and the proportional impact of the Alias and Wavefront results
on Silicon Graphics' consolidated results. The Company's current model includes
the following financial targets (as a percentage of total revenues):
<TABLE>
<S> <C>
Gross margin 50.5% - 52.5%
Research and development expenses 11.0% - 13.0%
Selling, general and administrative expenses 26.0% - 28.0%
-------------
Operating margin 11.5% - 13.5%
</TABLE>
The financial target model reflects a number of assumptions. The gross margin
target range reflects assumptions about the Company's pricing, manufacturing
costs and volumes, and the mix of products, distribution channels and
geographic distribution. The spending ranges were established based on the
Company's beliefs about the levels of research and development necessary to
develop leading-edge products for its markets, the levels of sales and
marketing expenses appropriate to support its channels of distribution and
the levels of general and administrative spending appropriate for the size
and nature of the business. Many other factors affect the Company's actual
financial performance and may cause the Company's future results to be
markedly outside of the ranges reflected in the target model.
The financial target model is one management tool that the Company uses to
run its business and measure its performance. It is not a projection of
future results. The actual results for any particular period may vary
substantially from the model for numerous reasons including but not limited
to the Company's ability to attain planned revenue growth. See "Factors That
May Affect Future Results." Also, in certain periods the Company may
intentionally operate outside the model. In addition, the financial target
model itself is subject to revision from time to time to reflect new
strategies, competitive changes or other developments.
The financial target model is described above to provide a framework for the
Company's discussion and analysis of its results of operations. The Company
does not intend to provide updated information about its planning model or
its performance relative to the model in any period, other than in the
context of management's discussion and analysis in the Company's Quarterly
Reports on Form 10-Q.
37
<PAGE>
The following table sets forth, for the fiscal years indicated, certain
income and expense items as a percentage of total revenues:
<TABLE>
<CAPTION>
TARGET
1995 1994 1993 MODEL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product and other revenues 89.3% 88.8% 88.4%
Service revenue 10.7 11.2 11.6
- -------------------------------------------------------------------------------
Total revenues 100.0 100.0 100.0 100.0
Gross margin 53.7 52.2 53.0 50.5-52.5
Research and development expenses 11.1 12.4 12.7 11.0-13.0
Selling, general and administrative expenses 27.8 27.2 29.7 26.0-28.0
Merger-related expenses 1.0 -- -- --
- ---------------------------------------------------------------------------------------------
Operating income from continuing operations 13.8 12.6 10.6 11.5-13.5
Interest expense (0.8) (0.5) (0.3)
Interest income and other, net 1.2 0.8 0.3
- -------------------------------------------------------------------------------
Income from continuing operations before income taxes 14.2 12.9 10.6
Provision for income taxes 4.1 3.7 3.3
- -------------------------------------------------------------------------------
Income from continuing operations 10.1 9.2 7.3
- -------------------------------------------------------------------------------
Net income 10.1 9.2 6.5
- -------------------------------------------------------------------------------
</TABLE>
The following table sets forth growth rates for certain income and expense
items:
<TABLE>
<CAPTION>
INCREASE
FISCAL 1995/ FISCAL 1994/
FISCAL 1994 FISCAL 1993
- ------------------------------------------------------------------------
<S> <C> <C>
Product and other revenues 46% 36%
Service revenue 38% 31%
Total revenues 45% 36%
Gross profit 49% 34%
Research and development expenses 30% 33%
Selling, general and administrative expenses 48% 24%
Net income 59% 93%
Earnings per share 49% 83%
</TABLE>
Total revenues were $2.2 billion in 1995, $1.5 billion in 1994 and $1.1
billion in 1993, reflecting growth of 45% from fiscal 1994 to 1995 and 36%
from fiscal 1993 to 1994. Revenue growth in fiscal 1995 and fiscal 1994
reflected increased shipments across the entire product line, as well as
increased service revenue supporting a larger installed base. The effect of
the 55% increase in unit volumes on revenue in fiscal 1995 was partially
offset by the continued shift within the desktop category toward lower priced
workstations. The Company expects this trend to continue in fiscal 1996.
REVENUE BY GEOGRAPHY Over the last several years, the geographical mix has
remained relatively stable. For fiscal 1995, the Company's North American
business revenue increased 39% over fiscal 1994. European revenue was up 55%
and Pacific revenue was up 47% from the previous fiscal year, partially as a
result of a weaker U.S. dollar. Revenue from Japan represented approximately
13% of total revenues for both fiscal 1995 and fiscal 1994. In fiscal 1995
revenues from Japan grew more slowly than the Company's revenues as a whole
(on a local currency basis), reflecting weakness in the Japanese economy. The
Company expects that Japanese revenue will grow more slowly than overall
revenues in fiscal 1996.
38
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30, YEAR/YEAR INCREASE
(IN MILLIONS) 1995 1994 1993 1995/1994 1994/1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America (U.S. and Canada) $ 1,155 $ 830 $ 589 39% 41%
Europe 635 409 332 55% 23%
Pacific (including Latin America) 438 299 212 47% 41%
- -------------------------------------------------------------------------------------------------
Total Revenue $ 2,228 $ 1,538 $ 1,133 45% 36%
- -------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
(AS A PERCENTAGE OF TOTAL REVENUES) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North America (U.S. and Canada) 52% 54% 52%
Europe 28% 27% 29%
Pacific (including Latin America) 20% 19% 19%
</TABLE>
PRODUCT AND OTHER REVENUES For fiscal 1995, the Company's desktop products
(primarily from the Indy and Indigo2 families) accounted for 59% of product
shipment revenue while the high-end products (POWER CHALLENGE, CHALLENGE,
Onyx families) comprised 41%. The mix between high-end and desktop systems
has remained relatively constant as the Company continues to develop and
deliver a wide range of products to a broadening marketplace.
<TABLE>
<CAPTION>
(AS A PERCENT OF PRODUCT SHIPMENT FISCAL YEARS ENDED JUNE 30,
REVENUE EXCLUDING OTHER REVENUE) 1995 1994 1993
---------------------------
<S> <C> <C> <C>
High-end products 41% 40% 41%
Desktop products 59% 60% 59%
</TABLE>
Other revenues are primarily attributable to subsystem products,
royalties, licensing fees and non-recurring engineering contracts.
During fiscal 1995, the Company expanded its product line by introducing
higher performance models including POWER Indigo2-TM-, a high performance
desktop workstation, and POWER Onyx-TM-, a graphics supercomputer; expanding
its CHALLENGE server product line into new markets; and entering a new
performance segment of the supercomputing market with its line of POWER
CHALLENGE supercomputers. These products and upgrades to existing products
contributed substantially to the revenue growth of the Company.
SERVICE REVENUE Service revenue, which is comprised of hardware and software
support and maintenance, accounted for 10.7%, 11.2%, and 11.6% of total
revenues in fiscal 1995, 1994, and 1993, respectively. The Company expects
the percentage of service revenue to total revenue to continue near the
current level.
GROSS MARGIN Cost of product and other revenues include costs
related to product shipments, including materials, labor, overhead and other
direct or allocated costs involved in their manufacture or delivery. Costs
associated with non-recurring engineering revenue are recognized in research
and development expense. Cost of service revenue includes all costs incurred
in the support and maintenance of the Company's products.
In fiscal 1995, the overall gross margin increased to 53.7% from 52.2% in
fiscal 1994. The increase was primarily due to manufacturing efficiencies due
to higher volumes, the weaker U.S. dollar, and the increased proportion of
international business. The Company operated above its gross margin model for
fiscal 1995 largely due to rapid revenue growth and efficiencies associated
with purchasing and manufacturing high volumes of products. The Company does
not expect to continue to operate above the gross margin target model in
fiscal 1996. The Company's gross margins are affected by a number of factors
and will fluctuate from period to period. See "Factors That May Affect Future
Results."
39
<PAGE>
Service margins increased to 48.2% in fiscal 1995 from 47.5% in fiscal 1994.
The increase in gross margin on service revenue was primarily a result of
efficiencies from the larger installed base of the Company's products.
Management believes that the service margins achieved in fiscal 1995 are at
the high end of the sustainable range.
In fiscal 1994, the overall gross margin decreased to 52.2% from 53.0% in
fiscal 1993. This decrease was primarily due to lower pricing on desktop
products, which was partially offset by increased service margins.
RESEARCH AND DEVELOPMENT Research and development expenses increased by 30%
in fiscal 1995 over fiscal 1994 and increased 33% in fiscal 1994 over fiscal
1993. Research and development expense as a percentage of total revenues
decreased to 11.1% in 1995 from 12.4% in 1994, as result of the natural lag
between management's recognition of above-plan revenue growth opportunities
and the initiation of incremental product development projects. The Company
will continue to increase the dollar amount of research and development
spending in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and
administrative expenses increased to 27.8% of total revenues in fiscal 1995
compared to 27.2% in 1994 and decreased from 29.7% in 1993. In order to take
advantage of the positive business climate that it is experiencing, the
Company has increased its rate of spending by implementing a variety of
incremental programs in the latter half of fiscal 1995 that are designed to
improve the Company's long-term growth prospects and market position.
MERGER-RELATED EXPENSES Merger-related expenses of $22 million were recorded
in the fourth quarter of fiscal 1995. The merger-related expenses include
transaction and professional fees, employee severance costs, and the
elimination of duplicate facilities. A small additional amount of
merger-related charges will be recognized in the first half of fiscal 1996.
DISCONTINUED OPERATIONS Prior to its merger with Silicon Graphics, Alias
discontinued the operations of its Sonata Product Division. This resulted in
the recognition of charges of $9.3 million during fiscal 1993.
INTEREST EXPENSE Interest expense increased in fiscal 1995 as a result of
increased market interest rates, and a full year of Zero Coupon Convertible
Subordinated Debentures expense. The Company's interest expense increased in
fiscal 1994, primarily as a result of the Company's issuance of $455 million of
Zero Coupon Convertible Subordinated Debentures in November of 1993.
INTEREST INCOME AND OTHER, NET Interest income and other, net for fiscal
1995 increased 111% from fiscal 1994 as a result of higher cash balances and
higher interest rates on investments. In the second quarter of fiscal 1995,
the Company recorded a charge of $7.3 million related to its long-term
investment in Control Data Systems, Inc., which the Company disposed of in
the third quarter of fiscal 1995. Interest income and other, net increased in
fiscal 1994 by 280% over fiscal 1993 primarily due to increased interest
income as a result of higher invested cash balances, higher interest rates on
investments, and lower net foreign exchange hedging costs.
PROVISION FOR INCOME TAXES The Company's combined state, federal and foreign
tax rate was approximately 29% for fiscal years 1995 and 1994, compared to
approximately 31% for the 1993 fiscal year. The combined tax rate differed
from the federal statutory rate primarily as a result of the imposition of
state taxes, the tax benefit derived from the Company's Foreign Sales
Corporation, and foreign earnings taxed at lower rates. The Company does not
provide for U.S. federal income taxes on undistributed earnings of foreign
subsidiaries which it intends to permanently reinvest in those operations.
The effective tax rate for fiscal 1996 is expected to increase to
approximately 30% due primarily to the expiration of the federal research and
experimentation credit effective June 30, 1995.
In February 1992, the FASB issued Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes." The Company adopted SFAS
109 in its first quarter of fiscal 1994 and has applied its provisions
retroactively. The effect of adopting SFAS 109 is to increase previously
reported net income for years prior to fiscal 1994 by a cumulative $44.9
million. The restatement decreased the net income for fiscal 1993 by $7.5
million ($.05 per share).
40
<PAGE>
IMPACT OF CURRENCY
During 1995, the U.S. dollar weakened against most European and Pacific
currencies compared to the prior year periods resulting in a positive impact
on revenues and a negative impact on costs and expenses. The net overall
effect of currency changes on net income during 1995 was positive. In 1994,
the U.S. dollar weakened against the majority of the Pacific currencies
compared to the prior year periods while it generally strengthened against
the European currencies. The net effect of currency changes on net income in
1994 was not material. In 1993, the net effect of currency changes on net
income was not material.
NET INCOME As a result of the above factors, net income was $225 million for
fiscal 1995 compared to $142 million in fiscal 1994 and $74 million in 1993.
FINANCIAL CONDITION Stockholder's equity increased by $409 million in fiscal
1995 primarily as a result of increased net income, sales of common stock
through employee benefits plans, proceeds received from a secondary public
offering by Alias and initial and secondary public offerings by Wavefront,
and tax benefits related to employee stock benefit plans.
During fiscal 1995 the Company's cash and cash equivalents, short-term
marketable investments and other marketable investments increased by $176
million. This increase was primarily due to positive cash flow from operating
activities of $223 million, $69 million from sales of stock through employee
benefit programs, and $45 million from proceeds of stock offerings by Alias
and Wavefront. This was partially offset by $148 million of capital
expenditures and repayment of debt of $16 million.
At June 30, 1995, the Company's principal sources of liquidity included cash,
cash equivalents and short and long-term marketable investments of $780
million, and up to $20 million available under a bank line of credit. The
Company believes that these resources should be adequate to fund the
Company's projected cash needs through at least fiscal 1996. The Company
believes that the level of financial resources is an important competitive
factor in the computer industry and, accordingly, may elect to raise
additional capital through debt or equity financing in anticipation of future
needs.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Silicon Graphics operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
PERIOD TO PERIOD FLUCTUATIONS The Company's operating results may fluctuate
for a number of reasons. The Company has short delivery cycles and as a
result does not have a large order backlog, which makes the forecasting of
revenue inherently uncertain. This uncertainty is compounded because each
quarter's revenue results predominantly from orders booked and shipped during
the third month, and disproportionately in the latter half of that month.
Because the Company plans its operating expenses, many of which are
relatively fixed in the short term, on the basis that its revenues will
continue to grow, even a relatively small revenue shortfall may cause a
period's results to be substantially below expectations. Such a revenue
shortfall could arise from any number of factors, including lower than
expected demand, supply constraints, delays in the availability of new
products, transit interruptions, overall economic conditions or natural
disasters. Margins are heavily influenced by mix considerations, including
geographical mix, the mix of service and non-recurring engineering revenues,
the mix of high-end and desktop products and application software and the mix
of configurations within these product categories.
The Company's results have followed a seasonal pattern, with stronger
sequential growth in the second and fourth fiscal quarters, reflecting the
buying patterns of the Company's customers.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter
fail to meet the investment community's expectations, there could be an
immediate impact on the Company's stock price. The stock price may also be
affected by broader market trends unrelated to the Company's performance.
RAPID GROWTH The Company's annual revenue growth rate, which was 36% in
fiscal 1994, accelerated to 45% in fiscal 1995. In light of this acceleration
and management's views of the potential for future growth, the Company has
adopted an aggressive growth plan that includes substantial investments in
its sales and marketing organizations, the creation of new research and
development programs
41
<PAGE>
and increased funding of existing programs, and investments in corporate
infrastructure that will be required to support significant growth. This
plan, which was implemented during the latter half of fiscal 1995 and is
planned to continue in fiscal 1996, carries with it a number of risks,
including a higher level of operating expenses, the difficulty of attracting
and assimilating a large number of new employees, and the complexities
associated with managing a larger and faster growing organization.
PRODUCT DEVELOPMENT AND INTRODUCTION The Company has achieved revenue growth
and profitability that are well above average within the computer industry
because it has been able to develop and rapidly bring to volume production
highly differentiated, technologically complex and innovative products. The
Company's future results depend on its ability to sustain this competitive
advantage. The Company is planning significant new product introductions in
fiscal 1996, including products that will replace those in the Company's
current product offering. A number of risks are inherent in this process.
The development of new technology and products is increasingly complex and
uncertain, which increases the risk of delays. The introduction of a new
computer system requires close collaboration and continued technological
advancement involving multiple hardware and software design and manufacturing
teams within the Company as well as teams at outside suppliers of key
components such as semiconductor and storage products. The failure of any one
of these elements could cause the Company's new products to fail to meet
specifications or to miss the aggressive timetables that the Company
establishes. As the variety and complexity of the Company's product families
increase, the process of planning production and inventory levels also
becomes more difficult.
Short product life cycles place a premium on the Company's ability to manage
the transition from current products to new products. In order to minimize
product transition issues, the Company generally announces new products in
the early part of a quarter, while the product is in the final stages of
development, and seeks to manufacture and ship the product in volume in the
same quarter. The Company's results could be adversely affected by such
factors as development or manufacturing delays, variations in product costs,
and delays in customer purchases of existing products in anticipation of the
introduction of new products.
INTERNATIONAL OPERATIONS Because approximately half of the Company's revenue
is from sales outside the United States, and many key components are produced
outside the United States, the Company's results could be negatively affected
by such factors as changes in foreign currency exchange rates (international
sales are generally denominated in foreign currencies, while the Company's
accounts are in U.S. dollars), trade protection measures, longer accounts
receivable collection patterns, changes in regional or worldwide economic or
political conditions, or natural disasters. For example, a marked short-term
appreciation in the value of the U.S. dollar relative to the Japanese yen or
German mark could adversely affect the Company's results. The Company's sales
to foreign customers also are subject to export regulations, with sales of
some of the Company's high-end products requiring clearance and export
licenses from the U.S. Department of Commerce. The Company's export sales
would be adversely affected if such regulations were tightened, or if they
are not modified over time to reflect the increasing performance of the
Company's products.
Sales in foreign countries are generally priced in local currencies and are
thus subject to the effects of currency exchange fluctuations. The Company
attempts to reduce the impact (positive or negative) of currency fluctuations
on net income primarily through the use of forward exchange contracts and
foreign currency options that hedge foreign currency denominated receivables
between the parent and its international subsidiaries. The Company has
generally not hedged capital expenditures, investments in subsidiaries,
inventory purchases or the anticipated sales of its international
subsidiaries, although it periodically evaluates its hedging practices. In
conjunction with the Company's merger with Alias, the Company inherited
Canadian dollar Put option contracts and Canadian dollar Call option
contracts. These options are part of a Put-Call strategy used to hedge a
fixed monthly amount of Canadian dollar denominated expenses. The mark to
market differences in these hedging instruments were not material as of
June 30, 1995.
DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE All of the Company's
system products incorporate microprocessors based upon the Company's MIPS RISC
microprocessor architecture. The Company licenses the manufacturing and
distribution rights to these microprocessors to selected semiconductor
42
<PAGE>
manufacturing companies, which in turn have assisted in funding the
development of new MIPS RISC microprocessors. Changes in the timing, level or
availability of such funding could adversely affect the continued development
of the MIPS RISC architecture or increase the portion of the development
budget that is borne by the Company. The Company believes that the continued
development and broad acceptance of the MIPS architecture are critical to its
future success.
NEW VENTURES The Company has entered into several ventures with other
companies to address new and emerging markets, including ventures with
Time-Warner Cable, Nintendo Co., Ltd. and AT&T Corp. While the Company
believes that these new ventures are strategically important, there are
substantial uncertainties associated with the development of new products and
technologies for evolving markets. The success of these ventures will be
determined not only by the Company's efforts, but also by those of its
partners. Initial timetables for the development and introduction of new
technologies, products or services may not be achieved, and price/performance
targets may not prove feasible. External factors, such as the development of
competitive alternatives or government regulation, may cause new markets to
evolve in an unanticipated direction.
In May 1995, Nintendo announced that the final chipset for its Ultra 64-TM-
home video game system had been completed by the Company and Nintendo, but
that product shipments of the Ultra 64 system in North America and Europe have
been deferred until April 1996. The Company does not expect material revenues
from shipments of this product during fiscal 1996.
MANAGEMENT INFORMATION SYSTEMS The Company is planning to replace its
current information management system with a comprehensive system that will
be used to manage the entire revenue cycle, including manufacturing, order
administration, billing and collection, and financial planning and reporting.
The Company expects that this system will allow it to realize significant
operational efficiencies and facilitate future growth, and it is devoting
significant resources to system design and testing. The Company's operations
could be disrupted, however, if the transition to the new system is not
effected smoothly or if the system does not perform as expected. Initial
implementation is currently scheduled for the second half of fiscal 1996.
INTELLECTUAL PROPERTY The Company routinely receives communications from
third parties asserting patent or other rights covering the Company's
products and technologies. Based upon the Company's evaluation, it may take
no action or it may seek to obtain a license. In any given case there is a
risk that a license will not be available on terms that the Company considers
reasonable, or that litigation will ensue. The Company expects that, as the
number of hardware and software patents issued continues to increase, and as
the Company's business grows, the volume of these third party communications
will also increase.
COMPETITION The computer industry is highly competitive, with rapid
technological advances and constantly improving price/performance. As the
segments in which the Company operates continue to grow faster than the
industry as a whole, the Company is experiencing an increase in competition,
and it expects this trend to continue. This competition may in the future
come not only from the Company's traditional UNIX-Registered Trademark-
workstation rivals, but also from new sources including the personal computer
industry. Many of the Company's competitors have substantially greater
technical, marketing and financial resources and, in some segments, a larger
installed base of customers and a wider range of available applications
software. Competition can result in significant discounting and lower
gross margins.
BUSINESS DISRUPTION The Company's corporate headquarters, including its
research and development operations and most of its manufacturing facilities,
are located in the Silicon Valley area of Northern California, a region known
for seismic activity. Operating results could be materially affected by a
significant earthquake. The Company is predominantly self-insured for losses
and business interruptions of this kind.
43
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA [LOGO]
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995(1) 1994(1) 1993(1) 1992(1) 1991(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $2,228,268 $1,537,766 $1,132,869 $ 906,713 $735,954
Costs and expenses:
Cost of goods sold 1,032,059 735,388 532,213 437,575 329,030
Research and development 247,678 190,796 143,981 137,134 97,634
Selling, general and administrative 619,259 417,753 336,054 329,204 259,121
Merger-related expenses 22,000 -- -- 110,000 --
Restructuring costs -- -- 650 28,895 --
-------------------------------------------------------------------
Operating income (loss) from continuing operations 307,272 193,829 119,971 (136,095) 50,169
Interest and other, net 9,447 4,779 520 5,961 10,779
-------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 316,719 198,608 120,491 (130,134) 60,948
Income (loss) from continuing operations 224,856 141,414 82,803 (101,318) 39,810
Net income (loss) 224,856 141,814 73,540 (101,183) 39,810
Income (loss) per common share:
Income (loss) from continuing operations $ 1.28 $ 0.86 $ 0.53 $ (0.89) $ 0.32
Net income (loss) $ 1.28 $ 0.86 $ 0.47 $ (0.89) $ 0.32
Weighted average common shares and common
share equivalents outstanding 175,435 165,149 154,887 119,233 124,260
BALANCE SHEET DATA:
Cash and cash equivalents, short-term marketable
investments and other marketable investments $ 780,012 $ 604,444 $ 208,538 $ 195,088 $311,061
Working capital 935,691 680,795 426,642 380,317 491,872
Total assets 2,206,619 1,567,052 1,048,294 892,673 887,212
Long-term debt and other 287,267 252,645 56,832 71,900 52,049
Stockholder's equity 1,346,170 937,169 696,649 562,230 676,690
STATISTICAL DATA:
Number of employees 6,308 4,707 4,023 3,946 3,646
Revenue/employee (average; in thousands) $ 400 $ 346 $ 293 $ 237 $ 218
Long-term debt and other/total capitalization 18% 21% 8% 11% 7%
<FN>
(1) All periods reflect the mergers of Silicon Graphics, Inc., Alias Research Inc., and Wavefront Technologies, Inc. which have
been accounted for as a pooling of interests. See Notes 1 and 2 to the consolidated financial statements.
</TABLE>
44
<PAGE>
QUARTERLY DATA [LOGO]
<TABLE>
<CAPTION>
FISCAL 1995 (UNAUDITED)(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 653,210 $ 576,984 $ 549,571 $ 448,503
Costs and expenses:
Cost of goods sold 305,294 263,395 255,535 207,835
Research and development 69,191 61,416 60,841 56,230
Selling, general and administrative 190,221 159,818 145,687 123,533
Merger-related expenses 22,000 -- -- --
Operating income 66,504 92,355 87,508 60,905
Interest and other, net 6,034 4,457 (3,935) 2,891
Income before income taxes 72,538 96,812 83,573 63,796
Net income 52,745 67,972 59,038 45,101
Net income per common share $ 0.30 $ 0.38 $ 0.34 $ 0.26
Weighted average common shares and common
share equivalents outstanding 177,927 177,781 174,065 171,999
<CAPTION>
FISCAL 1994 (UNAUDITED)(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 452,777 $ 390,562 $ 382,074 $ 312,353
Costs and expenses:
Cost of goods sold 214,820 187,518 184,292 148,758
Research and development 53,758 51,729 44,478 40,831
Selling, general and administrative 120,388 105,983 102,185 89,197
Operating income from continuing operations 63,811 45,332 51,119 33,567
Interest and other, net 1,183 1,321 1,678 597
Income from continuing operations before
income taxes 64,994 46,653 52,797 34,164
Income from continuing operations 46,319 31,539 37,178 26,378
Net income 46,319 31,539 37,378 26,578
Income per common share:
Income from continuing operations $ 0.27 $ 0.19 $ 0.23 $ 0.16
Net income $ 0.27 $ 0.19 $ 0.23 $ 0.16
Weighted average common shares and common
share equivalents outstanding 168,493 165,634 164,087 168,072
<FN>
(1) All periods reflect the mergers of Silicon Graphics, Inc., Alias Research
Inc., and Wavefront Technologies, Inc. which have been accounted for as a
pooling of interests. See Notes 1 and 2 to the consolidated financial
statements.
</TABLE>
45
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995(1) 1994(1) 1993(1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Product and other revenues $ 1,989,969 $ 1,365,513 $ 1,001,475
Service revenue 238,299 172,253 131,394
---------------------------------------
Total revenues 2,228,268 1,537,766 1,132,869
---------------------------------------
COSTS AND EXPENSES:
Cost of product and other revenues 908,516 644,979 451,872
Cost of service revenue1 23,543 90,409 80,341
Research and development 247,678 190,796 143,981
Selling, general and administrative 619,259 417,753 336,054
Merger-related expenses 22,000 -- --
Restructuring costs -- -- 650
---------------------------------------
Total costs and expenses 1,920,996 1,343,937 1,012,898
---------------------------------------
Operating income from continuing operations 307,272 193,829 119,971
Interest expense (18,188) (8,321) (2,924)
Interest income and other, net 27,635 13,100 3,444
---------------------------------------
Income from continuing operations before
income taxes 316,719 198,608 120,491
Provision for income taxes 91,863 57,194 37,688
---------------------------------------
Income from continuing operations 224,856 141,414 82,803
Discontinued operations:
Loss from operations -- -- (2,081)
Reduction of (provision for) loss on
disposal -- 400 (7,182)
---------------------------------------
Net income 224,856 141,814 73,540
Preferred stock dividend requirement 54 244 1,149
Net income available to common stockholders $ 224,802 $ 141,570 $ 72,391
=======================================
Income per common share:
Income from continuing operations $ 1.28 $ 0.86 $ 0.53
=======================================
Net income $ 1.28 $ 0.86 $ 0.47
=======================================
Common shares and common share equivalents
used in the calculation of income per
common share 175,435 165,149 154,887
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<FN>
(1) All periods reflect the mergers of Silicon Graphics, Inc., Alias Research
Inc., and Wavefront Technologies, Inc. which have been accounted for as a
pooling of interests.
</TABLE>
46
<PAGE>
CONSOLIDATED BALANCE SHEETS [LOGO]
<TABLE>
<CAPTION>
AS OF JUNE 30
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995(1) 1994(1)
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 307,875 $ 327,461
Short-term marketable investments 208,094 90,147
---------------------------
Total cash and short-term marketable investments 515,969 417,608
Accounts receivable, net of allowance for doubtful
accounts of $13,465 in 1995, $9,492 in 1994 627,738 406,239
Inventories 291,587 164,992
Prepaid expenses and other current assets 73,579 69,194
---------------------------
Total current assets 1,508,873 1,058,033
Other marketable investments 264,043 186,836
Property and equipment, at cost, net of accumulated
depreciation and amortization 254,446 189,960
Other assets 179,257 132,223
---------------------------
$ 2,206,619 $ 1,567,052
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 165,152 $ 93,315
Accrued compensation 75,483 48,319
Income taxes payable 62,567 50,553
Other accrued liabilities 96,753 85,388
Current portion of long-term debt and other 50,479 20,913
Deferred revenue 122,748 78,750
---------------------------
Total current liabilities 573,182 377,238
Long-term debt and other 287,267 252,645
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value: issuable in series,
2,000,000 shares authorized; issued and outstanding:
17,500 in 1995; 809,486 in 1994 16,998 37,796
Common stock, $.001 par value; 500,000,000 shares
authorized; shares issued and outstanding:
160,478,815 in 1995; 148,450,655 in 1994 161 148
Additional paid-in capital 903,139 728,651
Retained earnings 385,915 157,619
Accumulated translation adjustment and other 39,957 12,955
---------------------------
Total stockholders' equity 1,346,170 937,169
---------------------------
$ 2,206,619 $ 1,567,052
===========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<FN>
(1) All balances reflect the mergers of Silicon Graphics, Inc., Alias Research
Inc., and Wavefront Technologies, Inc. which have been accounted for as a
pooling of interests.
</TABLE>
47
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [LOGO]
<TABLE>
<CAPTION>
THREE YEARS ENDED JUNE 30, 1995(1) PREFERRED STOCK COMMON STOCK
(IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1992 809 $ 37,796 131,257 $131
Common stock issued, net of repurchases -- -- 8,778 9
Convertible preferred stock, Series A preferred dividends -- -- -- --
Currency translation adjustment -- -- -- --
Tax benefit from stock options -- -- -- --
Conversion of common stock to redeemable preferred stock -- -- (24) --
Accreted mandatory redemption premium of preferred stock -- -- -- --
Net income -- -- -- --
----------------------------------------
Balance, June 30, 1993 809 37,796 140,011 140
Common stock issued, net of repurchases -- -- 7,774 8
Convertible preferred stock, Series A preferred dividends -- -- -- --
Currency translation adjustment -- -- -- --
Tax benefit from stock options -- -- -- --
Exercise of warrants -- -- 112 --
Common stock issued upon purchase of Thomson Digital Image -- -- 302 --
Conversion of redeemable preferred stock to common stock -- -- 251 --
Accreted mandatory redemption premium of preferred stock -- -- -- --
Net income -- -- -- --
----------------------------------------
Balance, June 30, 1994 809 37,796 148,450 148
Common stock issued, net of repurchases -- -- 7,443 8
Conversion of preferred stock (476) (19,703) 688 1
Convertible preferred stock, Series A preferred dividends -- -- -- --
Currency translation adjustment -- -- -- --
Tax benefit from stock options -- -- -- --
Unrealized gain on available-for-sale securities, net of tax -- -- -- --
Net income -- -- -- --
Net transactions of Alias and Wavefront from February 1, 1994 through
July 31, 1994 and January 1, 1994 through June 30, 1994, respectively (316) (1,095) 3,898 4
----------------------------------------
Balance, June 30, 1995 17 $ 16,998 160,479 $161
========================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<FN>
(1) All balances reflect the mergers of Silicon Graphics, Inc., Alias Research Inc., and Wavefront Technologies, Inc. which
have been accounted for as a pooling of interests.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
ADDITIONAL EARNINGS TRANSLATION TOTAL
THREE YEARS ENDED JUNE 30, 1995(1) PAID-IN (ACCUMULATED ADJUSTMENT STOCKHOLDERS'
(IN THOUSANDS) CAPITAL DEFICIT) AND OTHER EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1992 $581,551 $(55,635) $(1,613) $ 562,230
Common stock issued, net of repurchases 50,082 -- -- 50,091
Convertible preferred stock, Series A preferred dividends -- (1,050) -- (1,050)
Currency translation adjustment -- -- (3,376) (3,376)
Tax benefit from stock options 16,557 -- -- 16,557
Conversion of common stock to redeemable preferred stock (580) -- -- (580)
Accreted mandatory redemption premium of preferred stock (763) -- -- (763)
Net income -- 73,540 -- 73,540
------------------------------------------------
Balance, June 30, 1993 646,847 16,855 (4,989) 696,649
Common stock issued, net of repurchases 50,234 -- -- 50,242
Convertible preferred stock, Series A preferred dividends -- (1,050) -- (1,050)
Currency translation adjustment -- -- 17,944 17,944
Tax benefit from stock options 26,850 -- -- 26,850
Exercise of warrants 1,000 -- -- 1,000
Common stock issued upon purchase of Thomson Digital Image 1,847 -- -- 1,847
Conversion of redeemable preferred stock to common stock 2,762 -- -- 2,762
Accreted mandatory redemption premium of preferred stock (889) -- -- (889)
Net income -- 141,814 -- 141,814
------------------------------------------------
Balance, June 30, 1994 728,651 157,619 12,955 937,169
Common stock issued, net of repurchases 76,997 -- -- 77,005
Conversion of preferred stock 19,702 -- -- --
Convertible preferred stock, Series A preferred dividends -- (1,006) -- (1,006)
Currency translation adjustment -- -- 25,885 25,885
Tax benefit from stock options 31,504 -- -- 31,504
Unrealized gain on available-for-sale securities, net of tax -- -- 1,157 1,157
Net income -- 224,856 -- 224,856
Net transactions of Alias and Wavefront from February 1, 1994 through
July 31, 1994 and January 1, 1994 through June 30, 1994, respectively 46,285 4,446 (40) 49,600
------------------------------------------------
Balance, June 30, 1995 $903,139 $385,915 $39,957 $1,346,170
================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<FN>
(1) All balances reflect the mergers of Silicon Graphics, Inc., Alias Research Inc., and Wavefront Technologies, Inc. which
have been accounted for as a pooling of interests.
</TABLE>
49
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
(IN THOUSANDS) 1995(1) 1994(1) 1993(1)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 224,856 $ 141,814 $ 73,540
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 106,914 87,735 71,120
Write down of equity investment 7,370 -- --
Accrued interest on convertible subordinated
debenture 8,623 5,565 --
Other 27,159 23,756 2,381
(Increase) decrease in assets:
Accounts receivable (222,482) (77,808) (77,133)
Inventories (126,750) (8,197) (32,360)
Prepaid expenses and other current assets (4,923) 3,424 (2,413)
Increase (decrease) in liabilities:
Accounts payable 71,238 (5,328) 30,693
Accrued compensation 28,434 12,211 6,928
Income taxes payable 43,067 38,109 28,745
Other accrued liabilities 18,463 25,376 (33,911)
Deferred revenue 40,854 22,050 11,186
------------------------------
Total adjustments (2,033) 126,893 5,236
------------------------------
Net cash provided by operating activities 222,823 268,707 78,776
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (147,933) (92,490) (84,522)
Increase in other assets (13,058) (23,806) (20,892)
Available-for-sale investments:
Purchases (575,191) (394,406) (162,512)
Sales 178,928 72,942 --
Maturities 209,873 99,293 136,380
Net increase in cash and cash equivalents of Alias
for the period February 1994 to July 1994, and
Wavefront for the period January 1994 to June 1994 44,479 -- --
------------------------------
Net cash used in investing activities (302,902) (338,467) (131,546)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 2,286 204,006 1,761
Payments of debt principal (16,077) (9,988) (9,973)
Sale of common stock 75,334 50,527 49,350
Cash dividends-preferred stock (1,050) (1,050) (1,050)
------------------------------
Net cash provided by financing activities 60,493 243,495 40,088
------------------------------
Net increase (decrease) in cash and cash
equivalents (19,586) 173,735 (12,682)
Cash and cash equivalents at beginning of year 327,461 153,726 166,408
------------------------------
Cash and cash equivalents at end of year $307,875 $327,461 $153,726
==============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<FN>
(1) All balances reflect the mergers of Silicon Graphics, Inc., Alias Research
Inc., and Wavefront Technologies, Inc. which have been accounted for as a
pooling of interests.
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [LOGO]
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION Silicon Graphics, Inc. ("Silicon
Graphics" or the "Company") is a leading manufacturer of high-performance
visual computing systems and software. The Company delivers interactive
three-dimensional graphics, digital media and multiprocessing supercomputing
technologies to technical, scientific and creative professionals.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of significant intercompany
transactions and balances, including transactions between the Company and
Alias Research Inc. ("Alias") and Wavefront Technologies, Inc. ("Wavefront"),
which were merged into the Company effective June 15, 1995. The mergers have
been accounted for as a pooling of interests: as such all periods prior to
fiscal 1995 have been restated. The consolidated financial statements for all
periods prior to fiscal 1995 have not been restated for the change in fiscal
year. Such periods include the Company's results of operations and balance
sheet data on a June 30 fiscal year with Alias and Wavefront on a January 31
fiscal year and prior December 31 calendar year, respectively. Operating
results for Alias from February 1, 1994 through July 31, 1994 and Wavefront
from January 1, 1994 through June 30, 1994 were not significant. The
financial statements of foreign subsidiaries have been translated into U.S.
dollars using applicable exchange rates.
CASH AND CASH EQUIVALENTS AND MARKETABLE INVESTMENTS Effective July 1, 1994,
the Company adopted Statement of Financial Accounting Standards No. 115 (FAS
115), "Accounting for Certain Investments in Debt and Equity Securities." The
cumulative effect as of July 1, 1994 of adopting FAS 115 was immaterial. FAS
115 has been adopted on a prospective basis, and the financial statements of
prior years have not been restated.
Cash and cash equivalents consist of cash on deposit with banks and high
quality money market instruments with original maturities of 90 days or less.
Cash equivalents are classified as held-to-maturity and are therefore stated
at cost, which approximates fair value. Short-term marketable investments,
classified as available-for-sale, consist of high quality money market
instruments with original maturities greater than 90 days, but less than one
year, and are stated at fair market value as of June 30, 1995. Other
marketable investments, also classified as available-for-sale, consist
primarily of high quality debt securities with maturities greater than one
year and less than three years, and are stated at fair market value as of
June 30, 1995.
The Company does not actively invest in marketable equity securities, but has
from time to time acquired positions in certain public companies in the
ordinary course of business. These equity investments are included in "other
marketable investments" and are stated at fair market value. The cost of
securities when sold is based upon specific identification. Realized gains
and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income and other, net.
On February 14, 1995, the Company sold its investment in Control Data
Systems, Inc. at fair market value resulting in a $7,300,000 million loss for
the year ended June 30, 1995. There were no other material realized gains or
losses on sales of available-for-sale or held-to-maturity securities in 1995.
Unrealized gains and losses (net of tax) on securities classified as
available-for-sale are included in "accumulated translation adjustment and
other" in stockholders' equity. The change in the unrealized gain for
available-for-sale securities from July 1, 1994 through June 30, 1995 was
$9,245,000. Included in other cash flows from operating activities is
approximately $11,600,000 representing the estimated impact of currency
translation related to cash, cash equivalents and marketable investments
maintained in foreign currencies for the year ended June 30, 1995. Amounts in
prior years were not material.
51
<PAGE>
The following tables detail the Company's marketable investments
as of June 30, 1995 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
HELD-TO-MATURITY SECURITIES COST GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchase agreements $ 89,700 $ -- $ -- $ 89,700
U.S. commercial paper 56,758 -- -- 56,758
Floating rate notes 34,400 -- -- 34,400
Certificates of deposit and Euro certificates
of deposit 13,970 -- -- 13,970
U.S. government 10,636 -- -- 10,636
Other investments 917 -- -- 917
------------------------------------------------
Total $ 206,381 $ -- $ -- $ 206,381
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE-FOR-SALE SECURITIES COST GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies $ 285,534 $ 1,972 $ (944) $ 286,562
U.S. corporate notes 111,186 1,128 (551) 111,763
Certificates of deposit and Euro certificates
of deposit 38,003 161 -- 38,164
Floating rate notes 23,111 -- (128) 22,983
U.S. commercial paper 12,650 15 -- 12,665
------------------------------------------------
Total $ 470,484 $ 3,276 $ (1,623) $ 472,137
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
BALANCE SHEET CLASSIFICATION COST GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash equivalent marketable investments $ 206,381 $ -- $ -- $ 206,381
Short-term marketable investments 208,310 469 (685) 208,094
Other marketable investments 262,174 2,807 (938) 264,043
------------------------------------------------
Total $ 676,865 $ 3,276 $ (1,623) $ 678,518
</TABLE>
52
<PAGE>
The amortized cost and estimated fair value of marketable investment
securities at June 30, 1995 by contractual maturity, are shown below (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Held-to-Maturity Securities
Due in one year or less $ 206,381 $ 206,381
-----------------------
Total $ 206,381 $ 206,381
Available-for-Sale Securities
Due in one year or less $ 206,291 $ 206,074
Due after one year through two years 172,416 173,202
Due after two years through three years 91,777 92,861
-----------------------
Total $ 470,484 $ 472,137
-----------------------
Grand Total $ 676,865 $ 678,518
=======================
</TABLE>
FAS 109 The Company adopted Statement of Financial Accounting Standards No.
109 (SFAS 109), "Accounting for Income Taxes" in the first quarter of fiscal
1994 and has applied its provisions retroactively. The effect of adopting
SFAS 109 is to increase previously reported net income for years prior to
fiscal 1994 by a cumulative $44.9 million. The restatement decreased net
income for fiscal 1993 by $7.5 million ($0.05 per share).
FAS 119 Silicon Graphics uses derivatives only for the purpose of hedging
the financial market exposures of its business operations. The Company uses
derivative products in managing both its foreign exchange and its interest
rate exposures. The Company does not use any derivative instruments for
trading purposes.
FOREIGN EXCHANGE CONTRACTS The Company enters into forward foreign exchange
and currency option contracts as a hedge against the effects of fluctuating
currency exchange rates on certain monetary assets and liabilities (primarily
cash and intercompany accounts receivable and payable) denominated in
currencies other than the U.S. dollar (in the case of the Company) or the
functional currency of the relevant entity (in the case of subsidiaries).
Gains and losses on these contracts, which equal the difference between the
foreign exchange contract rate and the prevailing market spot rate at the
time of valuation, are recognized in the consolidated statement of
operations. The Company does not trade foreign exchange contracts or act as a
broker of foreign exchange contracts to incur trading profit. At June 30,
1995, the Company had 121 forward contracts open in eighteen currencies
maturing between July 5, 1995 and January 31, 1996 and totalling $352
million. Only the Swiss Franc, British Pound, Japanese Yen, German Mark and
French Franc individually exceeded 5% of the total value of contracts
outstanding at $159 million, $38 million, $27 million, $25 million and $24
million, respectively. These contracts were entered into to hedge the U.S.
dollar value of the Company's net exposed monetary assets and liabilities.
The carrying amounts of the Company's forward exchange contracts at June 30,
1995 were not material.
At June 30, 1995 the Company had 14 sold Canadian dollar Put option contracts
and 14 purchased Canadian dollar Call option contracts, each with a face
amount of $750,000 Canadian dollars, which expire between July 12, 1995 and
January 29, 1996. These options, entered into by Alias and assumed by Silicon
Graphics at the time of the mergers, are part of a Put-Call strategy to hedge
a fixed monthly amount of Canadian dollar denominated expenses. The Company
does not plan to continue this strategy.
The table below shows the notional principal, fair market value (based on
dealer quotes) and credit risk amounts of the Company's foreign currency
instruments as of June 30, 1995. Although the notional principal amounts for
off-balance-sheet instruments provide one measure of the transaction volume
outstanding as of year end, they do not represent the amount of the Company's
exposure to credit risk. The credit risk amount represents the Company's
exposure to potential accounting loss on these transactions if all
counterparties failed to deliver contracts at the contracted rates and
contracts had to be replaced at rates prevailing on June 30, 1995. The
Company's exposure to credit loss and market risk will vary over time as a
function of currency exchange rates.
INTEREST RATE CONTRACTS Silicon Graphics is a net investor. As such it has
significant exposures to interest rate movements. These exposures are
primarily to U.S. interest rates, but also to foreign rates, and Swiss rates
in particular. To date these have been largely managed by modifying the
average duration of the portfolio in response to actual or anticipated
changes in rates and in the case of the Zero Coupon financing, by using the
interest rate swap (See Note 4).
53
<PAGE>
Although the table below reflects the notional principal, fair value, and
credit risk amounts of the Company's interest rate and foreign exchange
instruments, it does not reflect the gains or losses associated with the
exposures and transactions that the interest rate and foreign exchange
instruments are intended to hedge. The amounts ultimately realized upon
settlement of these financial instruments, together with the gains and losses
on the underlying exposures, will depend on actual market conditions during
the remaining life of the instruments. The estimates of fair market value are
based on applicable and commonly used pricing models using prevailing
financial market information as of June 30, 1995.
<TABLE>
<CAPTION>
NOTIONAL FAIR CREDIT RISK
(IN THOUSANDS) PRINCIPAL VALUE AMOUNT
- --------------------------------------------------------------------
<S> <C> <C>
Foreign exchange instruments:
Forward Contracts $ 352,004 $ 2,222 $ (336)
Sold Currency
Put Options $ 7,646 $ (18) $ --
Purchased Currency
Call Options $ (7,646) $ 32 $ --
Interest rate instruments:
Swap $ 200,095 $ (3,745) $ --
CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE
- -------------------------------------------------------
Marketable investments $ 678,518 $ 678,518
Debt instruments $ 236,935 $ 320,746
</TABLE>
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of cash
investments and trade receivables. The Company invests its excess cash in
deposits with major banks, in U.S. Treasury and U.S. Agency obligations and
in money market securities issued by companies with strong credit ratings and
in a variety of industries. Those securities classified as cash equivalents
and short-term marketable investments typically mature within one year of
their purchase date. The Company's other debt investments typically have a
maximum maturity of three years. These investments typically bear minimal
credit risk. This diversification of risk is consistent with the Company's
policy to maintain high liquidity and ensure safety of principal.
The Company sells its products to a large number of customers in diversified
industries, primarily in the United States, Europe and the Pacific/Americas.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
INVENTORIES Manufacturing inventories are stated at the lower of cost
(first-in, first-out) or market. Service and marketing inventories are stated
at cost less depreciation (typically based on a five year life for service
inventories and a two year life for marketing inventories).
The inventory detail at June 30, 1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
- ------------------------------------------------------
<S> <C> <C>
Raw materials $ 43,640 $ 9,602
Work-in-process 84,049 48,680
Finished goods 31,887 18,502
Service and marketing 132,011 88,208
-------------------------
Total inventories $ 291,587 $ 164,992
=========================
</TABLE>
PROPERTY AND EQUIPMENT Property and equipment detail at June 30, 1995 and
1994 is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
- ------------------------------------------------------
<S> <C> <C>
Land and buildings $ 36,531 $ 28,980
Machinery and equipment 342,481 243,326
Furniture and fixtures 73,397 53,412
Leasehold improvements 63,061 60,312
-------------------------
515,470 386,030
Accumulated depreciation
& amortization (261,024) (196,070)
-------------------------
Net property and equipment $ 254,446 $ 189,960
=========================
</TABLE>
54
<PAGE>
Property and equipment are stated at cost and depreciation is computed using
the straight-line method. Useful lives of two to five years are used for
machinery and equipment and furniture and fixtures; leasehold improvements
are amortized over the shorter of their useful lives or the term of the
lease. The Company's building in Switzerland is depreciated over thirty years
and improvements over fifteen years. Property and equipment includes
$10,999,000 and $7,511,000 of equipment under capital leases at June 30, 1995
and 1994, respectively. Accumulated depreciation for such equipment was
$3,747,000 and $2,281,000 at June 30, 1995 and 1994, respectively.
OTHER ASSETS Other assets are primarily composed of prepaid income taxes,
purchased technologies, capital investments, refundable deposits related to
facilities, purchased software costs, prepaid software license fees,
capitalized internally developed software costs and goodwill. Purchased
technologies, capitalized software and licenses and goodwill are generally
amortized on a straight-line basis, or at the ratio of current revenue to the
total of current and anticipated future revenue, over the course of their
respective useful lives.
Internally developed software costs and purchased software costs are
capitalized at the point of technological feasibility, in accordance with
Statement of Financial Accounting Standards No. 86 (FAS 86). Such costs are
amortized, commencing upon first customer shipment of the derivative software
products, over the greater of either 1) the straight-line basis with an
estimated useful life of three years, or 2) the ratio of current revenue to
the total of current and anticipated future revenue. Goodwill represents the
excess cost over fair value of net assets acquired primarily from Silicon
Graphics World Trade Corporation in fiscal 1991, and is amortized on a
straight-line basis over a twenty-year period.
REVENUE RECOGNITION Product and other revenues primarily include revenue
from system and software products shipments, the sale of software
distribution rights, technology licensing agreements and non-recurring
engineering (NRE) contracts. Product revenues are recognized when the product
is shipped to the customers and the Company has no additional performance
obligations. Initial software fees are recognized when the product has been
delivered, provided that the Company has no additional performance
obligations. Revenue recognition under technology agreements is dependent on
the nature and level of efforts required to deliver and/or support the
technology transfer. Generally, technology revenue is recognized upon the
completion of contract requirements or milestones.
Service revenue results primarily from customer support and maintenance
contracts, and is recognized ratably over the related contractual period.
Deferred revenue includes prepaid royalty payments (which are recognized on a
straight-line basis over the useful life of the technology licensed under the
agreements) and revenue related to future commitments under service contracts.
PRODUCT WARRANTY The Company provides at the time of sale for the estimated
cost to warrant its products against defects in materials and workmanship.
Through fiscal 1994, this was generally for ninety days from the date of
shipment with some international sales having warranties of up to one year.
At the beginning of fiscal 1995, the Company introduced new desktop products
with one year worldwide warranties.
FOREIGN CURRENCY TRANSLATION The Company translates the assets and
liabilities of its foreign subsidiaries to U.S. dollars at the rates of
exchange in effect at the end of the period. Gains and losses from this
translation are credited or charged to the "accumulated translation
adjustment and other" account included in stockholders' equity. The effect of
fluctuating foreign exchange rates on the value of monetary assets and
liabilities that are denominated in currencies other than the relevant
entity's functional currency is recognized in current operations and net of
hedging gains or losses, has not been significant to the Company's operating
results in any period. Revenues and expenses are translated using rates in
effect during the period.
PER SHARE DATA Primary earnings per share are computed using the weighted
average number of shares of common stock and dilutive common share
equivalents outstanding during the period. Dilutive common share equivalents
include stock options or warrants using the treasury stock or modified
treasury stock method (whichever applies) and, if dilutive, convertible
securities on an as-if-converted basis. Dividends associated with convertible
preferred stock
55
<PAGE>
are deducted from net income in calculating earnings per share unless the
preferred stock is treated on an as-if-converted basis. For the purpose of
calculating earnings per share, the Company's convertible preferred stock is
considered to be a common stock equivalent. Fully diluted earnings per share
are substantially the same as reported earnings per share.
RELATED PARTY TRANSACTIONS The Company has from time to time engaged in
significant transactions with related parties in the ordinary course of
business. Related parties are: Tandem Computers, Incorporated (Tandem) as a
representative of Tandem is a member of the Company's board of directors;
Control Data Systems, Inc. (CDSI) due to the Company's investment in common
stock of CDSI through March 31, 1995; and, NKK Corporation of Japan through
its ownership of 100% of Series A Convertible Preferred Stock (See Note 6).
Product and other revenues for the years ended June 30, 1995, 1994, and 1993
included, in aggregate, sales to related parties in the amount of
$119,574,000; $83,094,000; and $56,848,000, respectively. Purchases and
amounts receivable from and amounts payable to such related parties were
immaterial at June 30, 1995, 1994 and 1993.
Note 2. MERGERS WITH ALIAS RESEARCH INC. AND WAVEFRONT TECHNOLOGIES, INC.
On June 15, 1995, the Company merged with Alias and Wavefront. Alias and
Wavefront outstanding common stock was converted to common stock of Silicon
Graphics at rates of .90 and .49, respectively. A total of 14,100,577 shares
of Silicon Graphics' common stock were issued in connection with the mergers.
The mergers were accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements and notes to consolidated
financial statements have been restated to include the results of Alias and
Wavefront for all periods presented. Included in total revenue for fiscal
1995 are revenues from Alias and Wavefront of $89,961,000. Included in net
income for fiscal 1995 and before the effects of the merger related expenses
is income from Alias and Wavefront of $13,827,000. Adjustments to combine
these entities, consisting primarily of intercompany transactions, were not
significant.
The Company incurred costs in connection with the mergers and consolidation
of operations. Included in the accompanying consolidated statement of
operations for the year ended June 30, 1995 are merger-related expenses
totaling $22,000,000, consisting primarily of charges for transaction and
professional fees, personnel severance costs, and elimination of duplicate
facilities. As of June 30, 1995 approximately $13,000,000 remains in accrued
liabilities.
56
<PAGE>
Separate results of operations for the periods prior to the mergers
are as follows (in thousands):
<TABLE>
<CAPTION>
MERGER-
SILICON RELATED
GRAPHICS ALIAS WAVEFRONT EXPENSES ADJUSTMENTS COMBINED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended June 30, 1995
Net revenues $ 2,142,080 $ 64,270 $ 25,691 $ -- $ (3,773) $ 2,228,268
Net income 231,550 13,164 663 (22,000) 1,479 224,856
Year ended June 30, 1994
Net revenues $ 1,481,602 $ 38,306 $ 17,858 $ -- $ -- $ 1,537,766
Net income (loss) 140,674 4,167 (3,027) -- -- 141,814
Year ended June 30, 1993
Net revenues $ 1,091,200 $ 26,932 $ 14,737 $ -- $ -- $ 1,132,869
Net income (loss) 87,691 (15,708) 1,557 -- -- 73,540
</TABLE>
The adjustments for the year ended June 30, 1995 relate to product sales by
Silicon Graphics to Alias and Wavefront during the fourth quarter of fiscal
year 1995. Product sales by Silicon Graphics to Alias and Wavefront in prior
periods were not significant. The net income adjustment amount for June 30,
1995 includes a $1,600,000 benefit for the effect of the $22,000,000 merger
related expenses on the tax provision.
NOTE 3. INCOME TAXES
The components of income from continuing operations before income taxes
consist of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1994 1993
- -------------------------------------------------
<S> <C> <C> <C>
United States $ 201,131 $ 107,401 $ 66,896
International 115,588 91,207 53,595
---------------------------------
$ 316,719 $ 198,608 $ 120,491
=================================
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
FEDERAL STATE FOREIGN TOTAL
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Current $ 44,781 $ 7,761 $ 31,905 $ 84,447
Deferred (733) 4,929 3,220 7,416
--------
$ 91,863
========
1994
Current 31,180 8,148 19,643 58,971
Deferred (9,303) 959 6,567 (1,777)
--------
$ 57,194
========
1993
Current 16,742 3,375 13,724 33,841
Deferred 2,106 1,826 (85) 3,847
--------
$ 37,688
========
</TABLE>
57
<PAGE>
The provision for income taxes reconciles to the amounts computed by applying
the statutory federal rate to earnings before taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $110,852 $ 69,513 $ 40,967
State taxes, net of federal tax benefit 8,249 5,877 3,431
Earnings subject to foreign taxes
at higher (lower) rates (18,751) (11,302) (9,040)
Income of Foreign Sales Corporation
not subject to U.S. tax (9,059) (4,660) (2,310)
Research and experimentation credits (4,625) (944) --
Net operating loss without tax benefit -- (664) 2,293
Nondeductible professional fees 2,789 -- --
Other 2,408 (626) 2,347
------------------------------
Provision for income taxes $ 91,863 $ 57,194 $ 37,688
==============================
</TABLE>
No provision for residual federal taxes has been made on approximately
$128,883,000 of accumulated undistributed earnings of the Company's foreign
subsidiaries since it is the Company's intention to permanently invest such
earnings in foreign operations. The Company has been granted an exemption
from tax on income from certain manufacturing operations located outside the
U.S. for years through 1999. The income tax benefits attributable to the tax
status of this subsidiary are estimated to be $45,000,000 at June 30, 1995.
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,958 $ 19,024 $ 41,690
Foreign taxes on unremitted oreign
earnings net of related U.S. tax
liability 9,418 8,158 4,909
General business credit carryforwards 16,732 25,296 16,093
Foreign tax credit carryforwards 1,537 4,434 6,525
Depreciation 15,793 12,626 10,469
Inventory valuation 21,586 13,948 11,140
Nondeductible vacation pay accrual 9,382 8,409 4,807
Intercompany profit elimination 10,690 10,353 6,629
Merger expenses 5,456 6,022 8,310
Other 2,895 9,084 7,719
-------------------------------
Subtotal 98,447 117,354 118,291
Valuation allowance -- (10,995) (13,709)
-------------------------------
Total $ 98,447 $ 106,359 $ 104,582
===============================
</TABLE>
At June 30, 1995, the Company had a federal net operating loss carryforward
of approximately $3,000,000 for United States federal income tax purposes
which will expire in the year 2006. At June 30, 1995, the Company also had
general business credit carryovers of approximately $16,000,000 for United
States federal tax purposes, expiring in the years 2007 through 2010. The
Company has Canadian investment tax credit carryforwards of approximately
$4,500,000 which expire at various dates through 2004.
58
<PAGE>
NOTE 4. LONG-TERM DEBT AND OTHER
Long-term debt and other consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
- -----------------------------------------------------------------------
<S> <C> <C>
Zero coupon convertible subordinated
debentures, due 2013 $ 214,283 $ 205,660
Senior Notes 6,250 12,500
Loan on Swiss Manufacturing Facility 16,402 14,698
Accrued merger expenses 29,951 19,668
Redeemable preferred stock -- 8,518
Other 70,860 12,514
------------------------
337,746 273,558
Less amounts due within one year (50,479) (20,913)
------------------------
Long-term debt due after one year $ 287,267 $ 252,645
========================
</TABLE>
In November 1993, the Company completed a private placement offering of zero
coupon convertible subordinated debentures (the "Debentures"). The
Debentures, due November 2013, have an ultimate principal amount at maturity
of $455,000,000. The Debentures were issued at a price of $439.77 per $1,000
principal amount at maturity, resulting in gross proceeds of $200,095,000 to
the Company. The yield to maturity is 4.15% per annum, compounded on a
semi-annual basis, and the Debentures have no periodic interest payments. No
sinking fund is provided for the Debentures. Effective November 2, 1998, the
Debentures will be redeemable at any time, at the option of the Company, at
redemption prices equal to the issue price plus accrued original issue
discount to the date of redemption. At the option of the holder, each
Debenture is convertible into 16.269 shares of common stock of the Company at
any time. Also at the option of the holder, the Debentures will be purchased
by the Company on November 2, 1998, November 2, 2003 or November 2, 2008, at
purchase prices equal to the issue price plus accrued original issue discount
to such purchase date. The Company, at its option, may elect to pay any such
purchase price in cash or shares of common stock, or any combination thereof.
At June 30, 1995 and 1994, the fair value of the outstanding Debentures was
$298,025,000 and $199,063,000, respectively, based on quoted market prices.
Related to the Debentures, the Company has entered into an interest rate swap
agreement on a notional amount of $200,095,000 resulting in a variable
interest rate of LIBOR (the London Interbank Offered Rate) less 47 basis
points. Interest related to this swap agreement is recorded as interest
expense. As of June 30, 1995 based on current interest rates, the Company had
an off-balance sheet exposure of $3,745,000 relating to this interest rate
swap agreement.
In February 1991, the Company issued $25,000,000 of 8.98% Senior Notes due
February 1996 (the "Senior Notes") to Prudential Insurance Company of America
and Prudential Property and Casualty Insurance Company. The Senior Notes are
unsecured, pay interest semi-annually and have mandatory annual payments of
$6,250,000 which began February 1, 1993. At June 30, 1995 and 1994, the fair
value of the Senior Notes outstanding was $6,319,000 and $12,668,000,
respectively, based on quoted market prices for similar securities. The
Senior Notes may be prepaid at the option of the Company for 100% of the
principal plus interest accrued thereon and a yield maintenance premium, if
applicable.
The Company has a Swiss Loan for 19,000,000 Swiss Francs, equivalent to
$16,402,000 at June 30, 1995, which funded the construction of a
manufacturing facility in Cortaillod, Switzerland. At June 30, 1995, the fair
value approximated cost since the interest rate resets quarterly. The
effective interest rate at June 30, 1995 was 3.71%. The Swiss Loan is secured
by land and real property.
Other items include future payments associated with the acquisition of
intellectual property rights, capitalized leases, local currency loans, loans
secured by equipment payable in monthly installments, and notes payable.
Principal maturities of long-term debt, excluding Debentures and future
payments associated with the acquisition of intellectual property rights, and
accrued merger expenses, at June 30, 1995, are as follows (in thousands):
1996 -$12,670; 1997 - $3,892; 1998 - $2,692; 1999 - $2,088; 2000 - $1,532;
and $8,848 thereafter.
The Company also has an unsecured line of credit totaling $20,000,000. No
cash borrowings were made on the line during fiscal 1995 or fiscal 1994.
Interest on any borrowings would be based upon either a prime, Eurodollar, or
the certificate of deposit rate, at the Company's option.
Covenants governing the Senior Notes and the unsecured line of credit require
the maintenance of certain financial ratios and restrict the payment of
dividends except for dividends on currently outstanding preferred stock. At
June 30, 1995, the Company was in compliance with these covenants.
59
<PAGE>
NOTE 5. COMMITMENTS
The Company leases its facilities and some of its equipment under
non-cancelable operating lease arrangements.
Future minimum annual lease payments under operating leases, net of subleases
and rental income, at June 30, 1995, were as follows (in thousands):
1996-$61,535; 1997-$59,336; 1998-$54,504; 1999-$42,138; 2000-$34,763; and
$79,240, thereafter.
Aggregate operating lease rent expense was (in thousands) $49,558, $44,732,
and $37,317, in 1995, 1994 and 1993, respectively.
Under one of its lease agreements, the Company is contingently liable for the
residual value of five buildings at the end of their lease terms. The lease
for one of the buildings expires in 2000. The lease for an additional four
buildings expires in 2002, however, the Company has the option to extend
these leases for an additional 35 years after expiration. If at the end of
the final lease renewal, or upon the Company's option to terminate the lease
at any time, the Company does not purchase the property or arrange a
third-party purchase, then the Company would be obligated to the lessor for a
guaranteed payment equal to a specified percentage of the lessor's purchase
price for the properties. The Company would also be obligated to the lessor
for all or some portion of this amount if the price paid by a third party for
the property is below a specified percentage of the lessor's purchase price.
The total amount related to the five properties, for which the Company would
be contingently liable, is approximately $13,050,000 and $85,678,000 at the
end of the respective lease terms in fiscal years 2000 and 2002, respectively.
NOTE 6. STOCKHOLDERS' EQUITY
PREFERRED STOCK TRANSACTIONS In April 1990, the Company sold 35,000 shares
of Series A Convertible Preferred Stock to a wholly-owned U.S. subsidiary of
NKK Corporation (NKK) of Japan for $35,000,000. The Series A Preferred
stockholders receive a 3% cumulative annual dividend have preference upon
liquidation in the amount of the purchase price and have aggregate voting
rights equivalent to 1,400,000 shares of common stock. The preferred stock is
convertible into the common stock of the Company at certain times at the
then-current price of the common stock. The preferred is perpetual, but is
subject to redemption at the option of the Company at certain times if the
market price of the common stock is below $8.75 per share. In addition, NKK
entered into a distribution agreement with the Company's Japanese subsidiary
under which NKK became a distributor and value-added reseller of the
Company's products in Japan.
In June 1995, NKK converted 17,500 shares of the stock into 463,576 shares of
Common Stock. As of June 30, 1995, the remaining 17,500 shares of Series A
Convertible Preferred Stock remained outstanding.
The total amount of dividends paid on the Series A Preferred Stock during
fiscal 1995 was $1,050,000.
STOCK OPTION PLANS The Company has various stock option plans which provide
for the grant of incentive and nonstatutory stock options to employees.
Incentive stock options are generally granted at not less than the fair
market value on the date of grant; the prices of nonstatutory stock option
grants are determined by the Board of Directors. Under the Plans, options
generally vest over a fifty month period from the date of grant. At June 30,
1995, an aggregate of 2,249,036 shares were available for future option
grants under the Plans.
Under one of the plans, the number of shares available for grant will be
automatically increased each July 1, through 1997 by a number of shares equal
to 3.5% of the total common shares issued and outstanding on the preceding
June 30.
In addition, the Company has a Directors' Stock Option Plan which allows for
the grant of nonstatutory stock options to nonemployee directors at not less
than the fair market value at the date of grant. Eligible directors are
granted an option to purchase 30,000 shares of Common Stock on the date of
their initial election as a director. On November 1 of each year, each
eligible director is granted an option to purchase an additional 10,000
shares of Common Stock. These options generally vest in installments over a
four year period. At June 30, 1995, 243,100 shares were available for future
option grants under the Directors' Stock Option Plan.
In the event the employee or director is no longer employed by the Company,
the Company has the right to cancel any unexercised options. Canceled options
are returned to the option plans and are available for future grants.
In connection with the mergers (see Note 2), all outstanding stock options of
Alias and Wavefront converted to stock options for Silicon
60
<PAGE>
Graphics Common Stock at ratios of .90 and .49, respectively. As a result,
outstanding options to purchase 2,190,153 shares were assumed. Also, under
the terms of the Alias option plans, all unvested outstanding options granted
prior to March 1995 automatically became fully vested at the closing of the
mergers.
As of June 30, 1995, outstanding options to purchase 20,025,442 shares were
exercisable, at an average exercise price of $9.65 per share.
Activity under all of the plans was as follows:
<TABLE>
<CAPTION>
SHARES SHARES UNDER
AVAILABLE OUTSTANDING OPTIONS
FOR GRANT SHARES PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1992 2,341,741 33,181,457 $ 0.18 - $ 25.83
Additional shares authorized for issuance 5,450,000 -- --
Options granted (5,922,695) 5,922,695 $ 4.08 - $ 17.25
Options exercised -- (6,123,917) $ 0.18 - $ 14.32
Options cancelled 2,163,219 (2,163,219) $ 0.84 - $ 24.17
Plan shares expired (25,447) -- --
- ---------------------------------------------------------------------------------------
Balance at June 30, 1993 4,006,818 30,817,016 $ 0.18 - $ 25.83
Additional shares authorized for issuance 5,063,622 -- --
Options granted (6,664,519) 6,664,519 $ 4.08 - $ 25.63
Options exercised -- (5,205,003) $ 0.25 - $ 22.88
Options cancelled 979,079 (979,079) $ 0.96 - $ 25.63
Plan shares expired (946) -- --
- ---------------------------------------------------------------------------------------
Balance at June 30, 1994 3,384,054 31,297,453 $ 0.18 - $ 25.83
Additional shares authorized for issuance 5,902,569 -- --
Options granted (6,536,125) 6,536,125 $24.00 - $ 37.13
Options exercised -- (5,712,687) $ 0.18 - $ 31.38
Options cancelled 928,870 (928,870) $ 2.78 - $ 37.13
Plan shares expired (1,848)
Net transactions of Alias and Wavefront
during eliminated periods from February
1, 1994 to July 31, 1994 and January 1,
1994 to June 30, 1994, respectively (1,185,384) 787,656 $ 1.88 - $ 25.83
- ---------------------------------------------------------------------------------------
Balance at June 30, 1995 2,492,136 31,979,677 $ 0.18 - $ 37.13
</TABLE>
STOCK PURCHASE PLAN The Company has an employee stock purchase plan under
which eligible employees may purchase stock at 85% of the lower of the
closing prices for the stock at the beginning of a twenty four-month offering
period or the end of each six-month purchase period. The six-month periods
begin in May and November. Purchases are limited to 10% of each employee's
compensation. As of June 30, 1995, 10,414,555 shares had been issued under
the plan and 2,545,445 shares were reserved for future issuance.
STOCKHOLDER RIGHTS PLAN The Company has a stockholder rights plan (the
"Rights Plan") which provides existing stockholders with the right to
purchase one one-thousandth (0.001) preferred share for each share of common
stock held in the event of certain changes in the Company's ownership. The
Rights Plan may serve as a deterrent to certain abusive takeover tactics
which are not in the best interests of stockholders.
61
<PAGE>
401K RETIREMENT SAVINGS PLAN In January 1987 the Company implemented a 401K
investment plan covering substantially all of it's U.S. employees. Under the
plan, participating employees may defer up to 15 percent of their pre-tax
earnings, subject to the Internal Revenue Service annual contribution limit
($9,240 for calendar year 1994). The plan provides for a 25 percent match of
an employees contribution up to a maximum of 25 percent of the employee's
earnings, but allows for a larger matching with the same maximum constraints.
The Company's matching contributions to the investment plan became effective
October 1, 1994 and for fiscal 1995 the Company contributed $13,722,000.
NOTE 7. EXPORT SALES AND DOMESTIC AND FOREIGN OPERATIONS
The Company's export sales (i.e. sales to unaffiliated customers outside of
the U.S. operation) were approximately $155,969,000, $117,762,000, and
$79,941,000 for the years ended June 30, 1995, 1994 and 1993, respectively.
Transfers between geographic areas are accounted for by using the transfer
prices in effect for the respective subsidiaries. For the purposes of this
Note, "Europe" includes Europe and the Middle East, and "Pacific/Americas"
includes: Asia, Australia, Latin America, South America, South Africa and
Canada.
Information regarding operations in different geographic areas for the year
ended June 30, 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
PACIFIC/
1995 UNITED STATES EUROPE AMERICAS ELIMINATIONS TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 1,250,181 $ 607,444 $ 370,643 $ -- $ 2,228,268
Intercompany transfers 485,303 -- -- (485,303) --
- ----------------------------------------------------------------------------------------------------
Net sales 1,735,484 607,444 370,643 (485,303) 2,228,268
Operating income 190,725 114,837 20,877 (19,167) 307,272
Income before income taxes 206,623 106,957 22,306 (19,167) 316,719
Identifiable assets 1,471,848 910,776 230,802 (406,807) 2,206,619
<S> <C> <C> <C> <C> <C>
PACIFIC/
1994 UNITED STATES EUROPE AMERICAS ELIMINATIONS TOTAL
- ----------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 904,339 $ 384,908 $ 248,519 $ -- $ 1,537,766
Intercompany transfers 289,776 -- -- (289,776) --
- ----------------------------------------------------------------------------------------------------
Net sales 1,194,115 384,908 248,519 (289,776) 1,537,766
Operating income 88,556 74,075 34,992 (3,794) 193,829
Income before income taxes 112,451 55,758 34,193 (3,794) 198,608
Identifiable assets 1,191,801 406,424 173,191 (204,364) 1,567,052
<S> <C> <C> <C> <C> <C>
PACIFIC/
1993 UNITED STATES EUROPE AMERICAS ELIMINATIONS TOTAL
- ----------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 634,359 $ 303,702 $ 194,808 $ -- $ 1,132,869
Intercompany transfers 202,294 -- -- (202,294) --
- ----------------------------------------------------------------------------------------------------
Net sales 836,653 303,702 194,808 (202,294) 1,132,869
Operating income 39,943 61,213 15,729 3,086 119,971
Income before income taxes 61,986 40,276 15,143 3,086 120,491
Identifiable assets 869,393 267,243 108,650 (196,992) 1,048,294
</TABLE>
62
<PAGE>
NOTE 8. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 4,633 $ 3,213 $ 2,954
Income taxes, net of refunds 42,217 22,043 4,327
Supplemental schedule of noncash investing and financing activities (in
thousands):
Tax benefit from stock options $ 31,504 $ 26,850 $ 12,080
Property and equipment purchased
under construction financing -- -- 4,736
Equipment purchased under capital
leases 4,254 6,008 866
Conversion of preferred stock 20,798 -- --
</TABLE>
NOTE 9. CONTINGENCIES
The Company is defending securities class action lawsuits involving MIPS
Computer Systems, Inc., which the Company acquired in June 1992, and Alias
Research Inc., which the Company acquired in June 1995. The Company believes
that it has good defenses to the claims in both the MIPS and Alias suits, and
it is defending both suits vigorously.
The MIPS case, which was filed in the U.S. District Court for the Northern
District of California in 1992, alleges that MIPS and certain of its officers
and directors made material misrepresentations and omissions during the
period from January to October of 1991. In June 1994 summary judgment was
granted in the defendants' favor on all counts. Plaintiffs have given notice
of an appeal to the U.S. Court of Appeals for the Ninth Circuit.
The Alias case, which was filed in the U.S. District Court for the District
of Connecticut in 1991, alleges that Alias and certain of its officers and
directors made material misrepresentations and omissions during the period
from May 1991 to April 1992. Alias' motion to dismiss the amended complaint
is pending.
The Company routinely receives communications from third parties asserting
patent or other rights covering the Company's products and technologies.
Based upon the Company's evaluation, it may take no action or it may seek to
obtain a license. There can be no assurance in any given case that a license
will be available on terms the Company considers reasonable, or that
litigation will not ensue.
Management is not aware of any pending disputes that would be likely to have
a material adverse effect on the Company's financial condition, results of
operations or liquidity.
63
<PAGE>
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol of SGI. The following table sets forth, for the periods indicated, the
high, low, and close prices for the Common Stock as reported on the NYSE,
giving effect to a two-for-one stock split effective December 15, 1993.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
LOW HIGH CLOSE LOW HIGH CLOSE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 21.25 $ 26.88 $ 25.75 $ 16.06 $ 22.50 $ 21.50
Second Quarter 24.13 33.13 31.00 19.81 24.75 24.75
Third Quarter 29.13 38.00 35.50 21.50 26.88 23.88
Fourth Quarter 33.75 42.00 39.88 18.75 25.88 22.13
</TABLE>
The Company had 5,452 stockholders of record as of June 30, 1995. The Company
has not paid any dividends on its common stock. Covenants governing the
Senior Notes and lines of credit restrict the payment of dividends, except
for dividends on currently outstanding preferred stock. The Company currently
intends to retain earnings for use in its business and does not anticipate
paying cash dividends to common stockholders.
Silicon Graphics, Inc. Common Stock Prices --
High, Low and Close by Fiscal Year
- -----------------------------------------------------------------------
$50,000
- -----------------------------------------------------------------------
$40,000
- -----------------------------------------------------------------------
$30,000
- -----------------------------------------------------------------------
$20,000
- -----------------------------------------------------------------------
$10,000
- -----------------------------------------------------------------------
$0 1987 1988 1989 1990 1991 1992 1993 1994 1995
Reflects a two-for-one split effective February 21, 1992 and a two-for-one
split effective December 15, 1993.
64
<PAGE>
REPORT OF MANAGEMENT [LOGO]
To Our Stockholders:
The Company's management is responsible for the preparation and integrity of
the financial information presented in this Annual Report. The financial
statements were prepared in conformity with generally accepted accounting
principles and reflect management's estimates and judgments as required.
The Company's consolidated financial statements have been audited by Ernst &
Young LLP, a firm of independent auditors, whose appointment was approved by
the Company's stockholders. Their accompanying report is based on procedures
performed in accordance with generally accepted auditing standards, including
tests of the accounting records and other auditing procedures as they
considered necessary.
The Company's management maintains a system of internal control and related
policies and procedures designed to provide reasonable assurance that assets
are safeguarded, transactions are properly executed in accordance with
management's authorization, and accounting records may be relied upon for the
preparation of financial statements and other financial information.
Limitations exist in any system of internal control based upon the
recognition that the cost of the systems should not exceed the benefits
derived. The system is continuously monitored by direct management review and
by internal auditors who conduct a program of audits throughout the Company.
Ernst & Young LLP, as part of the audit of the Company's consolidated
financial statements, considers that internal control structure to determine
the nature, timing, and extent of its audit tests. Management believes that
the Company's system of internal control is adequate to accomplish the
objectives discussed herein.
The Audit Committee of the Board of Directors, composed solely of directors
who are not officers of the Company, is responsible for monitoring and
overseeing the quality of the Company's accounting and reporting policies,
internal controls and other matters deemed appropriate. Based on the nature
of the matters under review, the independent and internal auditors, as well
as certain officers and employees, attend all or part of the Audit Committee
meetings. The Audit Committee has direct and private access to both internal
and external auditors and reviews the performance of Ernst & Young LLP in
their audit of the Company's financial statements and evaluates their
independence and professional competence.
[SIGCUT] [SIGCUT]
Edward R. McCracken Thomas A. Jermoluk
CHAIRMAN AND PRESIDENT AND
CHIEF EXECUTIVE OFFICER CHIEF OPERATING OFFICER
[SIGCUT] [SIGCUT]
Stanley J. Meresman Dennis P. McBride
SENIOR VICE PRESIDENT, FINANCE VICE PRESIDENT, CONTROLLER
AND CHIEF FINANCIAL OFFICER
65
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Silicon Graphics, Inc.
We have audited the accompanying consolidated balance sheets of Silicon
Graphics, Inc. as of June 30, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Silicon Graphics,
Inc. at June 30, 1995 and 1994, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
1995, in conformity with generally accepted accounting principles.
[SIGCUT OF ERNST & YOUNG]
Palo Alto, California
July 19, 1995
66
<PAGE>
EXHIBIT 21.1
SILICON GRAPHICS, INC. SUBSIDIARIES
Name Jurisdiction of
---- Incorporation
-------------
MIPS Technologies, Inc. Delaware
Silicon Graphics Real Estate, Inc. Delaware
Silicon Graphics World Trade Corporation Delaware
Silicon Studio, Inc. Delaware
Alias/Wavefront, Inc. California
Silicon Graphics S.A. Argentina
Silicon Graphics Pty Limited Australia
Silicon Graphics Computer Systems Ges.m.b.H. Austria
Silicon Graphics International Inc. Barbados
Silicon Graphics S.A./N.V. Belgium
Wavefront Technologies N.V. Belgium
Silicon Graphics Comercio e Servi os Limitada Brazil
831495 Ontario Ltd. Canada
Silicon Graphics Canada Limited Canada
Wavefront Canada Limited Canada
Silicon Graphics s.r.o. Czech Republic
Silicon Graphics A/S Denmark
Silicon Graphics OY Finland
Alias Sarl France
Silicon Graphics France
Wavefront Technologies S.A. France
Alias Research GmbH Germany
Silicon Graphics GmbH Germany
Wavefront Technologies GmbH Germany
Silicon Graphics Limited Hong Kong
Silicon Graphics Kft. Hungary
Silicon Graphics Systems (India) Private Ltd India
Silicon Graphics Biomedical 1995 Ltd Israel
Silicon Graphics Computer Systems Limited Israel
Alias Srl Italy
Silicon Graphics S.p.A. Italy
Wavefront Technologies Srl Italy
Alias Research K.K. Japan
Nihon Silicon Graphics K.K. Japan
Wavefront Japan, Ltd. Japan
Korea Silicon Graphics Ltd. South Korea
Silicon Graphics S.A. de C.V. Mexico
Silicon Graphics B.V. Netherlands
Silicon Graphics World Trade B.V. Netherlands
Silicon Graphics Limited New Zealand
Silicon Graphics A/S Norway
Silicon Graphics Pte. Limited Singapore
Silicon Graphics (Pty) Limited South Africa
Silicon Graphics, S.A. Spain
Silicon Graphics AB Sweden
Silicon Graphics S.A. Switzerland
Silicon Graphics Manufacturing S.A. Switzerland
Silicon Graphics Limited Taiwan
Alias Research Limited United Kingdom
Alias Sonata Limited United Kingdom
Silicon Graphics Application Systems Limited United Kingdom
Silicon Graphics Limited United Kingdom
Wavefront Technologies Ltd United Kingdom
Silicon Graphics Manufacturing Finance Limited Jersey Channel Islands
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements incorporated in the Company's 1995 Annual
Report to Stockholders filed as Exhibit 13.1 to this Form 10-K and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 307,875
<SECURITIES> 208,094
<RECEIVABLES> 641,203
<ALLOWANCES> 13,465
<INVENTORY> 291,587
<CURRENT-ASSETS> 1,508,873
<PP&E> 515,470
<DEPRECIATION> 261,024
<TOTAL-ASSETS> 2,206,619
<CURRENT-LIABILITIES> 573,182
<BONDS> 233,335
<COMMON> 161
0
16,998
<OTHER-SE> 1,329,011
<TOTAL-LIABILITY-AND-EQUITY> 2,206,619
<SALES> 1,989,969
<TOTAL-REVENUES> 2,228,268
<CGS> 908,516
<TOTAL-COSTS> 1,032,059
<OTHER-EXPENSES> 888,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,188
<INCOME-PRETAX> 316,719
<INCOME-TAX> 91,863
<INCOME-CONTINUING> 224,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224,802
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
